In this article we’ll talk about the definition of enterprise resource planning (ERP) systems such as SAP, Oracle, Microsoft and Infor.
'Enterprise resource planning (ERP) is a method of using computer technology to link various functions—such as accounting, inventory control, and human resources—across an entire company. ERP is intended to facilitate information sharing, business planning, and decision making on an enterprise-wide basis.'
ERP solutions and systems monitor and help to execute day to operations throughout a business or organisation. They tie together different parts of an organisation including finance, warehousing, human resources, sales, project management and more into one centralised system.
By combining all of the different functions of a business in one system, ERP solutions can leverage a single data model and one single source of the truth. This means that data replication is eliminated and every employee within the business can access up to date information on sales, projects, finance, inventory levels and more. ERP systems help organisations to work in unison, by democratising critical information and providing it to all employees in real time.
What is the benefit of an ERP system?
As the name suggests, an enterprise resource planning tool helps an organisation to plan and deploy its resources more effectively. For many organisations with multiple lines of business or locations, an ERP tool is as essential as electricity connection - they simply can’t properly function without one. Organisations that don't run ERP solutions often experience huge inefficiencies and risks as they rely on communication via email, spreadsheets and one to one communication.
An enterprise resource planning solution enables business leaders to achieve a variety of business goals dependent on their needs, including improving profit margins, increasing sales or customer satisfaction and much more. By having one common data model and single source of truth, organisations can work more efficiently and with more agility.
Let’s consider an example: imagine a company which builds bicycles by purchasing components such as frames, pedals and handlebars from several suppliers. Without an ERP system, the procurement department would have to manually order these components, remembering to reorder parts when stock levels are low plus keep track of all deliveries. They would also need to keep some records of part numbers, costs and more. Similarly the shop floor workers would need to record how many bicycles they manufacture plus record wastage levels and ensure all bicycles despatched for shipping were also recorded. Meanwhile the finance team needs to ensure that all of this data is correctly logged and filed against the correct ledger.
If the finance team wanted to perform some analysis on the profitability of a particular bicycle product line, it would be a huge manual effort to find then consolidate the necessary data - and it would only be valid at that point in time, meaning they'd either waste several days every time they wanted to get that insight or they'd be operating without knowing whether they're making a profit or loss.
Whilst it’s possible to do all of this manually, an ERP system makes the collection, organisation and analysis of this information much faster and less prone to human error. If implemented correctly, an ERP would allow the bicycle company to run reports on any product line at any point in time - allowing them to quickly eliminate any efficiency gaps on the fly.
ERP Systems Can Automate Your Business
Modern ERP systems are also placing a much larger focus on not just logging and tracking tasks, but automating once manual processes. Using developments in machine learning and artificial intelligence, todays enterprise resource planning tools are capable of assisting and sometimes replacing humans. For example, many modern ERP solutions provide the ability to automatically scan PDF or paper purchase orders and invoices, converting them into a digital format and matching them without any need for human intervention. This allows for organisations to spend more time on value add tasks or to spend their time analysing the data within the ERP system to identify areas for improvement. ERP vendors are working on more use cases which take advantage of automation to increase the return on investment of implementing an ERP tool.
What modules does an ERP solution include?
ERP solutions bring together various different functions within a business and every ERP will have a different set of available modules with varying depth and breadth.
However, generally speaking, most enterprise resource planning tools include the following modules:
- Financial Management: general ledger, accounts payable, accounts receivable.
- Procurement: purchase order requisition, PO approvals, direct & indirect procurement.
- Inventory & Supply Chain: inventory management, supply chain planning, material resource planning.
- Project Management & Project Accounting: resourcing, project profitability, resource utilisation.
- Asset Management
- Sales or Customer Relationship Management
- Human Capital Management: timesheet recording, hire to retire.
- Reporting & Business Intelligence or Analytics
Who uses enterprise resource planning (ERP) systems?
