What is ERP? Definition, Types, Benefits, Best Tools
Many companies use spreadsheets to organize key business information and run their organization efficiently. However, it reaches a point in the company’s growth and expansion that spreadsheets can no longer handle the company’s needs.
Enterprise Resource Planning (ERP) software is the solution to this problem. The ERP systems help businesses collect and organize their key information. Businesses or organizations can run lean and efficient operations as they scale.
You may have heard of “ERP” but only know a glimpse of what it can do for your business. In this article, you will learn what Enterprise Resource Planning (ERP) is, how it works, how to use ERP software, the benefits, disadvantages, and key features of ERP Systems, the best ERP systems, and much more.
Let’s get started.
What is Enterprise Resource Planning (ERP)?
ERP is an acronym that stands for Enterprise Resource Planning. It refers to software and systems used by organizations to plan and manage their day-to-day business activities. Some of these business activities include accounting, project management, risk management and compliance, procurements, and supply chain operations.
The ERP software helps companies or organizations to accurately plan, budget, predict and report their financial processes and health. It allows for better performance and project management across the various units in an organization. There are two types of ERP applications, individual ERP applications and a complete suite of ERP applications.
The complete suite of ERP applications offers enterprise performance management. It helps form an ERP system that enables businesses to bring together a multitude of business processes and enable the flow of data between the business applications.
ERP uses common databases either hosted in the cloud, on-site, or on-premise to connect every aspect of an enterprise. By gathering and collecting an organization’s transactional data from multiple sources, it helps remove the risk of data duplication which boosts data integrity.
Organizations use ERP as their single source of truth and central database. They are critical for managing businesses of all sizes across industries.
Business leaders gain more visibility of the activities of various departments. ERP empowers these leaders to improve their processes, analyze various scenarios, increase productivity, and efficiency gains. It saves cost and improves work efficiency as employees spend less time trying to locate the needed data.
Many of the world’s most successful firms use ERP to boost their productivity and yield even better financial results. In summary, ERP unifies people, processes, and technology across an organization.
Brief History of ERP
Enterprise Resource Planning software and system date back over 100 years ago. It was used in the manufacturing industry as far back as 1913. Since 1914, ERP has evolved so much that the ERP system used in organizations today looks nothing like what was obtainable 100 years ago.
- 1913: Ford Whitman Harris, an engineer developed the Economic Order Quantity (EOQ) model, a paper-based manufacturing system for production scheduling. This invention became the standard in the manufacturing industry for decades and remains the earliest available record of an attempt at creating an ERP system.
- 1964: Toolmaker Black and Decker took ERP to higher heights when it became the first company to adopt the Material Requirement Planning (MRP) solution. It combines Economic Order Quantity (EOQ) with the mainframe computer. What we now know as ERP started with the MRP systems. Manufacturers used MRP systems to plan their production schedules to ensure they always have the necessary supplies needed for production. It also tracks finished inventory. MRP remained the manufacturing standard until a higher version was invented in 1983, the MRP II.
- 1970s to 1980s: Computer technologies evolved beyond what was obtainable in the accounting and finance world in the 1960s with mainframe computers. ERP went beyond the handling of business activities in the manufacturing industry to other industries or areas like finance, Customer Relationship Management (CRM), and human resources data. These pioneering technologies were more accurate, faster, and more efficient than manual processes. However, they were still slow compared to today’s ERP software, limited in functionality, and very expensive. Only a few businesses could afford to use it.
- 1983: Material Requirement Planning (MRP) II system was developed, two decades after the development of the first Material Requirement Planning (MRP) solution. The new MRP software still targeted the manufacturing industry but added new capabilities that improved production planning. It featured modules and integrated core manufacturing components and tasks such as purchasing, scheduling, bills of materials, and contract management into a common shared-data system. In the mid-1980s, the manufacturing industry was booming, the competition was exploding, and there was a need for more efficient tools. The MRP II software provided the manufacturer with an integrated system that consists of accounting and finance, inventory, manufacturing, purchasing, planning, sales, and scheduling activities. For the first time, different manufacturing tasks were integrated into a system. The MRP II software provided the foundation for today’s ERP software that boost operation efficiency, better planning, and reduced inventory and waste.
- 1990s: The term ERP was coined by the Gartner Group to separate it from the MRP-only system. ERP took the identity of a unified business management platform in this decade and encompassed business intelligence and other functions such as marketing automation, sales force automation, and eCommerce. The ERP system brought together accounting, manufacturing, HR, product development, and order fulfillment information together in a common database. These early ERP solutions were expensive to purchase and run. Some of the bills companies had to foot include buying servers, hiring an IT team with expertise in ERP processes, license fees, maintenance, and upgrades. The early ERP software was built on the company’s premises requiring expensive hardware.
- 1998: NetSuite introduced the first-ever cloud ERP (Enterprise Resource Planning) software.
- 2000 – 2005: More cloud-based ERP software solutions arrived and became mainstream, providing an alternative to the on-premise ERP system. The cloud ERP revolutionized the ERP industry, massively reduced investments and operating costs. Companies no longer had to hire an IT staff or purchase servers because everything was now done on the cloud by the ERP vendor. This innovation made ERP affordable for small businesses.
- Today: The software-as-a-service (SaaS) delivery model for ERP is popular. Companies now use remote web-based access for cloud ERP solutions as opposed to on-premise ERP solutions. The former provides mobile solutions, top-notch security via encryptions, and more dynamic integrations. Today, ERP integrates with the Internet of Things (IoT), Internet of Everything (IoE), social media, and other smart technologies to deliver comprehensive solutions for firms in any industry.
How Does an ERP System Work?
An ERP system consists of different enterprise resource planning applications that communicate with each other and share a common database. Another name for the ERP system is the ERP suite.
The Basic Structure of Every ERP Module
Every ERP application or module restricts itself to just one business activity. The ERP systems allow businesses to combine their choice modules so that they can operate efficiently.
Finance, human resources, sales, and logistics are the common ERP modules used by companies in their ERP system. Choosing your ERP application depends on the industry you are in or your needs. For example, if you own a company in the manufacturing or retail industry, you will use the ERP modules listed above.
