Enterprise Resource Planning (ERP) Systems


We have already discussed a number of important ways in which business strategies and processes are being changed (or at least impacted) by IT.  One topic that may be floating around your company is ERP – enterprise systems.  While the ERP concept goes back to the 1970s and two former German IBM managers, the real boost to ERPS came in the late 1990s when companies were scared of the Y2K bug and thought since they might have to redo all their computer systems anyway, why not buy an ERP and kill two birds with one stone?

What’s an ERP?  An enterprise system attempted to unify and replace all the local computer systems you have with one central system that lets (forces) you share information between business units and business departments.  Think of it this way – what if every piece of data from your company was available in one place, and it was always current and always accessible.  Want to know how the customer order in Cleveland is coming?  Look in this one pot.  Want to know if sales in California look good today?  Look in the pot.  Want to see if Machine #3 in Birmingham got its maintenance as scheduled?  Look in the pot.  Did Joe get the overtime hours you promised?  Look in the pot. All functional areas, all business units, all product lines, all geographical areas – all the data from any place in your company sits in one place, and is always current.


ERP Functionality

The best way to grasp the size and complexity of an enterprise system is to wander through a few screens.  On the web site for this course --  http://www.uwosh.edu/faculty_staff/wresch/SAPscreens.htm I have left a set of sample screens and a bit of dialogue so you can see what the SAP system looks like. 

As you look through the sample screens, watch all the interconnections between the data elements.  Remember that enterprise systems are supposed to provide a single data source for all business functions.  Hence, the inventory area will also contain data for accounting and materials planning.  HR contains data that can be used for cost accounting.  Sales records tie back to customer lists, to logistics, and to materials planning.

The complaint from people who build these systems is that they are incredibly complicated and require endless data entry -- often much more data entry than with past systems.  But there is a reason for all the new data.  The old system might just have met the needs of HR or Accounting or Production.  The new system has to meet the needs of all those units and more.

ERP Structure

A common term in IT is "client-server."  This is meant to denote that individual computers (clients) are hooked to a network where much of the data they need and the programs they need are stored on a larger computer (server) and are transferred (downloaded) to the individual computers as needed.  Because of the huge size of enterprise systems, they are better conceived of as having a client-server-database architecture, also known as "three-tier." (One explanation of SAPs R/3 software is that R/3 stands for "real time / three tier.")

In this structure, your work computer is the client and requests information (who ordered part # 4453?).  The request goes down the network to a set of servers (the size of your company will determine whether you have one server for everything, or one server for sales, one for production, one for HR...).  Those servers will understand the request and run the program that finds the data and prepares it for presentation to you.  The servers will get the data from a very large database that holds all of the data from your company.  So every action takes three steps -- client to server to database.

Note that a network is required to move this data between these three places, and to each of the clients in your company (and to each location around the US or around the world).  So an ERP is very demanding of a network.  Most companies find they need to upgrade the speed of their network to get reasonable processing speed out of an ERP.

Real - time

Another structural feature of ERRPs is the fact that they are "real-time."  This means the orders you type in are immediately sent to the database and known to everyone in the company (production, accounting, etc).  Most of your computer software is probably already real-time so you may not think much of this feature.  But remember just because your old production system was real time, it does not guarantee that the folks in accounting had immediate access to that data.  Often departments take time to transfer data back and forth on a daily or even weekly schedule.  Now, since ALL data is in the same database, the minute production updates the completion of an order, billing and accounting know what has happened.

This probably also means that remote mills or suppliers are connecting real time as well, so you now know immediately if a mill is falling behind its production quota, rather than having to wait for their monthly report.  And you can know real-time if a shipment is going to be delayed.  People trying to control costs and improve timely delivery love ERPs.

Topic Questions

1.      If your company has an ERP system, when did it go in?  How much of a project was it to install?

2.      The Cisco case describes a successful ERP implementation.  What could have gone wrong?  What have you heard about ERP implementations at other companies?

3.      How would you build a business case for installing an ERP?  They cost millions and take years to install.  Why do it?