What Is ERP & How Do Enterprise Resource Planning Systems Work: Benefits and Types of ERP

August 3, 2020

Optimized and automated organization operations are the essence of successful business practice. The more efficiently and the faster company works, the better results and income it gets.

One of the ways to enhance the efficiency of a company is the employment of an ERP software system. What is ERP? What are its key features, advantages, and are there any disadvantages?

Enterprise Resource Planning

What Is ERP? | A Detailed Guide to Enterprise Software

ERP stands for enterprise resource planning. It is a unified system of administrative and operational processes of the company.

This is a type of software that brings together multiple modules and departments of the company in one place. It facilitates the management system and cooperation between departments as they have access to the data they need whenever they need it.

ERP consists of multiple modules that automate the collection, storage, and usage of the information for the benefit of an enterprise. Usually, this type of software brings together the sales department, human resources, finance, manufacturing, etc.

Understanding of Enterprise Resource Planning

 Companies consist of several departments and business units that constantly communicate, interact, and share data while dealing with daily operations. Imagine that all the departments of the enterprise function as separate units, and the information is stored locally, so other departments have no access to it. This is a type of decentralized organization of workflow that adds some hurdles to the process management. For instance, the finance team needs some data about one of the employees.

First, they should contact the HR team and request this information. The HR team might ask a finance department employee to provide approval from the manager. Once the approval is obtained, the HR team has to duplicate the data stored in their database and share it with the finance team. Quite a time-consuming process, isn’t it?

Now, imagine that a company uses ERP. All the departments have access to the modules they might need to conduct their daily tasks. The finance employee enters the HR database and finds the required information. This is an easy example that will help us understand the core essence of the ERP system and its practical application. It facilitates work, saves time and money. So, this suite of software tools is used for task management related to:

  • human resources
  • bills
  • expense management
  • purchase orders
  • project management
  • invoicing
  • stock management
  • quotes
  • asset management
  • API access
  • payment gateways
  • dashboards
  • detailed reports
  • employee training information, etc.

Taking into account the provided statements and examples, how would you define ERP?

Concise Definition of Enterprise Resource Planning

Enterprise resource planning is a modular software solution that centralizes and stores the organization’s data, optimizes connectivity, and data sharing between departments of the enterprise.

Enterprise Software

It helps to create an end-to-end connection of all the business operations that run in the company, as well as associated with the third parties, such as vendors, outsources, and customers.

What Are the Types of ERP Systems?

Over the years of deployment, the ERP systems have developed and grown in their number. Nowadays, ERP software can be classified according to:

  • a number of functions
  • industry
  • implementation process

Enterprise resource planning can be of generic type and specialized one. What does it mean?

The generic package of ERP software could be customized according to the needs of the business. For instance, you want a third party company to provide you with the ERP system. Their ERP already has a basic set of applications that can be used by any company, but you can add additional modules and expend the system for your personal business needs.

As for the specialized type of ERP, it is designed to serve in one particular industry and provide specific solutions. It can be a set of tools created to serve and enhance the operations for one industry.

Types of ERP by Industry: Who Needs It?

ERP software systems are useful in every industry. Thanks to a number of technologies that are available today, digitalization, impeccable connectivity between different organizations, the ERP systems become of great demand in particular industries, including:

  • Construction
  • Manufacturing and Distribution
  • Healthcare
  • Professional Services
  • Hospitality
  • Agriculture and Farming
  • Retail
  • Technology and Electronics
  • Food and Beverage
  • Education
  • Nonprofit Organizations

ERP can be modified according to the needs of every industry, and various tools and applications can be added to it. The more modules the system has, the more operations it covers and automates them.

Enterprise Software Company

Types of ERP by Implementation

ERP software can also be categorized according to the type of implementation. Nowadays, there are three types of ERP according to implementation:

  1. on-premise
  2. cloud-based
  3. hybrid

An on-premise type of software is installed in an in-house data center and is maintained by your IT team. In other words, the program is manually installed on the organization’s computers.

