ERP - The Complete Guide

By: OnCloudERP Team | Posted : June-25-2019

What is ERP?

Wikipedia says: "Enterprise resource planning (ERP) is the integrated management of core business processes, often in real-time and mediated by software and technology." Another definition says "The Enterprise Resource Planning (ERP) system is an enterprise information system designed to integrate and optimize the business processes and transactions in a corporation".

ERP is known as a business application software that comprises a set of integrated applications that an organisation can acquire, store, consolidate, retrieve and interpret data from many business functions to make informed business decisions.

The ERP acronym has emerged from materials requirements planning (MRP) and manufacturing resource planning (MRP 2), which are older types of manufacturing-specific software mostly used in the manufacturing environment, especially, materials & inventories tracking. This software should be able to communicate across all business functions. It should be able to connect with the needs of people in finance, human resources and materials department.

History of ERP

Birth of Enterprise Resource Planning (ERP) and a few other applications occurred in the 1990s, and in this decade these applications were released to the manufacturing industries. By the early 1990s, MRP-II had been extended to include enterprise-wide functions and integration. Extended MRP II systems were renamed enterprise resource planning systems.

The above-mentioned applications use a single database that contains all the data which keeps the processes running smoothly, ensuring visibility, accessibility and consistency. The challenge that these ERP systems were facing was that they could no longer scale as the business grows. Slowly they became Legacy ERP systems, which are often based on older technology.

Legacy ERP systems typically have rich, industry-specific business functionality, which is how they became legacy systems in the first place. Their creators kept on writing application code to meet the requirements of existing customers and did not invest in re-platforming the system on modern technology. Many legacy ERP software packages did not have up-to-date functionality and reporting capabilities. The legacy ERP software does not integrate well with other IT systems.

ERP Legacy Vendors

Post-Dot Com burst in 2000; the power of the Internet helped many industries to hosted solutions on expanding the functional areas of ERP. New business functions and business processes are added to the basic ERPs such as advanced planning and scheduling, customer relationship management and supply chain management. Many companies providing such solutions were in the market. Legacy ERPs such as Baan, MAPICS, BPCS, Growthpower, MANMAN, MK, Pansophic, ManMan, Microsoft, SAP, and JD Edwards was installed on-premise or a hosted solution developed for them.

Challenges in ERP Implementation

For example, 21% of the companies that responded to a 2015 Panorama Consulting Solutions survey characterized their most recent ERP rollout as a failure. Many big corporations lost money owing to the failure of ERP implementation. There are many case studies that depict these failures and, as a result, millions of dollars were lost in these projects.

From choosing the right product to going live, typically, organizations face many challenges. However, the most important problem faced by organizations is the ERP implementation. There are hundreds of case studies that discuss ERP implementation failures in large enterprises. These failures can be due to the wrong steps taken in project management, ownership difficulties by company staff, lack of knowledge of the customer's processes, slow adoption of application at the customer place and never-ending customization. Hosting challenges are also common, where the software is hosted in a local server, high maintenance cost, technical troubleshooting and maintaining additional staff requirements.

Beginning of New Era of ERP Solutions

During the early 2000s, there was a surge in communication interaction via the internet, and more and more web-based functionalities were released in the ERPs. Furthermore, this surge in technology, plug-ins, extended functions, add ons, led to killing legacy applications and moved with amalgamations and consolidation among ERP brands and suppliers. Many mergers and acquisitions occurred that saw the ERP industry transform and go into the 2010s. Even today, the ERP industry is still dominated by SAP, Oracle, Infor, Sage, Microsoft and many medium-sized players such as NetSuite, Epicor and Syspro.

Cloud ERP: A Force to Reckon With

The new third-generation software uses internet bandwidth and provides easy and simple ERP solutions that can be implemented, sometimes in less than a weeks’ time, and are also very cost effective. This ERP software has attracted around 80% of small and medium enterprises (SMEs) across the world. Within a decade, technology innovations and industry consolidations happened which resulted in new-generation ERPs that are available on cloud. The cloud based ERPs changed the entire ERP business landscape with huge benefits for the end users.

On-Premise Solution Cloud-Based Solution
Long implementation Rapid Time to Value
Expensive Customization Easy and Affordable Customization
IT Resources Dependent Minimal IT Involvement
Separate MDM framework Integrated MDM support
Expensive Upgrades Easy Upgrades
Long Time to release New Versions Frequent New Feature Releases
Added Hardware Costs No Hardware Costs
Large Upfront Investment Subscription Billing

Key Benefits of an ERP Software

ERP provides numerous benefits to organizations and their end users on strategic, operational and personal level benefits. It helps managers to take faster and better business decisions effectively from every aspect of the enterprise. Companies can achieve a global reach and get new business opportunities, with the help of multi-currency, multi-location and multilingual features. ERP improves business process efficiency, customer-centric service and productivity by providing clear visibility across your business.

