What is ERP? Enterprise Resource Planning

Posted by sharath k on August 16th, 2019

What is ERP?

Enterprise resource planning or ERP is a process of using technology to tie together all departments and functions in an organization into a unified system and enable data flow between them.

An ERP software is intended to simplify information sharing, eliminate data duplication, provide data integrity, and promote informed decision making.

All-in-all, it is an advanced technology enabled system that serves each departments' specific needs, while making business management a hassle-free affair.

An ERP system can be ineffective if it is not implemented carefully. This may also lead to business disasters rather than advantage. Effective ERP implementation is one of the key factors in bringing the best outcome.

Definition of ERP

ERP is an integrated suite of applications that has the ability to deliver operational excellence and bring future business growth. The tool shares a common database for all departmental operations in an organization, covering those found in finance and accounting, sales and marketing, HR, manufacturing, distribution, inventory, customer relationship, supply chain, warehouse, and more.

ERP systems support automation of administrative and other business operations functioning across industries, including multiple lines of businesses. The basic characteristic component of ERP remains the shared database, which primarily distinguishes these integrated systems from a stand-alone targeted software.

With the help of ERP software, companies can get rid of double entry errors, improve communication, achieve information uniformity and accuracy organization-wide. Its real-time reporting dashboard feature also facilitates users to get quick access to business performance data, anytime.

History of ERP

The term ERP was first used in 1990 by the Gartner Group. Back then, it was referred to systems having capabilities to help manufacturing companies better handle their material requirement planning and demand or supply related problems. 

The earliest ERP systems consisted of software programs that are able to integrate other smaller systems, used in different departments of a company to manage a particular operation.

As computer technology evolved, ERP systems experienced rapid growth. Initially, it was used to automate only back-office functions that did not have a direct effect on customer relationships. With the concept growing stronger, the ERPsoftware started developing to be able to handle all business activities, including the ones taking place in the front office.

Later, by the twenty-first century and with the introduction of the internet, ERP offerings have progressed. The traditional ERPsoftware models that used physical servers got transformed into cloud-based ERP systems, which enables users remote, online access to the database.

Today, capabilities of ERP have expanded, becoming comprehensive enough to manage any critical organizational operation, irrespective of the size of the business or industry it belongs to. ERP solutions have become an indispensable part of any organization that helps them keep their business run smoothly and effectively.

How does ERP works?

At its most basic level, the intrinsic feature of any ERP software is to integrate various functions performed in multiple departments into one platform. ERP systems streamline business processes and information across the entire organization, eliminate the barriers that existed between departments and make corporate data easily accessible.

Along with bringing the synchronization among departments, ERPsoftware also automates and simplifies the daily business operations. These ERP systems include multiple modules and each of which is typically designed to focuses on maintaining workflow of one business area.

Unlike standalone business management systems in which information is manually merged to generate consolidated reports, an ERP solution allows employees to generate any report from a single system, without any additional effort.

Other ERP offering includes intuitive dashboards to enable staffs quickly and easily understand the business' performance based on key metrics.

What does it do?

The main purpose of implementing an ERP system is to improve business efficiency and profit through proper utilization of material and human capital.

Whether time, money, staff or something else, if you are able to reduce the material and other resources that are being used, without sacrificing quality or the performance, then your business grows more efficiently and appropriately.

ERP software is a powerful instrument for helping businesses manage their finance, human capital, sales, production, and other business areas. The tool combines reports and metrics from multiple departments and displays on the same platform. This makes easier and faster for businesses to get a complete view of each departmental processes and resources that are being used.

Management can employ the key insights to enhances the quality of decision making and improve resource planning, a much-needed trait to generate higher growth and good returns for a business.

Conversely, absence of ERP systems leads to improper planning and allocation of resources, resulting to underperform and loss.

Benefits of ERP

In today’s complex business world, it is quite impossible to ignore the impact of an ERP. As all organizational data and processes are managed through ERP systems, businesses are able to integrate various departments and improve the overall workflow, resulting in a significant amount of savings.

The primary goal of implementing an ERP system is to bring business benefits indicated below:

Improved operational efficiency - through improving information sharing across the business functions

Get better business insight - with reports generated from real-time information

Reduce operational costs - with streamlined business processes and defined resource allocation

Consistent user interface - with same look and feel of the software for both back office and front office activities

More controlled business – with advanced operation tracking and managing features

High adoption rates – with intuitive design and common user experience

Enhance data security – with multiple level access permission and controls

Types of ERP

ERP systems are broadly categorized into three types on the basis of organization size, industry it is being used, and its technology

ERP for Small Business

Although ERP systems can control every business operation that you need to automate, the requirement of a large enterprise and a mid-sized or small company is never same, even if they belong to same industry sector.

So, the ERP for small business are scaled-down models designed with fewer or only relevant features and are more cost-effective.

Web-Based or Cloud ERP

Traditional ERP systems require physical servers and hardware installation on companies’ premise.

Unlike it, in cloud or web-based deployment model, the program is hosted on remote servers, making the information stored in it more accessible to users. Employees can freely use the ERP systems from anywhere and on any device that have internet connection.

Industry Specific ERP

Unlike one-size-fits-all, the latest ERP systems are tailored with functionalities to support the organization's specific, unique needs.

These ERP applications ensure quick optimization of business processes and faster adapting to changing market demands.

ERP Models

With right ERP systems in place, users have access to accurate business information, which enable them to make quicker decisions, eliminate redundant processes, and lower the overall operation costs.

Businesses can choose their ERP software deployment methods as per their unique organizational requirements. It is categorized into three distinct modes – cloud, on-premise, and hybrid.

