Financial and Strategic Management

What are the working, importance, and benefits of ERP?

ERP, or enterprise resource planning, is a modular software system designed to integrate the main functional areas of an organization’s business processes into a unified system.

How ERP works?

ERP systems rely on a centralized relational database, which collects business information and stores them in tables. Having the data stored centrally allows end-users, such as from finance, sales, and other departments, to quickly access the desired information for analysis.

Instead of employees in different departments managing their own spreadsheets and reports, ERP systems allow for reporting to be generated from a single, centralized system. Information updated in one ERP module, such as CRM, HR, and finance, is sent to a central, shared database. The appropriate information in the central database is then shared with the other modules.

Importance of ERP

Experts list four important business benefits of ERP:

1. IT cost savings
2. Business process efficiency
3. A business process platform for process standardization
4. A catalyst for business innovation

While businesses often focus on the first two areas because they’re easy to quantify, the latter two areas can create a greater impact on businesses.

ERP makes real-time business data available throughout the organization, which enables businesses to adapt quickly and respond to changes. The business data available in ERP systems provide for more informed decision making within an enterprise. ERP systems can also share data with third-party partners and vendors to improve efficiencies in the supply chain.

Benefits of ERP systems

ERP offers a plethora of benefits, most of which come from information sharing and standardization. Because ERP components can share data more easily than disparate systems, they can make cross-departmental business processes easier to manage on a daily basis. They can also enable better insights from data, especially with the newer technologies that many ERP systems are including, such as powerful analytics, machine learning, and industrial IoT capabilities.

In addition, ERP software:
1. boosts efficiencies by automating data collection;
2. enables business growth by managing increasingly complex business processes;
3. helps lower risk by enabling better compliance;
4. fosters collaboration using data sharing and integrated information;

5. provides better business intelligence and customer service capabilities; and
6. improves supply chain management.

Many consider ERP software to be a requirement for enterprises — especially for core business functions such as finance and the same is arguably true for growing SMBs. The sheer volume of data that companies generate, along with the complexity of the global business landscape and modern consumer demands, has made streamlining business processes and managing and optimizing data increasingly critical. An ERP software system is typically at the core of such capabilities.

About the author

Shreya Kushwaha

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