What is ERP (Enterprise Resource Planning)?
Blog Credit: Ian McCue, April 7, 2022 (What is ERP (Enterprise Resource Planning)? | NetSuite)
Introduction to ERP
Function: ERP automates business processes and provides database which is collects from the various departments which consist of insights and inputs.
Departments Covered: It collects inputs from accounting, manufacturing, supply chain management, sales, marketing, and HR.
Key Functions of ERP
- ERP systems unify critical business functions such as finance, manufacturing, inventory and order management, customer communication, sales and marketing, project management, and human resources.
- Detailed analytics and reporting on each department are major features of ERP.
Importance of ERP for Businesses
- ERP is essential for wise resource allocation and building efficient core business processes.
- ERP supports in planning & coordination by providing detailed information on inventory, customer orders, supplier purchase orders, and forecasted demand.
- ERP enhances communication and collaboration between departments and provides valuable reports & analytics for decision-making for business processes.
Benefits of ERP
- Identification of areas for improvement and opportunities for expansion.
- Automation of error-prone tasks and provision of necessary information for efficient operations.
- ERP gives both a high-level overview processes and detailed insights of the particular processes or KPIs.
- Accessible from anywhere, ensuring employees can access data remotely.
- Ensures data is always up-to-date and decision-makers are using the same data for informed choices.
ERP Deployment Models
- Deployment models include on-premises, cloud, and hybrid solutions.
- Cloud ERP has get popular-ed in recent years, but the choice depends on the company’s specific needs.
Choosing the Right ERP Solution
12 Benefits of ERP Systems:
Cost Savings
Workflow Visibility
Centralizing workflows and information enables employees to easily track project status and business performance, saving time and streamlining communication.
Reporting/Analytics
Business Insights/Intelligence
Regulatory Compliance & Data Security
Risk Management
ERP technology reduces risk through access controls, approval workflows, data accuracy, and the ability to quickly address risks posed by business disruptions.
Data Security
ERP providers ensure data security through robust security protocols, particularly in cloud ERP solutions, to protect against cyberattacks and safeguard sensitive information.
Collaboration
Scalability
Scalable ERP systems adapt to operational changes and increasing data volumes, ensuring they meet current and future needs effectively, especially in cloud environments.
Flexibility
ERP software offers the flexibility to accommodate unique processes and goals, enabling administrators to personalize workflows, generate automated reports, and foster innovation.
Customization
Despite offering extensive functionality, modern ERPs allow firms with specialized processes to customize the system to their requirements, reducing the need for customizations based on best practices.
Customer & Partner Management
ERPs help businesses build stronger relationships with customers and partners by gives the views on the interactions and allowing for easy information sharing between them. This translates to happier customers and stronger partnerships.
Who Uses ERP?
Industries Utilizing ERP
ERPs are surprisingly versatile! It is used in a wide range of industries, from advertising and education to healthcare and manufacturing. This is because ERPs can be customized to fit the specific needs of different businesses.
Roles & Users
- ERP benefits different job functions such as finance/accounting, supply chain, sales, marketing, and human resources.
- Finance teams track transactions and generate financial reports, supply chain personnel optimize operations, sales teams manage leads and customer interactions, HR departments handle employee data and workforce trends.
When to Implement ERP:
- ERP adoption is not limited to large enterprises, as modern SaaS ERP solutions cater to emerging and midsize companies.
- Signs that a business needs ERP include outdated technology hindering operations, inaccurate data, lack of integration among systems, high error rates, and over-reliance on email and spreadsheets.
Disadvantages of ERP Systems:
- Challenges associated with ERP include system cost, training requirements, data conversion costs, complexity, maintenance, and the inability to solve underlying process and policy issues.
- These kind of challenges can be eased through preparation and choosing the right supplier partner.
Key Features of ERP Systems:
- Fundamental features distinguishing ERP systems include a common database, consistent user experience/interface (UX/UI), business process integration, automation of repetitive tasks, and robust data analysis capabilities.
- It enables management to centralize information, streamline operations, and gain insights for informed decision-making across departments.
How Does an ERP System Work?
ERP systems act as a central hub, using a common format to share real-time data across departments. It makes everyone to be on the same page and make informed decisions based on the latest information, ultimately improving overall business performance.
Types of ERP Deployment Models:
- On-premises ERP: The software is installed and managed on servers owned by the organization, requiring in-house IT expertise for maintenance and upgrades.
- Cloud-based ERP: Hosted on remote servers managed by a third party, providing flexibility and accessibility through web browsers. It includes single-tenant and multi-tenant options.
- Hybrid ERP: Combines elements of on-premises and cloud deployments, allowing organizations to leverage both models based on their specific needs.
- Open-source ERP: Offers inexpensive or free alternatives with minimal support from the provider, requiring technical expertise for development and configuration.
ERP Systems by Business Size:
- Small-business ERP: Cloud ERP is preferred due to lower upfront costs, scalability, and faster implementation, catering to the needs of small businesses with limited resources.
- Midsize-business ERP: Cloud ERP remains popular, offering user-friendly interfaces and scalability, while on-premises or hybrid options may suit companies with specific requirements or regulatory constraints.
- Enterprise ERP: On-premises or hybrid ERP solutions are common, supporting large-scale operations and extensive data processing capabilities.
