What is ERP?

A comprehensive, easy-to-understand guide to ERP software

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ERP Basics

The acronym ERP stands for Enterprise Resource Planning and refers to creating a more efficient, leaner, better-automated and integrated business through sophisticated technology solutions.

ERP software then, is a business management technology solution that businesses and manufacturers use to collect, store, manage, and communicate data across all functions of the enterprise. Users interact with the software via visually-collaborate dashboards. Typically ERP dashboards contain color-coded bar charts and graphs, along with other visual descriptions of data that give users a fast look at key metrics. It is crucial that ERP users have access to dashboard metrics because they track and measure data that leads to business process improvement.

If you want to learn more about ERP, this guide is a great place to start.

What is ERP diagram

So…what exactly is ERP software?

At its most fundamental level, ERP software integrates information from all areas of a business into one complete enterprise system so data can be shared across departments in real-time in order to streamline processes and automate common tasks.

At its core, an ERP system is a database management system, creating and managing a database of business processes including:

  • Accounting and Finance
  • Raw materials
  • Production capacity
  • supply chain management
  • Workforce scheduling
  • Human resources
  • human capital management

What is a Key Benefit of ERP Software?

Information “silos” can occur when departments or groups do not share information with other departments within an enterprise. ERP software focuses on breaking down and solving the issue of silos by sharing data across departments in real time and automating common tasks in order to streamline the manufacturing process and spur growth.

Main Functions & Benefits of ERP Software

Streamline information with ERP

STREAMLINE INFORMATION

Improve Business Quality and Efficiency

One of ERP’s many purposes is to keep the internal processes of a business running smoothly. In other words, ERP streamlines its information. In business terms, streamlining means to improve the efficiency of a business by simplifying and/or eliminating any steps that may be deemed unnecessary by using modern techniques, which in this case is implementing ERP software.

Thanks to ERP’s ability to knock the doors of silos down, any and all information placed in to the software, can be accessed by other users depending on how security is setup. Streamlining this information across departments is one key benefit of ERP software that helps enable open communication, easier access to information and business transparency.

automate processes with erp

AUTOMATION

Enhance Employee Productivity

One of the most fundamental and effective advantages that can be found in an ERP system is its ability to cut down on tedious tasks through automation. Essentially, automation is technology that controls and monitors the production and/or delivery of various goods, services and/or actions. Automation performs tasks that previously were performed by humans.

Within the manufacturing industry, automation has become increasingly popular because of the density of the business. With ERP software, automation can complete tasks like financial reports and routine communications. Automation gives employees more time to focus on other work duties, enhancing their productivity with the extra free time.

ERP customizations

CUSTOMIZATION

Built To Fit Your Specific Needs

Most ERP software packages allow you to customize the system based on the unique needs of your business. Vendors tend to offer multiple ERP applications (also known as modules), and each application can be implemented (or not) depending on business need.

Each application can stand alone or integrate with a suite of other applications. This is incredibly beneficial because businesses can create an ERP interface tailored to their needs – one that will solve their unique problems – paying only for the features they will be using.

Customization does not just mean what is inside of the system, but how it is installed. You may have heard of the terms “on-premise” and “the cloud.” These two phrases mean how the system is implemented by your selected vendor.

On-premise ERP software is deployed in-house with most access coming through the company’s on-premise local area network with options for remote access.

Cloud ERP is deployed by your provider and provides more flexibility, allowing you to access the software no matter where you are so long as you have internet access.

Cloud ERP falls into the “Software as a Service,” commonly referred to as SaaS, category. Saas is a form of delivering centrally hosted applications over the internet as a service. This application is occasionally referred to as web-based, cloud or hosted software. The software is accessed via the internet as opposed to it being installed and maintained. The SaaS provider manages the access to the application which includes security, performance and availability. This business application is also typically accessed through a web browser.

The type of ERP a business chooses truly depends on what works best for the company and what your budget is. On-premise ERP tends to have higher start-up costs because of the in-house implementation and how the software is licensed along with ongoing maintenance, while ERP in a cloud environment packages everything into a monthly fee where in the long-run you may be paying more than on-premise. Researching the costs of ERP solutions is highly recommended.

Deciding on which type of ERP is solely based on what works best and is most convenient for your business. No matter the type you choose, your support team should be there for you every step of the way.

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Main Characteristics:

Central Database

Enter data once into your ERP solution and it can be accessed by any other user. Think of it as a common room for stored ERP information.

Operates in Real Time

Once information is placed into the ERP software, it updates throughout the system, providing up-to-date information in real time for all of its users.

Comprehensive

This means that most of your daily business functions and processes should be able to operate within the ERP software.

So…How Much Does ERP Software Cost?

