Enterprise resource planning is the integration of all the main business departments and processes, using an integrated software suite. This software enables most of the business functions to automate; thus, making management easier and more well-organized. The ERP software combines an enterprise’s planning, manufacturing, marketing, and sales efforts; into a single management system. Allowing the combination of all databases across departments into a single database; that can be retrieved by all employees.
It brings the organization together as databases and management systems are well-integrated; allowing the business to function in a well informed and smooth manner.
Intro to the Enterprise resource planning system in short:
- Software tools included
- Managing business systems efficiently
- Enterprise-wide system
- Automation involved greatly
- Well-integrated business processing
- Enables data sharing
- Introduces the best practices for the firm
Enterprise resource planning has evolved over the years so first let’s look at how it has evolved before getting into the details of its components and functions.
How ERP has Evolved Over the Years
The core components of ERP:
These are the traditional workings involved in most of the Enterprise resource planning systems. They mainly tend to focus on internal procedures of the business such as the;
Accounting and finance department- management of accounting and financial processes in the business functioning such as; general ledger, accounts payable, accounts receivable, budgeting, and asset management, etc.
The Production department– handling several aspects of production, planning, and execution such as; forecasting demand, scheduling production, and controlling quality.
Human resource department– tracking workers information such as payroll, benefits, performance assessment within the legal requirements of governments and taxation authorities.
The extended components of ERP:
These involve extra components that meet the organizational needs which are not covered by the core components. They mainly concentrate on the external operations of the business such as;
CRM– Customer service and relationship uses IT; Enterprise resource planning and Customer relationship management are used together for effective functioning.
Read all about CRM here: Customer Relationship Management Improved with IT
Business Intelligence– this feature provides businesses with valuable insights through; making sure that you have quality data; by focusing on change management and focusing on business process reengineering; as well as keeping in action your strategy of integration. This again creates a centralized data structure for the betterment of business performance.
Supply chain management– the importance of supply chain management is surely known but do we know that without the ERP system; SCM cannot fully perform in a firm. Thus, a firm needs to use an ERP system to ensure full potential use of the SCM.
E-business– this feature involves two main components which are E-logistics and E-procurement.
E-logistics – this includes the management of transportation and storage of goods.
E-procurement – this includes the management of any B2B purchase and sale of supplies over the Internet.
The most common Enterprise resource planning softwares used are:
Costs and benefits of the ERP system
- Integrated financial information for the business
- Integrated Customer orders information for the firm
- Standardized manufacturing process
- A speedy manufacturing processes
- Reduction in holding inventories
- Standardized and accurate human resource information available
- Elimination of any unnecessary data and operation
- A very high installation cost
- Could be resistance in sharing any personal info thus creating a problem
- Training the staff how to use the ERP system is challenging if the new staff is hired often
- The results of how efficient the ERP system is can be seen in the long run
- The way enterprise resource planning is implemented in a firm matters a lot as if; it is not implemented right- no success can be guaranteed.
Enterprise Resource Planning is a software that is used by most effective businesses that can afford to install it. The improvements in business performance with the help of ERP can be well understood as we have talked about. And the fact that any system which would help a firm gain more profit and allow it to grow in the competitive world; will not be ignored by a sane and seeking firm. That being said, the cons have been discussed as well however; the bigger and the deeper pictures are In front of us. Thus, we understand that implementing ERP the right way into a business management is a smart thing to do.