The ABCs of ERP : An Executive Primer

What Is ERP Today?

What exactly is ERP?  When “ERP” (enterprise resource planning) is discussed today, it is rarely in the context of planning how resources are to be expended. Rather, it refers to an enterprise view of the business — in other words, a view of a company and all its parts as a connected whole, rather than small silos of activity.

ERP relates to the software infrastructure that holds the entire company together internally, on the one hand, and supports the external business processes the company engages in, on the other.
And there are some key traits in ERP solutions:
• ERP applications address a business process.
• ERP applications are modular.
• ERP applications are integrated.
• ERP applications include a company’s reach beyond its walls — to its sup-pliers, customers, and partners.
• The entire ERP suite will address all areas (or the great majority) of a company’s business functions.

Some common questions about ERP include the following:

1. Is a “business process” a department or a particular function?
A business process crosses multiple functions in an enterprise. For example, you may have a department called “accounting,” or you may have a function called “payroll.” Although each function involves business processes, these functions themselves are not process based.
A business process is broader — for example, “order to cash” means everything in the path from the customer order until you have the money in the bank. It is a more efficient way to think about linkages and how they work in your organization.

2. Is a modular ERP application any different than my current stand-alone applications today?

The beauty of an ERP application is that it is a suite that all works together — without this capability, you can’t have seamless business processes.

Modularity comes to play mainly in how you purchase and implement your ERP system. You may not need all applications at once, or you may want to deploy one application at a time. They are different from separate applications in that when more than one is implemented, they fit together like Legos and work automatically.

3. Why do I care if my applications are integrated?
Stand-alone applications — sometimes referred to as “silos” — can’t easily talk to one another. A series of silos does not make a barn.

Aberdeen research shows that small and middle-market companies spend a great deal of time doing the same task over and over — entering the same data in different programs. There are some identifiable problems with this:

• It is a waste of time to reenter data over again.
• It is very likely to be entered incorrectly.
• It may look different in different programs (Why do I have two companies in my vendor list — one is Inter-national Business Machines and one is IBM? Why do I have two versions of the same customer — Robert Smith and Bob Smith — with the same address?)
• Data that results from very different disconnected applications is inconsistent, so attempts to analyze it yields the proverbial “apples and oranges” — a decision support fruit salad.

With an integrated ERP suite, there is a “single version of the truth” that only needs to be entered once to be propagated to all parts of the business that need it. All business processes, all employees who touch the application, and all the executives who make decisions for the company see the same version of reality, in real time, all the time.

4. Why should my ERP application suite reach beyond my internal operations?

Your business is more than internal operations: to be successful, you need to efficiently manage your own purchases of goods, services, and raw materials; foster and control your relationships with your suppliers and your business partners; and create, manage, and retain your customer base. All these relationships are more efficiently and economically managed with businesswide applications. Look at that “order-to-cash” example; there are many steps that involve the customer, external delivery services, and the bank — all external to your organization.

5. Is there an advantage in having one ERP suite that addresses all areas of my business?

In addition to the issues of disparate, unintegrated solutions (the third point cited above), there are some clear benefits to the “suite” approach to business management:

• Scalability — ERP solutions are designed to grow with your company. Unlike some stand-alone applications, they do not “top out” without transition paths to other solutions, leaving you to start over from scratch with a new and different application.
• Vendor management — Face it, managing a plethora of vendors with multiple 800 numbers for customer service is not easy. An integrated suite gives you one solution supplier to work with.
• Functionality — Access to the functionality required to run the business over time — at an affordable price point. It may not be the cheapest choice at first — but it will usually be the most economical in the long run as your business needs grow and change.
• Reliable service and support — The ability to access affordable service and support is critical. It is easier to support an integrated ERP environment than a hodgepodge of different applications.