There is no need for an internet connection to get access to the information. Servers are owned by the company, so it has total control over the system. In this case, you will need to employ an IT team, who will take care of the software and constantly update it, as technologies change on a daily basis. Large corporations can consider this type of ERP implementation, as having a license for the program means having control over every module and aspect of the program.

Cloud-based ERP is one of the most popular types these days. Companies can purchase ERP software from third-party vendors on a monthly or annual basis.

There is no need to employ IT specialists, as the system will be maintained by the vendor. It also means that you will have limited control over the system, and you have to find a reliable vendor.

Cloud-based ERP gives a chance to access the data anytime and anywhere, you just need an internet connection.

Also, this type of implementation is considered to be cheaper in comparison with on-premise one. It can suit the needs of small businesses.

Hybrid ERP is a combination of on-premise one and cloud-based. It perfectly suits the needs of companies that occupy a specialized niche.

The cost of hybrid ERP maintenance depends on various factors. For instance, you already have an on-premise software system, but as your business grows and develops, you need to integrate new cloud-based modules. So, some of your data will be stored on-premise and another part on-cloud.

ERP providers offer different types of software for the companies depending on their size and number of operations they run.

Small Business ERP: What to Choose?

Small businesses usually specialize in one particular field, so the number of daily operations is rather low compared to other types of companies. There is no need to purchase an ERP full-package suit. The best option is to choose a specialized system that will have basic modules to suit your business requirements.

Also, small businesses should consider cloud-based ERP with a basic set of tools as it is cheaper to maintain, and there is no need to hire an in-house IT team. Cloud-based ones give you a chance to grow and expand in the future, and you don’t have to pay for unnecessary applications.

There are several ERP software systems available today to small businesses: Acumatica, Sage, Oracle NetSuite, etc.

Mid-Market ERP

 Mid-size companies have to automate a bigger number of operations in order to enhance the level of service efficiency. While the need for customization is minimal, the cloud-based software is worth considering.

The companies choose the functions they need, and a server provider helps with implementation and maintenance processes. Mid-size businesses can consider Microsoft Dynamics, Oracle NetSuite, or Oracle JD Edwards to centralize their data and set connectivity between multiple departments.

Understanding of Enterprise Resource Planning

Enterprise ERP Examples

As for large enterprises, the best options might be on-premise or hybrid ERP systems. In addition to this, ERP should be generic and have a wide range of modules. The combination of two gives a chance to connect not only in-company departments but also to share information with remote branches.

For instance, a large IT company will be able to conduct its business overseas and send their specialists to the customer’s site. Thus, the employee works remotely and has access to the employer’s database and tools as well as customer’s modules. Enterprises might consider Oracle ERP Cloud, Oracle JD Edwards, SAP, Microsoft Dynamics, etc.

What Is the ERP Implementation Process?

The ERP implementation process means installing new software to run in your company or integrate it with the current one. The implementation process also means moving all the existing data to new software, configuring processes, and training your users on the software.

Other important aspects of the process are finding the right partner, choosing the best solution for your business needs to suit its requirements, and automating the majority of the operations.

What Is an ERP Disadvantage?

The usage and implementation of ERP system into the workflow of your company can have a number of drawbacks among which are:

  • Prices: ERP consultants, server providers, in-house IT specialists, and software implementation costs a lot, and you have to be prepared for this. Companies should have a separate budget to launch and maintain ERP.
  • Maintenance: as technologies develop, the system should be constantly updated and enhanced in order to maintain the level of compatibility of the company.
  • Training and Education: it is important to train your employees and show them how to use the system (as it might be difficult). Always remember to notify your departments about new tools and functions added to the system, so there is no disruption in the daily operations.

