21 Feb

An Introduction to Enterprise Resource Planning (ERP)

Mahipal Nehra

The global Enterprise Resource Planning (ERP) software marketplace is estimated to reach a whopping $90.63 billion from $49.28 billion by 2029 at a CAGR of 9.1% YoY. The ERP stats make the impact of these solutions apparent in different industries.

However, those who have not used ERP in their lifetime can find it quite confusing to know why these ERP solutions are gaining popularity.

Read: Top 10 Common ERP Mistakes

As digitization transforms the marketplace, it becomes crucial for businesses to understand and adapt different tools, techniques, technologies, and solutions to gain a competitive advantage.

This blog will include everything that you need to know about ERP systems. In addition, it will help you identify why there’s so much uproar for ERP and whether or not your business can benefit from it.

So, without further ado, let’s get started.

What is Enterprise Resource Planning?

ERP solutions allow companies to automate their processes in the accounting, supply chain, project management, manufacturing, human resources, finances, services, procurement, etc., while managing core business operations for performance optimization.

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ERP solutions provide automation, intelligence, and integration needed to run different business operations efficiently and thus are considered the organization's CPU.

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An ERP solution is like a glue that binds the entire work processes of a business in one place and enables the flow of information between these processes. As the ERP system collects shared data from multiple sources, it removes data replication and acts as a single source of truth.

Additionally, Enterprise Resource Planning (ERP) software provides a continuously updated view of processes and tracks resources and commitment status.

Types of Enterprise Resource Planning

ERP solutions can be categorized into the following categories:

On-Premise ERP:

On-Premise ERPs refer to the traditional software development style where the software solutions are stored on local servers or computers owned and managed by the company. That being said, the business is responsible for the maintenance, security, updates, etc., of the on-premise ERP.

Another thing to note while opting for on-premise ERP software is that they require a lot of capital expenditure. However, it is the right choice to avoid unnecessary spending on the software in the long run by simply buying the solution.

On-premise ERPs are for those who have well-trained and experienced IT professionals to assist the ERP system flexibility and data control.

Cloud-Based ERP:

Cloud-Based ERP software, SaaS, has become the most significant market trend. This ERP solution allows businesses to access ERP functionalities to manage the entire business process and operations from a centralized platform.

Among the various approaches to enterprise resource planning (ERP), there exists a more contemporary approach known as Cloud ERP, where the software is hosted on an external server and accessed via the internet.

This type of ERP is typically more affordable and easier to maintain compared to on-premise ERP. Due to this, it is a good choice for smaller businesses with simpler processes and fewer IT resources.

Hybrid ERP:

A Hybrid ERP system combines the features of both on-premise and cloud ERP systems, enabling businesses to reap both benefits. For instance, businesses can keep sensitive data on-premise while leveraging cloud ERP's versatility, scalability, and cost-effectiveness for other processes.

Hybrid ERP can offer several advantages, such as customization, data security, cost-effectiveness, improved collaboration, and business continuity. This makes it an optimal choice for companies in the digital media, business, or professional services industries. Additionally, it entails lower training costs when compared to cloud ERPs.

Benefits of Using ERP Solutions

Some benefits of using enterprise resource planning solutions are as follows:

ERP systems offer a multitude of benefits, one of which is their capacity to streamline repetitive and time-intensive procedures. In return, this will make employees available for greater focus on mission-critical tasks.
An ERP solution also simplifies workflows, reducing the time required to complete specific assignments.
As an example, purchase orders can be automatically generated based on current inventory levels, effectively minimizing the need for manual data entry.
Improved decision-making and data accuracy are also significant advantages of utilizing an ERP system. By integrating data from all departments into a single centralized database, these systems guarantee that all information is up-to-date and accurate.
It is crucial that business decisions be made based on actual data, and ERP solutions provide managers with access to real-time information that they can use to make informed decisions.
This not only enhances decision-making abilities but also minimizes errors, allowing businesses to maintain their competitive edge.
ERP systems serve as a centralized platform to facilitate information sharing, fostering collaboration and communication between disparate departments.
This becomes especially vital for companies operating in multiple locations as such a system enables the facile sharing of data and resources. By providing real-time access to data and business intelligence, it empowers teams to make informed decisions and work in tandem more efficiently.
Augmented customer service is another boon afforded by ERP systems, as businesses can rapidly and accurately access customer information, including order tracking, delivery status, and the history of customer interactions.
This data can then be utilized to expeditiously and proficiently resolve customer issues, augmenting customer satisfaction and loyalty.
The flexibility and scalability of ERP systems offer businesses an unprecedented opportunity to adapt to changing business requirements and scale their operations as necessary.
This is particularly beneficial for businesses that are witnessing rapid growth, as the system can be easily expanded to support new processes and operations.
Furthermore, cloud-based ERP systems provide a more malleable and scalable option for companies seeking to evade the costs and maintenance associated with on-premise systems.

