ERP stands for Enterprise Resource Planning.


Enterprise Resource Planning is a way to integrate the data and processes of an organization into one single system, under one single database. Usually ERP systems will have many components including hardware and software, and in order to achieve integration, most ERP systems use a unified database to store data for various functions found throughout the organization.

But what is the difference between ERP and Accounting System?

First of all, we would like to clarify some misunderstandings about the term “Accounting System”. People got used to this expression, but in many occasions, when a consultant meets with a customer in search of an “Accounting System”, the last thing they talk about is accounting. Usually, customers have issues with inventory, serial numbers, landed cost, manufacturing, customer relationship management, field service, mobile invoicing, job costing, easy and fast reporting, integration with Microsoft Office, etc. The least of the problems is how to approve and cut a check, or how to control open receivables, so the expression “Accounting System” is really not what customers are looking for.

Going back to the question, Accounting System is what all available systems do out-of-the-box. Some of them are very inexpensive and perform all the basic accounting functions. The problem is that, in today’s economy, either you grow or you die. If your business sells this year about the same as it sold last year, your company is actually going backwards, because the world is growing. With or without crisis, the world out there is always growing. Either you grow or you shrink, there is no middle of the way. As consultants, what we see every single day is the same story: the company is doing really well and is growing, but cannot grow any more, because the system they bought for a few thousand dollars and implemented by themselves (by the way, spending hundreds of hours of their precious business time) is not allowing them to grow any more.

On the other hand, ERP or Enterprise Resource Planning  is what each and every company should be looking for.

Among the most common problems growing small businesses face when using small accounting solutions (some of them even call themselves “Enterprise”) are:

• Systems crashing
• No multi-location control
• No serial number or lot number control
• After creating invoices and even applying payment, users can go back to the system and change them ,leaving no audit trail; this is unbelievable, but true
• Corrupted company data files
• Running parallel systems to do functions that are not integrated, such as service, dispatching, job cost, etc
• Cash Receipt batches that do not match bank deposits
• Cannot go over 10 users

And the most aggravating problem we normally see: since those systems do not provide source code or at least the ability to be customized, companies have to adapt to the system requirements, instead of the system working to meet the company’s needs. Have you ever done the math? You don’t open a business to last 3 or 4 years. Have you ever calculated how much you will spend on extra manpower to “work around” deficiencies caused by users inputting data in separate packages, sales lost, data crashing, etc, etc, etc, after a period of 5 or 10 years?

Here is some good news. Day after day, more and more companies are being able to see beyond the basics. The term ERP originally referred to how a large organization planned to use organizational wide resources. In the past, ERP systems were used in larger, more industrial types of companies. However, the use of ERP has changed and is extremely comprehensive.  Today, ERP is so affordable that any type of company, no matter what size or industry it falls, can take advantage of its features. In fact, ERP systems are used in almost any type of organization - large or small.

In order for a software system to be considered ERP, it must provide an organization with functionality for two or more systems. While some packages exist that only cover two functions for an organization (for example, human resources & accounting), most ERP systems cover several functions.

Today's ERP systems can cover a wide range of functions and integrate them into one unified database:

• Human Resources
• Supply Chain Management
• Customer Relations Management
• Financials
• Manufacturing
• Warehouse Management
• Drag and Relate Reporting
• Drilldown Capabilities
• EDI
• Integration with Microsoft Office
• Ability to be customized

Integration is Key to ERP

Integration is an extremely important part to ERP software. ERP's main goal is to integrate data and processes from all areas of an organization and unify it for easy access and work flow. ERP's usually accomplish integration by creating one single database that employs multiple software modules providing different areas of an organization with various business functions.

The Ideal ERP System

An ideal ERP system is when a single database is utilized and contains all data for various software modules. These software modules can include:

Manufacturing: Some of the functions include; engineering, capacity, workflow management, quality control, bills of material, manufacturing process, etc.

Financials: Accounts payable, accounts receivable, fixed assets, general ledger and cash management, etc.

Human Resources: Benefits, training, payroll, time and attendance, etc.

Supply Chain Management: Inventory, supply chain planning, supplier scheduling, claim processing, order entry, purchasing, etc.

Projects: Costing, billing, activity management, time and expense, etc.

Customer Relationship Management: sales and marketing, service, commissions, customer contact, calls center support, etc.

Data Warehouse: Usually this is a module that can be accessed by an organization’s customers, suppliers and employees.

ERP Improves Productivity

Before the emergence of  ERP systems, each department in an organization would most likely have their own computer system, data and database. Unfortunately, many of these systems would not be able to communicate with one another or need to store or rewrite data to make it possible for cross computer system communication. For instance, the financials of a company were on a separate computer system than the HR system, making it more intensive and complicated to process certain functions.
Once an ERP system is in place, usually all aspects of an organization can work in harmony instead of every single system needing to be compatible with each other. For all organizations, increased productivity and less types of software are an increasingly beneficial result.