What is an ERP System?
ERP (Enterprise Resource Planning) systems have become fundamental in running modern business operations, providing a unified platform to manage and streamline processes. As businesses grow and evolve, the complexity of managing resources, finances, and operations increases. ERP systems address this challenge by integrating all the different elements of a business into a single system.
What is Enterprise Resource Planning?
Enterprise Resource Planning refers to a type of software used by organizations to manage and automate many business processes. An ERP system integrates core processes such as finance, HR, manufacturing, supply chain, services, procurement, and others into a single system. This integration allows for the seamless flow of information across departments, improving efficiency and enabling more informed decision-making.
Why is an ERP important?
By consolidating data into a single database, ERP systems eliminate data silos, ensuring that all departments have access to accurated and up-to-date information. This data access means decision-makers have the latest insights into the business’s performance, finances, and other metrics, putting them in the best position to make informed choices about the direction of the business.
Many ERP systems can be integrated with data sources, such as online forms, barcode scanners, and other smart devices; this means data can be imported directly from their point of creation, reducing the need for manual entry. This not only saves time and effort but also drastically lowers the likelihood of errors.
What business functions can be optimized with ERP?
ERP systems can optimize a wide range of business functions, including:
- Finance and Accounting: Automates financial reporting, budgeting, and forecasting, ensuring accurate and timely financial data.
- Human Resources (HR): Streamlines payroll, recruitment, employee records, and performance management.
- Manufacturing: Manages production schedules, quality control, and inventory levels, improving manufacturing efficiency.
- Supply Chain Management: Enhances procurement, inventory management, order processing, and logistics.
- Sales and Marketing: Facilitates customer relationship management (CRM), sales forecasting, and marketing campaigns.
- Project Management: Supports project planning, resource allocation, and tracking project progress.
How do ERP systems work?
The intent on an ERP system(s) is to integrate data from different parts of the business into a single database to ensure consistency and up-to-date information. ERPs typically work in a modular fashion, meaning they are composed of different functional modules that cater to specific business needs. Common modules include Financial Management, HR, Manufacturing, Supply Chain Management, and CRM. These modules can be added or removed as necessary and automatically trade information between themselves.
Types of ERP Deployment
Cloud ERP
Hosted on the vendor’s servers and accessed via the internet. Cloud ERP systems are typically subscription-based. Cloud systems can be accessed from anywhere, meaning employees who work remotely can log in just like office-based staff, and the vendor handles all the updates and security patches, reducing the burden on the company’s IT department.
On-Premise ERP
This ERP setup (phasing out over time) is installed locally on a company’s own servers and requires a significant investment in hardware at the outset and in IT staff for maintenance. This option offers greater customization possibilities and, because the data is on-site rather than hosted externally, the company has complete control over security and privacy.
Hybrid ERP
Hybrid ERP combines elements of both cloud and on-premise solutions. Businesses can choose to run some ERP applications in the cloud while keeping others on-premise, allowing for a customized approach that meets specific needs. For example, a company may use a cloud-based ERP system for the majority of its requirements but keep sensitive data strictly on-site. A hybrid solution may also be used to help transition from one setup to the other.
Benefits of ERP
Where ERP systems provide a single source of truth, all parts of the business work from the same data. This helps boost efficiency, both in individual teams and collaboratively. This, combined with the time savings from ERP automation, can translate to significant cost savings over time. Centralized data storage often comes with enhanced security measures, protecting sensitive business information
ERP systems also help businesses manage customer interactions better, improving the quality-of-service clients receive. For example, a customer service representative will be able to pull up all the information about a given customer on one screen, meaning the employee can be better informed about the customer, saving time and improving service.
The Role of AP Automation in ERP Systems
While ERP systems are critical for providing a unified platform to manage business processes, they often fall short in handling the complex and specific needs of accounts payable (AP) and invoicing functions, especially for global companies. This is where AP automation solutions come into play, enhancing the capabilities of an existing ERP system.
AP automation solutions integrate seamlessly with ERP systems, offering specialized tools to manage the end-to-end AP process efficiently. They help streamline invoice processing, from capturing and validating invoices to approval workflows and payment execution. By automating these processes, companies can reduce manual data entry, minimize errors, and accelerate invoice processing times.
Furthermore, AP automation provides greater visibility and control over financial operations. With real-time tracking and analytics, businesses can gain valuable insights into their AP performance, helping to identify bottlenecks and optimize cash flow management. This level of oversight is crucial for maintaining compliance with regulatory requirements and managing vendor relationships effectively.
ERP Weaknesses
In addition to the above shortfalls, the initial setup and customization of an ERP system can be expensive, and they can be complicated to implement and maintain.
There may also be pushback from employees who prefer the status quo. This can be overcome with a considered change management approach that should, in most cases, involve training programs.
The Future of ERP
The future of ERP systems will be shaped by several key trends and developments, each contributing to more efficient, agile, and integrated business processes.
AI and machine learning will enable more predictive analytics and automation within ERP systems, such as using historical sales data to accurately forecast future demand or, when combined with Internet of Things (IoT) devices, further automating data entry processes.
As businesses continue to adopt diverse financial systems and technologies, the ability of ERP systems to integrate seamlessly with other financial tools becomes increasingly important. Integration with accounting software, payment gateways, and banking systems can automate financial processes, such as accounts payable and receivable, reconciliations, and expense management.
How can Basware help?
Basware is a leading provider of accounts payable invoice automation (APIA) and integrates with over 250 different ERP solutions. If you’d like to aggregate 100% of your financial data and harmonize your ERP & APIA landscape, read more here or download our ERP checklist factsheet.