Enterprise Resource Planning or ERP Introduction
Enterprise resource planning or ERP is a system used to manage the many activities relating to running a business. These activities can include accounting, procurement, supply chain operations, project management or Human Resources to name just a few.
An ERP system is a specific type of software that is accessible over a network throughout a company allowing access to mission-critical information. This information is vital in making management decisions that affect the whole company.
Being able to take a birdseye view the ERP systems help management to plan, budget, report and predict the businesses financial results. Thousands of companies around the globe of all sizes and in all industries rely on ERP systems and consider them as vital as the electricity keeping the machines running.
To give a very basic explanation of what is an ERP system, imagine an Excel spreadsheet made up of columns and rows. Now imagine each department in a company records data in just one column so the columns might be headed Accounts, Marketing, Procurement, Sales etc. Over time each department inputs important data into cells in their specific column moving down one row at a time. At the very bottom of each column, there is a cell that displays a total value of all the cells in that column.
Now, this is an extremely oversimplified example but a table like this can be used as a very crude database. An ERP system is basically a database but with functionality built-in so the data it handles includes purchasing, scheduling, profiles, processors or technology values etc. Now if that Excel sheet was visible on a network for everyone to both interact with and view, this improves data visibility. An ERP system is a database designed with a specific structure or (Schema) allowing all business processors to be input, recorded and analysed.
When asked what is an ERP system, it integrates people, processors and technology across any modern business. The Handling and storage industry relies heavily on shared information and communication both up and down the supply chain. This includes manufacturers, suppliers, customers and the people they employ.
An ERP system revolves around the recording of business data by having the data fed into the system and then making that data available through reports, records and analytics. A large portion of this data is often fed into the system via other business-critical software systems.
Warehouse management systems (WMS), transport management systems (TMS) or Customer Relationship Management (CRM) software are just three examples of other tools which can plug into an ERP system for the purpose of sharing data.
What is an ERP system example?
Let's look at what is an ERP system example and how a company might benefit from it's use. Let's also see what is an ERP system in their specific case and how it may be used.
Imagine a mobile phone manufacturer that has numerous suppliers of parts and components. We’ll use a mobile phone manufacturer as an example as we all can appreciate the value they give us.
An ERP system would be able to monitor the procurement, transport tracking and storage of these parts. It would also be able to ensure that each component is identified with unique uniform data which is connected and filters through the whole system.
Each component would also have attributes such as size, material, part number supplier and cost etc. Additionally it would have an abundance of other descriptive and data linked items or values.
Information can be collected, organised and analyzed in a simple fashion using an ERP system. Since every modern company relies heavily on data, when it's managed in this way every individual or system that uses it can execute their responsibilities and roles to the best effect.
What is an ERP system in accounting is a common question. All businesses should be keeping a general ledger that records assets, liabilities, equity, expenses and revenue, these are all separate accounts.
An ERP system ensures that all relevant data feeds through to these correct accounts. This means that all business costs are tracked and represented in a normalised format. If the batteries for the mobile phones were referred to as “power cells” in one database, “battery packs” or “battery cells” in another this could cause confusion and possible errors.
It would be very difficult for the mobile phone manufacturer to work out how much is spent annually on batteries. Without that information, it would be a challenge to identify any potential cost savings when the system could be much simpler.
As mentioned above a simple spreadsheet can be used to record many business activities but these would be cumbersome and error-prone. They would also most likely be spread across company departments without any connection to each other.
An ERP system can bring order to what would otherwise be chaos and confusion. A fundamental concept with any ERP system is the use of a centralised repository of data. Instead of using several different database systems or spreadsheets, one accessible location would mean everyone from the MD, accounts to purchasing can create and store their own data through their own workflows.
What is an ERP system brief history.
Back in the early 20th Century, all business activities were recorded on paper. Archives were bursting at the seams and paperwork was frequently misplaced or even lost for good. Even in those bygone days, information was critical particularly to manufacturing businesses.
Many companies adopted a system known as economical order quantity or (EOC) which was a paper-based system for production scheduling. This system became the standard for manufacturing businesses right up until the sixties. Computers began to appear but most likely tucked away in the accounts department somewhere.
These mainframe computers or servers as they became known enabled the EOC system to evolve into a digital format. By combining technology with a proven yet outdated paper-based system allowed companies to work more efficiently. This new-age process was given the name manufacturing requirements planning or (MRP) for short.
MRP remained the standard system for manufacturing companies for another 2 decades leading up to when it was succeeded by MRP II. The key difference between MRP and MRP II was how the newer version had integrated a range of new components which were all part of the same system.
Purchasing, project management, scheduling and BOMs all became part of the same system. Businesses and software developers became aware of the power software could hold and the endless possibilities that could be available. By embracing technology businesses could vision a streamlined, efficient, cost-saving opportunity.
By the early 90s, the technology had expanded to incorporate human resources, CRM and financing and this became known by a different name. By leveraging past technologies and with the advancement of computing power ERP had been born.
Cloud ERP aka Software as a Service (SaaS)
By now we all know what cloud computing is or at least we should have a good idea. Cloud computing is where huge data centres often spread out all over the globe allow access to their powerful computer systems. They look like warehouses and in actual fact, they are just that only instead of being filled with pallets, shelving and forklift trucks they are filled wall to wall with computers.
These computers run lighting fast and are installed with every type of software you can think of. As long as we have a computer that includes mobile phones and laptops and a network connection we have the ability to connect to these services.
Nowadays anyone with an email account is most probably using SaaS. ERP is one such service that is available to any company or individual who is happy to pay for a subscription or indeed sign up for a free one. Once subscribed and your account is open you can access the service any time you like, 24/7.
When ERP first took off in the 90s they were systems that relied on expensive hardware usually located on the business premises. Both the hardware to run the ERP and the software itself invariably would become outdated or obsolete within 5 to 10 years.
Cloud ERP on the other hand doesn’t rely on a team of in house IT experts nor does it require expensive capital investments to replace or update. The cloud provider will manage, update and provide system support freeing business who instead can invest this time in new business opportunities.
Conclusion
ERP is an absolute no brainer when it comes to streamlining your business processors and activities. They increase data visibility throughout the entire organization allowing better decision making and company transparency. The next time you’re asked what is an ERP system you can confidently describe what they are and if you’re a business owner understand why they are worth your time.
