ERP Meaning and Functions05/04/2020
Enterprise resource planning (ERP) refers to a type of software that organizations use to manage day-to-day business activities such as accounting, procurement, project management, risk management and compliance, and supply chain operations. A complete ERP suite also includes enterprise performance management, software that helps plan, budget, predict, and report on an organization’s financial results.
ERP systems tie together a multitude of business processes and enable the flow of data between them. By collecting an organization’s shared transactional data from multiple sources, ERP systems eliminate data duplication and provide data integrity with a single source of truth.
Enterprise resource planning (ERP) is the integrated management of main business processes, often in real time and mediated by software and technology.
ERP is usually referred to as a category of business management software typically a suite of integrated applicationsthat an organization can use to collect, store, manage, and interpret data from many business activities.
ERP provides an integrated and continuously updated view of core business processes using common databases maintained by a database management system. ERP systems track business resources cash, raw materials, production capacity and the status of business commitments: orders, purchase orders, and payroll. The applications that make up the system share data across various departments (manufacturing, purchasing, sales, accounting, etc.) that provide the data. ERP facilitates information flow between all business functions and manages connections to outside stakeholders.
Enterprise system software is a multibillion-dollar industry that produces components supporting a variety of business functions. IT investments have become the largest category of capital expenditure in United States-based businesses over the past decade. Though early ERP systems focused on large enterprises, smaller enterprises increasingly use ERP systems.
The ERP system integrates varied organizational systems and facilitates error-free transactions and production, thereby enhancing the organization’s efficiency. However, developing an ERP system differs from traditional system development. ERP systems run on a variety of computer hardware and network configurations, typically using a database as an information repository.
The Business Value of ERP
It’s impossible to ignore the impact of ERP in today’s business world. As enterprise data and processes are corralled into ERP systems, businesses can align separate departments and improve workflows, resulting in significant bottom-line savings. Examples of specific business benefits include:
- Improved business insight from real-time information generated by reports
- Lower operational costs through streamlined business processes and best practices
- Enhanced collaboration from users sharing data in contracts, requisitions, and purchase orders
- Improved efficiency through a common user experience across many business functions and well-defined business processes
- Consistent infrastructure from the back office to the front office, with all business activities having the same look and feel
- Higher user-adoption rates from a common user experience and design
- Reduced risk through improved data integrity and financial controls
- Lower management and operational costs through uniform and integrated systems
Functions of ERP
While any business may have different uses for ERP, there are six key functions that are found most commonly in the software.
An HR module should be able to process tasks related to managing your employees, including payroll, timesheets, benefits, onboarding and offboarding. The HR module should automate payments, including deductions so, for example, an hourly employee’s wages are automatically calculated based on her timesheet, benefits and taxes are deducted and the net pay is automatically deposited into her bank account.
Customer Relationship Management (CRM)
A CRM module stores data related to customers and prospects, giving employees insights that can improve sales and marketing processes. For example, CRM can track customer buying habits, so you can see what types of products you may be able to upsell and when the best time may be to offer these products. CRM is especially useful for an e-commerce business, allowing you to target prospects with ads that are meaningful to them. A CRM module can also track when prospects have been contacted and what was discussed, eliminating additional sales calls that may not be appropriate.
Business Intelligence (BI)
A BI module can help business leaders make well-informed decisions based on meaningful and timely data from any department as needed. This module can analyze practically any business process and provide reports without any excess information. Reports can be in a visual format or presented in tables, depending on the manager’s preferences.
Supply Chain Management (SCM)
An SCM module usually works with an inventory management system to improve the efficiency of a company’s supply chain by using real-time data to optimize manufacturing and distribution processes. This can give you the ability to intervene when a problem happens, rather than waiting to find out the next day or later. More than that, today’s SCM software can track and analyze these processes to predict when a problem is likely to occur. An example of this is the ability to notify customers when orders are being processed and shipped in real-time.
Inventory Management System
An inventory management system module processes order fulfillment and tracks warehouse inventory, greatly reducing the need to track inventory manually. This is very useful to manufacturers or companies with their own distribution centers where tracking inventory can become extremely complex. Features can include real-time inventory on the company’s website to inform customers what is and what isn’t in stock.
Just about every business with an ERP will use a financial management module. It works in conjunction with the other ERP components to track the flow of money, from the purchase of new supplies to paying employees and issuing invoices to customers. Financial management software in an ERP can also help you budget, produce financial forecasts and give you insights into where costs can be reduced.