Enterprise Resource Planning (ERP)
What is ERP?

Enterprise resource planning or ERP solution is a suite of applications that manages core business processes, such as sales, purchasing, accounting, Human Resource, customer support, CRM and inventory. It’s an integrated system as opposed to individual software designed specific to a business process.

Using a centralized database, ERP helps businesses collect, store, manage and interpret data from various business units. Likewise, ERP is used to automate back-office tasks and streamline cross-departmental workflows. When optimized, the solution can drive efficiency, lower costs and increase profitability.

Why use ERP software?
Beyond answering the question of what is ERP software, you should also know why you need it. The purpose of ERP software is to increase efficiency, streamline processes and promote a culture of collaboration in the organization. The result is costs are minimized and productivity increases leading to a better bottom line. Let’s break down the advantages of ERP software. 

Increase efficiency

Business processes like accounting, sales, marketing, production and inventory are integrated in one ERP platform. It’s easier to collect and access data across the organization, streamlining cross-departmental workflows.

Likewise, ERP automates day-to-day tasks like manually entering data or generating reports. Repetitive processes are eliminated, freeing teams to focus on their core deliverables. For instance, marketing can run a daily web traffic report without bugging tech; or, accounting can instantly access the week’s sales stats without chasing the sales director.

ERP also provides managers and key stakeholders with  quick look-ups. Dashboards allow decision-makers to glance at key performance indicators across the organization. If they want to investigate more, managers can drill down to details in a few clicks.

Promote collaboration

ERP breaks down walls between departments. Data silos are integrated and a process superhighway links local workstations together. This setup allows teams that used to operate in a vacuum to easily collaborate with other teams inside the ERP platform.

Moreover, SaaS ERP further extends collaboration between remote teams and headquarters through the internet. Offshore business units are now within earshot of their mother unit. A culture of collaboration drives innovation and teamplay and, in general, makes businesses more competitive.

Make accurate forecasts

The only worse thing about the lack of forecast is a wrong one. Forecasts shape strategies; thus, it’s crucial organizations get the real picture. Using a centralized database, ERP lends to a company’s disparate business solutions a standardized process, ultimately, enhancing data integrity.

ERP reporting tools use advanced filters and analytics to sift data for inconsistencies. Features of ERP software like deduplication also ensures data is updated and duplicate-free. With data integrity intact, managers can generate reports with realistic forecasts. Similarly, estimates are within a sensible range of outcomes.

Moreover, advanced ERP solutions with business intelligence tools use machine learning and predictive algorithm that allow users to dig deep into big data. Companies with complex data sources can leverage ERP for hidden insights and gain a competitive edge.

Lower operational costs

A company can also leverage ERP to cut down costs. When processes are streamlined and key metrics are closely monitored, disruptions, delays and breakdowns are anticipated or its impact better managed.
Manufacturing and distribution are especially vulnerable to disruption. But with ERP allowing production, engineering, customer service and other business units to work closely together using real-time data, resolving sudden problems is faster. Operating costs are kept within budget.

Increase data security

ERP solutions have firewalls and restriction controls to guard against data breach. Having a single data warehouse means access points are tightly monitored and security is concentrated. Likewise, user permission rules give admin the flexibility to lock in sensitive data without limiting user access to other information.

Admin can also quickly de-active access of terminated employees, while grant permission to new ones. ERP solutions also display user activities, so admin can easily spot unauthorized actions or suspicious activity patterns in the system.

Comply with regulations

Many ERP solutions feature built-in regulatory process standards and compliance reporting to help businesses meet myriad business requirements. ERP solutions subscribe to reporting protocols for aspects like financial accounting, product regulations and data security.

SaaS ERP benefits

SaaS ERP brings to the table more competitive advantages like:

  • Scalability – add more features as your business grows without instaling a new system
  • Mobility – access ERP data and tools anywhere, anytime via internet
  • Flexibility – integrate existing apps to ERP or export ERP data to business apps
  • Low capital outlay – minimum budget only for hardware, software, setup
  • Maintenance-free – vendor takes care of patches, updates, troubleshooting, downtime
What are the types of ERP software?

You’ve learnt what is ERP software, let’s now look at the different types. The fluidity of ERP dynamics and diversity of factors affecting it make it difficult to classify the category. It can be grouped by functional levels, business size and deployment. To simplify the types, ERP can be grouped as follows:

  1. Generalist ERP. Many legacy and cloud ERP solutions are generalists. They adapt to processes across industries. These solutions have strong customization and integration to match varying industry requirements. It’s also not a surprise given its large market generalist ERP vendors are also one of the largest.
    Examples: Oracle, SAP, Netsuite
  2. Vertical ERP. These are industry-specific ERPs. Often, vertical ERP vendors are startups or smaller companies that try to focus on a niche, such as, construction, supermarket distribution or retail fashion.
    Examples: Microsoft Dynamics AX, Brightpearl, Epicor Retail
  3. Small business ERP. These are off-the-shelf cloud or on-premise ERP solutions. Often, the ERP is modularized with pared-down features. Instead of delivering a fully integrated system, small business ERP serves one or two business processes and leaves out the others. For instance, it features HRM and accounting function only, with add-on options for CRM, inventory or supply chain management. For this, small business ERP is also referred to as lightweight ERP.
    Example: PeopleSoft
  4. Open-source ERP. Open-source ERP solutions are still a tiny fraction of the total ERP market. But solutions like Odoo ERP lend to companies with resident tech teams the flexibility to develop and integrate their own apps into the ERP. For developers, open-source increases usability and user adoption because the ERP can churn out highly customized processes.
    Example:Odoo
What does ERP software do?

