What is ERP and what does ERP stand for in manufacturing?

A common question is, what does ERP stand for in manufacturing?

The answer is enterprise resource planning. It is a software system that allows a business to manage all of its resources, including finances, manufacturing, sales, and customer service. 

ERP systems can be tailored to specific industries, like manufacturing, and help businesses manage their operations more efficiently. If you’re looking for a way to improve your manufacturing process, an ERP system might be the answer.

In this blog post, you will explore the basics of ERP systems and discuss how they help manufacturers streamline their operations.

What is an ERP system?

An enterprise resource planning system (ERP) is a comprehensive system designed to automate and manage many aspects of a business and its resources.

One of the main functions of an ERP is to integrate key functions and transactions into a single system and improve data flow among teams. This includes:

  • Purchasing.
  • Inventory management.
  • Sales and order processing.
  • Engineering and production.
  • Accounting.

With a single source of truth, you streamline operations and boost efficiency. Most modern ERP solutions use machine learning and artificial intelligence to improve forecasting and financial reporting.

For a more in-depth look into the different functionalities that ERPs offer, below are the most common modules.

A brief history of ERPs

Now that you can answer what does ERP stand for in manufacturing, let’s look at how they came to be. 

The term ERP can be traced to the early 1990s. ERP-like systems have been in use in the manufacturing industry as early as the 1960s. 

At the time, manufacturers used Material Requirements Planning (MRP) systems to manage things like inventory, purchasing, and deliveries.

Over time, MRP systems evolved into Manufacturing Resource Planning (MRP II) systems. 

By the 1980s, MRP II systems allowed manufacturers to merge production schedules, supply chains, inventory, and similar data with their accounting, marketing, and logistics monitoring systems. 

More advanced MRP II solutions also came with forecasting and simulation capabilities.

By the 1990s, enterprise resource planning systems came to replace MRP I and MRP II systems, building upon the basic functions of these two systems and allowing for connectivity with other departments such as sales and finance. 

Today, ERPs connect every aspect of a business, providing teams with a shared database that is updated in real-time.

Why is ERP critical?

ERPs help businesses compete by:

  • Automating processes. 
  • Eliminating data silos.
  • Reducing costs. 

Think of ERPs as tools that greatly reduce your employees’ work, giving them more time to focus on generating leads and closing sales.

One study found that ERP systems cut operational costs by 23% and administrative costs by 22%. 

“ERPs cut operational costs by 23% and administrative costs by 22%.”

-G2, 2021.

Of the businesses that used ERPs, 95% reported major improvements in areas like process times, collaboration, and centralizing enterprise data. Modern ERP systems also increased on-time deliveries by 24%.

All in all, 28% of organizations that used ERPs attained ROI in the span of a year, while 58% achieved ROI within two years.

What’s the difference between ERP and MRP?

The main difference between ERP and MRP software is that MRPs function primarily as materials management systems, while ERPs automate nearly all business functions of an enterprise.

MRPs are used for things like: 

  • Stock control.
  • Inventory and supply chain management.
  • Production scheduling. 

Their main purpose of MRPs is to help manufacturers:

  • Monitor the availability of production materials and products.
  • Keep track of inventory levels for both materials and finished products.
  • Plan sales orders, purchase orders, and the like.

ERPs, on the other hand, build upon the core functions of MRPs and MRP II systems.

ERPs help with the planning, and automation of the aforementioned areas, along with finances, accounting, project management, quality enterprise management, data services, and more.

What does ERP stand for in manufacturing?

ERP stands for enterprise resource planning in the realm of manufacturing. 

In fact, ERP systems and their predecessors, MRP and MRP II systems, began as manufacturing management solutions. Today, 47% of ERP users belong to the manufacturing sector.

How is ERP beneficial for manufacturing?

Now that you can understand what does ERP stand for in manufacturing, let’s look at its benefits.

Better collaboration

With all of your important data stored in one central hub, an ERP keeps all departments updated on the goings-on of the business. 

You can easily share information across teams, reducing the need for face-to-face meetings, emails, and check-ins. Plus, you lower the risk of data anomalies due to human error.

ERPs eliminate data silos and redundancies to keep everyone on the same page at all times. You can check to see how a team is doing, spot and address issues before they get bigger, and make important business decisions without wasting time. 

This not only increases your business’ capacity, but it also positively impacts employee satisfaction.

Increased efficiency

By automating manual processes, ERPs minimize the need for manual data entry and pen-and-paper tracking, which greatly reduces errors and redundancies.

On top of this, cloud-based ERPs provide users with access to key information from their computers or mobile phones, whether they’re with a supplier, on the shop floor, or interacting with a customer.

Reduced operational costs

Since you can access important information on the fly, respond to suppliers and customers in an instant, and speed up decision-making, you can cut costs in many ways.

More accurate forecasts

Many top-rated ERP systems come with reporting and real-time data analytics tools which you can use to track KPIs, make forecasts, and pinpoint trends. 

These systems help you harness the power of data and make quick decisions about the trajectory of your business.

In short, manufacturing companies benefit from ERP systems by improving inventory control, streamlining production processes, and automating many back-office functions. 

ERP systems can be customized to meet the specific needs of a company, making them an essential tool for businesses of all sizes.

