Chapter 5:

Systems Integration: Challenges and Drivers

1. Evolution of ERP
Origins of ERP
The concept of ERP evolved from earlier systems like Material Requirements
Planning (MRP) and Manufacturing Resource Planning (MRP II), which focused
primarily on inventory management and manufacturing processes.
The 1990s saw the expansion of ERP systems to include other business functions
such as finance, human resources, and sales.
ERP in the 2000s and Beyond
Integration of internet-based technologies and cloud computing transformed ERP
systems, making them accessible to small and medium-sized enterprises (SMEs).
Modern ERPs include functionalities like customer relationship management
(CRM), supply chain management (SCM), and business analytics.
Current Trends in ERP
Movement toward cloud-based ERP solutions for enhanced scalability and reduced
costs.
Incorporation of artificial intelligence (AI) and machine learning (ML) for predictive
analytics and automation.
Focus on mobile accessibility, allowing users to access ERP systems from
anywhere.
2. E-business and ERP
The Role of ERP in E-business
E-business involves conducting business processes over the internet, including
online sales, supply chain management, and electronic payments.
ERP systems enable e-business by integrating back-office functions (such as
inventory and finance) with front-office operations (like sales and customer service).
ERP Supporting E-commerce Operations
o Inventory Management: Real-time tracking of inventory levels and automated
replenishment.
o Order Processing: Seamless processing of online orders, from order receipt to
shipment.
o Customer Relationship Management (CRM): Managing customer data and
interactions to improve service quality and retention.
Challenges of Integrating ERP with E-business
Ensuring system compatibility and data synchronization between online platforms
and ERP systems.
Chapter 5 Prepared By: Benjie F. Zarate
 Managing data security risks associated with online transactions.
3. ERP System Components
● Core Components of an ERP System
o Finance and Accounting: Manages financial transactions, general
ledger, accounts payable, and receivable.
o Human Resources (HR): Tracks employee data, payroll, performance
management, and recruitment.
o Manufacturing and Production: Supports production planning,
scheduling, and quality control.
o Supply Chain Management (SCM): Optimizes procurement, inventory,
and logistics processes.
o Customer Relationship Management (CRM): Facilitates customer
service, sales tracking, and marketing.
● Extended ERP Components
o Business Intelligence (BI): Provides analytical tools for data analysis
and reporting.
o E-commerce Integration: Supports online sales and customer portals.
o Asset Management: Manages physical assets, maintenance schedules,
and asset lifecycles.
4. ERP Architecture
Overview of ERP Architecture
The architecture of an ERP system defines how its components interact and are
structured to deliver functionalities across the organization.
Typically consists of modules for various business functions that share a common
database.
● Types of ERP Architectures
o Monolithic Architecture: Features tightly integrated modules where all
functionalities are part of a single system.
o Service-Oriented Architecture (SOA): Uses web services to enable
flexible integration with other systems and platforms.
o Cloud-Based Architecture: ERP system hosted on the cloud, offering
benefits such as scalability, cost reduction, and remote access.
5. Tiered Architecture of ERP System
Two-Tier Architecture
Consists of a client interface (user side) and a server interface (backend system).
Suitable for small organizations with straightforward needs.
● Benefits: Lower costs and simpler implementation.
Chapter 5 Prepared By: Benjie F. Zarate
 ● Three-Tier Architecture
o Comprises three layers: presentation (user interface), application
(business logic), and data (database management).
o Advantages: Enhances scalability and separates the user interface from
the application logic, making it easier to update or customize.
N-Tier Architecture
Extends the three-tier architecture by adding more layers, such as middleware or
integration services. Often used in complex, large-scale systems.
● Benefits: Enables better performance optimization and facilitates integration with
other business applications.
6. System Benefits of an ERP System
Operational Efficiency
Automates routine tasks, reducing manual errors and streamlining business
processes. Provides real-time data across functions, improving productivity.
Enhanced Decision-Making
Centralized data repository allows for better data analysis and reporting,
supporting informed decision-making. Predictive analytics tools help anticipate
trends and respond proactively.
Scalability and Flexibility
Adapts to organizational growth by adding new modules or functionalities.
Supports multi-location and multi-currency operations, enabling global expansion.
Regulatory Compliance
Automates record-keeping and reporting processes to ensure compliance with
industry standards and regulations.
7. Business Limitations of an ERP System
High Initial Cost
Implementing an ERP system can be expensive due to software licensing,
hardware upgrades, and consultancy fees. Maintenance and support costs may
continue to add up post-implementation.
Complexity in Implementation
Requires careful planning, customization, and alignment with business processes,
which can be time-consuming. Integration with existing legacy systems may be
challenging.

Chapter 5 Prepared By: Benjie F. Zarate

 Resistance to Change
Employees may be reluctant to adapt to new systems, requiring extensive training
and change management. Shifts in organizational culture may be needed to fully
embrace ERP functionalities.
Customization Challenges
While ERP systems offer various modules, customizing them to meet unique
business needs can be difficult and costly. Excessive customization may lead to
problems when upgrading the ERP system.

Chapter 5 Prepared By: Benjie F. Zarate