For the uninitiated, the field of data management can be a hazy landscape of concepts obfuscated by corporate lingo and nebulous explanations. However, ERP systems are not as nebulous as they seem – they are simply advanced information management systems which can be configured to any process or combination of processes within a company including but not limited to accounting, human resources, and customer service.
What is an ERP and how does it work?
Enterprise Resource Planning (ERP) software is term used to denote the management and monitoring of business processes via the use of data aggregation technology. The acronym typically refers to specialized business software suites which share the same database and can be configured to interpret any chosen number of data sets.
An ERP system can employ various mathematical functions, artificial intelligence, and machine learning to provide accurate, up-to-date information relating to every aspect of a business’s operation. These highly advanced data management systems are invaluable to the numerous corporations who rely on them to streamline every company process imaginable.
While data management software has been used since the 1960s, ERPs as we know them today emerged in the early 1990s. Early iterations of ERP software were primarily used for tracking inventory and monitoring funds. The capabilities further developed to encompass processes relating to production and manufacturing.
Until the 1990’s, ERP system were only used to monitor processes that did not involve customer interaction. The development of the internet simplified contact with external parties, which therefore allowed ERPs to manage data from external sources with ease. The term ERP was originally coined by Garnter Publications in a 2000 article detailing the integration of real-time internet monitoring with business database software.
In a 2013 publication predicting potential industry developments in 2014, Garnter Publications introduced the concept of the “Postmodern ERP”, which is an ERP that utilizes interchangeable cloud-based applications. Such cloud-based ERP variants are predicted to replace “legacy” ERP systems which consist of interconnected parts heavily reliant on one another. Newer iterations of ERP consist of a core system that utilizes specialized software suites for specialized tasks that can be exchanged when necessary.
What is an ERP system used for?
Simply put, ERP systems are used to manage information. The structure of an ERP revolves around a schema that works in place of isolated databases. This allows existing company information to be able to constantly adapt to new data.
As stated before, the latest versions of ERP systems consist of a core module finely tuned to a corporation’s specifications which can be configured to interact with specialized interchangeable software applications, all of which draw from the same dataset.
Functions separate from the “core” ERP system are grouped into modules. This means that processes related to accounting, human resources, project management, supply chain management, manufacturing, management, customer relations, and anything else a corporation may want to monitor are interacted with via specialized software that operates “on top” of the core system.
As an example, consider a company that is selling clothing. If a given jacket is listed under different names in different databases, monitoring the jacket’s sales and changes in its name or materials can be an exhaustive process if each relevant database must be manually updated when a change is made to the product. If the jacket’s name is changed, all databases containing the old name of the jacket would have to be revised.
When a central database is used, changes to the jacket are subsequently updated in all modules of the ERP, greatly reducing the potential of human error. Therefore, if the name of the jacket was changed in one module, it would instantly be changed in others. Changes to the jacket’s manufacturing processes would be reflected in the company’s supply manufacturing databases. Since changes to the manufacturing process would likely reflect in the jacket’s budget, those costs would then be altered in the company’s accounting modules. This is the essence of ERP systems: up-to-date data analytics based on real time changes managed by automatic processes.
There are many benefits of ERP and trends that are starting to come to the surface. So, now that you have a better idea of how ERPs work, you may find yourself asking how they can help your company. The data management capabilities of ERP systems have far-reaching benefits, including but not limited to:
Vastly Improved Efficiency
Because all data entered into an ERP is updated in real time, there is no need to expend precious time manually updating databases. No matter what data sets are being analyzed, changes are updated instantly, thereby reducing wait periods for all attached processes.
Due to its use of software modules, ERP systems can be finely tuned to capture data in an infinite variety of contexts. Each software module can be used by itself or in conjunction with any number of other modules.
The complete interactivity of data within an ERP means that all approved parties can readily access the data they need with utmost confidence that it captures the bigger picture. For example, executives who are looking at inventory levels will not only be informed on current stock levels, but they will also include details on stock on incoming and outgoing stock. This allows them to make informed decisions which will bode well for future developments.
Real-Time Customized Reporting
The wonders of a central data set mean that instant data reporting is executed without any hassles. Reports can be conducted on any given company process. Modern ERP software suites often include business intelligence modules which can identify a company’s strengths and weaknesses and provide accurate advice on process management.
Communication between different business departments is vital. When all business processes are interlinked, collaborations between departments is naturally supported. After one department makes a change, others will be notified without the need to send e-mails or enter data manually. Traditional databases can make collaboration a logistical nightmare, but even human interaction can be streamlined with the ideal software configuration.
ERP solutions are often employed by business who are rapidly growing. ERPs are capable of seamlessly accommodating long-term exponential growth by design. As a business expands, software modules can be added and connected to monitor processes relevant to changes that need to be made.
