What is ERP Software? Analysis of Features, Types, Benefits, Pricing

NetSuite: No. 1 ERP Tool

What is ERP software?

Enterprise resource planning or ERP software 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 specifically for business process.

Using a centralized database, ERP software 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.  

In this article, we’ll guide you on ERP fundamentals beyond the definition of ERP software to aid you in your purchase journey. We’ll answer basic questions as:

  • What is ERP software?
  • What does ERP software do?
  • Why use ERP software?
  • How does ERP software work?

Specifically, you’ll get the big picture on the following:

The ERP Landscape

ERP used to be accessible only to large enterprises because of the capital hardware required like servers and multiple workstations, and dedicated teams to handle its complex deployment, upgrades and maintenance. However, Forrester predicted that SaaS ERP deployment is accelerating as a mainstream delivery model with cloud vendors chipping away chunks of the market from legacy developers.

Today, SaaS technology enables vendors to offer lightweight ERP solutions to small businesses. Modules are sold separately or bundled as a plan, while hardware and technical maintenance are managed by vendors. The features of ERP software may be pared down or limited to a couple of functions. Still, small business can now reap the benefits of ERP software. 

Companies typically utilize all facets of ERP or choose a combination of modules. Modules often address a main business area, such as, inventory management, accounting, payroll, human resources, marketing and product planning. The more robust ERP solutions feature CRM and business intelligence, but, expectedly, are pricier.

What are examples of ERP software?

  • NetSuite ERP – a fully integrated ERP targeted at fast-growing companies that require scalable financial management, fixed assets, billing, order management and inventory management. A solid Intacct alternative.
  • Brightpearl – a retail management ERP that focuses on order management, inventory, accounting, customer data and reporting. If you need a reliable Brightpearl alternative check out our other comparison articles.
  • Intacct – one of the most popular cloud accounting solutions for small and medium businesses that features ERP capabilities via integration, such as, financial management, wholesale distribution and retail management.
  • Odoo – among our examples of ERP software, Odoo is uniquely open-sourced, but it’s also a commercialized ERP aimed at companies with an IT development team; it can integrate with third-party apps for MRP, POS and ecommerce.  
  • PeopleSoft – an Oracle-owned HRM-focused ERP that specializes in workforce forecasting and HR-related business strategies. It’s a really reliable NetSuite ERP alternative.
  • Stafiz – built to address the needs of consulting companies and equip them with the right set of tools to tackle multiple facets of their operations. This includes provisional staffing, recruitment management, CRM, billing, outsourcing management, expense management, and much more.
  • Witty Educational Institute Management – designed mainly to simplify the way academic institutions organize and facilitate all aspects of their operations. Equipped with administrative tools as well as a plethora of functionalities for handling learners, Witty Educational Institute Management allows users to streamline their end-to-end processes. It also features Parent-teacher communication functionalities for frictionless interactions and information dissemination.

NetSuite – a popular ERP software brand

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 ERPMany 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, Focus 8
  2. Vertical ERPThese 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, Stafiz
  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

Odoo – an open-source ERP system

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.

Intacct – another popular ERP you can consider

How much does a ERP software cost?

Most ERP solutions are priced by quotation for customized features. The cost of ERP software is usually based on factors like number of users, modules, installation, add-ons, maintenance and training. Let’s take a look at the price model of some of the most popular ERP solutions today.

  • Brightpearl – has three plans starting at $4,900 per year and as much as over $20,000 per year for the premium plan; an enterprise plan is also available on quote basis.
  • Intacct – starts at $400 per month with mid-market system as high as $10,000 per month
  • Netsuite ERP – by quote based on modules, users and add-ons and charged monthly
  • Odoo – offers a free app, plan starts at $26 per month with an enterprise plan at around $33 per month.
  • PeopleSoft – by quote only.

What are the potential issues with ERP software?

Unsupported applications

If your business is using dozens of productivity apps, introducing a plug-and-play ERP won’t be that smooth. The more existing applications you have in place, the narrower your options to find a fully integrated quick-install ERP solution.

Unless you plan to discard existing applications, you need to assess ERP integration for each of these apps. It’s time-consuming and, even if you’re lucky, you’ll find the best ERP falling one or two apps short in compatibility space.

