What is an ERP system? Enterprise financial resource planning

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

More and more enterprises of various sizes around the world are seeking to introduce into their work the most powerful management tool known as an ERP system. Its use is designed to establish effective control and planning of all strategically important business processes for the organization, to optimize the functioning of the main production and auxiliary facilities.

The concept of ERP and ERP systems

Business strategy ERP (EntERPrise Resource Planning) is an integration of all departments and processes of the organization: production facilities, financial, personnel and client profile departments and many others. Such a combination is primarily aimed at optimizing the distribution of various resources within the enterprise.

If earlier it was a purely marketing concept, today an ERP system is most often understood as a class of specialized software tools. In a broad sense, it is a methodology for planning and managing all enterprise resources. Historically, the ERP strategy was formed on the basis of its predecessors:

• MRP - material requirements planning.
• MRP II - planningproduction resources.

In contrast, an ERP system can be used for very large enterprises, often geographically distributed. In this case, we are talking about corporate resource planning, since it pays attention not only to production, but also to comprehensive financial planning. An essential feature of the ERP-system is also the possibility of its use in absolutely any enterprise, regardless of the specifics of the work, including those not engaged in production activities. Considering it as a software product, it should be noted that it is equipped with a more powerful set of technical means that facilitate or replace the decision-making process.

Purpose of the ERP system in the enterprise

To decide on a radical change in the activities of their company, related to the introduction of an information management system and the implementation of a new business strategy, management must be clearly aware of the need for this step, which should be expressed in the following key points:

• unwillingness to accept the current state of affairs;
• the existence of the need to use modern technologies to strengthen the position of a business entity in the market in a competitive environment;
• expecting significant benefits from implementation.

First of all, the use of an ERP system is designed to contribute to the successful implementation of a similar business strategy, the execution of which should ensure effectiveenterprise resource planning and management. To do this, it is necessary to optimize the work of its departments, namely to achieve maximum consistency between them and reduce administrative costs. This can be achieved through the benefits provided by the information system. This is:

• Increasing the transparency of business processes.
• Solving problems with organizing and finding the right information.
• Improve the reliability and relevance of data.
• Increasing the speed of workflow between departments.
• Organization of a single information space between the head office and remote branches.
• Reducing the time it takes to complete documentation and getting rid of possible errors.
• Increasing the speed of decision-making at all levels.

ERP-system provides an increase in the competitiveness of the object, not only through the introduction of more efficient business processes into its work. Its use should also lead to a reduction in the overall costs of the enterprise. Advanced planning, modeling and analysis tools help to optimize the resources of production activities, the financial sector, as well as the work of warehouse, transport and other departments.

Main features of work

In different companies, even those engaged in the same business, all business processes can proceed in completely different ways. The standardized scheme of work that an enterprise management information system offers can differ significantly from that used here before. By thisreason to consider it only as a software product is fundamentally wrong, since its implementation requires large-scale internal changes from the company in the form of reorganization of existing business processes.

The conceptual features of these systems are directly related to their essence. Recall that the ERP methodology involves the consolidation of all vital departments of the enterprise to organize the effective management of its resources. Such association is implemented within the information system through the presence of a single public database. Information enters the repository only once, and subsequently can be repeatedly processed and used by various internal and external consumers. Compared to real life, in this case, there is a decrease in the time and effort of the company's employees to make decisions. It should also be noted that the ERP system is not an automated process control system, but an integrated information system based on their abstract model, information into which is entered by living people.

The structure of the database, as well as the operation of the software package as a whole, must be arranged in such a way as to reflect the activities of all departments without exception. This approach makes it possible to monitor the total set of resources and business processes of the enterprise almost in real time, and therefore to carry out operational and strategic management of them.

One of the main tasks of ERP systems is tooptimization of the planning process and control over the implementation of the plan. Built-in intelligent algorithms greatly simplify its solution for their users. For example, the planning and management of a manufacturing enterprise has many specific features associated with the heterogeneity of its components. So, at one plant there can be workshops that operate both continuously and discretely. From this point of view, the implemented ERP-class system should be universal and contain the widest range of specialized modules.

