Enterprise Resource Planning(ERP) Solutions
The literal meaning of ERP asserts to be an Enterprise solution that maintains a resource planning system, integrating the departmental functioning at one place.
Wikipedia gives a simple yet an elaborative definition to simplify it further.
According to Wikipedia,
“Enterprise resource planning systems (ERP) “is a category of business-management software—typically a suite of integrated applications—that an organization can use to collect, store, manage and interpret data from many business activities, including product planning, cost, manufacturing or service delivery, marketing and sales, inventory management, shipping, and payment”
The definition is surely easy enough to deliver a glimpse of ERP. However, the term demands a detailed explanation for better understanding. This post gives you a thorough insight, answering the questions associated with enterprise resource planning system.
We have addressed the essential aspects of ERP that explain it and make it remarkably significant and crucial.
The Article includes
- The uses of ERP System
- The drill down on working of ERP
- How does an ERP improve business performance?
- Requirements of ERP solution
- Tips for successful ERP
- Why is ERP utilised?
What is ERP System?
As you may know, ERP is a vital business software solution for Small, Medium and large-scale enterprises. It is not entirely about resources or planning but the company itself.
It is a set of business software tools which integrates information from all the departments and functions across a company on a single system.
It can serve varied needs of different departments catering to the requirements of HR, finance, warehouse, supply and any other department for that matter.
Small business firms usually rely on small tools. Although when the business takes off, additional data and workload get difficult to manage by a free tool and later on, opt an ERP solution for the company.
ERP systems perform financial and business planning functions, which might formerly have been carried out by many smaller standalone applications. Though every department in any company has software for a particular department, performing its requirements, what ERP does is, connects and bridges the gap between units which a regular system might not provide.
“This ERP bridge providing information and integrating processes improves the efficiency and effectiveness of all the processes. ERP implementation is a huge change for most organisations. However, when it’s being done and when it has lived in the organization, there’s a huge payback.” – Richard Aarnink
Enterprise resource planning system has transformed vividly right from an application for manufacturing resource planning (MRP) and computer integrated manufacturing (CIM) which managed to fulfill basic requirements of firms to ERP Systems nonetheless covering all core functions of a business in almost all industrial sectors.
What does ERP software do?
ERP systems replace all standalone applications and present you a single system that does all the tasks performed by small applications, assisting you to finance and plan your functions flawlessly.
Components of an ERP Solution:
We elongate the explanation further into different segments to make the article comprehensible. The information is a citation of several conventional sources presenting a close view of ERP module. ERP plays a more significant role in any organization apart from these critical areas. It mainly depends on the type of organization.
Accounting & Finance
- General Ledger
- Accounts Payable
- Accounts Receivable
- General Journals
- Trial Balance and Financial Reporting
- Bank Reconciliation
- Cash Management and Forecasting
Manufacturing & Distribution
- Purchasing, Tracking & Sales Shipments of Inventory Items
- Track by Lot and/or Serial numbers
- Track Quality Tests
- Warehouse Management functions
- Conversion Tracking
- Tracking Labor, Overhead and Other manufacturing costs
- Provide the total cost of production
- Sales order creation
- Sales order processing
- Purchase order processing
- Online sales
- Track and monitor post-sales service to products in the field
- Service Contracts
- Product Lifetime Costing has become standard functionality in current ERP solutions.
How does ERP improve business performance?
We heeded in our previous section that ERP automates the business process by performing various tasks. It not only substitutes standalone applications but efficiently executes all tasks providing accurate analytic reports which would not have been available otherwise.
It eventually improves the underlying proceeding of the business, i.e. taking an order from the customer, transporting it, invoicing it and offering after-sales service. Hence, ERP is seldom said to be the backbone of administrative affairs.
“There was talk in the past that ERP systems were legacy, lacked the agility and flexibility, and did not support interoperability. Those days are over, ERP systems are more important than ever.” –
Ray Wang, principal analyst at Forrester Research.
The role of technology in the business world is advancing in leaps and bounds and hence positioning ERP as a significant component of the competitive market.
The business solution acts as a tool to improve management though now, rediscovering itself as the need for the survival of firms.
Here is how ERP improvises the work of each department in a sounder way.
It collects financial data from transactional operations and other proceedings. Also, it makes reports based on the obtained information and numbers. It includes ledgers, trial balance data, overall balance sheets and quarterly financial statements.
Human resource management:
ERP system eases the work of HR managers as collecting data and generating reports about employee recruitment; performance reviews becomes as easy as falling off a log. The training and performance reviews also get more natural and in a very systematic manner.
Company’s cash flow is a result of inventory planning because of its straight impact on them. And ERP is that medium which improves the efficiency of inventory planning. It gathers data and creates reports about non-capitalized assets and stock items.
In today’s competitive market, the importance of sales department is growing day by day. To raise a golden handshake, the sales department of a company has to work on the customer relationships. ERP is that tool through which the department can have triggered communications and customer relationships maintained in a better way.
Supply chain management
When the company grows and targets a bigger audience, supply chain management becomes a complicated issue. ERP gathers data and generates reports about stocks, information, and transactions of the whole process. Right from supplier to manufacturer to wholesaler to retailer to consumer.
Conclusively, for small and medium enterprises, ERP not just helps support managing time and resources, it extensively helps cut cost and stay ahead of the competition.
In an age where all business technology applications should provide some competitive advantage, 76 percent of IT chiefs said operational efficiency was the goal of their organization’s ERP investment, followed by support of global business (12%), growth (5%) and IT cost reduction (4%).
How much time will it take for ERP implementation?
There’s no specific time as such taken for implementation of ERP solution. The ‘actual’ execution of ERP solution ideally takes a day or two, provided that, the solution is ready-made with no or with minor changes in it.
That being said, the module of ERP can take approximately 6-7 months depending on the nature of the company. The smarter way is to include additional features that the current ERP lacks. Complicated the nature, bigger the time taken to create a module
Do not get tricked by terms like short-term ERP implementation. There’s no such thing as short time ERP solution implementation.
Open source ERP is becoming the increasing choice of CTO’s and CIO’s.
Implementing modules may take a lot of time but it makes the process zillion time, rendering a better insight into the system and its working for your business. In case of ERP, the focus is never on the time it will take for ERP implementation but rather on understanding the need of ERP for the business and ways it will improve your business. The better you understand ERP requirements for your business, the better and smoother the implementation will be.
“If you define requirements well, and you can have a solid set, everything else flows easily from that,” –January Paulk, Panorama’s senior manager.
When will I get payback from ERP—and how much will it be?
There is no counter-thought on the aspect of ERP investment with respect to ROI equation for an ERP implementation.
ERP system helps to improve the business functionality and it has not much to do with the direct conversion of sales. Hence, expecting immediate returns on the ERP investment would be foolish.
The system mainly emphasizes on optimising the way things are operated internally rather than with customers, suppliers or partners for that matter. However, it gives you pretty penny returns if you are patient enough to wait for its results.r
It may seem financially unpleasant method at first place, but there’s no magic wand for conversions and return on investment. ERP is a stepping stool that leads you to the desired goal of conversions. Eventually, improving your sales in the long run.
A Meta group study of 63 companies found that it took eight months after the new system was in (31 months total) to see any benefits. But the median annual savings from the new ERP system was $1.6 million per year