Enterprise Resource Planning Process of Successful Implementation

In order to succeed in ERP implementation, you have to keep in mind the following tips:

  1. Define your desired results: it is important to understand your business, what your processes are, and what you want to achieve in the future.
  2. Do not automatically reuse old workflows: make sure you are not changing a like to like system.
  3. Map all your business processes: create a clear business case.
  4. Select the right solution and partner: make sure the solution suits your business needs, and your partner is capable of running the implementation process from end to end.
  5. Make sure you have a long-term plan for your solution: think of the ways how to drive your business forward with the help of ERP.
  6. Ensure you have executive-level support: it is important for every department to be involved in the process and create a perfect architecture for your business.
  7. Assemble the right project team: choose the key players of the team to handle the implementation process.
  8. Standardize the process and minimize developments: first, it is important to create and launch the basic functional suit. And once implemented successfully, think of the further enhancements.
  9. Training: make sure you educate the employees and make it a priority.
  10. Focus on getting the right data into the system: choose the right people to run the data and manage the migration process.

Enterprise Resource Planning Diagram

The following diagram demonstrates how ERP modules are connected:

What Is an Advantage of ERP?

Over the years, ERP software has proven to be an excellent tool for process automation and task management. It is widely used by companies that come from various industries as it has a number of advantages.

  1. Unified system for all processes and business operations: the software allows you to automate business processes and stores all the data and records in one place that is available across all departments of the company.
  2. Reduces costs: thus saves the money as it reduces administrative and operational costs, pro-actively manages operations because of automation.
  3. Streamlines company operations and business processes.
  4. Improves customer satisfaction: as the processes are automated, they run smoothly and allow timely delivery.
  5. Flexibility: today, there are mobile ERP systems that suit digital transformation processes and can help you adjust to future trends.
  6. Provides profound data analysis: analytical data reports will help your business respond to market trends and conditions faster.
  7. Increases competitiveness: ERP is a powerful tool in terms of compliance, agility, and ability to expand, thus helps you to occupy the top positions in the industry.

What Is the Biggest Challenge of ERP Systems?

When taking a direction into the ERP system implementation, there can be several challenges that should be considered beforehand in order to run the process successfully:

  • Finding the right solution
  • Choosing a professional, experienced, and reliable partner
  • Making sure that new software can be integrated with the current one
  • Creating a clear and detailed plan

The good news is that all the challenges can be omitted or resolved if you work with your executives together and have one vision of your company’s future.

Definition of Enterprise Resource Planning

Core Business Value of ERP

 ERP is a multifunctional software tool that adds value to a business in a number of ways. The most prominent ones include:

  • Cost savings and improved efficiency: increases productivity and efficiency due to the automation of the processes.
  • Enhances collaboration: various departments, suppliers, vendors, outsourcers are all interconnected through the ERP system and have a shared database.
  • Optimizes customer and partner management: stores and analyzes gathered insights, thus improves customer and partner management.

ERP is used to help businesses of different sizes in order to overcome operational challenges, provide better efficiency of the services, and correspond to the needs of the modern market.

Brief History of ERP

 The ERP system traces its roots from the manufacturing industry, where it was used for over 100 years. In the past, it was a paper-based system for production scheduling, and it was known as EOQ (economic order quality). The system was coined by Ford Whitman Harris at the beginning of the XXth century. Later, in 1964, the system was changed into MRP (material requirements planning) that united EOQ basic concepts and a mainframe computer.

The term “ERP” was introduced by the Gartner Group in the 1990s. It was coined in order to differentiate from MRP systems, as the business operations grew in numbers, and there was a need in the system that would unite multiple departments of the companies. First ERP systems were only on-premise as there was limited access to the internet and lack of technologies that help maintain ERP software nowadays. It was a costly investment, apart from license purchasing, companies had to adjust the software to their specific requirements.

At the beginning of the XXIst century, a cloud-based type of implementation was introduced and facilitated the deployment procedure. Today, software architecture is placed on the cloud server. A server provider takes care of the system updates and manages it. So, modern businesses do not need an inner-company IT team to maintain ERP.

