What is Enterprise Resource Planning (ERP)?

What is Enterprise Resource Planning (ERP)?

Enterprise Resource Planning (ERP) is a platform companies use to manage and integrate critical parts of their business. Many ERP software applications are essential for businesses as they help them implement resource planning by integrating all the processes needed to run their business with a single system.

An ERP software system can also integrate planning, purchasing inventory, sales, marketing, finance, human resources, etc.

Key points to remember

  • ERP software can integrate all the processes needed to run a business.
  • ERP solutions have evolved over the years and many of them are now typically web-based applications that users can access remotely.
  • Some of the benefits of ERP include the free flow of communication between lines of business, a single source of information, and accurate, real-time data reporting.
  • There are hundreds of ERP applications a business can choose from, and most can be customized.
  • An ERP system can be ineffective if a company does not implement it carefully.

Enterprise Resource Planning (ERP)

Understanding Enterprise Resource Planning (ERP)

You can think of an enterprise resource planning system as the glue that ties together the various IT systems of a large organization. Without an ERP application, each department would have its system optimized for its specific tasks. With ERP software, each department still has its own system, but all systems are accessible through a single application with a single interface.

What does the ERP do?

ERP applications also make it easier for different departments to communicate and share information with the rest of the business. It collects information about the activity and status of the various divisions, making this information available to other parties, where it can be used productively.

ERP applications can help a company understand itself better by linking information on production, finance, distribution and human resources. Because it connects different technologies used by each part of a business, an ERP application can eliminate costly duplicates and incompatible technologies. The process often integrates accounts payable, inventory control systems, order tracking systems, and customer databases into one system.

How it works?

ERP has evolved over the years from traditional software models that used physical client servers and manual entry systems to cloud-based software with remote web access. The platform is usually maintained by the company that created it, with client companies renting the services provided by the platform.

Companies select the applications they want to use. Then the hosting company loads the applications onto the server that the customer is renting, and both parties start working to integrate the customer’s processes and data into the platform.

Once all departments are linked to the system, all data is collected on the server and instantly becomes available to those who have permission to use it. Reports can be generated with metrics, charts, or other visuals and aids that a client might need to determine the performance of the business and its services.

A company could experience cost overruns if its ERP system is not implemented carefully.

Benefits of enterprise resource planning

Businesses use enterprise resource planning (ERP) for a variety of reasons, such as expanding, reducing costs, and improving operations. The benefits sought and realized between companies may differ; however, some are worth noting.

Improves accuracy and productivity

Integrating and automating business processes eliminates redundancy and improves accuracy and productivity. Additionally, departments with interconnected processes can synchronize work to achieve faster and better results.

Improve reports

Some businesses benefit from enhanced real-time data reporting from a single source system. Accurate and comprehensive reports help companies plan, budget, forecast, and adequately communicate the status of operations to the organization and to interested parties, such as shareholders.

Increases efficiency

ERPs allow companies to quickly access the information needed for customers, suppliers and business partners. This helps improve customer and employee satisfaction, speed up response rates, and increase accuracy rates. Additionally, the associated costs often decrease as the business operates more efficiently.

ERP software also provides full visibility, allowing management to access real-time data for decision-making.

Increases collaboration

Ministries are better able to collaborate and share knowledge; a newly synergized workforce can improve productivity and employee satisfaction, as employees are better able to see how each functional group contributes to the company’s mission and vision. Additionally, menial and manual tasks are eliminated, allowing employees to devote their time to more meaningful work.

ERP weaknesses

An ERP system does not always eliminate inefficiencies within a business or improve everything. The company may have to rethink its organization or risk ending up with incompatible technology.

ERP systems typically fail to achieve the goals that influenced their installation due to business reluctance to abandon old work processes. Some companies may also be reluctant to abandon old software that worked well in the past. The key is to prevent ERP projects from being split into smaller projects, which can lead to cost overruns.

Using change management principles throughout the ERP lifecycle can prevent or reduce failures that jeopardize full implementation.

ERP solution providers

Some household names are leaders in ERP software. Oracle Corp. (ORCL) originally provided a relational database that integrated with ERP software developed by SAP (SAP) before entering the enterprise market massively in the early 2000s. Microsoft (MSFT) has long been an industry leader, with many customers using several of the company’s software applications.

While cloud-based solutions have grown in popularity in recent years, traditional ERP industry leaders have faced challenges from new entrants such as Bizowie and Workwise.

ERP examples

Fulton and Roark

Men’s grooming products maker Fulton & Roark has successfully implemented enterprise resource planning to better track inventory and financials. Like many other businesses, the North Carolina company used spreadsheets to track inventory and accounting software to record financial data.

As the company grew, its processes lagged. Their outdated inventory tracking system didn’t keep track of changing costs, and the accounting software couldn’t record the metrics needed for key financials. These outages created manual processes, which further compromised time and resources.

To eliminate unnecessary processes and centralize work, they chose the Oracle NetSuite ERP system. Immediately, Fulton & Rourk was better able to identify inventory-related accounting errors, eliminate the costs of employing third parties to assess their financial records, and better report financial positions.

Cadbury

Cadbury, a global confectioner and maker of the famous Cadbury chocolate egg, has also successfully implemented an ERP system. The company had thousands of systems but couldn’t keep pace with its rapid growth and used inefficient warehouse management systems.

It has implemented a system that integrates its thousands of applications, standardized processes and re-engineered warehouse management systems, breaking down silos for seamless, integrated coordination of work.

Why is enterprise resource planning important?

Enterprise resource planning software offers single-system solutions that integrate processes across the enterprise. These applications allow users to interact within a single interface, share information and enable cross-functional collaboration. They increase productivity, collaboration and efficiency.

What are the 5 components of ERP?

The components of an ERP system depend on the needs of the organization. However, there are key features that every ERP should include. Typically, packages include finance, human resources, logistics and manufacturing, supply chain management, and customer relationship management.

What are the types of ERP?

Generally, there are three deployment options for ERP systems; Cloud-based, on-premises, and a hybrid of the two. Among these options, a business can choose from hundreds of types such as finance, supply chain management, and human resource management.

What are the 2 main ERP applications?

The main applications depend on the company and the industry in which it operates. Most businesses can benefit from supply chain management, logistics, and finance applications to help them streamline their operations and expenses.

The essential

Enterprise Resource Planning (ERP) manages and integrates business processes through a single system. With better visibility, companies can better plan and allocate resources. Without ERP, companies tend to operate in silos, with each department using its own disconnected system.

ERP systems promote the free flow of communication and knowledge sharing within an organization, system integration for improved productivity and efficiency, and increased synergies between teams and departments. However, moving to an ERP system will be counterproductive if the company culture does not adapt to the change and if the company does not review how its organizational structure can accompany it.