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What is an ERP system and how does it work?

What is an ERP system and how does it work?

Read our latest article to understand how an ERP system works and what value it can deliver for your organisation. Learn about the reasons businesses choose to use ERP and how it helps them operate effectively and grow their revenue:

  • should I move to the cloudWhat does ERP mean?
  • The benefits of ERP software
  • How do ERP systems work in different business areas?
  • When is the right time to adopt an ERP system?
  • What’s the best way to get started with ERP?

What does ERP mean?

What does ERP stand for? The acronym ERP is for Enterprise Resource Planning. It’s not just for large, enterprise-scale organisations though. Small and medium-sized businesses also use ERP to help them optimise operations and support growth.

ERP software is a set of powerful tools and analytics that bring together key operating and performance data for a business and create meaningful insight from it.

The functions covered might include: finance and accounts, operations, purchasing, HR, supply chain, manufacturing, warehousing and management reporting. ERP solutions can also integrate with systems for CRM, point of sale and e-commerce.

What is an ERP system and how does it work?

The benefits of ERP systems

So, how do ERP systems work in practice for your business?

ERP for intelligent insights

An ERP system integrates core business systems to provide one holistic view of your critical business activities and customer touchpoints. Most organisations have financial systems, supply chain systems and warehousing systems. They might use different software packages or manual records in a series of spreadsheets. With ERP, you bring all of these together into one system, so the data is in one place. You can then connect the data for more actionable and relevant insight.

You can see how different functions are performing, anticipate issues and analyse past performance. This helps you improve decision-making and understand the relationships between core business functions.

Each function can use information from other business areas which relates to their responsibilities. For example, you could flag and predict how a delay in delivery on a component may affect warehousing processes and impact sales, and take action to mitigate the consequences.

ERP to streamline processes

By bringing together data and processes into a single system, you can access “one version of the truth” data and streamline your administration. Some repetitive processes can be automated, increasing productivity, speeding up reactions and reducing human error. For example, data from sales orders could automatically populate your financial forecasts and production schedules without any manual rekeying.

ERP solutions provides historic, current and predictive reports. With intuitive dashboards, you can set up regular management reporting as well as one-off queries and analyses. Everyone in the business can use a single source of information, improving the accuracy of forecasts, reports, budgets and plans. Consistent and complete data is always available for research, helping you to make better decisions about innovation or investment in improvements.

ERP for compliance

What is an ERP system and how does it work?ERP systems also help you achieve regulatory compliance. Keeping account of all your company data and adhering to all applicable rules is no trivial task for any organisation, let alone a small business with limited resources. Additionally, there are heavy penalties to pay if your organisation fails to meet compliance rules. This alone makes an investment in an ERP system worthwhile. Since the introduction of Making Tax Digital, there has never been a more pertinent time to investigate using an ERP system to manage your company data. Certain modern ERP systems have been recognised by HRMC as fully compliant, giving you the peace of mind that your organisation is complying with all regulatory requirements.

How do ERP systems work in different business areas?

ERP systems typically support four main business functions:

ERP for financial management

Meet regulatory compliance in your accounting and financial processes and records. Provide a single source of accurate financial data. Offer analytics that give you real-time insight into current performance. Manage multiple currencies, cashflow and banking activity.

ERP for Human Resources (HR)

Manage company data and personal information in a compliant and auditable way. Streamline and automate admin tasks like payroll, benefits and holiday. Track employee performance, attendance and rewards.

ERP for manufacturing

Provide accurate and up-to-date data about current work, capacity and orders for effective production planning and project management. Support efficient and cost-effective manufacturing and optimal use of production facilities. Manage resources so the right components, consumables and skills are available to fulfil customer orders accurately and on time.

ERP for supply chain

Maintain an accurate electronic record of physical stock in your warehouse. Manage orders in response to demand to prevent overstocks or out-of-stocks. Use warehouse space effectively to support seasonal and other demand patterns. Enable timely response to supply issues, so you can source from other providers. Show the complete picture of integrated logistics so you can anticipate the impact of changes or issues and take corrective action.

What is an ERP system and how does it work?

When is the right time to adopt an ERP system?

ERP systems create efficiency, support decision-making and improve cross-functional operations in businesses of all sizes. In an ideal world, you would embed ERP in your business from the very first day, so you could build up critical data and evolve processes in a thorough and systematic way.

In practice, most organisations begin with a series of separate systems. When you have few employees and strong direct communication, it’s easy for everyone to collaborate with their data, insight, and issues. But as businesses grow and departments define their own responsibilities, they can find themselves operating in silos. Without shared data, it’s difficult to collaborate and work together to operate efficient and connected processes that underpin great customer experiences and business growth.

Signs that you need ERP includes:

  • growth in sales and customer numbers putting a strain on processes and resources
  • you have too many systems that aren’t compatible and don’t connect together
  • company data is inaccurate and not trusted because there’s no single source of figures
  • teams have to rekey and copy data in order to create reports and analysis
  • your people spend a frustrating amount of time on manual admin and data management
  • there are too many errors and delays in production and delivery to customers
  • it’s difficult and slow to report on the performance
  • you have data compliance issues or concerns

What’s the best way to get started with ERP?

At Xpedition, we recommend Microsoft Dynamics 365 Business Central. It’s cost-effective, scalable and integrates with other systems and familiar office applications that you rely on, including CRM. It’s also easy to deploy, customise and use. Find out more about Business Central or get in touch with the Xpedition team to talk about whether your business is ready to reap the benefits.

Alternatively, watch our free on-demand webinar to learn how you can build a digital transformation framework and position your company to start your journey today.