What Is ERP (Enterprise Resource Planning) Part 2

12 Benefits of ERP Systems

Today’s ERP solutions have rich feature sets that bring countless benefits to businesses. This software has become universally adopted by almost all companies of a certain size because it drives real improvements. While what an individual firm sees as the greatest value of this technology will vary, here are key universal advantages ERP delivers:

1. Cost savings. Perhaps the biggest value proposition of ERP systems is they can save your organization money in a number of ways. By automating many simple, repetitive tasks, you minimize errors and the need to add employees at the same rate as business growth. Cross-company visibility makes it easier to spot inefficiencies that drive up costs and leads to better deployment of all resources, from labor to inventory to equipment. And with cloud ERP, companies may quickly see incremental value from the software, over and above what they’re spending.

2. Workflow visibility. With all workflows and information in one place, employees with access to the system can see the status of projects and the performance of different business functions relevant to their jobs. This visibility may be particularly valuable to managers and leaders, and it’s far faster and easier than searching for the right documents and constantly asking colleagues for updates.

3. Reporting/analytics. Data is useful only if companies can analyze and understand it, and an ERP helps with that. Leading solutions have impressive reporting and analytics tools that allow users to not only track KPIs, but display any metrics or comparisons they can dream up. Since an ERP is all-encompassing, it can help a business understand how a change or problem with a process in one department affects the rest of the company.

4. Business insights/intelligence. Because ERPs can access real-time data from across the company, these systems can uncover impactful trends and provide extensive business insights. This leads to better decision-making by organizational leaders who now have easy access to all relevant data.

5. Regulatory compliance & data security. Financial reporting standards and governmental and industry-specific data security regulations change frequently, and an ERP can help your company stay safe and compliant. An ERP provides an audit trail by tracking the lifecycle of each transaction, including adherence to required approval workflows. Businesses may also reduce the chance of errors and related compliance snafus with automation. ERP software provides financial reports that comply with standards and regulations, and SaaS applications are well-equipped to help companies with PCI-DSS compliance.

6. Risk management. ERP technology reduces risk in a few ways. Granular access control and defined approval workflows can strengthen financial controls and reduce fraud. Additionally, more-accurate data heads off mistakes that could lead to lost sales or fines. And finally, the ability to see the status of the entire operation enables employees to quickly handle risks posed by business disruptions.

7. Data security. ERP providers understand that your system houses critical, sensitive data and take necessary steps to ensure it is secure. This diligence is more important than ever as the volume and scale of cyberattacks increase. Vendor-managed cloud ERP software, in particular, uses cutting-edge security protocols to ensure your company doesn’t fall victim to a damaging attack.

8. Collaboration. Employees are most effective when they work together. ERP solutions make it easy to share information — like purchase orders, contracts and customer-support records — among teams. It knocks down walls between departments by giving employees appropriate access to real-time data on related business functions.

9. Scalability. The right ERP system will be scalable and flexible enough to meet your company’s needs today and for the foreseeable future. Cloud systems in particular adapt to minor and major operational changes even as the amount of data the organization captures and demand for access increase.

10. Flexibility. While ERP software helps businesses follow best practices, it also offers the flexibility to support unique processes and objectives. The system gives administrators the ability to build out company-specific workflows and create automatic reports important to different departments and executives. An ERP enhances your organization’s innovation and creativity.

11. Customization. While most companies find that modern ERPs support their businesses “out of the box,” some firms need to add to the extensive built-in functionality. If you have a lot of specialized processes, look for an extensible system that allows your integrator or IT staff to write code that adds needed features, or that can integrate with homegrown or legacy solutions. However, before going the custom route, take a close look at your processes — the prebuilt functionality and configurations modern ERP solutions support are based on best practices gathered from thousands of companies. Aim to minimize customizations.

12. Customer & partner management. An ERP can strengthen a company’s partner and customer relationships. It can provide insights on suppliers, shipping carriers and service providers, with the cloud enabling even better, more convenient information exchange. When it comes to customers, the solution can track survey responses, support tickets, returns and more so the organization can keep its finger on the pulse of customer satisfaction.

