 Hello and welcome to this session in which we will discuss enterprise resource planning known as ERP. So what is ERP or enterprise resource planning? It's a software. It's a type of a software that many company uses to manage and automate various business processes. Now, the best way to show you this is to take a look at a picture because picture is worth a thousand words. So this is the center, enterprise resource planning or the ERP system. And within the system, what's attached to it, what's interconnected to it are various processes or components such as accounting, purchasing, supply chain, project management, inventory, human resources, marketing sales, so on and so forth. So what is the alternative? So we're saying, okay, so why do we need to learn about ERP? Well we're going to see what's the benefit of it, but what's the big idea? It's good to start with the big idea. The alternative is to have what's called an AIS, an accounting information system. That keeps track of our general ledger adjustment sales. Then we might have a separate software for our inventory, okay? So we could have two, for example, to track our inventory, for example, our accounting information system don't track our inventory, just simply it doesn't. So what we do is we get another software that track inventory. Now remember, the accounting information system keeps track of our sales inventory, the inventory software keeps track of our inventory and cost of goods sold. Now let's assume we want to run a profitability report, which is simply put, let's try to compute gross profit. Well, to compute gross profit, we have to download information from the AIS system and download information from the inventory, which will give us cost of goods sold, then find the numbers. Notice we are dealing with two different software, two different packages. This is when you have, you know, accounting information system, then you might have a separate software tracking of your marketing. Then also that's also a separate software, you have one, two, three. So what that company started to do over the years, guess what? Large companies such as Oracle, what they started to do in Microsoft, they started to offer a software that integrate everything. So you will have one software that have your accounting, your sales, your inventory, your HR, your marketing, your supply chain, your purchases, your project management or anything else you can think of down the road. But they're all integrated in one software. They all communicate with each other. They can all get you the information that you need based on one common factor. Before we proceed any further, I have a public announcement about my company farhatlectures.com. Farhat accounting lectures is a supplemental educational tool that's gonna help you with your CPA exam preparation, as well as your accounting courses. My CPA material is aligned with your CPA review course, such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions, as well as exercises. Go ahead, start your free trial today, no obligation, no credit card required. So the ERP could have many components. And let's take a look at various components then discuss the benefits of ERP. Well, this is a list of components, and those are not all inclusive. You could have a financial management component, managing financial transaction, budgeting and accounting. And basically what we're talking about is here, accounting. We could, this could be one, one component. You could have a supply chain management, tracking and management, the movement of goods and material. Well, do all companies have to have a supply chain management? Not really, think about the banking industry. Think about insurance, think about financial management companies. Well, they have no need for the movement of material. They will not have this component. But the point is, if you happen to have a supply chain, you could have that component. You could have a manufacturing and production management module or component, managing the production process and supply chain. Do all companies have to do that? No, service companies don't need a manufacturing production. Sales, customer relationship. Well, most companies will have some sort of a sales, whether you are selling a product or a service. And they will have something called customer relationship management, or CRM, managing customer interactions and sales. And we'll talk about those a little bit more. What are the benefit of those? HR management. Well, do companies need HR? Sure, I would say all companies will need a module or a component within their ERP to manage their HR. Now, the good thing is HR will be connected to everything. The HR will be connected to manufacturing and production because we need people to work in manufacturing and production. So those two system will communicate with each other, which is good. The HR will talk to financial management. Well, because we need to know how much we are paying those employees. What is our budgeting? How much are we paying them in terms of salary's expenses? Again, we could have inventory management if need be. Or if we don't have inventory, we don't need this module. But when we have inventory, inventory will be connected to our supply chain. Inventory will be connected to manufacturing and production. Inventory will be connected to sales and all these systems are communicating with each other. Project management, which is good. If you have any project, you're managing the project, track a different project. For example, a good example will be of this is for construction companies. They will have different projects. And what they will do, they will assign each construction site or each construction project for a project management and they will keep track of that. Degree of completion, cash flow for this, profitability for this project. And all that will be connected to financial, management will be connecting to manufacturing and production will be connected to sales, customer relationship, so on and so forth. We could have data analytics, which is this is kind of basically, you did not see it on the previous slide, but you could have one module that SAP's data brings data from all these modules, all the data to give you insight in the form of a dashboard to make a better decision through data analysis. Or you could have what's called business intelligence. This