Enterprise Resource Planning

What is ERP?

What is ERP?

Enterprise Resource Planning helps you:

  • check_circle_outline Integrate and synchronize business processes
  • check_circle_outline Share real-time insights through a centralized data repository
  • check_circle_outline Automate tasks through connected workflows
  • check_circle_outline Comply with industry and regulatory standards
  • check_circle_outline Expedite customer service and tailor messaging
  • check_circle_outline Analyze company financial health across departments

Integrate and synchronize business processes

Enterprise resource management (ERP) is a method of interweaving various front office and back office departments and workflows.It contains a range of capabilities, and its main purpose is to streamline operations, generate revenue and increase productivity through this connectivity.

For example, with ERP software, users could look at the budgets of different projects to help anticipate the cost of a future project. This reduces the amount of time spent negotiating for a certain spending goal. Another example would be the ability to look at the status of machines in the warehouse, along with the number of unfulfilled orders to measure optimal production speed.

ERP also ensures that everyone in a company is on the same page. If a product is out of stock or has been canceled, the sales staff could see that information in the ERP system and refrain from selling those items. Overall, ERP can help boost efficiency, increase revenue margins and reduce communication errors through the integration of various processes. ERP often includes the following workflows:

Share real-time insights through a centralized data repository

When people talk and write about ERP, the centralization of data and real-time information is one of the most prominently mentioned benefits. Because an ERP system contains data from across a business in one location, users can easily access insights from other areas of a company to inform analyses. This “desiloing” of information leads to more accurate insights and can lead to improved workflows.

For example, if the financial team has data insights on how many projects run over budget as segmented by department, this information could be easily accessed by the departments themselves without the need for the financial team to compile a special report. This increases productivity and information accessibility. In fact, some new data points might even be revealed that weren’t easily available when the information was contained on different computers and siloed by department. Alleviating the burden on other teams to compile statistical documents related to certain business aspects is a key benefit of ERP.

Automate tasks through connected workflows

Automation is a term that gets thrown around by people in the technology sphere all the time, but how can it actually work in a software system? ERP is a great example of a tool that leverages automation at its core. ERP systems are excellent candidates for workflow automation due to their emphasis on operational connectivity. Because these connections are already established, it’s relatively simple to develop automated processes.

Some automated functions might include automatic reordering of materials from a best-price vendor when inventory levels reach a set point. This helps alleviate the number of tasks that are on the plate of your staff members, therefore freeing up time for other duties that they might not have time for otherwise. ERP software often automates and streamlines financial reporting workflows. When sales orders are entered into a system, financial information can be automatically sent to the general ledger to track revenue. This also reduces keying errors and duplicate data entry issues.

Comply with industry and regulatory standards

Legal and industrial compliance are essential facets of a successful business. Many ERP vendors offer products that contain tools to help companies adhere to regulations to save money and time. Specifically, this may include quality management features that flag products that will need to be inspected further to ensure regulatory compliance.

Some vendors also allow quality managers to mark items that don’t pass inspections so that employees can go back to the drawing board and figure out what needs to be changed to meet necessary standards in the future. Here are some of the rules that ERP can help businesses comply with:

  • GAAP
  • IFRS
  • Importer Security Filing (ISF)
  • REACH
  • RoHS
  • Conflict Minerals

Expedite customer service and tailor messaging

Some ERP vendors enable users to optimize the customer experience through targeted messaging and retained sales information. By tracking the conversations that customers have had with sales representatives and the products they’ve purchased, you can improve customer experience by personalizing communications and reducing reiterative messages.

These programs can also store payment information to make the actual purchase process easier for all parties involved in a transaction. Here are some of the specific capabilities you might find in an ERP program’s CRM tool:

  • Contact Management
  • Marketing and Campaign Management
  • Email Integration
  • Pricing and Tracking
  • Salesforce Automation
  • Pricing and Tracking
  • Marketing Resource Management
  • Order Management

Analyze company financial health across departments

Financial tools are the bread and butter of ERP. Without financial data included in your system, ERP operates in a bubble that doesn’t account for actual market conditions and company standing or positioning. It’s a core tenet of ERP that is typically put into a system before any other functionality.

