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What Is ERP?

Enterprise resource planning (ERP) is not a new concept. It was introduced more than 40 years ago when the first ERP system was created to improve inventory control and management at manufacturing firms.

Throughout the 70s and 80s, as the number of companies deploying ERP increased, its scope expanded quite a bit to include various production and materials management functions, although it was still designed primarily for use in manufacturing plants.

Then, in the 1990s, vendors came to realize that other types of businesses could benefit from ERP, and that in order for a business to achieve true organizational efficiency, it needed to link all its internal business processes in a cohesive and coordinated way. As a result, ERP was transformed into a broad-reaching environment that encompassed all activities across the back-office of a company.

What is ERP?

An ERP system is a technology environment with a company-wide scope. It combines methodologies with software and hardware components to integrate numerous critical back-office functions across a company. Made up of a series of “modules” or applications that are seamlessly linked together through a common database, an ERP system enables various departments or operating units such as Accounting and Finance, Human Resources, Production, and Fulfillment and Distribution to coordinate activities, share information, and collaborate.

Key Benefits for Your Company

ERP systems are designed to enhance all aspects of the key operations across a company’s entire back-office – from planning through execution, management, and control. They accomplish this by taking processes and functions that were previously disparate and disjointed and seamlessly integrating and coordinating them. As a result, an ERP system can:

  • Facilitate more efficient completion of day-to-day tasks
  • Reduce the redundant and overlapping activities that waste time and money by standardizing core procedures
  • Eliminate data silos by creating a single, centralized repository of timely, accurate business data
  • Enable more effective resource allocation and management
  • Reduce overhead costs
  • Enhance strategic planning by allowing for more accurate assessment of needs and enabling measurement of goals versus outcomes

Does My Company Need ERP?

Companies of all types and sizes can benefit from an ERP implementation. Even if business processes and related workflows are relatively smooth across the business, ERP can deliver even greater productivity and cost-efficiency benefits.

However, the companies who need ERP the most are those whose most critical business procedures are so fragmented and broken that they hinder growth and profitability. For these firms, ERP can help create a business process management mindset, allowing them to define best practices, formalize activities, and streamline cross-department functions.

Additionally, ERP is designed to help companies who have trouble achieving “one version of the truth.” For example, in many firms, revenue data maintained by the finance department doesn’t always match the numbers generated by the sales organization. These disparities can make it difficult to assess financial status and profitability, and in the case of public companies, report results to investors. ERP systems consolidate and centralize all back-office information. Every transaction conducted by every department will be handled, recorded, and managed by a single system. So, the most frequent causes of conflicting information, such as a lack of integration across departmental applications, are eliminated.

Common ERP Features

Most ERP suites contain a broad range of modules to enhance a variety of back-office functions, including:

  • Manufacturing – includes features for project and process management, engineering, scheduling, capacity management, engineering, material requirements planning, and quality management.
  • Supply Chain Management – includes capabilities to support order entry, purchasing and procurement, inventory control, planning, goods inspection, and claims processing.
  • Financial Management – includes functionality such as general ledger, cash management, accounts payable and receivable, and fixed asset management.
  • Project Management – includes features for costing, billing/invoicing, time and expense management, and activity monitoring.
  • Human Capital Management – includes capabilities to support hiring and staffing, payroll, training, time and attendance tracking, and benefits administration.

Additionally, many ERP environments leverage a data warehouse or operational data store for reporting purposes. This limits the impact of data analysis on the transactional database and prevents performance slowdowns that report generation can create on the production environment.

What to Look for When Choosing an ERP Solution

“Big bang” ERP implementations come with quite a bit of risk. Few businesses have the resources to handle an all-at-once deployment. Therefore, it is critical to choose an ERP vendor with a flexible and modular platform, so it can be rolled-out across the business in phases.

Additionally, since many ERP modules are often replacing existing business applications, be sure to select a solution that includes comprehensive data migration tools. This will help move data from old applications to new ones in the most efficient and effective fashion.

And, look for a single-source provider who has designed and developed each module in-house. Choosing a vendor who has created a complete ERP suite by bolting together various solutions – such as those developed by OEM partners or those obtained through acquisition of smaller ERP companies – can lead to integration and performance issues.