ERP software and how to get started — benefits, modules, and more
Enterprise resource planning (ERP) can be a confusing concept. There are about as many options and configurations as there are businesses, which makes choosing an ERP solution complicated.
Understanding the concept of ERP and what such a system could do for your company and strategies is a valuable first step to making the right choice. To help you with all of that, this post will cover everything you need to know about ERP.
- What is ERP?
- Understanding ERP
- How ERP works
- Benefits of ERP
- ERP Modules
- Types of ERP Deployment Models
- ERP Integration
- ERP Costs
- History of ERP
- Future of ERP
- Choosing the right ERP
What is ERP?
ERP software is a highly configurable system of computer applications that collects inputs from all facets of a business into a centralized database and dashboard. The purpose of ERP systems is to bring in automation, integration, and intelligence to connect every area of your business in one place.
One of the main benefits of ERP is its ability to be uniquely tailored to a company’s needs through the selection of modules. This customization lets you create a system to fit the processes and workflows of your business. Departments can easily share information and leaders can see what’s occurring on all levels.
The operative word in ERP is enterprise. To be effective, all individual applications that make up any ERP system, no matter where or how they are used, must work together seamlessly.
ERP systems can be intimidating because they are grand in scale and all-encompassing. To simplify, every ERP has two main components.
A key feature of an ERP system is its modularity. Depending on the business model, a company can create different data sets, called modules, for every major department or facet of the business. Different businesses will choose configurations to achieve their ERP-driven objectives.
Think about the needs of your business. Your accounting department will likely need invoicing software while your HR team needs a performance management platform. If you run an ecommerce business, you need software for supply chains and inventory management. An ERP can provide a module for each software application your business demands and then unify them in a central data system.
With these interconnected modules, your processes are more standardized and your teams canmore easily interact with each other and share information.
Central data repository
At the heart of any ERP is a central data repository that serves as a single, authoritative source of truth. All data, no matter where it’s generated, resides in the central repository with a single interface. Leaders have an enterprise wide view of all business processes with real-time data to facilitate planning, management, reporting, and control.
When properly configured, ERP reporting and analytics are always consistent and reliable. Your company’s information is available without duplication, and you can trace documents back to their original source for verification. This centralized system improves business intelligence (BI) and decision making.
An ERP system helps you run your business — analytics, operations, managerial, financial, compliance reporting, and controls — as an integrated and coordinated whole.
How ERP works
An ERP establishes a command center for monitoring every area of your business. All of the different modules that your business uses are connected in a centralized data repository.
There are three basic steps to setting up an ERP:
- Configuration. To start, most companies choose a package of core modules for basic functions like finance, sales, accounting, and HR and then purchase additional modules that make the most sense for their specific business operations.
- Integration. In many cases, decision makers realize that forcing all their functions into just one system is too constricting. Fortunately, ERPs still allow for the integration of outside software for solutions like business intelligence, advanced analytics, materials planning, or customer relationship management (CRM). ERP-branded integrations are the most seamless. But there are also bolt-on solutions with their own databases that work in tandem with the core modules.
- Deployment. Once you configure your ERP system, you next have to decide how to deploy it. Your setup can be onsite, in the cloud, or a combination of the two. Your choice will depend on both your need for privacy and security and your budget.
An ERP is a good fit for any industry. Once your company grows large enough, deploying an ERP system can help you understand and manage all the components of your business.
Benefits of ERP
Every company is unique, but a well-configured ERP system can offer many advantages.
- Cost savings. Because ERPs integrate information throughout the enterprise, there’s no need for separate software bundles or duplicate data entry.
- Workflow visibility. Without a unifying data system, executives and managers have to make phone calls, attend meetings, and pour over spreadsheets before making a decision. But with the right ERP system, decision makers can look at a single dashboard and get immediate updates on every area of the business. Previously siloed departments now have a window into one another’s performance and planning, so workflow choreography improves dramatically.
- Analytics and business intelligence. An ERP’s central data repository provides analysts with reliable data. They can use a BI module or even advanced analytics with artificial intelligence (AI) to mine deep insights into business strategy and performance.
- Reporting and regulatory compliance. An ERP system can process through legislation on a daily basis and automatically deliver regular reports on changing regulations and legal processes.
- Improved data security. ERPs place tight controls on how data flows throughout the different modules. Access to read, enter, or amend data is granted on a permission basis. Certain users may have full access, while others see only summary or anonymous records. Additionally, an ERP provider ensures that data management is compliant with current data security and personal privacy regulations.
- Improved cybersecurity. ERPs have the ability to anticipate, identify, and thwart cyber-attacks across all departments as you scale your business. Most ERP providers can work with a wide range of industries and risks and have the capacity to invest beyond any one company’s budget on the latest cybersecurity strategies and tools.
- Enhanced risk management. ERP systems enable each area within a company to configure a unique set of modules with data to identify and manage risks. This setup ensures a more robust set of checks and balances and a more reliable audit trail. For instance, a distributor can observe likely product shortages in time to line up new supplies.
