All departments in a company ought to work together to achieve a common goal, and this is where enterprise resource planning software comes into play. But what is ERP system and how does it work?
ERP systems collect and organize critical business data to assist organizations in maintaining lean and efficient operations even as they grow. It allows your departments to share data, making it easier for them to work together toward growing the business.
If you’re considering using ERP to streamline your processes for more efficient and effective business operations, then this article guides you to understand what ERP is, how it works, why you need it, and how you can implement it.
How ERP Works Table of Contents
Businesses worldwide are working on enhancing operational efficiency while monitoring operating costs. They require a single solution to manage finance and accounting, sales and marketing, procurement, and supply chain. They need flexibility and scalability to optimize processes and boost efficiency as well. ERP software is one of the most significant tools that business owners need to stay ahead of the competition.
A business process management software, ERP allows firms to combine several databases, applications, and user interfaces into one. It comprises several solutions, including HRM, CRM, office suites, etc. Vantage Market Research reports that the global cloud ERP market is estimated to generate $47760.01 million in revenue by 2028, increasing at a 17.10% CAGR from 2022 to 2028. The key players include Oracle, Microsoft, and SAP.
The hybrid cloud deployment sub-segment, according to the report, is predicted to dominate the cloud ERP market and grow at a considerable CAGR. The surge is attributed to the combination of private cloud-based systems and public cloud deployment. Similarly, in 2021, the major enterprise sub-segment retained a high market share. Continuous R&D, such as ERP workshops, training, and employee education, is credited with the company’s growth. Because of local technical developments, North America is the largest regional component.
Vantage Market Research, in another report, notes that companies are gradually integrating cloud ERP market solutions but are experiencing challenges with system complexity and implementation costs. The Cloud ERP Market requires tight integration of legacy and new systems. However, the lack of resources leads some organizations to continue relying on outdated systems with high error rates and longer turnaround times, limiting market growth during the forecast period. Besides, many legacy applications seem incompatible with new systems or require extra integration effort.
ERP History in Brief
ERP systems have been around for about 60 years and have evolved over time, with many names and generations. Starting as a solution for inventory, it has since extended its features to address even other business processes like accounting, human resources, and customer services, among others.
The Beginnings
Everything started in the 1960s, when J.I. Case, a tractor and construction machinery manufacturer, teamed up with IBM to create the first Material Requirements Planning (MRP). Eventually, companies started building their own MRP solutions.
Early MRP systems tracked inventory and production but were costly to build and maintain. Procurement of raw materials and product delivery helped manufacturers better plan production runs. Until the 1970s, MRP systems were only available to large corporations with large budgets. Large software companies like Oracle and JD Edwards began making this software more accessible.
In the 1980s, the first manufacturing resource planning (MRP II) systems appeared. Aside from inventory and raw material procurement, these advanced solutions supported manufacturing processes. MRP II systems enabled better production scheduling and coordination between manufacturing departments. Soon, other industries realized manufacturing firms were onto something.
The ERP Evolution
In the 1990s, Gartner, a research firm, coined the term ERP, which was then already being used by various industries outside manufacturing. It then evolved into a centralized database, consolidating data from accounting, sales, engineering, and human resources.
In 1998, Cloud ERP emerged, allowing organizations to access vital company data from any internet-connected device. Cloud solutions reduced IT staffing and simplified installation. The cloud concept made ERP systems accessible to smaller enterprises that couldn’t afford on-premises solutions. They were able to profit from automation, data accuracy, and efficiency.
ERP grew continuously, eventually including CRM, e-commerce, marketing automation, supply chain management, and human capital management (HCM). The best ERP systems today can generate reports on sales, marketing, product development, HR, and operations. A broad network of software tailored to certain industries, business techniques, and concerns runs on ERP. Leading vendors are continuously improving their ERPs to meet the ever-evolving needs of businesses.
Meanwhile, over the last decade, most ERP vendors have been giving increased focus to cloud and SaaS solutions. Despite this trend, the cloud is not for every business. The 2022 ERP Report show that more than a quarter of their polled organizations chose on-premise software over cloud software.