Since today's modern enterprises are often geographically distributed, it is very important that branches remote from the main office be provided with full access to a common information data warehouse. This is implemented by the most advanced network technologies involved in the development of ERP systems, which also provide for the differentiation of user access rights to the information stored in them.

Functionality of ERP-class systems

Speaking of functions, we must not forget that any ERP-class product is an enterprise management system as a whole. The range of its capabilities will primarily depend on the scale and features of the operation of the facility for the needs of which it is used. Consider the classic feature set:

Production

• Maintaining design and technological specifications of manufactured goods or services performed in order to determine the amount of required materials and labor costs.
• Drawing production plans.
• Planning and managing the technical capacities of an enterprise in various approximations: from individual units to workshops and production associations.

Finance

• Operational accounting, financial, managerial, tax accounting and controlling.
• Management of enterprise assets, including fixed assets, securities, bank accounts, etc.
• Comprehensive planning of the financial resources of the enterprise and control of its results.

Logistics

• Formation of planned indicators of the required volumes of materials, raw materials, parts, components in accordance with production plans.
• Supply and sales management: accounting for counterparties, keeping a register of contracts, supply chain management, implementation of warehouse planning and accounting.

Personnel

• Managing the recruitment process.
• Operational personnel and personnel records, staffing, payroll.
• Manpower planning.

Marketing and advertising

• Maintain sales plans.
• Pricing management in various types of markets in order to form an adequate overall strategy of the enterprise, a transparent policy for calculating the cost of goods: accounting for discounts and special sales conditions.
• Plan and control ongoing promotional and marketing activities.

Projects. Reporting

• Providing a wide range of standardized accounting, financial and management reporting forms, as well as a flexible mechanismcreate custom.
• Drafting an overall strategy: step-by-step planning of the necessary for the successful implementation of the timing, material, financial and human resources.
• Monitoring key project performance indicators.

Which businesses can use ERP systems

At first glance, it may seem that systems of this class are designed exclusively for large-scale industries, since they are more characterized by the high complexity of the structure of resource flows and processes of various types. However, there are situations where the use of MRP or MRP II classes may not be sufficient for a small enterprise. Today on the market you can buy software products with various capabilities. Depending on the scale of the enterprise where they can be effectively used, there are heavy, medium and light solutions.

As for non-manufacturing organizations, ERP class systems are applicable to them as well. For such enterprises, not too wide functionality will be enough. At the moment, there are small integrated or local varieties of systems that can meet the needs of trading companies or organizations working in the service sector. It should also be noted that many developers offer their customers and industry products.

About classification methods

The most obvious feature by which all ERP enterprise management systems can be classified isscale of the organization, where they may be applicable. From this point of view, depending on the number of jobs, it is customary to allocate solutions for:

• Large corporations (over 10 thousand people).
• Medium-sized corporations (from 1,000 to 10,000 people).
• Medium enterprises (from 100 to 1 thousand people).
• Small businesses (less than 100 people).

An important sign of the systematization of such information products is functionality. Depending on the implemented volume of tasks performed, there is the following generally accepted division into:

• Large integrated.
• Average integrated.
• Financial management.
• Local.

The local version is usually a unified boxed information product of a narrow focus, with a relatively small total cost. Most often, it covers one or more blocks in the field of finance of the organization or its accounting activities. Such systems are suitable for small manufacturing or trading companies.

The financial and management system of enterprise management can be used mainly in non-production organizations, mainly trade or working in the provision of services. In addition to financial and accounting, logistics management modules are also involved here.

Integrated information systems, depending on the scale of the target object, can be medium or large. They cover all business processes of corporate structures, namely, interaction with suppliers and consumers,production of the final product, material and financial flows, personnel relations, supply, storage and marketing, project implementation and many others.

Modern ERP systems market

All software products presented today on the domestic market can be divided into two main categories: Russian and imported. The differences between them are not only in the place of creation, but also in the functionality.