- Stronger collaboration. ERPs introduce standardization, supercharging company wide collaboration. Teams are able to view up-to-date status reports from other groups whose productivity influences their own work. Moreover, all workers across the enterprise are now using a common business language to discuss relevant issues. Cross functional teams are no longer sharing mere information — an ERP system facilitates genuine understanding. Teams can collaborate more effectively than ever before.
- Scalability. Monumental data transformations can challenge any business. By partnering with an ERP provider, a company can effectively outsource their data management and more easily scale to meet this challenge.
- Flexibility and customization. Because of their modularity, ERP systems are nearly infinitely configurable. Companies can customize their installations and add new capabilities as the business grows and evolves. Any niche business can tailor an ERP to their particular needs.
- Acute customer focus. Today’s ERPs are tailored to the needs of customer engagement, service, and satisfaction. Most systems can handle product inventory, pricing, and delivery and can follow the buyer journey with tools for managing customer service, support tickets, satisfaction surveys, and even social media.
- Optimized business performance. When configured well, ERPs help standardize and streamline processes and workflows. They equip leaders with the necessary insights to operate smoothly and face both challenges and opportunities with greater ease.
To make the most of so many capabilities, executives need to familiarize themselves with the full spectrum of modules that can be bundled within an ERP installation. These tend to be driven by business function and can range from standardized, almost generic, processes to highly specialized applications. Here are some common examples.
- Finance. Automation of financial accounting processes is fundamental to most ERP installations. Virtually every company benefits from the standardization of core business activities such as transaction processing, accounts receivable and payable, account reconciliation, foreign exchange, borrowing, and financial reporting. For this reason, finance and accounting modules tend to be standard on all but the most specialized ERP offerings.
- Human resources. HR is a highly standardized and regulated field, so an HR module is a natural fit for businesses. Highly scalable, even globally, HR modules make it easy to onboard new hires and manage detailed employee records like performance reviews, accrued bonuses, and paid time off.
- Customer relationship management. CRM systems have become widely used in most industries, with many companies already running a legacy application of their own. In such cases, most ERP providers offer ready-to-go gateways to accommodate the most popular CRM suites. However, many ERPs do offer their own feature-rich CRM as a bolt-on and can help with application migration.
- Manufacturing. This type of module helps businesses coordinate the steps that go into making products. It can automate tasks like tracking and managing material costs and optimizing production runs in relation to inventory demand.
- Supply chain. A sourcing or procurement module can help businesses keep track of suppliers, automate chain processes, and establish internal controls, limits, and approval processes. It will be most valuable to businesses who rely on external providers for the goods and services they deliver.
- Inventory management. B2B or B2C retailers operating in high-volume/low-value or low-volume/high-value environments will benefit from a more sophisticated inventory management system. ERP platforms can track SKUs with advanced tools such as Internet of Things (IoT) sensors and blockchain. Such offerings are often used in tandem with a logistics module, to help a business get the right item to the right place at the right time for the best cost.
- Commerce. As more companies offer a wider array of B2B and B2C channels, ERP providers are stepping up with modules that can help unify back-office, in-store, and digital experiences. Commerce modules can facilitate ecommerce personalization, improve employee productivity, organize online and physical store layouts, and aid in loss and fraud prevention.
The list of potential modules is almost limitless. Different ERP providers often focus on specific industry verticals, creating modules that can drill down to highly specialized businesses.
Types of ERP deployment models
Companies have various needs depending on the industry, business model, and culture. And every organization is at a different stage of digital readiness. ERP providers understand such variables and are ready to customize their delivery. While there will always be nuance, the three core deployment configurations include:
- On-premises. Some businesses prefer to maintain their own servers, and ERP providers can deliver their applications locally. The benefit to the ERP customer is that they don’t have to significantly alter their data input or management strategies. The downside is the added risk and cost of taking full responsibility for system security, maintenance, upgrades, and other activities that would happen automatically in a cloud environment.
- Cloud. The overwhelming majority of new ERP deployments run primarily on cloud technology. There are two popular approaches for cloud deployment.
- Multi-tenant. In a public cloud — sometimes called a multi-tenant cloud — data remains segregated by company. However, participants, called tenants, share common interfaces or even software. Sharing these resources reduces the cost.
- Single-tenant. In contrast, private — or single-tenant — clouds offer greater control and are more customizable, but the cost is higher.
- Hybrid. Hybrid ERP deployments use a combination of both public or private cloud and on-premises processing. Sometimes called a two-tiered ERP, it’s a good option when a business wants to maintain strict control of certain internal processes and data onsite while opting for lower costs and less security on the cloud in other areas. Another form of hybrid deployment is to use a public cloud for low-risk applications and data but a private cloud for more sensitive or proprietary processes.
As your business moves closer to selecting an ERP provider and an array of modules, it will be important to take a closer look at existing business applications. Most companies migrate their whole business to the ERP’s core modules. But some are running one or more niche applications and need to evaluate integrations.
