ERP System Definition

August 18, 2017

Posted by Aptean


According to the APICS dictionary, Enterprise Resource Planning (ERP) is a: “…framework for organizing, defining, and standardizing the business processes necessary to effectively plan and control an organization so the organization can use its internal knowledge to seek external advantage.

The ERP system definition, then, would be a set of software applications that organize, define and standardize the business processes necessary to effectively plan and control an organization. Essentially, ERP applications are a computer model of your business, embodying the products and processes, information flow, procedures, and relationships between functions and activities. A set of planning applications can provide recommendations for what must be accomplished in order to meet the forecasted demand and keep the business functioning smoothly.

Planning is at the core of ERP and is embodied in a top-down hierarchy of functions—master planning, detailed material and resource planning, and execution (production control and purchasing). Master planning is the executive level function that sets the operational business plan (supports the sales and operations planning (S&OP) process). Detailed material planning (Material Requirements Planning or MRP) uses bill of material and inventory information to develop a complete manufacturing and purchasing plan for all products, assemblies, components and materials. At this same level, capacity requirements planning (CRP) ties the production plan to resource availability—work center capacity and loading.

Clustered around the planning core functions, additional software modules provide support for executing the plan (production control, purchasing), gathering information for tracking status and feedback to planning (closed loop) and for accounting and control. Additional modules help manage customer orders and fulfillment, forecasting, costing (often integrated within the execution functions), master data (bills of material and routings), finance (accounts payable and receivable, payroll, general ledger, financial reporting and analysis), quality, shop-floor data collection, and more.

You really can’t define ERP systems without some mention of the technology infrastructure. ERP must be built on a single, comprehensive database management system. Data analysis and reporting tools are also an essential part of the system, allowing full exploitation of the broad range of information that the system will manage. Another essential technology characteristic is Internet connectivity and e-business links for e-commerce and customer service, supplier relationship management, and collaboration. Modern systems employ thin-client, highly graphical, tailorable role-based user interface with simple connections to and from Microsoft Office applications (Excel, Word) and e-mail.

ERP systems are available on a variety of hardware platforms and operating system environments including cloud-based Software-as-a-Service (SaaS) subscription alternatives.