To fully understand and appreciate enterprise resource planning software one needs to properly understand how businesses operate. Business as an entity has different areas that come together to make it a whole. Each aspect plays an important role in the success of the business. Now, the trick is, how do these different aspects communicate among themselves? As critically important as the business itself so as the free flow of information among these various aspects. In this article, therefore, we are going to look at the ERP system – the integrated information system, the functional area of business operations, and more.
Before we delve into the nitty-gritty of business functional area of operations and all, let us first and foremost understand what an ERP software/system means, what it does and how it fits into this conversation.
What is enterprise resource planning?
Enterprise resource planning software otherwise known as ERP is the core software that is used to coordinate and integrate all aspects of business data in order to achieve more effective and efficient business processes. ERP software is designed to facilitate free flow of information in all business functional areas. If fully implemented, they are designed to use a single integrated database and shared management reporting tools in order to achieve real-time and up-to-date data sharing within every angle of any organization they are deployed in.
ERP systems are designed around a single, defined data structure (schema) that typically has a common database. This helps ensure that the information used across the enterprise is normalized and based on common definitions and user experiences. These core constructs are then interconnected with business processes driven by workflows across business departments (e.g. finance, human resources, engineering, marketing, operations), connecting systems and the people who use them. Simply put, ERP is the vehicle for integrating people, processes, and technologies across a modern enterprise. (Oracle)
To better understand how ERP works, one needs to understand business processes and functional areas of operation. To this end, let us look at both business processes and functional areas of operation.
The functional area of operation and business functions
Almost all business organizations have these four functional areas of operation, Accounting and Finance (A/F), Supply Chain Management (SCM), Human Resource (HR), and Marketing and Sales (M/S). And within every one of these functional areas, there are several smaller functions they carry which are called business functions. For example, in Marketing and Sales, you will find, for instance, things like marketing of the product function, sales function, sales forecasting function, and a lot more that are carried out by this functional area.
One important thing that you should note is that, although each individual functional area of operation looks like a stand-alone function, they constantly share information among themselves because most of their activities are interconnected with each other. No one function can work effectively well without coordinating with several of its co-functional areas.
Let us look at them one after the other in a more specific way. We will discuss them in no particular order.
Accounting and Finance (A/F)
It is in Accounting and Finance functional area that each and every financial transaction is performed in an organization. Business functions like a recording of accounts receivable when sales are made, preparation of sales invoices to customers, and reporting of all financial statements are typical of the kind of transactions you find here.
Accounting and Finance cannot work alone to fulfill their duties. For example, when sales are made, they need sales data from the Marketing and Sales function. When materials are procured, it is from Supply Chain Management that they will get the account payable information needed for that transaction. Therefore, sharing up-to-date and real-time data is very important between these functional areas mentioned to achieve the desired efficiency.
Marketing and Sales (MS)
Marketing and Sales are like the human face of a business, they work directly with customers. They perform the business functions of receiving orders from customers, selling, developing a new product, determining pricing model, promoting of product to customers, help in developing sales forecasting, and a host of other business functions. MS functional area is a very important aspect that plays a central role in a business organization.
Whether Marketing and Sales are working on developing a new product or determining a pricing model for a product, they work hand in hand with Supply Chain Management to ensure a profitable outcome. All information regarding cost and capacity has to be clear and specific to achieve whatever MS business function needs at hand. This shows the need for the flow of up-to-date and real-time information sharing as critical between these functional areas.
Supply Chain Management (SCM)
This is a functional area that involves suppliers, production/manufacturing, and logistics. Supply Chain Management is a functional area that deals with the suppliers a company purchase from, the actual making of the goods, that is the production of the products that the company produces, the transportation of deliveries to customers or receive materials from suppliers. A lot of business functions are carried out here. Business functions such as material planning, scheduling production, and more are done here.
Like Accounting and Finance functional area, Supply Chain Management works with all the other functional areas to fulfill so many of their duties. For instance, when purchasing raw materials, they need Marketing and Sales input of sales forecast to be able to purchase the right amount of material needed. Likewise, they need to coordinate with Accounting and Finance for budgeting and account payable information that A/F needs. Therefore, having an integrated system that shares data in a real-time and up-to-date manner is of utmost importance.
Human Resource (HR)
Human Resource function as the name suggest is the function that deals with the human resources aspect of an organization. An organization can have all the machine in the world, as of now, human resources tend to be resilient and holds the position of being the most valuable resources of an organization. All the other functional areas do not function by themselves. It is humans that run all aspects of the business needs whether those aspects’ jobs are done by computers or machine, people actual command them and manipulates them in order to work as desires.
