What is ERP Software? Here is everything you need to know.

Summary

In this video, Eric Kimberly, CEO of Third Stage Consulting, explains the evolution and importance of ERP (Enterprise Resource Planning) software. Starting from its origins in MRP (Material Resource Planning) for manufacturing efficiency, ERP has expanded to integrate various business functions across an organization. Kimberly discusses the market's range of ERP systems, including Tier 1 for large organizations and Tier 2/3 for niche solutions. He emphasizes the common challenges in ERP implementation, such as operational and people issues, rather than technology, and offers insights into successful ERP adoption strategies.

Takeaways

• 😀 ERP stands for Enterprise Resource Planning, which is a software system that aims to improve organizational efficiency and effectiveness.
• 🔍 ERP originated from MRP (Material Resource Planning), which was designed to help manufacturing organizations manage their operations more efficiently.
• 🏭 MRP systems were developed to address challenges in tracking customer orders, demand, and the necessary parts and supplies for production.
• 🌐 ERP evolved to include not just manufacturing but also warehouse management, procurement, financials, accounting, HCM (Human Capital Management), and CRM (Customer Relationship Management).
• 🔑 The goal of ERP is to provide a unified data set and a common workflow across an organization, offering transparency and a single system for all operations.
• 🏢 There are various tiers of ERP systems, with Tier 1 systems like SAP, Oracle, and Microsoft ERP being suited for larger, more complex organizations.
• 🛠 Tier 2 ERP providers offer niche-focused solutions, often targeting specific industries or sets of capabilities, while Tier 3 solutions are industry-specific or function-specific within ERP.
• 🤝 The 'best-of-breed' ERP model involves using different specialized systems for different segments of a business, which can provide a more precise fit for unique business needs.
• 📉 ERP implementation failure rates are high, often due to issues with operational and people-side challenges rather than the technology itself.
• 👥 People resist change, and this resistance can hinder the successful implementation of new ERP technology, regardless of its sophistication.
• 🛑 To implement ERP successfully, organizations should focus on finding the right software, ensuring strategic alignment, and prioritizing people and process improvements alongside technology.

Q & A

What is ERP software?

ERP, or Enterprise Resource Planning, software is a system that organizations use to improve efficiency and effectiveness by integrating and automating many of their core business processes, tracking supplies, and managing various aspects of production and service delivery.

What does the acronym 'MRP' stand for and how is it related to ERP?

MRP stands for Material Resource Planning. It is an older technology that originated in manufacturing organizations to manage production operations. MRP evolved into ERP, expanding its focus to include not just manufacturing but also warehouse management, procurement, financials, and other enterprise-wide functions.

Why were MRP systems created?

MRP systems were created to address the challenges faced by larger manufacturing organizations in managing their operations, such as tracking customer orders, demand, and the necessary parts and supplies to fulfill that demand efficiently.

What is the significance of the 90s lean manufacturing movement in the context of ERP evolution?

The lean manufacturing movement in the 90s emphasized maximizing manufacturing efficiency and quality. MRP systems played a significant role in this by helping organizations become more efficient and effective, which eventually led to the development of ERP systems.

What are the three biggest ERP software providers mentioned in the script?

The three biggest ERP software providers mentioned are SAP, Oracle, and Microsoft.

What is the difference between Tier 1, Tier 2, and Tier 3 ERP systems?

Tier 1 ERP systems are typically used by larger, more complex multinational organizations and offer a broad range of functionalities. Tier 2 ERP providers offer more niche-focused solutions, often targeting specific industries or capabilities. Tier 3 ERP systems are industry niche solutions, which can be smaller, simpler systems catering to specific industries or functions within ERP.

What is the 'best-of-breed' ERP system model?

The 'best-of-breed' ERP model involves using specialized systems for different segments of a business rather than a single ERP system for all needs. This model provides flexibility and a more precise fit for unique business requirements but may also introduce complexity due to the need to integrate multiple systems.

Why do ERP implementations often fail according to the script?

ERP implementations often fail not because of the technology itself, but due to issues related to operational challenges and people-side factors, such as inadequate business process improvements and poor organizational change management.

What are some key factors for successful ERP implementation?

Key factors for successful ERP implementation include finding the right software that fits the organization's needs, ensuring organizational alignment on strategic direction, and focusing on people and process aspects during the implementation.

How are emerging technologies like AI, machine learning, blockchain, and IoT being integrated into ERP systems?

Emerging technologies are enhancing ERP systems by automating business processes, identifying patterns and exceptions, improving traceability in supply chains, and providing real-time data from IoT devices on the shop floor, which can be integrated into the ERP system for better visibility and decision-making.

What advice does the speaker give for organizations considering an ERP implementation?

The speaker advises organizations to ensure they have a clear vision and alignment, choose the right technology through an independent assessment, and focus on people and processes during the implementation to increase the chances of success.