I have complicated relations with ERP systems, because I used to be an engineer rolling out complex software at several manufacturing enterprises. I know some specificity of ERP projects implementation and even have a scientific publication dedicated to optimization of manufacturing equipment loading. So, I plan to write a series of articles and discuss different aspects of development and integrating resource planning systems.
And here is the first article that should cover basic terms and concepts of management software.
What is Enterprise Resource Planning?
Let’s start from a common misconception about what ERP is.
I can see that many customers use the ERP abbreviation in a broad sense. When they mention ERP in their job descriptions, they usually mean a business management software not necessarily related to manufacturing, resources or planning at all.
However, ERP (enterprise resource planning) in the pure meaning of this word is a standard for manufacturing enterprises which extends another standard called MRP II (manufacturing resource planning). As a standard, it covers multiple types of planning that should be implemented at manufacturing enterprises. There were 16 planning types mentioned in the standard when we used to work with it, and I am not sure how many are described there nowadays.
When I mention planning types I mean that the main purpose of an ERP system is planning. Most of data entered in the system was required to build multiple plans including capacity planning, bill of materials and master production schedule.
This is the main difference between an ERP system and business management software in general. Business management software covers more narrow specifics such as HR management, orders management, time tracking, etc. And its main purpose is not planning but tracking.
Here is a short real life story to illustrate how tracking works in business management systems. Once we installed a typical accounting system in a small market store. The store was managed by two people - a store owner and a seller.
A couple of days after the system was installed, we returned to make sure that it was being used correctly. The owner said that he had found a missing item in the system that morning. It was a bag of potato chips or something like that. The software was saying that the item should be there, but it wasn’t there actually.
The owner started asking the seller about the chips and the seller repeatedly answered that she didn’t know where the chips were. The owner continued asking and said, "You took them". She declined that, but some time later she started crying and confessed.
I am not certain what happened after the owner found a missing sale item - probably, nothing. But what I have learned from that story is the importance of the tracking process.
A small store with two people in it was a very indicative example. Not too many sale items, but apparently the owner didn’t know the state of his stuff. Two days after he got an accounting system, he knew that. He could track routes of wares and money. Therefore, he could be in control of the whole business.
Long way to planning
Most business management systems never grow up to be a planning software. Some of their workflows are similar to those in ERP, but their purpose is different and so is their size. It is obvious, but it helps to be highlighted that an enterprise resource planning system requires an enterprise.
An enterprise is bigger than a company having about 100 employees. It has many departments that need tracking of their activities. It requires implementation of a huge variety of workflows.
An average company usually needs a software to automate one or maybe two workflows. The rest of activities can be paper-and-pencil due to simplicity purposes. A software created for such a company usually has two types of processes implemented:
- tracking processes;
- reporting processes.
An ERP software has both of these processes and also incorporates multiple planning processes.
While large manufacturing enterprises require ERP, for small business it is useful to incorporate a management system with a more narrow set of features. Benefits of ERP systems would not work out in an organization having less than 500 employees.
Since our company is aimed at development and customizing software systems for average companies and startups, I am going to pay a bigger attention to small business management systems rather than to the ERP standard which is very specific - more specific than people think.
Still, both types of projects are somewhat similar in terms of development and rolling out. Enterprise resource planning software is simply bigger, but the process of its development and rolling out is applicable to smaller systems.
In the next articles I will focus on these similarities and share my experience to describe proven ways to successfully develop and integrate management systems for businesses. As far as I can see, many project owners may want to know this stuff to apply it to their projects and act as more "professional customers".
I hope that this series of articles will help you to develop your own automation software and get a lot more out of your business.