What Is ERP (Enterprise Resource Planning) & Why Do You Need It?

In the modern business landscape, operational agility, process integration, and effective management of data are a must for organizations to scale up competently. Enterprise Resource Planning (ERP) systems are a strong technological foundation for any organization, integrating several business processes under an umbrella architecture. Its importance has been felt in the form of consolidation of data, workflow automation, and real-time analytics to guide informed decision-making.

This article explores the technical areas of ERP, introducing its architecture, functionalities, and what ERP represents for modern enterprises.

What Is the Full Form of ERP?

ERP full form is Enterprise Resource Planning. ERP is based on integrated applications to automate different processes related to technology, services, and human resources.

It is composed of 3 major words:

• Enterprise: It’s an organization or company that comprises multiple business processes operating under one umbrella. Many a times, organizations have large systems, people, and procedures, and they need an ERP system to manage all aspects of the business.
• Resource: All the people, money, material, and time that a business has at its disposal are called resources. To manage these resources effectively and to track them, businesses need an ERP solution.
• Planning: To achieve its goals, a business needs to have a plan. Good planning can mean the difference between success and failure. Enterprise resource planning helps organizations plan and make data driven decisions.

ERP uses integrated applications, workflows, and data to manage the entire business operations and resources for optimum efficiency.

Understanding the Enterprise Resource Planning System

An enterprise resource planning system is a comprehensive, integrated software solution that helps businesses automate and manage their operational and back-office functions. ERP solutions are typically composed of modules that address a specific business need or process, such as supply chain management, human resources, finance management, and manufacturing. 

ERP solutions provide a centralized database that allows real-time visibility and data sharing across all departments and business locations. This centralized database is the heart of the ERP solutions and is where all data is stored and accessed.  

Suggested Read: Checklist for Successful & Secure ERP Implementation: Challenges & Best Practices

Key Modules of an ERP system

Let’s learn about some of the key modules of ERP systems: 

Core ERP Modules

• Financial Management: It is the foundational finance module in every ERP system and manages the general ledger and, accordingly, all financial data. It tracks every transaction for accounts payable (AP) and accounts receivable (AR) and handles reconciliations and financial reporting.
• Human Resource Management (HRM): A human resources management (HRM) or human capital management (HCM) module is a lot like a workforce management module. It stores employee records with all the important data, such as available PTO and performance reviews, and can tease workforce trends in various departments or demographics.
• Supply Chain Management: SCM modules let the companies manage the flow of goods from suppliers to manufacturing and then into customers’ hands. Keep the production chain by making sure every material is available and in the right place and accurately schedule machinery and labor resources.
• Customer Relationship Management (CRM): CRM is a widely used module in a lot of businesses and sectors. It records all client communication, including making leads, and can strengthen customer service activity and raise sales.

• Manufacturing: Manufacturing can be pretty complex, and this module helps companies coordinate all the steps made to produce products. The module can ensure that the production meets demand and monitor how many items are in-process and completed.
• Inventory Management: An inventory management module displays current inventory levels at the SKU level and keeps those numbers up to date in real-time. They measure key metrics related to the inventory as well.
• Project Management: Services firms typically employ a professional services automation (PSA) or project management module to plan and track projects, including the time and resources expended on them. It can simplify billing to clients and encourage collaboration among staff members working on a project.
• E-commerce: An e-commerce module enables retailers and brands to manage the back and front ends of their online stores. Using this application, they can alter the appearance and feel of the site and create and amend product pages.
• Marketing Automation: This module governs marketing efforts through all digital channels, namely, email, web, and social, and empowers organizations to optimize and personalize their messaging. A marketing automation tool can drive leads, sales, and customer loyalty.
• Procurement: The procurement module deals with the buying of raw materials or finished goods. It can automate requests for quotes and purchase orders, and when integrated with demand planning, it is supposed to minimize overbuying and underbuying.
• Order Management: This application monitors and prioritizes customer orders from all channels as they come in and tracks their progress through delivery. An order management module can speed up fulfillment and delivery times and improve the customer experience.
• Warehouse Management: A warehouse management module orders activities such as receiving, picking, packing, and shipping. It can save time and cost in the warehouse by identifying more efficient ways to execute these tasks.
• Workforce Management: A workforce management (WFM) module tracks attendance and hours worked; some can also manage payroll. This tool can record absenteeism and productivity by department, team, and individual employees.

