What’s an ERP?


An Enterprise Resource Planning system attempts to integrate all departments and functions across a company into a single computer system that serves all departments.  It replaces previous systems that might have had one computer program and database for HR, another for Finance, another for accounting, another for inventory, etc.


The key is the shared database.  Now all company data is available to all departments.


ERP Companies –

  • SAP (German)
  • Oracle
  • PeopleSoft (recently bought J.D. Edwards and then was bought by Oracle)
  • MicroSoft - GreatPlains (for small to midsized companies)

ERP Technology


SAP R/3 refers to a “three-tier” approach to the computer system. 


·        User-Interface

·        Application Layer

·        Database


At the bottom is a database containing all the information for the company.  Given access authority, all data is technically available anywhere in the company.  Data in the database is intended to be “real-time,” meaning that it is constantly being updated.  So as an order is typed in by one salesperson, the people in production or inventory or accounting can instantly see this order and respond to it.  No paper moves between departments, no delays.


The application layer is a series of programs that get information from the database or put it in.  We will use the HR applications, the customer apps, production and inventory apps.


The user-interface is what the user sees.  It sits on the desktop computer and generates screens.  Interfaces are all moving to the web interface since that is the interface users are most familiar with.


Benefits of ERPs

  • Integrated financial information
  • Integrated customer order information
  • Standardized manufacturing (“vanilla” at Nabisco)
  • Reduced inventory
  • Standardized HR data / improved HR cost accounting


Problems of ERPs

  • Huge systems – difficult to install – KC is taking six to ten years
  • Purchase price – the software can cost over $1,000,000 and also require hardware and training expenses
  • System integration – while the ERP covers most corporate needs, it does not cover all, so it still needs to be linked to other systems
  • Customization – ERPs use standard approaches to shipping, inventory, etc.  If you do it differently, you need to change your business process or customize the ERP
  • Data conversion – Old data has to be reconfigured to the new database
  • Data analysis – report recreation may be necessary
  • Consultants need to be brought in, and they are expensive
  • Loss of local experts – People who used to answer your questions can’t any more



The impact of ERPs on the shop floor

            Increased responsibility at a time of reduced supervision

            Fewer controls

            Greater costs from errors

            Changes in work processes for the least skilled (e.g. shipping)


Famous Failures


            Cleveland State


Implementation Strategies

            Big Bang

            Phased by Department

            Phased by region     



Assume you are CEO of apparel maker Oshkosh BGosh.  An order for 15 dozen bib overalls (style #43, size 6) arrives from Kohl’s Department Store.


    1. What information would have to be included in that order to meet the needs of all pertinent departments at BGosh (marketing, shipping, production, accounting)?
    2. What materials information would have to be kept on overall style #43, size 6 to track parts, costs, inventory, and suppliers?
    3. Twenty days after placing the order a manager at Kohls call to check on the status of the order.  What information would have to be in the database so that a customer service rep could handle that call?