What Is ERP? Definition of Enterprise resource Planning
ERP has become a very popular abbreviation nowadays. Today’s business is impossible without using what stays behind these tree letters, ERP have been implemented in small, middle and huge businesses from all around the world. This has become an industry for billions of dollars, and it is still growing. And here is what ERP stands for:
What the Heck Is ERP? A Simple Definition
ERP simply stands for Enterprise Resource Planning, which is a business ideology helping companies to better plan their resources and use them more effectively. It simply means planning all the resources in an enterprise(business) and this is what ERP is used for. The acronym is often used when referring to the software products developed according to this ideology. They are simply called ERP, too. ERP solutions(software) belong to the group of integrated systems and their main purpose is to connect and synchronize all of the different departments and activities of an enterprise. This way the business turns into a well-oiled machine and can operate up to hundreds percent more effectively. These systems integrate all of the information in an organization – manufacturing, sales management, accounting, financial management, human resources and so on… The data from all departments is stored in a common database and this is how each department ‘knows’ exactly what the situation in any other one is, the information is common. In big companies, this is crucial for their survival and success.
ERP derives from MRP (Material Requirements Planning), which was used in the past. But while MRP is used only for planning the manufacturing process and production resources and materials, ERP is used for planning these and all other resources and processes in the company. It’s a broader and more powerful instrument.
A great benefit from ERP systems is that management can use the collected information to get a reliable and accurate snap shots of every business process, single order or the whole business. Initially,
managers in small organizations can coordinate the work of the different departments easily, but when the company starts to grow, the synchronization between each of them becomes a bit difficult, sometimes very expensive, even impossible. At some point of time the so called ‘crisis of control’ occurs. And this is when the integrated system becomes the best friend of the people leading the business. It is really important for tracing how things are going and taking the needed steps on time, if something goes wrong. Because of that, the idea of enterprise resource planning is to gather data about anything happening in the company, a manager can easily check anything – from sales’ trend and overstock situations to payment delays and financial reports for the desired period.
Using an ERP system in a business has many other benefits. We’ve prepared a list of the most common advantages a company gets, after the implementation of such a software. However, the most common ones are integration and better planning. Especially for big companies, having multiple branches here and there, this can be the difference between growth and struggle for control.
ERP software and business software are not interchangeable words. Many businesses use some kind of software for their activities – for managing sales, finance, production. ERP solutions make all of the latter unnecessary, because they should take care of any activity in the company. Many developers of business software put the ERP tag on their products, but their products are nothing like that. ERP software’s main feature is automation in resource planning and if you have a software with which you can track your sales, but you can not plan you material requirements, you don’t have ERP, because you don’t have MRP.
ERP systems have to be implemented in the business model of an organization, in order to function properly. Because of the fact that each company has its own specifics, this means the software to be set up exactly according to its needs. This may, and in many cases will cause some considerable changes in the work processes and the business activities in the company. Depending on its size, this could be a slow, time and money consuming process (from several months to several years). Implementation is one of the most important and crucial parts of an ERP project. It should be planned very well and all of the employees in the organization should be prepared to actively participate it it. The way they do their jobs often changes and that’s why they have to be mentally prepared for this, too. Even the greatest solution can have even negative effects on the business, if not implemented well. That’s why it is so important that the whole company is well prepared for this process. We have created a whole section, providing some more detailed information about implementation, you can find it here.
The history of ERP has begun back in 1990, when the technology, research and advisory firm Gartner, Inc. first used the acronym. The resource planning ideology began as an continuation of the very popular till then MRP (material requirements planning). As the latter refers only to planning of the materials for the needs of manufacturing, the ERP ideology goes beyond that limit and is referred to planning all of the resources in an organization.
Resource planning in an enterprise has been developed for more than 20 years and for that time many of the best business practices have been included into this ideology. Implementing such a solution in an organization automatically implements these best practices into its business model. This is a huge benefit, especially for small companies who lack the required know-how to grow.