ERP definition
/What is ERP?
ERP is an acronym for enterprise resource planning, and it refers to an integrated software package that supports all of a company's functional areas. Thus, it can handle the transactional requirements of the accounting, customer service, manufacturing, sales, warehousing, and other departments, using a single user interface. Many ERP systems also accept data from a company's customers and suppliers for supply chain management purposes, so that the system essentially exceeds the traditional boundaries of a corporation.
Why is ERP Important?
ERP represents the central store of information about a business, and provides the transactional and analysis capabilities for every major functional area of a business. As such, it is the critical system needed for running the operations of a modern business. It is especially important for larger and more complex businesses, which would otherwise have to muddle through with a disparate set of systems, each of which stores its own data and only interacts with the other systems through creaky interfaces that may crash when any software updates occur.
Advantages of ERP
There are several key advantages of using an ERP system, which are as follows:
Integrated data. The great advantage of an ERP system is that all corporate data is integrated, so that data is only entered into the system once (as opposed to the "silo" approach that is still common in most companies, where information is entered into the separate software packages used by each department). With an integrated ERP system, companies find that their transaction error rates decline, while many tasks that formerly required manual effort are now entirely automated.
Enhanced data access. Subject to security issues, employees can access information in other departments that was previously difficult to obtain, or only with the help of special programming by the IT department.
Enhanced customer service. With more centralized data and streamlined processes, the customer service department has better and more reliable access to customer order histories, order tracking, and inventory status. This results in a better customer experience, which may in turn result in better customer engagement, and therefore higher sales.
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Disadvantages of ERP
The downside of an ERP system is its extreme complexity. The software requires a great deal of time to set up, as well as to convert a company's existing data into it. Also, because ERP systems can only be configured in a limited number of ways, most companies will find that they must alter their operating procedures to fit the software, rather than altering the software to fit their procedures. These changes call for a large training expenditure, and may result in resistance from those employees accustomed to the old system. These issues call for an implementation budget in the millions of dollars, and several years of intensive effort to complete.
Who Should Install an ERP System?
Most small businesses begin with minimal systems, and then install increasingly sophisticated ones as their operations grow in size and complexity. Since ERP systems are very complex, it is reasonable for only larger businesses to install them. Smaller organizations with simpler systems will not realize benefits from an ERP system that exceed the cost of installation. Consequently, it makes sense to periodically conduct a cost-benefit analysis to determine when it makes economic sense to install an ERP system.