What Exactly is ERP? Meaning and Functions Demystified
Besides being a suspiciously uncouth sound, ERP is actually also a very useful tool if you are a business owner. You’ve probably come across it in passing, but words like ‘integration’, ‘processing’, ‘implementation’ and ‘cost’ might put you off exploring any further.
Fear not, because we are going to break it all down for you as simply as we can because, if you are a business owner, the truth is you probably need ERP (which stands for Enterprise Resource Planning – that’s lesson one!).
What Is the History of ERP?
Any great piece of writing needs to incorporate a bit of storytelling. And so our tale of ERP begins way back in the 1960s when a Mr JI Case, a manufacturer of tractor and construction machinery, worked with IBM to develop the first MRP – Manufacturing Resource Planning – system.
Although this innovative technology was limited to corporates throughout the 1970s, software providers started developing more accessible technology as the 80s rolled on. The research firm Gartner coined the term ‘Enterprise Resource Planning’ in 1990, which extended the technology beyond manufacturing and now includes other business operations.
The development of cloud-based ERP opened up this software to SMMEs, not just corporate operations. This is because the expenses of purchasing and maintaining hardware were removed, meaning a reduction in IT staff and easier implementation. ERP now provides assistance across various sectors, including customer relationship management (CRM), e-commerce and marketing automation, supply chain management (SCM) and human capital management (HCM).
What is ERP Software?
So now that the history lesson is over, we can delve into exactly what ERP is. We can also discuss the various features that can put your business on the path to success. As stated earlier, ERP refers to Enterprise Resource Planning, and it’s a type of software that makes your life a lot easier. The way it does this is by automating various business functions across every department.
What Are the ERP Software Processes?
This sounds generally great, but what are the ‘business functions’ that ERP can help you with? Let’s take a look at some of the key features you’ll come across in ERP.
If you were following the history lesson earlier, you’ll remember that ERP software has its roots in manufacturing, so it’s no surprise that this is one of the key functionalities. The modern ERP system assists with sourcing raw materials, production monitoring, assembly management, Bill of Materials, work order management, distribution, forecasting and product tracking.
2. Customer Relationship Management (CRM)
You can actually improve your customer relations with the implementation of ERP software. It stores valuable contact information, purchase orders and prospect status and also helps you track communications for customer relationship insight.
3. Supply Chain Management (SCM)
By tracking all your company’s inventory, manufacturing processes, logistics and distribution you’re able to gain valuable assistance in supply chain management. This ERP feature improves operations by providing purchase, work and transfer orders across various locations. You can also pick out any areas of inefficiency and superior performance.
4. Financial Management
ERP provides your business with improved visibility of financial operations, which gives you better control of your assets, cash flow and accounting. You can track and use financial data from all departments which is helpful for a sound overview of your operations.
5. Human Resources Management
The ERP system can even manage the employee side of the business, including hiring, payroll, timekeeping, compensation, deductions and tax. It’s all automated for a much more content staff and management.
6. Project Management
When it comes to those important projects, ERP is ready to step in and assist with all manner of management so that you’re able to deliver on time and within budget.
7. Data Analysis
Big data is big business and it’s important that you stay on top of your data management using ERP. By analysing your data, you’re able to deduce what’s working and what isn’t, and use this for better business decision-making.
The great thing about ERP – and there are many – is that it can be shared across the organisation in real-time so that everyone is on the same page.
Using ERP, you can track all items throughout your operation for better controls on waste and cost. This also allows you to minimise errors by providing company-wide access to important data.
10. Sales and Marketing
Because your ERP provides so much useful information, your marketing and sales team will also be on board. They can rely on this useful information to monitor customer behaviour, drive leads and execute campaigns to a much more targeted audience.
What Are the ERP Industry Options?
Once restricted to the manufacturing industry, ERP software is now being integrated across various specialisations to enhance operations. Here’s a look at the different options.
- Construction ERP: This software allows contractors to oversee the labour, equipment and materials needed for any project.
- Automotive ERP: Vehicle manufacturers use ERP for scheduling orders, inventory management and quality control.
- Manufacturing ERP (MRP): Well, it has to get a mention! This ERP helps with personnel, production planning, inventory control and supply chain management.
- Education ERP: Tertiary institutions rely on ERP for all manner of business processes including examination grading and billing.
- Agricultural ERP: With ERP, farmers are able to monitor the cultivation, manufacturing, processing and distribution of goods.
- Clothing ERP: All apparel-related processes rely on ERP including inventory control and supply chain management.
What Are the ERP Types?
ERP systems are so helpful and so diverse! As an organisation, you will also have to decide which type of ERP software will suit your business needs. Here’s a look at the options available.
- On-premise ERP: This software is located on your premises (as the name suggests!) and is used for SMMEs.
- Open-source ERP: You can customise this ERP software for your particular requirements by modifying the source code.
- Cloud-based ERP: This is your ERP SaaS (software-as-a-service) available on a cloud-hosting rather than on-premise service. This is well-suited to bigger organisations.
- Hybrid ERP: This is a unique blend of cloud-based and on-premise ERP.
What Are the Benefits of ERP Software?
You now have quite a solid grounding in ERP, what it is and what it does. Now we just need to show you exactly why it is that your business needs ERP. Here’s an overview of the many benefits of ERP software.
The wonder of ERP is that it takes away all the mundane manual tasks, automates them, and simplifies your life. Your staff no longer have to input data and risk making a mistake because of fatigue or distraction. A great example is inventory tracking – this can actually trigger a shipment and invoice once an order has been placed.
2. Increased visibility
Because of ERP automation, communication channels are improved and there is increased visibility throughout your business. This decreases the risk of a missed or incorrect order being placed because of a breakdown in communication or incorrect data.
3. Access control
You might want to limit the amount of access control to your system depending on the nature or size of your operations. With ERP, that’s not a problem! You can input remote access restrictions so only employees that need to access certain information will be allowed.
4. Real-time information
ERP software provides you with access to real-time, accurate information with reporting functionality for a much more effective system. You always have a clear overview of your operations, strengths and weaknesses so that you can make informed decisions.
5. Streamlining processes
By automating your system, minimising errors and speeding up operations, ERP is effectively streamlining all your business processes, from supply chain to internal. This makes your business that much more efficient and focused.
Your ERP software will provide you with scheduling tools that can be customised for your operations. This allows you to input employee shift times, inventory projections, and coordinate your business calendar for ease of reference.
7. Enhanced communication
An effective ERP software will allow for inter-departmental communication which improves morale and performance. Rather than having departments working in isolation, which only leads to miscommunication and antagonism, everyone is working off and contributing towards the same system. Your marketing team is working with the production team. Your suppliers and distributors are all on the same page. It’s a much smoother workflow!
8. Risk management
Fraud and cybercrime are only on the rise and it’s absolutely vital that you protect your company against such threats in the digital age. ERP has real-time risk management tools that offer more security and fraud monitoring with instant alerts. This way, all your clients’ valuable information is kept safe.
No two businesses are the same which is why an ERP solution allows for adaption. An open-source ERP will let you customise features that work into your unique setup.
You now know all that you need to know about ERP software, and anything you don’t know, Omni Accounts can help with. This is a leading supplier of ERP software solutions with scalable options to meet your ever-changing needs. Contact them today for more details!