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Finance glossary

What is Enterprise Resource Planning (ERP)?

Bristol James
7 Min

Enterprise resource planning (ERP) is a type of software solution that helps businesses manage several different business-related tasks. There are many ERP applications on the market, and while some of them have specific niches or specialties, most of them help support all key business functions.

These key business functions include:

  • Human Resources
  • Manufacturing
  • Finance and Accounting
  • Supply Chain
  • Procurement

By bringing the management of complex business processes into one tool – as well as the data that those business processes rely on — companies can benefit from enhanced cohesiveness, better analytical insights, and deeper data monitoring. Often considered the system of record for most companies, ERPs need to have stellar data storage capabilities, reporting functionality, and more. With the right ERP, organizations can reach new levels of success while streamlining business management and making day-to-day tasks much simpler.

What can ERP software do?

As the core system of most businesses, an ERP software solution must be able to store and transmit data, provide accurate quantitative data, and communicate with other business systems. By bringing together the data an organization stores, the people within the organization who make decisions, and the other business tools and systems that have helped the company scale, ERP platforms are one of the most critical investments a business can make today.

When multiple business systems are connected by one ERP solution, it’s often referred to as an ERP suite. When the best ERP software supports functional modules like HR, accounting, and supply chain, the functionality of the suite is quite impressive.

Finance Capabilities

Because finance and accounting has always been a data-centric function, ERP systems are often housed and managed within this function. Accounting-related ERP functionality is extensive: general ledger management, journal entry tracking, financial reporting, invoicing and accounts payable tasks, and auditing only scratch the service of what today’s ERP applications can do.

HR Capabilities

Human resources teams rely on ERP systems for resource planning, payroll, time sheet tracking, and more. With human capital management (HCM) system add-ons, ERP applications become even more vital for this function.

Sourcing and Procurement Capabilities

Keeping track of when to purchase new supplies or raw materials can be tedious and challenging, but with ERP software, a lot of those tasks can be done in the background. With a module that tracks quote details, pricing information, and order history all in one place, sourcing and procurement can make data-driven purchasing decisions.

Sales Capabilities

Leads, sales calls, lost customers, and promotional campaign statistics can be monitored with a more detailed view thanks to ERPs. Open orders, billing issues, and customer inquiries can be managed cohesively thanks to the source data provided by the organization’s ERP solution.

Manufacturing Capabilities

Because planning and data analysis are so critical to the manufacturing function, these teams rely on ERP solutions to provide detailed data regarding open orders, inventory issues, material needs, quality control issues, and more.

The reality is that ERP software solutions don’t stop with the above functional areas; these solutions play a major role in every aspect of business operations. ERP systems haven’t always played such a big role in every organization, but they’ve evolved over time to become to effective, data-centric business tools that they are today.

How have ERPs evolved?

When companies began using computerized solutions in the 1960s, the whole landscape began to shift. Back then, computers, though impressive, were slow, clunky, and expensive. Eventually, the manufacturing teams at large organizations started to use material requirements planning (MRP) solutions. With advanced functionality, better access to data, and real-time information processing, MRP software set the stage for ERPs to take shape.

In the mid-1980s, MRP II systems provided different modules, bringing together purchasing, contract management, and other business processes. When it became clear how effective it was to bring different business priorities into one solution, even more advanced technologies started becoming real tools that businesses could access. By the 1990s, the ERP software solution was all the rage, regardless of the industry. Manufacturing, finance, accounting, customer relationship management, and so many more functions were forever changed for the better.

How do ERP systems benefit businesses?

After implementing ERP software, 95% of businesses experience business process improvement. The data simply doesn’t lie; by unlocking the business capabilities provided by ERP systems today, companies can fundamentally change every single aspect of their business operations. In 2019, TEC conducted a survey and found that business leaders agreed on three proven benefits of ERP implementation:

Reduced Process Time

Manual processes used to be the norm for businesses – paper invoices, snail mail bill payments, quality control spreadsheets, and everything in between were all on paper. Because of the inherent manual element of every task, it took longer to close out to-do lists. Now, teams can process more data, make faster decisions, and even automate certain tasks, drastically reducing the amount of time it takes to conduct business processes.

