Enterprise Resource Planning (ERP) is a software package through which an organization achieves an integrated system of data and processes. An ERP system combines all the elementary functions of an organization irrespective of its business or charter. ERP software undertakes to unify all departments and functions in a company onto a single computer system that serves the specific needs of all those departments.
The entire functionality of an organization is enclosed in a single package that would be covered by two or more systems. An example of such software could be an accounting software which offers both the Payroll and Accounting functions. The entire business runs more efficiently with a single software program performing for the requirements of those in human resources as well as in finance and in the warehouse.
Normally, each department in a company is embellished with computer systems, which are optimized in such a way, to carry out specific functions of a department. However, with ERP all of them are threaded together into a single software program that runs a single database. This enables all the departments to share the information and communicate with each other.
Implementing of ERP
The implementation of ERP software does not involve any “in-house” skill. This is why the cost of smaller projects can be reduced if specialist ERP implementation consultants are hired. The time required for ERP implementation essentially depends on the size of the business, and other factors such as the ambit of changes, customers consenting to take ownership of the project. While a small project (like less staff) may just take three months to plan and deliver, a multi-site or multi-country implementation may take years to complete.
An interesting feature of ERP implementation is that the company who purchases the ERP product takes over the ownership of the project. For implementation, the companies go for an ERP vendor or third-party consulting companies. There are three areas of professional services offered by the ERP firms – consulting, supportive and customization.
The consulting team handles the responsibility of initial ERP implementation. It also conducts the delivery of work until it goes live. Normally their work includes product training; creation of process triggers and workflow; optimization of the system; and enhancement of reports, complex data extracts or implementing Business Intelligence; and specialist advice to improve the way ERP can boost the business.
The team also undertakes the most critical part of the project – planning and jointly testing the implementation. In the larger ERP projects, consulting is done in three levels: systems architecture (the overall dataflow), business process consulting (mainly re-engineering) and technical consulting (basically programming and tool configuration).
Generally, the cost of the ERP implementation in most of the mid-sized companies ranges from the list price of the ERP user licenses to double of that amount, which depends on the level of customization. However, the large companies spend much more on the implementation than on the cost of the user licenses.
The process of customization involves extending or changing the way system works using new user interfaces and application code. Customization normally reflects the work practices, which are not presently in the core routines of the ERP system software.
For instance, the code may include an early adopter features like the mobility interfaces, which were rarely used earlier. There are other examples such as interfacing to third party applications (it is easy customization for larger implementations as there are typically dozens of ancillary systems with which core ERP software interacts). During the ERP up gradation, professional service team is also involved to determine whether customizations are compatible with the new release.
One of the major considerations in the ERP package is that it can be very expensive and complicated. So most business use the top practices embedded in the acquired ERP system.
The customization work is usually undertaken as tailored software development on a time and materials basis. There are many cases where the work delivered as customization does not include the ERP vendors Maintenance Agreement. Therefore, there is no obligation on the ERP vendor to warrant that the code works with the next upgrade the core product. However, if there were no description on how to use the customization, the effort would be sheer waste as it is quite difficult to train new staff in the work practice that the customization delivers.
After installation of the system, the ERP consulting company enters into a Support Agreement, which ensures that the staff could run ERP software in an optimal way. This is conducted by a committee headed by the consultant through participative management approach, already decided during the design stage with the client’s heads of departments.