Source: The 2022 ERP Report
Examples of ERP Software
NetSuite ERP
NetSuite ERP is a full-featured cloud ERP system for growing companies that can automate order, billing, and inventory management processes. It gives top management and key clerical staff a customized view of key performance indicators and reports.
NetSuite ERP offers a clever combination of financial management and business intelligence functions. Meanwhile, order management software tightly integrated with pricing speeds up order-to-cash processes. This allows you to market products efficiently and on time using NetSuite’s best-in-class production management features.
NetSuite provides ERP for finance, HR, sales, operations, and service. Inter-departmental system integration and software automation can improve employee productivity. So you can make better decisions faster.
Rossum
Rossum is a business-wide document management solution that integrates ERP and RPA. The platform can save your team time by consolidating documents into an intelligent inbox. It offers automated and cognitive data capture from documents like forms scans and validates data.
Senders of documents get notification of transaction status or data issues. The system’s built-in Usage Reporting Dashboard aids in document management and shows document queues, along with metrics like corrections, usage, and time per document. All these, plus, the automated data capture, make document processing fast.
You can customize the platform to handle different document types. Rossum’s features make it ideal for use cases like accounts payable, customs, and logistics.
Method:CRM
Method:CRM helps both your sales and finance teams, and your customers subsequently benefit. It integrates fully with QuickBooks for two-way synchronization. This allows your sales and finance teams to work together.
Method:CRM primarily helps salespeople manage leads and opportunities and generate quotes and orders. The built-in payment processing facility frees customers from worries about missing payments. It integrates with third-party solutions like Zapier, Google Calendar, and MailChimp, allowing for extended functions and streamlining your workflow.
This system also runs on both iOS and Android, so your team can work anytime and anywhere. Method:CRM pricing starts at $28 per user per month.
Sage Intacct
Sage Intacct is a cloud financial management solution that combines the best features of Sage and Intacct, thus bringing cloud computing to finance and accounting. It drives business growth and improves efficiency for startups and growing companies.
Sage Intacct automates processes so you can focus on day-to-day operations. You can respond fast to changes with deep insights and flexibility. The platform caters to your core financial operations as well, including payroll, accounts payable and receivable, and spend management. It also has add-on modules to customize the service to your company’s needs, from professional services to accounting firms and financial services.
The system integrates with several applications, including Salesforce, Clarizen, and Paychex. You can try it first, but if you decide to use it, reach out to the vendor for a quote.
SYSPRO
Manufacturing companies use SYSPRO to integrate, synchronize, and control their manufacturing processes. Several modules cover not only manufacturing but also other aspects of organizations. It can manage costs and, thus, plug revenue leaks caused by paperwork, manual processes, and repetitive tasks.
The system can also effectively manage distribution to meet the high demands of warehouse automation. It can help manufacturers increase profits by monitoring financial management processes and providing excellent financial, accounting, operational, and manufacturing features. The product gives users valuable insights that can help reduce risk and promote growth.
SYSPRO also allows companies to test out “smart factories” where smart platforms can communicate online. Also, automation handles more processes and analytics uncovers a previously untapped potential. It has inventory optimization capabilities that can control stocks that are in warehouses, on store shelves, or in transit. This allows users to anticipate problems.
NetSuite ERP is one of the better-known and pioneering cloud-hosted ERP systems.
How ERP Works
ERP software solutions use a centralized database to reduce manual labor. It also greatly simplifies existing business workflows. An ERP system typically includes dashboards where users can view real-time data from various departments.
The best ERP systems aid productivity and profitability analysis as the ERP process flow streamlines business processes. Consider how an ERP supply chain solution would automatically send customized orders to the main hub, allowing you to complete your business quickly. This means data is often siloed by department and is difficult to access across the company. With an ERP, data from multiple departments can be easily shared and visualized across the company.
Meanwhile, SaaS ERP runs on a network of remote servers rather than in a company’s server room. Since there’s no need to overhaul an onsite system several times a year, companies save time and money. The cloud eliminates the need for custom software, onsite hardware, and additional IT staff.
