Enterprise resource planning (ERP) refers to different activities that help a business manage its operations — from accounting to procurement, supply chain management, and even human resources.
ERP software is designed to improve the flow of data and information between business units and to support informed business decisions. A good solution will collect and organize data from different parts of the company to give managers and business leaders the latest information about performance and profitability.
What that means, in laymen’s terms, is that businesses can use a single system to manage operations from end-to-end. If you’re new to ERP, it can be difficult to understand how one tool makes your entire business more efficient. Here are four ways it happens:
1. Establish a single source of truth
ERP systems rely on a single database or data repository. This means that the CEO, the accounts receivable clerk, the marketing intern and the inventory manager create and store their data using one central data repository.
Without ERP software, each department uses their own systems to keep track of information. Accounting might have their own software tool, while other departments use Excel spreadsheets. When someone needs information, they have to request it from another department and wait for a response. Even then, there is no guarantee that the data is in a usable format. With an ERP system in place, up-to-date information is instantly accessible to all authorized users.
Here’s an example: when new stock arrives, your receiver will only need to enter the barcode number, price, and other details once. The ERP software will update this information and your inventory level across the entire system, so every user is looking at the same information.
2. Improve interdepartmental collaboration
Having a centralized data repository also makes collaboration and interdepartmental work easier to execute. For instance, if you run a retail store, your ERP will keep track of the inventory based on sales data it retrieves from your point of sale system. When stock for a certain item runs low, the procurement department will know when to order more and use negotiated terms and pricing from different supplier agreements. Meanwhile, marketing can use the same data to build promotional strategies, and the CEO can pull reports keep tabs on operations.
One of the more substantive benefits of an ERP system is its ability to connect sales and accounting with supply chain management. SCM features will help you manage interactions with various suppliers and partners to either maintain inventory or obtain the resources and materials you need to make your products. An ERP suite can add efficiency among the different departments and companies working within the supply chain by automating routine tasks and functions.
With the right ERP software you can not only plan your SCM process, but also change the parameters midway to adapt to shifting customer demand. And you’ll have more visibility (into warehousing, manufacturing, transportation, etc.) than you would with a standalone solution.
3. Build reports without spending hours on data manipulation
Every business needs the ability to create timely, accurate reports. An ERP software not only brings together real-time data from different sources, but it can also help automate your reports. You no longer have to spend time parsing through spreadsheets, verifying entries, and manually combining data from different sources. Most modern ERP tools offer built-in reporting tools that help you process and visualize your data without the extra labor.
That means that you can get daily operational reports and forecasts without overburdening yourself or your IT department.
4. Streamline financial management
In addition to sales and supply chain management, ERP systems can help you control finances and cut fat from your expenditures. That starts with simply having the right level of inventory, but it goes much further. An ERP can also help you cut costs through smarter enterprise accounting, more realistic sales projections, and responsible tax and compliance reporting. Many systems also include payroll, billing and invoicing, and multi-currency consolidation features.
If you’re looking for a system that can handle all of your operational processes and help you improve efficiency across the entire organization, ERP software is a perfect solution. Of course, no two ERPs are the same. When you begin the research and comparison process, start by clearly defining your business needs and use intent. Then, find a solution that matches. Good luck!
Michael Gabriel Sumastre is a writer for TechnologyAdvice with more than 11 years of industry experience. He has written more than a thousand articles related to tech and gadgets, cloud computing, IT management, big data, the Internet of Things, SEO, and SEM.