Enterprise resource planning (ERP) Meaning, Need

Recently updated on April 13th, 2023 at 05:44 pm

Enterprise resource planning (ERP) is the integrated management of main business processes, often in real time and mediated by software and technology. ERP is usually referred to as a category of business management software typically a suite of integrated applications that an organization can use to collect, store, manage, and interpret data from many business activities. ERP Systems can be local based or Cloud-based. Cloud-based applications have grown in recent years due to information being readily available from any location with internet access.

ERP provides an integrated and continuously updated view of core business processes using common databases maintained by a database management system. ERP systems track business resources cash, raw materials, production capacity and the status of business commitments: orders, purchase orders, and payroll. The applications that make up the system share data across various departments (Manufacturing, Purchasing, Sales, Accounting, etc.) that provide the data. ERP facilitates information flow between all business functions and manages connections to outside stakeholders.

Enterprise system software is a multibillion-dollar industry that produces components supporting a variety of business functions. Though early ERP systems focused on large enterprises, smaller enterprises increasingly use ERP systems.

The ERP system integrates varied organizational systems and facilitates error-free transactions and production, thereby enhancing the organization’s efficiency. However, developing an ERP system differs from traditional system development. ERP systems run on a variety of computer hardware and network configurations, typically using a database as an information repository.

Need of ERP

  • Lower operational costs through streamlined business processes and best practices.
  • Improved business insight from real-time information generated by reports.
  • Enhanced collaboration from users sharing data in contracts, requisitions, and purchase orders.
  • Improved efficiency through a common user experience across many business functions and well-defined business processes.
  • Consistent infrastructure from the back office to the front office, with all business activities having the same look and feel.
  • Higher user-adoption rates from a common user experience and design.
  • Reduced risk through improved data integrity and financial controls.
  • Lower management and operational costs through uniform and integrated systems.

ERP systems typically include the following characteristics:

  • An integrated system
  • Operates in (or near) real time
  • A common database that supports all the applications
  • A consistent look and feel across modules
  • Installation of the system with elaborate application/data integration by the Information Technology (IT) department, provided the implementation is not done in small steps
  • Deployment options include: on-premises, cloud hosted, or SaaS

Functional areas

An ERP system covers the following common functional areas. In many ERP systems, these are called and grouped together as ERP modules:

  • Financial accounting: General ledger, fixed assets, payables including vouchering, matching and payment, receivables and collections, cash management, financial consolidation
  • Management accounting: Budgeting, costing, cost management, activity based costing
  • Human resources: Recruiting, training, rostering, payroll, benefits, retirement and pension plans, diversity management, retirement, separation
  • Manufacturing: Engineering, bill of materials, work orders, scheduling, capacity, workflow management, quality control, manufacturing process, manufacturing projects, manufacturing flow, product life cycle management
  • Order processing: Order to cash, order entry, credit checking, pricing, available to promise, inventory, shipping, sales analysis and reporting, sales commissioning
  • Supply chain management: Supply chain planning, supplier scheduling, product configurator, order to cash, purchasing, inventory, claim processing, warehousing (receiving, putaway, picking and packing)
  • Project management: Project planning, resource planning, project costing, work breakdown structure, billing, time and expense, performance units, activity management
  • Customer relationship management (CRM): Sales and marketing, commissions, service, customer contact, call center support CRM systems are not always considered part of ERP systems but rather business support systems (BSS)
  • Data services: various “Self–service” interfaces for customers, suppliers and/or employees
  • Management of school and educational institutes.

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