There is a diverse range of financial tools that vendors can include in their programs, so if you decide to purchase an ERP, it’s important to make sure that all of the features you need can be implemented into the system you buy. Here are some of the financial reporting capabilities that help make ERP such a valuable tool:

  • General Ledger
  • Accounts Payable
  • Accounts Receivable
  • Budgeting
  • Bank Reconciliation
  • Invoicing/Billing
  • Support for Multiple Currencies
  • Cash Flow Management
  • Payroll

FAQs

How Do ERP Systems Work?

ERP systems work by creating a centralized center for various business processes to operate. This system contains data from different workflows and uses this information to automate tasks and generate useful insights. Users can select the tools that they want to have included in their solutions based on their individualized business needs. These programs can be installed through different methods such as in-cloud, on-premise or hybrid deployment, making them an effective option for businesses of a variety of sizes.

How Do I Know I’m Ready for an ERP System?

There are a few key signs that your business might be ready to implement a system. Here are some of the factors that might indicate it’s time to upgrade your operations

  • Manual workarounds for business processes
  • Missed revenue opportunities due to too much on your plate
  • Customers annoyed at ineffective customer service
  • Inability to measure data across the organization
  • Large amount of time spent on tasks that should be simple

What Are the Different Types of ERP?

There a few different types of ERP deployment — on-premise, cloud-based and hybrid. The option that is best for your organization depends on factors such as needed accessibility, current workflows and level of investment. Now let’s go over the basics of these deployment methods so that you can decide which option is best for your business.

On-Premise

On-site deployment is a method of installation where the vendor or one of its partner organizations come to your company and install the software directly on staff computers. On-premise software is available to users when they are using specific devices. One of the key benefits of this deployment method is the ability to use the program when an internet connection isn’t available and an increased level of security because the platform will be hosted on your company’s own servers.

However, the initial investment required to deploy ERP software on-premise is relatively high compared to cloud-based solutions, which can be a dealbreaker for some businesses. The system also might not be available at any time and in any location due to the restrictions of on-site deployment, therefore reducing accessibility.

Cloud-Based

Cloud-based ERP allows you to access the program from any location and at any time as long as an internet connection is available. Depending on the priorities of your company and your business model, this might sound immediately attractive. The upfront cost of implementing cloud-based ERP is lower than that of an on-premise solution.

However, some businesses don’t like the idea that their information is in the hands of a different company and that it’s ultimately up to the ERP vendor to retain security. However, when considering this argument, it should be noted that cloud ERP is typically a very secure solution and that without proper privacy methods, cloud ERP wouldn’t be sustainable.

Hybrid

A hybrid deployment method is just as it seems — a mix between on-premise and cloud-based deployment strategies. With this method, companies can install core programs on-site while leveraging the cloud for additional features such as the “latest and greatest” add-ons. This helps businesses ensure consistency and reliability through the on-site portion of their package while also gaining flexibility due to the ease of adding new functions to the program.

What Are the Latest and Greatest ERP Technologies?

With the rapid development of new technologies, it makes sense for ERP vendors to follow suit and implement these new tools into their systems. Here are some of the technical abilities you might look for during the ERP selection process.

Automation

ERP is uniquely primed for automation due to its centralized business processes. This technology’s main benefit is its ability to increase productivity by reducing manual workflows. Examples of operations that can be automated include sending employees direct deposits for their work, reordering of materials based on set inventory levels and the monitoring of quality assurance to ensure adherence to industry and regulatory standards for items that you produce.

Artificial Intelligence (AI)

AI functionality can help businesses with tasks such as demand planning and forecasting to maximize revenue. This tool can look at historical data and processes to estimate the amount of goods customers will want, and then it can use this information to reduce inventory levels and product spoilage. Additionally, this tool could assist in identifying bottlenecks in the production system so that you can hasten workflows and alleviate any hindrances to your operations.

Internet of Things (IoT)

The internet of things is an extremely useful component when included as part of ERP. This technology is basically the connection of various physical objects through the internet. An example of how this looks in ERP could be through RFID tracking of objects and the monitoring of machine downtime. By connecting these devices to the internet, you can develop insights about them without being in their proximity.

