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What is ERP? A guide to enterprise resource planning systems

Thomas Wailgum | July 28, 2017
Enterprise resource planning (ERP) software doesn’t live up to its acronym. Forget about planning — it doesn’t do much of that — and forget about resource, a throwaway term. But remember the enterprise part. This is ERP’s true ambition. It attempts to integrate all departments and functions across a company onto a single system that can serve all those different departments’ particular needs.

Let’s go back to those paper-filled inboxes for a minute. That process may not have been efficient, but it was simple. Finance did its job, the warehouse did its job, and if anything went wrong outside of each department’s walls, it was somebody else’s problem. Not anymore. With ERP, the customer service representatives are no longer just typists entering someone’s name into a computer and hitting the return key. The ERP screen makes them businesspeople. It flickers with the customer’s credit rating from the finance department and the product inventory levels from the warehouse. Will the customer pay on time? Will we be able to ship the order on time? These are decisions that customer service representatives have never had to make before, and the answers affect the customer and every other department in the company.

It’s not just the customer service representatives whose jobs change with the introduction of an ERP system. Warehouse workers who used to keep inventory in their heads or on scraps of paper now need to put that information online. If they don’t, customer service reps will see low inventory levels on their screens and tell customers that a requested item is not in stock.

Accountability, responsibility and communication have never been tested like this before.

People don’t like to change, and ERP asks a company's employees across several departments to change how they do their jobs. That is why the value of ERP is so hard to measure. The ERP software is less important than the changes companies must make in the ways they do business.

If you use ERP to improve how orders are taken and how goods are manufactured, shipped and billed for, you will see value from the software. If you simply install the software without changing how departments operate, you may not see any value at all — indeed, the new software could slow you down by simply replacing the old software that everyone knew with new software that no one knows.

 

How long will an ERP project take?

 

Companies that install ERP systems do not have an easy time of it. Don’t be fooled when ERP vendors tell you about a three or six month average implementation time. Those short (that’s right, six months is short) implementations all have a catch of one kind or another: The company was small, or the implementation was limited to a small area of the company, or the company used only the financial pieces of the ERP system (in which case the ERP system is nothing more than a very expensive accounting system). To do ERP right, the ways you do business will need to change and the ways people do their jobs will need to change too. And that kind of change doesn’t come quickly.

 

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