1. Increased Revenue

Fast and quick access to real-time information from sales enables organisations to identify new business opportunities. This will help in bringing up new products to the market quickly, distribute, support and service.

2. Prudential Financial Process

ERPs can handle all financial transactions such as general ledger, account setup, journal entries, bank reconciliation, foreign currency adjustments and budgets.

3. Customer Centric Process

ERP can help organisations in preparing pricing strategy, quotation, customer order, custom deliveries, stock management and customer invoices. ERP will be optimized to bring information to the Sales Manager to support faster and better decision making.

4. Optimized Warehouse Management

ERP can handle inventory levels, item management, price lists, transfer pricing, price agreements such as discounts, transfers between warehouses, and stock transactions.

5. Reduced Costs

ERP can enable the company to define profit centers and overhead absorption factors along with generating profit and loss reports for each center.

6. Business Intelligence

ERP is a single integrated information system that provides deep insightful reports about every aspect of the enterprise including customer and supplier debt, sales, cash flow, inventory, bookkeeping, warehouse stock, financial statements, pricing, customer activity, and more.

How to choose right ERP software for your business?

SMEs are facing many challenges in that they have to reduce the costs of operations. They have to invest in people and technology wisely to meet the growth expectations. SMEs have to concentrate on improving customer response time, satisfaction and retain customers more than getting new business in this highly competitive world. They should have control across multiple operating locations and smaller business units.

Many smaller organizations are nowadays looking to purchase software that has a vertical, or industry-specific, functionality. They are looking for better applications and are willing to invest provided these investments get to the core of their businesses' operations. Therefore, cloud has a major advantage as far as meeting SMEs’ expectations, challenges and budgets is concerned.

1. Easy Implementation

One of the reasons that ERP implementation fails is the miss-match between the product implementer and the end user. If the product is easy to implement so that the end users’ team is itself able to configure and implement, then major problems are solved. Hence, an ERP that can be self-managed should be chosen.

2. Scalable

An ERP that is designed to grow according to the needs of the company should be chosen. If the company grows, the ERP system must scale. In case a a new business unit is formed, the ERP should also be able to support the company with these expansions and growth.

3. Accessible across devices

It is no longer necessary to have the ERP on the premises to run the business. It can be on cloud, so that it can be accessed at anytime, anywhere. The team should be able to manage the operations from anywhere. In particular, critical MIS reporting must be available while you are on the go.

4. Customizable

An ERP that can be easily customized should be chosen. The customization feature must be a built-in utility. Minor customizations can be handled by the customer although if any major business process changes are required, the application must flexible enough to deploy the changes within a short span of time.

5. Integrations

If the business is already using an application that is comfortable in using that software for roster management, payroll, tax and applications such as Microsoft Office and Outlook, then choosing an ERP system that integrates with the existing software can save the company both time and money.

6. Multiregional

ERP should be multi-currency, multi-time zone, and multi-region friendly. For example, the moment you choose India, GST should apply. This will save time and cost and it will be more of a plug and play. Some ERPs are implemented in a weeks’ time, without many complexities, since they cover all the functions and processes of industry best practices.

7. Affordable

On-premise solutions are naturally costlier than on-demand ones (SaaS model). Therefore, the flexibility, packages, upgrades, maintenance, downtime assurance, support mechanism that come under each price package should be checked.

Basic Modules Every ERP Software Must Have

There are many vendors in the market which are providing traditional ERP solutions, On-Premise solutions or Cloud-based ERP solutions. Though implementation platforms or technologies are different, there are common & basic modules of ERP which can be found in any ERP System. Depending on organizations need required components are integrated and customized ERP system is formed. All the below-mentioned basic modules can be found in an ERP system:

1. Inventory Management

2. Financial Accounting

3. Purchase

4. Sales and Marketing

5. Customer Relationship Management (CRM)

6. Supply Chain Management (SCM)

7. Engineering/Production

8. Project Management

9. Human Resources Management

An ERP application must implement these right features

1. Integrated ERP that covers all your core business function

2. Fast and simple integration with third party applications

3. Ability to streamline different processes and workflows

4. Effortless visibility for decision making

5. Easy approval mechanisms across departments

6. Enhanced security configuration

7. Improved efficiency and productivity levels

ERP software has the potential to facilitate the overall effectiveness of an enterprise in many ways, from automating many processes to enhancing the performance and motivation of every employee. With the right ERP solution, you can grow your business efficiency and profit more than ever before.