is providing real-time information, you know, one page showing you everything that's going on and reporting on key performance indicators. Sometimes these are called dashboards. Basically, one picture shows you everything. Also, if you're selling online, you could have an e-commerce or an e-business module managing online sales and customer interaction. Now, the good news about ERP is, for example, what you can do, rather for example, going with SAP, SAP app or Oracle or whatever company you wanna go with, Microsoft, you can pick and choose different ERP modules from several vendors, as long as you make sure those modules, they can connect to each other easily. Because if they don't connect to each other, we're back to where we started with, where if we have one accounting information system and different softwares that manage different things, but those they don't communicate. So make sure they communicate. That's the whole idea. Otherwise it defeats the whole purpose. But the good thing is companies have the option to do that, especially these days. Now what are the benefits and goals of ERP systems? Well, I'm gonna list eight goals, improving efficiency and production, enhancing decision-making capabilities, improving data accuracy and consistency, reducing operational cost, improving visibility and control, facilitating growth and scalability, improving customer service and enhancing compliance. So those are the benefits or what you should enjoy from an ERP system. Now the best way is to go through each one separately and speak a little bit more about what does that mean. So you can have a better idea of what's an ERP and you'll be able to insert multiple choice questions on your exam day. Well, let's be a little bit more specific. Well, the ERP could be integrated. For example, if you have inventory, it could be integrated with your inventory management system to automatically trigger the purchase of raw material when inventory level reach a certain threshold. So if your inventory management talks to your sales, in other words, connected with your sales, well, at some point, once inventory goes to a certain level, it automatically trigger an order. How would that help? Well, this eliminates the need for manual purchase order, which is increase in efficiency and help to ensure that production is not interrupted and we are more productive due to lack of material. So the computer is making the decisions because the ERP system is helping you do that. Also, the ERP could be integrated with the accounting and financial management system, a law for automatic generation of invoices. Well, once you know that you ship it, you invoice the customer and with purchase orders and automatic recording of financial transaction, such as payments and bills or computing your gross profit. This eliminates the need for any data entry which brings you to be more efficient, reduce the risk of errors, which is good and overall improving productivity. So this is one of the benefit of an ERP. The second benefit is enhancing decision-making capability. How so? Well, you are given the management real-time access to accurate and relevant data from across the organization. You're looking at the big picture in real-time at all time. What could be an example of this? Think of healthcare companies. Healthcare companies. What can they do? Well, healthcare companies, they need to manage patient records. Well, the ERP system could be integrated with the provider's electronic healthcare record or EHR system allowing real-time access to patient information such as medical history, medication, test results. Think about a doctor. Immediately the doctor can pull this information, your medical history, your medication and test result. Why? Because your ERP is connected to this customer. This allow doctors and nurses to make better and more informed decision about the patient care and to provide more accurate diagnosis and treatment plans in real-time. This is how it works. Also, the ERP system could be integrated with billing. You need to build the customer. An insurance system could be connected to an outside party allowing real-time access to patient insurance information and billing status. I'm pretty sure if you went to a doctor and recently, hopefully you didn't, but if you did, immediately they can take a look at your insurance and within a minute or two, they can tell you whether your insurance is acceptable or not. I could assure you, 15, 20, 30 years ago, they'll tell you, we'll call you in a week. Now they can do it immediately because both systems, the biller and the insurance company, they have ERP and they can communicate with each other. This allowed the provider to quickly identify and resolve any billing issues such as denied claims and ensure that the patient are built correctly. I remember a couple of months ago I was going through my dental, annual dental or semi-annual checkup and I needed some work by the time I get home, they called me and told me whether the insurance will cover the work that I need or not. So this is a good benefit of an ERP system. Also it has reporting and analytics capabilities that can be used to get information, extract data from across the organization to better track patient outcome and usage of resources, helping healthcare provider to identify areas of improvement and to measure effectiveness of new treatment and procedures. So basically it gives you good data to help you make better decision. Again, thus enhancing decision-making capabilities. Three, improving data accuracy and consistency. Why? We're centralizing all the data and eliminating any manual data entry because with manual data, you could make mistakes and trying to eliminate the need for reconciliation. The ERP could be integrated with the company, for example, Point of Sales System, POS allowing for real-time update of inventory, exactly what's our level of inventory, exactly what's our sales data as transaction are being conducted. And this eliminate the need for any manual entry and ensure that inventory level are always accurate, up-to-date and as needed. Also ERP system could be integrated with the financial management system allowing for automatic recording for any sales and purchases. Also this eliminate, again, manual entry and reduce the risk of error. That's the benefit of it. Also, we could have a