The beauty of the ERP system is that every module is usually licensed separately, allowing companies to choose the functionality they want and scale as they grow.
How ERP Systems Work
ERP systems work using a standard and defined data structure. Once a department enters information into the database, it immediately becomes available to authorized users in the company. Such a unified and uniform structure ensures that the authorized parties are aware of the activities going on in the company. It fosters cooperation across departments.
For example, let us assume a local phone distribution company has multiple warehouses that share data and personnel. Inventory stock, sales, and employee data from the various locations are fed directly into the ERP system. As these warehouses or locations input these data into the ERP system, it formats it so that it indicates where each data is coming from.
Cross-Department Interactions and Better Business Decisions
The data in the ERP system is used to make the business processes and workflows more efficient and available across departments. Leaders and managers across different departments can use the information in the ERP system to determine how well the warehouses are performing.
If one is performing more than the other, for example, at avoiding spoilage, they can use the information to find out why. For warehouses that are performing below par, leaders can figure out why by analyzing the high-performing warehouses.
Operations use the ERP system to ensure that the company’s staffing level aligns with traffic patterns. The company’s finance and accounting department can compare the number of sales and other valuable financial information on the ERP system.
Accurate Data Entry
The ERP system works best when a company sets different modules for each of its major business functions. The company has to input data promptly to reap the full benefits of the system. Data entry must be accurate or else the company decision-makers risk using inaccurate information to make business decisions.
Who Has Access to the ERP System?
Companies typically grant access to their ERP systems to essential stakeholders. The more stakeholders have access to the ERP system, the more benefits it brings to the company.
There are situations in which a company can integrate external stakeholders into its ERP system. For example, if your company uses business systems from multiple vendors, it is possible to integrate the data from those business systems to automatically flow into your ERP.
Who Uses ERP Software?
The question should not be who uses ERP software, but rather who doesn’t need ERP software? It provides massive benefits to companies, such as increasing their efficiency and their Return On Investment (ROI).
In this section, we will answer the “who uses ERP software” question by taking a look at two different categories: by industry and by company size. Without ERP software, these industries and companies will struggle to maintain a high-level operation efficiency.
Companies across every industry, irrespective of their business and operational models can use ERP software to cater to their varying needs. ERP is an extremely flexible system with equally flexible solutions and functionality that cater to different organizations and their requirements.
Some of the popular industries that depend on ERP to run their systems and processes include:
- Advertising and Digital Media
- Aerospace and Defense
- Agribusiness, Farming, and Agriculture
- Apparel, Footwear, and Accessories
- Campus Stores
- Clothing, Consumer Goods and Retail
- Construction and Home Improvement
- Electronics and Technology
- Financial Services
- Food and Beverage
- Health and Beauty
- Healthcare and Hospitality
- Healthcare, Pharmaceutical, and Life Sciences
- Industrial Machinery and Components
- IT Services
- Media and Publishing
- Professional Services
- Restaurants and Hospitality
- Software and Technology
- Transportation and Logistics
- Wholesale Distribution
Within these organizations, there are departments or job functions that benefit from the adoption of ERP the most. Some of these departments include:
The accounting department is one of the departments that use ERP software. They are often the first adopters of ERP. This department is responsible for all the financial duties in the company. As a result, it has to track and report all the financial transactions and other information recorded in the ERP system.
Some of the financial information it tracks and reports include Accounts Payable (AP), Accounts Receivable (AR), inventory, and payroll including payroll tax.
With the rich and central financial information produced by the ERP, accountants and financial planning and analysis experts can convert it into forecasts and reports. Such reports can be on cash flow, expenses, and revenue.
The supply chain refers to departments or employees that are primarily focused on business operations. They include warehouse managers, purchasing agents, inventory planners, and senior supply chain leaders. The ERP system is vital for the smooth and continuous flow of goods from your company to customers.
Such data-intensive fields like the supply chain need ERP software to ensure that the appropriate stakeholders are aware of the developments and real-time status of the supply chain.
They rely on the accurate and detailed information that the ERP system provides to prioritize orders, optimize inventory levels, and identify inefficient processes. It also uses the information to prevent supply chain disruptions, and maximize on-time shipments.
Sales and Marketing
ERP can improve the productivity of and generate better results for your sales team. It achieves this by automating your lead management, recording and monitoring your prospect conversation history with your company.
Sales and marketing teams in your company can use it to check the status of prospects and document their interactions as they advance through your sales funnel.
The marketing department gains access to the sales department records in the ERP. They can use the same records to automate and manage their outreach campaigns across all channels. Some of these channels include email, phone calls, and social media.
ERP makes it possible for marketing and sales teams to measure the effectiveness of their various sales and marketing campaigns. It allows them to track and measure the effectiveness of the channels used and the message itself. Both departments can use this information to better allocate their budget.
The Human Resources (HR) department uses ERP to track all employee information in the company. HR can easily find contact information, benefits and compensation details, broader workforce trends, and other documents for every employee.
ERP provides information about key metrics such as retention by department, promotion rate, and average pay by title. HR monitors these metrics and uses them to better allocate employment benefits to its staff and other employees in the company.
By Company Size
Companies of different sizes can use ERP software, there is no one-size-fits-all limitation. There is an ERP software plan for every company size. Generally, there are three company sizes.
- Small Businesses
- Medium-sized Businesses
- Large Enterprise Businesses.
Small businesses are often hesitant to use ERP software because of their perception of its costs and their little business needs. What’s wrong with using spreadsheets or accounting software to manage your business?
The problem is that it is not scalable. Unless you do not have a plan to grow and increase your productivity, ERP software is the perfect solution for small businesses looking to increase their ROI and productivity.
Medium-sized businesses need ERP software to handle their larger business activities. ERP helps them cut the red tape and various inefficiencies holding them from reaching a higher ROI and their potential profits.
Large enterprise businesses need ERP to help them manage their multiple subsidiaries and branches, and in many cases their global operations. The best ERP software plans that come with all the scalable tools for large enterprise businesses have a high cost. However, the massive benefits it brings such as efficient process management and higher ROI and profits make the high cost look cheap.
