By Rahul Shetty, Brand Consultant
What is an ERP?
ERP stands for “Enterprise Resource Planning” and refers to software and systems used to plan and manage all the core supply chain, manufacturing, services, financial and other processes of an organization. Enterprise Resource Planning software can be used to automate and simplify individual activities across a business or organization, such as accounting and procurement, project management, customer relationship management, risk management, compliance and supply chain operations.
A Brief History of Enterprise Resource Planning (ERP)
The term “ERP” was first used in the 1990s by the Gartner Group, but enterprise resource planning software and systems have been used in the manufacturing industry for over 100 years and continue to evolve as the industry needs change and grow.
- 1913: An engineer named Ford Whitman Harris developed the Economic Order Quantity (EOQ) model, a paper-based manufacturing system for production scheduling.
- 1964: Toolmaker Black and Decker adopted the first Material Requirements Planning (MRP) solution that combined EOQ with a mainframe computer.
- 1970s-1980s: Computer technologies evolved and concept software handled business activities outside of manufacturing, including finance, human resources data, and customer relationship management (CRM).
- 1983: MRP II was developed and featured “modules” and integrated core manufacturing components, and integrated manufacturing tasks into a common shared-data system.
- 1990s-2000s: Gartner Group coins term “ERP” to differentiate from MRP-only systems. ERP systems expanded to encompass business intelligence while handling other functions such as sales force automation (SFA), marketing automation and eCommerce.
- 2000-2005: Cloud-based ERP software solutions arrive when ERP software makers create “Internet Enabled” products, providing an alternative to traditional on-premise client-server models.
- Today: Software-as-a-Service (SaaS) and Anything-as-a-Service (XaaS) offer new delivery models for ERP. Remote web-based access for cloud ERP solutions provide mobile solutions, security, and integration with the changing industries and smart technologies, including integrations with the Internet of Things (IoT), Internet of Everything (IoE), and even social media to provide comprehensive solutions for every industry
When Does Your Business Need ERP?
Business development often focuses on goals that coincide with a company’s short-term and long-term growth, as well as analyzing potential business challenges. Conducting a regular analysis of systems and processes helps identify when a business may need to integrate an ERP system.
An ERP solution should be taken into consideration when existing business systems and processes are:
- No longer function or function inefficiently (throttling/bottlenecking)
- No longer support the growth of the company
- Lack of current security requirements to mitigate risk
Identifying broken processes is important for growth and find areas of improvement. Here are a few examples of opportunities that may signal a process is no longer supporting company growth:
- Use/Relying heavily on separate databases/spreadsheets/programs that require manual processes for data management and fall out of sync regularly
- Information and analytics are difficult to access and/or out of date
- Day-to-day processes are difficult or overly time consuming, such as paper-based accounting, financial reporting, etc.
- Sales and customer experience are suffering due to inaccurate or incomplete data and cause poor reputation for reliability and services
- Inefficient/complex/complicated IT processes. Current systems have bad scalability, fragmented systems and legacy solutions.
- IT time is spent fixing/patching legacy systems to try and keep up with the growth
- Does not support new and advanced technologies like IoT, artificial intelligence, etc.
Once broken processes are identified, businesses can take the next steps to overcome these business challenges and support business growth.
What are the ERP Modules?
The finance and accounting module is the most important ERP module because it allows businesses to understand their current financial state and future outlook. Key features of this module include tracking accounts payable (AP) and accounts receivable (AR) and managing the general ledger. It also creates and stores crucial financial documents like balance sheets, payment receipts and tax statements.
The finance module can automate tasks related to billing, vendor payments and account reconciliation, helping the accounting department close the books in a timely manner and comply with current revenue recognition standards. It also has the data that financial planning and analysis employees need to prepare key reports, including profit and loss (P&L) statements and board reports, and run scenario plans.
The procurement module, also known as the purchasing module, helps an organization secure the materials or products it needs to manufacture and/or sell goods. Companies can keep a list of approved vendors in this module and tie those suppliers to certain items. The module can automate requests for a quote, then track and analyze the quotes that come in.
Once a company accepts a quote, the procurement module helps the purchasing department prepare and send out purchase orders. It can then track that purchase order as the seller turns it into a sales order and ships the goods, automatically updating inventory levels once the order arrives.
The earliest version of ERP, material requirements planning (MRP) systems, were designed for manufacturers, and manufacturing remains a key piece of ERP. Today, ERP systems typically have a production management or manufacturing execution system (MES). The manufacturing module helps manufacturers plan production and make sure they have everything they need for planned production runs, like raw materials and machinery capacity. During the manufacturing process, it can update the status of goods-in-progress and help companies track actual output against forecasted production. It also provides a real-time picture of the shop floor, capturing real-time information on items in progress and finished goods. It can calculate the average time to produce an item and then compare supply with forecasted demand to plan adequate production.
The inventory management module enables inventory control by tracking item quantities and location down to individual SKUs. This module offers a complete picture of not only current but also incoming inventory, through an integration with the procurement tool. This piece of software helps businesses manage inventory costs, making sure they have sufficient stock without tying up too much cash in inventory. An inventory management application can weigh sales trends against available products to help companies make informed decisions that boost margins and increase inventory turn (a measure of how often inventory is sold over a certain period). It can help prevent stockouts and delays, which enhances customer service.
Businesses that lack other supply chain management modules may also use the inventory management application to handle purchase orders, sales orders and shipping. Larger organizations will need a version of this solution that can track inventory across multiple locations.
