Enterprise resource planning (ERP) is probably one of today’s most hyped-up buzzwords. You’ve heard it bandied about by your peers in the industry. You’ve listened to people in tech talk endlessly about it. Vendors have been calling you non-stop, wanting to present their enterprise resource planning system to you.
For sure, ERP is a fast-growing industry, and many champion its importance in streamlining business operations. A 2018 Computer Weekly and TechTarget IT Priorities survey revealed that 53% of IT decision-makers surveyed believe enterprise resource planning systems deserve investment priority.
Thus, the rapid expansion of the enterprise resources planning market should come as no surprise.
According to Allied Market Research, the global ERP market is expected to grow at a compound annual growth rate of 10% from 2021 until 2030. From the valuation of US 43.72 billion in 2020, the ERP enterprise resource planning market is expected to reach USD 117.09 billion in 2030.
However, all this talk about how ERP is growing does not help clarify what enterprise resource planning is.
Exactly what is enterprise resource planning, and why do you need it? We have prepared this complete enterprise resource planning (ERP) guide to help you understand what it is, its benefits, and how you can successfully implement it.
Enterprise Resource Planning: Meaning and Function
ERP is a system that unifies core business functions to improve operational efficiency. To be precise, it is a software system that lets companies automate specific business processes and workflows and seamlessly integrate the data and functions of different departments into one cohesive whole.
An enterprise resource planning system is like an integrative framework that assimilates and organizes incoming data from various departments. It is designed to provide an environment for specific-function software (i.e., modules) to work together seamlessly. It also serves as a central repository of information, with an interface through which authorized users can conveniently generate reports and access business data in real-time.
ERP systems are modular. They have modules or software that automate specific processes and integrate or liaise seamlessly with each other through the ERP system. Component modules automatically send data into the company’s central ERP database. The ERP system, in turn, makes this data instantaneously available to the other modules (specifically, the business processes) that need it.
ERP modules correspond to core business elements. Think of it this way. ERP modules take what your business departments need to do, automate them, and make outcomes centrally available across your organization. Therefore, enterprise resource planning systems, including ERP modules, exist to make your employees more efficient and their jobs easier.
The following are some of the most commonly available ERP modules.
1. Finance and Accounting
This enterprise resource planning module automates finance and accounting tasks. It is a welcome replacement to the old system of using spreadsheets to encode financial and accounting data, create reports, and reconcile accounts.
Finance and accounting modules often have general ledgers where employees can enter all of the business’ financial transactions. The module can also automatically track income and expenses, among other metrics.
They also often have accounts payable and accounts receivable functions. AP functions allow the company to quickly and efficiently track and process vendor invoices. Meanwhile, AR functions automate invoice creation and send out invoices and payment reminders.
Finally, finance and accounting modules usually store supplemental data like payment receipts and tax returns. They can also generate standard financial reports.
With a finance and accounting ERP module, a company can pull its balance sheet, income statement, cash flow statement, and other financial reports as needed. It should also be easily able to obtain critical financial metrics like gross profit margins, net profit margins, debt-to-equity ratios, leverage, working capital, and more.
2. Procurement or Purchasing
In this module, companies can store information about the materials, parts, and equipment they need in production. They can then tie these individual items to specific vendors or providers.
The procurement module can automatically send out requests for quotes to the relevant and approved vendors in the database by referencing data from other modules like manufacturing, inventory, and supply chain management. The module can provide an interface for vendors to create their quotes, and the system will automatically collate and organize vendor-returned quotes.
Once procurement has decided on a vendor, the module can use vendor-specific information and the vendor’s quote to create and send out a purchase order. The system will then automatically track the order through its lifecycle until fulfillment
At this point, it should automatically trigger a change in the inventory levels (inventory module), register the vendor in accounts payable (finance and accounting module), and perhaps even signal the start of manufacturing (manufacturing module).
3. Manufacturing or Production Management
The roots of the modern-day enterprise resource planning system can be traced back to the 1960s’ materials requirements planning and its higher-level iteration, manufacturing resource planning. Both of these frontrunner integrated systems were designed for the manufacturing industry.
