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What is ERP? Is Accounting is Only a Part of ERP?

ERP stands for Enterprise Resource Planning. An ERP is a system, a software that integrates internal and external management information across an entire organization. The purpose of an ERP is to facilitate the flow of information between all business functions inside the boundaries of the organizations.

An ERP system is meant to handle all the organization areas on a single software system. This way the output of an area can be used as an input of another area.

A key feature of ERP systems is a centralized database that serves as a single source of information. This means that employees in all departments can look to the ERP system for the information they need and work from the same data.

Is Accounting is Only a Part of ERP?

ERP  includes multiple modules with accounting being one of them. Other modules include supply chain, planning, inventory management, warehouse management, production, HR, sales, purchasing, etc.

These modules are used to manage the “8Ms,” (Man, Material, Machine, Money, Method, Minutes, Management, and Marketing). 

Most ERP products are offered with accounting software as an entry-level package. As your business grows, so does your requirement for automating more complex data recording and reporting processes. You can add activity-specific modules; thereby, transforming your accounting software into an ERP.

Dynamics NAV

Dynamics NAV is an ERP system targeted at small and medium-sized companies. it has the following modules:

Financial Management: This includes accounting, G/L budgets, account schedules, financial reporting, cash management, receivables and payables,  fixed assets, VAT reporting, inter-company transactions, cost accounting, consolidation, multi-currency.

Sales & Marketing: This area covers customers, order processing, pricing, contacts, marketing campaigns, and so on.

Purchase: The purchase area includes vendors, order processing, approvals, planning, costing, and other such areas.

Warehouse: Under the warehouse area you will find inventory, shipping and receiving, locations, picking, assembly, and so on.

Manufacturing: This area includes product design, capacities, planning, execution, costing, subcontracting, and so on.

Job: Within the job area you can create projects, phases and tasks, planning, time sheets, work in process, and other such areas.

Resource Planning: Manage resources, capacity, and so on.

Service: Within this area, you can manage service items, contracts, order processing, planning and dispatching, service tasks, and so on.

Human Resources: Manage employees, absences, and so on.

SAP

SAP is the leading ERP (Enterprise Resource Planning) business application software in the market today. The software provides a unified platform that allows business processes integration.

SAP is developed by SAP AG, a German software company founded in 1972 by five ex-IBM employees. With its headquarters in Germany, SAP has regional offices around the world. SAP is used by many Fortune 500 companies worldwide as a business solution for processing operational data and for generating reports in real-time, which helps all levels of management make better decisions and enables them to manage business processes effectively and efficiently.

FICO stands for Financial (FI) and Controlling (CO). These are the two core modules in SAP and are tightly integrated to help management maintain and generate financial reports for efficient decision-making and strategic planning.

Financial (FI) 

The FI module is a business process designed specifically for organizations to maintain their financial records efficiently on a daily basis, for management to be able to ascertain their financial position, and for those who need to generate financial statutory reports for external purposes to meet the needs of various stakeholders in real-time.

The FI module consists of other sub-modules, including:

  • General Ledger (G/L),
  • Accounts Receivable (AR),
  • Accounts Payable (AP),
  • Bank Accounting,
  • Asset Accounting,
  • Special Purpose Ledger,
  • Travel Management, and so on.

FI is integrated into other modules like Sales and Distribution (SD) and Material Management (MM). Postings made in these modules with financial implications are posted in real-time to FI.

Controlling (CO)

The Controlling module is designed specifically to provide operational information to management to aid better decision-making, and for formulating strategic and operational planning. In SAP ERP, the Controlling module is composed of the following sub-modules:

  • Cost Element,
  • Cost Center,
  • Internal Order,
  • Activity-Based Costing,
  • Product Costing,
  • Profitability Analysis, and Profit Center.

Advantages of ERP System

1. Data Integration

One of the main advantages is data integration. In ERP system, data is captured once and shared across the enterprise, reducing the risk of inaccuracies and redundancies in data and eliminating time wasted in checking, rechecking and reconciling data.

ERP system even simplifies the error correction process; if a mistake is made, it only has to be corrected once. Data integration gives stakeholders the ability to gain better visibility into business operations. 

2. Real-time Access to Information

Another main advantage of ERP system is real-time access to information which improves collaboration and communication across the enterprise. Once data is entered in ERP system, it is readily available online and real-time to all users in all departments (who have the authority to view or edit the data).

3. Industry Best Practices 

ERP vendors design their solutions around processes based on industry best practices. A best practice is a business process that is generally recognized as more effective and efficient than others in a particular industry.

4. Reduce Cost and Increase in Revenue 

ERP systems can reduce operational cost and increase revenue. Companies that implement ERP do so to gain efficiencies such as lower inventory cost, production costs, or purchase costs.

Similarly, companies implement ERP to transform parts of the business to improve the revenue-generating process including the time to market, marketing and sales and customer service. 

Disadvantages of ERP System

1. So Expensive

ERP systems are so expensive, require training and consultation with change management specialists, and take so long to implement, the potential risks and rewards associated with these systems are substantial. Unfortunately, there are many examples of failed ERP implementations, and these failures often have a disastrous impact on the financial statements of a business—if the business even survives.

2. Complex, Time-consuming Implementation

Implementing an ERP system involves much more than a simple installation. It is a complex, time-consuming undertaking that can often involve a myriad of problems along the way. 

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