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What Is Enterprise Resource Planning (ERP) And What Does It Do?

July 20, 2008
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Enterprise Resource Planning (ERP)—and its predecessor, Manufacturing Resource Planning (MRP II)—is helping to transform company landscapes. It’s making possible profound improvements in the way manufacturing companies are managed.

I define Enterprise Resource Planning as:

  • An enterprise-wide set of management tools that balances demand and supply,
  • containing the ability to link customers and suppliers into a complete supply chain,
  • employing proven business processes for decision-making, and
  • providing high degrees of cross-functional integration among sales, marketing, manufacturing, operations, logistics, purchasing, finance, new product development, and human resources, thereby
  • enabling people to run their business with high levels of customer service and productivity, and simultaneously lower costs and inventories; and providing the foundation for effective e-commerce.

Here are some descriptions of ERP, not definitions but certainly good examples.

Enterprise Resource Planning is a company increasing its sales by 20 percent in the face of an overall industry decline. Discussing how this happened, the vice president of sales explained: “We’re capturing lots of business from our competitors. We can out-deliver ’em. Thanks to (ERP), we can now ship quicker than our competition, and we ship on time.”

Enterprise Resource Planning is a Fortune 50 corporation achieving enormous cost savings and acquiring a significant competitive advantage. The vice president of logistics stated: “ERP has provided the key to becoming a truly global company. Decisions can be made with accurate data and with a process that connects demand and supply across borders and oceans. This change is worth billions to us in sales worldwide.”

Enterprise Resource Planning is a purchasing department generating enormous cost reductions while at the same time increasing its ability to truly partner with its suppliers. The director of purchasing claimed: “For the first time ever, we have a good handle on our future requirements for components raw and materials. When our customer demand changes, we—ourselves and our suppliers—can manage changes to our schedules on a very coordinated and controlled basis. I don’t see how any company can do effective supply chain management without ERP.”

The Applicability of ERP

ERP and its predecessor, MRP II, have been successfully implemented in companies with the following characteristics:

  • Make-to-stock

  • Make-to-order

  • Design-to-order

  • Complex product

  • Simple product

  • Multiple plants

  • Single plant

  • Contract manufacturers

  • Manufacturers with distribution networks

  • Sell direct to end users

  • Sell through distributors

  • Businesses heavily regulated by the government

  • Conventional manufacturing (fabrication and assembly)

  • Process manufacturing

  • Repetitive manufacturing

  • Job shop

  • Flow shop

  • Fabrication only (no assembly)

  • Assembly only (no fabrication)

  • High-speed manufacturing

  • Low-speed manufacturing

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