ERP solutions are designed with multi-level access to ensure stakeholders only access the related modules while ensuring data security. 

ERP Technical Architecture

In general, ERP systems use a three-tier architecture:

• Presentation Layer: The user interface (UI) by which end-users interact with the system via web or application-based accessibility.
• Application Layer: The middleware, which holds business logic in workflows, transaction processing, and automation scripts.
• Database Layer: The back end wherein all the data is stored, normally using RDBMS for structuring queries and reports.

Most contemporary ERP solutions utilize cloud infrastructure, microservices, and APIs for greater scalability and the ability to interface seamlessly with third-party applications.

Types of ERP Deployment Models

There are usually 3 types of deployment models of ERP. These are on-premises, cloud-based, and hybrid models. Let’s see them in detail: 

1. On-Premises ERP

Installed locally, it does provide complete control over its configuration and data security. But it does come with a major up-front cost for the infrastructure, along with any maintenance responsibility. 

2. Cloud-Based ERP

It is installed on cloud infrastructure, and it makes possible lower up-front costs, quick setup, and scalability. The majority of multi-tenant models of providers can share resources or single-tenant models for environments. 

3. Hybrid ERP

Uses a combination of on-premises and cloud solutions to let businesses take advantage of the benefits on both sides as it addresses specific operational requirements. 

Why Should a Business Implement An Enterprise Resource Planning System

There are many reasons why a business should implement an ERP system.

• Centralized Database: One of the biggest advantages of this system is that it provides a centralized database for all your data. The data can be accessed by authorized users from anywhere in the world. This helps reduce data silos and ensures that everyone is working with the same information.
• Data Driven Decision Making: An ERP system provides businesses with the data they need to make better decisions. With all the information in one place, businesses can make decisions based on data instead of guessing.
• Streamlining Workflows: Workflows in an organization can be complex and often involve multiple departments. An ERP system can help streamline workflows by automating tasks and providing a clear overview of the entire process.
• Improved Customer Service: It helps businesses improve their customer service by giving them the information they need to resolve issues quickly. With an ERP system, businesses can provide their customers with the best possible service.
• Seamless Collaboration: The enterprise resource planning system can help employees, departments, branches, and stakeholders collaborate better by giving them the tools they need to share information and work together on projects. With an ERP system, businesses can eliminate the need for paper documents and make collaboration easier.
• Financial Data Integration: With an ERP system, businesses can connect their accounting, payroll, and other financial systems into a single, consolidated repository.
• Performance Efficiency: An ERP system can help businesses improve their performance by automating tasks and reducing the need for manual input. With an ERP system, businesses can improve their efficiency and get more work done in less time.
• Cost Reduction: Businesses can reduce their costs by automating tasks and reducing the need for manual input with an ERP system. Organizations can also improve their efficiency and get more work done in less time. In addition, This can help businesses save money by reducing the need for paper documents and eliminating the need for multiple software solutions.
• Automation and Accuracy: ERP systems automate many of the tasks associated with running a business, such as financial reporting, inventory management, and order processing. This automation can help businesses improve their accuracy and reduce the likelihood of errors.

Related Categories: Manufacturing ERP Software | Retail ERP Software | Construction ERP Software

What Business Functions Can Benefit from ERP

These systems impact every area of a business, but some departments see more benefits than others. Here are some of the business functions that benefit the most from ERP:

