What is an ERP System?
ERP stands for Enterprise Resource Planning. This is a very broad term that covers a large variety of functions. Typically an ERP system refers to software that 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 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 efficiently.
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 that handles 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 other’.
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?
In 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.
Just having software that 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 the production and execution of sales orders. Stock shrinkage has the same effect and drives up costs. Being overstocked 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 system.
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 extract information.
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.
The 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.
Stock 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 stored.
Purchase Orders are issued using information from the Inventory data, monitoring cost prices, and ensuring efficient ordering methods, to maximize 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
Banking information can be imported into the system, resulting in up to date information of receipts from customers, payments to suppliers, and other overhead expenses.
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.
Statistics 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 implemented.
Other areas suited to an ERP software solution
- CRM. 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 the 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.
- Manufacturing. 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 manufacturing processes.
- Business Intelligence (BI). Business Intelligence 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?
Every 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 businesses 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.
Omni Accounts offers a comprehensive ERP solution that 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 extended ERP 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