Benefits of Using ERP Systems
Today’s ERP solutions provide tons of amazing features that bring about massive benefits to businesses. The benefits vary from one individual firm to another.
Here are some of the benefits of using ERP systems for businesses.
1. Cost Savings
One of the biggest benefits of using ERP systems is that it helps organizations save money in numerous ways. When companies use the automation feature of the ERP to automate many simple and repetitive tasks, they minimize errors.
Another place it saves companies money is in payroll. With ERP systems in place, there is a reduced need to hire employees that perform the roles that the ERP does.
Cross-company visibility, a feature of an ERP system, makes it easier for companies to spot inefficiencies that lead to higher operating costs. Companies can use this information to better deploy their resources on inventory, labor, and equipment
Cloud ERP systems are very affordable and accessible. Businesses will easily and quickly see an incremental value and ROI over what it spends on it.
2. Workflow Visibility
Employees with access to the ERP system have access to all the workflows and information in the company. ERP integrates all workflows and information in one central platform. Leaders can check and monitor the status of projects and the performance of individuals/teams.
Managers find this workflow visibility valuable for overseeing the business operations and employees. ERP makes it easy to find the relevant information faster and easier. You do not have to ask colleagues or other departments for information, every information you need is in the ERP system.
Data is only useful when you can analyze and understand it. ERP helps companies not only to gather their data but to analyze and understand what it says. Top ERP solutions have impressive reporting and analytic tools that allow users to track, display or compare their KPIs and other metrics.
ERP helps businesses understand how a change to the process in one department can affect the other departments in the company.
4. Business insights/Intelligence
ERP can provide extensive insights into your business performance and other impactful trends. It can do this because it is a central platform that can access data from virtually all departments in a company. Leaders and managers enriched with vital business insights and intelligence make better decisions.
5. Regulatory Compliance and Data Security
Staying on top of financial reporting standards and security regulations (governmental and industry-specific) is tricky due to their frequent changes. Instead of painstakingly tracking all regulatory compliance and data security changes, you can use ERP to keep your company safe and compliant.
ERP makes the auditing of your company easier. It tracks the lifecycle of your transactions and adherence to the required approval workflows. Automation helps businesses reduce the chances of compliance errors.
The software provides users with financial reports that adhere to the standards and regulations set by the appropriate regulatory bodies. It has SaaS applications that help companies with PCI-DSS compliance.
6. Risk Management
ERP helps businesses reduce and manage their risk. Defined approval workflows and granular access control help reduce the likelihood of fraud and strengthen financial controls. Managers and leaders can view the status of the entire operation at any point in time and better handle risks posed by disruptions.
7. Data Security
Security is another massive benefit that ERP software brings to its users. With the increase in cyberattacks, business owners need to take all the precautions and steps to secure their sensitive data. ERP takes all the necessary steps to secure your data.
Cloud ERP software uses solid proof security protocols to protect its users from the risk of cyberattacks.
ERP solutions support increased collaborations across departments and subsidiaries in companies. Your company gains massive results when employees work together.
ERP makes it easy for employees to share and access information such as contracts and customer-support records, and purchase orders among teams. The traditional barriers that make it difficult for easy sharing of information are broken with ERP.
ERP software makes it easy for your company to meet its pressing needs now and in the foreseeable future with its scalability feature. It adjusts to minor and major operational changes.
Another benefit of ERP software is that it is flexible enough to support the unique objectives and processes of your company. It helps businesses follow the best practices, enhances the organization’s creativity and innovation.
The ERP system allows businesses to build company-specific workflows and create reports that are crucial or specific to different departments.
11. Customer and Partner Management
ERP strengthens a company’s customer and partner relationship. It encompasses CRM software that can provide insight on suppliers, service providers, and shipping carriers. The software provides a more convenient information exchange.
Businesses can track survey responses and support tickets from their customers to improve their customer satisfaction ratings.
Disadvantages of ERP Systems
Despite all the benefits that ERP brings to the table, it is not free from challenges. The majority of the disadvantages of ERP systems can be avoided if you choose the right provider and plan.
1. System Cost
The early ERP systems were expensive to buy, set up and maintain. These problems made it only accessible to large companies that could afford them.
Today, ERP is no longer an expensive burden. You still need to make a financial investment but it is more affordable compared to what was obtainable in the past.
Thanks to SaaS systems, ERP is now affordable for small and medium-sized businesses. The only problem is that you have to pay a recurring fee.
2. Need for Training
Before you can effectively use an ERP system, you will have to undergo a learning curve to do so. You also need to conduct training for all your employees that will make use of the ERP system.
Some of your employees may resist the training at first, you can get them to learn faster by showing them the benefits of adopting it. Their resistance will drop once they see how the ERP system makes their jobs easier. Newer ERP systems are more intuitive and easier to learn.
3. Data Conversion Costs
Moving to a new ERP system from an old one requires you to transfer your data in a format that is compatible with the new system. If some of your data are not compatible, you need to convert them. Such conversions can lead to unforeseen costs and delays.
You can prevent this by working with your IT team (use an external IT expert if you don’t have one) to review your database and identify compatibility issues ahead of time. When drafting your ERP implementation plan, consider conversion efforts.
An ERP system is an all-encompassing system that consists of tons of features. Learning how to leverage the ERP system properly can be a daunting task for your workforce.
Leading ERP software providers focus on improving the user experience, simplifying the learning curve. Employees do not have to be ERP experts to use it, they just need access to the modules and dashboards that contain information they require to do their jobs.
Maintenance costs in the past were a big issue preventing many small and medium-sized businesses from adopting ERP. The maintenance costs include system upgrades, security, and general maintenance. Companies had to pay third-party service providers or vendors for their expertise.
With the SaaS system, the provider handles all the maintenance on behalf of the customers, including updates.
6. Cannot Solve Process and Policy Issues
An ERP system is not a magical process, it cannot solve or fix your business error-prone or inefficient processes. ERP systems increase the accuracy of your processes, but only after you put in the right data and set up efficient processes.
