What Is ERP? Key Features of Top Enterprise Resource Planning Systems

28/03/2019 What is ERP?
Key features of top enterprise resource planning systems | CIO

HOW-TO US 
What is ERP? Key features of top enterprise resource planning
systems
Enterprise resource planning (ERP) software standardizes, streamlines and integrates business processes
across finance, human resources, procurement, distribution and other departments. Here's what you
need to know about these key IT systems.
By Bart Perkins
Contributing Columnist, CIO
FEBRUARY 22, 2019 10:38 AM PT
Every organization manages people, purchases products and services, sells (or gives away)
something and accounts for money. The way each activity is handled will vary, but every enterprise
performs these basic functions. In most cases, it is more effective to handle these processes
through an integrated software platform than through multiple applications never designed to
work together. That's where enterprise resource planning (ERP) systems come in.
While ERPs were originally designed for manufacturing companies, they have expanded to service
industries, higher education, hospitality, health care, financial services, and government. Each of
industry has its own peculiarities. For example, government ERP uses Contract Lifecycle
Management (CLM) rather than traditional purchasing and follows government accounting rules
rather than GAAP. Banks have back-office settlement processes to reconcile checks, credit cards,
debit cards, and other instruments.
[ Comparison shopping? See "The best ERP systems:10 enterprise resource planning systems
compared," with evaluations and user reviews. | Learn why companies are increasingly moving
to cloud ERP and how to spot the 10 early warning signs of ERP disaster. | Get weekly insights
by signing up for our CIO Leader newsletter. ]
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28/03/2019 What is ERP? Key features of top enterprise resource planning systems | CIO
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Table of Contents 
What is ERP?
ERP is software that standardizes, streamlines and integrates business processes across finance,
human resources, procurement, distribution, and other departments. Typically, ERP systems
operate on an integrated software platform using common data definitions operating on a single
database.
ERP history
In 1990, Gartner created the term ERP to describe the evolution of materials requirements planning
(MRP) and manufacturing resource planning (MRP II) as they expanded beyond manufacturing into
other parts of the enterprise, typically finance and HR.
ERP systems evolved rapidly during the 1990s in response to Y2K and the introduction of the Euro.
Most enterprises viewed Y2K and the Euro as the cost of doing business, and ERPs provided as a
cost-effective way to replace multiple, old systems with a standardized package that could also
address these issues.
What is an ERP system used for?

ERP systems improve enterprise efficiency and effectiveness by:
Integrating financial information.
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Without an integrated system, individual departments, such as
What is ERP? Key features of top enterprise resource planning systems | CIO
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finance, sales, and so on, need to rely on separate systems, each of which will likely have different
revenue and expense numbers. Staff at all levels end up wasting time reconciling numbers rather
than discussing how to improve the enterprise.
Integrating orders. An ERP coordinates order taking, manufacturing, inventory, accounting, and
distribution. This is much simpler and less error prone with a single system than with a series of
separate systems for each step in the process.
Providing insights from customer information. Most ERPs include customer relationship
management CRM tools to track all customer interactions. Coupling these interactions with
information about orders, deliveries, returns, service requests, etc., provides insight about customer
behavior and needs. [ See also: CRM vs. ERP: What's the difference and which do you need? ]
Standardizing and speeding manufacturing. Manufacturing companies, especially those with an
appetite for mergers and acquisitions, often find that multiple business units make similar widgets
using different methods and computer systems. ERP systems can standardize and automate
manufacturing and supporting processes. This standardization saves time, increases productivity,
and reduces head count.
Standardizing HR information. Many enterprises, especially those with multiple business units, lack
a simple way to communicate with employees about benefits or to track employees’ hours and
expenses. An ERP system, with a self-service portal, enables employees to maintain their own
personal information, while facilitating time reporting, expense tracking, vacation requests,
scheduling, training, etc. By integrating information, such as advanced degrees, certifications, and
work experiences, into an HR repository, individuals with specific capabilities can be more readily
matched to potential assignments.
Standardizing procurement. In the absence of an integrated procurement system, analyzing and
tracking purchases across the enterprise is challenging. Large enterprises often find that different
business units purchase the same product but don’t receive the benefit of volume discounts. ERP
procurement tools arm purchasing teams for vendor negotiations by identifying widely used
vendors, products, and services.
Facilitating government reporting. ERP systems can greatly enhance an organization's ability to file
the necessary reporting for government regulations, across finance, HR and supply chain.
What are the bene ts of ERP systems?