5 Key Features of ERP Systems

So you know why ERP software is so critical to companies and the key benefits it provides them. But what is it that makes an ERP system an ERP system and distinguishes it from other types of business software? There are a few key features critical to realizing the full value of ERP, including:

1. Common database. Many of an ERP’s advantages stem from a common database that allows organizations to centralize information from numerous departments. This single source of real-time data eliminates the need to manually merge separate databases, each controlled by the business functions they serve. A common database enables a consistent, cross-functional view of the company.

2. Consistent UX/UI. Across departments and roles, everyone uses the same user interface (UI) and has a similar user experience (UX) with an ERP. Modules for inventory management, HR and finance all have the same look and feel and shared functionality, provided you get them from the same vendor. This increases the software’s adoption rate and can make it easier for staff to move between departments. A consistent UX and UI also result in efficiency gains because users can quickly find and understand information from all corners of the business.

3. Business process integration. An ERP must be able to support and integrate the processes that make your business successful, whether related to accounting, supply chain management or marketing. The right platform will have the ability to unify a diverse set of processes — connecting workflows that play crucial roles in the company’s success boosts productivity and visibility, and that translates to lower costs.

4. Automation. Another basic feature of ERP software is the ability to automate repetitive tasks like payroll, invoicing, order processing and reporting. This reduces manual, and sometimes duplicative, data entry, saving time and minimizing errors. Automation frees up your staff to focus on value-added work that takes advantage of their special knowledge and skills.

5. Data analysis. One of the most valuable aspects of an ERP is that it breaks down information siloes. When you can mix and match data from just about any part of your business into insightful reports, you uncover areas that are performing exceptionally well and those that are failing to meet expectations. Leaders can analyze problems and get to work resolving them right away.

Types of ERP Deployment Models

Various ERP deployment models address the needs of different organizations, and it’s important to understand the unique characteristics of each so you can identify the best option for your business. There is some nuance here, like multiple versions of “cloud” deployment — it’s not just on-premises vs. cloud. Here’s an explanation of how each method works and key differences between them:

On-premises ERP: With an on-premises system, the business runs the software on servers it owns and is responsible for security, maintenance, upgrades and other fixes. Upkeep usually requires in-house IT staffers with the required expertise. For many years, on-premises ERP was the only option, but the popularity of this deployment model has declined rapidly in recent years, and market-watcher IDC predicts continued declines (see chart, below).

Cloud-based ERP: Cloud-based ERP runs on remote servers managed by a third party. Users typically access a cloud ERP through a web browser, giving them greater flexibility — they can dig into information and reports from anywhere with an internet connection. There are multiple deployment options for cloud ERP, including hosted cloud and true cloud.

With a hosted cloud solution, a company purchases a license but runs it on remote servers managed by a third party. The servers and other hardware is often rented from the hosting company. Your data is stored in a private cloud as a separate instance of the ERP used by just one company. Your infrastructure is not shared with other organizations, which is why this is sometimes called single-tenant. This setup can give the client greater control over the software and allow for more customizations, but it also creates more work for the business. Think of it as a middle ground between on-premises and true cloud software.

A true cloud deployment allows companies to pay a fee in exchange for access to servers and software that they do not have to manage. SaaS ERP solutions are a popular version of a true cloud solution, as the vendor handles everything on the back end including patches and upgrades. True cloud is also known as multi-tenant because multiple businesses use the same software instance and hardware. This reduces the need for an in-house IT team and ensures that the company always has the most up-to-date, secure version of the software.

IDC estimates that use of cloud-based ERP will more than double between 2019 and 2024.

Hybrid ERP: Hybrid ERP combines elements of on-premises and cloud deployments. One hybrid approach is two-tier ERP, where a corporation keeps its on-premises ERP in place at headquarters but employs cloud systems for subsidiaries or certain regional offices. These cloud solutions are then integrated with the on-premises system. Other companies may turn to cloud solutions for certain business needs while sticking with their on-premises systems for other functions. Either way, the cloud systems must be linked to the on-premises platform to ensure a steady flow of information — often easier said than done.

