By: Ian McCue
Why Is ERP Important for Businesses?
ERP systems have become table stakes for businesses looking to use resources wisely. They can help leaders reallocate human and financial capital or build more efficient core business processes that save money without sacrificing on quality or performance.
An ERP is also an asset when it comes to planning and coordination. Employees can see current available inventory and customer orders in detail, then compare supplier purchase orders and forecasted future demand. If necessary, they can make adjustments to head off problems. ERP software improves communication and collaboration as well because workers can check on the status of other departments to guide their own decisions.
As a comprehensive source of data, an ERP system also provides a host of reports and analytics that can be difference-makers for the business. Turning a vast trove of information into charts and graphs that clearly illustrate trends and help model possible results is an ERP capability executives find invaluable.
How Does an ERP System Work?
ERP systems work by using a defined, standard data structure. Information entered by one department is immediately available to authorized users across the business. This uniform structure helps keep everyone on the same page. For example, say a local food distribution chain has multiple locations that often share stock and personnel. As quality, sales and employee data from these sites is fed into the ERP system, it’s formatted to indicate which location it comes from.
Real-time data is then woven into business processes and workflows across departments. Leaders can see if one location is doing significantly better at avoiding spoilage than a sister site a few towns over and work to figure out why, while operations can make sure staffing levels align with traffic patterns. Finance can compare sales to rents to help executives decide whether to consolidate.
ERP systems deliver the most value when a company has modules for each major business function and ensures timely, accurate data entry. And, the more stakeholders have access, the better.
When a company uses business systems from multiple vendors, integrations are generally possible to make data automatically flow into the ERP. This real-time data can then be used throughout the ERP instance to benefit any process or workflow.
ERP Modules
An ERP comprises a number of different modules — bundles of features tailored for various aspects of the business, including back- and front-office roles. This goes well beyond financials and other fundamental functions like supply chain management and customer communication. Here’s a quick breakdown of the most widely used ERP modules:
Finance. A finance module, the foundation of just about every ERP system, manages the general ledger and all financial data. It tracks every transaction, including accounts payable (AP) and accounts receivable (AR), and handles reconciliations and financial reporting.
Procurement. The procurement module manages purchasing, whether raw materials or finished goods. It can automate requests for quotes and purchase orders and, when linked to demand planning, minimize overbuying and underbuying.
Manufacturing. Manufacturing can be complicated, and this module helps companies coordinate all the steps that go into making products. The module can ensure production is in line with demand and monitor the number of in-progress and finished items.
Inventory management. An inventory management module shows current inventory levels down to the SKU level and updates those numbers in real time. It also measures key inventory-related metrics. Any products-based company needs this module to optimize stock on-hand based on current and forecasted demand.
Order management. This application monitors and prioritizes customer orders from all channels as they come in and tracks their progress through delivery. An order management module can speed fulfillment and delivery times and improve the customer experience.
Warehouse management. A warehouse management module directs warehouse activities like receiving, picking, packing and shipping. It can generate time and cost savings in the warehouse by identifying more efficient ways to execute these tasks.
Customer relationship management (CRM). CRM is a popular module for businesses in a wide range of industries. It tracks all communications with clients, assists with lead management and can enhance customer service and boost sales.
Professional services automation (PSA). Services businesses often utilize a professional services automation (PSA) module to plan and track projects, including the time and resources spent on them. It can simplify client billing and encourage collaboration among staff members working on a project.
Workforce management (WFM). A workforce management (WFM) module keeps track of attendance and hours worked, and some can also manage payroll. This tool can record absenteeism and productivity by department, team and individual employee.
Human resources management (HRM). A human resources management (HRM) or human capital management (HCM) module is similar to a workforce management module. It keeps employee records with detailed information, like available PTO and performance reviews, and can tease out workforce trends in various departments or demographics.
Ecommerce. An ecommerce module allows retailers and brands to manage the back- and front-ends of their online stores. They can change the site look and feel and add and update product pages with this application.
Marketing automation. This module manages marketing efforts across all digital channels — email, web, social — and enables organizations to optimize and personalize their messaging. A marketing automation tool can boost leads, sales and customer loyalty.
How Can ERP Improve or Help a Business?
ERP enables companies to identify areas of the business with room for improvement or opportunities for expansion. User uptake is key: The more employees with access, the more likely teams will spot problems, whether a spike in demand for a certain product, late shipments from a supplier or an impending cash flow crunch. Employees can then proactively mitigate the issue to the extent possible.
