The process of deciding on whether to implement an ERP or not for your company is like deciding between having a Formula 1 car or a Flintstones car. While both cars can finish the race, which car would you choose if you wanted to win the race? Leaving the comparison aside, trust us and our expertise when we advise you on implementing an ERP—wondering why is that? Well, we need to start by understanding what an ERP is first before we can answer that question.
ERP (Enterprise Resource Planning) is a software program used by companies for day-to-day operations. This is true for each department of the company. Even if activities are different from one department to another, ERP can cover them. The simplest form of an ERP is a spreadsheet, used even today by companies. Spreadsheets are useful up to a certain point. It’s very flexible, so it can accommodate a lot of different needs at the same time. And, in some cases it’s free. But in this case, why do companies invest significant time and money into ERPs and not spreadsheets?
The short answer is that ERP enables the collection, storage, connection, and automation of data across departments. Let’s dive a bit deeper and see why they are beneficial to an organization!
In this post, Kamal Dharewa, Director at KD Practice Consulting Private Limited, talks about what an integrated ERP system is for a company. In an integrated ERP software every department is connected with one another. While it might sound a bit complicated, the following explanations will make it more clear.
Each company has many departments with needs and activities of their own. In the past, that meant each department would have its own software program to meet those needs. The problem with this setup was that these pieces of software didn’t “talk” with each other. Why is that a problem if each department had its own needs and activities?
It’s like car production. The chassis starts from one part of the factory and goes through the assembly line. Different parts are added to it until the car is finished. In some areas, they may fit the interior of the car. In another area, they may fit the engine, and so on. The same is true with the departments of a business. They are different but depend on what the other department does. For example, the sales department has an order for a car. In this case, the purchasing department has to get the components needed to build that car. The accounting department needs to invoice the car to the client and process the invoice from the vendor for those components. As all these activities are connected to each other, it’s crucial that departments have a tool that facilitates inter-department communication.
If departments don’t “talk” to each other, there can be friction and delays. Leading to unhappy customers and losing business money. Companies need integrated software to help each department do its tasks while the others can see the status and better coordinate with each other. When it comes to communication between departments, it must be frictionless to ensure the collaboration is as flawless as possible.
For a business to function smoothly, there is a need for “a secure and reliable means of communication”, Says Daniel Epstein, a senior financial research analyst, in this article. More than that, I would say it’s one of the most important things in a company, whether we talk about communication between members of the same department or between departments. People should easily speak about their needs and have reliable information that improves collaboration. This brings the question of how they will communicate.
First, to communicate with someone in another department, no duplication of the information is needed. Second, the communication is done seamlessly through the software. In the example above, the sales department has an order for a car. The car parts need to be ordered by the purchasing department. The sales department doesn’t need to go to the purchasing department and say what they need. No need to say what order he has, what parts are in storage, and what parts need ordering. The ERP does that for them. And, the ERP even goes a step further.
The ERP can suggest to the purchasing department what parts need to be ordered, from what vendor for what order, and what quantities. All this without someone needing to do something specific for this to happen. The sales department’s only job, in this case, is to enter the sales order in the ERP and the ERP will do the rest. And, what’s cool is that ERP offers even more opportunities to improve your teams’ efficiency. The following section will cover components of the ERP system that help a company and its employees.
As per CFI, ERP software has many components that I want to tackle next. The first one is data gathering. In an ERP system, all the data a company needs can be gathered. Some of it can be entered manually by employees while some can be automatically imported into the system. One example could be an automatic import of prices from a specific vendor. Prices will be on future purchase orders automatically without the employee doing something to get that data. This wouldn’t be possible if the ERP system was not able to save the information it gathers. This brings me to the next point, which is complementary and essential for data gathering.
The second one is called data storage. No matter how much information there is in the world if it can’t be stored for future reference, it’s not useful. This means that storage becomes a big requirement of modern software. One of the main components of an ERP system is data storage. This gives users access to information to do their job efficiently and at a higher quality. To increase efficiency, even more, the next point covers how ERP combines data gathering and data storage.
The third one is called information management. What is the use of mountains of information if it takes you hours and hours to find what you’re looking for? Sounds a bit like there’s lots of time wasted there. In an ERP system, the information is stored in an organized, easily trackable way. ERPs come with pre-filtered information and rules for future information input. In this way, employees can trust the system to store the information the same way every time. Also, they can trust that they will find whatever information they need, every time. It wouldn’t mean much if all this organized data couldn’t be accessible to users in the best way possible.
The last component is called data interpretation. ERP systems interpret data for users, so they can see the final result. If they need statistics about a customer, the ERP has it prepared – they just need to click on it. If they need to see if a project is profitable, the ERP has the information, they just have to click on it. This boosts the efficiency from a client-department relationship’s perspective, as it comes in handy for employees to better and faster share relevant insights with their clients. Besides the ones mentioned so far, ERP systems come with a lot more functionalities. All functionalities are there for the user to solve tasks in an easier and more efficient manner.
To conclude, we can state that ERP is more than just another software – it’s an integral part of any business. From integrated departments to communication, and the use of data within the software, an ERP increases the efficiency of anyone who uses it. For employees, ERP is like a best friend who is there to provide their expertise and help the user get their work done in an easier, but faster, manner. By extension, an ERP is like the multitasking best friend of a business as well. Without an ERP, the growth of a business gets more difficult, and it can be in some cases even impossible.
For more information on ERPs, check out this podcast.
Written by Dumitru Pop