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Enterprise Resource Planning: What is an ERP System?
On August 25, 2017 / By William Aimone

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IT manager analyzing the architecture of ERP (Enterprise Resource Planning) system on virtual AR screen with connections between business intelligence (BI), production, HR and CRM modules

Ever have one of those days when nothing goes right? When you get dressed in the morning and realize all the socks are in the dirty laundry basket? When you attempt to run a quick load of laundry but realize your teenager has just started a load – consisting of one pair of jeans? In a rush and out of options, you find your son’s skateboard socks with the (very professional) Incredible Hulk pattern.

Note to self: do not sit cross-legged today.

Later, in the middle of a meeting, a call comes in from the wife, checking if we made the quarterly donation to the local children’s home.

Great question… I have no idea.

After a tedious day in the office, grilling some steaks sounds great. After fighting traffic all the way home from the grocery store, it is time to fire up the grill but somehow there is no charcoal.

Fantastic…

It would be great to have some miraculous visibility into planning laundry better. Or a way to check home inventory at any time. Or to quickly see all our expenses by category for the year.

Now, imagine a large corporation dealing with similar issues. How do they handle planning their resources? Back in the seventies, someone came up with the bright idea to create a resource planning system for companies. Later, someone added the word “Enterprise” to make it sound official and voila: “Enterprise Resource Planning” or ERP. Since there is already so much confusion around what an ERP system is, it might be most effective to also clarify what an ERP system is not.

ERP Table 2

 

An ERP system is not a cure-all for a company’s woes, as many expect. Unfortunately, the acronym ERP conjures bad memories due to not meeting expectations. One of the keys to making a system successful is setting the right expectations, while prioritizing between necessary functions and “magic button” requests.

Example of a “magic button” request: “Wouldn’t it be great if after partially completing a purchase order, the system automatically completes the order and knows exactly what we need to order? And then when they complete it, the shipment arrives on time with the right amount?”

Companies often bog down their systems and implementation efforts with these “magic button” requests in an attempt to “cure all,” which leech time, resources, and budget from the critical requirements that should be the main focus. Just because something can be automated, doesn’t mean it should be.

One of the most common misconceptions is that an ERP system will make bad data an issue of the past. No system -no matter how smart or laden with data-validation – will prevent human error 100% of the time.

Furthermore, an ERP system will not cleanse existing bad data from an old system or Excel spreadsheets. “Bad data”  refers to data that is outdated, contains duplicate values, and includes data entry errors or typos, or incomplete data sets. If a company has bad data in its old system, that data will remain bad when migrated to the new system unless a human being with human logic takes on the task of cleansing the bad data first. If a company’s customer list has the incorrect contact details for twenty percent of the customers, and that list is loaded into the new system, the new system will reflect that incorrect data, unless someone takes the time to manually correct the bad data.

No ERP system is able to spin straw into gold.

While an ERP is set up to streamline standard business processes (i.e., purchasing, accounts receivable and accounts payable, inventory management, and accounting) and to generate basic financial statements, there are some things an ERP system simply will not do. An ERP System will not:

  • Eliminate the need for every other system in a company’s IT environment
  • Eliminate the need for every third-party service in a company (sales tax rate updates, bank accounts)
  • Reduce operational headcount by automating jobs
  • Reduce IT headcount by simplifying the IT environment (ERP actually adds IT headcount)
  • Create sophisticated and dynamic reporting dashboards out of the box

So what is an ERP system?

In its most basic definition, an ERP is a tool that supports a business. It provides a company with the tools to purchase supplies, fulfill orders, bill customers, pay vendors, manage inventory, and maintain accounting records from a single system.

A well-implemented ERP system allows a company to streamline and standardize business processes, provides the opportunity to store company data in a centralized location, and empowers companies to capture an almost endless list of metrics, which can be compiled into sophisticated reports. If implemented properly and used for its intended purposes, an ERP is a powerful tool that positions a company for growth by allowing it to standardize processes, streamline operations, and capture data that can be leveraged into well-informed, strategic decisions.

Now, if one could only implement an ERP for their house, dads might not be subjected to wearing their son’s skateboard socks to work.

 

This article has been adapted from a chapter from the author’s book Jar(gone).

Trenegy helps companies select and implement ERP systems to make reporting and analysis easier. Our non-traditional consulting method cuts through the ERP confusion, providing our clients efficiency and confidence. Contact us at info@trenegy.com to find out for yourself.