"Our business doesn't need something as complicated as ERP."
It isn't a surprise to hear such a statement from a company. Many business owners believe that ERP (enterprise resource planning) is a very technical and complicated process that will only result in a clunky computing environment and extra costs that strain limited budgets. But the truth is that ERP isn't that complicated once you understand it for what it is: a back office management software strategy that can help consolidate business functions into a unified process.
ERP 101: What is enterprise resource planning?
ERP is an integrated software system that has been used by businesses for over a generation. The term itself was introduced in the 1990s by the Gartner Group. But it was actually a software suite strategy developed in the 1950s for inventory management and to create plans for materials requirements.
The manufacturing industry benefited from ERP as a replacement from the past MRP (manufacturing resource planning) software. ERP was more robust, even during the 1990s, as it streamlined the entire production process from the design phase to the financial costs calculation stage. As technology evolved, so too did ERP software. Businesses from every industry saw a way to incorporate ERP into their business software strategies to help manage their human resources and accounting processes.
How does ERP work?
ERP consists of individual software modules featuring technical capabilities to handle automated back office tasks. These modules have integrated application functions suited for the activities that you want it to perform. The common ERP modules used in most small and large businesses today are:
• Material purchasing
• Human resource management
• Distribution services
• Inventory control
• Manufacturing processes
• Accounting services
• Marketing and sales
Each module works from one relational database system. This database management system has a dashboard, analysis tools, user interface, and access and security features. It can easily integrate with other computing features like web-based applications, word processing and email clients.
The main function of ERP is to allow for real-time data collection and sharing throughout every department of your operations. All of the data is placed within this central database management system and can be accessed through the different ERP modules used in the other departments of your business: accounting, customer services, sales, and warehousing.
Benefits of ERP
What makes ERP so ideal for businesses is that you don't have to purchase every module. You can pick and choose the module you want based on your business needs.
Let’s say you are looking to automate your accounting tasks. An ERP accounting module can give you some of the following functions:
• configure pricing for products
• gather more complete and accurate accounting data
• manage employee payrolls
Other departments of your business will be allowed to access this information for their operations. Your warehousing department can go through their ERP system and ensure customers paid orders through accounting before shipments are sent out. Customer service can change customer payment information with accounting in moments as the sales department ensures that product pricing corresponds with any special deals currently being offered.
Software vendors offer ERP software module applications based on the size of your business. The ERP software market is divided by tiers: ERP Tier I is suited for large corporations, ERP Tier II is for mid-size companies, and ERP Tier III is for small businesses. Compare software vendors from each tier to see what ERP solutions match your business needs and fit into the company budget.