Enterprise Resource Planning

Disadvantages of ERP

The core limitations of enterprise resource planning software include the following:

To create a custom report or query, managers need help from programmers, leading to delays in receiving data.
ERPs require a significant change in how a business manages its process. To ensure the success of the ERP solution, a company needs to digitize how it is organized.
ERP can be expensive to build, deploy, and maintain.
ERP can be difficult to implement, and its modules are less sophisticated than specialized ones.

Core Features of ERP Software

Some of the must-have features an Enterprise Resource Planning software should have are as follows:

Shared Database
Embedded Data Analytics
Data Visualization
Task Automation
Support for technologies like Artificial Intelligence (AI), Machine Learning (ML), IoT, RPA, etc.
Business Intelligence
Supply Chain, Inventory, Accounting, and Human Resources management
Consistent User Experience and User Interface (UX/UI)
Easy Data Sources, APIs, and Software Integration

What Business Functions can ERP Solution Optimize?

Enterprise Resource Planning software can optimize the following business processes:

Finance
Inventory Management
Production
Human Resources

Finance:

ERP systems can help businesses streamline their financial processes and improve their bottom line. Here are some of the ways ERP can optimize finance:

Automating accounting tasks: ERP software can automate accounting tasks such as billing, invoicing, and payment processing, which saves time and reduces errors for the finance team.
Centralizing financial data: It also provides a centralized database that stores financial data from different departments, allowing finance teams to access real-time information and make data-driven decisions.
Forecasting and budgeting: Businesses can create financial forecasts and budgets so that finance teams can plan for the future and make informed decisions using ERP systems.

Inventory Management:

ERP systems can help businesses optimize their inventory management and reduce costs. Here are some of the ways ERP can optimize inventory management:

Real-time inventory tracking: ERPs can track inventory in real-time, and give accurate information on their stock levels to businesses.
Demand forecasting: With ERP solutions, optimize recorded sales data to forecast future demand, optimize inventory levels, and avoid overstocking.
Supply chain management: Businesses can easily manage their entire supply chain, from purchasing to shipping, and have the right inventory levels at the right time through ERPs.

Production:

Enterprise resource planning (ERP) systems have proven to be a valuable asset in aiding businesses to refine their production and human resources processes, improving efficiency. ERP systems' capacity to optimize production is multi-faceted and comprises:

Manufacturing planning: ERP systems offer the benefit of a streamlined manufacturing process by automating manufacturing tasks such as scheduling and routing. This improvement in efficiency ultimately results in a reduced risk of errors and an overall optimization of the process.
Quality control: With the use of ERP systems, businesses can obtain detailed production data, enabling the tracking and identification of defects to be promptly addressed. Such quality control measures are essential in maintaining the high standards demanded by consumers and regulatory agencies.
Maintenance management: Implementing an ERP system can aid in managing and scheduling preventative maintenance and tracking equipment performance data. This approach reduces the risk of downtime and thus ensures a high level of productivity is maintained.

Human Resources:

ERP systems have also proven to be an essential tool for human resources management, improving the employee experience, and optimizing human resources processes.

ERP software is designed to manage employee data, from recruitment to retirement. This allows businesses to identify, develop, and retain top talent.

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ERP systems have the capability to streamline the management of payroll processes, resulting in increased compliance and decreased errors.

In addition, they offer businesses the ability to enhance employee productivity and engagement by facilitating the management of performance review processes through tracking and analyzing employee performance data, leading to valuable feedback.