Enterprise Resource Planning, or ERP, is the name given to a type of computer application now prevalent in many different organisations across the world. ERP systems primarily support business operations – those activities in an organisation that support the selling process, including order processing, manufacturing, distribution, planning, customer service, human resources, finance and purchasing. ERP systems are function-rich, and typically cover all of these activities - the principal benefit being that the same data can easily be shared between different departments. ERP systems are used in many industries, ranging from healthcare, to manufacturing, and government.

A Brief History

In the 1980s the use of computers in business generally fell into two very different, and often co-existing camps. On one hand were the big mainframe monoliths – large powerful computers that performed calculations such as MRP¹ and managed the financial records. This software was generally home-built, run by specialists with a lot of technical knowledge, and difficult to change. On the other hand were the PCs - computers so small and powerful that they could fit comfortably on desktops. This level of computing was more democratic - every manager in every department could write up or buy applications that would help them manage their piece of the business. Mainframes were not good at providing relevant, timely information in an easy-to-use format. PCs could not store huge databases of corporate information or simultaneously serve multiple users. And because there was no easy way to connect the two on a timely basis, it lead to a massive information management problem - how to co-ordinate all the data in all the databases around a company.

What were needed were systems that could tie together all the information stores in a company, while making the best use of desktop technology.

Enter ERP

The result was ERP - a marriage of MRP II (Manufacturing Resource Planning) systems and client/server technologies. MRP II was a model for bringing together all the major processes of a business under a standard computerised planning system². Client/server refers to the technical means by which a small, user-friendly computer (the client) could communicate with, and extract information from, a large data-processing system (the server).

A number of software companies, such as SAP, Baan, and JD Edwards, were in the right place at the right time. By repackaging their business software as ERP, they were able to capitalise on a business world that was hungry for new IT-driven solutions. ERP became a huge money-spinner almost overnight, spurred on by legions of IT consultants who marketed it as the perfect solution for every company's woes. The feverish demand to adopt ERP was exacerbated by the latest management fad - Business Process Re-engineering, and also the prospect of major problems with existing systems during the change-over from the year 1999 to 2000 - the so-called Y2K bug. Today the total ERP business is measured in tens of billions of dollars annually, and the principal ERP vendors, such as SAP and Oracle, earn revenues comparable with those of Microsoft.

So What does ERP Cover?

ERP systems, in theory, can help with all the back-office administration tasks of most companies. Say you are running a bicycle shop. Once you make a sale, you enter the order on the ERP system. The system then updates the stock of bicycles in the shop, incorporates the sale into the financial ledgers, prints out an invoice, and can prompt you to purchase more bikes to replace the ones that you have sold. The ERP system can also handle repair orders and manage the spare parts stocks. It can also provide automated tools to help you forecast future sales and to plan activities over the next few weeks. There may also be data query tools present to enable sophisticated management reports and graphs to be generated. In addition, the system may handle the return of defective items from unhappy customers, the sending out of regular account statements to customers, and the management of payments to suppliers.

ERP systems can assist with the scheduling and deployment of all sorts of resources, physical, monetary and human. A water company might use their ERP system to schedule a customer repair job, deploy staff to the job, verify that it got done, and subsequently bill the customer. An oil company might use it ensure that their tankers are loaded, that a shipping itinerary is prepared and completed on schedule, and that all the equipment and people required for loading and unloading the cargo in each port are present at the right times. A bus company might use their system to manage customer bookings, record receipts and plan preventative maintenance activities for their fleet.

Theory Versus Practice

Some businesses have reported big successes from implementing ERP, while others have been badly damaged by the experience. The difference between the two camps depends on the gap between ERP in theory and its implementation in practice.

Theory

Theory, in the sense used here, refers to what is possible if all goes well. The following benefits may be realised from a successfully-implemented ERP project.

• ERP can provide advanced levels of information visibility to a business. Once the data is entered into the system, then everybody can have access to it. No more waiting on the end of telephone lines to see if another department has received an order. No more angry clashes in the boardroom disputing the basis for making particular decisions. Less waiting around for items to arrive.

• A lot of inefficiencies in the way things are done can be removed. The company can adopt so-called 'best practices' - a cookbook of how similar activities are performed in world-class companies.

• A company can restructure its processes, so that different functions (such as accounting, shipping and manufacturing) work more closely together to get products produced.

• An organisation can align itself to a single plan, so that all activities, all across the world, are smoothly co-ordinated.

• Information and work practices can be standardised, so that the terminology used is similar, no matter where you work in the company.

• Getting down to brass tacks, a company could do a lot more work for a lot more customers without needing to employ so many people.

Practice

In practice, there are huge problems in achieving any of these goals, and how successful a company is in achieving these aims will depend to a large extent on how well the company overcomes these problems. ERP is a pretty traumatic event for any company in a number of ways.

• First of all, multiple methods of doing something are often whittled down to just one way - resulting in a lot of people with their noses put out-of-joint when they are forced to give up their tried and tested procedures for a standardised one.

• Secondly, the sharing of data globally threatens the many fiefdoms that exist in any large company, particularly the ones that jealously guard their information from other parts of the organisation.

• Thirdly, implementing ERP takes a lot of time - between one and three years - and a lot can happen in any business during that time. Management could change, new markets could open up, increased competition might force the company to change course.

• Fourth of all, ERP is very complex. As the company gets into the project, new understandings will continually come to light, which might in some cases require significant changes to the project timescales.

• Lastly, ERP is hugely expensive - it is not unusual for ERP budgets to overrun wildly, as companies fail to account for all the non-software costs, particularly the costs of training, back-filling key staff, overtime and the aforementioned creep in timescales.

Overcoming the Problems

The bottom line is that managers who engage in ERP need to be able to hold their nerve over long periods of time. They also need deep pockets in order to cope with the sheer cost and scope of the effort. To deal with the significant people issues presented by such a widespread change two complementary approaches are common. First of all, significant numbers of non-IT staff are deployed full-time onto the projects. This helps to sell the project to non-involved employees, while getting stronger levels of ownership and participation from the business. Secondly, a change management structure is put in place, where issues such as job security, resistance to change and training needs can be tackled. The change management team will normally have an influence on how training takes place, how the project is communicated to the staff, and how managers should behave in their dealings with staff on sensitive subjects.

The Future of ERP

ERP is by no means some sort of management fad - it is, in fact, a product of the increased computerisation of the business environment that has been taking place over many decades. Many of the world's largest companies now use ERP software routinely, and increasingly many of the smaller ones are adopting it also. Despite its costs and risks, ERP platforms help companies compete better. Since the late 1990s, there has been a strong trend to conduct business online (e-business) and this cannot be easily accomplished without an ERP platform working in the background.

One of the big improvement areas for ERP concerns increased flexibility. Many ERP systems are notoriously difficult to change once the initial design is complete. As a result, many sensible change initiatives get killed, and companies can find it difficult to react quickly to rapid changes in the business environment. Organisations are thus demanding that ERP systems work more closely with other applications and that ERP suppliers make it easier to implement changes without the need for huge delays and massive budgets.

Companies are starting to link their computer systems together so that even greater efficiencies may be realised. This has lead to the concept of Extended ERP, where moves are afoot to deploy computer systems which not only look inside the information of your own company, but can actually query the core business data of customer and supplier systems in real-time. Given the well-documented challenges of implementing ERP, it still remains to be seen how successful these efforts will be in the short term.