ERP (Enterprise Resource Planning) is a central system for managing all the data of a company. From finance to inventory or sales, it brings together all the business processes of a company

21/07/2022

WHAT IS AN ERP ?

3 minutes read

An Enterprise Resource Planning is a business management tool that is essential to be productive, optimize costs or manage different assets. If the first ERP separated the different functions, it is no longer the case today. 

These functions are gathered in a central system offering data connectivity but also all the tools. In this article, we will go back to its beginnings and understand all the issues surrounding it.  

From SAP to Oracle, many IT companies offer innovative ERP solutions. In this article, we will go back to its beginnings and understand all the issues around it.

When did the First ERP Systems Appear?

The ancestor of ERP is Material Resource / Requirement Planning, which was created in the 1960s. This system was based on the inventory of goods, the production capacity of the company and the needs of the customers to make better decisions and plan its production. There are three versions: 

  • MRP 0: also called Net Requirements Planning (NRP), it will allow to plan the quantity of raw material to be purchased according to the forecast of the sales and the stocks  
  • MRP 1: the notion of feasibility is integrated (i.e. production capacity) 
  • MRP 2: here we find a more global system which considers all the stages of production.

If we were clearly oriented towards logistics in the 70’s, we had to wait until the 90’s to have computer integrated manufacturing (CIM) appear, which allowed to connect the commercial and industrial functions. At that time, ERP was not only focused on logistics but also on human resources 

But its use will really explode at the beginning of the years 2000 at the same time as the democratization of Internet.

What Is the Architecture of an ERP ?

The architecture is usually based on 3 third parties: 

  • A database server: historically, this is an SQL database  
  • An application server which is based on an architecture specific to each editor in several layers: data management, business, services, processes coded in the application and presentation with screens etc… 
  • A client server (which is increasingly web-based via the Cloud) 

How does an ERP Work?

An ERP system works in modules that are linked to a particular domain. Thus, companies have the possibility to select the modules of their choice according to their activities. 

This is the principle of modular ERP: the modules work in synergy but also independently. Moreover, it is very easy to implement new modules according to the evolution of the company’s needs.

Today, the most commonly used modules are those for finance (invoice management, accounting, etc.), supply chain (inventory management, order planning, etc.), HR (talent management, payroll, etc.) and sales (quotes, CRM, etc.).

The modules of an ERP can be:  

  • Basic: these are the essential modules for any company  
  • Optional: although they remain general, they are only useful for certain types of companies  
  • Vertical: these modules are less general and are often developed according to specific needs 

What are the Advantages of Using an ERP?

Optimization of management processes
A central system which brings together all the company's data. Interactions are therefore simpler and more homogeneous 
Improve the decision-making process
The centralization of information facilitates its access in real time
Data security
The database is unique, and access is restricted
Scalable
As we said before, the ERP accompanies the company, which can add or remove new modules at any time
Automation of tasks
Some repetitive tasks such as claims can easily be automated because the ERP is central and will link the various departments of the company
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Is an ERP Essential for my Company?

Whatever the size of a company, the stakes are similar and multiple: 

  • The development which will pass by the increase of the human capital, financial, sales, the installation of innovations… 
  • Sound financial management with intelligent investments that allow the company to function well 
  • The creation of a pleasant working environment  
  • Alignment of the company’s goals with those of the employees 

Centralizing all data, planning different projects, and automating certain tasks allows you to focus on these issues. Regardless of the size of your company, ERP can only contribute to the smooth running of your company.  

Currently, the world leader in ERP is SAP, a German company that recently released S4/HANA, an innovative and complete ERP that will allow your company to change dimension. Modular, it adapts perfectly to any type of business. To learn more, visit our article dedicated to S4/HANA.

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