What is ERP software?

Enterprise resource planning or ERP software is a suite of applications that manages core business processes, such as sales, purchasing, accounting, Human Resource, customer support, CRM and inventory. It’s an integrated system as opposed to individual software designed specifically for business process.

Using a centralized database, ERP software helps businesses collect, store, manage and interpret data from various business units. Likewise, ERP is used to automate back-office tasks and streamline cross-departmental workflows. When optimized, the solution can drive efficiency, lower costs and increase profitability.

In this article, we’ll guide you on ERP fundamentals beyond the definition of ERP software to aid you in your purchase journey. We’ll answer basic questions as:

What is ERP software?
What does ERP software do?
Why use ERP software?
How does ERP software work?

ERP used to be accessible only to large enterprises because of the capital hardware required like servers and multiple workstations, and dedicated teams to handle its complex deployment, upgrades and maintenance. However, Forrester predicted that SaaS ERP deployment is accelerating as a mainstream delivery model with cloud vendors chipping away chunks of the market from legacy developers.

Today, SaaS technology enables vendors to offer lightweight ERP solutions to small businesses. Modules are sold separately or bundled as a plan, while hardware and technical maintenance are managed by vendors. The features of ERP software may be pared down or limited to a couple of functions. Still, small business can now reap the benefits of ERP software.

Companies typically utilize all facets of ERP or choose a combination of modules. Modules often address a main business area, such as, inventory management, accounting, payroll, human resources, marketing and product planning. The more robust ERP solutions feature CRM and business intelligence, but, expectedly, are pricier.

Why use ERP software?

Beyond answering the question of what is ERP software, you should also know why you need it. The purpose of ERP software is to increase efficiency, streamline processes and promote a culture of collaboration in the organization. The result is costs are minimized and productivity increases leading to a better bottom line. Let’s break down the advantages of ERP software.

Increase efficiency

Business processes like accounting, sales, marketing, production and inventory are integrated in one ERP platform. It’s easier to collect and access data across the organization, streamlining cross-departmental workflows.

Likewise, ERP automates day-to-day tasks like manually entering data or generating reports. Repetitive processes are eliminated, freeing teams to focus on their core deliverables. For instance, marketing can run a daily web traffic report without bugging tech; or, accounting can instantly access the week’s sales stats without chasing the sales director.

ERP also provides managers and key stakeholders with quick look-ups. Dashboards allow decision-makers to glance at key performance indicators across the organization. If they want to investigate more, managers can drill down to details in a few clicks.

Promote collaboration

ERP breaks down walls between departments. Data silos are integrated and a process superhighway links local workstations together. This setup allows teams that used to operate in a vacuum to easily collaborate with other teams inside the ERP platform.

Moreover, SaaS ERP further extends collaboration between remote teams and headquarters through the internet. Offshore business units are now within earshot of their mother unit. A culture of collaboration drives innovation and teamplay and, in general, makes businesses more competitive.

Make accurate forecasts

The only worse thing about the lack of forecast is a wrong one. Forecasts shape strategies; thus, it’s crucial organizations get the real picture. Using a centralized database, ERP lends to a company’s disparate business solutions a standardized process, ultimately, enhancing data integrity.

ERP reporting tools use advanced filters and analytics to sift data for inconsistencies. Features of ERP software like deduplication also ensures data is updated and duplicate-free. With data integrity intact, managers can generate reports with realistic forecasts. Similarly, estimates are within a sensible range of outcomes.

Moreover, advanced ERP solutions with business intelligence tools use machine learning and predictive algorithm that allow users to dig deep into big data. Companies with complex data sources can leverage ERP for hidden insights and gain a competitive edge.

Lower operational costs

A company can also leverage ERP to cut down costs. When processes are streamlined and key metrics are closely monitored, disruptions, delays and breakdowns are anticipated or its impact better managed.
Manufacturing and distribution are especially vulnerable to disruption. But with ERP allowing production, engineering, customer service and other business units to work closely together using real-time data, resolving sudden problems is faster. Operating costs are kept within budget.