Estimating the cost of ERP software requires a complete business assessment. The cost will vary greatly depending on the size of your business, your specific requirements and the scope of use. You will also need to decide if you want an on-premise or in the cloud solution. These factors all play a role in calculating the final costs of your software implementation.

number of users icon

Number of Users

Typically, ERP systems are priced on a per user basis. When beginning your search for a vendor, have an idea (or a specific number, which is even better) of users in mind. You can roughly expect to pay anywhere from $1,500 to $4,000 per concurrent user.

erp customizations

Customizations and Applications

Most robust ERP packages offer anywhere from 30-50 applications or modules, and you may not need all of them. The size of your business and the industry you work in both play a factor in selecting how many applications you need to purchase. For example, a small-to-medium-size job shop may not require a Master Production Scheduling or sophisticated inventory management, and a large multi-national company would probably require more financial management applications than a small, make-to-stock manufacturer.

Another consideration is customization. Depending on your needs and how you plan to use the software, your ERP implementation may require some level of customization.

erp maintenance

Maintenance and Training

Another cost to consider is maintenance and training, which ERP vendors often offer at an added cost. Maintenance costs happen when software updates, network fees and additional hardware occur over time. Training takes place shortly after the implementation process, which walks users through the software, showing them how to both understand and use it. Software training, also an additional cost, helps users understand the ins and outs of the software that will be a part of users daily work life.

cloud or on premise erp

On-Premise or the Cloud?

Choosing between a cloud or on-premise ERP offering will also affect the project cost. On-premise ERP is installed locally on your own hardware and your internal IT team manages it. It requires a significant one-time, upfront cost, but your long-term costs will be lower. Cloud ERP is hosted and managed through the ERP vendor, which means upfront costs are low but long-term costs may be higher.

ERP Pitfalls:

While an Enterprise Resource Management solution can be incredibly useful, there are traps businesses need to avoid before, during and after implementing your ERP system. Already dealing with a failed implementation? Here are some tips for recovering quickly.

Failure To Assess Requirements

ERP isn’t a one size fits all system. It is important to take note of what your business needs (and can live without) so that you can customize the software to best fit those requirements. If you settle for the first vendor and system offered, you may end up unhappy with the end results.

Not Considering Your Staff

Learning a new system or process can be intimidating, so be sure to make your employees feel included in the implementation and training efforts. Ensure proper training takes place for all of the software users, and consider ongoing training to encourage the most effective use of the software.

Poor Budgeting

Planning a budget for your ERP software does two things: it lets you know how much you’re willing to spend and it eliminates vendors who may charge an amount you can’t afford. Be sure to budget for the entire project, including licensing, maintenance, implementation and customizations.

Can Different Sized Businesses Utilize ERP?

Don’t let its name fool you, enterprise resource planning tools are not just for enterprise organizations. In fact, businesses of all sizes and in all industries can leverage ERP’s technology to help sustain and grow their operations.

ERP for startups

Startups

Startups tend to have a small number of employees with a lower volume of sales and shorter list of clients. But startups are typically also in growth mode and the flexibility of an ERP system can be very valuable to a growing business. ERP tools can also ensure that a small growing business is organized from the beginning – tracking exactly what is working and making sure that all departments are on the same page.

Cloud ERP is ideal for a startup because it doesn’t require the large upfront costs that an on-premise solution would, and it is easily scalable, helping a startup keep costs low while it grows. Utilizing ERP in the startup phase of a business ensures a company can handle rapid growth while maintaining organization and efficiency in its processes.

ERP for small to mid sized businesses

Small and medium sized business (SMB)

Small and medium sized businesses are challenged with more clients, more employees, and more complex processes to keep track of.

Transparency is one of the main benefits SMB’s get out of an ERP system. The central database of an ERP gives all users access to the relevant information they need, across all departments. This streamlining of information helps to deliver an open flow of communication, ultimately creating more efficient operations.

ERP for enterprises

Large enterprise sized businesses

Large and enterprise level organizations have more moving parts: more employees, a more extensive supply chain, and more departments, employees, and clients to manage. As a result, large companies have higher risks involved with daily business activities.

At the enterprise level, ERP systems become the organizational tool that binds all facets of operations together. Accounting, finance, human resources, shop floor scheduling, logistics, etc., are all tied into a central database so that the left hand is always communicating with the right.

ERP software acts as insurance, acting as your second set of eyes to store company data for future usage, increase companywide productivity, and assists in the betterment of customer service. The larger a business grows, the more challenging these tasks become, and attempting to coordinate them without an ERP tool can leave a lot of room for error.

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Integrating Third-Party Tools

ERP software includes many of its own native applications, but it can also integrate and play nice with many third-party applications you may already be using in day to day operations, including:

integrate accounting software with ERP

Accounting Software

If an ERP solution does not contain accounting software it may include easy integration with QuickBooks or other popular accounting software tools that accepts business payments, can manage and pay bills and includes payroll functions.

CRM integration with ERP

CRM Software

Customer relationship management (CRM) software is designed to manage a business’s relationship and interactions with their customers. There are many benefits to ERP and CRM integration, such as data centralization, better visibility and forecasting and real-time quoting and inventory management.

integrate CAD with ERP

CAD Software

Some ERP solutions will integrate with computer-aided design (CAD) programs like SOLIDWORKS that runs through Microsoft Windows.

ERP shipping integrations

Shipping

Did you know ERP may help you streamline and automate your shipping processes? Many ERP packages can integrate directly with shipping providers such as UPS and Fed-Ex as well as freight and LTL carriers.

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