ERP - What is an ERP System?

An ERP system is a software package that manages all business processes of a company including manufacturing, logistics, distribution, inventory, shipping, invoicing, accounting and any other process the business requires in its day to day activities.

ERP replaces standalone computer systems (or manual systems) in all these areas, and replaces them with a software package that is divided into various modules. These modules represent the functions of the business, effectively replacing the standalone systems with modules that interact with each other far more efficiently than the standalone systems.

 

Modules in a Typical ERP System

Most ERP systems are configured so that the customer can choose the modules they require and the software is priced based on the modules required. The typical modules of an ERP System are as follows:

Manufacturing
Bill of Materials, Planning & Scheduling, Job Management

Supply Chain
Inventory, Order Entry, Purchasing, Inspection of goods, Claim Processing

Financials
General Ledger, Cash Management, Accounts Payable, Accounts Receivable

Projects
Costing, Billing, Time and Expense, Activity Management

Customer Relationship Management (CRM)
Contacts, Leads, Calls and Follow up Management

Human Resources

Payroll, Training, Time & Attendance

How will ERP improve my business?

The goal of an ERP system is to have just one application within a company, eliminating the need for complex interfaces previously required between systems and providing additional benefits including the following;

• Lower maintenance costs - the cost of maintaining two or more systems is replaced by the typically lower cost of maintenance of the new system

• Less time spent on data entry as data only has to be entered once - in a business that uses separate standalone systems data has to be entered into each system by its users. This leads to duplication of effort and increases the possibility of human error. For instance a company operating separate manufacturing and finance systems, orders have to be entered on the manufacturing system so they can be fulfilled and also onto the finance system so that they can be invoiced.

• Greater reporting capabilities - all data is typically kept in one database so reporting of data is easier as it comes from once source.

• Encourages the use of best practice in your organization - ERP systems have industry best practice embedded in them so by implementing the ERP system the customer is adopting best practice unless they take the decision to customize the software.

• Greater visibility to users of all aspects of the business - in a business that uses separate standalone systems in different departments, access to these systems is often restricted to members of other departments. For instance sales personnel might not have visibility of the status of an order that is in production despite being the customers contact within the company. Having just one system removes these issues.

• Reduction of inventory - ERP systems help the flow of material through the business, streamlining of supply chain and order fulfillment processes. This can result in less inventory being carried as confidence in the ability to meet customer demand grows within the company.

• Integration of financial information - the use of an ERP system ensures that there is one source of all financial information. If separate systems are used for different functions of the business, there is the possibility of conflicting information in relation to sales revenue from the different departments. Having a single ERP system removes these issues.

Will an ERP system manage all of my business processes?

No matter how strictly you adhere to best practice, no out-of-the-box ERP system will manage all of your business processes. Most companies who will purchase an ERP system will require some amount of customisation to suit their unique business processes. Therefore it is critical to select a software package that has a simple and flexible customisation tool. This gives flexibility during the implementation process in case any business process has been overlooked during the consultation and the software does not support it.

It is also critical in allowing the software to evolve with the business. Changes to the software can be done by either the companies IT administrator, if trained for that role, or a consultant from the software company as part of the support contract.