What is ERP and How Does It Work?
As one of the longest standing ERP vendors, we often get asked, “What is ERP?” ERP is an industry acronym for Enterprise Resource Planning. Broadly speaking, ERP refers to automation and integration of a company’s core business to help them focus on effectiveness and simplified success.
The Information Technology industry is renowned for its adoption of acronyms, which are often widely used, but not fully understood. The term ‘ERP’ itself is not self-explanatory and refers to the business software that has been designed to record and manage your enterprise data.
In its most basic definition, ERP is the computer system that an organization uses to automate and integrate its core business processes, such as taking customer orders, scheduling operations, and keeping inventory records and financial data. ERP software helps businesses get a clear and all-encompassing view of their activities, and how things are tracking against its goals and objectives.
A Real-Life Answer to "What is ERP?"
Think about the phone or computer you’re reading this on right now. It is made up of hundreds of parts—screen, battery, motherboard, video card, CPU, and hard drive just to name a few. Each part had to be ordered, shipped, tracked, placed into inventory, assembled, tested, repackaged, and shipped and tracked again. And each of those parts is made up even smaller parts that had to go through many of the same processes!
Think about the amount of budgeting, sourcing, forecasting, ordering, contracts, invoices, and other decisions involved in getting your device to the store so you could purchase it, and you’ll start to realize how complex manufacturing and distributing really is.
By automating these processes, ERP makes them more efficient, less prone to error, and faster. ERP also frees up people from tasks such as searching for or manipulating data. By integrating these disparate business processes, ERP avoids duplication and inefficient workflows, improves collaboration, and makes it possible to provide decision makers with real-time, business-critical data.
Basic Components of an ERP System or ERP Software
An ERP system is actually made up of a variety of modules or applications. Businesses typically tailor an ERP solution to their unique needs by picking and choosing which modules to use. Some common ERP modules include:
Financial management software/accounting software with features like general ledger, accounts payable/receivable, budgeting, and cash flow management
Supply chain management software including inventory management, order management, logistics management, warehouse management, forecasting, and return management features
Manufacturing operations management (MOM) software or manufacturing execution system (MES) software that includes planning, scheduling, publishing, collecting, tracking, and analyzing functions that drive towards Overall Equipment Effectiveness (OEE), Total Effective Equipment Performance (TEEP), and Overall Labor Effectiveness (OLE)
Governance, risk, and compliance (GRC) solutions with tax compliance, report writers, tracking, and role-based permissions features
Customer relationship management (CRM) software with sales and customer management capabilities
9 Benefits of Implementing an ERP System in Your Business
Today’s manufacturers and distributors face a variety of business challenges. These include duplication of processes with disparate systems, the inability to support a mobile workforce, scrambling to keep track of resources, departments within the organization working in silos, and the list goes on. Implementing ERP software delivers key benefits to assist in overcoming these obstacles.
1. ERP Reduces Costs & Saves Money
- Reduce administrative and operational costs, prevent delays, and pro-actively manage operations through automated processes.
- A cut in operational costs is a cut in working capital outlay. An ERP system allows for you to run your business at a lower cost.
- Reduce waste within your organization and maximize inventory efficiency.
2. ERP Streamlined Business Processes & Operations
- Data is available in a centralized location with complete visibility across all functionalities.
- An ERP system allows you to automate business processes.
- Decision makers can monitor operations and production in real-time.
- Automate many tracking processes, and accurately determine and maintain inventory levels.
3. Use ERP to Improve Financial Consolidation
- Without ERP, many businesses are forced to use different programs in different departments. An ERP system eliminates the data silos that arise from disparate systems.
- ERP systems virtually eliminate tasks by doing the work for you.
4. ERP Makes Supply Chain Optimization Possible
- A robust ERP system allows for real-time visibility of your supply chain and other processes–making it easier for decision makers to get a wider view of their supply chain, reduce planning cycles, and be on top of the production scheduling.
5. Use ERP to Respond to Market Conditions Faster with Data Analysis
- ERP systems provide real-time data analysis and reporting to assist the business to rapidly react to changing market requirements.
- The business can make informed decisions on time.
- Data analysis on ERP software enables access to accurate reports. This allows businesses to follow trends in real-time and determine realistic forecasts.
6. ERP Drastically Improves Traceability
- Allocation and detection of inventory and stock is critical in highly regulated industries.
- ERP traces stock, defects, and hazards down to the level of individual parts and ingredients.
- You can recall and re-evaluate batches and improve scheduled and preventative maintenance, product configuration, and change control.
7. Digitally Transform & Future-proof Your Business with Mobile & Flexible ERP
- As your business grows, your ERP system will grow and adapt to cater for your changing needs.
- Gain better control over your business with choice in deployment; whether it is on premise, in the cloud (Cloud ERP), or on a Mobile App (Mobile ERP).
8. ERP Helps Improve Customer Satisfaction, Service & Relations
- Implementing an ERP solution enables you to produce the right product at the right time. This ensures accuracy in providing for customer needs.
- On-time delivery is critical in maintaining customer retention and service.
9. Increase Competitiveness with an Industry-Built ERP System
- An industry-built ERP solution allows for configuration that suits industry needs by adapting to individual business requirements.
- Gain competitive advantage with compliance, agility, and the ability to expand and adapt with little to no downtime.
How to Choose the Right ERP Solution Checklist
Need help evaluating your ERP vendor options? Download this ERP product comparison checklist to make sure you choose a solution that meets your unique needs.
Signs You Need an ERP System
You can’t deliver on time
- An ERP solution makes it easier to fulfill orders on time, and without errors. Plus, you’ll have visibility into every step of the process, so you can locate and proactively fix problems.
Tracking profits and costs is a problem
- When spreadsheets become your database, it is impossible to see how your business is functioning. Simplifying business performance management is at the heart of what an ERP system does.
Rise in working capital
- Is your business growing? Congratulations! However, you’re also spending more in daily processes. If you notice a steep increase in costs, it’s time to consider ERP. ERP software reduces working capital by optimizing stock holding and streamlining operations.
Someone else says so
- Certain vendors and customers won’t do business with you if you aren’t running on an ERP solution. Luckily, maintaining compliance is just the tip of the iceberg when it comes to what an ERP system can do for your business.
Your current ERP system is outdated
Industry-Built ERP Software
If you want to achieve ROI as quickly as possible for your ERP project, it’s important to choose a technology partner with deep experience delivering results for companies in your particular industry. When it comes to business management software, one size definitely does not fit all.
SYSPRO’s mission is to build flexible, leading-edge ERP software specifically to meet the needs of manufacturers and distributors. But our industry expertise goes much further than that. By taking advantage of SYSPRO’s industry frameworks for your sector, you can benefit from best practices, while minimizing the cost and time involved in ERP implementation.
Keep Learning Even More About ERP