The acronym ERP stands for Enterprise Resource Planning. An ERP system is a core enterprise
software and solution stack comprised of a central database surrounded by multiple plug-in
services and software packages, each of which is tailored to solve specific enterprise problems
and address specific challenges. At the core of all ERP solutions is a master database.
This database houses all the records that a company uses within all of its ERP solutions.
These records can be financial, like invoices and purchase orders. They can be related to payments,
like accounts payable and payroll and taxes. They can be related to inventory status so that
a company knows what its supply lines are and how many of all finished goods are available in every
warehouse. That core database also stores all of the sales data, what customers have ordered,
what products as well as details and specifics on the internal processes to get that product from
the warehouse to the customer. But simply storing the data by itself isn't useful.
The importance of an ERP system is to take all the data that a company collects and use it
and integrate it so that that company can find ways to increase efficiency and save on costs.
This is why there's always a data analytics piece that wraps around the entirety of that core ERP,
database. This analytics engine is busy as it's constantly creating reports on regular schedules
and updating the tables themselves. But it also has to have the ability to provide data to users
on an ad hoc basis whenever a user has a specific query that they need more information from. So for
all that data to flow correctly into the database and for the core functions of the ERP system to
work correctly. Let's talk about the most commonly implemented modules that you'll find within an ERP
system. So that first module, that's going to be your sales module, that is all of your sales data,
your order data, your customer data, so what customers buying, what things, where it's going,
shipping, tracking all of the PO information on how it's getting paid for. In the payment status
you've got to track all of that sales data, but in order to make sales happen you've
got to have product. In order to have product that means that you've got to have procurement.
So, for procurement you've got to go out there, you've got to track what materials am I buying,
who am I buying them from, where are they coming from, am I getting the best deal,
am I doing all of the things that I need to do to acquire what I need to make my product. But
procurement goes so much further than that, it's not just what does it take to make your product,
it's also “are you procuring what you need in order for your employees to keep up and running?
Are you buying things as complex as servers to go into a data farm,
and as simple as packages of ballpoint pens so that people have something to sign with?”.
All of those pieces go into that procurement area. And then in addition to the procurement,
you've got to have your production systems, right. Production is incredibly important
because you have to track that production from the very beginning with your raw materials to the very
end with your finished product. And production is going to track everything in between, it's going
to do the planning, the capacity management, the maintenance, the materials management,
being sure that the right things are being staged at the right place at the right time
particularly as we've moved into this just in time manufacturing process
everywhere in the world so that we get as much efficiency in our manufacturing process as we can.
And so, after we finish that procurement, we might have a distribution module, that module is going
to be concerned with how do we get our finished products from point A to the customer's door,
or just from point A to the loading dock door. So that distribution model that's going to be
warehouse processes and staging goods, and movement of finished goods, logistics control,
inventory control, stock levels trigger levels all of those things that are necessary
from a logistics perspective because every business runs with that logistics trail.
And so, your distribution modules have to keep track of all of that. They've got to run all
of it for you or you're just going to run into inefficiencies. And then related to manufacturing,
and still very important, you've got your asset pieces, right. So, you've got your assets and you
have to track them. These are fixed assets, capital assets, you have to know everything
about them. Not just the procedural information, what do you have, who made it, how does it work,
what's its status, does it have any maintenance coming up, is it still under a service contract,
those things are important. Don't get me wrong, but your finance department is going to insist
that you also have all of that finance related data, what's the valuation of your asset,
what's its depreciation status, what is it is its expected useful life, should they be planning on
a capital expenditure in order to replace it in a certain number of years. Tracking all of that is
key to the asset. Part because, again, this fits in holistically and so all of these services,
these are all the back office ones. Back office is important, but also important is front office,
and this is the point where we should cut back to me doing this very nice scripted speech.
So, let's talk about these front office customer facing or customer touching solutions, things like
customer relationship management, software, right. That's your CRM piece. Why does CRM matter? Well
CRM matters because that's everything to do with your relationship to that customer. It's
customer information, sales history, it's incoming leads on people who are potentially interested in
buying your products, it's opportunity from first identification to opportunity close,
it's all of your sales tracking data and your pipeline information that you report out on.
All of that goes into that CRM system. That data is essential to knowing the status of your company
and knowing what your revenue is going to be as you track all of those opportunities from
open to close. And then in addition to your CRM suite, you've also got your HCM suite,
right. Human capital management, or HR software, there's lots of different names for it,
but the same general idea how are you going out and sourcing new employees, how are you retaining
the ones that you already have, how are you being sure that everybody is being judged appropriately,
that annual reviews are going well, that all of the back end processes necessary to onboard and
hire and maintain and pay your employees happen. All of that goes into that HCM suite. And while
that might not necessarily be part of your ERP system it certainly falls within the umbrella
the larger category of what ERP is. And so, while it might be a tightly coupled system,
it might also be integrated in. It really just depends on which one you've picked.
And then also another tightly coupled system that may or may not be part of the ERP suite
is your accounting system. Now some companies obviously choose to put their ERP
and their accounting software together, some of them choose to break it apart,
but that accounting piece that is always going to be core because the data from the accounting
piece is going to feed back into everything else that you're doing. Likewise, you're going to have
finance modules these are the ones that are more tightly coupled and probably built into the ERP
that are going to track all of those things like your company investments,
company’s financial status, it's going to ingest all of that data we talked about before with your
assets and things like that. And it's going to track the financial health of your company
at a very high level. And that high level is probably the most important part of your ERP
system because everything that we've talked about, everything on this wheel right now,
this is about running the business from a very operational level. But the next step is not just
the operations piece it's the governance piece. So we're going to remove this database and we're
going to remove these analytics engines, and we're going to put governance right here in the middle
because every module that we have, every one of these modules has to feed that data into the
holistic governance picture because executives at the boardroom level, or one step down from
the boardroom level, these executives are going to make the decisions that they have to make
about the future of the company. These are the strategic level decisions based on inputs from
all of the modules within your ERP system. It's how you look at the company health holistically,
and that's very different because it's a roll up of all of the data from all of the modules that
are in that, that are feeding into that database. And so, as we bring all of this data in we create
this roll-up reporting, we create this summary reporting, we put that into dashboards, right,
so that companies can go out and the C-suite can look at a dashboard every morning that's going to
show them the holistic health of the company from every factory they had, every location they have,
every distribution point, what's going on with shipping, what's going on with retail,
what's going on with procurement, all of that data feeds into the ERP, and it gives the executives
involved the ability to do those strategic level decisions. It's incredibly important,
all in all. Hopefully I've given you a good overview of what an ERP system is and why it's so
critical to the successful operation of any modern company. Your ERP system is always going to be
core to your daily operation and because of that selecting the right cloud provider for running
your ERP system is also critical. Your business is 24/7, 365, and so must be the cloud on which you
run it. So if you'd like to talk more about how to implement a new ERP system from the ground up,
or how to transition your existing ERP system into a modern one, you can learn more at ibm.com cloud
SAP, or you can reach out to your IBM Sales team, or your IBM Business Partner
and we'd love to engage with you on how to improve your whole company by improving your ERP system.