Enterprise resource planning (ERP) refers to a type of software that organizations use to manage day-to-day business activities such as accounting, procurement, project management, risk management and compliance, and supply chain operations. A complete ERP suite also includes enterprise performance management software that helps plan, budget, predict, and report on an organization’s financial results.
ERP systems tie together many business processes and enable data flow between them. By collecting an organization’s shared transactional data from multiple sources, ERP systems eliminate data duplication and provide data integrity with a single source of truth.
Today, ERP systems are critical for managing thousands of businesses of all sizes and in all industries. ERP is as indispensable to these companies as the electricity that keeps the lights on.
Sometimes described as “the central nervous system of an enterprise,” an ERP software system provides the automation, integration, and intelligence that is essential to efficiently run all day-to-day business operations. Most or all of an organization’s data should reside in the ERP system to provide a single source of truth across the business.
Finance requires an ERP to quickly close the books. Sales need ERP to manage all customer orders. Logistics relies on well-running ERP software to deliver the right products and services to customers on time. Accounts payable needs ERP to pay suppliers correctly and on time. Management needs instant visibility into the company’s performance to make timely decisions. And banks and shareholders require accurate financial records, so they count on reliable data and analysis made possible by the ERP system.
The importance of ERP software to businesses is illustrated by the growing adoption rate. According to G2, “The global ERP software market is projected to reach US$78.40 billion by 2026, growing at a CAGR of 10.2% from 2019 to 2026.”
How can these solutions manage organizations' day-to-day business activities, such as accounting, finance, procurement, project management, supply chain, and manufacturing?
Enterprise resource planning systems are complete, integrated platforms, either on-premises or in the cloud, managing all aspects of a production-based or distribution business. Furthermore, ERP systems support all aspects of financial management, human resources, supply chain management, and manufacturing with your core accounting function.
ERP systems will also provide transparency into your complete business process by tracking all production, logistics, and financial aspects. These integrated systems act as a business's central hub for end-to-end workflow and data, allowing a variety of departments to access them.
ERP Systems and software support multiple functions across the enterprise, mid-sized, or small businesses, including customizations for your industry.
A good ERP system offers many advantages — which can vary depending on how the system is deployed. The benefits of cloud ERP, for example, are different than on-premise. That said, six major benefits apply to all modern ERP solutions:
Businesses in every industry – from automotive to wholesale distribution – need accurate, real-time information and effective business processes to compete and thrive. Different industries rely on their ERP software for quite different reasons, however. Here are just a few examples:
An ERP system – also called an ERP suite – is made up of integrated modules or business applications that talk to each other and share a common database.
Each ERP module typically focuses on one business area, but they use the same data to meet the company’s needs. Finance, accounting, human resources, sales, procurement, logistics, and supply chain are popular starting points. Companies can choose the module they want and add on and scale as needed.
ERP systems also support industry-specific requirements, either as part of the system’s core functionality or through application extensions that seamlessly integrate with the suite.
ERP software can be bought using a cloud subscription (software-as-a-service) or a licensing model (on-premise).
The ERP software system shown here illustrates enterprise resource planning use cases for sourcing, procurement, and sales. Typical ERP modules also address finance, manufacturing, and supply chain, among other applications.
Enterprise resource planning systems include a variety of different modules. Each ERP module supports specific business processes – like finance, procurement, or manufacturing – and provides employees in that department with the transactions and insight they need do their jobs. Every module connects to the ERP system, which delivers a single source of truth and accurate, shared data across departments.
Components of an enterprise resource planning system
The most widely used ERP modules include:
Modern ERP systems can be deployed in a number of ways: in a public or private cloud, on-premise, or in various hybrid scenarios that combine environments. Here are some of the high-level benefits of each to help you identify the ERP deployment option that makes the most sense for your business.
With cloud ERP, the software is hosted in the cloud and delivered over the Internet as a service you subscribe to. The software provider generally performs regular maintenance, updates, and security on your behalf. Today, cloud ERP is the most popular deployment method for many reasons – including lower upfront costs, greater scalability and agility, easier integration, and more.
This is the traditional model for deploying software where you control everything. The ERP software is typically installed in your data center at the locations of your choice. The installation and maintenance of the hardware and software are your staff’s responsibility.
Many companies are modernizing and upgrading their on-premise ERP systems to cloud deployments. This requires careful planning of your ERP upgrade and a thoughtful process of evaluating ERP software and deployment options.
There is the hybrid cloud ERP model for companies that want a mixture of both to meet their business requirements. This is where some of your ERP applications and data will be in the cloud and some on-premise. Sometimes this is referred to as two-tier ERP.
ERP for finance can help you securely manage your daily accounting and financial close processes, regardless of your deployment approach.
Today’s ERP systems provide an enormous range of business functionality, but they still need to connect to and synchronize with other applications and data sources – such as CRM and HCM software, e-commerce platforms, industry-specific solutions, and even other ERPs. With ERP integration, companies can gain a unified view of information from different systems, increase business process efficiency, improve customer experiences, and facilitate collaboration across teams and business partners.
