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Key Concepts of ERP

  • By Sergei Kosiachenko
  • May 21, 2020
  • Comment

Key Concepts of ERP

Having a sound ERP strategy is vital at the Fortune 500 level. It’s essential to even way below that. Before coming up with the pitch-perfect strategy, one must understand the core concepts of ERP and what it was intended to do. In this post, we will discuss the finer aspects of ERP with some real-time examples.

Enterprise Resource Planning is an industry-standard term. In short, we call it ERP.  Let’s put it into layman terms. In essence, ERP is all about managing information. It is a tool that helps you manage data more efficiently. In the information age, information is everything. So, what exactly is information management from an enterprise point of view?

To manage information is to collect, store and use data profitably. Everything needs to be done in an organized manner. The approach should be enterprise-friendly. We will get to that with few use-case examples in later sections.

The Non-ERP way…

So how does an enterprise manage information, if not for ERP? They all have a customer database/ CRM, accounting system, warehousing database and spreadsheets to fill in the gaps. Nevertheless, all of these components act like isolated islands. Little to no amount of data sharing happens. Such a setup lacks efficiency. In reality, efficiency translates into time and money.

This is where an ERP system comes in.  ERP software centralizes all the information in an enterprise. This way, companies can streamline the flow of information. All of the business processes have an end-to-end connection. From finance to CRM to orders to inventory, every bit of information is connected.

What ERP software does?

Companies of all sizes can benefit from ERP software of their choice. SAP and Oracle are two mainstream and popular options in this space. In addition, Tally 7.2 and Tally ERP 9 also provide enterprise solutions. Obviously, the ERP software collects all the data and information about the company. It stores and maintains them as a database and goes on with its functioning. The software then helps to manage your company a whole lot better. Let’s look at it with a classic example.

Ford and SAP

For instance, consider a Fortune 500 company like Ford. They have branches all over the world. Managing just the production facilities alone is a humongous task. Doing it from one place is what top-level managers prefer. ERP software like SAP makes that a reality. For a fact, Ford has always stuck with SAP as their software of choice.

If not for ERP, consider this scenario at Ford. The company desires for 98% piece fill-in rate. Ford deals with 46 million order lines for over 4000 dealers every year. They source 235,000 different parts from over 2800 suppliers via a network of 29 distribution centers. Moreover, these facts and figures apply to North America alone.

Above all, the brand needs to focus on satisfying the customers, which is one demanding process. Fortunately, with SAP, their top-level managers can pull it off, from sitting in one place. Michel Czah, global inventory planning strategy manager at Ford’s Customer Service Division admits everything’s work together like a symphony’.

Does ERP really cover everything for them? Let’s figure that out. Consider, Ford is manufacturing a new model, car A. Any automobile production involves tons and tons of working components. From engine to body to suspension to cooling, the list is endless.

If the company decides to manufacture 100 cars of this particular model, ERP immediately checks the stocks and inventory status. If there is a serious lack of supplies, it triggers a purchase order to one of the suppliers.

Days of making purchase orders via mail or postal are gone. With ERP, once you raise the purchase order, an automatic mail is generated and forwarded to the supplier. Once the supplier delivers material and the quality check is done with, it reflects on the company’s stock and inventory.

From payments to returns to credits, everything will be processed from ERP. Integrating all of the processes is the core of ERP strategy. It helps top-level managers to control the company more effectively. They can make well-informed decisions consistently with ERP.

Beyond top-level management…

Now that we discussed top-level management, what’s in it for middle levels? Well, a global manager or material manager or production manager can access the information they need. Everyone has a set of privileges and unique access to the information. For instance, a production manager can keep track of the schedule, parts required from suppliers, etc…

Benefits of ERP

Improved customer service

With ERP, enterprises can single out a few customers. They have their profile information, order history, contacts, etc…Thereby, companies can provide a better service to them. Products and services will be promoted more effectively.

Total visibility

Teams behind any company can work more efficiently with ERP. They have all the information they need when they need it. Since it’s all in the same place. They can analyze the information a lot better. They can report on it any way they want.

Integrated solution

All the processes can be integrated with the help of ERP. Managers can monitor them all from one place. There is nothing like an island of information. The information just flows through the system. It is indeed a cost and time-efficient software solution.

Complete customization

Customization is the key takeaway from ERP software. Each company can opt for customized modular makeup that suits their day to day operations. How the software is implemented is also part of the customization.

What makes ERP powerful?

What happens that makes ERP all the powerful? It’s just the mere fact that everything happens through ERP, once an enterprise opts for one. From purchase to payments to payroll to staff attendance, everything is captured in ERP. All of this data is integrated and available at the same place. With a perfect ERP strategy, one can command things inside and outside the enterprise.

To understand ERP better, let’s use a familiar website as an example. If you know nothing about ERP before, think about a website like Amazon. On the surface, both are very similar. When someone supplies product A from Amazon, he/she enters supplier name, product details, address, price, profits, etc… in the integrated database. When a customer makes a purchase of product A, he/she orders and makes the payment from the same website.

Real-time functioning

Once a purchase is done, it triggers messages to Amazon, supplier, and customer. All of this happens in real-time. That has have been the strength of ERP systems. When a car is sold at Ford, all associated parties are notified immediately and they can track it down. Similarly, when a supplier sends the product to a customer, a lot of information is streamlined.  From packed-in to shipping to delivery, all that information can be tracked by customers, suppliers, and Amazon.

Transaction codes

When you have an ERP system like SAP, you can check the current availability of stock and inventory. When a stock goes down, it reflects in a transaction code called MMB. Every ERP system has its own set of codes to define different functions. Some companies opt for ERPs exclusively made for them.

Modern ERP

Centralizing or managing your information seamlessly doesn’t just cut it anymore. The simpler ERP systems are well past their expiry date. What enterprise need now is modern ERP. It allows doing so much more. Companies can connect with their customers through a portal. They can link to modern information tools such as 365 or exchange.

Using a range of tools like a power beehive of information is a real prospect. Modern ERP speaks the same languages as the supplier systems like EDI. It is a lot flexible than conventional systems. You can access it through mobile, cloud, etc… Modern ERP is more secure, thanks largely to modern age encryption systems.

Modern businesses thrive on modern technologies…

Modern technologies suit modern businesses. As businesses evolve, adopted technologies and working models need to evolve. What works with old fashioned auto Spares Company won’t work with 21st-century Fintech companies. The first step in the latter’s ERP strategy should be investing in modern ERP systems.

Modern ERP has newer sets of components. Business intelligence is the foremost of them. Increasingly, businesses are seeking out analytics, in order to assess opportunities. They like to act on that critical information. At the end of the day, it translates to increased profits.

We hope you enjoyed this promoted piece as much as we did!

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