Increased Collaboration

Siloed business operations can still cause some delays today, but largely because businesses are still adjusted to having access to cohesive business systems between functions. The sales team used to have its own system; finance used to have its own system; manufacturing used to have its own system, and the kicker? None of the systems could talk to one another.

With ERP suites, business systems exist under the same proverbial roof, ensuring data alignment between functions, cohesive naming conventions, and better automation capabilities. Cross-functional collaboration is reaching new heights thanks to technology.

Centralized Data System

Emphasizing the collaboration point above, centralized data solutions are the key to succeeding in the digital age. Businesses have more access to data than ever before, but without being able to trust the data and make decisions based on it, the amount of data is meaningless. With ERP software creating the perfect playing field for wrangling data, cleaning data, and distributing data across systems, businesses can actually make use of all the data they have.

On-Prem vs. Cloud ERP Software

When it comes to the architecture of ERPs, businesses have three options to choose from: on-premise ERP solutions, Cloud ERP software, or a hybrid solution.

It used to be that on-prem ERP solutions were the only option. With this setup, the software is installed and stored at a physical location of each company’s choosing. Because the ownership of the hardware and software belongs solely to the business itself, some companies see this as the most “secure” option.

However, let’s say that the data storage center has a fire that destroys all the hardware inside. The entire ERP solution would be gone, along with any historical data housed in the tool. Although Cloud-based solutions are exposed to a set of risks that on-prem ERPs aren’t, most technical experts agree that they are the most secure approach today.

With Cloud ERP software, all the information is hosted in the Cloud and uses the internet to move to different devices and systems within a business’s network. Because of lower costs, better data recovery infrastructure, continued provider support, and easier integrations, most companies go with a Cloud-based solution.

Sometimes, legacy business systems require a hybrid solution. If a business leader is considering a hybrid approach, it’s best to work with the ERP provider to ensure it’s the best choice.

What makes a good ERP system?

With hundreds of different ERP software solutions available to businesses, finding the right one can be a bit of a challenge. When shopping around, business leaders need to thoughtfully consider the needs of their organizations alongside many other factors.

  • Functionality: Does the ERP software have all the modules your business needs? Can it help streamline key business processes? Look at what each ERP can do to ensure that you’re making an investment that will last.
  • Scalability: Some ERPs are designed for large enterprises while others target small businesses. What are your growth goals for your business? Will the ERP system in question be able to support future growth?
  • Integration Capabilities: If an organization already has a long list of business systems they rely on, verifying that the ERP systems in consideration can integrate with those business systems is a crucial – and often overlooked – priority.
  • User-Friendliness: Prioritize an intuitive and user-friendly interface to ensure easy adoption by employees across all levels of the organization, minimizing training time and maximizing productivity.
  • Data Security: If an ERP solution has weak security features, it’s not the one. Data encryption, user access controls, industry compliance features, and other data security components should be built-in to the tool.
  • Customization Options: Every business has different needs; finding ERP software that can cater to those specific needs will go a long way in ensuring implementation success.
  • Vendor Support: One of the most important features of any ERP software or business system is the vendor support from the company that builds the system. Reviews are a great place to understand client frustrations when it comes to support.

The future of ERP

ERP applications have changed a lot since they first entered the market, and they don’t show signs of slowing down anytime soon. Looking ahead, ERP users can expect an even more digital approach to ERPs. Automation, Artificial Intelligence, Machine Learning, and other cutting-edge features are becoming commonplace in this space.

When thinking of key business systems that exist outside the ERP solution, such as secure payment platforms like Eftsure, timesheet tracking portals, and more, the focus on digital transformation is great news. The push for all business systems to become proactive, data-driven decision-making tools will provide better outcomes to businesses and their customers.

Summary

  • ERP (Enterprise Resource Planning) software streamlines business tasks across functions like HR, manufacturing, finance, and procurement, integrating data and enhancing cohesiveness.
  • ERPs store and transmit data, facilitate decision-making, and support various business systems. They are indispensable tools for efficient operations and business scalability.
  • ERPs reduce processing time, foster collaboration, and centralize data, unlocking business capabilities and driving improvements in productivity.
  • When choosing an ERP solution, business leaders should consider factors like security, scalability, integration, and vendor support.

 

 

 

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