You only have to take a look at what comes up in Google’s search bar to see that a lot of people are searching for things like “What is ERP?”; “What does ERP stand for? ” and “What ERP systems do” and so on. So we’re going to answer some of these questions here!
If you take a look at Google trends during the last 5 years, ERP related searches have increased 200%, but if you look to the last 2 years, this figure doubles. Business uncertainty in recent times has understandably forced companies to review their strategies and look for the technology needed to support them and make them more agile. Adapting to new environments and ways of working is vital, and ERP systems can help with this.
Executives know about their mission, growth, and business performance. They are aware of their business pains, needs, processes, and they know they need tools to back them up, support the business core, and facilitate access to data in real-time, in order to make informed decisions and face changes while minimising risk.
And here is where ERP solutions can help, even if you might not know what they are called.
ERP vendors and partners are usually so immersed in what we do that we take for granted everyone should know what it is, but not everyone does! So, let’s go back to basics.
ERP stands for Enterprise Resource Planning, which doesn’t give much away. In summary, ERP is a software that allows companies to run all their core processes end-to-end within the same system. Gartner provide an excellent definition of ERP, which explains it clearly and concisely.
Organisations of all industries use ERP to standardise, streamline and integrate business processes. An ERP system covers all business areas, including finance, manufacturing, distribution, sales, procurement, supply chain, projects, services, customer care and more.
So, what does enterprise resource planning involve? Some of the key features of enterprise resource planning include:
Read our guide to choosing the best ERP for your business.
ERP software brings processes together to collaborate and create one fluid system. An ERP system’s main functions include:
If you are looking for a detailed technical description, this is not the place, but we are always happy to have our System Architect discuss it with you. To give a brief summary of how they work, ERP Systems streamline business processes by collecting, storing, managing, and communicating data across all functions of a business.
ERP software combines a number of different reports and metrics across various departments into the same environment, giving a 360º view of what is going on and how resources are being used, whether money, staff, material, or any other resource.
With the available real-time information in a single source of data, companies can more quickly gather insights into how processes can be improved or how resources can be distributed to make a better spend and leave room to growth. No more spreadsheets, compiling information from different business applications; it’s all available and accessible from the ERP interface.
Without an ERP system and proper planning strategy, business management becomes much harder. In addition, the company may be underperforming in ways the management team are not aware of.
Having said we won’t go into too much technical detail, we’ll give a brief and basic technical overview of how an ERP works here.
Data integration and visualisation enables data maintainability, flexibility, and transparency. Integrated data structures are implemented in an ERP system through a set of business transactions with visual business objects, using additional relationships to form a foundation for simultaneous and forward planning of many components. Various business objects of integrated data structure are visually represented using Scalable Vector Graphics (SVG), an XML based technology. A software component gives the ERP system the capability to display business objects and their linkages.
Customers and operations are changing and so companies need to be able to quickly react to those changes, not only to keep up, but also to be ahead of competitors.
In this new environment, including unexpected changes, companies are forced to plan new strategies minimising risk.
The board has to act as a facilitator and integrator.
An ERP system is a catalyst for business innovation and minimises risk, allowing companies simulate different scenarios. It is also a platform for business efficiency, as it accelerates operations, reducing the time required to complete almost every business process and improving efficiency and effectiveness by unifying all in a single suite. The standardisation and simplification it offers result in fewer rigid structures, thereby creating more agile enterprises that can adapt quickly while increasing collaboration.
ERP software assists the CFO tracking, analysing, and reporting critical business data from all departments to make decisions about, for example, capital projects, funding sources, cash management and financial control.
Some of the specific benefits to cloud-based ERPs are:
In today’s world information is king. The importance of ERP comes from its ability to deliver the real-time 360º visibility demanded by organizations in their pursuit of improving business performance and finding room for growth. ERP systems are important to businesses because ERP also enables them to streamline processes and increase agility.
ERP helps board members make informed decisions using business intelligence to gather more accurate and actionable insights; makes individual operations and departments to work faster; automates specific processes allowing staff dedicate time to more productive activities; improves customer relationships, making it faster and more efficient, and thus improving customer satisfaction.
