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Enterprise Resource Planning (ERP) in a Nutshell

Written By: Aleksey Osintsev
Published On: June 26 2009

In this blog, we want to make readers more familiar with the logic behind our Evaluation Centers on our Web site by categorizing them—and, at the same time, we want to represent our understanding of manufacturing and enterprise resource planning (ERP) systems classification in general. We did not reinvent the wheel, but we are one of the few companies offering software selection services that provide all the tools you require to find your way to the right ERP for your business needs. All you have to do is to follow our logic, which starts with very simple business processes; but it can get more and more complex, depending on the type of activity you do.

Templates and Uniqueness

As we all know, manufacturing is basically a process of making products for use or sale using three of the most important resources: materials, equipment, and labor. Hence, the greater part of manufacturing’s internal processes is about managing and manipulating these three types of resources in order to produce the required products in the least amount of time and that are the best possible quality. Lately, it seems that information has becomes an important resource for all types of business, including manufacturing, and we probably can consider it as another resource to be properly handled and controlled. Regardless, almost any manufacturing, to a greater or lesser degree, includes all of the following business processes:

  • product design

  • production planning

  • material purchasing

  • manufacturing execution

  • inventory management

  • finished goods sales

  • financials

  • human resources (HR) management


As long as this manufacturing “template” is applicable for most cases, developers and creators of computerized information systems copy these real-life processes and transform them into the functional modules of ERP systems. Basically ERP systems are nothing more nor less than a virtual reflection of real business processes within computers and networks—which means that the better the ERP system is, the better it reflects reality, and the less distorted a picture of your business you have in your virtual space.

Of course, different software architects and developers design their products in different ways, based on their own understanding, experience, and level of creativity. That’s why a business that is bearing in mind an upcoming ERP selection and implementation should consider how unique the business is, how many “non-standard” business processes there are, and how ready you are to modify your own “home grown” business processes according to the “external” and adopted ERP business logic (which is not necessarily better than the existing one). Sometimes those “unique” schemes and practices provide business with the exclusivity that contributes to having a competitive benefit and this advantage can be killed with ERP standards. In such cases, obviously some modifications or system customizations are required; and particular prudence and care in ERP selection is highly recommended.

Our Way of Classifying Manufacturing

All types of manufacturing can be categorized based on a large number of factors; however, just a few of them are widely used. For example, the categorizations can be made by level of continuity (discrete or process, or a combination) or by company size (small to medium businesses versus large enterprises). Here are some examples of other classification criteria: lot size, level of product customization, vertical industry, level of project management involvement, and so on. The table (figure 1) shows these classifications.

erp_matrix1.JPG

Figure 1. Manufacturing types [click to enlarge]

In reality, manufacturers often do not belong to only one particular group; often, their businesses are a mixture of two or more categories, and their processes are complicated and cannot be qualified as a simple discrete or batch production. Such manufacturers definitely require sophisticated and multilayer software to manage the business, and this singularity should be taken into consideration during an ERP selection and implementation project.

Our Way of Defining Different Types of ERP

We will not discuss here functionalities such as financials and human resources, which can easily be replaced by dedicated solutions. Most of the time, an ERP product will have at least some financials functionalities, and can work very well with external accounting or HR products.

The base of most of our ERP knowledge bases (sets of criteria used to evaluate business solutions) is ERP Discrete. As you probably know, discrete manufacturing is the process of fabricating products by assembling components into larger systems or objects. The end result can easily be divided into separate pieces, or units (e.g., shirts, computers, cars, etc).

Spaceships are also produced by piece. The only difference is that engineering is very complex, unique and project-based; therefore, the knowledge base is called ERP Engineer-to-Order (ETO). As the name implies, you will never produce spaceships and then wait for customers to come and buy them; in fact, it’s the opposite.

If your products are not produced by piece (small or big), don’t panic! We have something for you too— it’s called Process ERP, which is for manufacturing processes involving a mix of ingredients that make a product of which the main characteristic is that you cannot differentiate its units: you cannot separate a can of paint into its constituent parts.

What if you do both? Let’s say you produce ice cream, but you also make the packaging for it. You will need ERP Discrete for the ice cream and ERP for Process for the packaging. I know, it’s the other way around—but I was just checking to see if you’re following! If you’re still with us, then we have something for you: Mixed-mode ERP, which is used by companies who need to switch production without interrupting their operations.

Manufacturing is great—but ultimately, the idea is to sell what you’re producing. ERP systems have sales modules, but sometimes it is more efficient to sell your finished goods to a distributor. Because they only buy and sell, these companies do not need sophisticated material requirements planning (MRP) modules, but cannot work without warehouse management, supply chain management (SCM), or retail and commerce. You probably already guessed that we have a knowledge base for that, which is called ERP for Distribution.

If you are neither producing nor selling what others produce, you probably are a service company and think you don’t need an ERP. Before you start looking for something else, let’s take a look at the definition for “resource” on Wikipedia: “A resource is any physical or virtual entity of limited availability, or anything used to help one earn a living.” To earn a living in services, you need project and expense management, back-office functionality, and others, which are grouped together into our ERP for Services knowledge base.

A special kind of service is education, where you probably do not really need opportunity and contract management nor portfolio management. You will focus on back-office functionality, financials, HR, and payroll. We have them all in the ERP for School Districts knowledge base (soon to be published!).

And finally, depending on different projects that we had along the way and on the demand in the market, we have created vertical knowledge bases. ERP for Mining and ERP for Mill-based industries already exist, and we are currently working on Retail and Construction.

How Would You Define Different ERP Types?

Even though most ERP professionals will probably agree on our way of defining different types of ERP, we’re pretty sure some of you have different views on this subject. We welcome your opinion and we enjoy constructive criticism.
 
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