What Is Enterprise Resource Planning (ERP)?
Enterprise resource planning (ERP) is a process used by companies to manage and integrate the important parts of their businesses. Many ERP software applications are important to companies because they help them implement resource planning by integrating all of the processes needed to run their companies with a single system. An ERP software system can also integrate planning, purchasing inventory, sales, marketing, finance, human resources, and more.
ERP software can integrate all of the processes needed to run a company.
ERP solutions have evolved over the years, and many are now typically web-based applications that users can access remotely.
Some benefits of ERP include the free flow of communication between business areas, a single source of information, and accurate, real-time data reporting.
An ERP system can be ineffective if a company doesn’t implement it carefully.
Enterprise Resource Planning (ERP)
Understanding Enterprise Resource Planning
You can think of an enterprise resource planning system as the glue that binds together the different computer systems for a large organization. Without an ERP application, each department would have its system optimized for its specific tasks. With ERP software, each department still has its system, but all of the systems can be accessed through one application with one interface.
ERP applications also allow the different departments to communicate and share information more easily with the rest of the company. It collects information about the activity and state of different divisions, making this information available to other parts, where it can be used productively.
ERP applications can help a corporation become more self-aware by linking information about production, finance, distribution, and human resources together. Because it connects different technologies used by each part of a business, an ERP application can eliminate costly duplicates and incompatible technology. The process often integrates accounts payable, stock control systems, order-monitoring systems, and customer databases into one system.
ERP offerings have evolved over the years from traditional software models that make use of physical client servers to cloud-based software that offers remote, web-based access.
A company could experience cost overruns if its ERP system is not implemented carefully.
Benefits of Enterprise Resource Planning (ERP)
Businesses employ enterprise resource planning (ERP) for various reasons, such as expanding business, reducing costs, and improving operations. The benefits sought and realized by one company may be different from another; however, there are some worth noting.
Integrating and automating business processes eliminates redundancies, improves accuracy, and improves productivity. Departments with interconnected processes can now synchronize work to achieve faster and better outcomes.
Some businesses benefit from enhanced reporting of real-time data from a single source system. Accurate and complete reporting help companies adequately plan, budget, forecast, and communicate the state of operations to the organization and interested parties, such as shareholders.
ERPs allow businesses to quickly access needed information for clients, vendors, and business partners, contributing to improved customer and employee satisfaction, quicker response rates, and increased accuracy rates. Associated costs often decrease as the company operates more efficiently.
Departments are better able to collaborate and share knowledge; a newly synergized workforce can improve productivity and employee satisfaction as employees are better able to see how each functional group contributes to the mission and vision of the company. Also, menial, manual tasks are eliminated, allowing employees to allocate their time to more meaningful work.
An ERP system doesn’t always eliminate inefficiencies within the business. The company needs to rethink the way it’s organized, or else it will end up with incompatible technology.
ERP systems usually fail to achieve the objectives that influenced their installation because of a company’s reluctance to abandon old working processes that are incompatible with the software. Some companies are also reluctant to let go of old software that worked well in the past. The key is to prevent ERP projects from being split into many smaller projects, which can result in cost overruns.
Employing change management principles throughout the ERP life cycle can prevent or reduce failures that compromise full implementation.
Examples of Enterprise Resource Planning (ERP)
Men’s grooming product maker Fulton & Roark successfully implemented enterprise resource planning to better track inventory and financial data. The North Carolina company, like many other businesses, used spreadsheets to track inventory and accounting software to record financial data.
As the company grew, its processes lagged. Their antiquated inventory tracking system did not account for changing costs, and the accounting software could not record metrics needed for key financial statements. These breakdowns created manual processes, which further compromised time and resources.
To eliminate unnecessary processes and centralize work, they chose the Oracle Netsuite ERP system. Immediately, Fulton & Rourk was better able to identify accounting errors related to inventory, eliminate costs from employing third parties to evaluate their financial records, and better report financial positions.
Cadbury, global confectionery, and maker of the popular chocolate Cadbury egg, also successfully implemented an ERP system. It operated thousands of systems that could not keep pace with its rapid growth, as well as used ineffective warehouse management systems. Previously, it implemented a failed SAP ERP system, which resulted in an overproduction of products.
Trying its hand at enterprise resource planning again, it implemented a system that integrated its thousands of applications,2 standardized processes across 16 locations, and restructured warehouse management systems—breaking down silos for seamless, integrated coordination of work—to name a few.
Many case studies support the need for properly executed enterprise resource planning. The system should match the needs and goals of the company.