Enterprise Resource Planning
Enterprise resource planning(ERP) is a cross-functional enterprise system that serves
as a framework to integrate and automate many of the business processes that must be
accomplished within the manufacturing, logistics, distribution, accounting, finance, and
human resources functions of a business. For example ERP software for a manufacturing
company will typically track the status of sales, inventory, shipping, and invoicing, as
well as forecast raw material and human resource requirements. Figure1 illustrates the
major application components of an ERP system.
Sales,
Distributi
on, Order
Management
Production
Planning
Customer/
Employee
Human
Resources
Integrated
Logistics
Accouting
and
Finance
Companies are finding major business value in installing ERP software in two major
ways:
 ERP creates a framework for integrating other systems and improving customer
service, production, and distribution efficiency.
 ERP provides vital cross-functional information quickly on business performance to
managers to significantly improve their ability to make better business decisions across
the enterprise.
Colgate-Palmolive: The Benefits of ERP
Colgate-Palmolive is a global consumer products company that implemented the SAP/R3
enterprise resource planning system. Colgate embarked on an implementation of SAP/R3 to allow
the company to access more timely and accurate data, get the most out of working capital, and
reduce manufacturing costs. An important factor for Colgate was whether it could use the
softtware across the entire spectrum of the business. Colgate needed the ability to coordinate
globally and act locally. The implementation of SAP across the Colgate supply chain contributed
to increased profitability. Now installed in operations that produce most of Colgate’s world wide
sales, SAP will be expanded to all Colgate divisions worldwide by 2001. Global efficiencies in
purchasing-combined with product and packaging standardization-also produced large savings.
 Before ERP, it took Colgate U.S. anywhere from one to five days to acquire an order, and
another one to two days to process the order. Now, order acquisition and processing combined
takes four hours, not up to seven days. Distribution planning and picking used to take up to four
days; today, it takes 14 hours. In total, the order-to-delivery time has been cut in half.
 Before ERP, on-time deliveries used to occur only 91.5 percent of the time, and cases
Ordered were delivered correctly 97.5 percent of the time. After R/3 the figures are 97.5 percent
and 99.0 percent, respectively.
 After ERP, domestic inventories have dropped by one-third and receivables outstanding have
dropped to 22.4 days from 31.4. Working capital as a percentage of sales has plummeted to 6.3
percent from 11.3 percent. Total delivered cost per case has been reduced by nearly 10 percent.