What Is An ERP?

What Is An ERP?By David Smith Ph.D.

Enterprise resource planning (ERP) is the integrated management of core business processes, often in real-time and mediated by software and technology. That is what you will find if you look it up on Wikipedia or similar resources. But what does this mean, and more importantly, what does it mean to you?

An ERP system is a type of business management software – and unlike “point solutions,” it provides a suite of basic business capabilities all tied together as seamlessly as possible. It is used to capture, store, manage and interpret data of many business activities. ERP’s are transactional based systems to manage and coordinate those activities.

What this means to you, is that an ERP will provide an integrated and continuous updated view of core business processes, usually on a common database to ensure that access to information is simple and easy. It will also provide methods to track business resources, commitments, and general status of the organization. The key value to these applications is that they share data across various departments such as manufacturing, purchasing, sales, finance, and even marketing.

Key ERP Characteristics

ERP systems typically include the following characteristics:

    1. An integrated system
      • Not linked point solutions
    2. Working in (near) real time
      • Not batch data
    3. A common database that supports all the applications
      • Common information integrated into one reportable platform
    4. A consistent look and feel across modules
      • Reduces the learning curve
    5. Installation of the system requires a full company approach
      • It is not just one department, it is a fully integrated approach
    6. Deployment options include: on-premise, cloud hosted, or SaaS
      • Cloud being the fasted growing option by a major factor

Functional Areas

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

  • Finance & Accounting
  • Fixed Asset Management
  • Budgeting
  • Cost Accounting
  • CRM Management
  • Sales and A/R Transactions
  • Purchasing and A/P Transactions
  • Inventory Management & Transactions
  • Production Management & Transactions
  • Human Resources Management

Best Practices

Most Top Tier ERP systems incorporate Industry Best Practices into their systems. This allows the software to capture common threads for standard business flows (order to cash, purchase to pay, production planning) and incorporate them into the system to be available out of box. This then allows customers to utilize these processes to take advantage of years of cross industry business experience without having to invest the time and energy themselves. In most cases, a company will have the ability to adjust or customize around the Best Practices provided, but best of breed solutions will provide the flexibility without risking the systems core functions. In addition, Best Practices reduced risk by 71% compared to other software implementations.

Use of Best Practices eases compliance with requirements such as Sarbanes-Oxley (SOX), IFRS, or even FDA compliance. The ERP systems will also help with compliance with things like EDI, EFT, Ecommerce Integration, Cross-border transactions, etc.

Benefits of an ERP

  • Improve Quality and Efficiency:
    • Manage internal business processes leading to better outputs
  • Management Reporting:
    • Integrated, Real-time information provided in useful manor to support decision making
  • Agility:
    • Easier adaption to change due to a fully integrated platform
    • Less rigidly structured to allow for adaptation to change
  • Improved Data Security:
    • The ERP is usually deployed in a closed environment either hosted or on-premise
    • Having a common control system allows organizations the ability to more easily ensure key company data is not compromised
  • Increased Collaboration:
    • Document, File, Form sharing on a common platform