Executives are generally focused on outcomes — using information to achieve objectives, like increasing efficiency, reducing costs and responding to changing consumer needs or market conditions.
For business units, ERP software can automate many error-prone tasks, like account reconciliations, customer billing and order processing, and provide the information teams need to operate more efficiently.
But the real beauty of ERP is that it can give both a 10,000-foot view of the company’s health and detailed insights into a specific process or KPI by not only storing and organizing data, but identifying patterns and flagging anomalies that require investigation. Try that with a spreadsheet.
Other business upsides:
Access to data from anywhere: Employees no longer need to shuffle through piles of papers or files scattered across a desktop. With cloud-based ERP, a warehouse manager can log in from a mobile device while on the shop floor, or a salesperson can check inventory while at a customer site.
Information is always up-to-date: Because the ERP system is continually receiving information from various departments, it’s updated immediately as inventory is pulled, a payment is posted or emails are sent to customers. This provides a major advantage because decision-makers are basing their choices on up-to-the-minute data.
Business decisions based on the same data: With a common database, all decision-makers are on the same page. There are no duplicate or conflicting sources of information, and companies have the ability schedule and distribute dynamic reports automatically. Need more depth? Underlying data can be accessed simply by clicking the report.
Who Uses ERP?
Companies across every industry, with diverse business models, have realized the benefits that come with ERP. Flexible solutions with extensive functionality can cater to a wide variety of organizations and requirements.
Industries that count on ERP to run their businesses include:
Advertising and digital media
Apparel, footwear and accessories
Campus stores
Consulting
Education
Energy
Financial services
Food and beverage
Health and beauty
Healthcare and life sciences
IT services
Manufacturing
Media and publishing
Nonprofit
Professional services
Restaurants and hospitality
Retail
Software and technology
Transportation and logistics
Wholesale distribution
Roles & Users
Within those organizations, a number of job functions benefit from ERP, including but not limited to:
Finance/accounting: The accounting team is often the first adopter. This group will track and report on all transactions and other financial information in the system, including accounts payable (AP), accounts receivable (AR) and payroll. With ERP, financial planning and analysis (FP&A) experts — whether a separate role or part of the accounting department — can turn comprehensive financial data into forecasts and reports on revenue, expenses and cash flow.
Supply chain: Employees focused on operations, a group that includes purchasing agents, inventory planners, warehouse managers and senior supply chain leaders, rely on the ERP system to ensure a smooth and continuous flow of goods from supplier to customer. They count on accurate, detailed information provided by the system to optimize inventory levels, prioritize orders, maximize on-time shipments, avoid supply chain disruptions and identify inefficient or manual processes.
Sales and marketing: An ERP solution can increase the productivity of and drive better results for your sales team by automating lead management and monitoring the interactions prospects have with your company. Reps can document discussions and change the status of prospects as they move through the sales funnel. Using those same records, marketing can automate and manage outreach across all channels, from email to display ads to social media, and measure the effectiveness of those messages and channels to better allocate its budget.
Human resources: The HR department tracks all employee information and broader workforce trends in the ERP. It can quickly find contact information, compensation and benefits details and other documents for each employee. HR can also monitor metrics like retention by department, average pay by title, promotion rate and other metrics to better allocate its own staff and assist line-of-business managers.
When You Need ERP
While ERP software was initially designed for enterprises — as the name indicates — today’s cloud-based software-as-a-service (SaaS) ERP offerings have lowered barriers to entry and helped countless emerging and midsize companies increase their efficiency, visibility and, in turn, profitability.
Here are a few tips to help determine if ERP is for you:
Regularly review your current technology and ask: Is our technology helping — or holding us back? When outdated or inadequate systems introduce inefficiencies, muddy the data waters or can’t support changes the business wants to make, it’s time to look for a new solution.
Inaccurate data is another sign it’s time for your first or a new ERP system. If your data is unreliable, you can’t trust the reports and insights it produces — and that’s a big problem.
Are errors consistently causing issues, whether it’s sending customers the wrong items or misalignment between purchase orders and demand? A unified system can organize your operations and improve processes to reduce these obstacles.
Over-reliance on email and spreadsheets to collate and share critical information is another indicator you need ERP. Spreadsheets require frequent, manual updates, meaning they are often outdated. Sharing sensitive data via email poses real security risks and can make it difficult to find what you need.
A lack of integration among systems is another indication you’re ready for ERP. The system can eliminate manual data transfers and fickle connections by pulling information from all key business functions into one place.
Although there are costs that come with purchasing and deploying ERP software, it often delivers a quick return on investment.
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