What is ERP – and what can it do for your business?
There are a lot of moving parts when running a company. You have run your daily operations; manage your sales, pay your employees on time, oversee your stock, file your taxes, manage your production and supply chain and last – but certainly not least – keep your customers happy and coming back. ERP software makes managing your business much easier.
So what is ERP exactly? ERP stands for enterprise resource planning. And at its most basic, it’s a single system that integrates all the core processes needed to run a company.
An ERP system is made up of enterprise resource planning applications that talk to each other and share a database. Each application, often called a software module, typically focuses on one business area. Finance, human resources, sales, and logistics are popular starting points. And there are also modules specific to a wide range of industries – from wholesaling and manufacturing to retail and e-commerce.
Most enterprise resource planning systems feature automation and streamlined reporting capabilities. This helps companies run more efficiently and better meet compliance regulations.
Because each ERP application is connected and shares a common interface, different business units (e.g. sales and finance) can work from data that shares a single source of truth – facilitating collaboration and speedy, fact-based decisions. And managers can view insights about the business from any angle.
So how does all this work in practice?
Let’s use sales orders as an example. When they can be automatically fed to both your finance and order management departments, both units can do their jobs – closing the books and processing orders – faster, and with fewer errors. An ERP system cuts down on manual data entry and improves the flow of information across the organization.
Why use an ERP system?
Most growing businesses start out using a variety of simple, standalone tools to manage different processes, such as QuickBooks, Excel Spreadsheets, and others. But as the business grows, managing disparate applications can get messy and time consuming.
Most large enterprises have robust ERP systems in place, but how and when should small or midsize businesses (SMBs) implement ERP software?
Many companies turn to ERP software because they’re frustrated with the rigidity of their current models. Without easy access to accurate information, a host of mission-critical questions can remain a mystery: Is your business making money? Which of your customers are most profitable? What impact do market price fluctuations have on your product costs? An ERP system makes it very easy to answer these kinds of questions.
If your business is drowning in spreadsheets, relying on paper-based processes, or acting on bad information from fragmented solutions, it’s probably time to consider enterprise resource planning software.
With better information flow, your business teams can do their jobs more efficiently. They can streamline processes for accounting, asset management, purchasing, manufacturing, inventory, customer service, hiring, payroll, and much more.
The good news for SMBs is that the cloud makes ERP systems much more accessible – especially when delivered as a software and platform services (SaaS and PaaS). Cloud-based enterprise resource planning software is readily available, and requires a low up-front investment.
Small and midsized companies in favor of an on premise approach are also much better off than years ago. Thanks to pre-configuration and industry best practices, the investment required to run your ERP system on your own premises has been reduced significantly.
How ERP systems are changing
To keep up with digitization, ERP systems have also had to evolve. Business activities in a dynamic digital economy are constantly in flux – and they need to be carried out over multiple channels and touch points.
While earlier ERP systems excelled at integration, adding new functionality could be time-consuming or even require a complete re-architecting. (1) Today’s ERP systems are made up of more loosely coupled components that can be easily added or removed according to growing business needs – giving organizations the flexibility they need to thrive in the digital economy. Cloud solutions can fill in any functional gaps and broaden business capabilities.
In-memory computing, mobile, social, and the Internet of Things (IoT) have also had a dramatic effect on the current ERP software environment. Enterprise resource planning systems are beginning to incorporate all these technologies to stream real-time information across departments. They include analytics technologies that help businesses make data-driven decisions and manage performance from moment to moment.
Correspondingly – and in many instances thanks to these newer technologies – industry boundaries have blurred. Companies who focused on classical manufacturing a couple of years ago are now using mobile technology to provide their customers with aftermarket services and have found a completely new revenue stream. Others who used to sell through a distribution network might now be using the web and social media to find themselves an additional sales channel. These changes need to be reflected in a companies’ ERP system. This is why next generation ERP systems provide much more agility than the previous generation.
Take SAP S/4HANA. It provides a digital business core – a kind of nerve center – that consolidates internal and external elements into a single structure. It connects processes, provides live information and insights, and integrates the enterprise with the world at large. With a strong digital foundation in place, you can then add on specific lines of business solutions – such as finance, HR, sourcing and procurement, R&D, asset management, and more – as required.
As the functionality of ERP systems changes, so will the definition of the term. But one thing is clear: enterprise resource planning software is good for business. It positions your company to make faster decisions, embrace new opportunities, and drive profitable growth.
Ready to make the move? Watch for my road map to ERP series covering how to choose the right system and get ready for a successful implementation.
(1) Gartner Webinar: Postmodern ERP Strategies and Considerations for Midmarket IT Leaders