With so many processes regulated by ERP systems, business personnel can focus on customer interaction and fulfillment rather than data entry. Processes related to human interaction can also be monitored. Because client information is also stored in the same real-time database that aggregates other business processes, support personnel have immediate access to clientele records in the event of a crisis.
Corporations large and small struggle with fluidly responding to changes in industry regulation. With the right configuration, ERP systems can provide immediate changes in protocol by changing the relevant processes and notifying the personnel who manage them.
A Step Ahead of the Competition
Despite the initial time and money investment involved in ERP implementation, the competitive advantage is priceless. While ERP systems are quickly becoming staple of almost every company, there are still many business which use older methods. Streamlined processes give your company a leg up. Even if your competitors already use ERP systems, more customization instantly translates to more advantages.
4 key features of ERP systems
Common Data Set and Specialized Modules
This is the “core” of an ERP system. All modern ERPs use the same dataset. Different software modules are then “attached” to the database, and changes made within each modules are reflected in the other modules as well as the core database.
There is no need to for manual data entry every time a change is made in an ERP. When a process is altered, changes are instantly reflected in other software modules.
Redundant processes can eliminated or automated with the use of artificial intelligence. Even without the use of artificial intelligence, the very nature of ERPs real-time data aggregation begets automation.
ERP software solutions typically employ the same user interface design across different modules. While different modules may use slightly different colors and layouts, the UI is designed such that interaction with one module will allow a user to intuitively understand the others.
Types of ERP systems
A cloud ERP system works like a standard ERP, except that it uses modules and databases hosted on the cloud rather than on business premises. This means that access to the ERP is not limited to those who are on company property – employees can make changes anytime and anywhere.
Due to their ease of implementation and low cost, Cloud ERP systems are resigning in popularity. Cloud systems are particularly modular their components are designed with loose coupling (as little reliance on other processes as possible) in mind. Additionally, companies who use cloud hosting for their ERP only pay for the resources they use. Spikes in resource usage can be instantly accommodated since hosting resources are not confined to however many many data centers a business may be using or the hardware they are limited to.
As the name implies, On-Premise ERP systems are stored and managed only on company property. This provides much more security and control over company data for a substantially higher upfront costs, as the business must purchase database infrastructure upfront and employ the relevant personnel instead of only paying monthly fees. While complete control of data can be a great advantage, successful implementation and regulation is dependent on the competence of the company it is employed by.
A hybrid ERP uses cloud software hosted on private servers. This means that the data can be accessed anytime and anywhere, but its databases are operated by the company itself rather than an independently contracted third party. Hybrid systems provide the tight data security of private ownership with the instant connectivity of cloud systems. Like any other ERP that utilizes private ownership, emphasis on owner competence is emphasized.
Is SAP an ERP system?
SAP (Systems, Applications & Products in Data Processing) is the name of a business management company and its eponymous business management software suite. SAP is an ERP system, as its selling point is the many software modules it utilizes for business management ((all of which operate from the same database). It is currently the most popular ERP solution in the world along with Oracle’s ERP cloud.
SAP software is known for its powerful human resources analytics, while Oracle ERP cloud’s strengths shine in financial management capabilities. Both systems provide on-premises and cloud implementation options.
ERP implementation: The 5 major steps
Before anything is set in stone, the company must first decide why they need an ERP system and which data sets they wish to capture. Meetings must be held between upper management, department heads, and database managers to understand exactly what will be tracked and how to go about integrating isolated database into a central module which will serve as the backbone of future software modules. Future implementation costs are also estimated.
After the relevant specialists are assembled, development begins. Data is imported and personnel are trained on understanding and using the future ERP. Documentation regarding changes are also maintained.
Before the ERP system is official integrated into daily company processes, it is thoroughly tested. The deeply interconnected nature of ERP systems means that a single mistake will cascade into all systems and data sets, so even small mistakes can be disastrous. Various tests are run through a demonstrative ERP system before the final version is implemented.
Before deployment, the project team will make a final decision. After all parties agree to release the ERP, all previous business practices that are now managed by the ERP are discarded. Newly trained personnel are notified of the switch to ERP so they know to put their training into practice.
5. Maintenance and support
As any business knows, a project’s lifespan does not end at implementation. Managing an ERP can take just as much, if not more resources in the long term than planning it in the first place! Personnel must be continuously informed on software updates and changes in industry regulations. Additionally, businesses must keep tabs on the time, money, and resources maintaining the ERP consumes while they operate it. Luckily, an ERP can manage these processes as well!
Real-time data management is the future of business management and analytics – and by extension the future of profit and revenue. Without a doubt, an ERP system can give your company a competitive edge by saving time and money in as many ways as it can manage data.