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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.

Integration and testing — Testing the links between ERP packages and other corporate software that have to be built on a case-by-case basis is another often-underestimated cost. A typical manufacturing company may have add-on applications from the major (think e-commerce and supply chain) to the minor (such as sales tax computation and bar coding). All require integration links to the ERP system. If you can buy add-ons from the ERP vendor that are pre-integrated, you’re better off. If you need to build the links yourself, expect things to get ugly.

As with training, testing ERP integration has to be done from a process-oriented perspective. Veterans recommend that instead of plugging in dummy data and moving it from one application to the next, run a real purchase order through the system, from order entry through shipping and receipt of payment — the whole order-to-cash banana — preferably with the participation of the employees who will eventually do those jobs.

Customization — Add-ons are only the beginning of the integration costs of ERP. Much more costly, and something to be avoided if at all possible, is actual customization of the core ERP software itself. This happens when the ERP software can’t handle one of your business processes and you decide to mess with the software to make it do what you want. You’re playing with fire. The customizations can affect every module of the ERP system because they are all so tightly linked together. Upgrading the ERP package — no walk in the park under the best of circumstances — becomes a nightmare because you’ll have to do the customization all over again when you go to upgrade to a new version. Maybe it will work; maybe it won’t. In either case, the vendor will not be there to support you. You will have to hire extra staffers to do the customization work, and keep them on for good to maintain it.

Data conversion — It costs money to move corporate information, such as customer and supplier records, product design data and the like, from old systems to the new ERP system. Although few CIOs will admit it, most data in most legacy systems is of little use. Companies often deny their data is dirty until they actually have to move it to the new client/server setups that popular ERP packages require. Consequently, those companies are more likely to underestimate the cost of the move. But even clean data may demand some overhaul to match process modifications necessitated — or inspired — by the ERP implementation.

Data analysis — Often, the data from the ERP system must be combined with data from external systems for analysis purposes. Users with heavy analysis needs should include the cost of a data warehouse in the ERP budget — and they should expect to do quite a bit of work to make it run smoothly. Users are in a pickle here: Refreshing all the ERP data every day in a big corporate data warehouse is difficult, and ERP systems do a poor job of indicating which information has changed from day to day, making selective warehouse updates tough. One expensive solution is custom programming. The upshot is that the wise will check all their data analysis needs before signing off on the budget.

 

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