While it cannot solve process and policy issues, it can help you uncover problems in your processes and policies.
Key Features of ERP Systems
Enterprise Resource Planning (EPR) systems are one of the most powerful and comprehensive data management solutions for businesses. It is the ideal solution for automation, data analysis, and full-scale integration.
With so many ERP systems available in the market, with different configurations for different industries, choosing the right ERP system solution is essential. Here are some of the core ERP features that every ERP system should offer. If you can not find these key features in an ERP system, choose another that has them.
Integration is an integral part of what sets the ERP system or software apart from other types of software. Standalone ERP solutions can integrate with other systems. The system itself consists of a rich suite of business applications built together. Integration ensures that the various applications or functionalities in the ERP systems work together in harmony.
ERP system is a fully integrated platform that businesses use to monitor, analyze, and record most of their data-driven tasks. ERP systems perform the roles of collecting, storing, and analyzing data across all departments in an organization.
Storing and analyzing your company's data across departments allows for the seamless flow of communication at all levels. ERP systems help departments to work together from a single source of information. It reduces your teams’ discrepancies, minimizes errors and costs.
Integration affords you the unique flexibility to work with multiple components at any period. For example, with Customer Relationship Management (CRM) integration, you can view your order history and customer information on one platform.
ERP automates everyday business tasks such as payroll, accounting, reporting, invoicing, reporting, and others. Automation is the first feature that comes to mind when thinking about the functions of ERP software.
One of the advantages of the ERP automation feature is how it cuts down on the number of hours your employees will spend on the processes it automates. Employees can use their free time to focus on more vital assignments. Reducing the tedious tasks your employees do improves their morale and ensures more effective workdays.
Automation also cuts down on the human error factor. When humans spend a lot of time doing repetitive tasks, they can easily make mistakes due to fatigue. Automation allows for these repetitive and tedious tasks to be done quickly with no chance of error.
3. Data Analysis
ERP systems make it easy for businesses to analyze their data. Since it captures and processes almost all the business data, it can provide insightful analysis such as finding trends and patterns in your processes.
Users can use the analysis to reflect on their strategy and the effectiveness of certain tasks. It also provides forecasts that users can use to make future business decisions.
ERP software or systems analyzes data about the business operations such as production statistics, client data, sales data, and more. ERP systems can help you create a budget, predict demand, and analyze your HR functions.
Data analysis gives you access to key business data and the tools that boost your company’s productivity and efficiency.
Analyzing the data collected by the ERP has a remarkable impact on your business. It provides insights into your business trend and helps you make near-accurate predictions based on your past practices. Getting your predictions accurate increases the efficiency of your operations and improves overall productivity.
ERP provides reporting capabilities for users. It conveys the data analyzed into reports that the end-user can easily understand. Customizable dashboards, bar graphs, Gantt charts, pie charts, and other visual representations are the forms used by ERP to present the reports to users.
If you want to restrict access to reports but do not want to remove your employees from the ERP system, some ERP software allows you to do so.
ERP also handles contact management, marketing automation, lead management, and sales pipeline activities. These tasks are automatically tracked and reports produced in the ERP system.
5. Customer Relationship Management
ERP provides Customer Relationship Management (CRM) software capabilities for businesses. The CRM tool is a better alternative to the use of spreadsheets for companies with a large customer base. Spreadsheets can work for a smaller customer base but you will still end up spending more time updating the information than you would with the CRM tool.
The CRM tool makes it easy to find customer information within an ERP system even when you are working on other parts. For example, integrating CRM within the ERP system allows you to access customer addresses and billing information while you are processing shipments.
The ERP software centralizes customer data for improved efficiency and implements comprehensive customer service care solutions. Its customer service management capabilities help you retain customers in the long term. You can easily create campaigns and track customers' feedback to gauge customer satisfaction.
Any serious business pays attention to its financial management. ERP system contains strong accounting software features such as managing accounts payable, account receivable, tax management, risk management, and fixed-asset management.
If you deal with multiple currencies and face the burden of multiple tax regulations due to your company’s global setup, there are ERP systems that can help you manage your complex accounting needs.
The ERP platform gives you the needed tools you need to manage your business sales and revenue. You can automate many accounting functions such as expense management, sales analysis, and payments processing on the platform.
Accountants and your other employees benefit from the use of ERP systems. It improves the accuracy and processing time involved in running accounting functions, reduces the working hours and task burden on your employees.
7. Tracking and Visibility
ERP provides comprehensive visibility for users. For instance, it provides more visibility to the supply chain processes. It tracks the raw materials and finished products from the manufacturing stage down to delivery to the final consumer.
Tracking is made easy by the high level of ERP integration. Users gain comprehensive visibility over their company’s operations. ERP solution helps users to understand and foresee situations such as low stocks and supply or delivery delays.
You can set up different types of alerts such as price alerts and alerts for specific events. These alerts keep users up to date on their most vital activities.
8. Human Resource Management
ERP software provides data entry and reporting functions for HR. Employee-related information such as contact number, payroll, work hours, demographics, benefits, department, designation, and more are collected by the ERP system.
Data entry is a tedious and time-consuming activity. However, with ERP, you can make it less tedious and reduce the time you spend on data entry.
ERP helps you create reports from your data. If you use dispersed sources like spreadsheets, it takes a lot of time to get the needed information from it, and you can easily make a mistake.
With the use of ERP software, data entry is entered into a centralized database. All departments in the company can access these data, it helps boost and promote collaboration. You can easily pull data from the ERP to create custom and accurate reports which helps you make data-driven and more accurate decisions.
ERP software through learning management and HR modules within the software allows employees to learn and develop relevant skills to boost their job performance. HR can also use the applicant tracking system and employee monitoring software embedded in its HR module to carry out their activities.
9. Supply Chain Management
ERP software helps businesses, especially manufacturing businesses to interact with multiple partners and suppliers. Effective communication with these suppliers and partners is important as businesses obtain raw materials and resources to bring finished goods to consumers.
Supply chain planning covers the procurement of raw materials and the selection of the right marketing channels to promote your finished products. It ensures prompt replenishment of stocks and determines how much stock is left in the inventory at any given time.