ERP improves business performance in several ways. Specifically:
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Internal efficiency. Properly operating ERP systems enable enterprises to reduce the time required
to complete virtually every business process.
Better decision-making. ERPs
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promote collaboration through shared data organized around
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common data definitions. Shared data eliminates time wasted arguing about data quality and it
permits departments to spend their time analyzing data, drawing conclusions, and making better
decisions. The most effective decision-making balances central guidance with some amount of local
autonomy. Central command and control is rarely responsive to local needs while full-field autonomy
precludes enterprise-wide coordination. Shared data and common business processes allow
decisions to be made within headquarters’ parameters by the individuals closest to the situation.
Increased agility. Standardization and simplification result in fewer rigid structures. This creates a
more agile enterprise that can adapt quickly while increasing the potential for collaboration.
Enhanced security. While a centralized data base with enterprise data is a big target, it is easier to
secure than data that is scattered across hundreds of servers in closets or under desks. It is
particularly difficult, if the security team is not aware of the server or that it contains corporate data.
4 key features of ERP systems

The scale, scope, and functionality of ERP systems vary widely. However, most ERP software
features the following characteristics:
1. Enterprise-wide integration. Business processes are integrated end to end across departments and
business units. For example, a new order automatically initiates a credit check, queries product
availability, and updates the distribution schedule. Once the order is shipped, the invoice is sent.
2. Real time (or near real time) operations. Since the processes in the example above occur within a
few seconds of order receipt, problems are identified quickly, giving the seller more time to correct
the situation.
3. A common database. A common database was one of the initial advantages of the ERP. It allowed
data to be defined once for the enterprise with every department using the same definition.
Individual departments now had to conform to the approved data standards and editing rules. While
some ERPs continue to rely on a single database, others have split the physical database to improve
performance.
4. Consistent look and feel. Early ERP vendors realized that software with a consistent user interface
reduces training costs and appears more professional. When other software is acquired by an ERP
vendor, common look and feel is sometimes abandoned in favor of speed to market. As new releases
enter the market, most ERP vendors restore the consistent user interface.
Types of ERP systems
ERP systems US
are typically
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categorized in tiers based on the size and complexity of enterprises
served. ERP systems can be either proprietary or free and open source, though most open source
ERPs are designed for small organizations or higher education and may offer little functionality
beyond finance.
Typical tiers include:
Tier I ERPs support large, global enterprises and handle all internationalization issues, including
currency, language, alphabet, postal code, accounting rules, etc. For decades, Oracle and SAP have
been considered Tier I. Microsoft and Infor are more recent competitors but are frequently
categorized as Tier I as well.
Tier I Government ERPs support large, mostly federal, government agencies. These vendors support
the nuances of government accounting, HR, and procurement. Oracle, SAP and CompuServe’s PRISM
are considered Tier I with Infor and CGI’s Momentum close behind.
Tier II ERPs support large enterprises that may operate in multiple countries but lack global
reach. Tier II customers can be standalone entities or business units of large global enterprises. Most
of these ERPs have some internationalization but lack Tier I breadth. Depending on how vendors are
categorized there are 25 to 45 vendors in this tier. [ See: How to select a Tier 2 ERP package ]
Tier II Government ERPs focus mostly on state and local governments with some federal
installations. Tyler Technologies and UNIT4 fall in this category.
Tier III ERPs support mid-tier enterprises. Most handle a handful of languages and currencies but
only a single alphabet. Depending on how ERPs are categorized, there are 75 to 100 ERP solutions.
Tier IV ERPs are designed for small enterprises. ERP systems designed for micro enterprises often
focus on accounting and are not considered full ERPs by IT professionals.
Over the past few years, ERP vendors have created new systems designed specifically for the cloud.
At the same time many longtime ERP vendors have created cloud versions of their software.
Cloud ERP is becoming increasingly popular, but all cloud ERPs do not operate in the same fashion.
There are two major types:
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ERP as a service. With theseWhat
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ERPs, all customers operate on the same code base and have no access
is ERP? Key features of top enterprise resource planning systems | CIO
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to the source code. Users can configure but not customize the code.
ERP in an IaaS cloud. Enterprises that rely on custom code in their ERP cannot use ERP as a service. If
they wish to operate in the cloud, the only option is to move to an IaaS provider, which shifts their
servers to a different location.
For most enterprises, ERP as a service offers three advantages: The initial cost is lower, upgrades to
new releases are easier, and reluctant executives cannot pressure the organization to write custom
code for their organization.
For more on cloud ERP, see:
Cloud ERP: The rising alternative to hosting your own

Moving ERP to the cloud? Expect delays
Top ERP systems

Choosing an ERP system is among the most challenging decisions facing IT leaders. In addition to
the above tier criteria, there is a wide range of features and capabilities to consider. With any
industry, it is important to pick an ERP vendor with industry experience. Educating a vendor about
the nuances of a new industry is very time consuming.
To help you get a sense of the kinds of decisions that go into choosing an ERP system, check out
“The best ERP systems: 10 enterprise resource planning tools compared,” with evaluations and user
reviews of Acumatica Cloud ERP, Deltek ERP, Epicor ERP, Infor ERP, Microsoft Dynamics ERP,
NetSuite ERP, Oracle E-Business Suite, Oracle JD Edwards EnterpriseOne ERP, Oracle Peoplesoft
Financial Management and SAP ERP Solutions.
ERP implementation
Most successful ERP implementations are led by an executive sponsor. This is the executive who
will receive the majority of the program's benefits when the new system is operational. At a
minimum, this executive should sponsor the business case, get approval to proceed, monitor
progress, chair the steering committee, remove road blocks, and capture the benefits. With the
exception of internal IT projects such as infrastructure refreshes or ITIL rollout, the CIO should NOT
sponsor projects.
The CIO works closely with the executive sponsor to ensure adequate attention is paid to
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integration with existing systems, data migration, and infrastructure upgrades. The CIO should also
advise the executive sponsor about the challenges encountered by all major programs and should
help the executive sponsor select a firm specializing in ERP implementations. Such a firm should
bring specialized business process knowledge and experience with the ERP selected. An
implementation firm executive should become an advisor to the executive sponsor.
The executive sponsor should be advised by an organization change management executive as

well. An ERP implementation will result in new business processes, roles, user interfaces, and job
responsibilities. Organization change management can help every person in the enterprise
understand the impact ERP will have on both the organization and on the individuals. In most
cases, an organization change management firm, rather than an internal executive, provides this
support.
Reporting to the program’s executive team should be a business project manager and an IT project
manager. If the enterprise has engaged an ERP integration firm or an organization change
management specialist, their project managers should be part of the core program management
team.
See also: How to assemble a winning ERP team
ERP implementation: The 5 major steps

Most ERP practitioners use some version of the steps below to structure their ERP implementation:
1. Gain approval
The first step is to get formal approval to spend money and direct staff to implement the ERP. The
executive sponsor oversees the creation of any documentation required for approval. This
document, usually called a business case, typically includes the following:
Problem definition
Description of the program’s objectives and scope
Assumptions
Implementation costs
Implementation schedule
Development and operational
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risks
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Projected benefits
Once the business case is complete, the appropriate group of senior executives should authorize
ERP implementation to proceed.
2. Plan the program

The high-level time line created for the business case must be refined into a more complete work
plan. The following steps need to be completed:
Finalize team members. Key internal individuals should be identified by name. Other required staff
should be identified by role. External partners need to be selected. Typical partners include: ERP
implementation specialists, organization change management specialists and technical specialists.
Complete contracts. Contracts for new software, technology, and services should be finalized
Plan infrastructure upgrades. On-premises ERP systems frequently require faster processors,
additional storage, and improved communications. Some organizations can minimize infrastructure
upgrades by using a cloud ERP. But even cloud ERPs can require infrastructure upgrades.
Create a work plan and timeline. Tasks, dependencies, resources, and timing need to be made as
specific as possible.
3. Con gure software.

This is the largest and most difficult phase. The major steps include:
Analyze gaps. Understanding the gaps in current business processes and supporting applications
helps the project team determine how to change business processes to conform to the software.
Configure parameters. Parameters in the ERP software are set to reflect the new business processes.
Complete required programming. Ideally, no changes are needed for the ERP software. However,
some programming may be required for interfaces to other systems or for data migration.
Migrate data. The team standardizes data definitions and examines existing files for data
completeness, quality, and redundancy. Finally, existing data is cleansed and migrated to the new
ERP.
Test system. The system is tested to ensure it delivers the needed functionality and required
responsiveness.
Document system. Required functional and technical documentation is created. Typically, the
vendor has documentation that can be tailored to enterprise standards.
Upgrade infrastructure. Complete any required upgrades.
4. DeployUSthe
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 system
Prior to the final cutover when the new system is in production, multiple activities have to be
completed. These include:
Train staff. All staff need to be trained to operate the system and be given access rights.
Plan support. A support team will be needed to answer questions and resolve problems after the
ERP is operational.
Test the system. The new system must be thoroughly tested to ensure it is secure, responsive, and
delivers the functionality described in the business case.
Make the “Go live” decision. Once the executive sponsor is confident the new ERP is ready, the
enterprise needs to switch from the old system to the new system.
5. Stabilize the system

Following ERP deployment, most organizations experience a dip in business performance as staff
learn new roles, tools, business processes, and metrics. In addition, poorly cleansed data and
infrastructure bottlenecks will cause disruption. All impose a workload bubble on the ERP
deployment and support team.
For more on ERP implementation, see:
11 tips for deploying ERP applications

8 ways to get the most out of your ERP system
9 tips for selecting and implementing an ERP system
3 warning signs for a 'never-ending' ERP project
What are the hidden costs of ERP?

