What is ERP (Enterprise Resource Planning)?

ERP (Enterprise Resource Planning)

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ERP (Enterprise Resource Planning)

Enterprise Resource Planning (ERP) is a type of software that organizations use to manage day-to-day business activities such as accounting, procurement, project management, risk management and compliance, and supply chain operations. ERP systems tie together and define a plethora of business processes and enable the flow of data between them.

By collecting an organization’s shared transactional data from multiple sources, ERP systems eliminate data duplication and provide data integrity with a “single source of truth.” ERP software suites are built to collect and organize data from various levels of an organization and connect business activities across departments.

A key ERP principle is the central collection of data for wide distribution. Instead of several standalone databases with an endless inventory of disconnected spreadsheets, ERP systems provide a single repository to store, share, and analyze data.

Modern ERP software can also include application modules for the finance, human resources, and customer relationship management (CRM) sectors. Organizations can use ERP software to primarily deal with internal operations but also in their customer-facing practices.

As of my knowledge cutoff in September 2021, some of the leading ERP software providers include SAP, Oracle, Microsoft Dynamics, and Infor. Different ERP systems have different strengths, and organizations typically choose a system based on their individual needs.

Example of ERP (Enterprise Resource Planning)

Let’s consider a manufacturing company that implements an ERP system to streamline its operations.

  • Sales and Customer Service: When a salesperson secures an order from a customer, they enter the details into the ERP system. This includes the type of product, quantity, delivery date, and customer details.
  • Inventory Management and Procurement: The ERP system automatically checks whether the product is available in the inventory. If the stock is low, the system alerts the procurement department to order more materials. The procurement department uses the ERP system to create purchase orders and send them to the suppliers.
  • Production Planning: Once the materials are available, the system alerts the production department to start manufacturing the product. The ERP system schedules the production process and assigns tasks.
  • Accounting and Finance: Once the product is sold and delivered, the system automatically creates an invoice and sends it to the customer. The accounting department can see all the sales, costs, and profits through the ERP system and generate financial reports.
  • Human Resources: Meanwhile, the HR department uses the ERP system for tasks such as employee management, payroll, and tracking of employee hours.

By integrating all these departments and processes, the ERP system provides the company with a complete, real-time overview of its operations, helping it to operate more efficiently and make better decisions.

Keep in mind that this is a simplified example. The specifics of how an ERP system is used can vary widely depending on the organization and the specific ERP software they are using.

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