ERP helps optimize the production process for higher demand and supply ratios, faster and cheaper transportation, and distribution of finished goods.
The software or system plays an essential role in tackling inefficiencies in the supply chain process. Businesses use it to obtain good price quotes from their suppliers and cut their wastes through process optimization and better inventory management.
ERP system takes care of all aspects of the supply chain process from manufacturing and inventory management down to transportation and distribution. It offers cross-platform visibility to ensure your supply chain operations are both flexible and cost-effective operations. You get information about your supply chain processes and operations in real-time.
10. Sales and Marketing
ERP systems have a sales and marketing module that provides functionalities that all businesses need to thrive. They include tracking customer orders, contacting customers, receiving payments, generating sales invoices, and processing return orders.
Businesses also use it to automate tracking expenses, track lost orders, monitor targets for marketing personnel, prepare and comprehensive reports on sales and marketing activities. Reports produced can help businesses predict sales trends and volume for a given period.
ERP serves as a library for your business as it provides a detailed customer profile and sales history. Businesses can use this information to understand customer preferences better which leads to better product marketing and recommendations.
ERP enhances the customer experience, encourages repeat purchases, and more sales in the form of upselling or cross-selling.
Types of ERP Deployment Models
Modern ERP systems can be deployed in various ways to address the needs of different organizations. They include cloud-based ERP, on-premise ERP, hybrid ERP, and open-source ERP.
1. On-premises ERP
On-premise ERP system is a traditional ERP deployment model where business runs and controls the software on servers they own. The system is installed on the premises of the business or any other data center location of choice.
Your company is responsible for the maintenance and installation of the hardware and software. It is also responsible for security, upgrades, and other fixes to the ERP system.
Running an on-premise ERP deployment model requires you to have in-house IT staffers with the expertise to manage and fix the ERP system.
On-premise ERP was the first option offered to businesses when ERP was introduced. It remained the only option for many years. In recent years, this model has seen its popularity decline rapidly. Many companies are upgrading and modernizing their on-premise ERP in favor of cloud-based ERP deployments.
2. Cloud-based ERP
Cloud-based ERP runs on a third-party provider’s cloud computing platform. Unlike with the on-premise ERP deployment model, companies do not purchase their servers but use remote servers managed by a third party. Maintenance, security, and upgrades are also handled by the cloud-based ERP software provider.
Users access the cloud-based ERP software or system through a web browser or software application. They can use portable devices such as smartphones and desktop devices to access information and reports from anywhere there is an internet connection.
Cloud-based ERP software utilizes public or private cloud. There are two main deployment options for cloud ERP, single-tenant and multi-tenant.
A single-tenant solution is when a single company does not share server space with any other company. Companies that use this option have greater control over their software and they enjoy more customizations.
The multi-tenant solution on the other hand is when several companies share the same servers and hardware. They are more affordable and popular, most SaaS ERP solutions belong to this category.
The low upfront cost associated with cloud ERP is making it gain widespread acceptance in the world.
3. Hybrid ERP
Hybrid ERP is a combination of elements of on-premises and cloud ERP deployment models. An example of a Hybrid ERP approach is when the company keeps its on-premise ERP in one of its facilities, usually its headquarters. It then deploys cloud systems for its other offices and integrates them with the on-premise ERP.
4. Open-source ERP
The open-source ERP deployment model is the most affordable of the four ERP models. It costs a fraction of what the other models cost, and sometimes it comes free. Many companies use the open-source ERP model as an alternative to the more expensive options.
There are lots of open-source ERP providers that provide free software download services for businesses, and only charge a low annual fee for access to cloud ERP solutions.
While the open-source ERP deployment model has improved with a growing number of modules and more intuitive web-based interfaces, it still has its fair share of limitations. As you can expect with free services, support is minimal, and the modules and configurations less flexible than other models.
ERP Modules Explained
An ERP consists of multiple modules with different capabilities bundled together in one central platform. The majority of ERP modules are offered as adds-on to a base ERP system. It is easy to add a module to your ERP system because of its high configuration and customization abilities.
Each ERP module focuses on a crucial business process, with its unique tools. When choosing an ERP system, it is vital to check the functionality included in the base ERP software and if you can integrate other modules easily.
Here are some of the top ERP modules that businesses find valuable and useful for their day-to-day operations.
The finance module is the foundation of any ERP system. Every good ERP system comes with this model. Some of the roles it performs include tracking every transaction, managing the general ledger, handling reconciliations, and financial reporting.
The procurement module is another vital module in the ERP system. You can use it to manage your purchasing orders whether it is finished goods or raw materials.
You can automate requests for purchase orders and quotes from this module. Link it with demand planning to minimize underbuying and overbuying.
Manufacturing is a huge and vital section of a business process and operation. The manufacturing module assists companies in coordinating all the processes that go into manufacturing products.
With this module, companies can easily check in real-time if their production levels are in line with the demand. They can also use it to monitor in-progress, finished items, and other crucial manufacturing KPIs.
4. Inventory Management
The inventory management module is crucial for manufacturing and other related companies that deal with warehousing goods. The module shows you what your current inventory levels are in real-time, and measures other inventory-related metrics, just like inventory management software.
Companies use this module to optimize their stock on hand. The information provided can help companies tailor their production to meet current demands and forecast future demands.
5. Order Management
The order management module helps track, monitor, and prioritize customer orders across all channels used by a company. You can view how the orders come in and track the progress till it gets delivered to the appropriate consumer.
With the information provided by this module, businesses can increase their fulfillment and delivery times which will result in a better customer experience.
6. Warehouse Management
The warehouse management module records, monitors, and analyzes all the warehouse activities of a company. These activities include receiving, picking, packing, and shipping inventory.
Businesses use the information provided by this module to save time and costs in the warehouse to identify more efficient ways to carry out warehousing tasks. It also provides real-time information about the number of inventory in the warehouse.
7. Customer Relationship Management (CRM)
The Customer Relationship Management (CRM) module is a popular choice for many businesses across industries to have in their ERP system.
