ERP stands for Enterprise Resource Planning, a term used to describe tools that provide end-to-end solutions for different types of businesses. These are software that connects different sectors of a company and have features ranging from financial to operational management.
The ERP concept is to integrate the administrative-financial management, accounting, supply chain, project portfolio, human resources, among other areas of the company. Software that falls into this category provides greater efficiencies for accounting and finance professionals, in addition to benefiting enterprise asset management, professional services, and project management.
ERP: a quick history
The idea of automating tasks and integrating areas is not new and dates back to the 1950s. However, at that time, this process was still expensive and slow, but the first inventory control systems were already appearing. In the 1970s, the “grandfathers” of ERP’s emerged, which were MRPs (Material Requirement Planning) – sets of systems that talked to each other and allowed planning the use of inputs and the administration of the stages of production processes.
Although there is no precise milestone for the birth of ERP, an important moment was the emergence of the German company SAP, in 1975, which launched the R/2 software, considered the greatest innovation engine for what we know today as ERP. Since then ERP developers have added new modules and functionalities to the ERP.
The ERP nomenclature gained strength in the 1990s, driven by the evolution of communication networks between computers and by the spread of the client/server architecture – microcomputers connected to servers, with more competitive prices – and no longer mainframes.
ERP has become an important control and management tool for corporate sectors, with contours closer to those we currently know.
Currently, these tools are used by virtually all medium and large companies, as they help to deal with complex operations in a more organized and structured way.
As they help to increase productivity, increasingly, small, medium, and micro-companies are looking to ERPs to automate tasks, reduce costs and grow faster and in an organized manner.
There are even several ERPs aimed at small and medium-sized companies, with tailored solutions and more accessible prices. The market also already offers specialized software in several niches, such as those aimed at companies that need to manage subscriptions, e-commerces, physical retail, industry, real estate, and condominium management.
What is an ERP for?
The ERP concept itself partly explains its function. ERP is a business management system. The name is generic precisely because it can perform a multitude of functions.
An ERP is capable of automating several operational and recurring processes, such as issuing orders and invoices, controlling accounts payable and receivable, managing cash flow, controlling inventory, managing human resources (people) and much more.
At the same time, it manages to integrate the different areas of the company, improving the flow of communication and avoiding errors and the need for rework. So, for example, even if your business has multiple sales channels, everyone will know precisely and in real time what is the stock level of a particular merchandise, preventing a product from being sold without it being available.
At the same time, an ERP can issue automatic alerts to the purchasing area whenever an item reaches a certain point that needs to be replenished. The same management system can still be the platform to make a competition between suppliers, in which each supplier can make its price proposal to be evaluated by the purchasing department.
Likewise, the marketing and sales areas can check the products that are out of stock and carry out specific campaigns for these cases.
The ERP is also capable of integrating with the accounting system, with the legal, financial area and even with other applications and marketplaces. This flexibility is one of its great differentiators.
Furthermore, an ERP is generally modular, which means that you can hire only the modules you need at the time and hire others as your business grows and your needs change.
Most ERPs currently run on the SaaS (software as a service) model, so you pay a monthly fee to use the program. This type of software is in the cloud, which eliminates the need for investment in equipment and infrastructure and also the need for updates.
Why are the benefits of ERP?
With so many features and so much flexibility, you can deduce that ERPs bring many benefits to companies.
Among them we can mention:
- Cost reduction;
- Efficiency gains;
- Productivity increase;
- Greater control over the operation;
- The improved communication flow between areas;
- Reduction of failures, errors and reworks;
- Decrease in operational work;
- Improved information security;
- Improved organization of the tax and fiscal areas;
- Providing real-time data and information about the company.
An ERP implementation offers resource planning aspects for different business models. These tools help with organization and transparency, contributing to the integration of different sectors, in addition to promoting an improvement in productivity. Each of these different types of ERP’s offers these same benefits.
How does an ERP work?
As mentioned above, ERP has several modules. Each represents an area of the company or a specific functionality.
The most common modules are:
- Human Resources;
- Law Suit;
There are also the so-called vertical modules, which serve specific segments, such as agricultural management, factory floors, POS, e-commerces, etc.
In general, companies hire a package with essential modules and other complementary ones to meet the specific needs of the business or even hire software designed especially for that segment, as mentioned above.
The essential modules focus on the company’s administrative area, such as inventory, billing, purchasing, and finance. In intermediaries, you already find, in addition to the basics, accounting, tax and fixed assets solutions.
In addition to these, we also have the HR module, aimed at people management and which can include an electronic point, payroll, and automation of some processes in the area, such as:
- Occupational medicine and safety;
- Positions and salaries;
- Recruitment and selection;
- Training and development;
- Performance evaluation.
ERP works with three layers: presentation, logical processing and storage. The presentation is the layer that gives access to the system through forms to be filled out. It interfaces with logical processing, conveying the information.
Logical processing, in turn, receives the data and integrates with the various ERP modules. It gives the user an answer to some request or stores the information.
The information that passes through the processing layer is directed to storage, where files are saved in a database and can be accessed whenever necessary.
The ERP is not only capable of performing all the tasks we mentioned, but it also maintains the data history of these activities and manages to generate reports based on that, which serve as a subsidy for managers to make decisions in the company.
The financial report is, without a doubt, one of the most used in this aspect. This model can cover aspects such as accounts payable and receivable, expenses, cash flow and budget, among others.
Another important report is the control report, aimed at managing internal matters, such as inventory, waste of resources, and inputs. It is also possible to generate customized analysis reports, which aim to provide subsidies to find answers to specific questions.
The accuracy of data and speed in generating reports are great differentials that ERPs present. A sales manager, for example, can have detailed data about his team’s productivity in a matter of minutes. Through the ERP, it can collect data such as number of sales, number of calls made, consumer satisfaction index, and billing.