Organisations are highly multi-faceted, being made up of not only revenue-generating divisions — but also those that are responsible for human resources, manufacturing, inventory and logistics, and so on.
These systems are obviously very complicated and can be very hard to manage manually. Can you imagine looking after the inventory and logistics of a company with hundreds or thousands of people? It would be a logistical nightmare.
Companies need something to help alleviate the amount of work they would have to do to keep the firm running in good working order. This is where enterprise resource planning (ERP) comes in.
To manage all these different areas and processes, organisations use what is called an ERP system. This is a piece of software that can be used to track and store data relating to every aspect of the business, from human resources information to customer orders and invoices.
What’s more, an ERP system can be used to automate many of the processes that would otherwise need to be carried out manually.
This article will take a look at what enterprise resource planning is, how it works and some of the benefits that it can offer businesses.
Let’s get started!
What is Enterprise Resource Planning?
In order to understand what enterprise resource planning (ERP) is, it is first necessary to understand what a business process is.
A business process can be defined as a set of activities that are carried out in order to achieve a particular goal.
For example, the process of taking an order from a customer and then manufacturing and delivering the product or service to them would be classed as a business process.
As you can imagine, businesses are made up of many different processes — from the very simple, such as taking an order, to the more complicated, such as managing inventory or payroll.
And, of course, each business will have its own unique set of processes that are specific to that organisation.
Now that we know what a business process is, we can take a look at what enterprise resource planning actually is.
ERP systems are designed to manage and integrate all of the different business processes that an organisation has in place. In other words, it is a software application that brings together all of the different data and information that is spread out across the various departments within a company.
This might include things like customer orders, invoices, payroll information and human resources data. By bringing all of this information together into one central system, organisations can get a much better overview of their business and how it is performing.
This, in turn, can help them to make more informed decisions about where to allocate resources and how to improve efficiency. We will look at the benefits of ERP systems in further detail later on in this article.
How do ERP Systems Work?
ERP systems are usually made up of a number of different modules, each of which is designed to manage a specific area or process within the organisation.
For example, there might be a module for managing customer orders, another for manufacturing and so on.
Organisations can choose which modules they want to implement, depending on their specific needs. The most common modules that are found in ERP systems include:
- Human resources
- Customer relationship management
- Supply chain management
- Project management
Of course, there are many other modules that can be included in an ERP system, but these are some of the most commonly used.
One of the key features of ERP systems is that they are designed to be highly customisable. This means that businesses can tailor the system to suit their own specific needs and requirements.
For example, a company might want to include a module for managing employee training records, or one for tracking customer complaints.
The ERP system will then be designed and built accordingly, with the various modules being integrated into a single system. This can all be done by the ERP software provider, or it can be done in-house by the company’s own IT department.
Example of an ERP System
Consider a manufacturing company that makes and sells products. In order to make and sell its products, the company needs to procure raw materials, manufacture the products and then store them until they are ready to be shipped to customers.
The company will also need to keep track of its inventory levels and have a system in place for billing customers and processing payments.
In the past, each of these departments would have been managed separately — with little to no communication between them.
This could lead to a number of problems, such as stock outs (when products are not available because the inventory system has not been updated) or billing errors (when customers are invoiced for the wrong amount).
With an ERP system in place, however, all of this information is brought together into one centralised system. This means that each department can see what the others are doing and make sure that everyone is on the same page.
For example, if the manufacturing department knows that the inventory is running low on a particular raw material, they can order more to avoid any disruptions in production.
Similarly, if the sales team knows that a customer has not been invoiced for their purchase, they can follow up and make sure that the bill is sent out as soon as possible.
How to Get Started With Enterprise Resource Planning
If you are thinking about implementing an ERP system within your organisation, there are a few things that you need to bear in mind.
Firstly, you need to make sure that you choose the right software for your business. There are a wide range of different ERP systems on the market, so it is important to take some time to research the different options and find one that will fit in with the way your business operates.
Once you have selected the software, the next step is to install it and get it up and running. This can be a complex process, so you might want to consider working with a professional consultant who can help you to get the system set up correctly.
Finally, once the system is in place, you need to make sure that all of your employees are trained on how to use it. This will ensure that they are able to make the most of the features and benefits that an ERP system has to offer.
ERP Software on the Market
There are a number of different ERP software applications on the market, each with their own specific features and functions.
However, they all share the same core goal — to help organisations manage their business processes in a more efficient and effective way.
Some of the most popular ERP software applications include SAP, Oracle and Microsoft Dynamics. These applications offer a wide range of features that can be used to streamline different business processes.
5 Benefits of ERP Systems
Let’s have a quick browse at some of the benefits ERP systems can have on your firm.
1. Saves Time and Money
Manual processes are often error-prone and can take up a lot of employees’ time. Automating these processes with an ERP system can help to speed things up and free up staff to work on other tasks.
In addition, by having all of your data in one place, it becomes much easier to access and use, meaning that you can make decisions more quickly.
2. Improves Communication and Collaboration Between Departments
As we mentioned earlier, ERP systems store all of your data in one place. This means that different departments can easily access the information that they need, when they need it. This can help to improve collaboration between departments and make it easier to spot any potential problems.
3. Provides Valuable Insights Into Your Business
By having all of your data in one place, ERP systems can give you a clear overview of how your business is performing. This information can be used to make informed decisions about where to focus your efforts in the future.
It can help in times of macroeconomic difficulty when your firm needs insights to remain as resilient as possible.
4. Helps you Meet Regulatory Requirements
There are a number of different regulations that businesses need to comply with, such as GDPR and Sarbanes-Oxley.
ERP systems can help you to keep track of the data that you need to comply with these regulations, making it easier to ensure that you meet your obligations.
5. Tailored to Your Specific Needs
ERP systems are flexible. This means that you can add or remove features as required, making the system work better for you.
5 Challenges of ERP Systems
With benefits come some challenges of ERP systems. Let’s address these below.
1. Data Security and Access
As enterprise resource planning systems store a large amount of sensitive data, it is crucial that robust security measures are in place to protect this information from unauthorised access.
2. System Scalability
As businesses grow and change over time, their ERP system needs to be able to evolve with them. It should be scalable so that it can be easily adapted to suit the changing needs of the organisation.
3. Implementation and Integration
Implementing an ERP system can be a complex and time-consuming process. The system must be properly integrated with the existing infrastructure and processes of the organisation.
4. Training and Support
ERP systems can be very complicated, so it is important that users are given adequate training and support in order to use them effectively.
5. System Downtime
As enterprise resource planning systems are critical for businesses, any downtime can have a significant impact on operations. Companies can combat this by having a robust plan in place to deal with any system outages.
Companies need to weigh up the benefits and drawbacks of enterprise resource planning systems carefully before deciding whether or not to implement one.
There is no one-size-fits-all solution, and what works for one organisation may not be suitable for another.
However, when used effectively, ERP systems can offer a number of advantages that can help businesses to streamline their operations and improve their bottom line.