ERP Business Processes
A business involves processes that are interconnected. If not working seamlessly together, these business processes could lead to inefficient operations, unmet goals, and eventually, a failed business. Fortunately, ERP systems allow your company departments to share data and improve their processes, thus contributing to the efficient and effective overall operation of your company. Here are the main components of ERPs that aid your business processes.
Finance
ERP systems keep track of your accounts receivable, payable, general ledger, costs, budgets, and forecasts. It helps track cash flow, reduces costs, increases profits, and ensures timely bill payments. Increasing business complexity necessitates a single system to manage financial transactions and accounting for multiple business units or product lines.
Human Resource
Employees are vital to any business; without them, there would be no business. As such, ERP systems include HR-related components like automating employee payments, paying taxes, generating performance reports, tracking attendance and promotions, and deciding on working and holiday hours. All these allow your HR team to address employee needs accordingly, and employees, subsequently, are satisfied with their employment.
Manufacturing and logistics
An ERP system aids in planning, production, ordering, and shipping products to customers. You get a view of the demanded and achieved levels, stock summaries, and production plans. All these are vital to tracking your operation and progress. The system also includes production planning, order entry and processing, and warehouse management.
Supply Chain Management
A supply chain connects the departments of planning, manufacturing, marketing, distribution, and purchasing. These departments each have their own goals and objectives, but within an organization, they all work toward a common goal—a profitable and efficient business. An ERP enables you to seamlessly move through the supply chain, from material procurement to the transformation of such materials into finalized products, and finally to the distribution of these products to customers.
Customer Relationship Management
ERPs also assist you in your interactions with customers by analyzing large amounts of data. You can create strategies to increase customer satisfaction and sales using data collected from your customers and reported to you. At the same time, you can manage your customer service team better.
Source: Statista
Who Should Use ERP?
The amount of data grows as a business grows. Multi-platform data management may be costly and time-consuming, so an ERP may sound more reasonable. The benefits of ERP software include improved efficiency and reduced operation cost. Yet, how would you know if it’s time for you to get an ERP?
Here are businesses that should consider investing in an ERP system, as identified by Software Advice.
- Businesses that have outgrown their old software. Check if your system can keep up with your growth. Can it still track the growing amount of data? Can it integrate with other applications to extend capacity? ERP software is specifically designed to manage and store large amounts of data across your business processes.
- Existing inefficient business processes. The use of multiple platforms or tools may be inefficient, resulting in delays or missed tasks. ERP systems excel at addressing inefficient processes. It enables the integration of multiple operations into a single workspace.
- Businesses that invest heavily in software integration. Combining applications is not cheap. Why pay for two or three pieces of software when you can do the same thing with just one? ERP software eliminates the need to integrate with numerous other applications, saving you money.
- Businesses that struggle to meet customer expectations. Consumers are critical to business, and no company wants a product to fail. ERP software allows you to organize and access data in a centralized location, making it easier to manage inventories, obtain customer-specific financial information, and generate detailed reports. As a result, you can create products, strategies, and offers that are appealing to your customers.
How to Implement ERP in a Small Business
You are probably already convinced why an ERP system is important to your company and are considering getting one. Before you do so, take note of the steps you need to take in implementing your ERP system so that you can plan better.
- Determine your needs and set goals. Any venture that a company embarks on begins with identifying problems and setting goals. As a result, before implementing an ERP, ensure that you understand what needs or goals your ERP can assist you with.
- Decide an implementation approach. The rollout strategy of choice, according to The 2022 ERP Report, A is the hybrid implementation approach, which combines several different rollout approaches, depending on the organization’s needs. Other approaches include the big bang approach, phased approach by module, phased approach by location, and phased approach by business unit.
- Choose the best ERP software. Every software vendor will tell you how powerful their system is. However, you may not require all of the features, or some of the features you require may be missing. Match ERP features to your identified needs when making your selection. Consider the one that meets the majority, if not all, of your needs at a price you are willing to pay.
- Designate a product manager. Someone must supervise the implementation of a system to ensure that everything goes as planned. Get a person with a thorough understanding of the system who can guide your employees through the implementation process.
