What is ERP?

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ERP stands for Enterprise Resource Planning. It is a software system that integrates various functions and processes within an organization.

What is ERP (Enterprise Resource Planning)?

It integrates various functions and processes, such as finance, human resources, production, supply chain management and customer relationship management. The primary goal of an ERP system is to streamline and automate business processes, improve efficiency, and provide real-time visibility into the organization's operations.

How has ERP developed over the years?

ERP History dates back to the development of inventory control systems in the 1950s. It was among the first ways to automate business processes and information flow. These in-house systems were limited to tracking the availability of finished products.

Later, in the 1960s, the first iteration of Materials Requirements Planning (MRP) software emerged as a collaboration between IBM and J.I Case - a manufacturer of tractors and construction machinery to automate scheduling and procurement processes for manufacturers. MRP helped companies meet market demands by coordinating manufacturing, procurement, and delivery processes. As the technology advancement continued, MRP evolved into more sophisticated systems that integrated raw material requirements and production schedules, resulting in a more holistic approach to production.

Eventually, the MRP system led to the development of ERP. In 1990, Gartner introduced the term ERP to describe software that integrated back-office and front-office functions. ERP software brought together previously unconnected departments like finance and HR, resulting in a unified digital system. Gartner coined another version of ERP in the early 2000s. It focused on real-time ERP software delivered over the internet. The new version integrated various business functions, including supply chain management, customer relationship management (CRM), and business intelligence. At the same time, Mobile functionality also improved. Moreover, the development of "apps" extended the functionality of ERPs, enabling them to address a wide range of business issues.

What are the key modules in an ERP?

ERP software is composed of different modules. These modules are essentially functional units that manage specific business processes. There are five main modules, each with its own features, tools, and functionalities that cater to specific business needs. - Finance, Human Resources, Manufacturing, Supply chain management, and Sales.

Finance module (FM): It is the main module of an ERP system. The Finance module streamlines financial processes such as managing accounts payable and receivable, generating invoices, tracking expenses, managing general ledger entries, and creating financial reports by automating these tasks for improved accuracy and time savings.

Human resources (HR): The HR module helps in the management of administrative tasks related to employee management. These tasks include employee record-keeping, payroll processing, benefits administration, and performance management. Additionally, the system can take over tasks such as calculation and disbursement of employee salaries, including taxes, benefits, and other deductions. By automating these HR processes, businesses can significantly reduce the administrative burden and increase efficiency, freeing up HR staff to focus on more strategic initiatives such as talent acquisition, retention, and development.

Manufacturing module (MM): The MM module is responsible for managing and streamlining complex processes involved in manufacturing. In addition, the module provides visibility into manufacturing operations, allowing businesses to identify operation bottlenecks to improve workflows for productivity.

Supply chain (SC) module: The SC module enables businesses to manage their supply chain efficiency by providing features such as procurement management, inventory management, demand planning, production scheduling, and order management. It offers automation capabilities and real-time visibility into the entire supply chain enabling businesses to track purchase orders, monitor production, and manage orders based on customer demand, ultimately leading to faster deliveries to customers and a cost-effective supply chain.

Sales Module (SM): The sales module typically includes features such as - lead capture, lead scoring, lead nurturing, and sales forecasting. Automating these processes can help sales teams focus on the most promising leads resulting in higher conversion rates and increased revenue.

What is the future of ERP?

ERP systems are evolving to meet the changing demands of the digital business landscape. Some trends that will drive the future development of ERP are cloud computing, IoT integration, advanced analytics, Muti-device experiences, and hyper-automation.

Cloud Computing: Cloud computing is revolutionising the way ERP systems work. Cloud-based ERP systems offer a range of benefits, including flexibility, scalability, and cost-effectiveness. As more businesses move to the cloud, cloud-based ERP systems will become increasingly important.

IoT integration: The rise of cloud ERP will support the integration of IoT (Internet of Things) devices with ERP systems. IoT devices can provide real-time data on various businesses' operations, including supply chain management and production, to improve operations visibility.

Advanced analytics: One of the main advantages of ERP systems is the ability to generate data and analytics to help businesses make informed decisions. Future versions of ERP analytics will become even more powerful, providing real-time insights from IoT devices to identify areas for improvement.

Multiple-device ERP: ERP systems are offering multi-device experiences, allowing employees to access real-time data and analytics from anywhere, using any device.

Hyper-automation: Powered by AI, machine learning, and robotic process automation (RPA), hyper-automation is the next big step in simplifying the control of all components within an ERP system. 

What can companies do to realise RoI (Return on Investment) from ERP?

Leading companies take several actions to ensure the successful implementation of ERP systems and realise a good return on their investments. 

Clear Business Objectives: Setting clear business objectives is a starting point in ERP implementation. Leading companies align the ERP implementation with their strategic goals by defining specific outcomes, such as improving operational efficiency, improving customer experience, and making data-driven decisions. 

Comprehensive Planning and Project Management: Effective planning is crucial for maximising the benefits of ERP implementation. Leading companies take time to analyse current processes, plan the implementation and allocate sufficient resources to address operational challenges. By adopting a strategic approach, organisations fully capitalise on the advantages of the ERP solution. It is also important to back comprehensive planning with strong project management practices to ensure timely execution.

Data Management and Governance: Organisations also focus on data management and governance which includes establishing robust policies and processes to ensure data accuracy, integrity, and consistency.

User Training and Adoption: Providing comprehensive training programs for different user roles, timing the training effectively, and facilitating user acceptance help organisations realise the benefits of ERP implementation faster. 

Continuous Improvement: ERP implementation is not a one-time event but an ongoing process. It requires mechanisms for continuous improvements, such as regular system reviews, performance monitoring, and feedback loops. By analysing system usage, identifying areas for enhancement, and addressing evolving business needs, organisations can continually optimise their ERP system to drive further business benefits.

About the authors

Pranav is an Associate Consultant at Kanvic Consulting.

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