Modern ERP systems are open and flexible – and can easily integrate with a wide range of software products using connectors or customized adaptors, such as application programming interfaces (APIs). Other methods for ERP integration include ESB (enterprise service bus) and iPaaS (integration platform-as-a-service). iPaaS, which offers a cloud-based approach, is a popular option for modern businesses. iPaaS platforms can rapidly sync on-premise or cloud-based ERP with SaaS applications from the same vendor or third parties. They typically require little-to-no coding, are flexible and relatively inexpensive, and offer a host of other uses – such as automatic API generation, machine learning data integration, Internet of Things (IoT) network integration, prebuilt content, and more.
The cost of ERP depends on the software vendor, the modules selected, and the deployment method. Generally speaking, cloud-based ERP has lower costs than on-premise ERP because no hardware needs to be purchased, and no expensive in-house IT experts need to be hired. The vendor handles the maintenance and charges the customer an annual or monthly subscription fee, usually based on the number of users.
When calculating the return on investment (ROI) and total cost of ownership (TCO) of a new ERP implementation, the initial and ongoing workforce costs are just as important as the software selection and deployment costs. With cloud and hybrid options, new factors must be evaluated. For example, software maintenance, facility, computer capacity, downtime, recovery, security, privacy, and IT staff costs are all important considerations. As mentioned, cloud options significantly reduce capital and operating costs – improving both ROI and TCO.
Using mainframe computers, computerized business applications were born in the accounting and finance world in the 1960s. These pioneering applications were faster and more accurate than manual processes – but were expensive, limited in functionality, and still slow. Before long, these applications spawned the development of dedicated, standalone solutions such as sales order processing and manufacturing requirements planning (MRP).
In the mid-1980s, competition in the manufacturing sector exploded, and new tools were required. New MRP II software integrated accounting and finance, sales, purchasing, inventory, and manufacturing planning and scheduling – providing the manufacturer with an integrated system.
Near the end of the 1990s, ERP was introduced. ERP transformed the technology sector by serving various industries and combining MRP II, human resources, project accounting, and end-user reporting.
In the short span of the 21st century, faster Internet speeds and new development tools have again revolutionized ERP suites. The introduction of browser-based software paved the way for cloud ERP software, a breakthrough that has expanded the reach and functionality of ERP solutions.
Today – in the digital transformation era – modern ERP systems are increasingly taking advantage of new intelligent technologies such as AI, machine learning, robotic process automation (RPA), the IoT, natural language processing (NLP), and in-memory databases. They allow businesses to run even more efficient processes, leverage up-to-the-minute insights from transactional and unstructured data, and ultimately remain competitive in a time of unprecedented change.
Digital transformation is speeding up – and ERP is at the core. As enterprises adopt digital technologies in every part of the business, they fundamentally change how they operate.
According to Gartner, one of the core digital business accelerators is to “banish drags” – in other words, eliminate any negative force that slows the business down, including outdated processes and systems. So, it’s unsurprising that companies already demand more robust ERP systems.
Following are three major trends that build on the momentum we see today:
Explore more ERP technology trends – and learn how to systematically evaluate your options, avoid pitfalls, and get started with the right innovations for your business.
Any modern ERP system will have a long list of capabilities based on the industry they serve and the modules they offer. However, there are ten fundamental features that all enterprise resource management systems should have:
ERP isn’t just for global enterprises. ERP solutions are designed for businesses of all sizes – small, midsize, and large. You can also get industry- and company-specific functionality to meet unique business needs. Regardless of your business sector and size, you’ll want to carefully plan your ERP implementation project, following best practices.
ERP software for small businesses can help you move beyond spreadsheets and efficiently manage every aspect of your growing company – from sales and customer relationships to financials and operations. Small business ERP tools are typically in the cloud, quickly installed, and designed to grow with you.
Today, ERP software designed for mid-market companies and subsidiaries benefits from built-in analytics, rapid deployment, and best practices for dozens of different business processes – financials, HR, supply chain management, and more. Midsize ERP tools help growing businesses scale and compete, even with limited resources. Modular, cloud-based enterprise ERP systems are also popular for midmarket companies with complex processes or plans for rapid growth.
Large companies with global or subsidiary operations need a robust, market-leading ERP system with embedded AI, machine learning, analytics, and intelligent automation to transform business models and processes. ERP systems can be deployed on premise, in the cloud, or in a hybrid scenario, depending on business need. They can integrate with existing databases or run on newer, powerful in-memory databases.
Many companies are modernizing and upgrading their on-premise ERP systems to cloud deployments. This requires careful planning of your ERP upgrade and an ERP evaluation and review of your deployment options.
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Kamal Rastogi is a serial IT entrepreneur with 25 yrs plus experience. Currently his focus area is Data Science business, ERP Consulting, IT Staffing and Experttal.com (Fastest growing US based platform to hire verified / Risk Compliant Expert IT resources from talent rich countries like India, Romania, Philippines etc...directly). His firms service clients like KPMG, Deloitte, EnY, Samsung, Wipro, NCR Corporation etc in India and USA.