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When is a software application called ERP versus Accounting software?
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An ERP system leverages and integrates information from various functions and even workflows within a function. An Accounting System is typically a stand-alone application that will handle all or most of your accounting needs and perhaps some other functions; depending on the company size and complexity.
The key concept above, regarding ERP, is leverages and integrates information. Employees will always want to, and should work, in the application that optimizes, from a cost and functionality perspective, their job performance. An ERP will allow different functions to use the same information either because all the information is housed in the ERP database directly or seamlessly integrates with the appropriate 3rd party application.
By way of two examples:
1) An ERP will automate the workflow process of a buying inventory, from purchasing to material receipt to paying the vendor. This workflow can include taking a forecast for Revenue, running an MRP to determine inventory purchases, placing purchases orders with vendors, receiving the material from the vendor, matching the receipt to the purchase order placed on the vendor, which ultimately allows the invoice from the vendor to be matched to the receipt so Accounts Payable can pay the vendor. As all the information is linked, the various functions are able to leverage the information to perform their jobs.
2) The ERP needs to be the single source of truth for elements like customers, part numbers, etc. for various control reasons and the CRM will be the keeper of other information including notes, contacts, quotes and attachments. It is important to note that the CRM application can either be an application built into the ERP or be a 3rd party application (e.g. salesforce.com). The choice of which type of CRM to select is a separate discussion as it really is a simple cost/benefit analysis. However, if a 3rd party CRM is selected, the appropriate information from the CRM and ERP must be integrated in a bi-directional manner, depending on the specific information, such that all functions have visibility into the information they require.
In summary, the ERP solution for a company may be a few key integrated applications, or a single application that provides functionality which enables the efficient flow and use of information across various functions/job responsibilities. An Accounting package is typically limited to the basic accounting functions of a company and very often is used only by a single user.
An accounting software is an accounting software, meaning it does accounting and nothing else. Many people like to believe that an AS is a mini ERP; this is simply not true. Budgeting, forecasting, costing, etc… are accounting functions. The only thing that an AS and an ERP have in common is the accounting module; every ERP has an accounting module. Where an ERP differs is it espouses your business processes (or at least expected to). I build systems for SMBs and the 2 phases I go through when I start with a new client gives a good idea about the transition from AS to ERP.
Phase1 Build and install a core accounting system (done within a week/10 days), once in place and functioning, then comes the intricate and never ending phase2, and this is where the AS starts to gradually mutate into an ERP.
Phase2 - Start adding the functionalities from the operations: CRM, mass emailing, scheduling, project management, loan approval management, event management, truck maintenance, anything needed and related to operations. This is an ongoing and never ending process. For expl a year later the scheduling process has changed, or the sales process has changed or a section of the business has been subcontracted or conversely, what was subcontracted is done in-house now, etc, etc…
In the beginning of phase2 the accounting section represents 80%/90% of the application. Two years later the same accounting section might represent 30%/40% (in some cases less) of the entire application.
an ERP is in charge of centralizing and managing all of the processes involved in a business, including:
. accounting
. analytic accounting
. MRP and maintenance management
. CRM
. SRM
. Stock management
. Transport management
. Forecasting
. Reporting
. BI
...
so it's a lot more than accounting, and ideally it should model, manage and plan all important activities.
The key characteristic of a true ERP (Enterprise Resource Planning) software application is the use of one database that is shared by all departments/functions. As you can tell from the name a true ERP solution is for a large organization. You will not find many 20 employee businesses using a true ERP solution.
I hope you noticed a keep saying "a true ERP solution" and not just an ERP solution. My reasoning is that as long as the software provides functionality for two or more systems it could referred to as an ERP solution. Most small businesses in the US have fewer than 20 employees. Most of these businesses use software applications that are usually called accounting software and not ERP solutions. But if you take a closer look at QuickBooks and Peachtree as an example of small business accounting software applications both of these applications support accounting, budgeting, forecasting, reporting, business intelligence, customer relationship management, inventory management and depending on the version analytic accounting.
Could you consider these applications ERP solutions? Yes you could but they are designed for small businesses and not larger organizations and are not marketed as ERP solutions but small business accounting applications.
Brittany Meeks wrote an article explaining ERP: What is ERP? Here is the link. http://www.customis.com/business-application/blog/What-is-ERP.aspx
Accounting soft keeps track of only (dollar, etc.) values, and planning is in fact budgeting.
ERP is larger then that starts with quantities (kilos, miles, hours, etc.), planning is like Master Planning, Material Requirements, Capacities Loading...and all that is evaluated at some point and according to certain rules, and goes accounted for in accounting.
Bob Swedroe nails the topic. Accounting and finance are two important functions within a larger organization. ERP integrates data flows from areas across the organization and creates the "single version of truth" that Bob describes.
I suggest you see these Briefs I published on Focus for more information on this topic:
ERP for Manufacturing: Considerations and Recommendations:
http://www.focus.com/briefs/operations/erp-manufacturing-considerations-and-r...
5 Critical Points for ERP Success
http://www.focus.com/briefs/information-technology/six-questions-ask-implemen...
Five Important Best Practices for Buying and Implementing ERP
http://www.focus.com/briefs/operations/five-important-best-practices-buying-a...
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