Some other reasons to invest in an ERP are:
Standardisation. Using disparate systems can lead to errors, difficulties in data transfer, consuming processes, and security gaps.
Better accounting and financial reporting. Keeping track not only of incoming and outgoing transactions, but also visibility of the business and how each area impacts finances. As business grow the complexity of transactions grows. With an ERP, businesses can close the books in less than 10 days, have consolidated view across subsidiaries in real-time and have tight control of all financials across the organization.
Let’s start from the end. It is a fact the more information that feeds into the ERP system, the easier it is to identify and solve issues and capitalize opportunities.
ERP systems started in the 60s and were originally developed for the manufacturing industry, with materials requirements planning (MRP) that enabled businesses to track inventory and production. It all started with J.L. Case, a manufacturer that worked with IBM to develop it. In the 1970s MRPs gained traction but was only available to large companies with enough budget and resources. The 80s marked a milestone with more sophisticated solutions to support processes beyond raw materials and inventory and allowing coordination with various departments. Gartner coined the term enterprise resource planning in the 90s when because of its benefits technology evolved and expanded and was adopted by other industries and is now applied in almost any sector imaginable. From service providers, retailers, wholesalers, software industry and more.
In 1998 NetSuite launched the first cloud ERP, widely seen as an improvement over on-premises systems as business could access critical business data online and meaning companies didn’t have to spend in purchasing and maintaining hardware. 2000 meant a significant advance, when systems were enabled to pull data from other sources, including front and back-end applications to feed the ERP system.
The different types of ERP systems can be categorised by either industry or implementation.
Over the years ERP systems have grown. As mentioned before one of the key features of top ERPs is modularity. That is the reason why ERP can be modified according to the needs of every industry, delivering a “customised” suite for its specific needs. The more modules the system has the more operations it covers and automates. An ERP system for a warehouse or manufacturing business, for example would have very different requirements to one for an IT company, and ERP modules allow for that.
ERP systems can be on-premises, cloud-based or hybrid.
On-premises ERP systems are installed locally in the company’s hardware and servers. This means they will need an IT team to maintain the system, which will costa significant amount of time and money. Upgrades require a huge effort to deploy across users’ computers and re-implement customisations and integrations. Despite the high upfront cost and difficulty in up grading, some companies still prefer this type because of a feeling of being more secure.
Cloud ERP systems have different subtypes:
Multi-tenant, also called SaaS, or Software-as-a-Service – is a single version of the ERP software and infrastructure serving multiple organisations
Single-tenant SaaS – ERP software that serves only one organisation
Public cloud – multiple organisations share cloud computing services. Examples include AWS, Google Cloud, Microsoft Azure or Oracle Cloud
Private cloud – the service is cloud-based, but not shared with any other organisation. A company’s s ERP software and data are managed centrally by the ERP vendor and are accessed using a web browser. Effort is substantially simplified and overall cost significantly lower. Other advantages are deployment speed; running on the latest version whilst maintaining your enhancements and customisations; accessibility and performance is better than for on-premises systems, but also provides security as they usually meet the highest standards and have systems in place to avoid data breaches and losses, with 24/7 monitoring tools, controls and policies.
Meanwhile Hybrid ERPs are a combination of private or public cloud and on-premises ERP solutions. Hybrid is often a good fit for organisations with an existing on-premises ERP looking to integrate their systems into web-based services.
Enterprise Resource Planning software can be expensive when compared to other alternative solutions (such as an accounting application, for example). However, spend in digital transformation should be considered a major and positive technology investment to drive change and improvements, rather than a cost. In terms of actual spend, ERP cost varies depending on the implementation type, number of users, modules, and level of customisations.
The importance of an ERP software can be summarised as it being the most helpful tool for companies’ day-to-day management. Companies have a vision and a mission. Their aim is to achieve those and thus they need the business to smoothly perform, but they also need to plan, set goals, and capitalize opportunities.
To do so, it is vital that they have a picture of performance, and this means data. As we previously mentioned, information is king and ERP systems are the best tool to provide that information across all business functions. They are crucial for supporting thought leaders and business transformation, helping companies make informed decisions, minimising risks, automating processes, and increasing agility.
Find out more about ERP
Thinking about ERP for your business but not sure where to begin? Read our helpful guides
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