Business to customer relationships can determine if a business is successful or not. It is no surprise that businesses spend lots of money to improve their customer relationships.
The CRM module tracks all the communications you have with your clients and assists with lead management. You can always view your conversation history with respective clients with this module. CRM boosts customer service and increases sales.
8. Professional Services Automation (PSA)
The professional services automation (PSA) module is ideal for services businesses. They utilize it to plan and track projects, and the resources and time expended on them. This module can help businesses that predominantly offer services simplify their client billing.
Members working on a project can easily collaborate even though they are not in the same departments or locations with the PSA module.
9. Workforce Management (WFM)
The Workforce Management (WFM) module is a tool that helps businesses keep track of their employee’s attendance and work hours. Some workforce management modules can also manage payroll activities.
If you need a module to add to your ERP software that can record absenteeism and productivity for individual employees, departments, and teams, the workforce management module is a good bet.
10. Human Resources Management (HRM)
The human resources management (HRM) module keeps detailed information about your employees such as performance reviews and available PTO. You can spot workforce trends in various demographics or departments in your organization. This module is also referred to as the human capital management (HRM) module.
The eCommerce module is a suitable ERP module for online stores. Online store owners can use it to effectively manage the front and back ends of their eCommerce stores.
With this module, online store owners can change the theme and appearance of their store, update product pages, and other changes directly from the ERP application. There is no need to log in to their eCommerce platforms.
12. Marketing Automation
The marketing automation module helps businesses manage their marketing efforts across all channels such as web, email, and social media platforms.
Users can optimize and personalize their marketing messages from the application. This module boost leads to increased sales and ROI, and higher customer retention rates and numbers.
ERP Implementation Best Practices
Implementing ERP software is a complex process filled with lots of uncertainties. Many businesses incur more costs and spend more time than they budgeted at the implementation stage.
Using best practices, the ERP implementation stage does not have to be costly and time-consuming. With the right planning and implementation, you can reach your business goals, minimize risks and costs, and train employees on how to use the system effectively.
1. Set Up A Project Team
Setting up a strong project team for the ERP implementation is crucial to its success. Ideally, the team should consist of an executive sponsor, project manager, and representatives from key departments involved in the project.
Of all the three categories of individuals you need, the executive sponsor is the most important. They have the power to provide additional resources when needed.
The team is responsible for implementing the ERP. Some of their responsibilities include the establishment of key goals and requirements, and Key Performance Indicators (KPI), They also have the task of conducting the day-to-day management of the project to ensure it stays on track and is finished as at when due.
Team members must be able to resolve conflicts that may arise at the implementation stage that can progress. To perform their responsibilities effectively, the team must have a mix of experienced individuals with ERP implementations, and respected authority figures in the organization (the executive sponsor).
Companies with fewer resources to employ these crucial team members may need to employ the services of consultants to help in the ERP implementation processes.
2. Set Realistic Key Requirements
Setting clear requirements linked to your business goals is vital for the success of any ERP project. For example, your business goals can be to save time and reduce cost and improve your relationship with customers.
The key requirements gathering stage involves analyzing workflows, current systems, and key business processes such as inventory management, accounting, customer relationship management (CRM), and human resources. ERP implementation is not just about automating an inefficient process but also introducing better ones.
3. Establishing the Right KPIs
After choosing the key requirements, the next step is to identify specific KPIs to measure how successful your ERP implementation is. Businesses, in this case manufacturing companies, can use these KPIs to improve their inventory turns, the cycle turns, order backlogs, downtime, costs, and demand forecast accuracy.
Many businesses use the following set of KPIs: profit margins, average purchase value, total sales, inventory turnover, sales per square foot, sell-through rates, and customer conversion rates.
4. Project Management
Thorough ERP implementation for large companies can last between three months to a year. These companies must establish a project management framework to guide the ERP implementation to success throughout the length of the project.
At a high level, ensure you align your ERP initiative with your business needs. Project management involves keeping track of the project and ensuring that every key stakeholder can make input.
One common problem of ERP implementation is the desire to add more functionality while the project is in motion. With strong project management, you can spot the additional functionalities that are necessary and cannot wait for later, and the ones that can be done at a later time.
Technical details such as how to configure the ERP system, manage privacy and security concerns, and adapt the business processes, should be part of your project management tasks.
5. Collaboration and Communication
If you want to have a successful ERP implementation, you have to ensure that every one critical to its success is in sync. They must have a mutual understanding of the objectives and goals of the ERP implementation.
From the CEO down to the end-user, everyone should clearly understand the reasons why the company is implementing the ERP system. Key details are often overlooked such as the purpose and benefits of the system, and what to expect during the implementation process.
Clear communication and collaboration are key to the successful implementation of the ERP system. The leadership team should involve themselves in the project to drive home its importance.
Throughout the ERP implementation stages, communication should be clear. Leaders should organize scheduled meetings to identify problems, coordinate efforts, and communicate successes.
While the ERP implementation is going on, it may affect your partners, customers, and suppliers. Do not wait for it to affect them before you inform them. This honest and sensible approach will help you retain customers, partners, and suppliers.
6. Prioritize Data Migration
Migrating data from existing software or systems to your ERP system is a key step in the implementation. You need to carefully prepare, plan, and prioritize data migration.
The reason why it is so important is that any migration carries that risk of losing or corrupting data. If you are consolidating and standardizing data from various applications into the ERP system, you have to be extra careful.
During the ERP implementation, businesses face the option of whether to transfer data manually or automate the process with specialized tools. The advantage of transferring data manually into the ERP system is that you can clean obsolete data from entering the system. You can cleanse the names of suppliers and customers with whom you no longer do business.
Automation makes the data migration process less tedious and faster. Irrespective of which method you use, ensure you double-check the data after migration for any errors.
7. Provide Training for Employees
You cannot expect your employees including high-level managers to be proficient with the new ERP system. Even if they have used an ERP system, you must organize targeted and ongoing training on how to utilize the new ERP system best.
Businesses can use video conferencing software and webinars to organize training and provide valuable content to their employees. You do not have to train all your employees at once, you can schedule a few for early training and have them share what they learned with their colleagues.
