Way back in the day (i.e. 1990) the phrase ERP was first coined to describe how novel and innovative business software can be developed to create a shared database across multiple business units.  The idea was to maximize synchronization throughout the organization, thereby improving processes, performance metrics, and ultimately business performance.  In this What is ERP article I am going to share with you my views on the ERP Definition that best describes this holistic business enterprise software implementation process.  If you have tried to wrap your brain around this concept, know that this meaningful business tool is not altogether easily understood in its full form.  Nor is it immediately apparent what the totality of its positive consequences are, without  peeling away some of the layers. This is in part what we endeavor to do at this website, along with keeping you informed of the Enterprise Resource Planning and all of its related components as well as its applications in the business world.  Also know this, due to advances in software technologies and the realization of enterprise resource planning importance to small and large companies, this whole concept has been and will continue to be transformative  for companies busy with ERP implementation.  Where do you come in?  To the degree that you can improve your understanding by way of online ERP certificate and training or just researching the topic, you can grow your knowledge and explore making contributions to the field.

Closing In On Enterprise Resource Planning

Two common things that people usually talk about with regard to ERP are the significance of an ERP system and ERP software. In my opinion ERP system refers to all components necessary to create the business system, such as the ERP software, information technology infrastructure, and the integration of related business unit processes. Thus, ERP software is part of the ERP system. But sometime people do not distinguish ERP system and ERP software.  Think of the software as an enabler…the tool employed to move you toward a organization that becomes highly integrated and streamlined due to the result of tying together its various business units.  Hence, a system is formed that closely aligns key components of the organization allowing for improved communication, analysis, predictive competitive modeling,  enhanced financial compliance, and productivity improvements.

Many people, from scholars, business owners, and employees talk about it and all of its intended benefits.  Often, depending on one’s vantage point, the view and understanding of ERP varies. When they are talking about integrated business software, they should be talking about ERP. Sometime they have a different understanding what ERP system and software is all about, so as mentioned above, they likely will happen upon some different ERP definitions and understanding of its role in the organization.  Some individuals may define ERP as SAP or MRP. Their view can also be skewed by what they hear or read about from ERP vendors.  While some others may think that ERP is an integrated system employing manufacturing software or it could be accounting software or perhaps human resource software or… you name it.

Part of this confusion or difference in interpretation comes from its origins.  Before the 1990s, when ERP first began gaining traction (think 1960s), the concept emerged from the need to tie together inventory control systems within manufacturing.   This gave way to the 1970′s term MRP (material requirements planning) which dealt with scheduling systems and processes.  

When the 1980s rolled around, MRP II took shape as it encompassed “Manufacturing Resource Planning” which reflected a more comprehensive organizational viewpoint.

Pegging The ERP Definition

So let us try and tie together a basic understanding of what all this means.

This concept describes the integration of key  business information across the organization by way of computer software that is engineered to benefit the organization as a whole and improve its competitive posture.

ERP can be effectively employed by small and large companies and the business software utilized enables the company to be more streamlined and productive.

An ERP enabled company, as a result of these software technologies, has a more holistic view of its internal business and future opportunities.

Now, as referenced earlier, the ERP term originally comes from Material Requirements Planning….people called it MRP for short. Then it evolved into Manufacturing Resource Planning or MRP II.  By now you realize you are in an ocean of acronyms.   Dial the time capsule forward to the present time,  MRP and MRP II are now part of ERP modules (software vendors enjoy talking about these modules)  where capacity planning activity, routing, and integration of business units (think company departments) have become a part of the standard software activity.  Here is a nice, but basic image that will help you see the evolution.  And guess what, we are relatively still in the infancy of this concept and its utilization by companies of all sizes.

Just a Bit More on MRP II

MRP and MRP II were essentially strategies deployed using both software modular applications and applicable hardware.  The end state was a linkage of organizational business units through a centralized database which stores all kinds of company information goodies that employees and managers can proactively act upon.

Through MRP and later MRP II systems, a lot could be accomplished in the area of inventory control, scheduling, marketing, purchasing and sales forecasting.  Think of 2001 Space Odyssey and HAL, at least HAL in the scheme of Manufacturing and Materials planning.  Later, as ERP was given birth,  the computer HAL that we all know and love, beaome a much more complete metaphor for what we are now talking about.  Think of a computer software system that knows and controls most everything (at least as it applies to data) that matters to an organization.  At some stage it may even become a member of the organization.

So when you look at an ERP system we are typically talking about a process that encompasses an organization’s finance,  accounting, material requirements, logistic, distribution, human resources, shipping and receiving, manufacturing and procurement, purchasing, marketing, sales, delivery, quality control, etc.  Of course, each organizations is a unique entity, so how they choose to deploy ERP across the business will vary.

Just like like the HAL computer, there is a certain business intelligence that exists as a result of the database information, thereby allowing management to evaluate performance metrics and business trends for future strategic planning.  As more companies realize these benefits, they seek to find ways to implement ERP systems into their organization.  It becomes a competitive necessity in many ways.

Well, there you have it.  That was my take on what is erp system, along with an erp definition that should be much easier to grasp.  I hope by reading this article you have a much better idea of what this concept is all about and I encourage you to explore many of the other articles we have throughout this website such as Why do Want to Implement ERP, ERP Vendor Evaluation and so on.

 

I’ve just downloaded 2011 ERP Report of Panorama Consulting. I have been posted 2008, 2010 ERP report (I missed 2009 report) and now I’m going to post 2011 report. The purpose of developing this report is to investigate the ongoing economic difficulties effect on the ERP market.

The ERP Report was conducted during June – December 2010. They opened a survey to 185 participants from 57 countries. Organizations represented vary in size, industry, locations, needs and goals but all have implemented an ERP system within the past year.

