February 23, 2024

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ERP and SAP ERP Understanding the Basic Concept

4 min read

Historical Background
Around 1860, during the first wave of the Industrial Revolution of the late 18th century, companies around the world became interested in improving operations as a response to market changes. In the early 19th century, companies operated in a supplier’s market (vendors would produce and clients would buy this production)., Later,mid-1800s, as companies became more numerous, larger and increasingly complex, competition increased, turning the marketplace into one in which the consumer had more power (clients determine more what the companies need to produce). This new, consumer-oriented market demanded productivity, cost controls and marketing strategies. In this new environment, productivity became the new focal point as companies attempted to improve on their core manufacturing processes to gain an edge over their competitors.

IT Background
On the other hand, in the late 1950s, information technology appeared in a material way in the workplace. The term software engineering was used to describe that era’s initial programming-development efforts, while the concepts off databases and applications started to mature rapidly. Software engineers and hardware manufacturers started to integrate IT within businesses the business. One of the pioneer software applications built to assist businesses’ needs was the manufacturing control systems, which reached a mature stage in 1975 when material requirements planning (MRP) software entered the marketplace. MRP systems were designed to support control on the shop floor and overall manufacturing operations as well as production planning based on sales forecasts. Later, a more complete version, MRP2, was delivered, which including capacity planning functionalities. Both versions focused on manufacturing, albeit with poor integration of other areas like human resources, finance and marketing.

Business and IT
When integration was identified as a key success factor in business-support software, ERP systems were developed to fulfill this key requirement. ERP systems now attempt to integrate all the basic functions of an enterprise, regardless of the organization’s business or industrial sector. ERP systems can be built in-house or acquired from such world-class software companies as SAP and Oracle as well as from smaller, lesser known ones.

Why Would Organizations be Inclined toward ERP?
In the our data-centered economy, information is considered a competitive advantage, and, therefore, the issue of obtaining reliable and timely information is absolutely critical to a company’s success. Consequently, organizations need to base there operations on information systems like ERP. By implementing this kind of tool, a company will obtain different benefits in terms of processes, people and technology. Specifically,

  • Control: Automation, monitoring alarms.
  • Integration: All information is integrated so processes are cross-company instead of isolated activities.
  • Opportunity: Timely reports and data analysis.
  • Productivity: As an integrated tool, it decreases rework and errors.
  • Security: User Administration, profiles and authorization.
  • Scalability: Having a solid base that can grow with the incorporation of new, compatible software solutions.

The issue of implementing ERP can be broken into different stages according to methodologies of software projects. The first stage is to find a consulting partner to guide the company in the project phases listed below:

  • Planning: Project plan and project charter definition.
  • Blueprint: Technical and process design based on business needs.
  • Testing: Individual and integrated testing of processes and data.
  • Training: Plan and execute training and knowledge transfer sessions.
  • Cut-over and Production: Data load and operation of the new system.

The key factor for successful implementation is to understand that ERP is the integration of all areas in the company and not as an isolated IT initiative.

This means that the implementation project should include three dimensions: People, Technology and Processes, all of them aligned to the business strategy.

How will Implementations Vary between Older Businesses and Start-ups?

As explained before, an ERP implementation project is a combined effort between IT and the business as a whole. It starts and ends with the business’ needs. The business needs from a new company differ a lot from those of one firmly established in the marketplace. Relevant differences in terms of ERP implementations can be summarized as follows:

Business Process Design: Older businesses normally have already defined processes; while new businesses need to identify them. This will represent much more complex scenario higher complexity for new business implementations because it will take longer to develop the process blueprint and detailed specifications.

Master Data: For a newly formed company, data cleaning activities, which normally are highly complex, are not required. Data load for new businesses is simpler, lowering the risks for the project as well as costs and implementation time.

Testing: Since new businesses have not operated for a long time under real conditions, special scenarios are difficult to foresee affecting the quality of testing. Special circumstances can appear later in the production environment and will represent a risk since they were not tested in the developmental phase. This will affect the business because it can take some time to understand how to configure the system to fulfill these new requirements.

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