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What Is ERP?


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ERP (Enterprise resource planning) systems are not single, standardised implementations as each supplier will have its features based on its customers' needs. Therefore to understand how these powerful and flexible business tools can help your business can be confusing—as can to understand exactly what "ERP" is.

To work out exactly how these systems can help your business, it is first best to understand how they work—below is an overview of ERP, what it does and how it has helped improve so many businesses.

"Enterprise Resource Planning" is in itself a difficult phrase and most people will find it hard to understand how these words apply to their business. This difficulty stems from how many different processes and parts of your business these systems cover. If you think about all the different parts of your business: inventory and order management, accounting, human resources, customer relationship management (CRM), and beyond—the first basic task of an ERP system is to integrate these and make sure that everything is as efficient as possible.

The first and most important feature of an ERP system is, therefore, its shared database—allowing multiple parts of the business to access the same, current data. For example, this means that accounting and sales departments look at the same figures on each customer, and the inventory manager can immediately see the numbers around sales.

Moving to slightly more advanced functions—some ERP software also enables synchronised reporting and automation. Therefore, instead of different teams maintaining separate databases, spreadsheets and records, a single central reservoir of information can be used to provide reports on a number of different functions. This feature can drastically reduce the time spent merging and combining different datasets and systems—as an example, sales figures will flow directly into financial management reporting - accurately sharing the data without rekeying. Another popular ERP feature is to create portals and dashboards to allow each employee to see the specific metrics and KPIs that are of the most importance to their role.

A Brief History of ERP

Although the concept of ERP was invented in 1990 by Gartner1, its ideas date back to the 1960 where these were used in manufacturing processes. Early software engineers invented inventory management systems to reconcile stock used in the different processes and report on this status. Soon, by the 1970's Material Requirements Planning (MRP) systems were developed to efficiently schedule production processes.

MRP-II was developed in the 1980's which involved many more processes used in production, and the term was changed to Manufacturing Resource Planning to reflect this. By the 1990's, software had been created to combine other back office processes (for example, accounting or human resources), across the whole enterprise—ERP was born.

As the capabilities of IT systems have increased, ERP systems have moved into advanced Business Intelligence (BI) functions, front-end sales force automation process and other highly complex functions. With each new function integrated, the success stories increase, enabling a wide range of industries from wholesale distribution to e-commerce, to use ERP solutions.

With this, smaller businesses (even those which may think of themselves as too small to be an "enterprise"), have been able to find benefits through ERP systems. In particular, this has been enabled by cloud-based, software-as-a-service providers creating ERP products which are easier to install without the previously high, up-front costs. The real-time reporting and BI functions are particularly useful to executives and founders—allowing them to quickly make decisions for their business and fuel higher growth.

As businesses of all industries and sizes are now subscribing to ERP solutions, Forester believes that cloud-based ERP adoption will increase by 21 percent annually to 20152. The reason for this is clear when you can see the benefits businesses can gain from an integrated ERP system.

The Business Value of ERP

Central to the value of ERP systems is the ability of different business functions to work more closely together and therefore be more efficient, as the system:

  • Provides a real-time information source on all parts of the business, allowing companies to identify problems quickly and find improvements
  • Reduces regulatory risks by integrating compliance information with all the relevant business functions
  • Automates central business functions such as procure-to-pay, order-to-fulfilment and lead to cash processes
  • Improves customer services by providing one source for billing and customer enquiries

The case of ERP systems and the easier to implement cloud ERP systems becomes stronger as your business grows. The accuracy of information and removal of redundant process means your business will improve as your costs reduce.

1 "Extended ERP reborn in b-to-b," Heather Herald: InfoWorld, August 27–September 3, 2001.

2 "ERP geared for steady growth as sales forecast to hit $50bn by 2015," Rosalie Marshall: http://www.v3.co.uk/v3-uk/news/2049521/erp-geared-steady-growth-sales-forecast-hit-usd503bn-2015#ixzz1NOo0wcHa