Understanding the Function of an ERP System

Understanding the Function of an ERP System

Considering the sheer number of business tools available today, companies are at an advantage because these tools are powerful solutions that can simplify crucial functions that many enterprises often struggle with as they scale up their operations.

An ERP or Enterprise Resource Planning system is an example of a valuable enterprise tool that may be confusing to understand at first because of the many variations and differences in implementation but can transform a business when applied correctly.

What is the function of ERP?

To begin understanding what ERP can do for a company, you need to assess and take note of all interconnected processes that are essential to running the business. These include human resources, accounting, inventory, marketing, and many more. The most basic ERP software works to connect and integrate individual functions into a single streamlined platform which will house all the information and processes pertinent to the entire organisation.

Most ERP systems will feature a shared database which will be the core support to power all these various functions.

ERP development through time

The earliest version of an ERP system helped streamline inventory and control processes in the manufacturing industry. In the 1990s, the system expanded beyond inventory control and began to include other back-office functions such as accounting and human resources which became the precedent of the modern ERP system we are familiar with today.

Today, most ERP systems include business intelligence which not only works to connect back-office functions but also integrate critical front-office processes such as sales and e-commerce. Moreover, many rapidly growing small and medium-sized businesses are using ERP systems because cloud computing has made it accessible and affordable for smaller companies.

Why ERP is valuable for business

The core benefit of an ERP system is helping employees become more efficient at their jobs. On top of this, ERP is most valuable for business because of the following reasons:

  • Business intelligence in real-time. Company performance is accessible in real time which enables pertinent stakeholders to address problems proactively.
  • Improved compliance with financial regulations and standards
  • Core operational processes are automated such as order fulfilment and customer lead generation
  • Enhanced customer service performance

These advantages of ERP software provide value for businesses which make it a sound investment as part of a business software suite.

Considerations in implementing an ERP system

It is crucial to understand that ERP software is not the ultimate solution to resolving business inefficiencies. Before applying an ERP system, the company needs to look into how the business structure and organisation function to determine whether ERP software is compatible.

One of the reasons why ERP fails to achieve its purpose is because the company does not want to abandon old processes which are incompatible with the new system. There are also some instances when companies do not want to let go of old software systems and learn a new process. The key to ERP implementation success is to ensure complete integration and prevent process segmentation because it will be costlier for the company in the long run.


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