What is Enterprise Resource Planning?

Enterprise Resource Planning

Share This...

Enterprise Resource Planning

Enterprise Resource Planning (ERP) is a business process management software that allows an organization to use a system of integrated applications to manage the business and automate many back-office functions related to technology, services, and human resources.

ERP software integrates all facets of an operation — including product planning, development, manufacturing, sales and marketing — in a single database, application and user interface. It is designed to centralize, streamline, and automate business processes across departments on a single computer system that serves all those departments’ particular needs.

Here are a few core functions that are typically included in ERP systems:

  • Finance & Accounting: Management of company finances, including financial reporting, asset management, cash flow analysis, and cost management.
  • Human Resources: Employee management, including payroll, benefits, training, and talent management.
  • Manufacturing: Management of manufacturing processes, supply chain, procurement, and order fulfillment.
  • Customer Relationship Management: Management of customer information, sales forecasting, and customer service.
  • Supply Chain Management: Managing the flow of goods and services, including tracking raw materials, inventory, and finished goods from point of origin to point of consumption.

Examples of ERP systems include SAP, Oracle, Microsoft Dynamics, and Infor. These systems can be installed on the company’s hardware network (on-premises ERP) or accessed via the cloud.

The main goal of using an ERP system is to provide one central repository for all information that is shared by all the various ERP facets in real time, to streamline the flow of data across the organization. This results in more efficient and effective business operations.

Example of Enterprise Resource Planning

Let’s consider an example of a manufacturing company that decides to implement an ERP system.

Before ERP: The company has various departments like sales, manufacturing, finance, and human resources, each using a different software system. The sales team takes customer orders but has to manually notify the manufacturing team to produce the ordered items. The manufacturing team has to manually update the inventory and notify the finance department to invoice the customer. The finance team doesn’t have real-time visibility into sales or manufacturing, which delays financial reporting. There’s a lot of time wasted in manual communication, and the risk of errors is high.

Implementing ERP: The company decides to implement an ERP system to streamline its operations. Now, when the sales team enters a new order into the system, the order information is immediately available to manufacturing, inventory, and finance.

  • The manufacturing department can see the new orders in real time and adjust production schedules accordingly.
  • The inventory control sees which materials are needed for production and can automatically reorder materials if necessary.
  • The finance department gets real-time information about sales and costs, enabling faster and more accurate financial reporting.
  • Human resources manage employee information, job roles, payroll, and benefits within the same system, ensuring that information is up-to-date and accessible when needed.

Benefits: With the ERP system, the company reduces manual work, improves communication between departments, reduces errors, and can make faster decisions based on real-time information. This leads to increased productivity, cost savings, and improved management capabilities.

This example demonstrates how an ERP system can integrate various business functions into one unified system to enhance efficiency and effectiveness in the organization.

Other Posts You'll Like...

Want to Pass as Fast as Possible?

(and avoid failing sections?)

Watch one of our free "Study Hacks" trainings for a free walkthrough of the SuperfastCPA study methods that have helped so many candidates pass their sections faster and avoid failing scores...