Enterprise resource planning

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Enterprise resource planning (commonly known by its acronym, ERP; hereinafter, ERP) is the integrated management of business processes. ERP frequently refers to enterprise resource planning ecosystem or ERP software.

Definitions

According to Managerial Accounting by Braun, Tietz (5th edition),

Enterprise resource planning (ERP). Software systems that can integrate all of a company's worldwide functions, departments, and data into a single system.

According to the HRBoK Guide,

ERP. Enterprise resource planning. Computer software that combines information from all areas of an organization (such as finance, human resources, operations, and materials), and also manages contact with people outside the organization (such as customers, suppliers, and stakeholders).


Brief history

The term ERP was coined in 1990 by Gartner, but its roots date to the 1960s. Back then, the concept applied to inventory management and control in the manufacturing sector. Software engineers created programs to monitor inventory, reconcile balances, and report on status. By the 1970s, this had evolved into Material Requirements Planning (MRP) systems for scheduling production processes.

In the 1980s, MRP grew to encompass more manufacturing processes, prompting many to call it MRP-II or Manufacturing Resource Planning. By 1990, these systems had expanded beyond inventory control and other operational processes to other back-office functions like accounting and human resources, setting the stage for ERP as we've come to know it.

Today, ERP has expanded to encompass business intelligence (BI) while also handling "front-office" functions such as sales force automation (SFA), marketing automation and ecommerce. With these product advancements and the success stories coming out of these systems, companies in a broad range of industries—from wholesale distribution to ecommerce—use ERP solutions.

Moreover, even though the "e" in ERP stands for "enterprise," high-growth and mid-size companies are now rapidly adopting ERP systems. Software-as-a-Service (SaaS) solutions—also referred to as "cloud computing"—have helped fuel this growth. Cloud-based solutions not only make ERP software more affordable, they also make these systems easier to implement and manage. Perhaps even more importantly, cloud ERP enables real-time reporting and BI, making them even valuable to executives and staff seeking visibility into the business.

As a result, companies of all sizes and a wide range of industries are transitioning to cloud ERP systems. In fact, Forrester predicts that SaaS-based ERP adoption will rise 21 percent annually through 2015. When you stop to consider the benefits of ERP, it's easy to see why it's become so popular and why its use will continue to grow so rapidly.

