What is ERP?
ERP (enterprise resource planning) is enterprise resource planning. In its most general form, ERP can be defined as the collection of all the basic business processes necessary to manage a company: finance, human resources, production, supply chain, services, procurement and much more. At the most basic level, ERP helps manage all these processes effectively in an integrated system.
ERP is the central nervous system of an enterprise that provides the automation, integration, and intelligence needed to efficiently carry out all day-to-day business operations. Most or all of an organization's data should be stored in an ERP system to provide a single source of truth throughout the company.
Today's ERP systems are nothing more than basic and bear little resemblance to the ERP systems of decades ago. Now delivered in the cloud, they leverage the latest technologies such as artificial intelligence (AI) and machine learning to deliver intelligent automation, increased efficiency, and instant insight across the entire company.
History of ERP
Enterprise management systems began to emerge only in the late 60s of the last century. It was then that the basic principles for managing the company's inventory were formulated. They became the basis for the creation of an MRP class system (Material Requirements Planning – that is, inventory planning). With their help, it was possible to optimize and distribute the organization's materials in the production of complex products.
The main disadvantage of such a system was that it did not take into account a lot of important information:
production capacity utilization;
human resources;
loading of human resources;
labor cost.
But despite this, the MRP system is a real breakthrough for that time. This production standard was actively used until the 80s, when it was replaced by the more advanced MRP 2.
MRP II arose as a logical continuation of the previous version. Planning of production and financial indicators based on real, and not truncated, data about the company has now become available.
The system became modular and already covered all key production processes:
planning;
procurement;
certification;
contract management.
MRP II is a set of sound principles, models and procedures of management and control, proven in practice, that serve to improve the economic performance of an enterprise. The idea of MRP II is based on several simple principles, such as dividing demand into dependent and independent. MRP II Standard System contains a description of 16 groups of system functions:
Sales and Operation Planning.
Demand Management.
Master Production Scheduling.
Material Requirement Planning.
Bill of Materials (Product Specifications).
Inventory Transaction Subsystem (Warehouse Management).
Scheduled Receipts Subsystem.
Shop Flow Control (Management at the production workshop level).
Capacity Requirement Planning.
Input/output control.
Purchasing (material and technical supply).
Distribution Resource Planning.
Tooling Planning and Control (Planning and control of production operations).
Financial Planning (Financial Management).
Simulation.
Performance Measurement.
The MRP 2 system is the next step in the development towards a full-fledged planning process. Now access to all company data becomes possible simultaneously for all employees who have the necessary permissions. And resource management is carried out not at one stage, but throughout the entire cycle: from the purchase of raw materials for production to the shipment of finished goods to the end consumer.
In recent years, MRPII class planning systems in integration with the financial planning module FRP (Finance Requirements Planning) have been called ERP (Enterprise Requirements Planning) business planning systems, which allow you to most effectively plan all commercial activities of a modern enterprise, including financial costs for projects equipment upgrades and investments in the production of a new product line.
Typical ERP modules
Enterprise resource planning systems include various modules. Each ERP module supports specific business processes, such as finance, purchasing, or manufacturing, and provides employees in that department with the necessary transactions and analytics. Each module connects to an ERP system that provides a single source of trusted, accurate, shared data across departments.
Components of an enterprise resource planning system
The most widely used ERP system modules include:
Finance. Finance and Accounting Module is the basis of most ERP systems. In addition to maintaining the general ledger and automating basic financial tasks, it helps businesses track accounts payable and receivable, efficiently close books, create financial statements, comply with revenue recognition standards, reduce financial risk, and much more.
Personnel Management. Most ERP systems include an HR process module that supports basic functions such as time tracking and payroll. You can connect additional modules or even entire packages to the ERP system solutions for human capital management (HCM)supporting broader HR capabilities—from people analytics to employee experience management.
Supplier selection and procurement. Supplier Selection and Procurement Module helps companies purchase the materials and services they need to produce goods or items they want to resell. The module provides centralization and automation of procurement, including requests for price proposals, development and approval of contracts. It can help you minimize underbuying and overbuying, negotiate more effectively with suppliers using AI-powered analytics, and even enable seamless collaboration with purchasing networks.
Sales. Sales module Tracks communications with prospects and customers and helps sales reps leverage data-driven analytics to drive sales growth and identify opportunities with the right promotions and upsell opportunities. It supports order-to-cash functions including order management, contract management, invoicing, sales performance management, and sales enablement.
Production. Production module is a key component of an ERP solution designed for planning and organizing production. It allows companies to simplify complex production processes and ensure production matches demand. This module typically includes functions of materials requirements planning (MRP), production planning, production organization, quality management and others.
Logistics and supply chain management. Another key component of an ERP system is a supply chain management module, which tracks the movement of goods and supplies throughout an organization's supply chain. This module provides tools to manage inventory, warehousing, transportation and logistics in real time and improves supply chain visibility and resilience.
Service. In ERP systems service management module helps companies deliver the reliable and personalized services customers expect. This module may include in-house repair tools, spare parts, field service management, and service revenue streams. It also provides analytics that help service and technicians quickly resolve customer issues and build customer loyalty.
Research and development. Multifunctional ERP systems include research and development module. This module provides tools for product design and development, product lifecycle management (PLM), product compliance, and more, allowing companies to innovate quickly and cost-effectively.
