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What is ERP and How Does it Work?

What is ERP and How Does it Work?

What is ERP and How Does it Work?

ERP, or Enterprise Resource Planning, is a system with the main purpose of increasing organisational efficiency through one centralised software hub.

What Is Meant by ERP?

ERP is a truly effective business software that is able to integrate the core business functions into one system, thereby streamlining all processes and information.

How Does an ERP System Work?

Essentially, ERP uses a central database for all business processes. This not only enhances existing business operations but also reduces the need for manual input and oversight, reducing system errors. It means that employees in all different divisions are able to rely on the same, updated, and accurate information.

What are the ERP Features?

All ERP software is different, depending on the business size, industry, and specific requirements. So, while not all features will come with every software package, these are the features you’re most likely to encounter.

– Integration

A key feature in all ERP software is the ability to integrate with outer systems for a more harmonious operation. Through a single database, the ERP software will collect, store and analyse data from all departments, and conduct the majority of data-driven tasks. As mentioned, this serves to minimise discrepancies and increase efficiency on an organisational scale.

– Engineering

Elements such as Bills of Material (BOM) and routings will form part of the ERP features for any engineering organisation. This ensures quality products are ordered and delivered on time to meet set targets.

– Automation

Another prevalent ERP feature is automation which allows the system to automate a number of time-consuming tasks such as entry, payroll, invoicing and reporting. This not only reduces human error but also frees up employees to perform other productivity-enhancing tasks.

– Data Analysis

This is a hugely impactful component of ERP whereby the system actually analyses the existing business data to isolate trends and patterns. This indicates the effectiveness of tasks while providing useful forecasting. The data analysed will include production statistics, sales and client data, among other forms.

– Reporting

Another key feature related to ERP data analysis is the reporting capability which effectively conveys the analysed data to the user. Included in reporting tools are customisable dashboards – visual representations in the form of charts, graphs, and bars.

– Inventory Management

Whatever the industry, inventory management is key to business functions – whether they make the inventory, buy it or sell it. ERP software is able to track management at any time, as well as assisting in the logistics related to moving it when needed.

– Customer Relationship Management (CRM)

Within ERP software is CRM which updates spreadsheets with centralised customer information. This allows for quick access to customer data – including billing information and addresses – with real-time updates made possible. CRM also allows for the creation of customer campaigns, tracking of customers, and improved customer care.

– Accounting and Financial Management

One of the most dominant features of ERP software is accounting, with the software including components such as:

  • Accounts receivable;
  • Accounts payable;
  • Fixed asset management;
  • Risk management;
  • Tax management;
  • General ledger;
  • Financial reporting; and
  • Payroll.

– Supply Chain Visibility

One useful ERP feature in terms of logistics is the supply chain oversight which will track raw materials through to finished products and delivery. With such comprehensive oversight, you’re able to anticipate any challenges related to inventory and lost stock.

– Information Tracking

Aside from product tracking through supply chain management, ERP software is able to track information related to sales, production, and productivity through a range of tools. This allows for enhanced business oversight, giving you the opportunity to identify areas of improvement.

– Sales Management

When a sales order is entered, the ERP software will trigger procurement and production through to the shipping and delivery before reaching the satisfied customer. Part of this feature will be a quoting tool, working alongside the CRM.

– Material Requirements Planning (MRP)

This forms part of the inventory management whereby the ERP system allows businesses to monitor the material needed for sales and anticipated sales.

What Are the Benefits of ERP?

No matter your industry, as long as you’re investing in ERP software that is suited to your requirements, you’re going to enjoy a number of long-term, business-driven solutions. Here’s a look at some of the benefits you can expect.

1. Integrated Costs

Rather than having to spend money on a number of disparate IT systems operating separately from one another, an ERP solution will bring together all the systems on one platform, which effectively consolidates your IT spend. You are not having to budget for separate staff, infrastructure, training, licencing, and support teams when you invest in a comprehensive ERP solution.

2. Increased Oversight

The entire supply chain process, from raw materials through to manufacture, orders, sales and delivery can be monitored by an ERP system, allowing for suitably enhanced visibility throughout your business. By monitoring the levels of raw materials and anticipated orders, the ERP system will always ensure there is sufficient supply to match demand, reducing waste and error. And, because departments are all operating from one unified platform, your company is benefitting from enhanced collaboration and visibility for better efficiency.

3. Business Intelligence (BI)

An added advantage of some of the latest ERP solutions is the inclusion of a BI functionality for even more analysis of business data. By tracking business trends and patterns, and then displaying them on dashboards, BI empowers businesses to make better-informed decisions in real-time.

4. Better Business Reporting

Through ERP software and BI, you’re able to access comprehensive business reports that analyse and compare functions across departments. Some of the more advantageous reports include income and cash flow statements, with the option of customised reporting.

5. Improved Data Quality and Security

The risk of cyber breaches is greatly reduced with the implementation of an ERP system as they’re accompanied by effective data security measures. This means that all inter-departmental collaboration is carefully monitored and protected, preventing outside interference. Because the data cannot be manipulated, you can be assured of a much higher quality of data as well, for increased accuracy in forecasting and operations. This is true for both on-premise and cloud-based ERP systems as they both enable centralised backup of sensitive data.

5. Better Business Efficiency

ERP software incorporates the latest in IT technology, including machine learning (ML)artificial intelligence (AI), and robotic process automation (RPA) which enhances forecasting, tracking, and other operations. This also eliminates the need for mundane manual processes and improves staff efficiency.

6. Improved Supply Chain Management

The aforementioned supply chain oversight of ERP software directly results in better supply chain management because of on-time deliveries and a shortened lead time. Through streamlined operations, you’re able to investigate more product development and stay ahead of competitors. The monitoring of inventory means a reduction in material waste and error in production as well.

7. Company Cohesion

Because ERP software allows for so much inter-departmental collaboration, the divisions within a company are often forced to dissipate, opening the way for a much more cohesive work environment. It also means employees aren’t reliant on other departments to access vital information or data, delaying the process. And, because they’re able to see the full picture in one system, they’re empowered to make value-add decisions based on accurate information.

8. Better Customer Relations

Through CRM features on ERP software, your customer information is centralised and constantly updated, which makes for much smoother customer interaction. With the end-to-end tracking of ERP software, you’re more likely to provide better customer service, which translates into both customer retention and customer acquisition through word of mouth and proven performance.

9. Standardisation of Business Practices

ERP systems are constantly being updated to include industry best practices, while also having the flexibility that allows businesses to customise all their processes. This leaves little room for error in that everyone is on the same page about the particular business practices without the constant need for training and reminding.

10. Business Scalability

No matter what your business size, or your anticipated business size, ERP software is able to accommodate any business’s growing or diminishing ERP requirements. As this year has shown us, it’s almost impossible to predict the future. Fortunately, because ERP systems are scalable, they’re able to adapt to your business needs going forwards. This could mean expanding your customer base, rolling out new processes or products, or entering a new market, your ERP software vendor can increase overall ERP functionality.

11. Regulatory Compliance

The accounting and financial management components of ERP make meeting all industry requirements that much easier. The financial reports can be automated to reduce annual audit costs, and customised for localised tax regulations.

Which Industries Use ERP?

There is a use for ERP in almost every industry, from start-ups to SMMEs (Small, Medium and Micro Enterprises) to big corporations. Here are some of the industries that are benefitting from ERP today:

Choosing an ERP Vendor

When finding an ERP vendor, you need to make sure you’re partnering with one that has the industry experience and is ready to incorporate your future growth requirements. You’ll be working together for some time, so make sure you consider all your options before deciding on a reputable vendor.