What is ERP?
Enterprise resource planning systems (ERPs) are complete, integrated platforms that can be used on-site or in the cloud to manage all aspects of a distribution or manufacturing-based business. In addition to the primary accounting function, ERP systems support all aspects of financial administration, human resources, supply chain management, and manufacturing.
ERP systems provide transparency into the entire business process by monitoring all aspects of manufacturing, logistics, and finances. These integrated systems, which act as the organization’s central hub for end-to-end processes and data, can be used by many departments.
ERP systems and software offer a variety of features for large, medium, and small businesses, as well as industry-specific customizations.
What Differentiates Financials from ERP?
Although ERP software is frequently referred to as “financials,” the two are not the same. The financials subset of ERP modules includes:
Financial accounting, accounting hub, sub-ledger accounting, revenue management, payables receivables, billing, grants, asset management, cost management, project management, joint venture accounting, and collections are examples of financial functions. Financial functions are business operations related to a company’s finance department.
Financial software must be capable of producing periodic financial statements for regulating authorities such as the European Securities and Markets Authority (ESMA), the US Securities and Exchange Commission (SEC), and others.
Reports such as the quarterly 10-Q and annual 10-K are used by these regulators. These types of financial reports use a technology known as narrative reporting. In the end, the CFO is the person in command of finances.
ERP encompasses a wide variety of business functions, which include finance, but finance in itself focuses on a single aspect of the organization. ERP software’s possible functions are order management, logistics, project management, product lifecycle management, enterprise performance management (EPM), supply chain management, human resources/human capital management, inventory, production, and maintenance.
ERP also integrates with front-office solutions such as customer relationship management (CRM) software to create full customer views. Furthermore, cloud-based ERP solutions commonly integrate next-generation technologies. For example, the internet of things (IoT), machine learning, blockchain, artificial intelligence (AI), and digital assistants.
These cutting-edge technologies provide information and capabilities that not only improve many traditional ERP processes but also open up new opportunities for increased productivity, deeper insights, and new services across a company’s operations.
Because ERP systems span across the whole firm, maintaining them frequently demands coordination with the CFO, CIO, COO, and other key executives.
ERP Fundamentals
ERP systems are designed around a single, specified data structure (schema), which is generally implemented using a single database. This ensures that the data used throughout the organization is uniform and based on common user experiences.
These core components are then integrated with core business processes that are usually driven by the workflows between various business divisions. These divisions include finance, marketing, engineering, and human resources, to connect systems and the people who use them. Simply put, ERP is a method for integrating a modern organization’s people, processes, and technologies.
Consider a corporation that purchases parts and components from various vendors to manufacture automobiles. It may employ an ERP system to track the purchase and acquisition of these things, ensuring that each step of the procure-to-pay process makes use of consistent and accurate data linked to enterprise workflows, reporting, business processes, and analytics.
Because data is the pillar of any modern business, ERP makes it easier to gather, organize, disseminate, and analyze this information for every person and system that requires it to carry out its roles and obligations properly.
ERP ensures that all these qualities and fields roll up to the appropriate account in the business’ general ledger to track and display all expenditures appropriately.
A core ERP premise is the central gathering of data for widespread distribution. ERP systems bring order to chaos by allowing all users—from the CEO to the accounts payable clerks—to save, develop, and utilize the same data derived from similar procedures. This is as opposed to having numerous distinct databases with an “infinite” supply of disconnected spreadsheets.
Because of a secure and centralized data repository, everyone in the business can be confident that the data is accurate, up-to-date, and complete. Data integrity is assured for every action carried out across the organization, from a quarterly financial statement to a single outstanding receivables report, without relying on error-prone spreadsheets.
Benefits of Enterprise Resource Planning
Enterprise resource planning software (ERP) is utilized by firms for a variety of goals, including expansion, cost-cutting, and enhanced operations. Although the benefits sought and received by diverse businesses, vary, several stand out.
Here are a few of them:
Increases Productivity and Precision
The integration and automation of organizational operations eliminate duplicate tasks while increasing accuracy and productivity. Furthermore, departments with integrated processes can synchronize operations to deliver outcomes faster and more effectively.
Enhanced Reports
Certain businesses benefit from improved real-time data reporting from a single source system. When reporting is accurate and thorough, businesses may better plan, budget, forecast, and convey the state of operations to the organization and interested parties such as shareholders.
Enhances Efficiency
ERPs allow businesses to access customer, supplier, and business partner data easily. This results in greater accuracy, faster reaction times, and improved customer and employee satisfaction levels. Also, when a corporation performs more efficiently, extra costs typically decrease.
Finally, ERP software provides total insight, allowing managers to make decisions based on real-time data.
Improves Cooperation
A freshly synergized workforce can boost productivity and employee happiness by allowing employees to see how each functional division contributes to the organization’s purpose and goal. Departments can communicate and exchange information more effectively. Also, eliminating manual labor and minor operations frees up the staff’s time to focus on more important tasks.
Examples of ERP
Roark and Fulton
Fulton & Roark, a manufacturer of men’s grooming products, used enterprise resource planning to track inventory and financial data better. The North Carolina firm, like many others, used accounting software to record financial data and spreadsheets to keep track of its inventory.
As the company’s internal procedures gradually expanded, the accounting software could not effectively record the measures required for key financial reporting. The inventory tracking system was outdated and could not account for changing costs. As a result of these errors, manual processes had to be relied on, putting time and resources at risk.
Then they pivoted to an ERP system to optimize workflow and eliminate inefficient processes. Fulton & Rourk discovered inventory-related accounting errors as soon as possible, saved costs associated with employing third parties to evaluate their financial records, and better explained their financial positions.
Cadbury
Cadbury, the worldwide confectioner, also implemented an ERP system to great advantage in the production of the well-known chocolate Cadbury egg. Despite having thousands of systems, the firm used inefficient warehouse management systems that were unable to keep up with its fast growth.
It implemented a system that connected its numerous applications, standardized procedures, and streamlined warehouse management systems, breaking down silos to provide seamless and integrated work coordination.
Conclusion
Enterprise resource planning (ERP) integrates and manages corporate activities through a single system. With a clearer line of sight, businesses can better plan and deploy resources. Without ERP, firms usually operate in silos, with each department using its own disparate system.
ERP systems promote internal open communication and knowledge sharing, system integration for increased productivity and efficiencies, and improved synergy among teams and departments. Of course, employing an ERP system will be ineffective unless the company’s culture changes and it examines how its organizational structure can better support it.
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