What is an Enterprise Resource Planning System (ERP System) & Does Your Business Need One?
Enterprise Resource Planning (ERP) Systems refers to a myriad of integrated software suites and packages used by small and large enterprises alike for the management of day-to-day operations and business workflows, including data management, inventory checking, accounting, customer relationship management, project management, etc. In order to remain an efficient competitor in the modern digital economy, in an age of digital commerce, ERP systems make up a core section of a typical corporate information technology infrastructure.
ERP systems typically comprise several different but highly integrated and inter-related modules, including system suites for supply-chain management, finance and accounting, warehouse management systems, transportation management systems, international trade logistics, customer-relationship management, supplier relationship management, etc. Essentially, ERP systems aid companies with optimizing and (oftentimes) automating internal business operations associated with customer-facing processes (e.g. CRM systems), internal-facing processes (e.g. Human Resource management systems), and supplier-facing processes. An ERP system thus allows the integration of all essential business software systems into one primary platform in order to seamlessly manage all business processes in an efficient manner.
An efficient ERP system can help C-suite executives both lead and manage, by using IT systems tactically in order to solve issues as they arise, and to analyze business workflows in order to ensure more optimal internal corporate efficiency. This allows executives to strategize novel business plans and models in order to better the enterprise’s bottom line in the future.
Since the ERP system of an organization is essentially the Information Technology HQ of the enterprise, every type of business, whether small, medium or large, can benefit from the use of an ERP system. The critical nature of ERP systems can be illustrated by several statistics, which reveal how much ERP systems are growing amongst businesses. According to Statista, “by 2016, global revenues for ERP software are predicted to reach 32.6 billion U.S. dollars, this is in line with other estimates for the global ERP market.” It is important to note, however, that while ERP systems are often critical to the success of enterprises as a whole, an ERP system can comprise several different types of software suites, and thus it is up to an organization to configure and tailor their ERP system to meet their specific goals and needs.
ERP Systems Are More Frequently a Set of Highly Integrated Enterprise Software Components
An ERP system allows a business to integrate a variety of software systems to meet their specific goals. This means that ERP systems are not a “one-size-fits-all” platform, but are usually systems comprised of different modules. These modules may be software systems associated with maintaining health records and databases, or may be software systems that are tailored for e-commerce websites. Thus, it is best to think of ERP systems as suites that are comprised of modules or software applications. These components make up the greater platform that is the ERP system. This allows a great amount of flexibility and efficiency among enterprises, who can tailor their ERP systems accordingly.
That said, it is important to note that ERP systems can incorporate new and additional software components to assist a business with future innovation and growth. ERP vendors often add new functions to their specific ERP platform by integrating software systems from companies that they acquire or merge with. However, the process of incorporating new systems into existing ERP platforms is often complex and requires a great degree of planning and oversight, as the acquisition and integration process often results in a platform that doesn’t “feel” well integrated.
Your Enterprise Resource Planning Software Is Like the Central Control Room of Your Business
As noted before, the ERP system of an enterprise is essentially the HQ of the business, giving executives and professionals an in-depth view into business activities, processes, operations, and workflows. This includes data associated with the management of inventories, the tracking of products, the management of financial datasheets, the organization of supply chain data, etc. All of these separate but integrated corporate data-sets give C-suite executives the potential opportunity to further optimize the business as a whole.
Management, Tracking and Measuring of All Core Business Processes
The ability to manage, track and measure business processes gives executives a great amount of data to analyze in order to potentially better the enterprise’s bottom line via optimization. Business executives are able to use ERP systems to manage, track and measure data associated with almost all facets of an enterprise, however, ERP systems are especially useful for data associated with finance/accounting, daily operations, and supply chain management.
Initially, ERP systems were pieces of software engineered by programmers in order to aid companies with inventory and supply chain management, and with the management of finances/accounting. Thus, as can be seen, ERP systems – along with solutions for business automation – allow companies to seamlessly track financial/spending habits, balance financial datasheets, manage daily business operations amongst all silos in an enterprise, and track/manage supplies, manufactured goods, products, etc.
A Truly Enterprise-Wide Platform – The Central Hub Supporting Each Department’s Specific Needs
Though ERP systems typically operate as whole-enterprise HQ or data-centers for executives and personnel, the true power of ERP systems is the fact that each corporate department is allowed to operate independently, while still working together seamlessly with other departments. This is largely accomplished with ERP systems which keep the different corporate silos together by acting like the “glue” that manages the departmental data, operations and processes so all managers and personnel can communicate, track what is being done, and work together efficiently.
