What Are the Functions of an ERP System?
ERP seems to mean different things to different people. Moreover, one version of an ERP solution can be very different from another. That's because, at its core, ERP, or Enterprise Resource Planning, is designed to improve business processes, which themselves vary from one organization to another. So explaining an ERP is much like asking what a business process is. To use a more simplified analogy, asking what's involved with an ERP is like asking what's inside a toolbox.
Business processes can include accounting, human resources, customer relationship management (CRM), order management and inventory control. The role of ERP is to integrate these processes and the associated data into a single system.
Regardless of what types of ERP solutions you look at, they almost always have three major features that can be used by any business.
Shared Data: All of the information is placed in a single database that can be shared by different systems in different departments. So, for example, the sales department has the same information used by the shipping department, customer service and the accounting department. So, for example, if the accounting department freezes a client's account, or if customer service changes a client's address, the other departments can see this immediately – no phone calls or urgent emails to the shipping department are needed.
Centralized Modules: Employees are able to manage their tasks without switching from one application or screen to another, even when they are working with tasks grouped with other departments. All of the information they need is stored in the same part of the system.
Accurate, Timely Reports: Because information is integrated into the same database, generating reports takes less time and the information they contain is more timely. A common feature of an ERP system is portals or dashboards that allow anyone in an organization to see key performance reports or metrics.
Enterprise Resource Planning developed slowly, beginning in the 1960s when manufacturers wanted to improve inventory management and control systems with computer programs. In the 1970s, Material Requirements Planning (MRP) systems began to emerge for scheduling production processes, which evolved into MRP-II, or Manufacturing Resource Planning. In the 1990s, these systems began to include other functions, including accounting and human resource systems and, at the beginning of that decade, the term ERP was first used by Gartner to describe these emerging solutions.
ERP today can include all of these things from the past as well as business intelligence (BI), sales force automation (SFA), e-commerce and automated marketing. Any company, large or small, and regardless of its industry could have a use for ERP.
While any business may have different uses for ERP, there are six key functions that are found most commonly in the software.
An HR module should be able to process tasks related to managing your employees, including payroll, timesheets, benefits, onboarding and offboarding. The HR module should automate payments, including deductions so, for example, an hourly employee's wages are automatically calculated based on her timesheet, benefits and taxes are deducted and the net pay is automatically deposited into her bank account.
Customer Relationship Management (CRM)
A CRM module stores data related to customers and prospects, giving employees insights that can improve sales and marketing processes. For example, CRM can track customer buying habits, so you can see what types of products you may be able to upsell and when the best time may be to offer these products. CRM is especially useful for an e-commerce business, allowing you to target prospects with ads that are meaningful to them. A CRM module can also track when prospects have been contacted and what was discussed, eliminating additional sales calls that may not be appropriate.
Business Intelligence (BI)
A BI module can help business leaders make well-informed decisions based on meaningful and timely data from any department as needed. This module can analyze practically any business process and provide reports without any excess information. Reports can be in a visual format or presented in tables, depending on the manager's preferences.
Supply Chain Management (SCM)
An SCM module usually works with an inventory management system to improve the efficiency of a company's supply chain by using real-time data to optimize manufacturing and distribution processes. This can give you the ability to intervene when a problem happens, rather than waiting to find out the next day or later. More than that, today's SCM software can track and analyze these processes to predict when a problem is likely to occur. An example of this is the ability to notify customers when orders are being processed and shipped in real-time.
Inventory Management System
An inventory management system module processes order fulfillment and tracks warehouse inventory, greatly reducing the need to track inventory manually. This is very useful to manufacturers or companies with their own distribution centers where tracking inventory can become extremely complex. Features can include real-time inventory on the company's website to inform customers what is and what isn't in stock.
Just about every business with an ERP will use a financial management module. It works in conjunction with the other ERP components to track the flow of money, from the purchase of new supplies to paying employees and issuing invoices to customers. Financial management software in an ERP can also help you budget, produce financial forecasts and give you insights into where costs can be reduced.
While the first word in ERP is still Enterprise, this is quickly beginning to lose its importance. Until the 21st century, ERP solutions were usually found only in companies with enterprise (i.e. large) computer networks with dedicated servers and the budgets required to manage them. Today, more and more small businesses are tapping into the benefits of ERP. This is primarily for two reasons.
First, cloud computing solutions, still often known as SaaS (Software-as-a-Service), have made ERP system extremely inexpensive. Any small business can sign up for a monthly or annual subscription and select the functions they want to use. The software company runs the ERP systems on its own servers and takes care of the maintenance, upgrades and backups for all of their customers with its own technicians.
The second reason more smaller companies are using ERP is because of the increasing amount of data they now have access to and, consequently, need to manage this data so they use it effectively.
Like many other software solutions, ERP continues to adapt to the changing needs of business, large and small alike. One interesting development is an SaaS and On-Premise Hybrid, currently being offered by companies like Oracle and Salesforce. This allows companies with its own in-house ERP software to integrate it with a cloud-based solution, so the two work together. Similarly, large multinational corporations are beginning to use two-tiered ERP solutions so the parent corporation can use one, while subsidiaries use another that takes into account different national regulations, as well as differences in markets and cultures.
Social ERP, also known as ERP 2.0, integrates social media data from platforms like Twitter and Facebook. This can be quite valuable for CRM systems to determine levels of customer engagement, brand mentions and sharing of posts, as well as their effects on conversion rates.
A third trend in that shouldn't come as a surprise in our increasingly mobile society is Mobile ERP. Software companies are making apps for smartphones and tablets that allow managers and employees to access important data like sales, web traffic and lead conversions. While security is still a concern when data can be accessed anywhere and at any time, accounts can be strictly controlled to ensure only those who need the data in a mobile platform can access it.