What Is Enterprise Resource Planning (ERP)?
Enterprise resource planning (ERP) is a type of business management software that enables an organisation to use a system of integrated applications to manage the business and automate many back-office functions related to technology, services and human resources.
ERP software integrates all facets of an operation, including product planning, development, manufacturing, sales and marketing.
ERP systems track business resources—cash, raw materials, production capacity—and the status of business commitments: orders, purchase orders, and payroll.
The applications that make up the system share data across various departments (manufacturing, purchasing, sales, accounting, etc.) that provide a single data source. This information is then used to generate financial statements, tax reports, and other management reports.
ERP systems can also include project management features and tools for customer relationship management (CRM) and supply chain management (SCM).
ERP systems are used by organisations of all sizes and in various industries, including manufacturing, distribution, retail, and service-based businesses.
The goal of an ERP system is to allow an organisation to use a single, integrated approach to manage all of the essential parts of its business rather than using a variety of disconnected software programs.
What Does ERP Do?
ERP systems are designed to manage and integrate a company's financials, supply chain, manufacturing, and human resource activities. Here are some of the main functions that ERP systems are used for:
- Financial management: ERP systems can handle a company's accounting and financial transactions, including accounts payable, accounts receivable general ledger, and budgeting.
- Supply chain management: ERP systems can manage the flow of goods and materials from suppliers to manufacturers, warehouses, and customers. This includes functions such as purchasing, inventory management, and logistics.
- Manufacturing: ERP systems can support a variety of manufacturing processes, including engineering, production planning, scheduling, and quality control.
- Human resources: ERP systems can support HR functions such as payroll, benefits administration, and employee records management.
- Customer relationship management (CRM): Some ERP systems include features for managing customer interactions and data, such as sales and service requests.
- Project management: Some ERP systems include project management tools, including task assignments, deadlines, and budgets.
Overall, the goal of an ERP system is to provide a single, integrated system for managing all of the essential aspects of a business rather than using a variety of disconnected software programs. This can help an organisation streamline its operations and improve efficiency.
How Does ERP Work?
An ERP system typically consists of a centralised database that stores data for all the different business functions the system supports.
This data is accessed and managed by a set of software applications designed to work together.
The various software applications in an ERP system are often called modules, and each module is designed to support a specific business function.
For example, there might be a module for financial management, a module for supply chain management, and a module for human resources.
Users of an ERP system typically interact with the system through a web-based interface, which allows them to access the different modules and perform tasks such as entering and approving purchase orders, creating invoices, and managing employee records.
To implement an ERP system, an organisation will typically go through a process called "systems integration," in which the ERP software is customised to fit the specific needs and procedures of the organisation.
This can involve configuring the system to use the organisation's specific chart of accounts, setting up approval workflows, and integrating the ERP system with other business systems, such as a customer relationship management (CRM) or a manufacturing execution system (MES).
Once the ERP system is up and running, it can help an organisation streamline its operations and improve efficiency by providing a single, integrated system for managing all of its essential business functions.
Benefits of Enterprise Resource Planning
There are several potential benefits to implementing an enterprise resource planning (ERP) system:
- Improved efficiency: An ERP system can help streamline business processes and eliminate the need for data entry and information tracking in multiple different scenarios. This can save time and reduce the risk of errors.
- Better decision-making: ERP systems provide a single data source that authorised users across the organisation can access. This can help managers and executives make informed decisions based on real-time data.
- Enhanced collaboration: An ERP system can facilitate collaboration between different departments and teams by providing a central platform for sharing information and resources.
- Greater scalability: As a company grows and changes, an ERP system can be easily modified and expanded to support new processes and business needs.
- Reduced costs: An ERP system can help a company save money by automating and streamlining processes, reducing manual data entry and paper-based documentation, and eliminating the need for multiple standalone software systems.
- Improved customer service: An ERP system can help a company track and manage customer orders, interactions, and feedback more effectively, improving customer satisfaction.
- Enhanced security: An ERP system can help a company secure its data by providing robust user access controls and storing data in a centralised location.
ERP Weaknesses and Challenges
While enterprise resource planning (ERP) systems can provide many benefits to an organisation, some potential weaknesses and challenges can arise when implementing and using an ERP system:
- Cost: One of the main challenges of implementing an ERP system is the cost. ERP systems can be expensive to purchase and implement, especially for smaller organisations.
- Complexity: ERP systems can be complex to set up and customise, often requiring specialised training to use effectively. This can challenge organisations that need more technical expertise or resources to manage an ERP system.
- Integration: An ERP system is designed to integrate all of an organisation's business functions, but this can be a challenge if the organisation has legacy systems or custom applications that need to be combined with the ERP system.
- User adoption: Getting employees to adopt an ERP system fully can be challenging, especially if the system requires them to change how they work or could be more user-friendly.
- Data quality: The success of an ERP system depends on the quality of the data entered into the system. If the data is accurate and complete, it can impact the system's ability to provide reliable information for decision-making.
- Customisation: An ERP system is typically customised to fit an organisation's specific needs and processes. However, customising an ERP system can be time-consuming and costly, and it can take time to strike the right balance between customisation and standardisation.
- Maintenance and upgrades: An ERP system requires ongoing maintenance and upgrades to ensure it stays up-to-date and continues to meet the organisation's needs. This can challenge organisations that need more technical expertise or resources to manage these tasks.
Examples of ERP
- SAP: SAP is one of the most well-known ERP systems on the market. It offers a range of modules for financial management, supply chain management, human resources, and more. Here are a few examples of enterprise resource planning (ERP) systems:
- Oracle: Oracle offers a range of ERP systems, including Oracle E-Business Suite, which is designed for large enterprises, and Oracle NetSuite, which is designed for small and medium-sized businesses.
- Microsoft Dynamics: Microsoft Dynamics is a family of ERP systems that includes Microsoft Dynamics 365 Finance and Microsoft Dynamics 365 Supply Chain Management.
- Infor: Infor offers a range of ERP systems for different industries, including manufacturing, distribution, and healthcare.
- Epicor: Epicor offers a range of ERP systems for different industries, including manufacturing, distribution, and retail.
- Workday: Workday is a cloud-based ERP system that offers modules for financial management, human resources, and supply chain management.
These are just a few examples of the many ERP systems available on the market.
Each system has its features and capabilities, and it is essential for an organisation to carefully evaluate its needs and budget before choosing an ERP system.