The industries that participated in the survey were manufacturing, service industries, transportation, communications, electric, gas, sanitary services, public administration,

construction and wholesale trade organizations represent 90-percent of the industry distribution of respondents.

I am not going to show the complete but only few components that I am interested with. Now lets take a look the report below.

Deployment

In 2010, almost one out of five (17%) respondents survey reported implementing SaaS for their ERP solutions (compared to the < 6% of companies who indicated they applied SaaS in 2009 polling conducted by Panorama).

Obviously, there are many of traditional ERP vendors have begun to develop SaaS models to supply to this new market demand and also offer the option to host ERP systems off-site.

Top Short-listed VendorsBased on the data collected, it is obvious that no single ERP vendor dominates the market. The following table shows the possibility of each vendor being short-listed by the respondents. For instance, 38% of respondents put SAP on their short-list, 32% of respondents put Oracle (which includes JD Edwards, Peoplesoft and eBusiness Suite) on their short-list. The same as in 2009, SAP, Oracle and Microsoft are the 3 major vendors most often short-listed.

Top Selected VendorsThe following selection ranking is determined based on actual selection per total responses. Oracle (which includes JD Edwards, PeopleSoft and eBusiness Suite) was selected by 22% of respondents, 19% of respondents selected SAP, and 14% of respondents selected Microsoft. All

three of these vendors were the top three selected vendors during 2009 as well.

Cutover Strategy

To best manage the transition from the old system to new, companies chooses between two cutover options: hard (with no employee access to the old system after go-live) and soft (with some or total employee access to the old system). The following figure shows that two-thirds of respondent companies (66%) chose a hard cutover and one-third (34%) chose a soft (or parallel) cutover. Panorama consultants recommend parallel runs of both systems over the conversion system to ensure nothing unexpected occurs.

Customization

Deciding on the right level of customization for a company’s business processes is critical to the success of an ERP project. While customization is able to improve the value of out-of-the-box software and allow the company to maximize its cutting-edge advantages, it also can result in high implementation costs without the realization of expected benefits. The question of how a

company should balance schedule and budget goals against the benefits of customizing its ERP system has always been a source of great debate during selection and implementation.

Those are components of the report which I am interested with. For other components, such as Implementation Strategies,Project Benefit Realization, ERP Project Payback Period Distribution, Implementation Rollout Approach, can be downloaded from Panorama Consulting site.

Today, I am going to show you another interesting report from Panorama Consulting regarding ERP market share and vendor evaluation. Information of the report is based on surveys of more than 1,600 participants which have either selected or implemented ERP solutions during the last 5 years, with a heavier weighting on ERP projects accomplished in 2010.

Reporting On ERP Market Share

I am sure you will get some benefits by reading this report, especially if you are starting to choose which ERP system you will implement. The information within shows the ERP vendor market share, selection trends, satisfaction and benefit realization and some findings on detailed project factors like cost of implementation, duration as well as payback period. Such information can help you in creating a short list of ERP vendors and what things should be prepared. But I will show only few of  the findings which I found interesting. You may get the longer, complete report on Panorama site through a link I supply in the end of this article.

The report focuses on data collected on ERP implementations of Tier I, Tier II and Tier III solutions, as you can see in the following table :

Let start exploring the report.

Analysis of Overall ERP Market Share

Just like previous years, Tier I and Tier II vendors still dominate the market share of ERP implementation. The merge of Tier I and Tier II make up 64% of the implementations while Tier III and others only have 36% of the market.

Refer to the chart above, the market share of Tier I implementation remains the highest with 53% in total. However, all the vendors showed a drop in market share compared with 2010 Vendor Analysis report. The share of SAP decreases from 31% to 24%. Oracle is at 18% whereas it was 25% in 2010 report and Microsoft Dynamics decreases from 15% to 11%. It means the implementation of either Tier II or Tier III and Others increased around 18%.

Vendors’ Market Share by Client Revenue

The chart below shows the selection rate of major vendors of Tier I, Tier II and Tier III grouped by companies’ revenue size they implemented their ERP. According to the chart, both SAP and Oracle are active in all segments, but SAP obviously is the most selected software for companies with annual revenues $25 – $500 million while Microsoft Dynamics is least selected for companies with revenues from $50 million – $1+ billion. This ERP has the most success with companies < $50 million and between $100 – $500 million. Tier III vendors have great share in the market that less than $100 million and also continue increase their reach into big companies with more than $500 million annual revenue.

Vendor Sales by Industry

The tables below show the portion of each Tier I vendor’s sales focused within 4 major industry segments that represent the highest proportions of solutions for each major vendor within those industries :- Manufacturing and Distribution- Transportation, Communications, Electric, Gas and Sanitary Services- Services- Retail

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Note: The sales in the tables above represent industry shares within each company’s own sales, not shares of the total market

Total Market Shares by Industry

The 4 charts below represent Tier I, Tier II, Tier III and Other vendor’s share in each of the 4 major industries (similar with industry segments above) represented in the survey. SAP, Oracle and Microsoft play a significant part in all industries where SAP is the top vendor.

ERP Satisfaction by Major Vendor

By reviewing particular metrics, there are few indications that dissatisfaction of customers frequently comes from unrealistic expectations which it can be flamed by ERP vendors who promise the moon so that they can close a sale and also companies that do not sufficiently specify their business needs before starting on implementations.

Note : 13.5% of respondents overall cannot figure out benefits because they had no business case to work from.

That’s all the findings I can share with you. You may find other interesting findings, such as Average Cost and Budgets, Reason for budget overruns, Payback Period and so forth in the complete report link below.