It is Likely that Each Department of Your Company Will Need its Own Enterprise Software
ERP systems allow the sharing of departmental transactional data from several sources, allowing all silos of an organization to truly become integrated and to work together. That said, different departments of an organization typically have different tasks, and thus due to having different processes and workflows, each silo typically (without an ERP system) has different enterprise software requirements. Despite corporate departments having different software needs, ERP system suites often support the needs of each department, while allowing all departmental data to become integrated into one place. While ERP systems often meet each department’s needs in a general way, it is not atypical for companies to need more specific capabilities in a given area that the ERP system does not provide. When that occurs, it is always feasible to use and integrate specialized applications with the ERP system, which allows the business to keep the ERP system as the central hub for all corporate processes, while expanding its capabilities.
Accounting and Finance
ERP systems are powerful software platforms that can be leveraged by businesses in order to conduct all financial and accounting processes. There are several financial operations that are typically carried out by businesses, including keeping track of balances, managing the enterprise’s budget, summarizing and reporting all transactions, analyzing corporate costs associated with overhead and product manufacturing, etc. All of these important financial tasks, and more, can be conducted via ERP systems.
AP, AR, General Ledger, Fixed Assets, Product Costing, Job Costing, Financial Reporting
ERP systems are capable of processing both Accounts Payable (AP) and Accounts Receivable (AR) corporate processes. While AP denotes financial transactions from the company to the distributor or supplier, AR denotes customer payments to the company. It is necessary to track, manage, record and analyze data associated with both AP and AR processes. ERP systems can also be used to chart, process, analyze and report the whole enterprise’s financial accounts/balances, as well as transactions and financial operations, allowing audits to be feasibly carried out, when necessary.
Additionally, ERP systems can be used for all in-depth financial reporting – in order to thoroughly determine the performance and bottom line of the company – for determining, measuring, analyzing and comparing product costing and job costing, and for managing the tangible assets associated with a company (fixed assets), including asset records, transactions, taxes, etc. ERP systems can also be used for forecasting, banking, cash management, and – as previously noted – corporate budgeting.
Sales and Customer Support
ERP systems can also provide a robust company-customer communication platform and interface for better marketing, more efficient sales processes, and more optimal customer service operations. Such a platform is usually in the form of a CRM.
Customer Relationship Management (CRM) is a system for managing all customer-interactions, communications and transactions, and is often associated with marketing, sales, and customer service processes. CRM systems are also used for driving sales, analyzing sales data, turning leads into customers (lead management), and conducting marketing operations that cause customers to be retained. That said, ERP systems can also accommodate CRM operations in order to allow for seamless customer-retention, marketing, customer-communications and customer-service.
ERP systems can also integrate other specialized sales software into the core platform to add extra functionalities that can help to automate several sales tasks. Such specialized sales software includes Sales Force Automation (SFA) applications, and software associated with the sales order entry and processing procedure, etc. SFA is a software solution designed to automate tasks such as tracking of customer interactions, aiding customer retention, business inventory management, sales analysis, etc. The efficient use of an ERP system with relation to CRM tasks can help to better the customer experience from a global view of the entire corporate supply chain.
SCM (Supply Chain Management)
One of the most crucial aspects of any business is the overarching supply chain. Supply chain management (SCM) is thus a critical aspect of maintaining a successful business. SCM encompasses managing processes associated with the supplier, retailer, manufacturer, wholesaler, and customer, from production to distribution. Specifically, SCM has several subsets, including Warehouse Management Systems (WMS), Transportation Management Systems (TMS), International Trade Logistics (ITL), Supplier Relationship Management (SRM), etc. ERP systems can accommodate all of the above business processes and management tasks.
Procurement, Distribution, Warehouse Management, Inventory Management, Demand Planning, Supplier Contract Management / Supplier Relationship Management
ERP systems can be used for all aspects of SCM and its subsequent management tasks, including:
- Procurement: ERP systems can be used to manage both MRP-driven (direct-materials) procurement and MRO procurement of necessary materials.
- Distribution: ERP systems can be used to manage the transport and distribution of raw materials or finished goods.
- Warehouse Management: ERP systems can employ powerful system logic to aid with the optimal storage of materials, and with the upkeep of storage facilities.
- Inventory Management: ERP systems can be utilized in the process of managing and recording information associated with warehoused goods, and for the movement of those goods to and from warehouses.
- Demand Planning: ERP systems can be used for analyzing all data associated with an enterprise’s supplies versus a market’s demand, and thus for demand planning and forecasting.
- Supplier Contract Management/Supplier Relationship Management: SRM encompasses the management of all supplier-facing operations, interactions and workflows within the Supply Chain Management (SCM) superset. SRM and Supplier Contract Management focuses on sourcing and procurement, and on connecting with suppliers via the application of specialized SRM modules. Such modules can be integrated with core ERP systems to add the ability to manage all data associated with the supplier.