In such case, getting an ERP with an open API ensures your developer can tweak the system to integrate your current apps.

One-size-fits-all doesn’t cut it

Plug-and-play, off-the-shelf ERP solutions work well with small businesses with straightforward processes. But for large corporations with subsidiaries in different places, a uniform system quickly runs into bumps in a diverse environment. Variations in factors like culture, policies and regulations make it difficult to implement an overarching infrastructure. The result is either the ERP suffers low user adoption or an expensive system is left in an abandoned company warehouse.

Many large enterprise today are trying a two-tier ERP approach to address their organizational complexities. A corporate ERP is used by headquarters, while another ERP system is used by the subsidiaries.

Security risks

ERP aspires to cover the whole nine yards of operational and financial tasks. This overarching infrastructure, in fact, lends to ERP its strengths: shared files, integrated and automated processes, central database and a collaborative platform. They drive efficiency and lower costs.

However, the same single architecture is its source of weakness. the classic all-eggs-in-one-basket risk. The wider the scope of ERP the more access points it has, the more chances of internal data breach. Although firewalls and encryption mitigate this risk, the fact is all your data is attached to this system superhighway.
Poorly designed ERPs heighten even more the security risk. Incompatible applications can lead to crashes. Limited reporting tools force users to import external files, leading to a firewall break. Moreover, a disgruntled tech employee can wreak large-scale havoc. Delayed updates or old system version also exposes all your data to hacks.

The good news is, ERP vendors are fully capable of putting up security checks and controls. After all, any breach is a death kiss to their business.

Lack of compliance

Most ERP solutions are designed for financial compliance, so the problem is less of a technical shortcoming and more of how the ERP is implemented. When an accountant is not part of the ERP project, it’s easy to gloss over financial compliance. The CEO or CIO is focused on streamlining processes to drive efficiency.

Without the auditing and regulatory knowledge of a CPA, financial regulations can easily be overstepped, including GAAP requirements and Sarbanes-Oxley Act (SOX) protocols for US-based public companies.

The issue can easily be addressed by including a certified accountant in your ERP project team. She can verify if the configuration, controls and processes are compliant and recommend audit controls, where necessary.

The hype around Internet-of-Things and artificial intelligence notwithstanding, ERP trends revolve around predictable tech developments. This niche is playing catch up to other SaaS solutions, possibly due the more complex setup of ERP. The following are trends that are gaining traction among ERP vendors, both legacy and startups.

  1. Mobile ERP. Some ERP solutions now offer native apps for iOS, Android and Windows. Most of these however are pared-down version featuring only the most important KPIs like sales, leads and web traffic. Still, this means you can remain connected and productive outside of the office.
    But mobile access can be a double-edged sword. Security risk is heightened when sensitive data is accessed anywhere and via a device not issued by the company. A good mobile ERP allows a separate user permission to help you manage who can access company data on their phones.
  2. Social ERP. Billed as ERP 2.0, social ERP adds social media data like Twitter and Facebook profiles and posts into the system. The integration is mainly a CRM initiative as businesses leverage online customer engagement, brand mentions, public data, friend network and likes and shares to gain tacit customer knowledge. An IFS North America and Affinity Research Solutions study pointed out a number of social ERP benefits, mainly to increase customer engagement and, ultimately, conversion rates.
  3. SaaS and On-Premise Hybrid. ERP, because of its complexity, has a lot of grey shades in between SaaS and on-premise. There are companies that prefer a hybrid approach, integrating cloud inventory management into their on-premise accounting-centric ERP or a cloud payroll into a local HR-focused ERP. From a cost and process perspective, this strategy makes sense, driving vendors both legacy and startups to offer hybrid ERP. For example, Oracle isn’t replacing its on-premise licensing, but co-opting it with cloud solutions. Similarly, Salesforce, a pioneer enterprise cloud platform, offers integration with legacy on-premise solutions like SAP and Siebel.
  4. Two-tier ERP. Large multinational companies are favoring a two-tier ERP approach. In this setup, two ERP systems are in place, tier 1 at the corporate level and tier 2 at the subsidiary level. This strategy is borne out of the limitations realized by big corporations in building an overarching ERP system across a multi-country organization replete with stark regulatory, cultural, geopolitical and market differences.
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