19-04-2014, 02:18 PM
ERP Overview
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INTRODUCTION
Information in large organizations is often spread across numerous homegrown computer
systems, housed in different functions or organizational units. While each of these
“information islands” can ably support a specific business activity, enterprise-wide
performance is hampered by the lack of integrated information. Further, the maintenance
of these systems can result in substantial costs. For example, many of the older programs
cannot properly handle dates beyond the year 2000, and they must be fixed at a steep
costor replaced. 2
While the Y2K bug has been fixed over time (at an estimated cost of $600 billion
worldwide), the lack of integration is a pervasive problem. Consider, for example,
Boeing, which relies on hundreds of internal and external suppliers for the millions of
components needed to build an airplane. The goal of putting the right parts in the right
airplane in the right sequence at the right time was managed at Boeing by four hundred
systems that were designed in the sixties and were all but integrated.
Information
inconsistencies were prevalent and the systems were not synchronized. As a result, parts
often arrived late, idling partially-built airplanes on Boeing’s assembly lines. In 1997, as
Boeing faced unprecedented demand for its aircraft, these problems became unbearable,
and the company’s manufacturing ground to a halt. Boeing was forced to shut down two
of its major assembly lines and take a $1.6 billion charge against earnings. Boeing has
since replaced these systems by an integrated Enterprise Resource Planning (ERP) system
based on commercial, off-the-shelf software.
What is ERP?
ERP is a software architecture that facilitates the flow of information among the different
functions within an enterprise. Similarly, ERP facilitates information sharing across
organizational units and geographical locations.3 It enables decision-makers to have an
enterprise-wide view of the information they need in a timely, reliable and consistent
fashion.
ERP provides the backbone for an enterprise-wide information system. At the
core of this enterprise software is a central4 database which draws data from and feeds
data into modular applications that operate on a common computing platform.
Growth of the Enterprise Software Industry
A number of trends drove the growth of the enterprise software market.
First, as
discussed above, an integrated information architecture improves business performance.
Once a major company in an industry adopts enterprise software, competitors may be
compelled to follow suit to stay competitive. Second, there has been a major shift
towards the use of packaged applications. This is partly related to the “Y2K bug” and the
European Union’s conversion to a single currency, which induced companies to replace
their legacy systems with packaged softwareeffectively “outsourcing” the solution to
the ERP vendor. Third, many companies were abandoning legacy software due to the
demands of electronic commerce and front office applications on the front end and
linking to suppliers and business partners at the back end. Similarly, the emergence of
ERP-based “vertical applications” that address the enterprise software needs of a specific
industry have caused many companies to purchase ERP packages.
Finally, rapid
advances in computer and software technologies combined with the explosive growth of
the Internet have led many companies to rethink their business practices.
The Leading ERP Package: SAP R/3
SAP R/3 is a general-purpose platform with options that enable it to be configured for the
specific needs of each customer without changing the R/3 code. This does not mean that
SAP R/3 is a plug-and-play solution. In order to implement SAP R/3, the system must be
configured to specifically meet the organization’s process requirements.
This is a
complex and lengthy process, which can take years to implement. The organization, the
business process and all transaction details must be explicitly modeled and entered as
settings in about 8,000 configuration tables.14
The user defines precisely her
organizational units, processes, transactions, the different SAP R/3 screens, reports etc.
SAP R/3 consists of modules (discussed in detail below) that may be used
separately or bundled together. This enterprise system has an open architecture that
allows third-party solutions providing other functionality’s to be “bolted on” to the SAP
backbone. All the modules work in an integrated fashion, so different parts of the
enterprise use the same data at the same time. The software can also link business
processes between companies worldwide, for example between a supplier and a customer
in different countries.