- Migrate Data. This underpins successful ERP implementation because if done incorrectly, it can take a long time to fix. To ensure that your new ERP system is clean and accurate, filter out any unnecessary or incorrect data before converting it all.
- Configure the system. Optimize your ERP system for your company. Some ERP software is more complex and requires more time to set up. If you require the assistance of a professional to set up the system, do not hesitate to seek one out.
- Test the system. When you’ve finished configuring the system, test it to ensure it’s working properly and providing you with the information you require. It is operational. Never go live unless the system has been thoroughly tested and user acceptance has been obtained.
- Train employees. Your employees must get a good grasp of the system for you to reap its full benefits. Get experts to provide training and ensure that all employees understand the software completely. Your IT team will need additional training to deal with future technical issues.
- Deploy the system. Begin coordinating all of your activities and resources with your new ERP system, which will effectively streamline your business operations. It would be ideal to do a retest of your system regularly to find and fix bugs.
- Maintain the system. If you want your ERP system to perform at its best, make sure it is properly maintained and upgraded as needed and that any glitches or problems are quickly resolved.
ERP Case Studies: Success and Failure Examples
If you are worried about how ERP could help your business, here are three cases of ERP implementations that are worth looking into.
Case No. 1: Cadbury
One of the many ERP success story stories is that of Cadbury, a 123-year-old confectioner now owned by Modelez International, an American snack foods conglomerate. At a time when the business was rapidly expanding, it was having trouble keeping up with production and distribution demands.
SAP was then hired to deal with the problems. Significant changes to the supply chain resulted from the ERP implementation, including multi-node resource management and a complete overhaul of existing warehouse and distribution processes. As a result of the newly engaged supply chain, Cadbury was able to lower overall operating costs.
Keep in mind that an ERP project will only be successful if it improves key areas. During the selection phase, a thorough requirement gathering effort is required.
Case No. 2: Hershey Candies
Hershey, a 147-year-old confectioner based in Hershey, Pennsylvania, thought an ERP platform was critical to the company’s future growth. Unfortunately, the attempt to use ERP failed.
Rather than iteratively approaching business challenges, Hershey decided to implement a holistic strategy involving all of the company’s operating centers. Then, for $10 million, SAP was hired to upgrade the systems, but management issues emerged almost immediately.
The company was not able to conduct business because virtually every process, policy, and operating mechanism were in flux at the same time. Following that came a $150 million revenue loss, a 19% drop in share price, and a 12% drop in international market share.
Case No. 3: PG&E
Pacific Gas and Electric (PG&E) is a major energy provider. The company’s Oracle ERP implementation went smoothly until the system was tested.
For pre-launch testing, a manager chose a live information database, but no one expected it to reveal any sensitive company information. Unfortunately, the company’s brand suffered as a result of costly recovery programs and a loss of public trust.
Remind your team of the things they shouldn’t do, especially when security is put at risk. Non-specialists should not be placed in roles where specialists are needed.
Case No. 4: Green Rabbit
Green Rabbit, a supply chain logistics provider, specializing in perishable goods, was born when companies started seeking their heat-sensitive supply chain, which they developed to address their need to ship melt-prone chocolate bars during the summer.
Unfortunately, with the growing amount of data to handle, real-time data analysis became impossible, given the company’s existing databases not properly communicating with each other. Soon, Green Rabbit decided to use Netsuite ERP. The NetSuite professional service team came and implemented the system in three months.
Now, Green Rabbit helps customers ship candy, snacks, and more in 24 hours from one of three warehouses, with no delays. They could triple order volume without affecting their system. Clearly, ERP can help manage a complex supply chain.
Is ERP Software Worth It?
The quick answer is yes.
No matter the size of your business, investing in an ERP system could be one of the best decisions you can make for your business. With ERP software for small and medium businesses on the rise and the seasoned ones continuously improving, you are sure to find one that fits your needs best. Imagine the long-term benefit of integrated processes. Your departments can function both independently and be integrated toward a common goal while you focus on other business aspects.
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