Enterprise Resource Planning (ERP) software may be an acronym businesses and the media throw frequently throw around. However, most people really are not clear about what it stands for or what ERP software is meant to do for a company. Basically, the goal of ERP systems is simple. These systems form the backbone of all company operations and seek to unite these operations under the same IT infrastructure.
A few years ago, in most businesses, each department had their own computer files that they work with. For example, the accounting department probably had a list of all the outstanding invoices while the purchasing department probably had a list of all the outstanding orders. Generally, no one from one department could access the files for another department. If the purchasing manager had a question about whether an invoice has been paid, he would usually have had to call someone in accounting to find out the status.
With ERP software things are different. All of the departments still have the files they need but everything is accessible to everyone within the company. So if the purchasing manager needed to check the status of the invoice, he could do so from his own desk with his own computer without ever having to contact the accounting department. It saves him time and makes it faster for him to get an answer back to the supplier who asked the question in the first place, thus strengthening that relationship as well. While that single example may not sound impressive, this is just one example. Every transaction a company does from taking orders to paying bills is streamlined through ERP. The efficiency gains that companies can realize over time from these systems can be incredible.
Of course, that's the best-case scenario. Implementation of a large ERP system is not always that flawless. ERP systems are usually expensive to add. Companies have spent millions on ERP implementations only to end up paying still more to get them running correctly. Part of the problem is that those in charge do not have a realistic expectation of what features ERP will change in their business. Literally everything will be altered in some way and everything from the way an order is processed to the way complaints are handled will be changed in order to fit into the ERP strategy. Besides just the implementation itself, companies need to be prepared to cover the costs of training, of integration testing, and other elements that are often overlooked during the planning and execution stages.
If a company is prepared to change the way employees complete their jobs and if it is prepared to cover the additional costs related to the implementation, then they can expect to see significant improvements in a number of areas. First, ERP allows for all of a company's financial information to be centralized but accessible by the people who need to use it. Depending on the department, each group of employees has a different set of financial numbers that represents how the company is doing but separately they don't mean much. With ERP, executives are able to see the big picture at a glance and to make important decisions based on all of the information.
Another benefit for companies is that ERP can help reduce the amount of inventory the business has to have on hand. Because of the integration between the different departments, inventory numbers can be more accurate, plus if ERP is teamed up with a reliable supply chain management program then vendors can immediately be notified if inventories get too low. Furthermore, the entire process from the taking of the client order to the delivery of the goods to the follow up customer service can all be handled with the help of ERP technology. The order travels from department to department within the system so there's no risk of it getting lost or missing a step in the process. Everything is also automated so employees don't have to waste productivity by visiting to other departments to deliver information or check on an order's status.
These are only a few of the ways ERP can help companies today improve the way they do business. By implementing the system, organizations are finding new ways to make these processes run smoothly and to cut costs. While ERP may be expensive, when it is done right, it certainly pays off.