Cloud ERP

CloudERP systems can be public or private.

In public cloudERP systems, online IT resources are made available through external service providers. Companies using the service would have to pay fees only for the resources used. Whereas, in private cloud ERP systems, IT resources are owned by the organization and can be accessed only by its employees.

Both the systems provide excellent means for quick ERP deployment, with cost advantages.

On-Premise ERP

On-premise ERP systems run applications on servers that are in the organizations’ premises. Companies using an on-premise ERP solutions have direct controls on the operations and maintenance of servers and storage. This requires higher investments in terms of time and cost of installations.

Hybrid ERP

A hybrid ERP is a combination of both cloud and on-premise systems.

Organizations using a hybrid ERP system can continue to operate critical business data under their control, in their own data centers. Simultaneously, they can also gain advantage associated with a flexible and scalable cloud ERP system in storing massive volume of data.

Modules of ERP

ERP systems help organizations to manage various departments and their functions through a centralized application. Below-mentioned are some of the most crucial modules that are found in an ERP system:

Human capital management (HCM) module:

Human capital management (HCM) module helps the HR team to record, track, and manage employee information related to their performance, job skill, attendance, payroll, payment reports, reimbursement, and more.

Inventory module:

Inventory module keep track of all stocks and traces their current location in the warehouse or stores. This module enables businesses improve control, optimize inventory utilization, and reduce wastage of stocks. It is best suited for retail and warehousemanagement.

Sales module:

Sales module include multiple features including sales queries, inquiry analysis, quotation drafting, accepting and handling sales orders, drafting invoices, and more that support faster lead conversion while enhancing the future opportunity for lead generation.

Finance and accounting module:

This module enables businesses manage the whole inflow and outflow of capital. The tool tracks all monetary transactions of a business such as expenditures, ledgers, bank statements, budgeting, payment, etc., allowing users to fetch any financial data in one click.

Customer relationship management (CRM) module:

The customer relationship management (CRM) module in ERP system helps organizations better manage their customer data and transactions. Using these information, businesses can enhance their customer service and establish a healthy relationship with them.

Production module:

Production module include material requirements planning (MRP) features that are great help for the manufacturing industry. It enables organizations dealing with production and delivering products to outperform while meeting the highest manufacturing standards.

Supply chain management (SCM) module:

Supply chain management module ensures businesses experience a hassle-free flow of product items from manufacturer to consumer and vice versa. It is most used by suppliers, manufacturer, distributors, warehouse stockist, and retailers.

ERP business value

ERP systems can most effectively structure all the business processes. They support information sharing, allowing every department to communicate efficiently – improving information integrity.

ERP systems include business intelligence tool backing real-time reporting, a much-needed feature for informed decision making and knowing the early-warning to future challenges.  

Enterprise ERP trends

ERP solutions have evolved appreciably ever since the systems were introduced.

Today, ERP systems have unleashed new technology trends and have grown into a scalable, versatile, and multi-faceted tool that businesses of any size and industry would leverage upon for catalyzing their performance enhancements.

Following are the new ERP software trends:

Mobile ERP

ERP systems are accessible on mobile phones. Employees get real-time access to reports and information dashboard anytime, anywhere.

Cloud ERP

The advantages of cloudERP systems is becoming apparent. Business information is stored in remote servers, which can be easily used by employees irrespective of location or device they use.

Social ERP

Nowadays, adoption and reach of social networks have grown to a massive scale. Integrating social media functionality to ERP systems would enable users to access the wealth of prospects and clients’ data that are already stored in the platforms, making day-to-day tasks of reaching out to them much easier. Thus, ERP applications are powerful tools to boost customer relationship and sales.

Two-tier ERP

Two-tier ERP systems are used by larger organizations, functioning in multiple geographic locations. In this, two integrated ERP systems run simultaneously. One system is deployed at the corporate level and the other is managed at the subsidiary level.

Factors to consider while choosing ERP software

Every business grows and so you need to ensure that your ERP systems are able to support the expansion. In other words, you need to identify the ERP system that is best for your business today and in the future. Here are some of the fundamental factors you need to consider while choosing ERP software:

Integration

Organizations need consolidated information from various departments to get the complete business overview required for decision making.

Multiple departments generate multiple sets of reports, all of which are need to be consolidated. Doing it manually is both time consuming and can give rise to errors. Integrated ERP systems automate consolidation and mitigate the errors.

Multi-currencies and taxation support

Whether the ERP system is able to handle multiple currencies and compliant with tax regulations is another key consideration for any business that operates globally.

The right ERP software would demonstrate these capabilities. The system supports regional monetary differences and instantly respond to changes in country-wise taxes regulations.

Data visibility

The right ERP systems standardize business processes while providing greater visibility to organizational data through a centralized platform. This helps businesses to track, manage, and have more control over all its departments and processes.

Levels of customization

Every ERP system needs to be customized to suit the specific business requirements and objectives. It enhances ERP systems’ efficiency in bringing ease in operations, seamlessly mapping the business processes, and fulfilling global reporting requirements.

System scalability

Scalability is the capability of an ERP system to support the increasing volume of operational data or business growth. It is a crucial quality that allows users to establish new business processes easily and streamline them to maximize productivity.

Support hybrid deployment model

CloudERP systems are relatively new in the market when businesses are already using on-premise systems. So, there is a lot of data stored in the legacy systems that cannot be moved into the new system instantly.

The right ERP solution ensures co-existence and synchronization between on-premise and cloud systems. This two-tier implementation would help businesses to continue using their existing software while getting introduced to agile cloud systems for new divisions, without disrupting ongoing processes.

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