ERP Systems

What is an Enterprise Resource Planning (ERP) System?

Common Database

The main objective of enterprise resource planning, or ERP, is to integrate all departments and functions across a company into a single system by using a common database, and so to have only one correct set of data. One of the challenges that companies face is access to timely and correct information. This is very important in making appropriate business decisions. Frequently, corporate information is located in several databases. For example, records about inventory levels may be found in one database, whereas customer information may be found in its own separate database. Additionally, these databases may be "island systems" (operating independently from one another and having no integration with other databases).


As shown in the figure above, information about warehousing, production, sales, and customer data is found in several databases across the enterprise. Because this information is not shared, extracting relevant information becomes difficult.

For example, John, a customer who usually buys on credit, wants to triple his standard order and have it delivered within the month. Jane, the sales representative, must verify the following to make sure she can comply with the order:

  • Authorization – Does the sales representative needs her manager's approval to approve the order?
  • Credit limit – How much can the customer order from the company based only on credit?
  • Inventory levels – Is there enough stock to comply with the order?
  • Shipping – Can the items be delivered on time?

If the sales representative cannot get this information in a timely manner, she may be unable to close the sale. Or, if she agrees to complete this order without performing the necessary background check, she runs the risk of not meeting the order, and more important, losing a customer. ERP systems do not have this limitation because all information is found in one common database. For example, even though a warehouse supervisor enters information into the system by using the warehousing module, that information is visible across the enterprise.

Therefore, when a sales representative takes an order from a customer, all information that is required to fulfill that order is immediately available (for example, customer credit history, inventory levels, shipping availability).

Real Time

Another typical problem is that information entered in a legacy system is frequently not available in real-time. This means that records may be updated only at certain intervals during a period (hour, day, week, or month) usually done as a batch job. The advantage of an ERP system is that as soon as data is entered into the system, it becomes instantly available. The disadvantage is that incorrectly entered data will be seen also. Users must be cautious when they enter data into
the system. It is very important that only correct data reside in an ERP system.

Tied to Company's Business Process

With an ERP system, companies can process activity beyond accounting. For example, ERP systems can support distribution, service, and manufacturing.
Frequently, an ERP system is configured to match a company's business process.
Although companies in a particular industry may share common business processes, each company may have its own certain and specific business processes. Accordingly, an ERP system is modified and configured to meet a company's requirements.

Job Roles and Authorization 

Although the information in an ERP system is readily available, proper authorization is required. Access to data is frequently determined by one's job role and responsibilities within the organization. For example, a sales order processor is authorized to create, view, and modify sales quotes and orders, but cannot process the sales invoices. In some cases, authorization to access information in the system may be granted in a time-limited way. For example, a production supervisor may authorize a subordinate to create and release production orders on his behalf while he is away on vacation. This makes sure that data cannot be accessed by unauthorized personnel.

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