Therefore, the manufacturing module is a pillar of ERP systems. This module helps with production planning by calculating how long it takes to produce one item, then running calculations about how long it will take to fulfill demand, with such demand logged through the order management module.
Then, the manufacturing module can help with production planning by ensuring the availability of materials, parts, and machinery.
Knowing how many items it must produce (based on data from the order management module and available goods logged in the inventory module, for instance) should trigger a quote request for parts and supplies through the purchasing module. It should also be able to schedule employees to production activities automatically.
4. Inventory Management
The inventory management module tracks and manages inventory across the entire organization. Through it, you can tell how many of each part are currently on hand or which are in transit from a supplier or vendor. The module can automatically update the inventory to reflect the delivery when supplies arrive.
Therefore, the inventory management module can help ensure the company is never out of crucial parts. This helps minimize production delays and bottlenecks, which can affect order fulfillment, customer satisfaction, and ultimately, the company’s bottom line.
The inventory management module also gives management full visibility about how many of its products are available on hand. Every product is accounted for and tracked when it makes its way to the stores and, finally, when it leaves the system after being sold.
The inventory management module helps companies make data-driven decisions. For instance, the company can initiate production runs as required by sales trends or stop planned production runs if there’s a glut of inventory tying up company resources.
5. Order Management
The order management module can help streamline a company’s order processing system. The module tracks every order throughout its lifetime, from the moment it enters the system until it has been successfully delivered to the customer. Thus, this module ensures no orders are lost and mishandled along the way.
Orders made through all sales channels are immediately accounted for and logged into the system. Thus, all other linked modules (say, manufacturing, inventory, and finance) get up-to-date data for their respective business processes.
The order management module also automates the fulfillment process. If an item has been designated for store pick-up, the system will send it to the appropriate location. Otherwise, it will tap logistics partners (already in the system) for parcel pick-up.
6. Customer Relationship Management
The customer relationship management (CRM) module helps a company store customer information and keep track of its transactions, interactions, and customer communication.
Using the CRM module, a business has easy access to all pertinent customer information. Members of the customer service department can use such information to personalize their service and the way they interact with customers.
A company can gain insight into customer churn rates and segmentation through the CRM module and automate processes that might improve customer retention or customer lifetime value.
For instance, the CRM can automatically send out birthday and holiday greetings. Likewise, the system can automatically identify which customers can be sent upselling or cross-selling promotional emails depending on customers’ purchase history.
What Are the Benefits of ERP?
Enterprise resource planning (ERP) systems help organizations cut costs, reduce redundancies, and become more efficient. These can improve customer experience and make a company more competitive. Ultimately, ERP will help companies grow and profit.
The following are the specific benefits of enterprise resource planning software.
ERP systems are flexible, modular, and scalable. They can be helpful regardless of an organization’s size, complexity, and industry.
Due to their modular structure, they can be as simple and as complex as a business needs them to be. For instance, a manufacturing company can start with the manufacturing module then add the supply chain management module and the order management module as it grows to automate even more business processes.
Thus, ERP systems can grow with a business. Moreover, a small business can benefit significantly from having the ERP system in place before growth because ERP will enable it to grow and scale more rapidly.
Cloud ERP options also make ERP even more accessible and cost-effective, especially for smaller businesses. Cloud ERP systems also ensure scalability, with companies procuring more modules and getting provisioned more resources as needed.
Thus, a business with a successful ERP implementation can be more agile. It can grow as needed to seize and respond to business opportunities as they come.
Efficiency and Productivity
The ERP system centralizes data and ensures a seamless flow of information from one department to related business departments through the central ERP database. This breaks down departmental data silos and ensures personnel can all operate using the same datasets and information.
Procurement and manufacturing can communicate clearly as they are both looking at the same production plan. Remote work setup should also not be a problem. With ERP for efficient remote working operations, distributed staff can collaborate seamlessly and effortlessly using shared data and reality.
In a non-ERP setup, emplohttps://www.affilityconsulting.com/insights/the-importance-of-erp-systems-for-organizations-to-setup-efficient-remote-working-operations/yees often encode their financial and accounting data using spreadsheets. Then, they create reports based on such data. Days or weeks after, finance and accounting reports can finally make their way to the company CFO, CEO, and other C-level executives. At this point, they would be looking at and making decisions based on stale data.