Your ERP implementation is not complete without putting in place a technical support structure to handle any likely issue your employees may face once they begin to use the system. If your employees face difficulty with the system, is there a technical support team in place to offer a helping hand?
Businesses can use help desk software as an online knowledge base to help employees quickly get over some issues. The project team should evaluate the ERP system at intervals to identify issues and potential issues.
Best ERP Systems
The Best Cloud Business Management System for Businesses of All Sizes
NetSuite is a cloud-based business management solution from Oracle targeted at mid-sized businesses and large enterprises. The software performs enterprise resource planning (ERP) and customer relationship management (CRM) function for users. It allows companies to streamline their business processes.
With the software, companies can integrate and automate key areas such as CRM, financial management, inventory management, revenue management, order management, eCommerce, and billing. The software automates front and back-office processes.
NetSuite is designed as a horizontal package for different industries. The ERP software consists of numerous applications for different purposes such as financial accounting, order and billing management, payment management, supply chain management, and financial reporting and analytics.
Users can access NetSuite on either a web browser or device. Upgrades are automatic and there are several customization options available. It supports data export into IIF or CSV files.
The software integrates with other business applications such as Deltek, Sage, SAP, Microsoft Dynamics GP, and QuickBooks.
Most Comprehensive Open-source Enterprise Resource Planning (ERP) Software
Odoo is an open-source enterprise resource planning (ERP) software that offers an amazing user experience for over 7 million users. Some of the biggest companies that use Odoo are Toyota, Hyundai, Alta Motors, Lumos Solar, Vinoshare Company, SoftIron, and CSC Scientific.
There are over 30 main modules that the company regularly updates. It also has over 16,000 third-party applications available for download on its app store.
The software consists of integrated ERP modules such as e-commerce, billing, financial management, accounting, warehouse management, customer relationship management (CRM), inventory management, project management, manufacturing, and purchasing.
Odoo was formerly known as OpenERP and can function as either cloud or on-premise ERP solution for businesses of all sizes. The software is highly customizable. Odoo integrates with other third-party systems such as Amazon, eBay, FedEx, and QuickBooks.
ERP Software with the Best Financials for Businesses of All Sizes
Oracle ERP software is a cloud-based innovative business management solution for businesses. It utilizes modern best practices and built-in industry standards to streamline your business processes faster and easier.
The platform helps businesses position themselves for growth by automating their core business areas such as financials, project planning, compliance and governance, risk management, reporting, and planning and procurement.
Oracle ERP is a fully integrated Enterprise Resource Planning (ERP) solution designed to lower costs, increase productivity, and improve controls.
The software leverages the ease of cloud technology and an agile approach to form the backbone of companies across multiple industries. These industries include IT, marketing, sales, engineering fields, financial services, consulting and professional services, and pharmaceutical fields,
Best ERP and Financial Management Software for Small and Medium-sized Businesses (SMB)
SAP enterprise resource planning (ERP) software is conducive for small and medium-sized businesses (SMB). The software combines multiple business functions such as supply chain management, human capital management, customer relationship management, and financial management in one platform.
You can deploy it via the cloud, on-premise, or a hybrid model that combines the elements and benefits of both the on-premise and cloud deployment models.
SAP ERP has a strong customer base consisting of 172,000 businesses from all over the world. The platform gives you access to all the applications, analytical tools, and data you need to streamline your processes.
With this software, you can lower your business costs and improve productivity. SAP ERP is an all-encompassing solution for businesses and includes functionalities such as financials, inventory, project management, sales, purchasing, and customer relationships.
5. Microsoft Dynamics
Best Cloud Enterprise Resource Planning (ERP) System with Advanced Customer Relationship Management (CRM) Capabilities
Microsoft Dynamic is a business management software that combines cloud-based enterprise resource planning (ERP) with advanced customer relationship management (CRM). It helps companies collect all their data and provide data-driven insights and recommendations for making better decisions.
The software helps companies operate efficiently through automating and optimizing the bulk of their manual tasks, saving time and resources. Microsoft Dynamic uses intelligent workflows to achieve this result.
With its advanced CRM capabilities, businesses can easily build fruitful and long-lasting relationships with their customers.
Microsoft Dynamics adopts a modern approach to ERP by using Artificial Intelligence (AI), machine learning, and a hybrid of virtual reality and reality (mixed-reality tools).
The software provides fraud protection, holographic graphs, predictive guidance for sales, product visualization, and mobile app for IOS and android devices. Top companies who use Microsoft Dynamic include HP, Pandora, UNICEF Nederland, and Crane Worldwide Logistics.
6. Sage Intacct
Best ERP Software for Accounting, Financials, HR, and People Management
The cloud-based ERP software from Sage Intacct helps small to medium-sized businesses better handle their financial management. The software automates accounting processes, driving growth and increasing business visibility.
If your organization is growing beyond what QuickBooks can offer, Sage Intacct is one of the best QuickBook alternatives that provide more capabilities.
Sage Intacct handles the core financials of your company and allows you to add additional modules or integrate other applications. It is super easy to configure Sage Intacct to match your business needs and reporting formats without needing any developer or programmer.
With the software, you can run your business more cost-effectively and smartly. Sage Intacct’s ERP software automates your manual processes and increases your ROI.
Best Enterprise Resource Planning (ERP) Software for Improving, Managing, and Scaling Business Operations
Infor ERP is a powerful enterprise resource planning (ERP) solution designed to help businesses run their core business operations efficiently. It offers cloud-based ERP software with industry-specific ERP solutions.
The ERP software integrates numerous features in its CloudSuite such as accounting, human resource management, project management, supply chain management, and customer relationship management (CRM).
Infor ERP uses analytics such as KPIs, reports, and preconfigured dashboards to help businesses generate results in the shortest time possible. Irrespective of your industry, Infor ERP has adaptable and comprehensive ERP solutions that bring results.
With the software, you can easily manage your customer demand and experience and control your financials. It provides top-notch customer support for its users.
