What Is ERP (Enterprise Resource Planning)?

What is ERP

Running a business is no small feat. There’s a lot to think about inventory, staffing, equipment, and other overhead costs. Sales and customer service to grow your business and boost loyalty. Manufacturers can add in market volatility, fluctuating supply chains, and unpredictable lead times. To stay both competitive and profitable, you might need a little help. That’s where ERP comes in.

What Is ERP?

The definition of ERP, which stands for enterprise resource planning, is a system that unifies an organization’s departments and processes into a single, centralized body of information. A comprehensive enterprise resource planning system is usually made up of smaller, specialized modules that can be customized to the business’s needs. The modules coordinate with each other through a central database, which can be on-site or in the cloud.

Businesses of all sizes use ERP software to manage and automate day-to-day tasks and overall processes. ERP is especially common in the product and manufacturing industries as it covers things like inventory, supply chain, product lifecycle, shipping, and distribution. But its flexibility and scalability mean businesses of all types can benefit from ERP solutions.

Examples of ERP

Real-life examples are the easiest way to answer the question of what ERP is. While the way you use ERP depends on your business, some of the most common examples include using it to:

  • Identify supply chain bottlenecks and redirect resources
  • Adjust product pricing based on consumer demand and supply chain volatility
  • Predict future stock needs to avoid over- or under-stocking
  • Maximize shop floor performance and production scheduling
  • Optimize CapEx expenditures and capital equipment purchases and maintenance
  • Monitor production line, plant, and warehouse performance
  • Improve compliance and prepare for inspections and audits
  • Trace the production process back to the balance sheet and P&L
  • Transfer data between departments and locations

What Does ERP Software Do?

To understand the meaning of ERP, let’s look at what it does in more detail. What is enterprise resource planning, and what does this software do?

Inventory and Supply Chain Management

Inventory control helps you track stock and parts through the manufacturing process, while supply chain management can identify issues like material shortages and production bottlenecks. This aspect of ERP can help you:

  • Improve supplier quality and reliability
  • Increase manufacturing throughput
  • Deliver in full and on time
  • Improve lot tracking and traceability
  • Reduce inventory costs
  • Forecast the materials you need to meet demand

Product Lifecycle Management

Product lifecycle management, or PLM, is sometimes a separate type of software. But the right system will incorporate it directly into your ERP system so you can track the product lifecycle from design to end-of-life and:

  • Easily access design drawings and documentation
  • See all manufacturing information in one place
  • Access product-related customer calls, returns, and profit/loss reports
  • Promote communication and collaboration
  • Reduce development time and costs

Shipping and Distribution

ERP can help streamline the entire shipping and distribution process, starting from when the order is placed through the warehouse, to the docks and beyond. This module of the ERP system can help you:

  • Automatically convert sales orders to pick tickets
  • Generate advanced shipping notices for customers
  • Create commercial invoices, including export declarations, certificates of origin, and certificates of conformance for international shipments
  • Calculate and automatically adjust the volume and weight of boxes and pallets
  • Schedule and track shipments to meet promised delivery dates, keep customers updated, and control costs

Customer Relationship Management

Many businesses use separate software for customer relationship management, but with ERP, you don’t have to. That functionality is built into your ERP system, so you can:

  • Access the sales, purchase, shipping, and support history for every customer, vendor, and partner
  • See detailed notes, quotes, and meeting activity
  • Eliminate the need to enter and re-enter customer information
  • Seamlessly share information between departments, so customer-facing tasks can be completed consistently and efficiently

Accounting and Finance

The back office is just as important as the shop floor, and enterprise resource planning software covers that, too. A good system will simplify and automate your accounting and finance processes, helping to eliminate human error and manual work by:

  • Facilitating tasks like payroll, billing, and budgeting
  • Analyzing costs and forecasting growth to manage cash flow
  • Providing a complete, at-a-glance view of finances to improve visibility
  • Effortlessly sharing data with manufacturing, quality assurance, the C-suite, and more
  • Helping your business make better financial decisions and improve profitability

Benefits of ERP

ERP solutions can do a lot for your business, and that means it has plenty of benefits, too. It isn’t just about saving money. It’s about improving your entire business model, from the shop floor to the boardroom.

Improved Collaboration

ERP connects every facet of your business, from sales and marketing, to manufacturing, to billing and accounting. That helps get everyone on the same page and improve collaboration between departments, which can lead to more qualified leads and closed sales. In one study, sales leaders said increased revenue was the biggest benefit of increasing sales and marketing alignment.

Accurate Planning

This benefit is right there in the definition of enterprise resource planning: It enables you to plan more accurately. ERP can help you forecast sales, resources, and overall costs, so you can better plan your production schedule. It also provides real-time insights for more effective project planning. With a complete, single source of truth, you can analyze data across your organization and make better decisions with confidence.

Streamlines and Automated Processes

Improved collaboration, as well as the ability of ERP to connect all business processes through a central hub, naturally leads to greater efficiency. ERP breaks down silos and enables seamless workflows, leading to cost savings on the back-end. And it can automate manual and routine tasks, like generating purchase and change orders, delivery estimates, and financial reports.

Drive Growth

Ultimately, what is ERP to your organization? It’s a way to unlock operational efficiencies and drive growth in new ways. When your employees spend less time on manual day-to-day tasks, they can spend more time bringing in new business and providing excellent service to the customers you already have. And when you can accurately forecast your supply chain and costs, you can stay ahead of competitors. In short? ERP is all about ROI.

Want to learn more about what ERP is? DELMIAWorks is one of the best examples of ERP.  Our comprehensive ERP software helps organizations stay agile, competitive, and compliant. It’s a flexible, scalable system that can be customized to your business, incorporating the modules you need now and adding more when the time is right.

DELMIAWorks eliminates silos and third-party data integration, taking care of everything in one place – the way ERP should be done.

Learn the values of an ERP system and how it can provide greater visibility of manufacturing costs.