• Sales and Marketing: ERP solutions can help sales and marketing departments by giving them the tools they need to track customer data, manage leads, and create campaigns. It also integrates and streamlines all major sales functions like order management, billing, payment collection, feedback, accounting, distribution, inventory, and so on. This reduces human error, manual intervention, and costs associated with the sales and marketing process.
• Accounting and Finance: The enterprise planning system also benefits accounting and finance departments by automating tasks and providing real-time visibility into the organization’s financial data. It also helps consolidate financial statements, forecast revenue, create budget, and track compliances.
• Human Resources: ERP software applications are extremely important for human resources departments in several ways. They can automate many of the tasks associated with managing employee data, such as tracking roles and responsibilities, compensation and benefits, and hiring and performance review processes. In addition, the ERP solutions also streamlines the recruitment process by giving you the tools you need to post job openings, track applicants, and screen candidates.
• Operations: The integrated business system automates and integrates tasks such as production planning, inventory management, quality control, shipping, and logistics. It also provides businesses with real-time visibility into their operations so that they can identify bottlenecks and inefficiencies.
• Customer Service: With an ERP solution, businesses can automate their customer service processes, such as order management, returns, and customer support. Besides, your customer care reps can track the entire communication history, integrate all communication channels, and respond to customer queries in real-time.
• Supply Chain: Businesses can manage their supply chain effectively using ERP and gain visibility into every stage of the business. It enables them to track their inventory level, plan production, create distribution plan, track work in progress, and more.
• Production: ERP solutions can automate and streamline production processes, such as material requirements planning, capacity planning, order tracking, & quality control. This can help businesses improve their product quality and delivery time while reducing production costs.
• Inventory Management: Automates inventory management tasks, such as stock replenishment, reordering, and forecasting. It also helps businesses reduce their inventory levels and improve the inventory turnover.
• Procurement management: Procurement processes can be improved through automation, integration, and better visibility. Organizations can make smarter purchasing decisions by tracking and managing the entire procurement process, including planning, tracking, managing vendors, and analyzing spending.

Implementing the Enterprise Resource Planning System

There are a few things to keep in mind when implementing Enterprise Resource Planning Systems:

• Choose the right vendor: It is important to do your research and choose a vendor that is reputable and has a good track record. Read reviews and check the history of the software provider for better insight.
• Set realistic goals and objectives: Before starting the implementation process, it is important to set realistic goals and objectives. This will help you map out the implementation process and ensure that it is successful.
• Train your employees: ERP systems can be complex and require a lot of training. It is important to train your employees in the ways to use the system so that they can be more efficient.
• Manage the change: ERP systems can disrupt existing workflows and business processes. It is important to carefully manage the change and ensure a smooth transition.

Suggested Read: Winning Strategies of ERP Implentation and Steps for Success

Benefits of ERP System

Here are some of the major benefits of using an ERP solution:

• Improved efficiency and productivity: ERP solutions can help businesses automate and streamline their core processes and improve the overall efficiency and productivity of the organization.
• Real-time visibility: ERP systems provide businesses with real-time visibility into their operations and data so they can identify bottlenecks and inefficiencies.
• Reduced costs: Businesses reduce their costs by automating tasks and reducing manpower. Enterprise Resource Planning ERP also track down inefficiencies and help in making data-driven decisions.
• Improved decision making: It allows managers and TCWG (Those Charged with Governance) to make better decisions by providing them with timely and accurate information.
• Streamlined and efficient processes: Enterprise Resource Planning ERP can help businesses automate and streamline their processes, such as material requirements planning, capacity planning, order tracking, and quality control.
• Increased Customer Satisfaction: ERP solutions can help businesses automate their customer service processes, such as order management, returns, and customer support. With an Enterprise Resource Planning ERP, businesses can provide their customers with the best possible experience.
• Increased Security: Businesses need to ensure that their data is safe and secure. ERP systems help businesses keep their data safe and secure by providing them with a detailed audit trial, tamperproof centralized database and user-based access.

Limitations of ERP System

There are some drawbacks of using an this system as well that should not be ignored. These are as follows:

• High cost of implementation and maintenance: ERP systems can be quite expensive to implement and maintain. The hardware and software costs are often high, and businesses need to invest in training their employees to use the system efficiently.
• Complex modules: ERP systems can be quite complex and require a lot of training and expertise to use. This can lead to frustration among employees and a high learning curve.
• Training and change management: Employees often need extensive training to use ERP systems. And businesses need to carefully manage the change to ensure a smooth transition, else it increases inefficiency.
• Faulty integration and workflows: Faulty integration of ERP can disrupt existing workflows and business processes creating a lot of errors and inefficiencies.

Suggested Read: What is ERP Finance Module: Features, Benefits & Example?

Conclusion

ERP systems offer a lot of benefits that can help businesses improve their operations. When implemented correctly, These systems can help businesses automate their processes, improve efficiency, and make better decisions.

However, there are some drawbacks of using ERP systems as well that should not be ignored. Overall, if you are considering implementing an Enterprise Resource Planning ERP, it is important to do your research and ensure that you are making the best decision for your business.

Suggested Read: 12 Best ERP for eCommerce Industry | The Role & Benefits of ERP in Supply Chain Management