ARTICLE TABLE OF CONTENTS
ERP is the full form of Enterprise Resource Planning.
ERP is software and hardware to run a company.
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The ERP Acronym
The acronym ERP stands for enterprise resource planning.
As the name suggests, at its core, ERP is the management and planning of the resources for an organization.
ERP helps organizations to tie together, manage, track, and analyze any business processes between and within departments such as accounting, human resource management, and production.
Since we no longer live in the middle ages, ERP is not done by pen and paper but rather by IT (Information Technology). That means that software (applications) and hardware (computers) are used to realize the requirements of ERP.
An ERP application is a flexible tool that can be custom-tailored to meet the needs of any business. It started in the 1960s, and it’s an integral part of many business operations today.
A definition of ERP is:
Enterprise resource planning (ERP) is the integrated management of core business processes, often in real-time and mediated by software and technology.[Wikipedia]
To put it more simply: ERP is software and hardware to run a company.
Precursor to ERP
ERP has evolved from the process of Manufacturing Resource Planning (MRP II).
In the 1960s, it started with a process to maintain the necessary stock in warehouses. This process, inventory management, and control included the following features:
- Stock tracking and transfers
- Identify inventory needs
- Manage purchases and sales orders
- Reconcile inventory balances
- Report inventory status
- Set targets
In the 1970s, MRP (Material Requirement Planning) began to use software to create schedules for operations and raw material purchases. This process kept track of the production requirements for finished items, the current inventory, how the production system worked, and the size of each lot for various operations.
In the 1980s, MRP transformed into MRP II, which used software to coordinate manufacturing processes including product planning, control of inventory, purchasing parts, and the distribution of products. It’s from this process that ERP emerged in the 1980s.
History of ERP
ERP first appeared in the 1980s, and by the early 1990s, many large corporations began to implement this software. It was able to provide integration of business processes including:
- Human resources
- Inventory control
- Project management
- Service and maintenance
By integrating these processes, businesses could gain greater consistency, visibility, and accessibility across the corporation. The upfront cost was very expensive, so mainly large enterprises made use of ERP.
SAP was one of the pioneers of ERP and now is the #1 in the ERP market.
In the 2000s, ERP was extended to incorporate advanced planning and scheduling, customer relationship management, and supply chain management into the process.
Today, ERP is less expensive, and it’s widely used by all types of businesses, including large, medium, and small. Each company can select the features that will deliver the appropriate results for their industry since ERP systems are highly customizable.
In fact, more than 50% of the businesses worldwide are satisfied with their ERP software vendors as of 2020:
With the increasing use of cloud computing, ERP systems have become more affordable and easier to manage especially for small businesses.
What Is the Value of ERP?
ERP software is valuable to businesses because it breaks down barriers between departments and thereby allows employees to do their jobs more efficiently.
Plus, through the merger of the various parts of a company and the storage of the company’s data in a single place, it’s possible to track and analyze almost anything.
Although the “E” stands for enterprise, this software has become affordable enough for all sizes of businesses to use.
Take a look at the following ways that ERP can benefit a business:
Improved Reporting and Forecasting
All data within a business is accurate and up-to-date, and it’s easily accessible for running reports and forecasts that can be customized with relevant information for the department creating it.
Without ERP, managers often obtain reports from IT (Information Technology) departments, and then they need to manually enter data into another program to make forecasts. ERP eliminates this need.
With all the information stored in a central system, ERP will eliminate repetitive processes and reduce the need to enter data manually.
In addition, data is more accessible across departments. This makes business processes more efficient.
ERP automates manual processes, which allows employees to focus on important tasks rather than performing redundant processes.
ERP is one single system, which allows employees across departments to collaborate to improve operations.
ERP systems can be custom-tailored to the needs of each specific business. A
s a business’s needs change, features of ERP can be added or removed, so this software eliminates the need for expensive changes later on.
Data is stored in one central system, which means that data is consistent across departments.
