ERP systems are a necessity for product-focused businesses, and have been for some time. However, changes in the market have led these products to evolve over time. The evolution of ERP is similar to the evolution of another pillar that has stood the test of time: the Olympic Pentathlon.
The pentathlon of ancient Greece was an Olympic event meant to symbolize five skills of a combat warrior, including wrestling and long jump. When the modern Olympic Games were revived in 1912, it was decided that these skills were no longer relevant to soldiers and needed to be updated. This is when the modern pentathlon was created; it's now a competition that requires the skills of modern soldiers including fencing, swimming, equestrian, running and shooting.
Similarly, traditional ERP systems needed to update their functionality to be more accommodating to project-fueled businesses. Historically, ERP systems have been convenient for companies because they connect all aspects of business, from financials to procurement and inventory management. In the mid- to late 1990s, ERPs became slightly more customizable, making them even more appealing to large-scale, project-based companies in addition to the product-based companies who had used ERPs for years. When a shift from product to project-focused business took place, it was time to modernize with project-based ERP.
The core operation of an ERP system has always been financials and accounting. With the development of project-based ERP, the financials are now attached to specific projects, recording the profitability of each project individually, rather than aspects of a physical product. Sorting the financials in this manner can help you better budget and forecast the cost of similar projects in the future. This can make organizing ledgers much more manageable.
Traditional ERP systems offer only a few standard options for billing, mainly because they are in industries where invoicing is not very complicated. You get paid for your product, end of story. In project-driven organizations, clients may require very specific billing regulations. To meet this need, project-based ERP systems have developed more complex billing options than original ERPs. The billing function is often flexible, allowing each project to be invoiced differently if necessary. This can make collecting money much simpler.
Product-centric ERPs provide inventory management to help plan out the supply and demand of the product your business is manufacturing. With project-based ERP, inventory management refers your company's materials that are used on specific projects that may add additional overhead. It is important to keep track of these materials to ensure that all of your project financials are accurate.
One of the main concerns for any finance department is following all of the accounting standards, specifically in the event of an audit. New features that break the finances down into project-based groupings allows for greater transparency into where each dollar comes from and is allocated compared to standard ERP systems.
Project and product-based ERPs are relatively similar in the sense that they both can have manufacturing modules that perform quality management, warehouse management, purchasing and tracking and sales orders. In a project-based ERP, however, the module breaks down all of these functions into case-by-case projects instead of repeating the same process for each product manufactured.
With the expansion of cloud computing, ERP systems are more customizable today than they have ever been, and no two systems are identical. These are just five of the many different ERP aspects that have updated to be more beneficial to project-oriented businesses.