Powerful Western developments serve as standards for what is commonly called ERP class systems. The clearest examples of these are the products of SAP, Oracle, PeopleSof, SAGE, Baan, Microsoft Business Solution. All of them can be used on targets of any level, including very large ones. However, their use by Russian companies can often be difficult due to the possible occurrence of the following problems:

• Unpreparedness of enterprises for a serious reorganization of existing business processes. The scale of such changes is difficult to exaggerate. The business processes of foreign enterprise management systems are fundamentally different from those that are commonly used in our country.
• Insufficient number of specialists capable of implementing an import ERP system implementation project in Russia with the proper level of quality.
• The high cost of using such solutions.

Despite the general lag behind Western analogues, modern Russian developments are gradually increasing their functionality. They are fully adapted to the work of domestic enterprises. and can be successfully implementedif in a particular case a wide coverage of business processes is not required, but it is enough just to set up accounting in some areas of activity using an ERP system. Examples of advanced domestic developments are the products of 1C and Galaktika.

Looking into the future - ERP II

Emerged some time ago, the concept of ERP II was the result of improving the ERP methodology. Enterprise resource planning and management remain among the main tasks here. However, the rapid development of the Internet, which initiated the emergence of a new methodology, left its mark, making traditional business partly electronic. ERP II is a combination of a classic enterprise management system with specific online commerce solutions.

Now it has become extremely important to interact with your counterparties over the network. There are two important areas for this: supply chain management and customer relationship management. Intra-company information ceases to be only such, enters the external environment and becomes the basis for cooperation with other business entities. The new concept in this case is formulated as the management of resources and external relations of the enterprise. In addition to the ideological reorientation, ERP II systems received their own technological features.

Resolving the issue of choosing a system

The choice of software of this level is an extremely responsible process. A wrong decision on this issue, especially for large-scale projects, canentail impressive time and money costs in the absence of the expected result.

Effective implementation of a large-scale system, which, for example, should ensure the effective management of a manufacturing enterprise, will necessarily require business process reengineering from it. It is important to prevent a situation in which, at the end of the implementation procedure, the program would collect unused data or not solve the necessary tasks. For this reason, it is better to invite a team of experts who have proven themselves in this matter for cooperation in order to implement the project.

There is a certain list of criteria on the basis of which the project team, in agreement with the administration of the target company, can make an optimal, cost-effective decision on the choice of a software product:

• Compliance of the technical and functional capabilities of the system with the main goals of the enterprise.
• Total cost of ownership must fit within the budget allocated for this purpose. In addition to the cost of purchasing the system, this includes operating and other types of indirect costs.
• The implemented ERP-class information system must comply with all generally accepted technical requirements, which means it must be scalable, reliable, resistant to possible failures, have anti-virus and anti-hacker protection.
• Supplier must ensure ongoing maintenance and support of installed software.

The process of implementing ERP class systems

The introduction of ERP-systems in enterprises accompanies the implementation of the strategies of the same name on them. This procedure, depending on the scale of the target object, usually lasts from several weeks to several years. An organization can engage in implementation on its own or use the help of companies specializing in this. We can distinguish the main stages of this process:

1. Primary organization. Here it is necessary to define strategic goals, objectives and designate the expected effect of implementation for a particular organization. Based on these data, it will be possible to draw up a technical plan for the project.
2. Project development. At this stage, the organization's current activities are analyzed: its promotion strategy, business processes. Based on its results, a system model is built, and appropriate refinements are made to the work plan.
3. Execution of the project. Since the rules for conducting business processes are dictated by the implemented ERP system, here they are transformed according to unified requirements. If necessary, the development of reporting forms and algorithms for transferring data from previously used accounting programs is carried out. If at the previous stages the insufficiency of the system functions for the object is revealed, it is finalized. It concludes with user training and pre-testing.
4. Commissioning. In the process of use, possible errors and malfunctions are identified and eliminated.

SystemERP-class management today is not just a copy of expensive software installed on all computers in an organization, but also the main driving force behind a promising business strategy. Its choice should be based on the existing needs and capabilities of the target object. The further success of the entire business as a whole depends on the correctness of the decision made and the implementation of the steps for subsequent implementation.