The Best Business Decision Most Businesses Ever Make
What Is ERP?
ERP stands for enterprise resource planning, which is multi-purpose business software that can take the place of most or all of the applications used to run a business today.
It is designed to help you consolidate all of your company’s business functions into a single, easy to use application.
ERP software consists of modules that can be added to a core set of financial transaction ledgers that include a General Ledger, Accounts Payable, Accounts Receivable, Bank Accounts Ledgers, etc.
All transactions are recorded in a single process within the General Ledger (and other corresponding ledgers as needed) automatically.
This provides the functionality needed for a company to operate efficiently. By having a core system in place it saves you time by all departments having access to the same set of data.
An ERP can manage:
- Your sales – tracking customers, leads and opportunities.
- Operational tasks – production, scheduling, delivery, field services.
- Accounting – accounts payable, accounts receivable, payroll, general ledger.
- Finance – forecasts, reports, ‘what if’ scenario creation.
- Your inventory – min/max levels, multiple locations, mobile inventory management, kits.
- Manufacturing and fabrication – materials, production scheduling, BOMs.
- Project Management – Work breakdown schedules, resource scheduling, task management.
An ERP systems purpose is to provide one central system from which to manage all aspects of a company.
A Business Brain
If you think of ERP as the brain or central knowledge store of your business and all transactions of a business are stored and acted upon there, you’re pretty close:
Origin of ERP
The term ERP was coined in the 1990’s by the Gartner Group, but the software’s original concept dates back to the 1960’s when it was called Material Requirements Planning (MRP). The first concepts for ERP originated with software designed for the manufacturing sector, since that was the most complicated business model at the time (probably still is).
By the 1970’s most manufacturers were using an MRP. The function of the software was to procure raw materials for manufacturing systems. It also helped with stock levels and tracking goods.
The creation of MRP allowed them to:
- Manage inventory.
- Report on manufacturing statuses.
- Track shipped and received produced goods.
MRP was the main software used by businesses until the 1990’s.
In 1980 several key features were added to MRP that transformed it into MRPII. The meaning of the acronym also changed as well. MRP now stood for Manufacturing Resource Planning.
- The features that were added were:
- The ability to schedule machine capacity.
- Tools to help you forecast demand.
- Quality control.
- Basic accounting tools.
MRP Becomes ERP
When even more functions were added to MRP, the software split into two different programs. The new software was named Enterprise Resource Planning systems.
- Customer Relationship Management (CRM).
- Supply Chain Management (SCM).
- Human Resources (HR).
- Business goods tracking.
- Marketing automation.
These features were planned in a way that allows businesses to unite all of their daily tasks under one software.
Enterprise resource planning software is what was created to increase the business performance of today’s entrepreneurs and established corporations. It is also focused on helping companies save time and money. It does this through a centralized database and automation.
ERP has begun transitioning into ERP II with the addition of even more features to ease the operation of your business.
ERP II was created with the addition of:
- Supplier Relationship Management (SRM).
- More tools for collaboration with partner companies.
- The software is now hosted on the Cloud.
- Your ERP can now be used anywhere and from any device.
- Increased security.
- It is now a Software as a Service (SaaS).
- Regulatory compliance with new laws.
Why Would My Company Need An ERP?
Enterprise resource planning software is a flexible and powerful business tool that can take the place of the multiple business applications that are needed when managing a business.
Instead of each department needing its own software, such as an inventory management system for the warehouse, invoicing for accounts payable, or a special forecasting tool for finance for example.
An ERP can perform all these tasks while simplifying the actions that those departments perform every day. Instead of an employee having to learn multiple programs to work in or help different departments, they now only need to understand the different tools of the ERP software. A benefit of using an ERP solution is that the user interface looks the same throughout.
By using the same software for each department “unique” needs, there will be increased teamwork and communication across the entire business.
Each member will be able to cross train far more easily and be able readily able to assist each other when issues arise. With everyone on the same page, your production will go up and time will be saved.
The changes between ERP and ERP II are made to inspire and ease conversations with companies outside of your business.
Even though ERP now exists MRP and MRP II is still used in many businesses, as not everyone needs the additions that ERP and ERP II have.
With these different variations within the product family being used and maintained, it creates a myriad of options for a management software that fit all types of companies.
How Does an ERP Work?
If you think of a business like a body, an ERP solution would be the skeleton.
By having one software to help and support all parts of your business, you have created a strong structure for all operations to grow upon. This structure will save you time and money by unifying your operations.
The brain of this body would be the highly secure database of the ERP, where information from all departments is processed, sorted, and stored.
By having data in one place instead of strewn across hundreds of spreadsheets created by multiple departments, everything is now available to all users who have been granted access to it.
With all data being stored in one database, Reports are then are auto-generating from this collection.
