What Is Enterprise Resource Planning?
An Enterprise Resource Planning (ERP) system is software that consolidates the core business processes of your company into one centralized database. From being used only by large corporations to being available and affordable for small businesses today, ERP solutions have evolved over the years. For instance, people starting a business in a booming economy like Dubai can benefit from cloud ERP as it doesn’t require extensive investment in IT resources.
A sound ERP system helps automate accounting, payroll, and back-office operations like procurement and order fulfillment. Another critical advantage of ERP software is that it improves collaboration between departments by allowing them to share files and information in real-time.
But what is the meaning of ERP? Why is every company investing in it? In this article, we will answer in detail the meaning of ERP systems and many more such questions. So, let’s get started!
What is the Meaning of an ERP System?
ERP is an umbrella term that encompasses multiple software applications. It includes Financial Management Systems (FMS), Customer Relationship Management (CRM), Human Capital Management (HCM), and Supply Chain Management (SCM). ERP systems range from small, single-user solutions to large, complex enterprise systems that integrate with multiple applications.
ERP software can help businesses streamline operations by integrating data across various departments or divisions. In addition, it enables you to track your projects, their progress, and their profitability, empowering you to make necessary decisions on time. Furthermore, a customized or industry-specific ERP helps you comply with local laws and regulations and avoid fines.
How Do ERP Systems Work?
ERP software consists of a suite of applications that work together to improve efficiency and streamline your processes. Each module focuses on one business function but uses the same data to perform necessary tasks. For example, suppose the supply chain management module places an order automatically based on pre-set rules. The data will then be uploaded to the ERP, and the accounting module will add the bill to the payables system – all with minimal human intervention!
Modern ERP systems also support industry and location-specific requirements. For instance, if you operate in Dubai, you’d want your ERP to create VAT reports per UAE’s taxation laws. However, you will need an ERP built by experts proficient in the UAE’s regulations to do that. FirstBIT software is one such ERP in Dubai with its roots in the UAE. Besides, you can customize the system to meet your business needs.
Why Use Enterprise Resource Planning Software?
ERP software provides a broad view of your company’s health. The benefits of enterprise resource planning software also include improved efficiency, better decision-making and resource management, enhanced business intelligence and customer service, and increased collaboration between departments.
Let’s dig deeper into the key benefits of ERP systems.
- Improve corporate structure: ERP systems can help centralize information, making it easier for employees to access and use. In addition, ERP systems enable you to standardize processes and procedures, making a company more efficient and organized.
- Increase clarity and transparency: An integrated system offers better clarity and transparency across the company. It helps understand how different departments operate and interact with one another. This increased clarity means managers can make smarter decisions about how best to allocate resources for each project and improve profitability and delivery times.
- Higher efficiency: Employees don’t need to wait for someone to provide them with the necessary information. They can access real-time, accurate data in the ERP to be productive and efficient.
- Reduce costs linked with compliance: Enterprise systems offer features that make compliance easier and less expensive. For example, it includes tools that allow you to track your company’s compliance status and generate reports.
- Enhance customer service: ERP maintains complete customer records. This allows companies to understand their customer’s life cycles better and offer personalized service.
- Improve reporting: You can create accurate and complete reports with a single source of truth. This helps you better plan, budget, and forecast your operations. It allows you to set up metrics you want to track, and the tool will display those KPIs in the dashboard.
What are the Different Types of ERP Deployment Models?
There are three ERP deployment models: on-premises, cloud-based, and hybrid. Each has its advantages and is designed for a different set of users. Let’s understand it.
- On-premises ERP: ERP implementation is done on your company premises in this model. This is the most expensive deployment model, requiring you to purchase the hardware, software, and licenses. You will need to hire IT staff to manage and maintain the system. However, it offers full customization options, making it perfect for large enterprises.
- Cloud-based ERP: Cloud-based ERP deployment models are hosted by the ERP vendor and accessed by users via the internet. It offers higher scalability and flexibility than on-premises ERP. Plus, you get the latest features as they are launched.
- Hybrid ERP: The hybrid ERP deployment model combines on-premise and cloud-based models. This offers the best of both worlds, comprising the flexibility and cost-savings of cloud-based models with the control and customization of on-premise models.
The best deployment model depends on your requirements and budget. For example, if you are in the distribution business in UAE, cloud-based ERP distribution management software like FirstBIT can help you bring all your operations into one place. Plus, you benefit from the system’s mobile app that allows you to oversee your business processes using a smartphone.
What are the Common Modules in ERP?
An ERP system is designed to manage multiple aspects of a company’s operations, including
- Accounting: The accounting software consists of three main modules: General Ledger, Accounts Payable, and Accounts Receivable. It tracks all transactions, including sales orders and purchases, and helps calculate accurate payroll.
- Human resources: This module manages employee information such as benefits, time off requests, and training programs. It provides tools for managing employee performance reviews and compensation plans.
- Sales: The sales module tracks customer interactions and helps agents use data-driven insights to get more orders with the right promotions and upsell opportunities.
- Inventory management: It helps track raw materials, work-in-process inventory, and finished goods. It involves monitoring stock levels and placing orders to replenish stocks when necessary.
- Manufacturing: This module helps manufacturers ensure that production meets demand. It helps manage materials requirements planning, schedule production, and control quality.
How to Choose the Right ERP System For Your Business?
The following are six points to remember when choosing an ERP system:
- Determine your needs upfront: The first step is determining what you want to accomplish and how an ERP will help you get there. This includes defining your business goals, understanding your current IT infrastructure, and assessing your IT team’s skill sets.
- Size of the firm: Company size plays a vital role in choosing an ERP system. Small businesses have different needs than large enterprises, and the features they need also differ. So, your chosen solution must be designed for a company like yours.
- Specific needs of the business: Every business is different, and so are its needs. For example, a manufacturing company will have different needs than a retail company. Therefore, the ERP system should be designed for your industry or customized per your requirements.
- Budget: The budget is another crucial factor to consider when choosing an ERP system. When creating a budget for your ERP, add all the associated costs like implementation, training, and maintenance (for on-premise and hybrid models).
- Implementation process: Define how and by whom the ERP implementation will be done. For instance, does the vendor help with the implementation, or do you need to hire third-party ERP consultants?
- Support: Post-implementation support is critical when choosing an ERP system. Should you get stuck, the vendor should be available even after the tool is implemented.
Note: The most notable examples of ERP systems include FirstBIT, SAP, Oracle Netsuite, and Microsoft Dynamics 365. Exploring these tools should be the first step to starting your search for the perfect ERP.
The Bottom Line
The meaning of ERP systems can be understood as a solution that helps businesses manage and streamline their day-to-day operations. It consists of multiple modules designed to help each aspect of the company. It includes accounting, payroll, project management, procurement, compliance, and supply chain management.
ERP systems also eliminate inefficiencies due to a lack of accurate data by providing the company with a single source of truth. However, adopting an ERP system requires the company’s culture to adjust from manual to more automated and digitized processes.