Enterprise asset management. Robust ERP systems can include EAM module, which helps resource-intensive businesses minimize downtime and keep their machines and equipment running at peak efficiency. This module contains functions for predictive maintenance, scheduling, asset operations and planning, and health, safety and environmental compliance, among others.
Examples of modules in the 1C:ERP system Enterprise Management 2
Purpose of ERP
Due to the continuous development of the modern market and high competition in all business areas of human life, many companies are beginning to look for a new way to optimize work processes. This is where ERP systems come to the rescue. They help relieve the organization from the following problems:
Waste of specialists' time on routine work.
Difficulties in obtaining operational information necessary for making urgent decisions.
Difficulties in combining diverse materials and products in a single accounting database.
There is no up-to-date information about the units of products contained in warehouses and retail outlets.
Sophisticated access to reports and analytical data.
Late preparation of accounting.
Complex algorithm for registering sales and communicating with clients.
Disruption of interaction between offices, departments and branches.
Lack of ability to quickly monitor personnel.
Six Key Benefits of ERP
A good ERP system has many benefits, examples include:
Increased productivity. Optimize and automate core business processes, helping each company employee achieve greater results with fewer resources.
A more complete understanding of the situation. Eliminate data silos, create a single source of truth, and quickly get answers to your most important business questions.
Faster reporting. Generate business and financial reports quickly and easily share results. Act on accurate insights to improve productivity in real time.
Risk reduction. Increase business visibility and control by ensuring compliance, risk forecasting and prevention.
Simplifying IT processes. By using integrated ERP applications with a common database, you can simplify your IT environment and give everyone an easier way to work.
Increased maneuverability. Efficient operations and fast access to real-time data enable you to quickly identify and respond to new opportunities.
Classification of ERP systems
By Industry
2. According to their purpose, ERP systems can be divided into industry-specific and general-purpose systems;
3. By type of organization – public, private and hybrid, as well as desktop and browser; cloud and internal;
4. Based on their architecture, systems can be divided into systems with a single architecture and modular systems. The most popular systems now are modular. Such systems allow you to introduce a product gradually, piece by piece, select and combine modules that meet the needs of a specific enterprise, which allows you to customize the solution for the customer’s business and reduces implementation time;
5. Under license, systems can be proprietary or open source (Open Source ERP). Open source systems are not very common on the market and are used in most cases by companies with their own staff of specialists who are able to independently develop the product.
Examples of ERP systems
There are many different ERP systems, you can familiarize yourself with them link.
Cases of application of ERP systems in different industries
Companies in every industry—from automotive to wholesale distribution—need accurate, real-time information and efficient business processes to become more competitive and prosperous. However, different industries rely on their ERP solutions for very different reasons. Here are just a few examples:
Enterprises in the energy and housing and communal services industries You must continually review the health of your capital assets—not only to meet demand for future services, but also to replace aging assets. Without an ERP system, prioritizing large-scale asset investments is a daunting task that is not always accomplished in the best possible way. ERP helps solve another critical problem for utility companies—forecasting the need for spare parts. Missing the right parts during an outage can cause serious customer service issues. On the other hand, carrying too many spare parts leads to excessive costs and inventory obsolescence.
For wholesale companies, importers, direct store distributors and logistics providers (3PL/4PL), on-time delivery is key. All of these organizations strive to reduce distribution costs, improve inventory turnover, and shorten the order-to-payment cycle. To achieve these goals, they need integration of inventory, purchasing and logistics functions, as well as automated processes tailored to their needs.
Discrete, batch and continuous manufacturers use ERP and supply chain systems to achieve product quality goals, manage asset utilization, control overtime costs, process customer returns, and more. In addition, manufacturers can achieve comprehensive inventory control by monitoring inventory movements, identifying top and bottom performing products, and managing purchasing more effectively.
Service companies, including accounting, tax, engineering, IT, legal and other professional services firms, need real-time, powerful mobile ERP technology to balance service obligations with financial health. The key to successful professional services delivery is the ability to stay on schedule while managing project profitability, resource utilization, revenue recognition, recurring revenue targets, and growth opportunities.
Retail has undergone significant changes, resulting in the integration of e-commerce with other sales channels, as well as with traditional stores. The ability to independently perform identification, configuration, purchasing and shipping of products is based on the use of integrated data. A modern ERP system also helps retailers reduce cart abandonment, increase website conversion, increase average order value and customer lifetime value.
Types of ERP System Deployment
Modern ERP systems support deployment in a variety of ways: in the public or private cloud, on-premises, or in various hybrid scenarios that combine different environments. The main advantages of each are listed below.
Cloud ERP system
With a cloud ERP deployment, the software solution is hosted in the cloud and delivered over the Internet as a service that you subscribe to. The software provider will typically provide regular maintenance, updates, and security on your behalf. Cloud ERP is now the most popular deployment method for various reasons including lower upfront costs, greater scalability and flexibility, ease of integration, and more.
Local ERP system
This is a traditional software solution deployment model in which the company itself manages all processes. ERP software products are typically installed in a data center at a location of your choice. Your staff is responsible for installing and maintaining hardware and software.
Hybrid ERP system
For companies that require a combination of both approaches to meet their requirements, a hybrid cloud-based ERP deployment model is available. In this case, some ERP applications and data will be deployed in the cloud, while others will be deployed on premises. Sometimes this option is called a two-tier ERP system
