ERP stands for Enterprise Resource Planning. ERP Software is used by businesses to generally streamline operations, smoothen communications, and help the management with better decision making.
History of ERP
The use of ERP systems has been running for many years. This was started when businesses expanded and turned into large scale industries, which caused them to fall into many problems. These problems were mainly the difficulty in communication over such a large business chain command, supervising operations on a large scale and keeping it in control, and overall organizing the business activities.
This meant the expansion of businesses followed many costs and wastage that made businesses reluctant to follow this goal. A system was needed that made it possible for large scale businesses to counter expansion problems which could overall help with management even if the business spans over a very large premise.
The answer to this was ERP.
The ERP system helped businesses to manage their business head departments better. This meant ERP supervised operations in human resources, accounting, purchase department, and sales.
How Does ERP Software Work?
ERP works in a business with the help of users that maintain data in it while the ERP acts as a database. This database can also generate useful outputs to automate business operations.
For this to happen, an ERP system is implemented in the business. This is referred to as ERP Implementation.
ERP Implementation is done by an ERP provider. The time it takes for a successful ERP implementation depends on the scale a business is situated on and the efficiency of the ERP provider.
A typical ERP Implementation includes the ERP software provider training the interested business in how to use it and transferring the already recorded data of the business into the ERP software.
For example, if ABC is an ERP provider and XYZ is a sugar refinery business, ABC will visit XYZ and inform them about their ERP software. The ERP Implementation would include ABC integrating all the data of the refinery, e.g. fixed assets, human resources, budgets, etc. After this is done, the business will train the staff of XYZ on how to use the ERP System.
From now on XYZ will assign users who will have access to the ERP. These users will keep using the ERP software to update the database.
To work with ERP software, the company makes user IDs for their employees for the ERP software. These employees then access the ERP and make use of it for communication, workflows, and management. Below are examples of ERP uses in each of these categories.
Smooth Communication: The laboratory department fills in the details of a patient’s report on the ERP hospital module which is accessed by the Operation Department. This communication takes no time to be sent over and can be accessed by the OT as soon as the Lab inputs it.
Efficient Workflow: A Bread Baking business orders all quotations in their ERP software for the purchase of flours. The approving authority accesses this data through the ERP system and makes the decision which informs the concerned employee to create an order. The purchase order, GRN, and, in case needed, the Goods Returns Note, is all created through the Procurement Module of the ERP, printed, and stored in the ERP as well.
Accurate Payroll: The HR Module helps the Human Resource Department keep all employees data accessible in a single click. This data helps calculate accurate payslips for each employee, on the designated date, keeping in account all factors of allowances and deductions.
Better Decision Making: Hammad Group of Companies need to understand and analyse why its companies are making a loss. The ERP system is used to generate all financial and management reports of the company. This includes consolidated financial statements or, if needed, subsidiary wise reports. These reports contain all processed data from the database of ERP. This benefits the managers to make useful decisions by analysing trends and graphs.
This also includes generating financial statements for auditing or shareholder publishing purposes.
Types of ERP Software
Over time, the use of ERP software in businesses has increased rapidly. Now, ERP use is not only limited to large scale businesses, but even small businesses are relying on the ERP due to its benefits.
As various businesses have various needs, ERP software is now provided in different types. These types include On-Premise and Cloud ERP.
An On-Premise ERP is the ERP software planted, as the name suggests, on the premises of the business. This means the ERP provider is a mere one-time supplier of the ERP. The business that will use the ERP will have to manage the ERP software. There are several pros and cons to this type of software. Overall, the On Premise ERP is considered to be the ultimate complete ERP package for businesses and is the preferred choice for businesses if the price is not a problem.
Less access means safer data
More capable than Cloud ERP
Some ERP providers provide the option of using On-Premise ERP on the Cloud as well. Also known as Hybrid ERP
Huge costs of IT.
Data only accessible on premises
One time expensive payment
Lengthy ERP Implementation
Cloud ERP is more of a standardized version of ERP software. This is created with standard modules that almost all businesses use and doesn’t cost as much as an On Premise ERP.
The name Cloud tells that the ERP database is accessed remotely. This is done by ERP providers hosting the software on an online server and providing their clients with a link to use it. Each ERP would have a unique URL for access and is protected by password requiring credentials.
Cloud ERP is provided on the SaaS model and is paid for in monthly or yearly payments.
Quicker ERP Implementation (hyperlink)
No management costs
Can be run remotely on any device that supports a web browser
No ownership of software (SaaS)
Lesser modules and functions
Prone to unauthorized data access
ERP provider needs to be trusted with data
Slower than On Premise