Enterprise Resource Planning (ERP) – Defined
Enterprise resource planning (ERP) is the process of integrating all the important parts and segments of the business. Enterprise resource planning is used by companies that want to increase coordination among their departments to improve organizational efficiency. Enterprise resource planning generally employs a management information system (MIS) connecting multiple departments, such as finance, marketing, operation, supply chain, sales and procurement to each other.
A Little More on Enterprise Resource Planning
An enterprise resource planning (ERP) system resembles central nervous system of human beings. Is is used to connect all departments of the large company through management information system (MIS). Each department is provided with software and a computer application/software system that is customized or suitable for their work. The ERP systems collect all the relevant information about the work and divisions, stores it and makes it available to all departments of the company to use them for company’s growth.
An enterprise resource planning (ERP) also assists a company in keeping in touch with all activities and their progress. Integrating with all departments allows it to easily trace which part of the company in underperforming or over performing, and then thus take actions accordingly. Also, it enables companies to cut cost by acquiring a single system or software that integrates all departments. It avoids duplication and incompatibility issues on top of avoiding the issues associated with purchasing a separate system for each department.
In summary, the ERP enables all departments to coordinate and communicate with each other more easily.
The First Enterprise Resource Planning System
SAP, a software firm, introduced the first enterprise resource planning (ERP) in 1972. It was developed by three German-based software engineers. The main aim of SAP was to improve coordination among different departments of the company to thus improve organizational efficiency.
Limitations of an ERP System
The primary limitation is perhaps the cost. The cost of an ERP may overweigh its benefits if a company does not research and implement it carefully. Also, ERP system is designed to overcome inefficiencies, but it does not eliminate inefficiencies automatically. Companies must invest in continued training and development in the use of the ERP system.