centralized database where all transaction are recorded. Again, this allow easy access to data and reporting analysis because mid-level and upper-level management, they want this data. Enable the data to be consistent across organization because it's all transaction are processed the same way, reducing the chances of any inconsistency in data, which is good. Also ERP will reduce operational costs. Now bear in mind, ERP will have an upfront cost. So yeah, it's cheaper maybe to buy accounting information system, wait until your need grow and buy a marketing inventory or inventory management software. But again, upfront, it's an upfront investment by automating manual tasks and eliminating errors. It does reduce this, but there's an upfront cost. A good example of an ERP reducing operation cost is automating and eliminating errors in logistics. Company use an ERP system to manage their transportation and delivery process. Now we have basically a software integrated with our ERP system that's managing our transportation and delivery process. And this could be integrated with something called transportation management system, allow the tracking of automatic, allow automatic scheduling route routing of delivery based on customer orders and inventory level. So if you have this system ERP, it's talking to your basically your drivers on the road, know exactly where everything is. And this is a great system of keeping track of this. This would also eliminate manual scheduling, reducing the disk of errors, any misdeliveries or incorrect routes. Also the ERP could be integrated with a GPS tracking system, which allowed the monitor to optimize delivery routes in real times of their traffic. If we can save more gasoline on another route, reducing fuel consumption and other operational costs. And this is one example of reducing cost and improving visibility and control of the company. This is a big one. This is basically a global, a global goal. How can we do that by providing comprehensive view? Remember, one dashboard, you can take a look and see what's going on across the company. An example of the ERP improving this, visibility and control over business is by a comprehensive view of the organization performance. A good example will be construction companies and ERP to manage their project management and financial. As I told you, you could have a project management module where it's tracking each construction site or each construction project separately. Well, and this system could be integrated with the company project management or the project management could be integrated with that system, allowing for real-time access to project status. Well, such as task completion, are we 60%, 80%, 40%? Resource allocation, do we need to allocate resources to various project, budget tracking? This also allowed the company to identify and address any issues and delays quickly because we have real-time information on that project and ensure that project are completed on time and within budget. Again, it improved visibility here. It reduces cost. It's a great system. Also, ERP could be integrated again with the financial management system allowing for real-time access to financial data such as revenue per project, cash flow per project. This allowed the company to track their financial performance and to identify area of improvement or any red flags about certain projects that are under certain construction project that are undergoing. ERP also could have a dashboard, comprehensive view again, about all business processes which allow management to track performance of all project and resources in real-time, making it easy to identify any issues or opportunities. For example, if we're done with one project, send those resources to another project quickly or any trends. If there is, for example, a project manager that are really good, well, this is a trend. Now we know this, we wanna give them a promotion or take whatever they are doing and ask other people to basically clone that system because we're seeing a trend, for example, a group of people on a project that are doing a good job because we're tracking each product, each project separately. Facilitating growth and scalability and that's basically why people should have an ERP because at some point when you start to grow, you want a system that can help you manage the company and ERP system, as you see, everything is interconnected, it will help you to do so. So facilitating growth and scalability by providing flexibility to adapt to changing business needs. So as you grow, your need will grow. For example, an ERP system facilitating growth by providing flexibility to adapting, changing business need is a retail company using an ERP system to manage their sales, inventory and supply chain. Well, the ERP system here, let's assume we never had an e-commerce, let's assume you wanna add e-commerce for a retailer, well, could be integrated easily with an e-commerce platform allowing the company to expand their sales channel and reach new customers. Why? Because you could easily go from brick and mortar to an online and keep track of everything of your e-business. So as the business grows, ERP can be configured easily to handle the increased volume of transaction and inventory management without the need for significant additional investment. Again, that's the purpose, otherwise you have to bring a new e-commerce system and you need to find out how it's integrated with your accounting information system, how it could be integrated with your inventory. The ERP should have all these modules. Also, the ERP system could be integrated with the company warehousing management system. So you don't need a separate, we'll have a separate warehousing management system allowing the company to manage their inventory and distribution more efficiently as they expand into new market and new stores. And also the ERP could have a modular architecture that allows the company to add new functionalities as needed and module as the business needs change. For example, I don't believe in cryptocurrency but let's assume we want to accept cryptocurrency. Well, the ERP system, we just tell the supplier we need to have an ERP system. This ensures that ERP system can adopt the company's changing business need as they grow and expand. Also, it can help you improve customer service, how by providing