Information System to support the functional units of an enterprise are referred to as Enterprise Resource Planning Systems or ERP Systems. ERP software represents some of the most expensive software technologies, their cost often running into several crores of rupees. In fact, to host ERP software an organization will have to spend many more crores of rupees in buying powerful servers, operating systems software, RDBMS and a high performance network.
The cost of desktop computers and consultants to implement ERP software would be yet another investment needed. In short the decision to implement ERP calls for several crores of rupees of investment. That is why , these ERP systems are not discussed or decided by the departmental heads or purchasing committees but often by the board of directors and Chief Executive Officer of an Organization.
Why ERP ?
- Shortened product life cycle
Globalization has led to unprecedented levels of competition. To face such competition, successful corporations should follow the best business practices in the industry. Shortened life cycles call for continuous design improvement, manufacturing flexibility, super-efficient logistics control and better management of the entire supply chain. All these need faster access to accurate information both inside the organization and from the entire supply chain outside. The organizational units such as finance, marketing, production and HRD need to operate with a very high level of integration without losing flexibility.
ERP systems with an organization-wide view of business processes, business needs of information and flexibility meet these demands admirably. As per the developments in computing and communication technology, it is possible to network organizational units through reliable communication channels, providing tighter integration among them. The server technology today permits very high reliability and access to large data securely at reasonable cost. The open systems philosophy, client-server architecture, high performance operating systems, RDBMS and Rapid Application Development tools that permit such enterprise-wide systems to be deployed are available today. These explain the motivating factors behind contemporary ERP systems.
ERP systems can be viewed as a logical extension of the evolution of the following over the past four decades.
- Electronic Data Processing (EDP)
- Management Information systems (MIS)
- Decision Support Systems (DSS)
- Knowledge Based Systems (KBS)
EDP systems concentrated on the efficiency aspect to get mundane things like payroll calculation, inventory reports or census reports generated faster and more accurately. The MIS systems addressed the operational information needs through effectiveness measures like exception reporting, insights into processes etc. DSS used extensive modeling tools such as optimization, simulation and statistical analysis to reveal patterns in the information generated by MIS systems to genuinely support tactical and even strategic decisions. KBS systems went beyond data, information and models to capture the knowledge of the decision maker and to use the captured knowledge to propose far superior solutions. Fortunately, this permitted an evolution of ideas and maturity of computer applications in management.
A related development categorized the applications through the tasks addressed as follows.
- Office Automation Systems (OA)
- Transaction Processing and Decision Support (TPDS)
Unfortunately, both the approaches missed out the key issue of integration. The first classification assumes a compartmentalization across the layers of management. The second classification assumes that the tasks are independent. Both assumptions are invalid in the real-world scenario. ERP systems remove the deficiencies by taking a holistic view of information across the organization and capture the essence of the business processes.