Your businesses or teams may lean toward best-in-class solutions for certain things. Maybe your business is ready for the efficiency and scale of a core ERP system, but you still want to keep your tried-and-true CRM, HR, or materials management platform. There’s no rule that you have to integrate all of your systems into an ERP. To decide what’s best for your business, ask the following questions.
- How much value does your current system offer? Does it run optimally? If not, it might be time for an upgrade and the ERP could be a great solution.
- Can a module from the ERP provider replicate or potentially improve upon this value at a comparable cost? If so, it might not be worth keeping the legacy system.
- How difficult is it to integrate your application with the new ERP installation? Can your current system and the ERP connect in real-time? How well do they perform together? If the integration is smooth and seamless, you may be able to keep your current system.
- Longterm, will your legacy application be able to keep up with leading industry software or what your ERP provider is offering? If not, it will be easier to move that functionality to the ERP now.
If an ERP provider can offer a proven integration with your trusted third-party application, it makes sense to implement only the core ERP modules. You can always migrate to the ERP provider’s option at a later date.
If you’re thinking about integrating a niche application and there’s no standard, ready-made integration available, conduct a detailed cost-benefit analysis.
Cost of ERP
Migrating your business onto an ERP platform is a big step toward digital transformation. While the benefits are numerous, you still have to balance your choice of modules with the price of the initial deployment and ongoing costs — which vary widely.
The total cost of ownership (TCO) can include:
- Hardware. The transition to a more digital environment will mean more managers and workers will need more devices and screens.
- Software. Greater use of integrated software throughout the enterprise will require greater ongoing due diligence in software maintenance.
- Facilities. For some, migration to an ERP environment will also require migration to the cloud. For others, this migration will require an expansion of existing cloud use. In both cases, these businesses may experience added facilities costs — although these and related expenses are often offset by reductions in needed IT facilities elsewhere.
- Change management. An ERP system introduces change across a wide range of processes. The workforce and management will require user training, and a lot of work will be needed to achieve buy-in for new ways of doing things.
- Maintenance. Be sure to budget also for the ongoing costs of managing server capacity, backup and recovery procedures, system security, and data privacy.
History of ERP
The first ERP was invented in the 1960s by a machinery manufacturer and was called materials requirements planning (MRP). In this early stage, punch cards enabled automation to calculate how to optimize production schedules.
ERP did not change much until the advent of MRP II in the 1980s, which added modules — like finance and account management — and integrated core components. By the early 1990s, systems were fully featured enough for Gartner to coin the term “enterprise resource planning,” the name ERP systems go by today.
Operating costs were much steeper back then, since companies often had to buy their own servers and IT staff. But In 1998, the first cloud-based ERP was released, revolutionizing ERP by making costs predictable. ERP became accessible to smaller businesses for the first time.
Future of ERP
As in its past, ERP will continue to evolve in lockstep with advances in technology.
Today’s ERPs already incorporate such innovations as cloud-granted “access from anywhere,” radio-frequency identification (RFID), IoT, blockchain, advanced analytics, and AI and machine learning.
Going forward, ERP providers can be expected to help clients embrace 5G, edge plus quantum computing, neural networks, robotics, digital IP, autonomous vehicles, and the metaverse.
But even as technology advances, integration with existing ERP processes is getting simpler. Providers are embracing DevOps, application programming interfaces (APIs), and low-code or even no-code software.
In essence, any business will be free to pursue emerging technologies. ERP providers will always be on the front lines, working with their clients to embrace and integrate the latest innovations. By implementing today’s ERP systems, a business positions itself to benefit from continuous digital transformation.
Choosing the right ERP system
Your choice of ERP provider is a matter of finding the right fit for you and your business. Your ERP provider should be able to demonstrate installations with other businesses of your size, sector, and growth profile.
From there, look at core business strategy and analyze your greatest needs, challenges, and opportunities. Your short list should be able to address each of these with ease.
- Smaller businesses should lean toward cloud deployed ERPs. They’re quick to install and easy to operate. They can also accelerate your business growth and technology adoption, transitioning your company from silos and spreadsheets to a fully integrated business operation.
- Mid-size companies tend to be ready for an upgrade in core processes. Most find enormous value from built-in analytics and purpose-built functional modules. As more functions become more closely integrated and decision-making becomes better informed and collaborative, business performance often improves dramatically.
- Enterprise companies are already running some form of ERP system. But often, thanks to growth and business evolution, many have outgrown their existing systems. Your teams need access to innovations such as intelligent automation and embedded AI. From time to time, reevaluate business needs and conditions to decide what steps to take to modernize, upgrade, or shift ERP providers.
Getting started with ERP
If your business is ready to shift from fragmented to coordinated, from manual to efficient, from instinctual to data-driven, from reactionary to predictive, you’re ready to embrace ERP.
One tool that can help a business realize many of the benefits of ERP is Adobe Workfront. Workfront helps individuals and teams connect their efforts to the broader goals of the business. The ability to consolidate workflows and information visually and dynamically enables collaboration across the right tasks at the right time with the right people.
First as a bridge toward ERP adoption then later as an invaluable adjunct, Workfront helps businesses and their teams connect strategy to delivery.