ERP can be fully integrated or customized to specific processes. A typical ERP system covers key business processes and consists of the following modules:

  • Financial management
  • Customer Relationship Management (CRM)
  • Sales & Marketing
  • Human Resource Management (HRM)
  • Manufacturing
  • Supply Chain Management (SCM)
  • Inventory
  • Purchasing

The more advanced ERP today also include business intelligence, asset management and e-commerce. Also, ERP can be vertical with industry-specific features for, among others, retail, healthcare, government and nonprofit. Let’s break down the basic modules and how they serve your needs.

  1. Financial management. This module manages your capital inflow and outflow. It covers standard Accounting & Finance transactions like expenditures, general ledger, balance sheet, bank reconciliation, tax management and payments. The module also generates financial reports for different departments and business units.
  2. CRM. The CRM module helps you to boost customer service and, eventually, profit per capita. It manages leads, opportunities and customer issues. Likewise, it provides a 360-degree profile of your customers by consolidating data like their social media activities, purchase history and past interactions with support reps. In an ERP setup, CRM is closely integrated with Sales module to fast track conversions.
  3. Sales & Marketing. The module handles sales workflows like sales inquiries, quotations, sales orders and sales invoices. The more advanced ERP also features taxation rules and shipping tracker. The Sales and CRM modules work together to speed up the sales cycle and earn the company more profits.
  4. HRM. This module features standard HRMS tools like time tracker, timesheet, and database for employee records, job profiles and skills matrix. HRM module may also include performance reviews and payroll system. The latter is closely integrated with the financial management module to manage wages, travel expenses and reimbursements. Some ERP solutions also feature a training or LMS function under HRM.
  5. Manufacturing. This modules is sometimes referred to as Engineering or Production. It helps businesses make manufacturing more efficient in areas, such as, product planning, materials sourcing, daily production monitoring and product forecasting. Some of the key functionalities in this module are: Bill of Material, Master Production Schedule, Shop Floor Control and Sales & Distribution Plan. The module is tightly integrated with SCM and Inventory modules especially in areas like product planning and inventory control.
  6. SCM. This modules covers key aspects in your supply chain including purchase order management. It manages product flow from production to consumer and, occasionally, vice-versa for returns or recalls. A key feature of the SCM module is process automation, which streamlines your entire supply chain and makes it adaptive to sudden market shifts.
  7. Inventory. Also called material management module, it helps you measure stock targets, standardize replenishments and other inventory goals. It uses product serial numbers to track and locate items in your organization. This module is closely integrated with the Purchase module.
  8. Purchasing. This module manages the processes involved in materials procurement. These include: supplier listings; quotation requests and analysis; purchase orders; Good Receipt Notes; and stock updates. As such, it functions closely with SCM or Inventory modules.
What are the factors to consider when choosing ERP software?
Suppose you already weighed the cost-benefit ratio of getting an ERP and you’re convinced it’ll drive overall profitability. You now need to consider these key factors to ensure you optimize its ROI.

  1. Upgrade vs. replacement. Evaluate first if you need to get a new ERP system or just an upgrade. Many ERP solutions today are modularized; you can simply integrate a module, for instance payroll, with your current applications. This way you minimize disruption and costs.
    But if your ERP system is ten years or older, it may be wise to replace it. You can leverage today’s ERP solutions for mobility, integration, scalability and deployment options. Similarly, machine learning, predictive analysis and advanced reporting are pushing ERP to the next level.
  2. Customization. Aside from ensuring the ERP processes match your key business workflows, look closely at your departments. They may have different priorities and culture, which may even be contradictory. For example, Marketing spends, while Accounting saves or Production lives by daily output, while Sales lives by monthly quota. All these lead to myriad workflows that won’t fit into a one-size  solution. Look for an ERP solution with customization tools, localized dashboards and configurable workflows, among others, that allow departments to define their goals and set the ERP based on their parameters.
  3. Reporting and dashboards. Go beyond spreadsheet and PDF exports. ERP solutions today feature advanced reporting that can generate compliant financial statements based on your region. The latest ERP reporting tools also allow in-system query and smart filters coupled with real-time data. Likewise, look for agile and ad hoc reporting to quickly adjust to evolving business needs and disruptions. Dashboards, on the other hand, should let you mash up quantitative vs. qualitative data at user, role and department levels. Look for the standard dashboard function of displaying KPIs with drill-down links.
  4. Integration. ERP should work seamlessly with your existing business applications. There are a number of  integration points you need to consider from top to bottom. These include system-to-system (example, ERP to your existing CRM or HRMS), module-to-system (example, ERP payroll to your existing HRMS) and file transfer capabilities (example, exporting/importing PDF, JPG, DOC, CSV files). An ERP with flexible integration can work with existing infrastructure, expand its functionalities or, in fact, replace it while ensuring smooth records and files migration.
  5. Training and setup. On-premise ERP solutions need to be installed by someone with technical knowhow. If you lack a tech team, make sure you understand your service level agreement or SLA.  Installation is often charged separately from license, but some vendors offer all-in bundled plans. For SaaS ERP, setup is as easy as activating an account to access the vendor’s server.
    Likewise, ERP is more complex than most business solutions, so it requires user training. Does your vendor provide this service? Whether bundled in or exclusive to the plan, the kind of training you’ll receive should suffice for average users to adopt the system.
 
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