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MB0047 : Explain ERP in detail.

Posted on: September 30, 2011

MB0047 : Explain ERP in detail.
Answer: – Enterprise Resource Planning

Manufacturing management systems have evolved in stages over the few decades from a simple means of calculating materials requirements to the automation of an entire enterprise. Around 1980, over-frequent changes in sales forecasts, entailing continual readjustments in production, as well as the unsuitability of the parameters fixed by the system, led MRP (Material Requirement Planning) to evolve into a new concept : Manufacturing Resource Planning (or MRP2) and finally the generic concept Enterprise Resource Planning (ERP)

The initials ERP originated as an extension of MRP (material requirements planning then manufacturing resource planning). ERP systems now attempt to cover all basic functions of an enterprise, regardless of the organization’s business or charter. Non-manufacturing businesses, non-profit organizations and governments now all utilize ERP systems.

To be considered an ERP system, a software package must provide the function of at least two systems. For example, a software package that provides both payroll and accounting functions could technically be considered an ERP software package.

Examples of modules in an ERP which formerly would have been stand-alone applications include: Manufacturing, Supply Chain, Financials, Customer Relationship Management (CRM), Human Resources, Warehouse Management and Decision Support System.

ERP Advantages and Disadvantages

Advantages – In the absence of an ERP system, a large manufacturer may find itself with many software applications that do not talk to each other and do not effectively interface. Tasks that need to interface with one another may involve:

  1. A totally integrated system
  2. The ability to streamline different processes and workflows
  3. The ability to easily share data across various departments in an organization
  4. Improved efficiency and productivity levels
  5. Better tracking and forecasting
  6. Lower costs
  7. Improved customer service

Change how a product is made, in the engineering details, and that is how it will now be made. Effective dates can be used to control when the switch over will occur from an old version to the next one, both the date that some ingredients go into effect, and date that some are discontinued. Part of the change can include labeling to identify version numbers.

Some security features are included within an ERP system to protect against both outsider crime, such as industrial espionage, and insider crime, such as embezzlement. A data tampering scenario might involve a disgruntled employee intentionally modifying prices to below the breakeven point in order to attempt to take down the company, or other sabotage

Disadvantages – Many problems organizations have with ERP systems are due to inadequate investment in ongoing training for involved personnel, including those implementing and testing changes, as well as a lack of corporate policy protecting the integrity of the data in the ERP systems and how it is used.

While advantages usually outweigh disadvantages for most organizations implementing an ERP system, here are some of the most common obstacles experienced:

Usually many obstacles can be prevented if adequate investment is made and adequate training is involved, however, success does depend on skills and the experience of the workforce to quickly adapt to the new system.

  1. Customization in many situations is limited
  2. The need to reengineer business processes
  3. ERP systems can be cost prohibitive to install and run
  4. Technical support can be shoddy
  5. ERP’s may be too rigid for specific organizations that are either new or want to move in a new direction in the near future.

The Ideal ERP System

An ideal ERP system is when a single database is utilized and contains all data for various software modules. These software modules can include:

a. Manufacturing: Some of the functions include; engineering, capacity, workflow management, quality control, bills of material, manufacturing process, etc.

b. Financials: Accounts payable, accounts receivable, fixed assets, general ledger and cash management, etc.

c. Human Resources: Benefits, training, payroll, time and attendance, etc

d. Supply Chain Management: Inventory, supply chain planning, supplier scheduling, claim processing, order entry, purchasing, etc.

e. Projects: Costing, billing, activity management, time and expense, etc.

f. Customer Relationship Management: sales and marketing, service, commissions, customer contact, calls center support, etc.

g. Data Warehouse: Usually this is a module that can be accessed by an organizations customers, suppliers and employees.

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