What is an ERP System?
What is an ERP System?
ERP stands for Enterprise Resource Planning. This is a very broad
term which covers a large variety of functions. Typically an ERP system
refers to software which is integrated across multiple aspects of the
processes of a business or enterprise.
The main aim of an ERP
system is to share information across all areas of a business so that
information is all real time and data is only captured once. This
results in more accurate and up to date information for the decision
makers in the business, as well as enabling employees to work more
Some of the areas an ERP system will manage are;
financials, inventory, supply chain, sales orders, manufacturing, human
resources, customer relations, budgeting, forecasting and reporting.
These are some main examples and there are many other areas that may be
handled by an ERP system.
Many businesses utilize software which
handles the simple accounting and bookkeeping functions. An ERP software
solution extends this to facilitate the management and monitoring of
all other aspects of the business by one integrated software solution
with a common database rather than several different software
applications which each have separate databases and do not ‘talk to each
As there are a great many different types and sizes of
businesses, it is obvious that there may be many different aspects to an
ERP system and each business will have different requirements depending
on the type and size of the business.
Why use an ERP System?
today’s world, competition is fierce. Time and resources are expensive
and a successful business needs to be as efficient as possible, always
making sure costs are kept under control and keeping customers
satisfied. This is best achieved by using software and technology to
streamline business processes, ensuring good turnaround, less waste,
satisfied customers and an early warning system, to quickly flag problem
areas. A good ERP system can ensure your employees can function
efficiently and give business managers all the tools to make informed
decisions with real time information and to plan for the future.
having software which handles customer and supplier invoices and Profit
& Loss reports which are available long past month end, is not
being in control of your business. Spreadsheets which are compiled to
control other aspects of the business and which depend on being manually
updated and maintained are open to error and are cumbersome. Stock
shortages cause havoc with production and execution of sales orders.
Stock shrinkage has the same effect and drives up costs. Being over
stocked ties up valuable cash flow. Sales orders can be mislaid or
duplicated and customers are not able to get accurate information about
the status of their orders. These are just a few of the problems many
businesses encounter which could be solved by having an integrated ERP
A good indication of a need for an ERP system is the
difficulty the entrepreneur or business manager experiences in
controlling various aspects of the business due to a lack of information
and statistics and when there are too many inefficiencies and errors in
processing the data required in order to operate the business and
An example of a basic ERP system
Below is are some simple examples of areas of a business, where an ERP system can streamline the various processes.
system will be used to capture customers’ orders, checking credit
terms, ensuring selling prices are correct and checking stock
availability. Once the orders are ready to be delivered, sales invoices
can be generated. Delivery routes and loads ensure efficient order
deliveries. Special promotions can be set up and their effectiveness
analyzed. Customer details and transaction history is stored.
Inventory (Stock) Control
levels and locations are handled by the system. Sales Orders are used
to monitor stock requirements and Purchase Orders reflect stock already
on order. Cost prices and levels are updated from Supplier Invoices and
Deliveries. Sales Invoices update levels and provide customer and stock
history as well as other useful information such as sales rep, customer
types etc. Stock Takes monitor stock shrinkage and slow moving and low
profit products are easily identified. Bar Codes are used to speed up
capturing of stock movements. All sales and purchasing history is
Purchase Orders are issued
using information from the Inventory data, monitoring cost prices and
ensuring efficient ordering methods, to maximize on volume discounts and
avoid stock shortages. Supplier price lists can be imported and
supplier stock codes stored to make ordering and receiving accurate and
efficient. Supplier details and transaction history is stored.
Finance & Administration
information can be imported into the system, resulting in up to date
information of receipts from customers, payments to suppliers and other
The basic financial reports (Income &
Expenditure and Balance Sheet) can be extracted quickly and accurately
and the statutory requirements such as VAT are efficiently processed.
in the form of reports or graphs can be obtained on sales reps, areas,
profits, cash flow as well as a variety of other information which is
specifically relevant to the type of business and its health. Using
historical data, forecasts and targets can be set and budgets
Other areas suited to an ERP software solution
Customer Relationship Management. Communications and follow-up dates
are kept and customer details are stored in a central database along
with sales history etc.
- SRM. Supply Chain
Management. The management of flow of goods and services from the point
of origin to point of consumption. Typically this starts at Purchase
Orders and ends at a Sales Invoice.
For a business that manufactures products, sales and purchase orders
are linked to raw materials required, Bills of Materials (BOMs) hold
recipe information and Job Costing or Production Batches manage the
- Business Intelligence (BI). This
covers the data analysis of business information providing historical,
current and predictive views of business operations.
What kind of Business should use an ERP system?
business, no matter how big or small can make use of an ERP system.
However, as a rule, the bigger or more complex the business, the more
need there will be for an ERP system with a wider scope of ERP features.
Smaller business can also benefit immensely from a good ERP system,
initially with less functionality, but it is wise to ensure that there
is the ability to add on features as the business grows. Smaller
businesses are able to adapt and change faster than larger concerns, but
it is important to remember, whatever the size of the business, that
decisions always need to be informed ones, made with information that is
accurate and up to date. An ERP system will provide this information. A
business is never static, it is either growing or shrinking. A wise
entrepreneur will always know the current status of their business.
Accounts offers a comprehensive ERP solution which has the ability to
be tailored to each business’s requirements. It is also very scalable,
offering the ability to start off with basic functionality and over time
easily be enhanced and extra functionality added on, without the need
to undergo cumbersome time consuming upgrades to a higher package.
“Life is change. Growth is optional. Choose wisely.” —Karen Kaiser Clark, author, motivational speaker
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