Budgeting, Planning & Forecasting

Budgeting, Planning & Forecasting

January 31, 2017

What is Enterprise Resource Planning?

Enterprise resource planning or ERP integrates material planning, production planning, purchasing, inventory, finance, human resources and product sales. An enterprise resource planning system may take parts lists directly from the product data management system for each assembly or that data may be maintained manually by configuration managers.

How Does an Enterprise Resource Planning System Work?

An ERP system will process incoming orders to plan how much material must be purchased to support the production of what has just been sold. Manufacturing planning selects the overages for each part type and manufacturing supplies to be bought while production planning juggles the priority of each production lot to minimize delays, work in process and inventory.

There are a number of benefits to having an enterprise resource planning system. Production planning, labor planning and financial planning are all much simpler because the data and default combined schedules are consolidated in one place and each planning group can see the impact changes by one group have on their plans.

The ability to track inventory levels and plan purchases based on financial and stock levels keeps inventory to the level management is comfortable with instead of buying a large quantity of each part and hoping they don’t become obsolete or go bad before use.

What Are the Benefits of an ERP System?

Enterprise resource planning software allows engineering, inventory and finance to track the buildup of work in process that may indicate poor manufacturing operational flow and high scrap rates that require investigation by quality control.

The benefits of using a single ERP system instead of purchase orders based on drawings include significant cost savings, since the system will check the inventory level of each part against what is in stock and the reserve amounts for currently planned production. This prevents the default practice of ordering more parts when a new order is placed when you already have enough in stock.

Immediate updates of acceptable alternative parts or flagging items as obsolete prevents someone ordering items that are not usable, saving money and time. The ability to audit orders for potential financial fraud by employees and flagging potential theft due to high inventory loss and/or scrap rates are secondary benefits.

What Are the Obstacles to Implementing an ERP System?

Given all of these benefits, why isn’t ERP software used by organizations of all sizes? One of the issues that have hindered the wider implementation of enterprise resource planning software has been price. Darby Schafer of Equation Technologies developed an enterprise resource planning software application that works for small businesses as well as large ones and fits the budgets as well as the needs of each.

Another reason why ERP software is often not adopted is the significant labor required up front to set it up, such as entering all of the company’s assemblies, parts lists, acceptable overages and vendor information like lead times. This is less of an issue when an enterprise requirements planning software can import your existing spreadsheets and part models to populate its database, but not all ERP systems have that capability.

Then there is the sheer learning curve that ERP software introduces. And unlike a payroll system or accounting software, ERP software affects all areas of the organization.


The intense effort of implementing an ERP system is greatly reduced if you work with a company like Equation Technologies that can customize the ERP system to your needs and makes the process as painless as possible. The benefits of adopting an ERP system include reduced inventory, greater insight into areas for process improvement, smoother manufacturing operations, faster planning and reduced costs.

Edited by Stefania Viscusi

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