Introduction to ERP

Posted by : Unknown Tuesday, May 28, 2013

The Beginning: ERP

(ENTERPRISE RESOURCE PLANNING)

To understand ERP first let’s understand about a typical business.

à What is the objective of a company? (Any company)

“TO MAKE MONEY” is the main objective of any company.

à How do they make money??

J LOL..!

Companies produce products or services and sell them to customers.

In order to produce product or services companies need to buy some raw materials from vendors.

Beside customers and vendor companies hire employees, they need to manage their employees so that those employees can help company make money.

And also company would have some assets like copyrights, trademarks, patents, accounts receivable, bonds and stocks etc.

There would also be inventory if the company is in retail business.

So a company would be managing customers, employee, assets, inventory, bank and other entities well.

<this is how a typical business takes place>

Do you know?

1. “Assets are economic resources. Assets represent value of ownership that can be converted into cash (although cash itself is also considered an asset)”

2. “Inventory describes the goods and materials that a business holds for the ultimate purpose of resale. Other than that company would have a bank account, they will be sending bank statements monthly or periodically.”

For example,

Dell Corporation would be buying hardware’s so that laptops could be assembled and sold, so there would be an inventory of hardware in the company.

So how do a company manage all these entities??

In order to do that company have department, each department has a fixed role. Each department deals with specific area of the business.

Let’s have example of some department in a company.

(READ ONLY THE DEPARTMENT AND THEIR DESCRIPTION)

DEPARTMENTS	DESCRIPTION	SOFTWARE	SAP-MODULE
Finance	Takes care of all accounting and reports	General Ledger	SAP FI
Human Resource	Managing Employee	Human Resource	SAP HR
Manufacturing Sales and marketing	Take care of the manufacturing of their product/Marketing their Product and sales	Sales	SAP SD
Payable	Deal with Vendors	Payables	SAP FICO
Receivable	Deal with Customers	Receivables	SAP FICO

Table no: 1.1

There would be many other departments also.

v Now each department would be using some kind of software, to help them run their daily business,

v And they can buy software from any vendors; this software could be really independent. They can’t talk to each other.

v For example general ledger software can be bought from one vendor and Human resource software can be bought from some other vendor.

(SEE THE ‘SOFTWARE’ USED FOR THE CORRESPONDING DEPARTMENTS)

There is a special kind of software called ‘ERP’. It’s large software that contains module for each department of the company. Instead of buying stand-alone software, each department will be using a module of this ERP software. Now the last column in our table ‘SAP-MODULE’ is ERP software.

(SEE THE SAP-MODULES USED FOR THE CORRESPONDING DEPARTMENTS)

What is ERP?

ERP is enterprise resource planning.

ERP manages the whole company. An ERP solution is fully integrated software that allows communication across all areas of the business. ERP applications can be used to manage product planning, parts purchasing and inventories, interacting with suppliers, providing customer service, and tracking orders.

[Must Read this, I surely bet you would have experienced the below example.]

A real time example of an ERP system.

Consider this; when you send a courier through any logistics company like DHL, FedEx, DTDC etc. they give you a receipt with an alphanumeric code on it. You can then log on to their website and track the delivery status of your parcel to the destination with the given code. You can precisely track as in which city has your parcel reached, is it in air cargo, or delivered to destination.

How is it possible? So, what is there for ERP to deal with it??

You handover the parcel to the shop owner, he enters the details into his ERP-UI (an ERP application’s User interface) at his desktop along with the tracking code. The moment parcels of the day are loaded on to the truck, the shop owner changes the status of all parcels accordingly and the process is followed each time.

Information about the payment received from customer goes to the finance department, which also captures other information like cost to company, salaries due and other operations costs. If it’s a manufacturing company, information of procurement and production are also captured by respective departments. For the time being, you may call this, capturing of this information at all levels and analysing it later for business benefits, as “Analytics”.

Hope you got a clear understanding about ERP; feel free to post your comments if you have any doubts post your comments any time.

ERP MARKET: