Enterprise Resource Planning (ERP) (Cambridge (CIE) A Level Business): Revision Note

Features of an enterprise resource plan

• Enterprise Resource Planning (ERP) is a type of integrated software system that helps a business manage and coordinate its core activities — such as finance, production, supply chain, human resources, and customer relations — all in one place.

  • ERP solutions have evolved over the years, and many are now web-based applications that users can access remotely

• ERP can help a business plan resources by integrating:

  • planning

  • the purchasing of inventory

  • sales, marketing and finance

  • design and production and human resources

• It collects information about the activity and state of different production stages, allowing the different functional areas to communicate and share information easily

Common features of ERPs

ERPs and efficiency

• Enterprise Resource Planning (ERP) systems improve efficiency by connecting all key business functions, such as finance, operations, and HR, into one integrated system

• This allows for real-time data sharing, quicker decision-making and the more effective use of resources

How do ERPs generate efficiency?

1. Inventory control

• ERP systems monitor inventory levels in real time, across all warehouses and stores

  • This prevents overstocking and stock shortages, as stock levels are always accurate

  • It helps reduce waste and storage costs by only reordering when necessary

2. Costing and pricing

• ERP brings together data on purchasing, production and sales to give accurate cost information

  • This allows businesses to set realistic and competitive prices based on true costs

  • It also helps managers identify where costs are increasing and make changes to protect profit margins

3. Capacity utilisation

• ERP systems track machine use, labour hours, and output across departments or locations

  • This ensures that production facilities are neither underused nor overloaded

  • It helps businesses plan production more efficiently and make the most of their resources

4. Response to change

• Because ERP updates data instantly, businesses can react quickly to unexpected changes, such as supplier delays or a sudden rise in demand

  • This improves communication across departments and avoids disruption

  • It allows for faster and more confident decision-making

5. Workforce flexibility

• ERP systems store information on staff availability, qualifications and current roles

  • This makes it easier to move staff to different tasks or locations when needed

  • It also improves shift planning during busy or quiet periods

6. Management information

• ERP systems provide managers with accurate, real-time reports

  • This helps leaders monitor sales, costs, cash flow, and productivity without delay

  • It reduces time spent on manual reporting and improves the quality of decision-making

Limitations of ERP Systems

• Bespoke ERP systems are expensive to install and maintain and involve short-term upheaval to a business's operations.

• ERP systems do not always eliminate inefficiencies within a business and rarely improve every aspect of production

• A company's reluctance to abandon old working processes limits the effectiveness of ERP systems 

• ERP systems cannot be successfully implemented during a period of significant business change