This eliminates the need for spreadsheets completely and removes the human error of missing an order having been placed or sending it to the wrong department.
With sales and orders being sent directly to where they need to go, products can be paid for and shipped faster resulting to a higher level of customer happiness.
Since there is only one source of information held within an ERP, you can have confidence that all information is true and up to date.
What Are The Components of an ERP?
Branching off this information brain are the different units and functions that the software manages. The database being at the center of the program is what allows for all departments to have access to the data without having to go through each other.
The some of the units are:
- Accounts Payable.
- Accounts Receivable.
- Human Resources.
- Project Management.
- Sales Force automation.
- Marketing automation.
- Inventory and Warehouse Management.
Accounting is the finance module that has functions like general ledger (GL), accounts payable and accounts receivable. These functions can take the place of other programs like Quickbooks, and provide extra functionality since it is a part of the main system.
The accounting module also gives you the ability to forecast expenditures, cash/treasury, and maintain accurate, up-to-date transactions for all departments, divisions, operations, projects, and clients. The accounting module will be able to take care of most of your finance needs.
The accounts payable (AP) module of an ERP solution records invoices received from vendors for purchases of products and services.
The AP system schedules and transacts payments of those bills including issuing checks, electronic funds transfer (EFT), EDI, and other forms of payment. The AP is set up to do this in the most efficient way possible.
The AP module tracks account by:
- Automatic registration of incoming orders and invoices.
- Tracking and authorization of incoming invoices.
- The flagging of irregular invoices.
- Automated entry of order-based invoices.
- Automated matching of receipts and invoices.
The accounts receivable (AR) application records and tracks invoices to clients.
Also, the AR module allows you to apply interest and manage collections for your accounts.
This is done through:
- Online credit management.
- Automated payment reminders sent to your clients with varying degrees of severity.
- Customer statements.
- Automated Interest on late payments.
The functions of the AR module are designed to cut down on what your accounting department has to keep track of on a daily basis.
Human Resources (HR)
The Human Resources module is a large tool that unites all the daily tasks of HR in one monitorable location. This cuts down on the amount of screen and application hoping that the HR department has to do.
This streamlines the HR department by providing tools for:
- Personal management.
- Document management.
- Organizational management.
- Human capital management.
- Time management.
HR has become such an important part of running a business that having such a large module to it is key. The functionality of the HR module will save time for your HR department and make their jobs easier.
Project Management (PM)
Good project management is essential for success and the PM module is designed to help you succeed. Project Management is a flexible module that can be used in a number of ways to streamline project management for internal and external projects. Like with the other modules, this streamlining will help your team be more efficient in terms of time management and ease of work.
The PM module has tools for:
- Resource allocation.
- Change tracking and management of accounts.
- Up to date cost estimates for all projects.
- Corrective actions for when problem come up.
- Real-time information access.
- Alerts for due dates and date changes on all projects.
- Transaction monitoring on accounts.
The Marketing Automation module automates and manages all of the marketing programs within your business.
This module helps you to make and keep a business plan. Your business plan will help you decide on how you want your business to be seen. It also helps you with how you want to reach your customers.
Marketing Automation is designed around the idea that there are a perfect time and place for each type of marketing. Automation lets you reach your audience no matter what time of day it is, or where in the world they are.
This unit helps businesses maintain, and manage customer related Information.
Some of the tools you have to use are:
- Customer segmentation.
- Segmentation strategy.
- Event-based marketing.
- Loyalty programs.
- Partner management.
- Response Management.
Manufacturing Inventory (MI) and Warehouse Management (WMS)
Manufacturing inventory (MI) and warehouse management software (WMS), have been key features of the ERP system long before it was called “ERP”. These two features have been part of the software from the very first version of MRP. Given that these two modules are a key part of the software. its usability within the ERP has been well polished.
MI and WMS can help by:
- Increasing speed and accuracy when it comes to ordering fulfillment.
- Eliminating shipping and handling errors.
- Increased inventory counts and traceability.
- Reduced unused time in the warehouse.
- Increased movement of all materials and finished goods.
Well handled shipping of goods is a key way to keep your customers happy. It also helps the public to have a positive view of your business. A good ERP will help you stay on top of all of this.
Business Intelligence (BI)
Most modern ERPs and ERPIIs include Business Intelligence (BI) functionality. BI is a set of tools within the ERP that use data to predict business performance. By using internal and external data sources, BI is set up to provide past, present, and predictive views on how well your business is doing.
BI tools allow for insight into the performance of sales, operations, production, and finance functions.
They also let you see how your business compares to others in the field, by providing and using benchmarking. Benchmarking is where your business data and milestones are compared to the performance metrics of other companies.
Benchmarking can also help with the planning and delivery of goods, as well as setting the price. Benchmarking is just one of many helpful tools that are included in the BI module to help you monitor how well your business is doing.
