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Enterprise Resource Planning (ERP) software supports the distribution of information between various functional departments and geographic locations of a company. ERP systems currently exist in many different forms and offer many different features. Various businesses, large and small, have implemented ERP systems. Implementing an ERP system can be a daunting and expensive undertaking. A business seeking to purchase and implement an ERP system should perform extensive due diligence on the available systems and suppliers.
Many manufacturing companies rely on ERP systems to communicate data between departments such as production, shop floor planning, purchasing and accounting. ERP systems are the outgrowth of material requirements planning (MRP) systems. An MRP system calculates the necessary inventory and component requirements for production, and it keeps the production priorities up-to-date. MRP systems, however, cannot communicate with other systems (such as AP/AR and purchasing) within an organization. MRP grew into MRP II, which recognized the need to add supplier communication into the loop. MRP II later transformed into ERP. ERP systems give manufacturing companies a more effective communication tool between internal departments and external suppliers. Many manufacturing companies that use just in time (JIT) inventory management allow external suppliers to integrate with their ERP systems. This integration allows suppliers to make proactive inventory decisions based on real-time data.
Most big-box retail stores use ERP systems to communicate information between individual retail locations, distribution centers, corporate headquarters and suppliers. Because big-box retailers maintain millions of items in inventory spread across multiple areas, an ERP system is the only feasible way to manage all of the data. ERP systems collect individual sales data from each of the retailer’s locations and send that data to the home office for sales and accounting purposes. It also sends data to the distribution center for inventory stocking purposes; in some instances, it sends data to the supplier for purchasing purposes. Many of the big-box retailers use collaborative planning, forecasting and replenishment (CPFR) demand planning techniques with their suppliers. The use of an ERP system makes this method of demand planning more acceptable to suppliers because it gives suppliers direct access to certain key pieces of customer information.
Many third-party logistics providers (3PLs) use ERP systems to manage internal business requirements and external client requirements. 3PL companies’ act as specialists in various areas of the supply chain industry. Some 3PL providers specialize in warehousing and logistics, while others specialize in returns management and process improvement. While most 3PL companies utilize some form of warehouse, transportation or distribution management system, these systems typically integrate with an internal ERP system or a customer’s ERP system. These often systems integrate with both internal and external ERP systems simultaneously. Because of the wide variety of tasks performed by 3PL companies, having an ERP system that’s easily configurable is essential.
From 2002-2006, Kenneth Hamlett was publisher and head writer for UNSIGNED Music Magazine, an online publication with over 100,000 readers. Prior to establishing UNSIGNED, Hamlett was a business solutions analyst and spent 15 years formulating and writing proposals for supply chain business solutions. He is a graduate of the New York Institute of Photography.