Enterprise resource planning (ERP) is a suite of integrated applications that a company uses to connect its business activities across departments so that everyone is working with the same data and processes. Companies can use it to streamline and improve the efficiency of their operations, which saves time and money. In the course of implementing ERP, companies can also standardize and automate many business processes, which eliminates manual time and effort.
The ERP tools that a company selects often depend upon the specific business processes it wants to improve, and also upon whether it is selling products or services. Businesses that sell products often have manufacturing, supply chain and distribution functions that the ERP system must address. For organizations that sell services, ERP capabilities such as project management for service engagements and support for field services and sales operations are very important.
Common ERP software components
Despite the wide variability in company needs for ERP, there is a core set of ERP components that most companies want:
Companies want to record, track and consolidate all of their sales and operational information in a central accounting system. ERP financial software delivers this capability with centralized general ledger, accounts receivable, accounts payable and payroll systems.
ERP offers a centralized HR system that enables organizations to track personnel hours and employee performance evaluations across the organization, as well as administer benefits and manage talent and staff development.
ERP purchasing software streamlines the procurement process from purchase-order issuance and vendor management to payments and reporting. ERP purchasing software also has the ability to automatically route approvals of purchase orders and payments to the appropriate corporate decision makers.
Organizations increasingly want data analytics that enable them to assess and act on information about the business. To facilitate this, ERP vendors provide pre-designed reports that companies use to assess business sales and operations, along with the ability to perform data mining and to develop custom reporting.
Customer relationship management
The ERP CRM application is a centralized repository of customer information that customer-facing organizations across the company can use and access. It includes information about company interactions with prospects, customers, clients and partners, and can track all of these interactions across marketing, sales, service and any other customer-facing department. ERP CRM includes sales force reporting, tracking and automation, marketing, service and support.
ERP software for product-oriented companies
While the below components are still core to ERP, they cater more to companies with specific needs, such as product-oriented companies.
An ERP system that encompasses not only the company's internal operations, but the operations of supply chain business partners and suppliers in the production of goods from raw materials, inventory and supplies gives companies much-needed visibility into their manufacturing processes.
ERP distribution and warehousing systems employ automation that enables the company's customer-facing sales force to link customer quotes and orders directly into back-office inventory management, fulfillment and accounting systems. This ensures that orders are filled in a timely manner. Many ERP distribution systems also include comprehensive warehouse management functions that ensure that inventory in warehouses is optimized to meet the company's supply chain requirements.
An inventory management system optimizes inventory stocking and consumption and provides for both manual and automatic inventory forecasting. Companies can set order policies for individual parts and assemblies. The software also issues reports on inventory exception and potential oversupply conditions, and has the ability to track inventory across multiple locations.
Implementing ERP for service management and one-off projects
Other types of companies that need ERP are service management and one-off project companies. There are core components that focus on these traits as well.
One-off project management
Comprehensive project management that includes multilevel work breakdown structures for projects, project resource scheduling and bid and contract management are available in ERP project management software. This software also gives visibility into all resources being consumed in the project (e.g., assets, inventory, materials and labor), and it enables accurate and timely billing of project costs throughout the project's lifecycle. Companies can track project profitability and control margins as a project is being performed, enabling managers to fine-tune project performance and ensure that key performance indicators are met.
Service management ERP offers optimization, tracking and management of professional services, and is often used by professional service organizations and companies with billable field service functions. This software can also evaluate customer satisfaction levels and service-level agreement, warranty and contract performance.
How ERP software is sold
Companies can purchase ERP software as a comprehensive suite or as a smaller suite that might encompass only financial systems or only financial and manufacturing systems. Companies can also purchase a total ERP system that is specifically designed to meet the needs of a particular industry vertical, like construction or the food and beverage industry.
ERP is also offered in different implementation styles. A company can buy ERP software that corporate IT runs on-premises in the company data center. Alternatively, a company can subscribe to ERP that's run as a service in the vendor's cloud or it can opt to have an ERP system that the vendor or a partner hosts, but that corporate IT has some control over. In other cases, companies adopt a "hybrid" approach to ERP, electing to have some systems in-house and others in the cloud.
What companies want from ERP today
Because the ERP system offers a single repository for company-wide data that is accessible to everyone, the risks associated with working with disparate systems and data -- like the potential for error or duplicating business functions in different departments -- can be reduced.
Large enterprises in particular have many different systems that have been independently installed by departments -- and they want to implement a single ERP system that takes the place of these earlier systems and that can also get rid of the operational inefficiencies and time delays that have developed through the years.
Mid-sized companies want these advantages, too -- but they also want a way to level the playing field with their larger enterprise competitors. These companies may want to select an ERP system that can be scaled out to cover more organization business processes as a company grows.
With cloud-based ERP offerings, even small companies can afford an ERP system that instantly brings more efficient business processes into their organizations, which often lack the internal resources or expertise to institute the software.
Finally, many large-, medium- and small-sized companies look for ERP that is specialized to the needs and requirements of their particular industries. There are several ERP vendors that provide this industry vertical specialization.
The challenges of implementing ERP
The challenge for companies implementing ERP software is to choose a system from among the wide variety of options in the marketplace that best matches their business needs and user expectations.
An ERP system must fit well with the company's existing operations and systems -- and it must also be able to deliver on key performance and profitability goals that the company's existing systems can't deliver on. This is a tall order -- and it is also the reason why ERP has a higher failure rate than any other software. It can be a career-ending project for many managers if an ERP installation doesn't go well.
For an ERP decision maker, whether it is an internal ERP champion/user, a CFO, a COO, a VP of manufacturing or someone else, this means that it is important to find an ERP partner that is as capable of working with you on system installation, integration, consultation, training and support as it is in delivering a new ERP system.
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