ERP Modules
ERP systems comprise various modules tailored to different aspects of the business, including finance, procurement, manufacturing, inventory management, order management, warehouse management, CRM, PSA, WFM, HRM, ecommerce, and marketing automation.
ERP Best Practices
- ERP software is built around established best practices, promoting process standardization, operational efficiency, and compliance with industry standards.
- Leading ERP vendors offer vertical-specific versions of their software to incorporate industry-specific best practices.
ERP Implementation
- ERP implementations follow a structured process involving stages such as discovery and planning, evaluation and selection, design, development, testing, deployment, and ongoing support.
- Successfully implementing an ERP system requires careful planning. This includes involving all departments (cross-functional collaboration), getting buy-in from users, and making sure the system aligns with the company’s goals. By taking these steps upfront, businesses can ensure a smooth transition and maximize the benefits of ERP.
Implementation Best Practices
- Secure executive sponsorship to ensure top leadership support.
- Begin planning early to map out requirements, prioritize tasks, and evaluate vendors.
- Foster communication and collaboration across the organization to gather input and ensure buy-in.
- Set reasonable expectations regarding timelines, costs, and employee involvement.
- Choose appropriate Key Performance Indicators (KPIs) aligned with organizational goals.
ERP Integration
- Organizations must decide which existing systems to replace, integrate, or leave standalone.
- Integration enhances the value of ERP systems by enabling seamless data flow between modules.
- Considerations for integration include system functionality, availability of connectors, and data synchronization.
Cost of ERP
- ERP project costs vary widely based on vendors, modules, and deployment models.
- Total costs can range from less than $10,000 per year to millions of dollars annually.
- Cloud-based ERP typically has lower upfront costs compared to on-premises solutions.
History of ERP
- ERP evolved from material requirements planning (MRP) systems in the 1960s to manufacturing resource planning (MRP II) systems in the 1980s.
- In the 1990s, ERP emerged as a unified business management platform with steep capital and operating expenses.
- The advent of cloud ERP in 1998 revolutionized the ERP landscape, making it more accessible to smaller companies.
Implementation Best Practices:
- Secure executive sponsorship to ensure top leadership support.
- Begin planning early to map out requirements, prioritize tasks, and evaluate vendors.
- Foster communication and collaboration across the organization to gather input and ensure buy-in.
- Ensure that expectations regarding timelines, costs, and employee participation are realistic and attainable.
- Choose appropriate Key Performance Indicators (KPIs) aligned with organizational goals.
ERP Integration:
- Organizations need to make decisions about replacing, integrating, or maintaining standalone existing systems. Integration adds value to ERP systems by enabling smooth data flow between modules. Factors to consider for integration include system functionality, availability of connectors, and data synchronization.
Cost of ERP:
- ERP project costs vary widely based on vendors, modules, and deployment models.
- The Total costs can range from less than ,000 per year to millions of dollars annually.
- Cloud-based ERP typically has lower upfront costs compared to on-premises solutions.
History of ERP:
- ERP evolved from material requirements planning (MRP) systems in the 1960s to manufacturing resource planning (MRP II) systems in the 1980s.
- In the 1990s, ERP emerged as a unified business management platform with steep capital and operating expenses.
- The advent of cloud ERP in 1998 revolutionized the ERP landscape, making it more accessible to smaller companies.
Future of ERP:
- ERP systems are getting a tech makeover! AI, blockchain, AR, and IoT are on the horizon. Â This means smarter automation, better forecasts, transparent supply chains, and real-time data for everyone. Â Get ready for a more efficient future of ERP!
ERP FAQs
1. What is ERP?
ERP stands for enterprise resource planning, a term introduced by research firm Gartner in 1990 to describe comprehensive business management solutions.
2. What is ERP in simple terms?
In simple terms, ERP refers to software utilized by businesses to oversee and manage daily operations. simplifying ERP may consolidates data from various departments into a centralized repository for analysis and reporting.
3. How does ERP work?
ERP functions by utilizing a central database that collects data from various departments within an organization. It integrates modules specialized in essential functions like accounting, inventory management, and customer relationship management (CRM).
4. What is an ERP system?
ERP systems comprise modules that cater to specific business processes. They operate through a central database, offering real-time data access and visibility across various departments.
5. Why is ERP used?
Companies utilize ERP to unify data from multiple business functions within a centralized system, establishing a “single source of truth.” This helps automate manual processes, saving time and reducing errors.
6. What functions does ERP cover beyond finance and accounting?
ERP software encompasses various business functions beyond finance and accounting, including purchasing, inventory management, manufacturing, workforce management, sales, and marketing.
7. Why do companies opt for ERP?
Companies utilize ERP software to achieve substantial time and cost savings, enabling company-wide visibility and reporting. This assists executives and managers in directing resources towards resolving essential issues effectively.
8. Differentiating ERP and MRP
MRP (material resources planning) systems, the predecessors to ERP, focused on manufacturing-related tasks. In contrast, ERP encompasses a broader range of business functions.
9. What is two-tier ERP?
Larger companies with subsidiaries or regional offices employ a two-tier ERP approach. This involves running a less-resource-intensive ERP integrated with a Tier 1 system.