When the manufacturing department wants to expand or reduce its manufacturing capacity, it has to coordinate with HR to fill out any human need gap/excess that may have arisen as a result of this need. A/F works with HR and relevant functional areas to tackle the aspect of salary, wages, welfare, and training of employees. As a result of all this interconnectivity, there is a lot of data flow needs between relevant functions in this functional area as well.
Business processes
A business process is a collection of activities that collect one or more inputs to create output that is of value to the customer. Nowadays, businesses view business activities in terms of processes rather than functions. For instance, when a customer orders a product, there is a lot of activities involved in several functional areas before that order is fulfilled. So, rather than looking at what happens at Accounting and Finance or Supply Chain Management as a separate activity, a business should focus on how the order is fulfilled – the order fulfillment process. Customers do not care about what happened in between if the order is fulfilled at the desired time and in the appropriate quality, the customer will be satisfied. A satisfied customer is what viewing business in terms of processes tries to achieve. A satisfied customer is a repeat customer.
According to Appian, a business process is a collection of linked tasks that find their end in the delivery of a service or product to a client. A business process has also been defined as a set of activities and tasks that, once completed, will accomplish an organizational goal. The process must involve clearly defined inputs and a single output. These inputs are made up of all of the factors which contribute (either directly or indirectly) to the added value of a service or product. These factors can be categorized into management processes, operational processes, and supporting business processes.
In order to have a smooth and rewarding process, the kinds of information shared by business functional areas need to be integrated. And that is what brings us to the idea of integrated systems that ERP software provides. If businesses use information systems to carry out their business activities those systems need to be able to share data across the functional areas as they are entered. When a company’s information systems are stand-alone systems like say, Accounting, and Finance separate system, Sales and Marketing have a different system, manufacturing has a stand-alone system, then information sharing will be marred by delay and inaccuracies and in a long run, this will, in turn, affect the business negatively.
Clarification between business function and business process
As you might have noticed above, the business function is an activity that is done within one functional area while business process is a set of activities carry out in more than one functional area to achieve an outcome that will serve and satisfy a customer. An example will be fulfillment of an order; when an order is being placed, Sales and Marketing receive the order. The action of receiving the order is a business function carried out by one functional area, the M/S. But before the customer receives the product, a lot of activities would have occurred in different functional areas; activities such as making the product by SCM, receiving payment by A/F and of course much more. To put it simply, in order to accomplish a business process a lot of different business functions happen across several functional areas.
Now that we have known how business activities are done by different functional areas and that we know for a successful business operation to happen those different functional areas need to be able to share their data/information in a real-time manner. And we also know that modern business is a business that leverages information systems. And we gave a background on the kind of information systems that is really important today, which the Enterprise Resource Planning (ERP). ERP is very important because it offers an integrated system that information is stored and shared across all functional areas.
The popular ERP software and vendors today in the market
It is important to know that this software that different vendors provide comes as either software package that companies can purchase, install, implement, and maintain by themselves or they can be provided via the cloud where all you need are computers, internet connection, and subscription, no installation or maintenance required. A lot of companies now prepare that of the cloud because of its ease in every ramification and very cheap compare to actually buying the software package.
SAP system is a German company that was founded in1972. The full meaning of SAP is System Analysis and Program Development. SAP system consists of fully integrated modules that cover almost all areas of business management. SAP is the name of the company and as well as the product.
Oracle is one of the biggest vendors of enterprise resource planning software. It has more than a dozen ERP software in its business line. Some of its ERP software includes Oracle E-Business, PeopleSoft, Oracle Fusion Application and more.
Microsoft Dynamic 365 is one of the fastest-growing ERP software today in the market. It offers solutions to’ wide variety of pre-configured processes. The systems include Microsoft Dynamic 365 Finance and Microsoft Dynamic 360 Supply Chain Management. Other ERP vendors includes, Infor, IFS, Epicor, Acumatica, and lots more.
Finally, to recap, in this article, we explained what an ERP system is, what it does and how significant it is for business success. We looked at the functional area of operations and the difference between business processes and business function. And at the end, we brought in some examples of the ERP software and vendors in the market today.
What do you think guys? Let me know what you think in the comment section below.
References
Business Process Definition (n.d). Retrieved from
Definition of Enterprise Resource Planning (ERP) (n.d). Retrieved from
Monk E. & Wagner B. (2013). Concepts in enterprise resource planning. United States of America CENGAGE Learning.
