What Does ERP Stand For and Why Should I Care?
We answer the question, “What does ERP stand for.” But the better question is, “Why is ERP important?”
Let’s start with the ERP definition
According to Webopedia, “Enterprise resource planning (ERP) is business process management software that allows an organization to use a system of integrated applications to manage the business and automate many back office functions related to technology, services and human resources. ERP software integrates all facets of an operation, including product planning, development, manufacturing, sales and marketing.”
So, ERP is a suite of applications that can help you run your business. That provides a broad definition, but you may be wondering what, more specifically, does an ERP do, and why is it so important to organizations?
How does ERP benefit an organization?
Enterprise Resource Planning software provides valuable return on investment (ROI) increases and reduces overhead, but how does it do it?
Let’s start with the financial side: Enterprise Resource Planning software provides accurate and real-time financial data and reports that far extend the reach of the functionality of accounting software such as QuickBooks.
Most ERP systems are capable of managing the financial documentation and reporting requirements of an organization, including
- General Ledger
- Accounts Receivable
- Accounts Payable
- Defining multiple currencies and conversion rates
- Accommodating multiple tax schedules for local taxes; integrating with tax processors
- Providing automated management of revenue recognition
- Pre-configured reports, including Balance Sheets and Profit & Loss Statements
- Project Accounting
- Calendar and Non-Calendar Accounting Periods
- Integrating with all the major payment processors for credit card processing
- Allowing inter-entity transactions and reporting, so there is no duplication of transactions between different entities.
To have a fully functional accounting solution, it’s imperative that Inventory information is kept up-to-date, and an Enterprise Resource Planning solution fits this need perfectly. In order to control inventory costs, an organization needs an accurate view of the location, costs associated with, and status of inventory. ERP systems allow for the management of products, price lists, and material moves and counts to and from both vendors and consumers. To give you a sense of the powerful and transformative nature of ERP, a few of these solutions Inventory-related capabilities include:
- Multiple warehouse management
- Automated Price Lists
- Bill of Materials
- Track Material Movements with Bin and Batch locators
- Reserve Inventory
- Lot Management
- Multiple Costing Methods, including First In First Out (FIFO) and Last In First Out (LIFO)
Now we are really starting to answer the question, “What does ERP stand for?” as it applies to real-life applications.
We have discussed accounting and inventory; now, let’s see how ERP handles order management and supply chain. A well-developed Enterprise Resource Planning system can manage sales quotes, Point of Sale (POS) orders, prepaid orders, and even web orders. When a sales order is generated within the system, that process triggers a number of automated steps which can be configured to fulfill any order management need. The fact that this process is automated provides an immediate efficiency increase and limits the amount of human error involved in the order management process. But orders cannot be fulfilled without first having a strong supply chain management solution, which is also included in an ERP. Here is a short list of supply chain capabilities present in a well-built ERP:
- Create automated digital approval processes to increase efficiency and control costs.
- Automatically create purchase orders based on defined min-max levels to simplify your purchasing process.
- Distribution Planning
- Stock Levels and Seasonal Stock
- Replenishment Rules
- Vendor Management
- Production Planning
- Pricing and Price History
Accounting, inventory, order management, and supply chain are all solved, but to truly dig down into the full functionality of an ERP and how it relates to its definition, we must quickly discuss shipping and fulfillment. Due to the fact that the ERP system has all inventory data and vendor and customer information, a well-built Enterprise Resource Planning solution is able to streamline the entire fulfillment and shipping process. This automation leads to much quicker order fulfillment and a limited touch shipping process that drastically increases customer satisfaction and saves a large percentage of overhead costs associated with the manual process regularly involved in fulfillment and shipping. Here are a few examples of what a well-implemented ERP can do from the shipping and fulfillment side:
- Generate Shipments automatically upon the completion of the Sales Order, or choose to trigger the Shipment process based on inventory availability in a scheduled Inventory Wave Plan
- Eliminate manual re-entry and order processing errors. Shipping documents, including pick tickets and shipping labels, auto-populate with Sales Order information, reducing redundant data entry
- Workflows are configurable to create the desired level of approvals prior to completing shipments and generating invoices
- Consolidate Shipments
- Zone/Wave Planning
- Pick Tickets and Packing Slips
- Shipping Confirmations
- Interfaces with UPS and FedEx
- Link Return to Shipment
- Product Search
- Receiving and Transfers
So, we ask again, “What does ERP stand for?”
Sorry Wikopedia, your brief definition of Enterprise Resource Planning does not do justice to the transformative nature of these solutions. As we have more fully illustrated here, there is tremendous value in what a well-developed and implemented ERP system can provide. The more complete answer to the question, “What does ERP stand for,” is this:
An ERP system is a fully integrated software solution that helps every single department complete their business processes efficiently and with increased productivity. Having a central location for all relevant data allows for ultimate control over an organization’s processes, and due to the reduction of inefficiencies, double entry, inventory loss and many other common distribution and manufacturing issues, an ERP provides immediate return on investment.
With the advent of the Cloud, ERP systems have never been more attainable to businesses of all sizes. Learn about Cloud ERP