ERP systems remove this constraint. All financial statements and key financial metrics are updated based on real-time data sourced from individual ERP modules. For instance, successful procurements automatically update accounts payable, while successful order fulfillments immediately reflect on account receivables. Thus, company leadership and all stakeholders can make decisions based on relevant and up-to-date information, which should significantly improve the quality of such decisions.
ERP systems also automate business processes. This frees employees from repetitive, mindless tasks and thus gives them time to work on higher-level tasks that mean greater value to the business.
For instance, the production plan is immediately updated once an order is received. Then, the system automatically assesses parts, equipment, and workforce availability. Missing parts are dispatched to the procurement module, which requests quotes or places an order with preferred suppliers.
Using the feedback from the procurement module on the expected delivery of parts, and subject to the availability of machinery and personnel, the manufacturing module schedules the production run.
All of these things can happen with minimal human intervention which, in turn, minimizes the incidence of human error. More importantly, since all the information is available to everyone in the organization (or those who belong to relevant departments), back and forth between departments is minimized, reducing the timeframe required for critical actions to be taken.
By putting data in one place accessible to all who need it, automating processes, and providing accurate and real-time data and reports, employees can be more productive and business operations leaner and more efficient.
With a sound ERP system, a business can take on more projects, double its production, or expand into a different vertical without hiring additional staff to take care of the greater volume of routine administrative tasks. The enterprise resource planning software can take care of all that.
This leaner operation means significant cost savings.
Suppose an industry requires that all the parts used in production be of a particular grade or from a supplier that meets certain conditions. In this case, a company can use an ERP system to track every part from procurement to utilization. This will help the organization establish its compliance with regulations.
How to Ensure Success With ERP Implementation
There are two things you must remember.
ERP systems offer many benefits, and a business can enjoy these benefits no matter its size and industry. NetSuite cites a 2020 study saying 93% of organizations report successful ERP project implementation. That’s a pretty good indication of how ERP positively impacts businesses.
However, in the same article, NetSuite mentions how one in two first-time ERP implementations fails. Additionally, approximately one in three overshot their project implementation deadline and budget, and around one in two reported having their operations disrupted when their ERP system went live.
This should tell you that, while you stand to gain much when implementing an ERP system, you must be careful about how you implement it. Only then can you ensure that your first-time attempt will succeed, your ERP system will go live as scheduled, you will not go over budget, and you will not experience significant operational disruptions when you go live.
Fortunately, there’s one solution that will significantly improve your chance of successfully implementing an enterprise resource planning solution.
ERP Project Advisory
You’re mistaken if you believe that all you need to implement an ERP system is an ERP vendor and your IT department.
ERP vendors are experts about their ERP software and ERP in general, but they might not have domain knowledge. Without knowing how your business works and how your business processes are connected, they are unlikely to provide you with a relevant solution.
Meanwhile, your IT department has the technical know-how and a better grasp of your processes. However, they are not the end-users of your ERP system. Therefore, what might work for them might not work for other parts of your organization.
Instead of just your IT department, you need a full and dedicated ERP implementation team with representatives from all the business departments that will use the ERP system. These representatives will be in charge of creating related standard operating procedures, training members of their respective departments to use the new software or system, and establishing and enforcing accountability for implementation objectives.
However, an independent ERP project advisory consultant is the key to ensuring ERP implementation success.
The following are the things an independent ERP advisor will do for you.
- Identify and document your specific requirements
- Assess available ERP software according to your requirements and general attributes like functionality, flexibility, and scalability
- Schedule ERP software demos
- Vet ERP software vendors
- Prepare quote or proposal requests to send to vendors
- Assess proposals received
- Create an implementation plan
- Put together an implementation team
- Oversee ERP implementation from start to live
- Ensure and procure support after project completion
An independent ERP project advisor will drive your ERP implementation forward. Unlike the vendor, your ERP advisor works for you and on your behalf. Your needs and interests come first. They are your champions, so to speak, and their main objective is to ensure your ERP system implementation succeeds.
We are an experienced independent ERP advisor.
Contact us and let us help you succeed with your ERP implementation.