Earlier business organizations used to develop and maintain individual systems for their departments (before 1990). For example, accounts management systems for accounts department and thus marketing, sales, production, purchase, human resource (HR) departments had their own systems to support their departmental need. Most of the organizations had to keep teams for development and support the software and support the Business Information Systems (BIS) including the departmental experts to understand their own requirements. Databases and network systems for departments were separated focusing the departmental activities.
A scenario may make it clearer. In a running business cycle, production department sets their target as per strategic and tactical decisions made by the mid and top level management who might have a prior analysis of previous years’ reports of sales and customers’ feedback. Sales figures used to fetch from the sales department and customers’ feedback used to produced from reports of marketing department. To support systems and software for different sections, extra technical skilled persons were required to employ. Here, alignment between business strategy
and information system (IS) strategy is required to make decision by the management. Separate systems of different department were tough to align with each other, since departments used to run separately and make decisions separately.
To overcome all these drawbacks, now enterprise systems concept has been evolved to support organizations business processes that crosses over the boundaries of individual departments. The enterprise resource planning (ERP) is a vital component of enterprise systems. ERP systems involve financial processes, production, distribution, sales and HR mainly. A figure given below that explains the reasons of implementation of ERP system.
Fig1. ERP system in comparison to separate functional systems. (Ref: Bocij, Chaffey, Greasley,
Hickie, Business Information Systems, 3rd Edition @ Pearson Education Limited 2006)
The figure above provides a comparison between ERP system and old individual (departmental) arrangements in a company. The ERP systems actually provide an integrated business management environment. It reduces inconsistency between decentralized application usages. It provides a central repository from where all sections can be served and information flow becomes smooth throughout the organization.
There are some drawbacks of ERP systems too. Since it is a large and complex system, the supplier may charge a higher cost. Recent market analysis shows that, ERP software may cost up to few million dollars depending on the requirement of the organization and number of the users.
Besides, the organizational changes may require implementing such a system which involves development initiative of both business processes and information systems. Huge planning, training and maintenance initiatives will have to be taken for smooth running and maintenance of the system. In some cases where off-the-shelf solutions are taken, business processes have to change to fit to the software.
But the benefits are lot more. Integration of all business processes provides an increased efficiency and improved services to customers. Internal information sharing improves as different processes are integrated which improves decision making by the top level. Maintenance cost is lower as supports are taken from a single supplier and do not require to deal with lots of different vendors for individual modules.