Increase data security

ERP solutions have firewalls and restriction controls to guard against data breach. Having a single data warehouse means access points are tightly monitored and security is concentrated. Likewise, user permission rules give admin the flexibility to lock in sensitive data without limiting user access to other information.

Admin can also quickly de-active access of terminated employees, while grant permission to new ones. ERP solutions also display user activities, so admin can easily spot unauthorized actions or suspicious activity patterns in the system.

Comply with regulations

Many ERP solutions feature built-in regulatory process standards and compliance reporting to help businesses meet myriad business requirements. ERP solutions subscribe to reporting protocols for aspects like financial accounting, product regulations and data security.

SaaS ERP benefits

SaaS ERP brings to the table more competitive advantages like:

Scalability – add more features as your business grows without instaling a new system
Mobility – access ERP data and tools anywhere, anytime via internet
Flexibility – integrate existing apps to ERP or export ERP data to business apps
Low capital outlay – minimum budget only for hardware, software, setup
Maintenance-free – vendor takes care of patches, updates, troubleshooting, downtime

What does ERP software do?

ERP can be fully integrated or customized to specific processes. A typical ERP system covers key business processes and consists of the following modules:

• Financial management
• Customer Relationship Management (CRM)
• Sales & Marketing
• Human Resource Management (HRM)
• Manufacturing
• Supply Chain Management (SCM)
• Inventory
• Purchasing

The more advanced ERP today also include business intelligence, asset management and e-commerce. Also, ERP can be vertical with industry-specific features for, among others, retail, healthcare, government and nonprofit. Let’s break down the basic modules and how they serve your needs.

Financial management. This module manages your capital inflow and outflow. It covers standard Accounting & Finance transactions like expenditures, general ledger, balance sheet, bank reconciliation, tax management and payments. The module also generates financial reports for different departments and business units.

CRM

The CRM module helps you to boost customer service and, eventually, profit per capita. It manages leads, opportunities and customer issues. Likewise, it provides a 360-degree profile of your customers by consolidating data like their social media activities, purchase history and past interactions with support reps. In an ERP setup, CRM is closely integrated with Sales module to fast track conversions.
Sales & Marketing. The module handles sales workflows like sales inquiries, quotations, sales orders and sales invoices. The more advanced ERP also features taxation rules and shipping tracker. The Sales and CRM modules work together to speed up the sales cycle and earn the company more profits.

HRM

This module features standard HRMS tools like time tracker, timesheet, and database for employee records, job profiles and skills matrix. HRM module may also include performance reviews and payroll system. The latter is closely integrated with the financial management module to manage wages, travel expenses and reimbursements. Some ERP solutions also feature a training or LMS function under HRM.
Manufacturing. This modules is sometimes referred to as Engineering or Production. It helps businesses make manufacturing more efficient in areas, such as, product planning, materials sourcing, daily production monitoring and product forecasting. Some of the key functionalities in this module are: Bill of Material, Master Production Schedule, Shop Floor Control and Sales & Distribution Plan. The module is tightly integrated with SCM and Inventory modules especially in areas like product planning and inventory control.

SCM

This modules covers key aspects in your supply chain including purchase order management. It manages product flow from production to consumer and, occasionally, vice-versa for returns or recalls. A key feature of the SCM module is process automation, which streamlines your entire supply chain and makes it adaptive to sudden market shifts.

Inventory

Also called material management module, it helps you measure stock targets, standardize replenishments and other inventory goals. It uses product serial numbers to track and locate items in your organization. This module is closely integrated with the Purchase module.
Purchasing. This module manages the processes involved in materials procurement. These include: supplier listings; quotation requests and analysis; purchase orders; Good Receipt Notes; and stock updates. As such, it functions closely with SCM or Inventory modules.