Full Form of ERP – Enterprise Resource Planning
The full form of ERP stands for Enterprise Resource Planning. ERP is a process to integrate the basic processes such as Finance, HR, Manufacturing, Supply Chain in one single integrated system. ERP is a system that helps organizations to smoothly run their operations by integrating the basic operations systematically.
How ERP System Works?
An ERP system is made up of different enterprise resource planning applications that talk to each other and share a database. ERP uses the centralized database for various business processes and reduces manual interventions and simplifies the business workflows. ERP system typically contains dashboards where users can look at the real-time data collected from all across the business to measure the productivity and profitability and also plan its course of action. It is not just the database. It is an integrated system that is synchronized with the data of an organization’s various departments.
Types with Examples
There are basically 4 types of ERP software which are as follows –
#1 – Generalist ERP
Generalist ERP is those ERPs that are strong in customization and integration to match the changing needs of the organization. These ERPs adapt to the processes of the industries very soon. There is also a high demand for these types of ERPs in the market. Examples of Generalist ERP is NetSuite ERP.
#2 – Open-Source ERP
Open-source ERPs are those ERPs that increase the usability and user adoption of ERP as these ERPs can establish a highly customized process. But still, these open-source ERPs are a small fraction of the ERP market. An example of this type of ERP is Odoo ERP.
#3 – Small Business ERP
These ERPs are modularized with pared-down features. These enterprise resource planning instead of delivering a fully integrated system serves one or two business processes and leave out the others. Examples of this type of ERP is PeopleSoft.
#4 – Vertical ERP
These ERPs are those which are Industry-specific ERPs. Often the vendors of these ERPs are Startups or smaller companies who try to focus on a niche, for example, supermarket distribution, construction or retail fashion. The example of this ERP is Microsoft Dynamic AX.
Components of Enterprise Resource Planning
There are 5 main components of enterprise resource planning, which are explained below:
#1 – Human Resources
The priority for every organization should be first to manage all the employees. The HR ERP component should be able to handle the whole structure of the employees’ management, from onboarding to offboarding and from benefits to timekeeping.
#2 – Customer Relationship Management
The second most priority should be to manage the customers and leads because without them the survival of any business would be of utmost difficulty. CRM ERP allows the organization to keep a track of all the customers and leads within the software. The CRM ERP even helps in optimizing the sales as well as marketing efforts.
#3 – Inventory Management
Inventory management is one of the most collaborative components of ERP. Inventory management works simultaneously with the Supply chain management components. The main process of this component is to manage order fulfillment and stocking in the warehouse.
#4 – Supply Chain Management
The supply chain management component of the ERP is the most crucial component because it is not that easy to determine the efficient supply chain. There is a requirement of best SCM features in the software to optimize the supply chain and collect data in real-time.
#5 – Financial Management
Since every business involves the process of money in and out from one to another, whether to customers, debtors, creditors or paying the employees or paying for transportation. The financial management component works with all of the components in the ERP system.
Characteristics of Enterprise Resource Planning
- Central & Common Database – Implementing ERP in an organization requires the Common and centralized database. And this centralized database becomes one of the main characteristics of ERP. All the data stored is entered and stored only in one place and then utilized by all the departments.
- Automatic generation of information – An ERP provides a business with the business intelligence tools such as executive information system (EIS), decision support system (DSS) to allow manufacturing operations to make more effective decisions pertaining to their overall production process.
- Modular Design – The ERP system is designed in such a way that it incorporated all the models of a business such as manufacturing, financial, accounting and distribution. As a matter of fact, all the modules take care of its functions but the ERP software integrates all the modules in such a way that provides a seamless flow of data between the various modules.
- Flexible and Open Database – ERP software is that software that is dynamic as well as flexible in nature as they need to evolve themselves as per the changing needs of the organization as the organizations’ needs are continuously changing and therefore the ERP also evolves with the changing needs of the organization.
Difference Between ERP & CRM
- An ERP system is integrated software that incorporates data from all the departments and processes it for the use of the organization whereas CRM is a part of that process that includes the data of customers to be processed in that Module for higher sales and profit-generating opportunities.
- ERP software is the superset of the software whereas CRM is just the subset of the computer software.
- ERP mainly performs the back-office activities whereas the CRM performs the front-office activities.
- ERP’s main objective is to reduce the operating costs of the organizations whereas the main objective of CRM software is to increase the sales of the organization.
- The ERP software is Enterprise Oriented software whereas the CRM software is the customer-oriented software.
- Reduction in Time and Costs of litigations.
- Elimination of unnecessary operations and data.
- Accurate and timely access to reliable information.
- Optimization of Business processes.
- The ability to share information between all components of the organization.
- The system can be difficult to use.
- Reduction in sharing internal information between the departments can reduce the efficiency of the software.
- The installation of Enterprise Resource Planning software is costly.
- The benefits are seen over the period of time and not immediately.
- The success depends on the skills and experiences of the workforce, including education and how to make the system work properly.
ERPs are the future of the industries as the industry is going all out on the software and automated operations. It derives many benefits to the organizations in terms of decision making, cost reduction, time reduction, automation of processes, centralized data and significant integration of Departments.
This has been a guide to the Full Form of ERP and its definition. Here we discuss types with examples, characteristics, components of Enterprise Resource Planning along with its working, advantages, and disadvantages. You may refer to the following articles to learn more about finance –