What is ERP Software? | The Ultimate Guide to ERP Software

When it comes to enterprise resource planning (ERP) software, the search for the right one for your business can sometimes seem complicated and overwhelming. Perhaps you are not sure where to start or can’t decide which ERP software vendor you should talk to. But don’t worry, we are here to help!

We’ve put together this guide to help professionals like you understand the ins and outs of ERP software. Through this guide, you will get the basic information you need to embark on your business automation journey. 

What is ERP software and what does it do?

ERP software is an integrated suite of applications designed to automate and integrate a company’s core business elements to increase efficiency and simplify operations. It covers a wide range of functionalities such as sales, customer relationship management (CRM), inventory management, human resource management (HRM), finance, and more.

An ERP system connects all those processes into one integrated system. By using a shared database, everyone can be sure that they are relying on the same information, regardless of department or function.

Complete ERP software also provides real-time reporting. This allows employees to pull information directly from a single system, instead of managing separate spreadsheets or software. This minimizes data loss and inconsistencies.

Different ERP systems are designed for different sizes of companies and industries, but some are flexible and can accommodate organizations of any size. For example, companies can choose the ERP solutions they want based on their current requirements and they can add more solutions to the software as they grow. 

What are the benefits of an ERP system?

ERP software is an asset for many organizations. It makes your business run more smoothly by integrating and protecting your information, automating processes, and generating in-depth reports. With these capabilities and more, an ERP system can provide you with a lot of benefits such as:

1. Unified and streamlined processes

An ERP system acts as a central hub for all the critical information your business and the departments within it need to maintain day-to-day business practices and operations. No more problems with data being scattered across separate databases as all information is stored in one location.

As your company grows, its operations become more and more complex, which unfortunately increases the chances of making costly mistakes. An ERP system automates cross-departmental business operations, providing accurate and real-time information to everyone while eliminating manual tasks, which often have the potential to cause errors.

2. High flexibility and scalability 

Another built-in benefit of ERP software is determined by its modular structure which allows it to scale according to your company’s current needs and conditions. Thanks to this ability, the system can easily adapt to the expansion or reduction of your company on every level. 

A good ERP system also provides high flexibility that allows it to adapt to the company’s trivial changes such as the emergence of new products, workers, suppliers, departments, locations, etc. No matter the size of your business, you can always add or reduce functions and users as your company is experiencing these changes. 

3. Increased regulatory compliance and data security

One of the biggest concerns for organizations is regulatory compliance in their industry. A robust ERP platform designed to track regulations within the industry and monitor compliance changes. This enables users, and businesses in general, to stay abreast of the laws, regulations, guidelines, and specifications relating to business processes.

Another biggest concern for organizations that work with lots of different spreadsheets and software between departments is data security. With the right ERP system, they can find the security of their data increased, thanks to firewalls, built-in resources, and advanced user-related settings.

4. Better reporting and planning

An ERP system can easily generate useful reports and analytics at any time. This software gives you the ability to analyze and compare various functions across departments, without the hassle of using multiple spreadsheets and emails.

Not only does the centralized, real-time reporting save labor time and reduce reliance on IT personnel, it also improves top management's responsiveness and decisions to complex problems. User-friendly dashboards and forecasting tools also make it easier for managers and decision-makers to create realistic and accurate forecasts and business plans.

5. Improved collaboration and workflows

Collaboration is one of the most crucial parts of any growing business. But in reality, companies find their teams working separately simply because collaboration takes more time and effort. However, ERP software makes collaboration very easy. 

An ERP platform streamlines the process of collaborating with others by giving employees access to the data they need when they need it. The system provides an interdepartmental database, where information from each department is channeled to one central location.

6. Greater visibility and better business decisions

An ERP system ensures that each process is visible to the various departments involved in the business. It allows total access to every critical process in your business by making data from each department easily accessible to you and your senior management.

For example, you can keep track of your inventory levels daily, including future shipments that haven't yet been received and inventory that's currently in transit. By knowing exactly where you stand, you will be able to make better business decisions. 

7. Higher efficiency and productivity

An ERP platform can reduce the time and effort required by your workforce to carry out daily activities. By automating redundant processes, your team members will have more time to work on projects and other time-sensitive tasks, pressing down on projects and tasks that might require more of their attention and time. 

8. Minimized operating and IT costs

With a single source of accurate, real-time information, an ERP system reduces administrative and operating costs, enabling businesses to leverage money in other areas where it is most needed.

Besides, instead of spending resources on multiple systems that all need dedicated staff, infrastructure, support teams, and licenses, you can focus all these costs on one ERP system.

Types of ERP system deployment

Choosing a deployment option is one of the biggest decisions an ERP system user has to make as it affects nearly every aspect of the system, including the types of features available, implementation time, user-friendliness, and cost.

Today, nearly every ERP vendor offers some form of cloud deployment option, and some have ditched their on-premise ERP offerings altogether. However, there are still several reasons why businesses might choose a traditional on-premise ERP system.

By knowing the characteristics of each type of ERP system, you can determine the best fit for your business.

On-premise

This is the traditional method, where the software is manually installed on your company’s computers and servers. It gives you complete control over the system, although this also means that you are responsible for issues such as maintenance, security, troubleshooting, and data and software backups.