One of the key features of any ERP is the advanced automation it provides.
This means that you can set up tasks within the solution to happen automatically once certain requirements (or triggers) are met. Automation can free up so much time for your workforce. This means that orders received no longer have to be manually tracked and handed off to the proper department.
The handling of the order will be completed by automation. This means that the software will send the order where it needs to go to based on what it is. Where it will go is based on factors you input when you first set up automation. Automation settings can be changed at any time to make sure that your system is always running smoothly.
Some of the tasks that automation can take care of:
- All reports.
- Any Invoices.
- The creation of new records such as sales orders, email notifications, or customer activities.
- The creation of new tasks for individual departments:
- Inventory picking.
- Inventory packing.
- Shipping and delivery.
For an ERP to be easy to understand and approachable, the dashboard is one of the most valuable features. A dashboard gives an overview of how the business, department, or project is doing based on key metrics. The metrics you can feature on your dashboard are unique to each department.
You can personalize your dashboard with what transactions and metrics you want to focus on, creating a unique view for each employee.
You don’t have to stick to the metric’s of just one department, you can mix and match to create a view that best suits your needs. The dashboard is also simple to use. This help makes days when you need to work in multiple departments a lot easier.
An ERP solution can provide a complete e-commerce solution that can be integrated with a website. It also lets you manage the e-commerce transaction from start-to-end.
For example, once an order is received the ERP will take that information and break it down.
It will send the invoice to the billing department, the order itself to the department responsible for picking the merchandise, and then once the goods are ready to be shipped the ERP will notify the shipping department.
This makes running a website with a store far easier to keep up with.
Sales Force Automation
Sales Force Automation (SFA) is a suite of tools that provide automated sales process support. This means that along with all the other automation features that an ERP has it also has tools made for your Sales Force team. These tools allow the salesforce team greater flexibility and power when it comes to there day to day tasks.
SFA is able to help with:
- Integrated sales processes.
- Up sale opportunities.
- Quote management.
- Sales forecasting.
- Order management.
- Sales commission.
These tools will help you SF team stay on top of all of their projects and take away some of the small tasks that eat up time.
Why Choose an ERP Over Other Software Options?
When looking for a large-scale software to help you run your business it makes the most sense to use the tools created for today’s problems.
While an older MRP software system might be appealing because of it’s more well known or familiar.
An older program is unable to deal with newer departments and problems, like Accounting and Human Resources. The is also less automation in older MRP systems. This might be fine for small businesses, but for larger teams with a heavier workload, the automation that an ERP has is key.
By using an ERP, you can benefit from all the tasks you could accomplish with older software plus tackle the problems that are unique to today’s markets.
Cloud-Based ERP VS On-Premises ERP
When it comes down to choosing an ERP software it really comes down to choosing between ERPII or ERPI. The biggest difference is if you want a Cloud-based ERP or an on-premise ERP. Each system has its own pros and cons. It really depends on what you need.
With a cloud-based ERP, everything is stored on the cloud and is reachable from wherever you and your internet connection are. A Cloud-Based ERP is best suited for small to mid-sized companies who have team members working from multiple locations, and even all over the world.
- Workplace freedom.
- Access your ERP from your phone, tablet, or computer.
- Predictable cost over time.
- Less expensive upfront investment.
- No additional hardware is necessary.
- Data is secured and monitored by the vendor.
- Quick implementation time.
- Automatically updated by the vendor.
- Technical support is taken care of by the vendor.
- The software is less customizable than when it is installed on premise.
- Leaving security in the hands of the vendor might make some users uncomfortable.
- There is the possibility of spending more over the lifetime of the software.
An On-Site system requires servers to host the database and computers to be permanently networked for everyone to be able to access the database and properly have automation. On-Site ERP systems are better suited for large-scale companies who have an established physical location and a dedicated IT team.
- With a larger upfront payment, the software may cost less over its lifetime.
- With your company being completely in control of the software it is more customizable.
- Your business is in control of the security of your data.
- You have complete control over the implementation process.
- Large upfront investment can be riskier.
- Your company must pay for all of the equipment associated with running an ERP.
- It also becomes necessary to have an onsite IT department to maintain your system.
- Initial setup and implementation can take significantly longer.
- With data in the hands of your company, you must make sure that you have proper security protocols in place.
The debate between cloud-based ERP and on-premises ERP continues, but we are seeing a dramatic increase in cloud-based ERP implementations.
Is an ERP Right for Your Business?
ERP software has become indispensable for managing a business in the modern age. With its integrated Business Intelligence, automation, and streamlined workflow it is easy to see how all businesses benefit from the use of ERP. With Cloud-Based ERPS rising in popularity, ERPs are now affordable and accessible for businesses of all sizes.