Enterprise Resource Planning (better known as ERP) systems are computer applications that are being used by organisations in many industries. ERP is a mature concept. It has been around for more than fifty years. Tens of thousands of companies have implemented ERP, and millions of people worldwide use ERP in their daily work today.
ERP systems have two important characteristics, namely, data integration and support for best practice processes. Data integration means that data only must be entered once, after which it is available for use throughout the whole organisation.
Traditionally, many organisations had parallel administrations before they implemented ERP.
For example, it would be possible within one company for the marketing department to have a customer register, the warehouse to have an order register, and the credit management department to have a register of sales invoices. These registers could be accessible to multiple users, and in other cases there might be spreadsheets or text documents available for a single user only. The data in these registers would partly overlap. In each register the individual customer's name and address were registered. However, there could be differences and inconsistencies in the different data registries.
With an ERP system, a single registry can be created that is integrated to satisfy the requirements of the marketing, warehouse and the credit management department. Employees who need the data can be given access, and for each customer, data like names and addresses can be combined with the shipped orders or open invoices. The departments can agree on their responsibility for the accuracy and completeness of the data, and in many cases, the ERP system can also automatically update the data. For example, when the warehouse ships an order, the ERP system can automatically send an invoice and create an open invoice in the accounts receivable register.
As a result of this data integration, ERP can make double work redundant and stimulate greater efficiency. Maybe more importantly, it can stop the searching for an explanation of differences between the various registries and definitions and let the organisation rely on just one shared source of data.
The second important characteristic of ERP systems is their support for best practice processes. A best practice is a generally accepted way of working that has been adopted by many organisations and proven its practical value. An example is the use of credit limits to mitigate the risk of bad debt. Credit limits work in the following way: When a customer places a new order, a check is performed to determine whether the total amount of outstanding invoices plus the amount of previously placed orders plus the amount of the newly placed order does or does not exceed a predetermined credit limit. If the credit limit is exceeded because of the new order, the goods will not be shipped until the customer has paid part of those outstanding amounts.
If you want to find out more about this topic, follow this link.