What is ERP? | System ERP | SAP for beginners

Hi, hi everyone! My name is Artur. I'm SAP expert from over 16 years Some of you may already know me from my previous SAP courses or from SAP videos.

This time I will try to explain to you what ERP systems are. So! Let's start!

What is ERP system? When people talk about a software for managing companies, they always mention an ERP system. What that ERP system is all about.

I will explain everything you need to know. According to the basic definition, ERP is a system to manage the entire company, the same as operating system manages your personal computer. So we have one system for all: Finances, Sales, Production, Inventory, Accounting, CRM, E-commerce, Orders, Marketing and that is ERP.

ERP is an abbreviation of Enterprise Resource Planning. So theoretically, we can say that ERP is a system to manage enterprises resources. However, managing the resources is a bit abstract for me and I will try to explain where it came from.

Let's imagine what kind of resources we have as a human being. Your house, a car, a bicycle. You have money in your wallet.

You have money in the bank. You have a fridge and you have some stocks in the fridge like fruits, corn, drinks and some pizza. You can manage resources on your own and more or less, you know, if you have enough food for the weekend or you should pay for a car insurance, for example, if you know that you've eaten all the rice or bread, you will buy more.

And you manage it without any software. There may be times when you hire a babysitter to help with the children. You have to pay her monthly, plan when she has a vacation and when she can come to you to work.

So you manage it without any software as well. I can say that you have your ERP system in your head. Let's say that your brain is a software to manage all your resources.

Still managing the resources sounds weird. I think it's better when you remember the definition that ERP is a system to manage the entire company, such as your brain manages your whole life. You don't have many sales, so you start using just paper to create invoices.

ERP integrates all business processes taking place in the company. But what does it mean in practice? I will try to explain it to you on the example of the company's development.

Let's imagine that you have created a small business, for example, you have some flowers in your garden and you start to sell them. Later, you became more modern and you started to use Word to create invoices and Excel to control accounting. You have more and more sales.

Some people are not paying on time. So you have not-paid invoices, in business language, accounts receivable. Your Excel becomes more complex.

You buy things for your organization like chairs and selling desks, boxes for flowers, ribbons. So you have purchase invoices, which you want to classify as a cost to reduce tax. You use Excel for it as well.

Your accounting keeps on increasing. You start to use simple accounting program. You can dare do sales invoices, input purchase invoices.

You can see which invoices were paid or not. Tax every month is calculated automatically. Your company is growing.

Your business is going very well. You have more and more orders. Garden flowers are no longer enough to meet your customers' demands.

You decided to buy flowers from other suppliers and sell them. Of course, you have to store them somewhere, and a place in the basement is already over. You rent a warehouse.

You have shelves in stock and nicely sorted products by type, size and so on. You must carefully record how many goods you take into the warehouse - goods receipt and how many you take for the current sale - goods issue. You need this information to be able to see how many goods you have in stock for sale at any time.

Here, you also need some warehouse management system after some time. Your paper or Excel notes and calculations become too complicated. You are buying software for material management with warehouse management.

You fill out a goods receipt for each delivery and a goods issue when you release the goods. The calculations are done automatically, and you can make inventories from time to time. Your company is so much good that now you need some help.

You start to hire people. If you hire people you have new things to manage. You should pay a salary.

People have some days of vacation a month. So you should manage notification of absence. People go for sick leave and so on.

All are called HR - human resource department. It's too much for Excel and paper management. So you buy software to manage payrolls and HR in general.

Your assortment is growing. People no longer just want cut flowers, but also potted flowers. You decided to start production.

You buy not only flowers, but also soil and pots. You create an assembly line where people and maybe machines later produce beautiful sets of potted flowers. Each set has its production prescription, different product requirements and production time.

All production recipes, machine retooling are so complicated that you don't even try to use Excel here. You buy a production management system right away. There are quality assurance and control in this system.

Managing the production process with design changes, production stages, milestones, product statuses, history of production, employee timesheets, estimation, the demand for materials and labor for production, retooling of production lines and much more. The company is really big a piece of good work for a guy who started selling flowers in the market square. You are already the owner of a big organization.

For managing a big business you need to use reports and analyses. It seems that your company is completely computerized. But look, you have four business areas and four different systems.

There is a lot of separate information. None of this systems talk to each other. Those systems don't share data.

This causes you a lot of problems. For example, you have always some problems that your potted flowers are sold and you didn't produce enough new products. Or the other way around you produced too much your flowers withered because too much was produced.

The report to analyze trends across sales and production would solve the problem. You cannot do that because you have all that information in different systems. Sometimes your production is stuck because there are no enough subcomponents in your storage, so you should order them and till delivery your production is stopped.

It is such a lack of efficiency. Your dream is to have storage and production in one system. In that way, during the planning of production, demand for new purchases would be generated automatically.

Now you can't do this because all that information are in different systems. You plant a hardworking production week, and it turned out that some of your key employees are off at this time. You forgot about that.

Only the HR department had that information. You would love to have a system that checks employees presence during production planning. You could create a report to check that and predict new purchases.

If you want to make your business decisions, you need to see the real-time business performance with dashboards and KPIs meters. Based on that data you can do some strategic decisions, match sales with productions, a stock with sales, supply with demand, production with HR and so on. For all of this, you need some data from one system and some from another.

Many more problems of this type would arise. Uf. .

. It's hard to be a business man. All that is not possible.

Now imagine your company is growing and opening branches all over the world. So think about centralized software that has all your business activities in one place, make super easy for all company to communicate and share information, one complete centralized system with one database. This system covers all business needs and ensures the flow of information between all departments.

This type of system is called ERP. Most ERP systems are made up of different application modules that talk to each other and share one database. Look, now the module reflects a given business area for which we previously needed a separate system.

Software for invoices that we bought first MM - material management module, PP is production planning. now is SD - Sales and Distribution module, replacement of storage management software can be named Our HR software now is HR module. In ERP system, there may also be modules specified to industries from manufacturing to retail.

As you know, there can be many ERP systems, and the names of these areas may be slightly different. This is just an example, but usually they are similar and can cover similar areas. Of course, we can have many other business areas, so modules.

On the example of our florist I showed the most popular areas and the concept of every ERP system, but the most important thing is that you can combine different modules to meet your needs. You have all in one. What is ERP?

ERP is a system to manage the entire company. This is the sentence I said at the beginning of this video. Now, I hope you understand it much, much better.

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