What is ERP – Enterprise Resource Planning?
ERP stands for enterprise resource planning. It is a business management system, which works on the concept of integrating various business functions within the organization.
Normally businesses are run by different departments like Purchase, Finance, Sales, HR, Production, Quality etc. ERP will help to run the businesses efficiently and effectively by integrating them all. Some examples of ERP systems are SAP, Oracle NetSuite, Microsoft Dynamics etc.
Working of ERP System
ERP software is a business management system with various integrated comprehensive systems that is used to manage and integrate all business functions within the organization.
So what is meant by Integration? Integration helps the business to access and use the data across the organization. For example, purchasing data is available to finance and sales department.
ERP system uses a single database. All the data created by individual departs are shared across the Organization. Data is visible and can be used to do business functions smoothly.
For example, a Supplier is created in the purchasing department to procure the items/materials. The same Supplier will be used by the Finance department to pay the vendor. So the data related to Supplier is shared between Finance.
ERP functions in the same as our body works. All the parts of the body are integrated and controlled by the brain.
On the other hand, standalone business application refers to applications designed for specific customer needs but have limited functionality and are isolated from other applications.
Evolution of ERP
Solutions for ERP have developed gradually over the years, many are now typically web-based applications that users can approach remotely.
Earlier companies started building software to run the business with individual business areas or departments like Sales, Purchase, and Finance.
This software was efficient to run the business, but for individual departments.
Example sales department can take customer order then do delivery to the customer and finally create the billing document and take money from the customer.
The problem with such a software system was the visibility and sharing of data with other departments. Making company-wise reports for business owners and decision-making was difficult.
Consolidated reports of the businesses used to take a long time for business owners as data was stored in individual departments and software. In such a software system, design companies were not making enough profit and losing opportunities.
Without ERP application, each department would have its specific system optimized for its specific task, but the data can't be accessed by other departments as they are not integrated.
With ERP Software, each department still has its functionality, but all departments will be accessed through one application with one interface as all the departments are integrated.
Advantages and disadvantages of ERP System
Advantages of ERP System:
Easy to use: as there is a single user interface for ERP system, it is easy to use.
Ease of communication: system integration helps to flow data easily.
Data sharing and visibility: data is shared and visible among different departments.
Integration: ERP integrated individual departments to run the business smoothly.
Real-time reporting: Data is available to other departments instantly for use.
Makes business more profitable: Real-time reporting helps users for faster decision-making.
Single source of information and accuracy: Data is created once and used by different departments like a customer, vendor, material, etc.
Efficient and effective: ERP system runs with the least amount of wasted time, money, and effort and produces the desired result.
Disadvantages of ERP System
Take a long time to build: As various business processes and departments are involved, it takes a long time to build ERP system.
Expensive: ERP system is normally a big system, so it requires big-budget and resources.
Requires lots of skilled resources: To implement ERP business, expertise from each business area are required as it is an integrated system.
Infrastructure: Big database, interface software, and connecting tools are required.
Maintenance: The ERP system needs regular maintenance to function properly.
Outstanding,very helpful to understand ERP in easy way👏
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