The four factors that are commonly underestimated during project planning include:
Business process change. Most people are content to work within the current environment unless
they are a systems analyst or worked for a different enterprise with better systems. Once teams see
the results of their improvements, most feel empowered and seek additional improvements. Success
breeds success often consuming more time than originally budgeted.
Organization change management. Although process improvements make enterprises more
efficient and effective, change creates uncertainty at all organization levels. A formal organization
change management program reassures staff and helps them accept the changes. With many
executives unfamiliar with the
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nuances of organization change management, the effort is easily
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underestimated.
Data migration. Prior to an ERP implementation, enterprises frequently have overlapping databases
and weak editing rules. The tighter editing required with an ERP system increases data migration
time. The time required is easy to underestimate, particularly if all data sources cannot be identified.
Custom code. Although enterprises have customized ERPs for years, it remains a bad practice.
Customization increases implementation cost significantly as users demand additional features. It
voids the warranty; problems reported to the vendor must be reproduced on unmodified software. It
makes upgrades difficult; the custom code usually requires changes every time the vendor issues a
new release. Finally, most enterprises underestimate the cost; even enterprises that estimate the
initial cost rarely include the cost of migrating to new releases.
For more on ERP costs, see:
Calculating the dollars and cents of ERP

The ERP upgrade conundrum: How to calculate the true cost
Why ERP projects fail

ERP projects fail for many of the same reasons that other projects fail. The most common cause is
an ineffective executive sponsor who cannot command respect throughout the organization, is
not interested in the project, or is distracted by other responsibilities. Other ways to fail include
poorly defined program goals, weak project management, inadequate resources, and poor data
cleanup.
There are several causes of failure that are closely tied to ERPs. Specifically:
Inappropriate package selection. ERPs, particularly Tier I ERPs, are very complex with many options.
Many enterprises believe a Tier I ERP is by definition “best” for every enterprise. In reality, only very
large, global enterprises will ever use more than a small percentage of the functionality available in a
Tier I ERP. Enterprises that are not complex enough to justify Tier I, may find implementation delayed
by feature overload. Conversely, large, global enterprises may find that Tier II or Tier III ERPs lack
sufficient features for complex, global operations.
Internal resistance. While any new program can generate resistance, this is more common with
ERPs. Remote business units frequently view the financial or other standardization imposed by an
ERP as an effort by headquarters to increase control over the field. Even with an active campaign to
explain the benefits of the new system, it is not uncommon to find people in the field slowing
implementation as much as possible.
Even groups who support the ERP can become disenchanted if the implementation team provides
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poor support or is perceived to be rude or unresponsive. Disenchanted supporters can become
vicious critics when they feel they have been taken for granted and not offered appropriate
support.
More ERP articles:

The best ERP systems: 10 enterprise resource planning tools compared
15 famous ERP disasters, dustups and disappointments
10 early warning signs of ERP disaster
The future of ERP is AI
Cloud ERP: The rising alternative to hosting your own
11 common ERP mistakes and how to avoid making them
11 tips for deploying ERP applications
8 ways to get the most out of your ERP system
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28/03/2019 What is ERP?

Key features of top enterprise resource planning systems | CIO

What is an ERP system used for?

What are the bene ts of ERP systems?

4 key features of ERP systems

Types of ERP systems

Typical tiers include:

SponsoredPost Sponsored by Cradlepoint

For more on cloud ERP, see:

Cloud ERP: The rising alternative to hosting your own

Top ERP systems

The executive sponsor should be advised by an organization change management executive as

See also: How to assemble a winning ERP team

ERP implementation: The 5 major steps

2. Plan the program

3. Con gure software.

5. Stabilize the system

For more on ERP implementation, see:

11 tips for deploying ERP applications

What are the hidden costs of ERP?

For more on ERP costs, see:

Calculating the dollars and cents of ERP

Why ERP projects fail

More ERP articles:

Next read this:

Copyright © 2019 IDG Communications, Inc.

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