Some notable companies that make use of this software include Pfizer. Grant Thornton LLP, Avaap Inc., First Transit Inc., Mohegan Sun, AkzoNobel, Reynolds Catering, and Herman Miller.
Best ERP Software with Advanced Project Management Capabilities for Project-centric Companies
Deltek is one of the best ERP software for better project successes. It provides solutions with superior levels of project intelligence, collaboration, and management. Project-centric companies use Deltek to maximize their performance and productivity.
The cloud-based solution helps professional service companies manage their complex projects throughout the entire lifecycle. Some of the benefits of Deltek include improving business performance, generating new sales or business opportunities, and streamlining workflows.
Sales and marketing teams use Deltek to build new relationships with prospects. The software has tools that allow for the creation of proposals and closing sales. Deltek integrates with Microsoft Outlook.
Enterprise Resource Planning FAQ
According to Software Path, the average budget per user for an ERP software is $7,200. When you consider the number of users you have, it can quickly rise to become an expensive figure.
The cost of an ERP system differs from one business to another. Pricing is dependent on your requirements, pricing plan, and other factors like maintenance and ongoing costs, and ERP implementation.
There are two types of pricing plans: perpetual licensing and subscription plans. In the long term, perpetual licensing (which requires a paid up-front licensing fee) is cheaper than the subscription plan.
Subscription plans (which require a company to pay a subscription fee for cloud ERP software access) are cheaper in the short term.
ERP implementation is where the bulk of the ERP costs comes in. It is a long but necessary process that quickly piles up costs. Some of these costs include adding additional modules or features not part of the base price, customization, cost of hiring consultants, hardware, and training.
On average, small to medium-sized businesses (SMB) can expect to pay $75,000 to $750,000 for ERP implementation. According to Clients First Business Solutions, large enterprises can expect to pay $1 million to $10 million and small businesses can expect to pay $10,000 to $150,000 for ERP implementation.
You also have to consider ongoing costs such as IT staff, customer support, and maintenance and upgrading.
If you cannot afford the upfront cost of ERP implementation, you can choose a cloud deployment that does not include hardware costs and may not offer room for customization.
ERP system vendors offer a monthly or annual fee for access to their services. Many of these vendors do not offer their pricing plans online, you have to contact them for custom quotes.
NetSuite base license costs $999 per month with an additional access cost of $99 per user per month. Odoo costs $28 per user per month for its base plan.
ERP and MRP are closely related and provide excellent manufacturing functionalities for businesses. The core difference is that MRP is focused on manufacturing processes while ERP covers manufacturing processes and other broader solutions. They include project management, accounting, customer relationship management, business intelligence, and sales.
Two-tier ERP is an ERP approach that combines two systems to address the peculiar needs of large enterprises. Under this arrangement, the headquarter will use Tier 1 ERP while other subsidiaries or units under it will use the Tier 2 ERP.
Tier 1 ERP offers more customization and functionality than the less resource-intensive Tier 2 ERP. The design of the two-tier ERP system is that information from Tier 2 flows automatically into Tier 1. This system makes it possible for a single source of accurate data for the entire company.
The two-tier ERP system is a less expensive alternative to the legacy ERP systems that require on-premise implementations and extensive configuration requirements.
Cloud-based ERP has lots of advantages for businesses. They are generally easier to implement and less costly than on-premise ERP deployment models.
With cloud ERP, you can quickly and easily migrate off your outdated systems at a more affordable cost. It reduces the workload of your IT staff as your cloud-based ERP vendor provides much of the support needed to successfully run the software.
Cloud ERP solutions are available anywhere and at any time. You do not have to depend on your company’s internal infrastructure to access it. From your mobile phone or PC, you can access it. The software supports work from home and remote job opportunities.
Unlike other legacy ERP systems, cloud-based ERP is compatible with other systems and tools. You always use the latest version of cloud ERP software without having to spend more money and experience downtime during the updating and upgrading periods.
Signs That Show You Need an ERP System
Many businesses start by using different business software solutions to handle different functions. For example, businesses may use QuickBooks or spreadsheets to manage their accounting, payroll, and inventory management needs. They may use Asana or Slack for their project management tasks.
Here are five signs that indicate that you have outgrown using these services and need a modern ERP system to handle your larger business workload and information.
1. Spending More Time on Daily Activities
If you notice that you are struggling to manage your key activities daily, it is a sign that you need an ERP system. The reason why you have to spend more time doing your daily activities than you budgeted is likely because of too many disparate applications.
The ERP system integrates all your data from different data points into one system. It makes communication easier and reduces the time you spend on your business daily activities.
2. Unanswered Business Questions
What is your revenue per product? Do you know what your customer acquisition (CAC) cost is? If you struggle to answer these important business questions and more, it is a clear sign you need an ERP system. The problem is that you have too many segregated systems that do not provide you with quick access to KPIs and other key metrics. EPR is designed to grant instant access to KPIs.
3. Runaway Business Processes
If you have areas of your business processes that are easily evading your attention, such as checking costs, managing inventory, and satisfying customers, it is time to move on to ERP software. With this software, you can better accommodate your growing business processes.
4. You Have Manual Processes with Multiple Data Sets
If your departments are using manual processes and applications, and there is no single source for company information, there is a high chance that your departments may be spending time doing duplicate data entry. The problem is prevalent with the sales and marketing departments, and the finance and accounting departments.
The lack of information flow can cause disruptions and stumbling blocks in business processes. Reporting will take longer to achieve and errors may occur.
With ERP software, departments can check the ERP software to see if the data they want to work on is already available before they provide it.
5. You Are Missing Out on Opportunities
If you are spending too much time managing your business process and have no time to chase new opportunities, you need an ERP system to take up a chunk of your workload. With the free time you gain, you can now pursue exciting and fast-moving business opportunities.
Newer ERP systems have advanced intelligent capabilities such as predictive analytics that can spot profitable new business ventures for you.
Continue Learning about ERP and Other Enterprise Software
- The Definitive Guide to ERP Implementation
- How Much Does an ERP System Cost?
- ERP statistics You Must Know
- 7 Examples of Great Enterprise Software for 2023