An order management module tracks orders from receipt to delivery. This piece of the ERP feeds all orders to the warehouse, distribution centre or retail store after customers place them and tracks their status as they’re prepared, fulfilled and shipped to the customer. The order management module prevents orders from being lost and boosts on-time delivery rates to keep customers happy and cut unnecessary expenses for expedited shipping.
More advanced order management applications can help a company determine the most cost-effective option for fulfilling an order—a store vs. a warehouse vs. a third-party fulfillment partner, for example—based on available inventory and the buyer’s location.
A warehouse management module can deliver a rapid return on investment for businesses that operate their own warehouses. This application can efficiently guide warehouse employees through all warehouse processes based on the layout of the facility, from putaway when shipments arrive to picking to packing and shipping. It can also help companies plan labor based on expected order volume. The warehouse management module can support different picking strategies like batch picking, wave picking and zone picking depending on which is most efficient for a given business, and some modules can show employees the most efficient pick path.
When the warehouse management module is integrated with inventory management and order management applications, employees can quickly find the right products and get shipments out the door quickly. Faster delivery ultimately increases customer satisfaction.
Supply Chain Management
A supply chain management module tracks each step in the movement of supplies and goods throughout the supply chain, from sub-suppliers to suppliers to manufacturers to distributors to retailers or consumers. It can also manage any materials or products returned for refund or replacement.
As noted earlier, supply chain management can include a wide array of modules like procurement, inventory management, manufacturing, order management and warehouse management. However, it may have functionality beyond the core capabilities of those modules.
Customer Relationship Management (CRM)
The customer relationship management (CRM) module stores all customer and prospect information. That includes the company’s communication history with a person—the date and time of calls and emails, for example—and their purchase history. A CRM improves customer service because staffers can easily access all the information they need when working with a customer.
Many businesses also use CRM to manage sales leads and opportunities. It can track communication with prospects and suggest which customers should be targeted for certain promotions or cross-sell opportunities. More robust CRM modules may support customer segmentation (enabling more targeted marketing) and advanced contact managers and reporting tools.
Professional Services Automation (Service Resource Management)
A professional services automation (PSA) module, also called a service resource management module, allows an organization to plan and manage projects. Services-based businesses often use this module. The application tracks the status of projects, managing human and capital resources throughout, and allows managers to approve expenses and timesheets. It facilitates collaboration between teams by keeping all related documents in a shared place. Additionally, the PSA module can automatically prepare and send bills to clients based on rules around the billing cycle.
A workforce management module is similar to a human resource management module but is designed for companies with more hourly than salaried employees. It can monitor workers’ attendance and hours and measure things like employee productivity and absenteeism.
Payroll could also fall under the workforce management module. A payroll sub-module automatically distributes paychecks to employees on a set schedule with the appropriate taxes deducted and handles expense reimbursement. It can also provide reports on payroll expenses, total overtime hours and similar KPIs.
Human Resources Management
A human resource management (HRM) or human capital management (HCM) module usually encompasses all the features of a workforce management application and offers additional capabilities. HRM could be viewed as a CRM for employees. This popular module has detailed records on all employees and stores documents like performance reviews, job descriptions and offer letters. It tracks not only hours worked but also paid time off (PTO)/sick days and benefits information.
Since the HRM module stores a vast amount of information on every employee across the organization, it eliminates a lot of duplicate or inaccurate data that many organizations store in various spreadsheets.
Certain ERP vendors offer an eCommerce module for businesses that want to sell online. This module allows companies to quickly launch a business-to-business (B2B) or business-to-consumer (B2C) eCommerce website. Leading commerce applications to include user-friendly tools that allow employees to easily add new items, update product content (item descriptions, titles, specs, images, etc.) and change the look and feel of the website.
When the eCommerce application is integrated with other ERP applications, all payment, order and inventory information feeds [from the eCommerce module] into the shared database. That ensures all transactions are added to the ledger, out-of-stock items are removed from the site and orders ship on time.
Like with eCommerce, certain software providers have developed a marketing automation module. A marketing module manages marketing campaigns across digital channels like email, web, social media and SMS. It can automate email sends based on campaign rules and has advanced customer segmentation features, so customers only receive relevant messages.
Marketing automation software, whether part of the ERP system or a separate solution, can provide detailed reports on the performance of campaigns to shape future marketing plans and spend. These applications increase leads, customer loyalty and, over time, sales.
Choosing the Right ERP Modules for Your Business
While the ERP modules a business should invest in will vary based on the business model, industry, current obstacles and other factors, there are a few modules that make sense for most organizations.
- Every company needs a finance and accounting module to operate, monitor its financial health and ensure its bills are paid. It’s difficult to run a business without software that can provide financial information and execute basic accounting tasks.
- Though not as critical as finance and accounting, almost every company—regardless of industry, and whether it’s product- or services-based—depends on some type of customer, so CRM is another module that would benefit most businesses.
- Similarly, the workforce management or HRM module is a worthy investment for most companies with more than a few employees. Employees must be paid on time, and employers need a central place to track their information and career development.
- Any product company—a category that includes almost all manufacturers, distributors and retailers—will benefit from a supply chain management module. Most organizations start with inventory and order management modules, since those are crucial to daily operations, and might later add solutions for manufacturing, warehouse management and procurement.
- Services businesses like consultancies, agencies and maintenance and repair companies could realize a fast return on investment with a project management module. It automates complex, time-intensive billing processes and simplifies resource planning for projects.
The basic idea is to assess your business’ strengths and weaknesses, and then proceed with the modules that would benefit the most in the long run.