ERP System Components

ERP systems have a set of common modules that suit companies in all fields. These components include:

  • Human Resources: handles employee management tasks such as enrolment, offboarding, timesheets, and benefits administration. This module can automate payments calculation, thus reducing human error and time spent on monotonous tasks.
  • Customer Relationships Management (CRM): stores and stacks generated customer and lead data, including customer buying habits. It will help you lead successful ads and store customer payment information, etc.
  • Business Intelligence: this module is helpful with the issues related to data collection, analysis, and reports delivery.
  • Supply Chain Management: the module that optimizes distribution and manufacturing operations and creates a flawless supply chain.
  • Inventory Management System: keeps track of all the inventory of the company and automatically updates your website for the customers to know whether some products are out of stock. It is especially useful for organizations in the manufacturing field and the ones with distribution centers.
  • Financial Management: analyzes and keeps track of the financial data of the company. It helps to control the enterprise’s budget, spent costs and received payments.

Some of the additional components are as follows:

  • Marketing Resource Management
  • Event Management
  • Advanced Planning System
  • Sales-Order Management
  • Risk Management

Any other components can be added to the system per your requirements. The main issue here is to have a team of employees who are capable of creating and integrating new functions.

What Are Enterprise Resource Planning Systems?

Overall, ERP is a type of corporate software that helps companies create a centralized database. It consists of a number of modules that are related to different departments of the organization and can have sub-modules that are directed to complete one or a number of operations.

The data is stored in one place, and every department has open access to the records they need in order to complete their daily tasks. Depending on the type of ERP, it allows access to the data with or without an internet connection.

How Does an ERP System Work?

ERP software combines a number of modules and sub-modules that are interconnected with each other. Each module of the system is designed to serve one particular area of the business. It can have a number of sub-modules or tools to manage different tasks and projects.

Combined together, modules cover all the operations that run within the organization or are related to customers, vendors, or outsourcers. Usually, if there is a task created on ERP, employees from different departments can be added to this task to manage it and complete the request on time.

For instance, the customer contacts you to buy your product. A new order is added to the system, and all the departments involved in this process are notified, so everyone starts to work on their part of the request. Meanwhile, all the updates added to the request are saved, so employees have up-to-date information.

Usually, ERP consists of such modules as Human Resources, Sales, Finance, Logistics, Inventory. Other modules can be added to the system if your organization has specific needs and wants to automate certain operations.

How to Choose an ERP System for Your Company?

When choosing the right ERP software, you should take into consideration a number of aspects. Here is a list of useful tips for you to follow in order to successfully deploy ERP:

  • Work with upper-management on this issue: it is important to take into account the processes that run in every department of the organization.
  • List the requirements: before you start searching for the right vendor, create a list of clear and specified requirements together with your team, so you will not miss on the important parts and will have a full vision of what kind of software you need.
  • Plan your budget: ERP is a big investment, so your company should be prepared for this and have a budget plan for every step.
  • Choose flexible ERP: the system should be flexible as you might need to add new functions to it. Also, it should be adaptable to new technologies and compatible with your current software.
  • Get a reliable provider: before choosing the one server provider, check the vendor history, cases of ERP implementation, ask for references as the whole procedure is costly, and requires professionals to succeed in this long-term cooperation.

Key Features of ERP Systems

ERP software can be characterized as:

  • Centralized database: it comprises the data flow from all the departments of the company and stores it in one place.
  • Modular: the system consists of a number of modules that are interconnected with each other.
  • Flexible: the system can be upgraded according to the company needs by adding new modules, as well as some functions or tools, that can be removed in case they are not needed anymore.
  • Automated: the main purpose of ERP is to automate manual processes and omit duplication of the information.
  • Time and cost-effective: as the system automates operations, it saves time spent on a product or facility delivery as well as reduces costs.

Whether your organization belongs to the small-business group or it is already a huge enterprise, you should consider ERP as a helpful tool that might facilitate your operational processes, human resource and project management, etc.

The ERP software is very flexible, so it can always be tailored to your company needs and expanded as required. ERP is a long-term investment that pays off immediately. Efficiency is directly connected to time and money. ERP is a tool that helps companies reduce the time spent on daily operations, increase revenue, and enhance relationships with customers and vendors.

We, at Intellectsoft, empower companies and their workforce with cutting-edge transformative solutions and data-driven insights. Are you and your organization ready to shift the mindsets and get the most out of innovations?

Talk to our experts in enterprise development and find out more about the topic and how your business or project can start benefiting from it today!