Deploying an on-premise ERP system usually requires a large upfront fee to purchase a license but gives you more flexibility. This method is generally only used by large companies.

Cloud


This is where your software and data are hosted on a remote third-party server. The upfront costs are much lower and you pay in exchange for a regular subscription fee for access

Your vendor will be responsible for handling maintenance, updates, security, and data backup. However, it's important to remember that if you work in an industry with extremely sensitive data, the level of security may not be sufficient for your requirements. This option is popular with small and medium-sized businesses.

Hybrid

This is an increasingly common option and as the name suggests, it is a mix of local and cloud deployment. This may be a good fit for you if your business has an existing on-premise system that you want to incorporate with the latest technology from a cloud system. It's flexible and gives you the best of both worlds (although maybe not on the same level). 

Read a related article:

7 Best Practices for a Successful ERP Implementation

Choosing the right ERP solution

At this point, you may be wondering, with so many ERP vendors on the market, how do you choose the best one for your business?

Investing in an ERP system is a transformative business decision. If done right, it can help you increase your organization's competitive advantage. Conversely, a bad decision can result in months or even years of costly and ineffective corrections.

To help you narrow down your ERP software choices, here are a few tips to consider:

1. Understand why your business needs an ERP system

Before looking for ERP vendors, it is imperative that you have a clear understanding of why your business needs an ERP system in the first place. To make this easier, you should be able to answer two following questions.

What are your business requirements?

To be able to answer this question, you should involve everyone in the company who will be associated with the ERP system. Talk to your production workers and your purchasing manager.  Listen to executive management and your customers and suppliers.

Once you have consulted with the relevant parties and established a list of requirements, you can then begin to make a priority list, establishing the most essential ones. Once you have a list of requirements you will be in a better position to decide how potential ERP systems will be evaluated and scored.

What are your business goals?

Apart from determining your business requirements early on, it is also important to consider how you want the new ERP system to help achieve your business goals, both short and long term. Then, you need to set the goals first. 

Whether the short-term goal is to increase system efficiency or the long-term goal is for your business to expand into new markets, understanding your business goals will make it easier for you to find the right ERP system.

2. Asses the ERP system’s capabilities

Most ERP systems have similar core features. Thus, apart from the core features, you need to consider the capabilities of the ERP system itself.

Ask yourself questions such as:

  1. Is the ERP system designed to be scalable? Can it perform as well with significant increases in users, transactions, and data?

  2. How fast does the system work? How easy-to-use is it?

  3. Is it a ready-made solution, built with industry best practices, or is it specifically designed for an industry?

  4. How much customization do I need for it to perfectly fit my business needs?

  5. How often are new features or functions added in an upgrade?

  6. Can the system easily support multi-company environments?

3. Evaluate the ERP provider’s reputation & strategic direction

Aside from evaluating the ERP system’s capabilities, it is also important to consider the vendor’s background.

Here are the questions you should ask:

  1. How long has the vendor been in the industry? 

  2. Has the vendor changed the direction of their company over the years? Are they staying ahead, just keeping up with, or lagging behind industry trends?

  3. What's their newest solution? What is their roadmap for existing ones, especially for their ERP solution?

  4. Is their ERP solution designed from the ground up for organizations with similar requirements and sizes to mine?

Don't forget to ask for reviews from the vendor's clients. If necessary, ask their clients directly about the results they have obtained from using the ERP system as well as their relationship with the vendor.

Other factors to consider when choosing an ERP system

Apart from implementing the steps above, you should also consider some other factors such as:

Budget

One of the most important factors that you should consider when choosing an ERP system is your company's budget. An ERP system is quite a big investment, especially for small and medium enterprises. 

Most ERP systems will be used for a decade or more so ongoing maintenance and support for the system and associated infrastructure is a budget concern. Your choice today will lock costs into future budgets.

The total cost of ownership and ROI

Add up all the additional costs that you will incur because of the ERP system. There may be an initial purchase amount and some initial consulting fees. You might need some updates for your servers and network soon. 

You might need to spend money on training and temporary manpower while your people implement the ERP system. You will have to incur support and maintenance costs every year as long as you use the system.

However, at the same time, you will also see an increase in your business revenue. You might see additional revenue due to service and product improvements, increased production capacity, reduced labor costs, lower IT costs, etc.

Spread those costs and benefits over time and calculate your return on investment (ROI). Most businesses have a threshold of return required before investing. Make sure the ERP system passes the ROI threshold for your business.

System integration

An ERP system is a core component of the structure of any business system; therefore, it is important that you consider the impact of the new ERP system on other systems currently in use, and whether it has the potential to complement them

Here are a few questions you may want to ask:

  1. How does the ERP system integrate with my existing systems?

  2. Can the ERP system read and use the data in those other systems? 

  3. Will I get to keep the same data and how will I keep separately updated data elements compatible? 

  4. What integration tools are included with this ERP system?

Conclusion

Essentially, ERP software is about automation and integration. By streamlining the various processes together in one centralized database, you can speed up workflows, share accurate and timely information with the right people, and make better decisions based on data-driven insights.

We hope that this ERP software guide was of use to you. If you want to know more about how an ERP system can help your business, feel free to drop us an inquiry here and one of our ERP consultants will contact you shortly.

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