If you search the Internet using the keyword “ERP,” you’ll find that there is a vast amount of information on this topic. Each of these websites seems to offer its own interpretation of the ERP concept, which can, of course, be confusing. But it is precisely because ERP systems are such a powerful tool for your business processes that there is so much varied information about them.
The purpose of this article is to help you better understand how an ERP solution can transform your business. We’ll provide a brief introduction to ERP and how it works. You may then have a better understanding of why everyone seems to be talking about it.
ERP systems integrate processes from all of the company's business areas
ERP stands for Enterprise Resource Planning, but even that full name doesn't provide much information about what ERP software is or what it does.
Its French equivalent, PGI (Progiciel de Gestion Intégrée), provides a little more information about what it entails, but still not enough to understand what an ERP does.
An ERP (in French, “progiciel de gestion intégré” or PGI) is a software package that enables “the management of all a company’s processes by integrating all of its functions, including human resources management, accounting and financial management, decision support, as well as sales, distribution, procurement, and e-commerce.”
The goal of ERP software is therefore to combine all these different functions into a single, comprehensive system in order to optimize all processes and information throughout the company.
The two fundamental characteristics of an ERP system are:
- Degree of integration: it defines the ability to provide all stakeholders within the company with a single, comprehensive, consistent, and uniform view of all the information they need to fully perform their roles;
- Operational coverage: It defines the ability to integrate all of the company’s processes across each of its business areas, using a cross-functional approach that optimizes productivity.
An ERP system is based on a shared database that supports multiple functions used by different business units. In practice, this means that employees in different business areas—such as accounting and sales—can access the same information for their specific needs.
A Trip Back in Time
When and how did ERP software first come about?
The term “ERP” was coined in 1990. Its origins, however, date back to the 1960s and can be traced to the methods of material requirements planning that were developed in response to the need for increasingly deep integration of business management functions. According to Wikipedia, this evolution took place in three phases:
- MRP0, which literally stands for Material Requirements Planning 0: a method for calculating material requirements, developed in 1965;
- MRP1, short for Material Requirements Planning 1: the first industrial application of integrated production flow management, developed in 1971;
- MRP2, which stands for Manufacturing Resources Planning 2: in addition to calculating net requirements for raw materials and components, it schedules production starts while taking into account resource capacities by period; developed in 1979.
Starting in 1990, the approach introduced by MRP gradually expanded to other business functions, such as accounting and human resources management, thereby laying the foundation for ERP as we know it today.
Today, ERP systems have been enhanced with Business Intelligence (BI) and also support “front-office” functions such as sales force automation, marketing automation, and e-commerce. Thanks to these product enhancements and the success of these systems, companies from a wide range of industries—including high-growth companies and small and medium-sized enterprises—now use ERP systems.
With the growth of the Internet, ERP systems are now also available as Software-as-a-Service (SaaS)—also known as “cloud computing.” Cloud-based solutions not only make ERP software more affordable but also simplify the implementation and management of these systems. Cloud-based ERP is available anywhere and at any time, and it also enables real-time reporting, providing employees and executives with a fast and transparent work environment.
The Value ERP Brings to a Business
Essentially, ERP helps employees work more efficiently by breaking down barriers between different parts of the company. More specifically, ERP is a solution that:
- provides a comprehensive, real-time view on data, enabling companies to anticipate problems and implement improvements;
- allows for the formalization and digitization of workflows in the form of sequences of tasks or operations performed by an individual, a group of people, an organization, etc.;
- improves regulatory compliance and reduces operational risks.
In addition, there are several other benefits:
- Integration of management processes, widely used by companies to optimize financial monitoring and management control;
- Consistency and uniformity of information (a single product master file, a single customer master file, etc.);
- Integrity and uniformity of the information system, facilitating internal and external communication;
- Reliability: you generally benefit from a tool that has been proven by numerous companies and is continuously improved through vendor maintenance.
- Scalability, guaranteed by the consistency of the data model that forms the foundation of all covered information system processes and functionalities. ERP enables a tailored and phased implementation of these processes and functionalities.
- Streamlining of the application and technical architecture: reduction in the number of tools and, consequently, in the interfaces between them; potential reduction or optimization of the machines and servers supporting the information system.
- Cost minimization: elimination of redundant processes and systems, elimination of interfaces between modules, synchronization of processing, and a significant reduction in costs associated with all business operations.
When you add up all these benefits, the value of ERP—especially cloud-based ERP—is clear. With an ERP solution, employees have access to accurate information that enables them to make better decisions more quickly.
ERP Implementation
An ERP project is a transformative initiative. For an ERP project to be successful, you need at least:
- a company-wide effort across all departments and at all levels of the organization, and
- Support from an integrator certified by the ERP vendor and possessing the personnel and technical capabilities necessary for the successful implementation of the solution.
Enterprise Resource Planning - ERP