Small Business Technology

Evolution of Enterprise Resource Planning Systems

Written by Clayton Reeves for Gaebler Ventures

This article will briefly summarize the major concepts that comprise enterprise resource planning. These concepts can be applied to business applications ranging from the large to small.

Enterprise resource planning (ERP) is the idea that through integration, a business can greatly increase the rate at which information flows through their company and the efficiency with which the company operates.

Studies have shown that 60 percent of Fortune 500 companies implement ERP systems. In a world where supply chain management is becoming more and more important, ERP systems and the capabilities they bring to the table are being discussed more fervently. The market for ERP has not rebounded from pre-2001 levels, but there is still interest in these programs.

One of the largest players in ERP and an early thought leader in ERP was SAP. SAP was founded in 1972 as Systems Applications and Processing in Data Applications. SAP is now the largest business software provider in the entire world. They supply over seventy five thousand customers with software and have over fifty thousand employees. SAP is the main software manufacturer for enterprise resource planning systems. They became the dominant power in ERP systems in the late 1990s.

There are many things to think about as a small business when looking into whether you should invest in an enterprise resource planning system. Things like fit, cost, implementation and a variety of other things come into play. The next two paragraphs will briefly go over some advantages and disadvantages of ERP and how these might play into your adoption decision.

Advantages of ERP

There are numerous advantages to implementing an ERP system. First, powerful technology will be put into place to give your firm an advantage when dealing with data integration and analysis. This can give you more integrated computer systems that can potentially lower your IT costs in the long run. This is accomplished by having networks that easily communicate, instead of constantly upgrading and debugging your current set up. Not only will your costs go down as a result of this integration, but people may begin to understand their roles better and have more of an opportunity to increase their productivity.

Productivity is one of the main drivers behind ERP. Resource management is one of the ways that companies consistently have a competitive advantage over their industry. Managing the inputs of a product can provide better and more tangible results than actually revamping the production methods. ERP gives a company the opportunity to do this.

Disadvantages of ERP

Cost will be the main obstacle from a small business perspective. Sometimes these systems can cost upwards of a million dollars to implement, with further service costs adding to the investment. Small businesses may look towards ERP as a reference instead of a solution until the company grows in such a way that the benefits outweigh the costs.

Some of the other disadvantages include decreased flexibility, less freedom and creativity and hidden costs. The implementation of these systems is the part of the chain where most of the problems come into play. Implementing an ERP system will rub some employees the wrong way and may inhibit their ability to perform for a period of time. After employees are comfortable with the programs, their productivity is generally higher than it previously was.

When he's not playing racquetball or studying for a class, Clayton Reeves enjoys writing articles about entrepreneurship. He is currently an MBA student at the University of Missouri with a concentration in Economics and Finance.

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