What Is ERP

ERP stands for Enterprise Resource Planning and is a combination of Accounting software (think Quickbooks - not Quicken), Sales Order Processing- order entry, shipping, invoicing, Inventory Control, Manufacturing Resource Planning, Manufacturing Scheduling, Shop Floor Control (work order) software and often CRM - Customer Relationship Management.

For Process driven companies it would have 'recipe' and 'batch' controls and for Project companies like Construction, it would be 'project' control rather than 'shop floor' control. It can be monolithic or modular, client/server or web based.

Companies use it to keep track of their business. The bigger the company, the more they need to manage it with such software as it give them all of the views into what is happening in the business. It keeps track of gross margin, how long it takes to collect an invoice, etc.

With its typical love of jargon and buzzwords, Wikipedia describes ERP thusly:

Enterprise resource planning is a term derived from material resource planning. ERP systems typically handle the manufacturing, logistics, distribution, inventory, shipping, invoicing, and accounting for a company. Enterprise Resource Planning or ERP software can aid in the control of many business activities, like sales, delivery, billing, production, inventory management, and human resources management.

ERPs are often called back office systems indicating that customers and the general public are not directly involved. This is contrasted with front office systems like customer relationship management systems that deal directly with the customer.

ERPs are cross-functional and enterprise wide. All functional departments that are involved in operations or production are integrated in one system. In addition to manufacturing, warehousing, and shipping, this would include accounting, human resources, marketing, and strategic management. In the early days of business computing, companies used to write their own software to control their business processes. This is an expensive approach. Since many of these processes occur in common across various types of businesses, common reusable software may provide cost-effective alternatives to custom software. Thus some ERP software caters to a wide range of industries from service sectors like software vendors and hospitals to manufacturing industries and even to government departments.

Benefits of ERP

1. Breaks down communication barriers between departments

2. All company transaction are stored in one database

3. Provides company management with 100% of corporate data for better decision making

4. Provides employees with the ability to gather information more effectively and efficiently.

5. Increased productivity per employee / department / organization

6. Improved customer response times

7. Eliminates multiple data entry points

8. Improves supply chain flow

9. Improved monitoring capabilities

10. Provides a true representation of the overall health of the organization

11. Highlights specific problem areas within the organization

12. Complete paper trail of all transactions within the organization.

13. Instant P&L by customer, product, sales rep, product line, branch, warehouse, etc.

14. Decreased time spent with month end / quarter end / year end reporting.

15. Cash collection time increases.

16. AR aging decrease.

17. Increased inventory management capabilities