An Enterprise Resource Planning (ERP) system is an integrated management system used to manage different functions in a business enterprise. Instead of having a separate software solution for each department in an enterprise ERP integrate all the functions into one system.
ERP benefits businesses by centralizing business operations by enabling efficient coordination, data sharing, and automation to streamline operations, improve productivity and provide timely data for decision-making.
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Objectives of ERP system
The main objective of implementing an Enterprise Resource Planning system is to centralize and manage all core business functions to increase productivity and resource efficiency utilization.
Components of ERP
Different business enterprises have different needs and functions that they deal with. This means each has unique requirements which determine the key features that their ERP may have. However, some basic modules in any ERP system are,
- Finance Management Module: it deals with managing financial data, including accounting, budgeting, billing, invoicing, and financial reports. This is the core components of any ERP system.
- Human resource management: the modules deal with payroll, employee records, performance management, training, recruitment, and leave out among other HR-related functions.
- Procurement and Supply chain management: it deals with procurement of raw materials and services, quotations, contract creation, issuing of materials for use, and distribution of finished products among others.
- Customer relation management: This deals with customer feedback, reviews, and survey among others.
- Sales and marketing: the module caters to research on customer needs, new product and service design, pricing of products, and ways of marketing.
- Asset management: this integrates monitoring of company assets, location, and value. Other modules can be added as per the company’s needs and requirements
Types of Enterprise Resource Planning (ERP)
The system can be deployed for use in 3 methods depending on the enterprise requirement and resources available.
This is the traditional method of deployment where the system is installed within the company premises and managed from there.
The cost of hardware, software, system management, and backup all lies with the company. The enterprise gets the system as a product.
With high-speed internet and high connectivity in the world, most companies are going for cloud-based solutions. This is where the ERP is offered as a service (ERP as a service).
The company pays for the use of the system while the provider deals with other costs such as hardware, software, update, management, and system maintenance. This reduces the cost of acquiring and maintaining a system that benefits even small businesses.
This is a type of deployment where some of the modules are cloud-based and others on-premise. The method can be implemented when the company wants to upgrade from the on-premise to a cloud-based system. This can be used as a phased changeover to full cloud ERP.
Benefits of implementing an ERP system
Integration and collaboration
The system integrates all core business operations into one system which increases the level of collaboration between departments. The output data from one department can seamlessly be used as input for another.
With system integration business operations are automated which reduced human errors and increases efficiency in the organization. Again the automation gives a paper trail of operation which makes it simple to track what went wrong and where.
Improve reporting and data analysis
ERP system provides real-time reporting that can be used for prompt decision-making. The data is collected from all different modules which increases its dependability.
Competitive advantage and business agility
With an Enterprise Resource Planning system, a business is more ready to compete with others in the same field and better than those who don’t have. The business is also flexible to change to adopt new technologies for the future.
Centralize IT services and operations.
Since the Enterprise Resource Planning system is integrated into one system for all business operations it centralizes all IT services.
The use of a common database and server means the management of IT processes, system security, and overall system management is managed from one point.
Scalable for future growth
ERP systems are module-based which means a small business can acquire the core modules like finance and then as the business grows they can acquire others.
This accommodates the growth of the company from small to international business.
Challenges of implementing ERP system
High cost of acquisition and implementation
Implementing an ERP system is a complex resource-intensive process that requires a lot of investment. This hinders small businesses and startups from taking the vast benefit of using the system.
System changeover challenges
Management of change from the current system that the business is using to a new ERP is another major challenge.
This involves data migration, training employees on the new system, and adoption of new reporting from the system among other changeover challenges.
Selection and customization of ERP software.
There are many vendors of ERP and choosing the best software for the business can be a tasking process. Always ensure you get the best depending on your business process.
Customization of the software to meet your business need, government policies, and other requirements is another challenge.
Requires skilled personnel for operation
The use of ERP requires users to be continuously trained on how to use different system components. It also requires competent IT personnel for overall management and user support for smooth operation.
Examples of ERP software vendors in the market
- Microsoft Dynamics