SUMMARY OF STUDY OBJECTIVES

An overview of an ERP system. An enterprise resource planning (ERP) system is a multimodule software system that can integrate all business processes and functions of the entire organization into a single software system using a single database. Each module is intended to collect, process, and store data of a functional area of the organization and to integrate with related processes. The ERP system is the IT infrastructure that has enhanced and enabled e-commerce and e-business. ERP systems and e-business are mutually supporting parts of the organization. ERP systems enhance e-business, and e-business has enhanced the process efficiency of ERP systems. ERP systems contain modules and use an operational database and a data warehouse.

The history of ERP systems. ERP systems can be traced back to software that was developed during the 1960s and 1970s to track inventory in manufacturing companies. The first generation of this software was called materials requirements planning (MRP) software. MRP software evolved into manufacturing resource planning (MRP II) systems. MRP II was much broader and more encompassing than MRP software. MRP software was intended to support the purchase of raw materials for manufacturing needs. The purpose of MRP II was to integrate manufacturing, engineering, marketing, and finance units to run on the same information system and to use a single database for these functions. As MRP and MRP II systems were becoming popular in large manufacturing companies, early pioneers of ERP systems were working on a broader concept of information system software. However, ERP software did not become popular in the large corporation software market until the 1990s. During the last half of 1990s, there was very rapid growth in the sales of ERP software to Fortune 500 companies.

Current ERP system characteristics. Most large businesses have implemented ERP systems that are connected to the IT systems of trading partners. EDI, Internet EDI, or extranets are used to connect a company's ERP system to the IT systems of its suppliers and customers. For example, suppliers may monitor their customers' inventory levels and electronically trigger a shipment when items they supply reach pre-arranged reorder levels. IT spending on ERP systems was flat in the early years following 2000, but it began to rise in 2004. Although ERP spending may decline when economic conditions are poor, several factors can lead to increased spending on ERP systems. ERP has become so important to daily operations that companies cannot allow their ERP systems to become outdated.

The modules of an ERP system. The ERP systems used by large organizations are actually more complex and encompass more of the enterprise than depicted in Exhibit 15-1. There are many modules in modern ERP systems that encompass the entire organization. This chapter does not describe each of these modules in detail, but focuses on those modules most closely tied to accounting: financials, human resources, procurement and logistics, product development and manufacturing, sales and services, analytics, supply chain management (SCM), and customer relationship management (CRM).

The market segments of ERP software systems. There are at least two tiers of ERP systems within the market for ERP software. Tier one includes software often used by large, multinational corporations. The three most popular tier one ERP systems are SAP, Oracle, and Peoplesoft. Tier two describes software used by midsized businesses and organizations. A growing trend is cloud-based ERP systems. ERP software providers have, or will provide, cloud-based ERP systems.

Implementation issues of ERP systems. There are many important factors and issues to bear in mind when an organization considers implementation of an ERP system. The management of an organization must consider each of these issues before or during the ERP implementation. These issues include hiring a consulting firm, the best-fit ERP system, which modules to implement, whether to use the best of breed or the entire package of brand-provided ERP modules, business process reengineering, customization of the ERP system, the costs of hardware and software, testing the ERP system, data conversion, training of employees, and the choice from the various methods of conversion or “go live.”

The benefits and risks of ERP systems. There are many benefits to ERP systems. The characteristics of an ERP system allow more efficient processes, better information flow between processes and to management, and the consequent increased organization efficiency, effectiveness, and cost control. There are also implementation and operation risks of ERP systems. The inherent implementation risks are very similar to risks of implementing any IT system. However, the scope, size, and complexity of an ERP system increase many of these risks.

ERP systems and the Sarbanes–Oxley Act. Since the passage of the Sarbanes–Oxley Act of 2002, ERP systems have been enhanced to include functions that assist management in complying with sections of the Act. These enhanced ERP systems provide feedback information to management regarding internal controls. By tracking each employee's ID and password, audit trails can be constructed and reports generated that identify which employees initiated or conducted specific transactions or tasks. ERP systems can also be used to properly segregate duties. The ERP system can incorporate a matrix of tasks that are incompatible. For each employee ID and password, the system can limit employee's access to ensure that no employee can initiate or conduct tasks that are conflicting abilities. An ERP system also allows real-time monitoring and reporting of exceptions.

KEY TERMS