How Does an ERP Work?
ERPs unify the segmented approach to business operations. Under past industrial methods, each department was responsible for their own actions and information. While the information was shared between departments, it was accomplished through manual processes that were slow and inaccurate.
The modern ERP connects company departments and allows the whole business to communicate quickly and efficiently. Enterprise resource planning will integrate essential departments into one cohesive resource management system.
Each of these departments creates and stores data for internal use. But what if you want to share purchasing data with finance, or inventory data with manufacturing?
An ERP works to connect each of these departments through their individual systems and actions, essentially making ERPs the glue that holds these disparate company systems together. Without an ERP, it takes a lot of manual processes to get information from one department system to another.
For example, let's take a manufacturing company that produces high-end keyboards of all shapes and sizes. Before ERP implementation, the manufacturing department would have received work orders through manual processes conducted by work order management. Retailers make an order for a shipment of ortholinear keyboards and the order is manually transmitted to warehousing and manufacturing departments.
Similarly, the manufacturing department would manually communicate with the warehousing department and the inventory software they use, asking:
- How much stock do we have?
- How much final product do we have? Etc.
With an ERP, all of these processes become automated. Information from every department is funneled through the ERP, meaning that users don’t have to access each department’s system or talk to department representatives to gather the information they need. The data is now accessible through one central location. Likewise, as sales are made and customer orders are placed, work orders can automatically be pushed directly to the manufacturing department in real-time.
Real-time information sharing, provided by the ERP and other systems creates an impressive and responsive environment.
Once an ERP has been integrated into their operation, inventory usage data is automatically sent and received between their manufacturing execution system and their ERP. While following the specified process, the work instruction software is sending part usage and tracking data to the ERP through the API.
Now, the company is gaining real-time tracking data on every used and unused part within their facility.
Similarly, quality data, collected by a company’s work instruction software is automatically sent to the ERP where quality control departments can track the specific PLM (Product Lifecycle Management) data alongside their eDHRs (electronic Device History Records).
The Advantages and Disadvantages of Enterprise Resource Planning
ERP Advantages
ERPs have some considerable advantages for modern businesses wanting to streamline and automate their internal information sharing and interdepartmental processes.
- Streamlined organization: By gathering data from all corners of a business and making it accessible through one intelligent hub, departments are able to quickly pull up the data they need at any moment. This enables quick and effective decisions to be made.
- Accurate reporting: Systems without a central ERP will have various sources of data and manual processes that are susceptible to errors and inaccurate analysis. However, with an ERP, reporting is a data-driven process that has little room for miscommunication due to its streamlined automated processes.
- Collaboration-based work environment: With access to interdepartmental information, the whole workforce is brought together as one team working together for the same company objectives.
- Reduced operational costs: Despite the high price point of an ERP, there is a considerable return on investment. Each of the preceding advantages enables companies to mitigate waste and cut costs considerably.
ERP Disadvantages
Despite the widespread popularity of ERPs within the manufacturing sector, some downsides still lead people to describe ERPs as a “love-hate relationship”. One user even compared an ERP to a marriage by saying: “In good times and in bad, in sickness and in health”.
This is due to a few reasons:
- Long implementation times: This is primarily because the implementation of an ERP system is lengthy to say the least, often taking upwards of 9 months to get it up and running.
-** Takes time to customize**: After the implementation time, it could take longer to get it running specifically in the way you need.
- The systems are expensive: ERPs can range anywhere from $150,000 - $750,000 per year for small to medium-sized businesses.
