A Foundation for Understanding Enterprise Resource Planning Systems
1. Develop an understanding of how ERP systems can improve the effectiveness of information
systems in organizations.
2. Understand the business benefits of enterprise resource planning (ERP) systems.
3. Understand the history and evolution of ERP.
The Emergence of Enterprise Resource Planning Systems
In the past several years, many organizations have initiated Enterprise Resource Planning (ERP)
systems, using such packages as SAP, People soft, and Oracle. The ERP market is one of the
fastest growing markets in the software industry. In research conducted by APICS, 34.5% of
companies with revenues over $1 billion who were APICS members planned to purchase or
upgrade an ERP system (Umble, Haft, and Umble, 2003). AMR Research predicts that the sales
of ERP software will reach $180 billion by 2002 (Kalling, 2003). According to one study, the
ERP market may reach $1 trillion by 2010 (Bingi, Sharma, and Godla, 1999).
Enterprise resource planning systems are a major investment. Companies have invested between
$50,000 and hundreds of millions of dollars in ERP software, using a variety of business
justifications, including the replacement of numerous legacy systems, reduction in cycle times
from order to delivery, and reduction in operating costs. The on-line, real-time operational data
that ERP systems provide enable managers to make better decisions and improve responsiveness
to customer needs (Ross, Vitale, and Willcocks, 2003). There is evidence that organizations are
satisfied with ERP. Based upon a sample of 117 firms in 17 countries, the Conference Board
reports that 34% of the organizations were satisfied with ERP, 58% were somewhat satisfied, 7%
were somewhat unsatisfied, and only 1% were unsatisfied (McNurlin, 2001).
WHAT IS ERP?
ERP systems are the software tools used to manage enterprise data. ERP systems help
organizations deal with the supply chain, receiving, inventory management, customer order
management, production planning, shipping, accounting, human resource management, and other
business functions (Somers and Nelson, 2003).
According to Deloitte Consulting, an ERP system is a packaged business software system that
allows a company to “automate and integrate the majority of its business processes; share
common data and practices across the enterprise; and produce and access information in a real-
time environment.” ERP systems are different from legacy systems in that organizations use ERP
to integrate enterprise-wide information supporting financial, human resources, manufacturing,
logistics, and sales and marketing functions (Shanks, Seddon, and Wilicocks, 2003). An ERP
system provides an enterprise database where all business transactions are entered, processed,
monitored, and reported.