What is ERP (Enterprise Resource Planning)?

To make the concept of ERP system easier to understand, just think of ERP system as the real-time physical examination report for your business.

Data in the ERP system allows you to keep track of how well your business is going on, how you can profit more, how you can make better and smarter decisions about your business and how you can improve your customers’ satisfaction.

This is just a very simple and rough explanation of what ERP system is. To know more about ERP, feel free to move on.

What does ERP mean?

ERP is short for enterprise resource planning. Simply put, the ERP system is how a company, usually a manufacturer, manages and integrates the important parts of its business activities: accounting, procurement, project management and manufacturing, just to name a few.

ERP systems collect shared data from multiple sources. By doing so, they prevent multiple data sources and data duplication, and provide date integrity with a “single source of truth“. This is why ERP system are critical to business management in almost all industries.

How does ERP usually work?

This is just a rough idea of how ERP works in a company. But due to different industries and operation scope, the ERP system in your company could be different.

Product idea

Let’s picture it: you woke up in the morning and had a brilliant product idea in your mind. The next thing to do is to make your product from merely a concept to good that most people like so much that they are willing to pay for it. So how can you make it possible?

You often start with making your idea into a design. When you design your product, you need to define it exactly, maybe even draw it out. ERP doesn’t help much here.

Product design

What ERP does do is to help you start compiling a list of all the materials you’ll need if you ever want to build your product.

When you’re going through the design process, ERP will let you estimate how much each unit will cost, and how you decide to price it. Hopefully, the price exceeds the cost, and your product idea might actually fly.

Now you decide to transfer your product idea into manufacturing.

Manufacturing

Manufacturing is the process of making your 2-dimensional idea into a 3-dimensional product that your potential customers will pay for.

What ERP does here is to help you set up a supply chain that brings all the necessary materials together to build your product. To do so, the ERP system needs to gather quotes of the raw materials, delivery fees, packing fees, taxes and other fees from suppliers and/or vendors from all overall the world.

When materials are ordered, scheduled for delivery, shipment instructions, payment for the materials and eventually arrival and receipt can all be handled by ERP.

Maybe your original idea is not to design or make a product, but to buy it from somewhere else and distribute it into a new market. ERP doesn’t mind, it will help you take care of it all the same.

Sales management

When your product is ready to be rolled out to the market, your sales team need to gather orders from probably around the world. Such orders will also be taken care of the the ERP system.

Needless to say, the ERP system will keep track of where your sales people are and what percentages of their commissions will be. Or whatever information you need to know about your sales team.

The rest of the supply chain

When your product is officially on the market, and your customers can’t wait to take your product home, the ERP system will welcome all the customers in, and keep track of all their information for them. For instance, what they want to see in your product, what feature do they need in your product, to the point that you’re almost close you making a customized version of your product to the customer.

The ERP system will help you track the orders and automatically figure out what is needed to fulfill them: how long will it take and how much you should charge those orders.

If you actually manufacture the products by yourself, ERP will translate the sales order into detailed work orders, outlining each step of putting your product together: how much material will take, the labor involved, quality assurance process, what tools and machines are needed in the manufacturing, and even how you pay your workers, by hour or by the work done or even the mix of both.

ERP knows what your team knows, and make sure that people are assigned to jobs that they are trained for. It’ll track where the finished goods go and how they eventually get put into containers to fulfill orders and then shipped.

All the information allows the management team know all things going on in the company with very little effort.

Main features of ERP systems

The scope and functionality of ERP systems may vary, but they share the following features in general:

Integration

Integration is what makes ERP systems different from other tools. It’s hard to imagine that you can go all solo in a company without any support from other departments today. Business-wide data integration in ERP systems collects, stores and analyzes data across all departments. This has contributed greatly to “a single source of truth”, which trims down the discrepancies between your teams and thus reduces the possible costs and errors.

Automation

ERP systems cut down hours of tedious work sitting in front of the desk working with the order entry, payroll, accounting, invoicing, reporting and more, so you can really focus on what’s more important to your company. Automation also helps to reduce human errors.

Real time operations

With all the data stored in a common database and automation streamlining processes and procedures, it’s easy for the whole system to react timely to changes in orders, shipping, product availability and more. It’s not always exactly a real-time operation, but it’s very close.

Tracking and visibility

From raw materials to finished products, ERP systems help keep track of them from manufacturing to delivery thanks to the highly integrated ERP systems. This, in turn, provides great visibility for a company to foresee problems such as delayed time-to-market and stock outages.

Why is ERP system necessary?

In other words, how is your business going to benefit from the ERP system? Well, just to name a few:

• Increase productivity. With the data been accessed from one location, it’s easier for the employees to manage and perform day-to-day tasks.
• Reduce operational costs. With more streamlined and defined business processes, operational costs such as that of a device, component, piece of equipment or facility can be reduced to a lower level.
• Enhance collaboration. Business employees share contacts, requisitions and purchase orders in ERP systems. This helps to create more opportunities for them to gather the right resources to get the right things done.
• Reduce risk. Individual departments such as finance and sales needed to rely on separate systems to get their jobs done. This could be quite risky, especially when your organization it very big. ERP systems helps to avoid that tremendously.

So what does ERP do? A lot. And that’s just the very basic description.

If you want to know more about ERP systems, or that you have any trouble getting your supply chain run effectively, feel free to let us know, and we’d be glad to help.