Enterprise resource planning (ERP) system is a business management system that comprises integrated sets of comprehensive software, which can be used, when successfully implemented, to manage and integrate all the business functions within an organisation.
These sets usually include a set of mature business applications and tools for financial and cost accounting, sales and distribution, materials management, human resource, production planning and computer integrated manufacturing, supply chain, and customer information. These packages have the ability to facilitate the how of information between all supply chain processes (internal and external) in an organisation. Furthermore, an ERP system can be used as a tool to help improve the performance level of a supply chain network by helping to reduce cycle times. However, it has traditionally been applied in capital-intensive industries such as manufacturing, construction, aerospace and defence. Recently, ERP systems have been expanded beyond manufacturing and introduced to the finance, health care, hotel chains, education, insurance, retail and telecommunications sectors. ERP is now considered to be the price of entry for running a business, and at least at present, for being connected to other enterprises in a network economy to create “business to business” electronic commerce.
Furthermore, many multinationals restrict their business to only those companies that operate the same ERP software as the multinational firm. It is a fact that ERP is for big firms and smaller firms have to adjust their business model and approach according to the practices and software adopted by the big firms. With the opening up of the economy, small to medium sized enterprises (SMEs) have found the going very difficult. Since they do not have the robustness associated with large companies, SMEs have to tap the power of IT and an integrated information system to stay competitive and customer oriented. ERP is often considered the answer for their survival. Therefore, the ERP software market has become one of today’s largest IT investments worldwide. ERP allows companies to integrate various departmental information. It has evolved from a human resource management application to a tool that spans IT management. For many users, an ERP is a “do it all” system that performs everything from entry of sales orders to customer service. It attempts to integrate the suppliers and customers with the manufacturing environment of the organisation.
For example, a purchase entered in the order module passes the order to a manufacturing application, which in turn sends a materials request to the supply-chain module, which gets the necessary parts from suppliers and uses a logistics module to get them to the factory. At the same time the purchase transaction shows in general – a ledger module as revenue. The traditional application systems, which organisations generally employ, treat each transaction separately. They are built around the strong boundaries of specific functions that a specific application is meant to cater for. ERP stops treating these transactions separately as stand alone activities and considers them to be a part of interlinked processes that make up the business.