Open-source ERP: Like other open-source applications, open-source ERP is an inexpensive, and sometimes free, alternative that’s suitable for some companies. Many open-source ERP providers allow businesses to download their software for free and charge a low annual fee only if the customer wants cloud access. These solutions have improved, with more modern web-based interfaces and a growing number of modules, but companies need to understand what they’re taking on with an open-source ERP. Support from the provider will be minimal, and configurations and system improvements tend to fall on the client. That means you need technical staff with a deep knowledge of how to develop and configure the software.

ERP Systems by Business Size

Revenue and/or number of employees is just one factor shaping your ERP requirements. No single system will be best for every small, midsize or large company, respectively. But there are features specific to these segments as well as favored deployment models for each business profile, which we walk through below.

Small-business ERP: Small firms should map out their requirements before starting a search to avoid software that has far more functionality than they need. This will keep costs down and reduce the training required for employees. However, the system should have the ability to scale up and support new initiatives over time as well as a straightforward implementation process. That’s why cloud ERP is generally the best option for small businesses — it has lower upfront costs, a faster setup timeline and less need for technical resources compared with on-premises or hybrid options. The cloud offers the scalability to meet the business’s needs as it grows, and the right provider can supply modules and features as required.

Midsize-business ERP: Midsize companies should demand a platform that can support all its business functions with specialized modules and, like smaller firms, select a vendor capable of scaling to meet future needs.

Because many midsize organizations lack large IT teams, cloud ERP software is very popular in this segment as well. In addition to lower initial expenses, leading SaaS solutions can be more user-friendly for a company that has limited in-house technical expertise. However, midsize businesses that require numerous customizations or must follow regulatory policies that bar them from storing information in the cloud may opt for on-premises deployments or a hybrid approach. This group is more likely to have the financial and human capital to support this model than small businesses.

Enterprise ERP: Enterprises should opt for software that can support all components of their businesses, which could quickly thin the list of contenders. Corporations require systems that can capture, process and interpret a vast amount of data and handle the demands of many business units.

On-premises and hybrid ERP that combines cloud and on-premises solutions are most common with enterprises, simply because they may have adopted ERP before pure cloud systems were available. While moving a massive ERP to the cloud can be a time- and resource-intensive undertaking, more of the world’s largest companies are taking that step as they realize the benefits and try to put themselves in a better position for future growth. Some enterprises have also deployed two-tier ERP, which uses a SaaS solution for parts of the business and integrates with the primary on-premises ERP.

ERP Best Practices

Most ERP software is built around established best practices. The software provider designs workflows and functionality based on its experience working with hundreds or thousands of customers and encourages as much conformity as possible, though there is often flexibility to adjust processes.

Adhering to industry-standard best practices has major business advantages. Companies often find that they improve and modernize their processes, and in turn maximize operational efficiency and avoid falling behind competitors. Observing best practices also helps companies comply with key financial standards. Leading ERP vendors offer vertical-specific versions of their software that incorporate business practices that are best for each sector.

ERP Implementation

ERP implementations are important projects that, without proper preparation, can eat up a lot of time and money. Exactly how long this project takes and how much it costs will depend on many factors, including deployment model, implementation strategy, complexity of the system, size of the company and resources dedicated to it.

This ERP implementation checklist should help guide you.

7 Stages of Implementation

As with other initiatives, companies can avoid major challenges by taking the time to create a detailed implementation plan. Preparation pays off.

Here are the seven key stages of an ERP implementation:

1. Discovery and planning. To start, pull together a cross-functional team to determine what, exactly, the company needs from an ERP system. This team should identify inefficient processes and other roadblocks to business growth.

2. Evaluation and selection. Now that the team has a requirements document, it’s time to evaluate leading offerings and select the platform that can best resolve existing problems, meet all departments’ needs and promote the company’s growth.

3. Design. At this stage, the implementation team figures out whether the system can support existing workflows and which processes may need to change. This is also the time to identify any required customizations.

