Get to Know Enterprise Resource Planning System (ERP)

Today, Enterprise Resource Planning (ERP) system is the critical systems for managing thousands of businesses of all sizes and in all industries. For companies that use ERP systems, ERP is as important as the electricity that keeps electronics running and functioning.

Understanding ERP

Enterprise Resource Planning System (ERP) is software used by organizations or companies to manage daily business activities such as accounting, procurement, project management, risk management and compliance, and supply chain operations.

The ERP system is designed in full and in detail including company performance management, software that helps planning, cost budgeting, forecast or prediction, and reporting of company financial results. ERP systems and their functions are linked to many interrelated business processes and data flow within the system.

By collecting transactional data with the organization from various sources, the ERP system ensures no duplication of data and provides data integrity with a single source of truth (from the data inputted and extracted in the system).

ERP Fundamentals

Enterprise Resource Planning systems means designed to be a standardized data structure (schema) that usually has a common database (in this case, a cloud or data centre). ERP systems help ensure that the information used across the enterprise is designed and based on common definitions and user experience.

These key constructs are related to business processes driven by workflows across business departments (e.g. finance, human resources, engineering, marketing, operations), linking the system and its users. In short, ERP is a vehicle for integrating people, processes, and technology across a modern enterprise.

ERP Example

An example of ERP, in this case, is in the form of a case study where a company considers a vehicle manufacturing company by purchasing parts and components from several suppliers.

Related data can be tracked using the ERP system such as data on demand and purchase of goods and ensures that every component throughout the procurement to payment process uses valid and accurate data that is connected to company workflows, business processes, reporting, and analytics.

When an ERP system is implemented properly in an automotive manufacturing company, a component that is entered into the system for example, “rear brake pads”, is uniformly identified based on the part name, size, material, source, lot number, supplier part number, serial number, costs, and specifications, along with a large number of other descriptive and data-driven items.

Since data is the lifeblood of every modern enterprise, ERP journals make it easy to collect, organize, analyse and distribute information to every user and system that needs it to best fulfil their roles and responsibilities.

ERP also ensures that every data and attribute in the system is properly accounted for in the company’s general ledger so that all costs can be tracked and confirmed correctly.

If rear brake pads were called “rear brakes” in one software system (or perhaps a set of spreadsheets), “brake pads” in another, and “rear pads” in a third, it would be difficult for an automotive manufacturing company to figure out how many were actually used every year on rear brake pads, and whether it has to change suppliers or price changes from negotiating for a better price.

Enterprise Resource Planning (ERP) Business Value

Enterprise Resource Planning is a system that has a huge impact on changes in today’s business world in all fields of industry.

All company data and processes being integrated into an ERP system is a step in the right direction for businesses to align disparate departments and improve workflow, resulting in significant bottom-line savings.

The following are ERP business values, including:

• Improved business insights and real-time information obtained from managing report results

• Lower management and operational costs through the same integrated system (one system for various needs)

• Lowering operational costs through simplified business processes with the best results

• Enhanced collaboration of users sharing data in the procurement process

• Reducing both small and large risks through improved data integrity and financial controls

• Improved efficiency through user experience across multiple ERP functions within the business and well-defined business processes

• Consistent infrastructure from the back office to the front office, with all business activities having the same appearance and format

• Higher level of user understanding of the general user experience and design (user friendly)

That is the explanation of ERP. Are you curious about how to run an ERP system and learn more about other systems in the accounting world? You can visit the Accounting study program on Sampoerna University website. For more information about how to apply to Sampoerna University, click here!