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Introduction to ERP
ERP, or Enterprise Resource Planning, is a type of software application used by nearly every company that deals with physical, tangible products. ERP systems support various aspects of your business depending on the particular system, but the one thing that all ERP applications have in common is inventory management.
Beyond inventory, ERP software capabilities can also include financial applications such as:
- General ledger
- Accounts receivable
- Accounts payable
- Cost accounting and fixed assets
- Purchasing and receiving management
- Functionality to support other business areas such as sales order and quotation management
ERP systems usually also include industry-specific functionality such as manufacturing management or retail management and POS (point of sale).
Differences between Enterprise Resource Planning and POS
POS software generally manages the ‘front end’ of the store (ringing up sales, managing prices and promotions, inventory management employee roles, etc) while ERP software will focus on the ‘back-end’ of the retail business (transaction repository, inventory movement and balances, and demand planning). Both systems provide reporting capabilities. POS systems focus on sales and employee metrics while ERP systems focus on inventory and cost metrics as well as financial reports such as balance sheets or profit and loss statements.
As the name implies, retailers use POS software to manage the front-facing aspects of their retail business to record sales transactions while also updating inventory. Many POS systems also include purchasing / receiving capabilities, provide information about individual retail transactions, and may report information from each register by shift or sales associate. Companies sometimes use data from their POS systems to generate demand forecasts for planning and to update the inventory records in ERP software. POS systems are also useful across multiple channels, providing a complete picture of sales for businesses with both physical and online stores, or companies that sell though multiple distributors or channels.
Enterprise Resource Planning, on the other hand, run the behind-the-scenes processes of a retailer by managing and recording transactions that occur in warehouses and stockrooms. Companies often use their ERP system to plan replenishment at retail or distribution sites. As a result, ERP systems designed for retail environments often include a POS module to eliminate the cost of integrating with a third-party application. ERP and POS systems designed to integrate and work together are usually more cost effective and easier to manage than disparate systems from multiple vendors.
Since both types of applications process inventory transactions, POS and ERP software often have some overlap in the functionality they provide, resulting in confusion as to which application will best support the company. In general, small retailers may be able to use a quality POS system with inventory management to run the front-end and back-end of their retail businesses. However, larger retailers have more complex needs, and typically need an enterprise-class ERP system that manages their operations. In these cases, a large retailer either looks to integrate a third party POS system to manage the checkout process, or uses the POS functions that are included as a part of their ERP system.
Ways to use ERP Solutions
ERP solutions are useful in a variety of business situations.
A few examples might include:
- Buyers deciding what purchase orders to place.
- Printing pick lists to pull, pack and ship on-line orders in the warehouse
- Generating accounting and financial reports for management decision support and tax reporting
- Sales and marketing monitoring promotion results to shape demand
- CSRs looking up a customer’s order history or delivery addresses
- Accounting calculating margins based on standard or actual cost
ERP solutions meet changing business conditions
With the quickened pace of today’s business, most companies require an ERP system to keep track of inventory balances more quickly than ever before. When the retailer reaches volume, it becomes impossible to track inventory balances accurately or effectively using manual methods such as spreadsheets. The resulting chaos would affect the store’s reputation and sales volume.
Additionally, retail pricing is often too complex and it changes too rapidly for stores to manage it effectively without an ERP system. Retail oriented ERP solutions enable you to have multiple price lists by customer group or territory and they track discounts and margins to help ensure you don’t lose money on a promotion.
When to upgrade to an ERP solution
Many small retailers start out with several “point” or individual solutions that coordinate single areas of the business. Point solutions might include CRM (customer relationship management), business intelligence and analytics, general ledger, or a POS system. However, as the business grows you may find that keeping all the data in the multiple systems synchronized is time consuming, and managing the integration between the systems requires a skilled IT team. When your business is ready to growth, it’s time to give up the segmented solutions and upgrade to a full-fledged Enterprise Resource Planning system.
Aside from the integration of all components, some other benefits include:
- Most ERP systems include predefined business processes based on the best practices of the industries they address, helping to ensure effective execution.
- ERP systems use the same data for all areas of the business, so you have better visibility into operations and the status of the business and its performance.
- With more visibility into future demand and more accurate inventory records, you can provide better customer service and reduce stock outs, resulting in higher revenue and increased profitability.
- Eliminating delays in updating information and duplication of data across multiple systems helps to streamline your business and keeps costs low.
ERP for retail
Here are some quality ERP solutions to research and decide if your business needs to upgrade its systems.
MicroBiz offers cloud-based retail-oriented integrated point of sale / ERP. It is targeted for small to mid-sized retailers, from single site mom-and-pop stores to small multi-site / multi-channel chains. It is known for its ability to offer many of the features of an enterprise class ERP system for a lower TCO (total cost of ownership) and its ability to integrate with the Magento ecommerce platform, enabling a smaller retailer to operate its store and online operations from a single application.
If you are looking for industry-specific solutions, MicroBiz has specific features for and caters to over 30 different verticals.
SAP for Retail is a bundled solution that includes applications for many aspects of the retail industry, including demand management and POS. SAP for Retail is used by some of the world’s largest and most successful retail organizations, but it has a reputation for being hard to use for smaller businesses and is more expensive and difficult to implement / maintain without dedicated staff.
Infor is a privately held software application company with a large customer base spread over several different products gained through acquisitions rather than developed in-house. Lawson for Retail is one of the products Infor acquired recently. However, the software uses older technology and its functionality has not kept pace with changes in the industry. Infor has put a modern user interface on the front end making it more usable, though the underlying technology and business processes are outdated and may make this application cumbersome without frequent updates.
Looking for More?
Not quite ready for an ERP Solution? Check out our Point of Sale Articles to learn how to upgrade your storefront.
Thanks to Kevin Kogler of @MicroBizPOS for his contributions to this article.