Other platforms such as CRM (Customer Relationship Management) can share the same system so that consistency and accuracy are always present.
What Are the Six Components of ERP?
ERP can be customized to include as many applications as your company needs such as these six components:
BI (Business Intelligence)
This component of ERP collects and analyzes data, which allows for visual insights into business processes. It simplifies the process of understanding complex reports and helps you to see trends within aspects of your company.
CRM (Customer Relationship Management)
The CRM aspect of your ERP is critical to your success. This software manages all aspects of customer relationships from initial contact through the sales.
CRM will also maintain information on leads, and it allows your business to take a comprehensive “customer first” approach.
Your marketing and sales will be optimized, and by focusing on customer satisfaction and retention, your business will increase its profitability.
This component of ERP works with all of the other components to analyze financial data including payroll, accounts receivable, accounts payable, costs, budgets, and forecasts. It allows you to maximize your profits and reduce your costs.
HR (Human Resources)
HR ERP is extremely important because it manages your employees in every aspect of the business. It can keep data for hiring, benefits, timekeeping, and payroll.
In fact, payroll, including tax and benefits deductions, can be completely automated, which saves time and money for the business.
Inventory Management System
This process works with SCM, sales, and warehousing in a collaborative effort to manage order fulfillment and warehouse stocking. It uses tracking features to automate the process so that you can easily have information at your fingertips when you need it.
SCM (Supply Chain Management)
SCM collects real-time data on your supply chain so that you have more control. You will be able to pinpoint and fix problems as they occur, which leads to greater customer satisfaction.
What Other ERP Modules Are There?
There are many different modules or components that you can add to your ERP system.
In addition to the six above, you may need any of the following modules, depending on the nature of your business.
This list is by no means exhaustive.
You will find that there are many different features to customize and increase profitability for your business.
The key is to determine which modules will best serve the needs of your business and implement processes over time.
Sales Force Management
This module will simplify the sales process by organizing data for sales requests, sales orders, tracking pending sales, shipment, and more. Any of this information can be retrieved with the click of a button.
Project and Costing Management
You can simplify project planning, cost planning, collaboration, and task management with this component.
Purchase Order Management
This component simplifies the process of purchase orders, reordering, pricelists, and condition management.
ERP Implementation Process
The process of implementing ERP requires planning. In fact, ERP failure statistics show how important it’s to ensure success through planning.
Overall, it’s a good idea to start with the basics of an ERP and add other modules later on. Employees need to grow accustomed to the new system, and adding too much too soon can lead to failure.
Take a look at the following steps that will enable you to get it done correctly the first time:
Assign a Dedicated ERP Implementation Team
You need several important members assigned to this team.
The project manager is responsible for overseeing the entire implementation process, and you will also need team members for data migration, system customization, and system testing. In addition, it can be useful to have team members for cost and employee training.
Who you need will be specific to your business, but you should start here.
Create an Implementation Plan
This plan covers the entire implementation process, including forecasting costs, creating a schedule, migrating data, testing the system, training employees, going live, and evaluating the success of the system. In addition, this plan should address how to keep the business running as efficiently as possible throughout the implementation process.
Forecast Costs and Create a Budget
In addition to the actual cost of the system, include factors such as staff overtime during implementation, network upgrades, data storage and backups, and vendor training.
You should have a specialist to head up this part of the process, but you may need others to assist with database building, mapping to new database fields, data verification, and data transfer.
All employees will need to be trained to maximize the capabilities of the ERP.
You can offer rewards for employees who complete pieces of training more quickly, and your team should keep employees motivated and engaged.
You will need to test the system before you go live, and then monitor it once it’s life. Have a plan in place for handling unexpected issues, and keep a close eye on data backups.
Review the success of the ERP system by looking for increased profits, reduced human error, an increase in employee productivity, and improved customer satisfaction.
You can tweak the system as needed to ensure that your ERP is improving the overall function of your business.