faster and more accurate responses to customer inquiries and order. Remember, if you have an ERP, you're looking at the whole picture. You know exactly the order number, the level of inventory, payment level, so on and so forth. An example of ERP improving customer by providing faster and more accurate inquiries and orders is a manufacturing company using ERP to manage their production, inventory and sales. Well, this could be integrated with the company's customer relationship system. So everything that's happening in inventory, production and sales processes is integrated with CRM, the customer relationship management allowing in real-time access to customer information. So of the customer calls, we know exactly what's going on, production, inventory, sales, orders, invoices, contact details, so on and so forth. So you can respond more quickly and accurately to customer when they ask questions and to process the order more efficiently. And that's very, the customer will feel secure. They feel they are in good hands. Also, this system could be integrated with the company's inventory management. Again, allowing real-time access to inventory level. Again, because they are all interrelated. So notice every time I talk about the topic, I'll go back and talk about the same topic because they are all interrelated. And this is the whole idea of an ERP system. Also, an ERP system has a self-service portal that allow customers to check their order status, check the delivery and access the invoices. And I'm pretty sure if you purchase something online, you can do that. You can know exactly what's going on. Did they ship it? For example, Amazon, they will show you if it's in delivery, so on and so forth because they are using an ERP system that's integrating all of this. And don't you like this? Don't you like that the delivery person is on their way? Well, how do they know this? Well, your information, your customer information is connected to their delivery or their supply chain module. So once they update that module, you know this information through the portal, through online. It's a great system. This improve customer experiences by providing them with real-time information and reducing the need to contact the company for updates. So you don't have to have people answering the phone, wasting time and resources. The customers are more satisfied, more sales and more trust in the company. Also, it helps in enhancing compliance. An example of this will be, for example, in a pharmaceutical industry, if a company is using ERP to manage their manufacturing and supply chain process. How? Well, the system could be integrated with the quality management system. They could have quality management system. This will allow them the automatic tracking and recording of all manufacturing processes, test result and quality control measures. So they're keeping track of this constantly. And this will do what? It will ensure that the company is meeting regulatory and industry standard because everything is connected to figure out whether the product, quality and safety are being met. Also, this system would be integrated with the supply chain management system. Well, why? Because you want to track, automatic tracking and recording of all supplier information because suppliers in the pharmaceutical industries, they have certain certification. They have to upload their certification into the system and making sure the suppliers are also in compliance, which will enhance what? Our compliance. Also, the ERP system has a built-in audit trail that allow the company to track changes made to the data. Well, this is very important in the pharmaceutical. This allowed the company to comply with regulations that require maintaining record of the changes made to data. So if you make a change, it's being tracked. And ERP will allow you to do that, which will enhance your what? Your compliance. Two more thing we want to know about ERP. ERP have something called online transaction processing and online analytical processing, OLTP and OLAP. So you need to know what these are. So they have both of these, typically they're both included. So you need to know what is OLTP, online transaction, online transaction processing and online transaction analytical processing. What's the difference? Well, OLTP is used in ERP to handle day-to-day transactional-based requests, such as financial transaction, buying, selling, those that have a lot of activities, high level of activities, inventory management, and customer relationship management. What does that mean? It's on a day-to-day involving inserting, updating and retrieving small amount of data from a database, transactional transaction that's going on. OLAP, online transaction analytical processing is used to provide real-time information and reporting on key performance indicator. Think of this as generating reports, you're generating reports, such as financial statements, sales report and inventory level. Think of this level, this is where lower level or employees use in it. And OLAP is where management is using this system. So OLAP system, remember, to remember it's AP analytical processing. Remember who does the analytics? Not the low level employees, the higher level people or mid-level. System are optimized for complex queries and data analysis and store data in the demoralized format to make it easy to extract insight and perform data analysis. So you need to know what's the difference between OLTP, you could see a multiple choice question on the exam and OLAP. Now, also bear in mind that an ERP, an ERP system could be host internally inside the company or it could be host in the cloud. So all these software, you don't need to hold them at your place physically. You can have them in the cloud, have access to them on the cloud. So you don't have to have the hosting, you don't have to worry about the hardware, you can access this on the cloud. We're gonna talk a little bit more about ERP in the next session. What should you do now? Go to Farhat Lectures and look at additional resources, MCQs, lectures that's gonna help you understand the benefits, the goal. And next we're gonna look at the architect of an ERP system. Good luck everyone. Study hard, whatever you are studying for the CPA exam, CMA exam, CISA or accounting information system, study hard, it's worth it. Good luck and stay safe.