Businesses in multiple industries use enterprise resource planning tools to help them operate more efficiently. Traditionally, ERP systems are associated with supply chain heavy organisations such as manufacturing and distribution. These businesses use ERP systems for financial management, but also procurement, supply chain, manufacturing and distribution.
However in recent times, ERP systems have developed functionality which allows them to be used in other industries including legal, professional services, agriculture, software and information technology and more. These organisations have a stronger focus on people and need to track metrics such as resource utlization, project management and profitability. This is also known as professional services automation.
In response, as well as modules for inventory and supply chain, many ERP systems of today place a greater focus on functionality required for people centric businesses including travel and expense management, timesheet recording, project management and accounting and human capital management. This functionality allows businesses in the services space the ability to deploy their resources - people more effectively.
What ERP systems are available?
ERP systems come in many flavours and no single solution best fits every organisation. Some ERP solutions are best suited to small businesses, others to midsize organisations and a few to multi-billion dollar, worldwide corporations.
There are also ERP solutions which are specifically designed for different industries and have built functionality to meet their needs out of the box. For example, there are ERP tools which cater for the needs of marketing agencies or oil & gas companies - being built from the ground up around their specific ERP requirements. This allows companies to ensure the system can fit their specific business needs and ways of working.
Although there are benefits to an industry niche solution, these platforms are sometimes lacking in areas outside their specific domain expertise. For example, a distribution specific ERP may have strong functionality for warehousing, but it may lack capabilities in the financial management area.
ERP tools also come in various different deployments. Traditionally, enterprise resource planning software was deployed 'On-Premise' and the company implementing it would install it on IT hardware in their own premises plus take on the responsibility of maintaining that software and hardware themselves, ensuring the servers are always online and upgrading the software as neccesary.
What is Cloud ERP?
However today, Cloud ERP is becoming the more popular choice. Cloud enterprise resource planning solutions provide an organisation with the same benefits, but in an easy to consume fashion. In a Cloud ERP scenario, your software vendor or partner is responsible for hosting your software, maintaining and upgrading it - you simply need to configure it or implement it according to your needs.
Cloud ERP itself has many different flavours, including Software-as-a-Service (SaaS), single tenant or private cloud and managed hosted. These different flavours give organisations various degrees of standardisation, flexibility and agility. Again, no one deployment best fits every organisation and you need to carefully analyse your requirements to choose the best path forwards.
At ERP Research, we specialise in helping organisations to select the best solution for their needs, whether it's an industry specific or generalist ERP platform, Cloud or On-Premise. If you need help, then speak to one of our team for free today.
What is an ERP implementation?
ERP implementation is the practice or process of installing an enterprise resource planning tool within a specific organisation. Although most ERP solutions come with out of the box functionality across various modules such as finance, procurement, supply chain, professional services automation and more, an organisation will always have its specific way of operating and therefore the system has to reflect this - or the business needs to change. Due to this, ERP systems need to be implemented which is essentially a process of deciding and then activating ERP functionality according to a businesses specific needs.
How long does an ERP project take?
ERP implementations can take anywhere from a few weeks to a few years. How long an ERP project takes very much depends on how large your organisation is, what the ERP solution offers out of the box and how much each process needs to be customised. Typically, ERP projects take much longer and are much harder than most organisations anticipate due to the scale of preparation and change required to successfully complete one. This is also known as change management, which is something that many organizations neglect when thinking about changing their ERP systems. Read our in depth exploration of ERP change management best practices here.
At ERP Research we perform in depth analysis of the ERP vendor market and we understand the various problems and pitfalls that organisations in many industries fall into. We specialise in providing fast, free and unbiased insights to help you choose and implement your next ERP solution successfully. Our team can quickly analyse your requirements, discuss your budget and implementation needs and provide you with a list of ERP solutions to evaluate. This reduces the length of your selection process and helps you to de-risk your project.
If you would like to speak to one of our team, then book a free consultation here.