Improving Your Bottom Line Boosting profits with the right ERP and CRM tools

What Is This Thing Called ERP Anyway?

I suspect that most, if not all of you, have heard the term ERP system.  And some of you may even know that the acronym stands for Enterprise Resources Planning.   That’s a mouthful that on the surface doesn’t seem to mean much.  But since an entire industry has been developed around ERP systems, and since just about every legitimate business has one these days, there must be something to it.   Let’s take a look and see if we can unravel the mystery.

Tracing ERP’s Ancestors
To understand where ERP got its birth roots, we need to go back to the 1960’s.  That is when an approach called MRP (Material Requirements Planning) was born to handle specific processes for certain types of businesses.  You will note that both ERP and MRP had the concept of planning in common.  But aside from that, one seemed to focus on material requirements, while the other focused on enterprise resources.

Simply stated, the purpose of an MRP system was to assist manufacturers plan and manage inventory (material requirements) so as to meet demand for end finished goods.  In order to do this, it was necessary to know current inventory levels of component parts and raw materials, replenishment schedules, and the total demand being placed on all these items.

While MRP was somewhat effective in meeting its stated objectives, it was also quite limited in reach.  In fact, it was a closed loop that dealt with a very finite set of factors.  When you consider that a typical manufacturing organization has many functional needs and departments apart from the manufacturing process itself, such as A/P, A/R, G/L, customer service, order entry, forecasting, purchasing etc., there were lots of planning and processing needs not being met by MRP.  Consequently, the late 1970’s and early 1980’s saw the birth of Manufacturing Resource Planning (MRP II).

You can see with the transition to MRP II, we were no longer focusing on simply material requirements planning, but now had broadened the focus to include all of the manufacturing resources planning utilized in a manufacturing organization.  MRP II systems did a reasonably good job of performing the necessary functions associated with buying materials, producing goods, selling the goods, and following the movement of money associated with all of those transactions. 

ERP is Born
As time passed in the latter 1980’s and early 1990’s, it was discovered that MRP II was all fine and well if you were a manufacturer.  But what if like the majority of businesses in North America today, you were not a manufacturer?  In that case another approach was required, and thus ERP (Enterprise Resources Planning) was born.  The ERP system set out to expand beyond just manufacturers and encompass the needs of all enterprises regardless of their industry, and the resources required to plan and operate those enterprises.

As ERP systems have evolved over the last couple decades, these systems have embraced and added functional areas such as those shown below.
 

Financial Planning	Quality Management
Product Engineering	Human Resources
R & D	Manufacturing Execution Systems
Customer Relationship Management (CRM)	Field Service
Supply Chain Management	Logistics and Distribution
Marketing	Advanced Planning and Scheduling
Sales and Operations Planning	Lean and Full JIT Support

 

As you can see from the table above, lots of potential complexity has been heaped upon the ERP system stack.  In a highly functional ERP system deployment, the ERP system represents a set of sophisticated tools whose reach is deep and wide, yet tightly integrated across all departments and functions so that there is a single set of high integrity cohesive data available for all users.

The People
Unfortunately, all too often, ERP systems are viewed purely in the context of software functionality.   But the real measure of success in terms of an ERP system is the user’s usage experience with the ERP system.  Given that, the notion of people is the other very critical element required in the ERP system discussion.   To what degree does an ERP system recognize and embrace the importance of people and their roles in an organization?  To what degree does it adapt or facilitate varying roles?  To what degree does the ERP system empower the people with the right information at the right time in the right place to make and support informed decisions affecting the organizations tactical and strategic needs?  It’s only when we have successfully incorporated the all important people component of the equation with the software functionality, that a successful process is identified.  The combination of many successful processes constitutes a real ERP system. 

ERP Maturity Model
We have just covered the last forty years of ERP product evolution at hyper speed, and even though we have barely skimmed the surface, it is probably plenty deep enough for this discussion.  There is one other important concept however that should be considered in an ERP system discussion and that is what is referred to in some circles as the ERP Maturity Model.  The ERP Maturity Model is a means of identifying the various levels of sophistication of an ERP system along with the level of value that it brings to an organization.  While the number of levels can vary from one model to the next, the typical scenario goes something like this. 
 

Level	Sophistication and Value
1.  Data Management System	Data is collected and organized, but may not be valuable enough to be classified as information.  There may be many sets of data at play at any given time.
2.  Shared Database & Multiple Software Modules	Data is shared from a single source across multiple functions and/or departments.  While all users have access to the same data, they may not have control over the data, and therefore may not place significant value on it.
3.  Operational Perspective	There are common rules and procedures used for planning, executing, controlling and reporting actions in the system.  Two-way feedback loops exist between the execution elements and the planning elements of the organization.  Tactical and operational components are in harmony.
4.  Business System	Incorporates all of the elements of the previous level, and in addition includes exceptions for all to see, as well as more strategic planning elements.  The organization relies on the system information to guide and direct it toward its goals.
5.  Continuous Learning & Knowledge Management	The ERP system contains a significant historical knowledge base of information, trends and requests.  The organization embraces the knowledgebase as a catalyst for continuous learning and improvement.  Executive level decisions and daily employee level decisions are made and supported based upon the information in the system.

 
The purpose of the model is to determine where your organization is on the scale.  You may want to ask yourself one or more of the following questions.

• Are you where you thought you were?
• More importantly, are you where you want to be?
• Is there value to be derived for your organization by going to the next level?
• Could major problems be solved or strategic goals achieved by getting to the next level?

Perhaps you liked what you saw after looking in the mirror, and then again maybe you didn’t.  If not, then you should know that there are plenty of options avaiable for addressing the concerns.  The real question is what action are you going to take to make it happen?  As they say, a journey begins with the first step.