Related concepts

  • 3rd party application. Software that has been developed by an outside company and is sold through a vendor.
  • Accounts payable. Any unpaid balances that your company owes to vendors.
  • Accounts receivable. Any outstanding balances that your customers owe to your company.
  • Actual cost. The actual amount of money either paid for material or charged as labor, material, or overhead to a work order.]].
  • Aging. when assets are organized and sorted according to how long they have existed.
  • Allocation. distribution of cost in a manufacturing process.
  • Assemble to order (ATO). A manufacturing strategy that allows users to combine a limited number of sub-assemblies into a large number of possible finished items. This strategy is designed to allow a wide variety of customization options, shorter lead times, and low inventory risk.
  • Business to business (B2B). When the vendor and consumer are both businesses, not end consumers.
  • Bill of material. A list of the type and quantity of components needed to build a part.]].
  • Bottleneck. A machine or workstation through which many production items must flow and which when overloaded causes a delay in the production process.
  • Build to stock. A build-ahead approach to production, where items are built ahead of time according to sales forecasts or historical demand.
  • Capacity requirements planning (CRP). The process of calculating the production capacity that a business requires to meet planned and actual demand.
  • Cloud computing. A process whereby users are connected to their ERP software via the internet rather than to computer equipment at their location thus eliminating the cost and need to have the hardware infrastructure located and maintained at their site.
  • E-commerce. The process by which goods and services are bought and sold via the internet utilizing web sites that are virtual stores. Examples include businesses from banking to baked goods and everything on between.
  • Electronic data interchange (EDI). EDI replaces paper mail, fax and email by electronically exchanging order and fulfillment/billing information in a standard format between trading partners.
  • Engineer to order. A production approach where components are designed, engineered and built to specifications after the order has already been received.
  • Fixed asset. Assets that are necessary for production, but that are not going to generate cash within a year. These include assets such as equipment, vehicles, buildings, and more.
  • Forecasting. A process that uses historical data to predict future outcomes.
  • General ledger. A permanent, ongoing record that contains all of an organization’s financial transactions.
  • Implementation. The process of installing and configuring ERP software. This process involves installing, configuring, testing, training and preparing an organization for the change.
  • Integrated software. Two or more software functions within the overall ERP application that share data and combine functions, such as order processing and inventory control, or invoicing and accounts receivable.
  • Job cost. A method in which all costs associated with a project are recorded over time, totaled at the end, and where the actual and planned costs are compared to generate variances that can be fed to accounting systems.
  • Job shop. A manufacturing facility that produces discrete, specialized, and fairly small manufacturing runs of products that are usually not repeated.
  • Kaizen. In Japanese, the word means “improvement”. This is the philosophy of continuous process improvement using analytical tools and methods.
  • Kanban. A communication system that controls the flow of the shop, and synchronizes the level of production to customer demand, and normally uses standardized quantities and movement tickets which travel with the production pieces from operation station to operation station.
  • Key performance indicator (KPI). An approach to helping a business achieve its goals through the development of agreed upon critical performance targets and the measurement of progress towards those targets. It can be, and often is, applied at every level of the business.
  • Lean manufacturing. A manufacturing method that focuses on the elimination of waste within a manufacturing system. This approach helps determine the right combination of value for the customer needs, and producing that value in the most efficient and effective manner possible.
  • Liquidity. The degree to which capital can be turned into cash quickly.
  • Lot number. A number that is used to identify a specific quantity or lot of material from a manufacturer.
  • Make-to-order. A manufacturing process where manufacturing starts after receiving a customer’s order.
  • Master production schedule. The schedule that a company uses to plan how many items need to be produced within a given timeframe. This time-phased production plan is comprised of forecasts, actual demand and supply and attempts to balance these components taking into account all resources.
  • Material control management. Associated primarily with moving, storing, and assessing materials used or consumed in manufacturing. Inventory management, quality assurance, production reporting, and cycle counting. Most material master data and inventory movements all fall within the scope of materials management.
  • Material requirements planning (MRP). A system used to plan production, scheduling and inventory. An MRP system ensures that enough materials are available for production, enough finished products are available to deliver to customers, and that the lowest amount of materials and products needed are on hand. MRP also plans manufacturing activities, delivery schedules and purchasing activities.
  • Materials management. Activities involved with transporting, storing, and evaluating materials used during the manufacturing process.
  • Mixed Mode Manufacturers. In discrete manufacturing, the requirement to produce Make to Stock, Make to Order, Configure to Order, and Engine to Order products. In order to accomplish this an ERP application must provide robust functionality for all modes simultaneously which can prove to be extremely challenging, and often requires creativity in configuration as well as flexibility on the business processes.
  • Mobile data collection. A suite of mobile transactions designed for hand-held devices. This allows users to selectively deploy bar-code enabled, hand-held mobile devices.
  • Network administrator. The person who is responsible for managing the computer network of a business, including its security and performance.
  • Operations management. A group who is responsible for overseeing all aspects of a customer’s production resources.
  • Opportunity cost. The loss of potential gain from other alternatives when one choice is made.
  • Order management. The process of fulfilling and tracking customer orders.
  • Part number. Unique identifiers that identify every SKU.
  • Point of sale (POS). The time and place that a sales transaction took place. In ERP applications, this is normally the ability to handle retail or counter sales.
  • Purchase requisition. A request for approval to purchase a material or service.
  • Return merchandise authorization (RMA). a unique document with an identifying number that grants a customer permission to return goods to a manufacturer.
  • Return on investment (ROI). A financial measurement that accesses how profitable investments are. This is calculated by dividing the expected return (profit) by the financial outlay.
  • Routing. A description of the sequence of steps that materials need to go through in order to produce a fabricated part, sub-assembly, or finished product.
  • Scheduling. The process of planning and arranging orders to maximize productivity, cost, and delivery times.
  • Six sigma. An approach that is designed to improve quality and lower the number of defects. This approach aims for six standard deviations between the mean and the nearest specification limit in any process.
  • Stock keeping unit (SKU). A unique identifier for each distinct product and service that can be purchased in business
  • Software license. A way of granting multiple people access to the same shared software application. An ERP buyer pays a one-time fee for each named or concurrent user to use the software.
  • Total quality management (TQM). A manufacturing philosophy focused on improving quality across the operation.
  • Software upgrade. The replacement of a software product with a newer, improved version.
  • User interface (UI). The way in which a software user is able to interact with a computer system.
  • Value stream mapping (VSM). A tool that helps businesses understand how their flows currently operate and helps them figure out ways to improve them in the future. This is achieved by creating a process map that is used to streamline processes across the entire supply chain. A Value Stream Map (VSM) is a process map that identifies all the steps and data streams required to produce a particular product or service while adding value to each step that results in improved customer satisfaction.
  • Value-added reseller (VAR). A reseller that adds value to an existing software product through the addition of features or services, then resells it to end users.
  • Visual scheduling. A real–time database of shop floor activity including new work, current work–in–progress, and completions. As work moves through the plant and operations are completed, the user receives instant feedback and is able to make adjustments to both the load (work orders) and the capacity to achieve a do-able schedule.
  • Work order. A request that specifies the quantity and type of a material to be manufactured, as well as the date that it needs to be manufactured by. A Work Order also defines all component material and labor operations required to complete production of the manufactured item.

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