ERP has a storied history. Although Gartner first introduced the term in 1990, it stems from MRP or material requirements planning systems that existed in the 1970s. MRP was focused mainly on manufacturing processes. However, users eventually started requesting integration with other tools such as finances, HR, sales and marketing. Therefore, ERP software was introduced to facilitate operations both in the front and back office. As technology changes, so does ERP. This is why it’s important to stay up-to-date with the latest features by selecting a vendor that leverages new functionality and methodology.

How Do I Select an ERP System?

When selecting an ERP that is right for you, it’s important to keep a few things in mind. You should consider your operational needs, the deployment method you seek to use, the size and industry that your company is in and your budget. These are just a few of the factors that can make or break whether or not a vendor belongs on your selection list.

The process of choosing an ERP can be arduous, which is why we at SelectHub have created an easy-to-use requirements interface to help you find the vendor that best fits your business needs. If you’re not quite ready for that, we’ve got tons of other resources to guide you along the way, whether it be our ERP Requirements Checklist or our list of ERP advantages and disadvantages.

Have a question about which software vendor is right for you? We’d love to help! Reach out to our team for individualized recommendations by messaging [email protected] or via phone at 877-692-2896.

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ERP articles are written and edited by:

Mariah Hansen

Lead Editor

As the lead editor at SelectHub, Mariah edits and manages content for more than 40 different software categories, as well as writing for a couple of them herself.

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Madeline Reinbolt

Market Research Analyst

Madeline Reinbolt is a Market Research Analyst at SelectHub. She writes content for Enterprise Resource Planning (ERP), Employee Performance Management and Recruiting.

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Thought Leaders

SelectHub has sought out and invited thought leaders to contribute to our ERP Industry articles and resources. These thought leaders ensure we deliver quality content with the most accurate information, focusing on what matters most. No thought leader is compensated for their contributions, but shares our belief that information should be democratized so everyone can make the best decision.

Laurie McCabe

Co-founder and Partner, SMB Group

Laurie brings more than 25 years of experience in the IT industry to her current role as Cofounder & Partner, SMB Group. Laurie has built widespread recognition for her insights in the small and medium business (SMB) technology market.

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Lisa Anderson

Founder and President, LMA Consulting Group

Lisa Anderson is the founder and president of LMA Consulting Group, a consulting firm that specializes in manufacturing strategy, end-to-end supply chain transformation and technology adoption that maximizes the customer experience and enables profitable, scalable, dramatic business growth.

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Eric Kimberling

CEO, Third Stage Consulting

Eric Kimberling is one of the most recognized and respected independent ERP systems experts in the world, giving unbiased advice to clients for over 20 years.

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Ed Cowsar

CEO, OspreyData

Ed’s more than 30 years of leadership and success in a variety of industries includes a unique combination of expertise and experience with product design, sales, engineering, operations, change management and innovation for technology and services firms, as well as highly-regulated industries.

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David Haimes

Senior Director, ERP Cloud Development

David Haimes is a senior director in the Oracle Cloud Applications Research and Development Organization, focusing on next-generation functional and technical architecture.

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David Dozer

CTO, Blaze IT

David Dozer is a business consulting and IT specialist with more than 15 years of experience in the enterprise software realm.

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Shelly Gore

ERP Architect, A Bigger View

Shelly Gore is CEO and co-founder of A Bigger View. For over 25 years, she successfully designed and implemented complex IT and Cloud-Based ERP systems for corporations in North America and Europe.

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Grady Brett Beaubouef

Business Value Realization Director, Oracle

Grady Brett Beaubouef is an ERP expert with 20 years of industry experience. He works as a Business Value Realization Director at Oracle

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Harsha Sarjapur

Co-founder, InfoSourcing

Harsha Sarjapur is the co-founder of InfoSourcing Inc., an ERP solution provider that assists businesses of all sizes with the implementation of ERP solutions. He has worked in the ERP industry for the last 20 years.

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Erik Kiser

CEO, Orderful

At 25 Erik started a consulting firm focused on writing EDI and B2B integrations for manufacturers. Through scaling the company he realized that there is a great opportunity to improve business for the manufacturers by providing a software hub approach.

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