ERP: Enterprise Resource Planning
Dictionary meaning of an ERP: ERP is a process whereby a company, manages and integrates the important parts of its business. An ERP management information system integrates areas such as planning, purchasing, inventory, sales, marketing, finance, and human resources.
ERP Definition at Frappe
ERP is a virtual instance on your company. It is a single source of truth for all your business information.
So, just like you have various departments and sections in the office, like the sales department, accounts department, warehouses, manufacturing facility, the same way, in the ERP software, you have the various module. Each of each module is designed to address the business requirement of a specific department or a function.
All the event which are occurring in your organization, be it from sales, purchase, inventory, accounting, manufacturing, human resources is being logged, secured for analyzing in an ERP software. Hence, it becomes imperative for a business of a decent size to have an ERP software in place, so that they can operate in a much more efficient manner.
But we have John here, and he has an objection to our claim that businesses can run fine without an ERP software as well. He runs a mobile distribution and repair business and content with his current information system. Let's try answering his arguments as for why he doesn't need ERP.
John: I am running my business just fine with Windows office suite, accounting and my mobile phone (my virtual office). So, why do I need to invest in the ERP software?
Well, certainly it's not mandatory for you to have an ERP software in your business. But what you need is to be able to understand are the shortfalls happening in your business, which could have been minimized. You keep just a lot of business information in your mind, a piece of paper on excel sheet. It's easy to lose a track of them. And even if you had it, it doesn't help you in analysis and decision making. Following are most of the operations flows listed which might be true to your business now, which could be addressed with an ERP software in place.
- Is your mobile phone's contact list sufficient to track all the business inquiries and ensure they are being follow-up? Just imagine the amount of business you might have lost with the moment "Oh, I had to call that guy at 3".
- Did you factor in the time for followup with your staff to ensure a proposal is sent to the client? Let's assume they send a proposal, but a user made a mistake in manually entering the item's price. Pretty basic issues with the manual processing.
- You have a good demand for a specific model, but it often stock-outs. Loss of business!
- You have a dissatisfied customer whose phone was not repaired in time.
... and these are just a few.
So, the first get-away of an ERP solution is a better tracking of masters. In an ERP, you can maintain the credentials of a prospect, have data ready for items their prices. Have customer's, supplier's data captured in one place, and avoid no duplications. When it comes to creating a business transaction, you will realize that it's only about picking a correct master from the repository and giving it a shape of order or an invoice.
You can only improve what you can measure. Once you have masters being captured properly in an ERP, you can analyze and decide how to act on it.
John: Fine, but my accounting application also does that. It allows the tracking of masters and allows maintaining books of accounts.
Dear, if you are just stuck on the accounting solution, I am afraid, you won't even get your business accounting right
. There are various operations in the business, which aren't tracked in the accounting solution, but not tracked in the accounting solution. Take stock-accounting for an instance. Remember creating that journal entry for the stock adjustment, so that you could close your books somehow?
If you track each business incident in an ERP, it will help you with the trigger to act before it's too late. Some of the following is the example of the triggers an ERP software can throw at you and ensure you on top of your deliverables.
- When to contact an inquiry next time?
- The sales invoice is outstanding. Trigger an alert to the customer and get paid.
- Track when item's stock is going down. Act when it reaches the re-order level.
- Track the workstation on which you have lots of operations jobs queued, and do balancing, where needed.
- Plan for the scheduled maintenance visit for the client.
- Approve expense claims and leaves of your employees.
The company is like a machine, which should run, just like a machine runs on an auto-pilot mode. ERP is a tool which helps you define the operations for each business function, track the actuals, track the short-coming and improvise on the same.
ERP system gives you triggers alerts indicating the next actions only if you had each business incident tracked in systematically in the system. Thereby, it helps in a business in defining an operation, following the same and identify the shortfalls and improvise on the same.
Once you have years of business data maintained in an ERP, it helps you see the various patterns in various operations. It will help you predict and plan better for the future. Some of the analytics which an ERP provide out-of-the-box are:
- Sales over the months/year and in specific territory and customer group. For the months which experience slack in the business, you can be better better with effective sales strategy.
- Also, you can prepare better for the manufacturing to cater in period which enjoy good conversion.
- The purchase cost over the period and item groups. If there is an item is which affordable in specific period, you can plan it's bulk purchase may be.
- Track overall profitability ascertained on various products and services offered by your company.
John: Okay. Maybe you are right. But I don't have the bandwidth for now. After three months maybe.
Congratulation! You just crossed the first milestone. You will surely realize the need for ERP software in the next 2-3 months. See you again ;)