4. Development. Internal and/or external technical professionals configure the software to meet your defined needs and begin migrating the company’s data to the new solution. Now is also the time to decide how you will train employees on the system and begin scheduling sessions and producing or acquiring needed training materials.

5. Testing. This is not a step to be skipped — it’s crucial to make sure everything works as expected and fix any unforeseen problems. Include users from across the company when testing the platform.

6. Deployment. It’s time to go live. There are often hiccups early on, and businesses should prioritize employee training to mitigate resistance to change. Some firms opt for a phased rollout, while others push all modules live at once.

7. Support. Ensure users have everything they need to take advantage of the new system. This is an ongoing process and could include additional configurations, often with the help of the vendor or specialized consultants.

ERP Integration

Virtually every organization considering an ERP implementation will have systems in place that could be replaced by modules of the ERP under consideration. As such, part of adopting an ERP system involves determining which existing systems will be replaced, which must be integrated and which will be left to stand on their own.

Remember, the more information that’s fed into the ERP, the more value you get from your investment, so avoid leaving systems to stand apart from the ERP.

Deciding when to integrate existing systems with your ERP and when to replace those systems with modules from your ERP vendor comes down to three considerations:

First, is the existing system doing the job you need it to do? If not, then there’s a good case to be made for using the relevant module offered by your ERP vendor.

Second, if the existing system is a keeper, is there a connector available from the ERP vendor, the existing system vendor or a third party to get data flowing between the ERP and your existing system? And if so, how good is it? Data migration is complex. These connectors can do a decent job of integrating systems from different vendors, but quality and commitment to updates can vary. Remember: Upgrades to either the ERP or the standalone system can break connectors or require rework. In the worst case, the lack of a new connector could derail upgrade plans completely.

Third, if a connector exists, does it operate in real time and keep all necessary data flowing to and from each system? Some connectors operate in real time, others sync up systems on a daily or weekly basis. Some move only a limited set of data between systems, and some work in only one direction — say, from an inventory management system into the ERP. If your team has done extensive custom configurations, some data types might not be known to the connector.

These potential complications highlight the advantage of using modules from a single provider to manage different business functions. Whenever possible, it’s a good idea to use one vendor to address your needs. This avoids the entire issue of integrations as these modules are built by the provider to work together. A unified ERP system not only prevents problems but can also encourage adoption by flattening the learning curve.

If you decide to keep best-of-breed systems and integrate them with your chosen ERP, realize that verifying the correct functioning of connectors will become part of every upgrade cycle and that extensive customizations can cause issues. If your goal is to automate back-office functions with real-time updates, bidirectional operation is important. Ensure you have the expertise, either in-house or through a partner or supplier, to keep data flowing.

Cost of ERP

The cost of an ERP project varies widely depending on vendor, modules and deployment model. Generally speaking, total costs can range from less than $10,000 per year to millions of dollars annually. ERP systems are priced with the needs of the target audience in mind, so those built for emerging and high-growth businesses will be more affordable than those used by Fortune 500 enterprises.

Cloud-based ERP, and specifically SaaS options, usually have lower upfront costs than on-premises software because there’s no hardware to purchase nor system experts to hire. With a SaaS solution, the vendor takes care of upkeep and charges its customers an annual fee, often on a per-user basis.

The price of ERP will also vary based on which modules you need. Solutions may come with core functionality for finance and basic inventory/order management, but adding complementary modules brings an additional fee.

With on-premises software, companies purchase a perpetual license that’s more expensive, but it’s a one-time expense. As with SaaS, the price of this software will vary based on the type and number of modules needed. But those that select on-premises systems also pay for the servers and other infrastructure to host the software, are often on the hook for maintenance fees and may need to bolster their IT staffs. A hybrid model could be even more expensive, as it requires many of the resources to support on-premises ERP in addition to the subscription fees for cloud applications.

Finally, remember that the costs of ERP go beyond licensing. When calculating the TCO of various ERP solutions, factor in implementation and operating expenses related to customization, maintenance, training, upgrades and support. These costs will vary from one provider to the next, so do your due diligence and ask a lot of questions to get a clear estimate of the total outlay, both Capex and Opex. Sign up here