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What Is ERP?

"ERP" stands for enterprise resource planning. It refers to a suite of software that organizations use to manage day-to-day business activities, such as accounting, procurement, project management, risk management and compliance, and supply chain operations. A complete ERP suite also includes enterprise performance management, software that helps to plan, budget, predict, and report on an organization’s financial results.

ERP systems tie together and define a plethora of business processes and enable the flow of data between them. By collecting an organization’s shared transactional data from multiple sources, ERP systems eliminate data duplication and provide data integrity with a "single source of truth."

Today, ERP systems are critical for managing thousands of businesses of all sizes and in all industries. To these companies, ERP is as indispensable as the electricity that keeps the lights on.

ERP Fundamentals

ERP Fundamentals

ERP systems are designed around a common, defined data structure (schema) that typically has a common database. This helps provide information across the enterprise using normalized data based on common definitions and user experiences With ERP, these core constructs are then interconnected with defined business processes driven by workflows across business departments (e.g. finance, human resources, engineering, marketing, operations), connecting systems and the people who use them. Simply put, ERP is the vehicle for integrating people, processes and technologies across a modern enterprise.

For example: consider a company that builds cars by procuring parts and supplies from multiple suppliers. An ERP system not only tracks the requisition and purchase of these goods, it ensures that each component across the entire procure-to-pay process uses uniform and clean data connected to integrated enterprise workflows, business processes, and reporting with analytics. When ERP is properly deployed at this automotive manufacturing company, the example component, “front brake pads”, is uniformly identified by part name, size, material, source, lot number, supplier part number, serial number, cost, and specification, along with a plethora of other descriptive and data-driven items. Since data is the lifeblood of every modern company, ERP makes it easier to collect, organize, analyze and distribute this information to every individual and system that needs it to best fulfill their role and responsibility.

ERP also ensures that these data fields and attributes roll up to the correct account in the company’s general ledger (e.g. "Brake Pads") so that all costs are properly tracked and represented. If the front brake pads were called "front brakes" in one software system (or maybe a set of spreadsheets), "brake pads" in another and “frnt-pads” in a third, it would be tough for the automotive manufacturing company to figure out how much is spent annually on front brake pads, and whether it should switch suppliers or negotiate for better pricing.

A key ERP principle is the central collection of data for wide distribution. Instead of several standalone databases with an endless inventory of disconnected spreadsheets, ERP systems bring order to the chaos so that all users—from the CEO to accounts payable clerks—create, store, and use the same data derived through common processes. With a secure and centralized data repository, everyone in the organization can be confident that data is correct, up to date, and complete. Data integrity is assured for every task performed throughout the organization, from a quarterly financial statement to a single outstanding receivables report, without relying on error-prone spreadsheets.

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The Business Value of ERP

The Business Value of ERP

It’s impossible to ignore the impact of ERP in today’s business world. As enterprise data and processes are corralled into ERP systems, businesses are able to align separate departments and improve workflow, resulting in n significant bottom-line savings. Examples of specific business benefits include:

  • Improved business insight from real-time information generated by reports
  • Lower operational costs through streamlined business processes and best practices
  • Enhanced collaboration from users sharing data in contracts, requisitions, and purchase orders
  • Improved efficiency through a common user experience across many business functions and well-defined business processes
  • Consistent infrastructure from the back office to the front office, with all business activities having the same look and feel
  • High user-adoption rates from a common user experience and design
  • Reduced risk through improved data integrity and financial controls
  • Lower management and operational costs through uniform and integrated systems

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Past: The History of ERP

From Paper Cards to Mobile Devices

The history of ERP goes back more than 100 years. In 1913, engineer Ford Whitman Harris developed what became known as the economic order quantity (EOQ) model, a paper-based manufacturing system for production scheduling. For decades, EOQ was the standard for manufacturing. Toolmaker Black and Decker changed the game in 1964 when it was the first company to adopt a material requirements planning (MRP) solution that combined EOQ concepts with a mainframe computer.

MRP remained the manufacturing standard until manufacturing resource planning (called MRP II) was developed in 1983. MRP II featured modules as a key software architectural component and integrated core manufacturing components including purchasing, bill of materials, scheduling, and contract management. For the first time, different manufacturing tasks were integrated into a common system. MRP II also provided a compelling vision of how organizations could leverage software to share and integrate enterprise data and boost operational efficiency with better production planning, reduced inventory, and less waste (scrap).

As computer technology evolved through the 1970s and 1980s, concepts similar to MRP II were developed to handle business activities beyond manufacturing, incorporating finance, customer relationship management, and human resources data. By 1990, technology analysts had a name for this new category of business management software—enterprise resource planning.

Past: 1990s to the New Millennium

From On Premises to the Cloud

From the 1990s until the beginning of the 21st century, ERP adoption grew rapidly. At the same time, the costs of implementing an ERP system began to climb. The hardware required to run the software was typically on the premises, with big machines in a server room. Both the hardware, and the software licenses, required capital investments depreciated over 5-10 years. In addition, organizations nearly always wanted to customize their ERP systems to fit their specific needs, entailing an additional expense of software consultants and training.

Meanwhile, ERP technology evolved to embrace the internet, with new features and functionality, such as embedded analytics. As time went on, many organizations discovered that their on-premises ERP systems couldn’t keep up with modern security demands or emerging technologies, such as smartphones.

Today: A New ERP Delivery Model

Software as a Service (SaaS)

Enter the cloud—specifically, the software-as-a-service (SaaS) delivery model for ERP. When ERP software is delivered “as a service” in the cloud, it runs on a network of remote servers, instead of inside a company server room. The cloud provider patches, manages and updates the software several times a year—rather than an expensive upgrade once every 5-10 years (or more) on premises. The cloud can reduce both operational expenses (OpEx) and capital expenses (CapEx) because it eliminates the need for companies to purchase software and hardware, or hire additional IT staff. These resources can instead be invested in new business opportunities, and the organization is always up to date on the most recent ERP software. Employees can shift their focus from managing IT to more value-added tasks like innovation and growth.

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Is Your ERP Provider Investing in Emerging Technologies?

One of the beauties of the SaaS model is that the software is kept up to date with the latest features, functions and best practices. Cloud ERP providers roll out updates on a regular basis (as often as monthly, in Oracle’s case). This means that the latest new and revolutionary emerging technologies—such as AI, digital assistants, machine learning, blockchain, augmented reality, and the Internet of Things (IoT)—become available to subscribers on a regular cadence.

With access to these new technologies, organizations can quickly improve their business best practices as the ERP software evolves. They can automate processes that used to require heavy manual intervention, such as reconciling financial accounts. In addition, users gain a comprehensive, real-time understanding of enterprise business activities not only in the front office, but also in warehouses on factory floors and everywhere else across the enterprise. This knowledge is then readily available to every appropriate employee on their mobile devices, including smartphones and tablets.

Built for the digital age, today’s ERP cloud embraces mobile, social, analytics and the latest emerging technologies. Anything less won’t move an organization forward

Make the Best Business Decisions with Oracle ERP Cloud

Organizations have always struggled to balance the system's high costs and complexity against the need for customized features and flexibility, all the while meeting the demands of the business. Watch and learn how Oracle ERP Cloud delivers connected teams, unified data, and real-time insights to help you and your finance team ensure the best business decisions are made. Meet the challenges of today with tomorrow's ERP.