Understanding ERP modules

As modular solutions, ERPs provide a wide range of tools to optimize core business processes. Most software vendors allow enterprises to customize ERP systems to prioritize the modules that address their business needs.

Finance and accounting

With this module, you get a 360-degree view of your business’s financial status and can make predictions about the future based on the variables you input.

ERP finance and accounting modules automate processes such as accounts payable, purchase orders, expense processing, payroll, sales tax calculation, and more.

Cloud-based ERP systems allow you to generate invoices and sales estimates, compute shipping costs, and track how much revenue is in your sales pipeline.

Manufacturing

Manufacturing modules are designed to help businesses plan every aspect of the production process and get a real-time view of the factory floor. 

ERPs automate a wide range of daily manufacturing processes as well as collect key insights that you can use to improve your operations.

Order management

This module allows you to track each order as it goes through the sales funnel. You get real-time updates on the status of each order so you won’t have to worry about missing cut-offs or losing packages.

Inventory management

With this module, you can instantly view inventory levels, get recommendations on what items to reorder, manage costs, and even track trends to hit that sweet spot in your inventory ratio.

Here are some of the key features found in an ERP inventory management module:

  • Stock tracking and transfer management.
  • Procurement management.
  • Sales order management.
  • Order distribution and fulfillment.
  • Warehouse management.
  • Quality management.
  • E-commerce integrations.
  • Logistics and shipping management.
  • Analytics and forecasting tools.

Supply chain management

Inventory, procurement, order management, and warehouse management all fall under a larger supply chain management module. 

This module allows businesses to monitor how their supplies and products move through the supply chain as well as automate key tasks, from communicating with suppliers and vendors to sending invoices out to customers for every shipment.

Customer relationship management

A customer relationship management module provides businesses with a central database for all the information they have on their customers and sales leads. 

This includes, but is not limited to, personal data, purchase history, communications, queries, requests, and complaints.

Human resources

With this module, you can automate payroll, monitor employee performance, and make it easier to request and approve things like time off. 

Some ERPs also have job scheduling and monitoring tools that let you view field workers’ schedules on a calendar, assign jobs, and geo-track their movements on the field.

Commerce

Some ERP software vendors offer commerce modules that allow businesses to sell their products online. With an e-commerce module, you  equip your employees with the tools they need to manage and control your online shop.

The e-commerce module integrates with the rest of your ERP’s modules, so that your inventory, orders, customer data, and other important information are all synced throughout your system. 

As such, your website will always be up-to-date for your customers.

Marketing automation

Some ERP systems also come with marketing automation modules that automate tasks such as lead generation, segmentation, and customer retention.

Some key functions of a marketing automation module include:

  • Campaign management: This lets you build and run campaigns with easy-to-use templates.
  • CRM integration: This connects your marketing automation activities to your CRM tool so that you have accurate data on your leads and prospects.
  • Data analytics: Most marketing automation modules are equipped with analytics tools that help businesses monitor traffic, data conversions, and other key metrics such as open rates and MQLs.

ERP deployment options

You know what does ERP stand for in manufacturing, but did you know there are different types of ERPs?

ERPs can be deployed as either on-premise solutions, cloud-based apps, or hybrid software. Let’s take a closer look at these three deployment models.

On-premise ERP

With on-premises solutions, enterprises have near-total control and responsibility over their systems, including installing and maintaining hardware and software. 

The biggest drawback to on-premise ERPs is accessibility. Unlike cloud-based ERPs, on-premise ERPs can only be used on-site at your shop or main office.

Cloud ERP

Cloud solutions are hosted on the cloud, meaning that anyone with access to the software or app can log in, add, and make changes to any information there. Of course, how much they can do on the software still depends on their level of access.

Most cloud-based ERPs are maintained and secured by the software provider. This makes it easier for businesses to focus on just using the solution, but it can also be a drawback if you need to resolve issues right away.

That said, because cloud-based ERPs are generally more affordable, easier to install, flexible, and come with tons of support, they’ve quickly become the most popular way of deploying ERPs.

Hybrid ERP

Also called two-tier ERPs, hybrid ERPs give businesses the best of both worlds by hosting particular business processes and data on the cloud as well as your data center on-site.

Open-source ERPs

An open-source ERP is an enterprise resource planning software system whose source code is publicly accessible. 

This means that businesses can utilize a system’s code for free and customize it so they can streamline all business functions without paying additional customization fees and licensing to a software vendor. 

The biggest drawback to this model is that it cannot be installed and managed without the help of a capable IT staff. 

What does ERP stand for in manufacturing: Key takeaways

ERP systems are critical because they manage the many complex processes and tasks involved in producing physical goods. 

These systems help manufacturing businesses:

  • Monitor stocks of raw materials.
  • Automate operations.
  • Improve communication among departments.
  • Provide accurate real-time data.

While beneficial tools, ERPs can be daunting for smaller businesses. However, that doesn’t mean you need to miss out on their benefits.

If you’re a QuickBooks or Xero user, an ERP alternative like Method:CRM is probably what you need. 

Method:CRM as the best ERP alternative for manufacturing

Method:CRM is a cloud-based solution with real-time, two-way with QuickBooks and Xero. Below is a sneak peek at what it offers.

See how Method:CRM sets manufacturers up for success.

Image credit: Bnenin via Adobe Stock

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Find out how Method:CRM can fuel your growth:

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