What is an ERP System?

ERP stands for enterprise resource planning. Enterprise resource planning is the centralized management of key business functions, usually in real time and driven by complex technologies and applications. ERP system is designed to improve the functioning of an organization by integrating all the operational units under a common platform and giving them a new identity. ERP software applications are designed to take care of all the activities pertaining to business activities such as purchasing, inventory, supply, promotion, finance, human resources, marketing, sales and distribution.

ERP System

In the past, ERP implementation was usually considered to be too costly and time consuming. But with the advent of cloud computing and other advanced ERP system technologies, ERP implementation has become much easier and affordable for small and midsize businesses. Today, ERP system can integrate all business functions through the use of Internet. It is used to analyze and monitor all business functions such as customer tracking, inventory management, distribution, finance, human resource management, procurement, production and administration, and accounting.

ERP actually encompasses a lot of activities like customer-centric design, which are more technical in nature, application-oriented design, and supplier-centric design. Enterprise resource planning helps a company to efficiently deal with all the business requirements. ERP mainly focuses on the implementation and management of information, especially that pertaining to customers. As per the recent market research, more than 50 percent of the companies have already adopted some form of enterprise resource planning (ERP) in order to improve their business functions. Large-scale changes in the way companies conduct their business have also prompted many companies to rethink their ERP systems and data management strategies. As per one research report, by the end of 2021, more than six in every ten organizations are planning to switch over to an ERP system for their enterprise resource planning needs.

The most popularly used components in ERP systems are Customer Management, Financial Reporting, Purchasing, Inventory Control, Supply Chain Management, Workforce Management, Engineering and estimating. The basic idea behind all these concepts is to bring about maximum efficiency in the processes and thereby, save a company considerable amount of money, while increasing the productivity. In order to reduce the cost of operating an ERP system, companies are always on the lookout for cost-effective back office processes that can be outsourced to a third-party. These back office processes play a pivotal role in the smooth running of any ERP system. In addition to it, integration of new modules is also done as per the specific requirements of each organization.

An ERP system with integrated back-office services like SQL, ERP, and CRM can provide a complete picture of the present sales scenario and can forecast the demand in the near future. This helps to provide timely and accurate information to the managers and executives of the organization. ERP can also help to implement solutions that can help in speeding up the decision-making process, minimize the risk, and increase the customer satisfaction. To put it simply, ERP provides real-time visibility and control over the operational processes and applications.

Another important facet of ERP is the integration of the customer-centric and the supply chain management segments. Supply chain management helps to reduce the cycle time of raw materials and also controls the wastage of materials by the manufacturing units. This allows for quick decisions regarding the availability of parts and materials, which in turn helps to cut costs and improve the profitability of the company. Similarly, customer-centric functions enhance the quality, service, and satisfaction of customers. In order to achieve maximum benefits from an ERP system, data needs to be monitored and analyzed using proper metrics and intelligence.

Integration of Enterprise Architectures (EE) is another important aspect of ERP which enables easy implementation of Business Units (BEs) into an ERP architecture. There are two types of enterprise processes: business units and information-warehousing systems. The former refers to the units of a business process which perform single tasks whereas the latter is an elaborate collection of these tasks. Integration of these two into an ERP architecture facilitates easy deployment of Business Unit or Information Warehousing into an ERP system. This functionality is enabled by real-time data feeds from the information-warehousing systems to the business units.

The major drawback of ERP, especially for companies without a prior accounting system, is its inability to directly generate the financial reports necessary for decision making. This is why most ERP systems use a so-called “hardware-based” accounting module which reports the accounting transactions and data in a format that can be understood by the software. A few of the popular ERP systems used for midsize and small enterprises are ERP Software, Microsoft Small Business Solutions (SBS), Oracle, IBM, and NetERP.