The acronym ERP first came into existence when the Gartner Group to signify material resource planning and manufacturing resource planning, denoting application integration beyond manufacturing.
There are numerous core departments and functions within an organization such as HR, Finance, manufacturing, logistics, and supply chain, inventory management, sales and marketing, IT, etc. Enterprise Resource Planning or ERP, in short, is the combination of all tools and software that is used by a company to streamline all these business processes.
An ERP system allows easy flow of data between all these departments, tying them together to facilitate informed decision-making. By bringing data from so many different sources under one platform in real-time, ERP eliminates the problem of data duplication and creates a ‘single source of truth.’
Types of ERP Systems
ERP systems can be deployed in different ways, the two most common are-
- On-premise ERP- On-premise ERP systems are deployed locally on your hardware and location and have to be managed by your IT staff.
- Cloud ERP- Cloud ERP systems differ from on-premise systems on the basis of hosting the servers, here, instead of you hosting your servers and hardware on-site, the ERP software vendor hosts it for you on a remote server. You can access this by logging in on a website hosted on the cloud.
How Do ERP Systems Work?
Mostly each department in an organization has its own computer systems designed for their particular tasks. The ERP system works as a centralized system where although every department will have their own systems, but they will be able to share information to and from other departments through the ERP.
The ERP collects information about the activities from all functional departments in an organization and stores it under a single database so that is it accessible to all other divisions. The best thing about an ERP is information is updated in real-time.
You can also say the ERP works as the brain where commands from the different organs are sent and based on that decisions are taken. The ERP system brings each individual capacity and creates a single collective consciousness. Management becomes more aware of the dealings in finance, production, marketing, sales, customer support, supply chain and logistics and can associate with the organization as a whole. The fact that information is stored in a central database, eliminates data duplication and potential errors.
Why businesses use ERP?
Increased Efficiency and Data Security
Various divisions of the company like marketing and sales, production and distribution, inventory management, finance, HR, can be integrated with one ERP system. Since all information is present under a single platform, sharing becomes easier. An ERP system removes data duplication and updates in real-time which has a positive impact on every department’s efficiency. They experience greater transparency, work faster with authentic data, reducing mistakes and produces better results.
Forecasts, in general, are difficult to do and when done incorrectly they could wreak havoc for the business. Inaccurate forecasts can affect every business function, for example, marketing could spend more money on promotions, production and distribution might fail at inventory control, sales will chase the wrong targets, and much more.
An ERP system collates information from all departments and makes it accessible to them under a single platform. This way, when data is updated in real-time without duplication, each department can crunch the correct numbers to arrive at more accurate forecasts.
Internal Agility and Better Business Decisions
The standardization of data provided by ERP systems makes it easier for the various departments to deal with such a large amount of information. It makes more agile because of the increased collaboration between business functions.
When all departments are working towards a common goal with untampered data, they make more informed decisions for their own and the company’s sake.
Reduced Operational Costs
ERP systems are a great help in reducing operational costs for organizations. When all the processes streamlined, metrics are clearly defined and data is closely monitored, there are fewer disruptions and errors.
Problem-solving becomes quicker, as customer support work with real-time data. They can avoid problems or resolve them faster, ultimately providing better customer service.
Things to Consider Before Selecting an ERP System
Upgrade or Replace
The first thing you need to decide is whether you need to get a new ERP system or replace the existing if you have one. You also have the option of simply integrating additional modules that are missing from your current one. However, today’s ERP systems provide greater mobility and scalability, so if your existing system is really old, then you should get a new one.
Time and Cost
Time and cost are important factors to consider when opting for an ERP system for your company. Depending on the size of your organization, scope of the project, the time taken for implementation could be between a few weeks to years. Another thing is the budget. If you’re a company with a limited budget, then you might want to get an ERP system with basic functionality with only the required modular integrations.
While setting up an ERP system, ensure the requirements of different departments are taken into account, as they all differ in their functions. For example, finance saves money, marketing spends it, whereas production and sales deal with targets. Therefore, it is important that while adding modules, they are appropriate to the business processes of separate divisions.
Set-up and onboarding
Different types of ERP systems require different types of setups. For example, cloud ERP is hosted remotely, while on-premise ERP is located on-site. Additionally, on-premise ERP has to be installed by someone with technical knowledge. So if you lack such professionals in your team, then you will need to provide them with training to set up and use the software. This could be done by calling on the ERP software vendor to provide hands-on training. On the other hand, cloud ERP is easy to use, just like any online account.
In order to combat the complexities and demands of today’s market, organizations need to use software or tools that streamline tasks and collaborative business processes, boost productivity and increase efficiency both on a micro and macro level. The right ERP system can make these possible.