What is an ERP system? Part 1
Recently I had a chance to meet with few people which develop competitive products for Acumatica. I mean NetSuite, Microsoft Axapta, SAP, S4HANA. I had very interesting conversations with them. Compared different features of Acumatica with features in competitive systems, and want to give general overview of what is ERP. So, if you want to understand if such a piece of software is ERP, or not, then read this article in make a conclusion.
Many companies as their business grows come to understand that they need an ERP system. If a small business manages to do without this tool, then a medium business uses such tools more actively every day. But to choose an ERP system, and even to understand whether the product is required in the business and what benefits it will bring, it is important to know what it is.
In my articles, I often describe different concepts. As it is known, in order to sell a service, the buyer must know what it is and why it’s necessary. At the same time, it is very important to agree on the terms. Only in this case the result will meet the client's expectations. Furthermore, the term ERP is one of the most complex and controversial.
Description of the ERP system
ERP is a marketing term. To understand what we are talking about and to study the history of the origin of this abbreviation, let's refer to Wikipedia
ERP (Enterprise Resource Planning, enterprise resource planning) is an organizational strategy for the integration of production and operations, human resources management, financial management and asset management, focused on the continuous balancing and optimization of enterprise resources through a specialized integrated application software package that provides a common data model and processes for all areas of activity. ERP system is a specific software package that implements an ERP strategy. Wikipedia
That definition is absolutely correct, but relatively difficult to perceive, especially if the person is unfamiliar with such concepts as ?balancing resources? or ?data model?. It is important to understand that the term ERP is primarily marketing, and has no deep methodological basis. And so, I propose the definition:
ERP is primarily an information system, which allows you to store and process most of the critical data for your company.
What is critical data? And why do I say ?most?? The fact is that some ERP systems have a module ?Production?, it is a separate software product, which is not connected by default to other systems and blocks. Others try to combine all the possible processes necessary for the work of the company. Are different ERP species useful? Of course, I will discuss this issue in more detail below. Now back to the terms.
Critical data is a list of data without which a company cannot work. This includes sales and production (if the company is the producer). Some companies use ERP primarily to manage production, because there are no better solutions. Other companies are not manufacturers, such as distributors, but also successfully implement ERP. For them, distribution, personnel management, sales of goods and services are becoming critical.
Most data: This is a list of processes and information that is optimal for each company. Of course, it would be ideal to collect all data and data on all processes. But it makes it more expensive. As a result, the management of the business together with the implementers choose a trade off solution, where the ERP system collects the information that is really needed for operational control and management decisions and processes, and some of the data and processes are collected in specialized systems, to which the manager turns as needed.
The list of critical data and the part that must be processed in the ERP system, are calculated empirically for each specific business. It is the analysis of these data and their correct definition that answers the questions: whether there is a need to purchase and install the ERP system, and whether the cost of this kind of business automation will pay off.
What are elements of each ERP system
All ERP systems, regardless of their developer, share a common architecture, which can be described as follows:
Platform. Basic capabilities and environment for modules and components. Only the developer can modify the platform code. Users and implementers do not have access to this software code. The platform consists of:
- Core. The software environment in which the work will be done, for which you can write some add-ons and components.
- Basic functionality. List of directories and functions without which no company can operate. It is a user guide with access rights, customer directory, goods/services directory, etc. This functionality is embedded in the platform, unlike the modules, it cannot be disconnected.
Data management. Database, including data storage and processing (interpretation) methods. This category includes the data warehouse on the server, database software (SQL or any alternative), tools to interpret and process data and send them to software modules.
Modules. Components that connect to the platform as needed. They all work with a common database and apply the basic functionality (as required). Otherwise the modules work independently from each other, can be ?seamlessly? connected and can be switched off without problems, if the need for them has disappeared. This modular structure is an important feature of ERP systems. Modules are divided, in turn, into several types:
- In-house modules. This level is plug-in modules that are used by company employees. This is warehouse management, manufacturing, accounting, CRM, etc. Modules can be connected, disconnected, customized by implementing experts. The standard set usually includes MRP, HR, CRM, Supply and Procurement Management.
- External user modules. This layer contains the modules needed to interact with external users, potential and actual customers of the company, partners, product users, suppliers and buyers. It could be an online store, personal offices for suppliers and buyers on the corporate site and so on. Some ERP systems contain ready-to-use CMS to create an online store or corporate site from scratch, others offer only individual tools ?add-ons? to the site and/or client applications (for mobile and tablets).
- Connectors are ready solutions for communicating with third-party applications. Most commonly used is API from the core of the platform. They allow you to integrate telephony, set up data exchange with the site or any software products and systems. Connectors are intended only for data exchange and are usually used for data exchange with EDI, CMS, CAD, BI, OLAP, etc. That is, with those systems that are not part of the EPR but are used in the company.
The structure described above is logical for ERP. Some systems don’t have explicit modularity, they’re all embedded in the program, but they can be used separately as needed. Others call disconnected subsystems. And part of the ERP systems actually separates all the modules into separate products. And they offer to buy a kernel, and a list of modules to choose from. With the ability to buy and add capabilities in the future as needed.
Advantages of the modular structure of the ERP
An important advantage of ERP systems is the ability to connect and apply any of the modules (internal or external) in a short time frame. Furthermore, the possibilities that are thus connected to the ERP are added to the system completely ?seamlessly?. This is an important difference between the ERP and the integration of several software products, which has grown out of specialized by numerous improvements and add-ons by own or invited IT specialists.
Each of the modules of the ERP system operates independently of the others, it can be connected or disconnected at any time, can simply not be used, and other modules can continue to work. In order to connect a module, it is not necessary to change the program code of the kernel, other modules.
When using the ERP system to expand and connect the new unit, there is no need to write a program code, create a new part of the program from scratch or engage in a complex and sometimes uncomfortable integration of different programs. It is enough to simply select the desired module, plug it in and configure it for business needs. In ERP systems almost, everything that may be needed in business automation is already implemented. Only a few cases require a manual revision.
For example, you can use a CRM module, but not a personnel module. As the company grows and develops, any of the modules are plugged in without much difficulty, customizes and the software product continues to work with new features.
to be continued ...