Manufacturing / Production
The manufacturing and production tasks associated with a business can also be accommodated by ERP systems. This includes providing technical solutions for manufacturing management, planning production, managing the process of raw materials, managing inventories, etc.
Material Requirements Planning (MRP), Bill of Material (BOM), Scheduling, Capacity Planning, Quality Control / Quality Management
ERP systems can assist companies with all phases of the manufacturing and production process, including:
- Material Requirements Planning: ERP systems can be used in MRP processes, which is a system for managing all aspects of the manufacturing and production process.
- Bill of Material: ERP systems can be used to record, analyze and report all of the materials, assemblies and components needed to produce a final product.
- Scheduling: ERP systems can also be used as robust tools for scheduling, planning and optimizing all corporate tasks and resources associated with the manufacturing and production of a specific product.
- Capacity Planning: In association with demand planning, ERP systems can be used to determine the correct production capacity needed to meet a market’s demand for a product, specifically for a given enterprise.
- Quality Control/Quality Management: ERP systems can be used to integrate inspection and quality control workflows – and their respective data sets – within a central platform, allowing for the effective quality management of all products.
Human Resources (HR) tasks encompass everything associated with training, managing, regulating, paying and compensating personnel. Additionally, HR tasks include workers-compensation, tasks associated with worker health and safety, etc. ERP systems are able to provide a myriad of benefits to companies who need quick and efficient HR software solutions to aid with time tracking, payroll, performance management, etc.
Time Tracking, Payroll (sometimes), Employee data, Performance Management, Manager/Employee Self Service; Recruiting / Applicant Tracking / Hiring (Talent Acquisition)
ERP systems can provide companies with several functionalities associated with HR, including:
- Time Tracking: ERP systems can be used for tracking and managing time/schedules and to determine how efficiently time is being used to optimize future workflows.
- Payroll: ERP systems can be used to record, manage, track and report all payments made to personnel.
- Employee Data: ERP systems give personnel the ability to track, manage and keep abreast of personal information, benefits, health insurance data, etc. online without needing to submit forms to HR.
- Performance Management: ERP systems allow managers to assess the performance of individual employees, to evaluate and plan personnel teams for projects, and to manage employee contracts, etc.
- Manager/Employee Self Service: ERP systems can allow personnel to use software in order to manage their data without having to submit physical forms to the HR department.
- Recruiting/Applicant Tracking & Hiring (Talent Acquisition): ERP systems can be used by hiring authorities for tracking applicant data throughout the hiring process, and for managing the recruitment and career development processes associated with prospective and current employees.
An ERP System Will Provide Significant Business Intelligence
A large advantage with using ERP systems is the ability to harness crucial Business Intelligence that may aid business executives in a myriad of ways. Business Intelligence is the data produced by – and associated with – businesses, based on corporate processes, operations, workflows, etc. Having all corporate data flowing into a central hub, and captured/parsed by ERP systems in real time via dashboards, allows C-suite executives and data analysts to better manage daily business operations, while also giving corporate leaders the necessary insights to craft novel strategies for the future. Business Intelligence from ERP system suites also allows the production of in-depth reports that executives can use to plan new business innovations that can fuel future growth.
Based on opportunities that are visualized by daily data-sets captured by ERP systems (e.g. data associated with the distribution process), data analysts can propose new, more efficient ways of operating certain business processes, while also presenting novel solutions to significant corporate problems. Since all corporate data flows into the Information Technology HQ of the business (the ERP system), this allows executives to have a core overview of all business workflows and their associated data, allowing them to make better decisions in the future. This advantage is especially useful with regards to financial reporting, operational efficiency, quality metrics, etc. all of which can be optimized and better managed when all business data flows into – and is parsed/analyzed – in one central hub.
Evaluating ERP Systems Is a Case by Case Scenario With Every Business Being Unique
Every business is unique, and thus will have unique goals, workflows, and processes. To meet those unique goals, each business will need a unique set of software suites that comprise an ERP system. It is thus important for the corporate executives of an organization to conduct a full evaluation of ERP systems in order to tailor the business ERP platform to help fulfill the enterprise’s unique vision.
BAn Enterprise Resource Planning (ERP) System is a powerful set of software applications that can greatly aid a business with maintenance of operations and future growth. Through the use of specialized software suites, tailored ERP systems can help to automate and streamline all business workflows and processes, including supply-chain management, finance and accounting, warehouse management, transportation management, trade logistics, supplier management, customer-relations management, and more.
Additionally, ERP systems operate as central hubs, allowing business silos to work together and integrate both systems and data. Such an Information Technology HQ allows for the collection, analysis and harnessing of crucial Business Intelligence which can aid C-suite executives with the goal of expanding and growing the business in the future.