What is ERP software?
The key to understanding ERP software is to think “integration.” ERP software links systems across an enterprise to streamline workflow, share information among different departments, and provide insight into a business’s operations.
An ERP system does away with each department using its own software to do its work (human resources software to track employees, accounting software to pay bills, spreadsheets to track inventory, etc.). Instead, an ERP system stores all company data in a single, relational database. Employees input the data and access it via modules designed specifically for each functional area.
Examples of ERP Modules
Storing all of a company’s data in a single, relational database makes it possible to write queries and generate reports that give business leaders a sense of how the company is doing and where they can make business process improvements to save money and increase profits. A single database makes a complete set of data available to everyone for a holistic view of a company’s performance.
ERP software is used by companies in many different industries. However, manufacturing companies are particularly well-suited to ERP systems because the various pieces of the order fulfillment process are connected, making it easier to track orders and coordinate manufacturing, warehouse and shipping functions, especially among different locations. Retail chains and third party logistics providers are also examples of companies that use ERP systems to manage their businesses.
If a company has fairly complex business operations, it may decide to purchase individual modules and deploy them to specific departments instead of attempting a large-scale, all-or-nothing implementation. A less complex business with straightforward business processes would have an easier time implementing a complete ERP system company-wide.
The idea is to help businesses operate more smoothly and provide better customer service than they can with individual systems that are isolated from the rest of the organization.
Does a company need ERP software?
A company doesn’t need ERP software to be successful; however, it will force an organization to improve its business processes which can lead to cost savings and increased profit margins. To successfully implement an ERP system, a company must understand why it needs one in the first place and how it will use such a system to improve its operations. An ERP project can take on a life of its own without thoughtful consideration and careful planning. Here are the pros and cons to weigh when deciding if an ERP system is worth the investment:
The benefits of ERP software
- It helps businesses improve internal processes.
- It integrates systems from different functional areas, making business operations more efficient.
- Some ERP systems can automate parts of the manufacturing process, which allows organizations to introduce standards that increase productivity, save time and reduce staffing requirements.
- Increased visibility of the order fulfillment process from beginning to end helps reduce work-in-progress inventory and finished goods inventory.
- ERP software can be used to manage employee information across multiple business units, making it easier to track years of service and eligibility for benefits and services.
- Many businesses can purchase ERP software packages tailored to the specific needs of their industry.
- Data to support Key Performance Indicators (KPIs) are easily accessible.
The drawbacks of ERP systems
- They are expensive. Deployment at a mid-market company can cost hundreds of thousands of dollars whereas an implementation at a large corporation can cost millions. The more employees using the system, the more expensive it is. Moreover, the project budget must account for consultants, testing, training, maintenance, upgrades and other associated costs, not just the cost of the software itself.
- Training employees to use the new system can be an enormous undertaking and require considerable resources. CIO.com says that training is the most underestimated budget item and recommends a company double or triple its initial estimate.
- They can require a huge amount of time and work to implement; it can take anywhere from 1-3 years to complete an on-site implementation.
What role does IT play in rolling out an ERP system?
IT must be ready to spearhead the effort when the company executives give the go-ahead. Rolling out an ERP system is such a massive undertaking, especially at the enterprise level, that workers from across the organization must be involved to provide input on requirements, functionality and usability. But, as you know, IT workers are the ones who must handle the technical side of the implementation, and that requires a lot of research, planning and testing. As with any big software acquisition, IT plays a pivotal role in the project’s success or failure. When planning for an ERP roll-out, IT should get ready for:
- Vetting vendors
- Providing estimates of the time and resources required to deploy the new system
- Decommissioning old systems
- Acquiring new hardware and other necessary equipment
- Working with consultants to execute the project plan
- Cleansing and migrating data
- Simulating the user load in a test environment
- Validating the new system using test scripts, conducting audits and meeting any other regulatory requirements, and
- Learning how to manage and maintain the new system.
ERP software requires enormous computing power, RAM and storage, as you might imagine. Therefore, hardware upgrades are likely to be a big part of the implementation. The check list includes an application server, database server, data backup equipment, a UPS, antivirus and firewall, at a minimum.
What are the current trends in the ERP software market?
The enterprise software industry is moving away from large-scale, complicated and expensive systems toward ERP solutions that are less costly, offer greater flexibility and are more user-friendly. One type of solution gaining momentum in the marketplace is cloud-based, software-as-a-service ERP.
The software-as-a-service (SaaS) delivery method is popular because it addresses several of the challenges inherent in big ERP roll-outs. A cloud-based ERP system can be up and running much more quickly because there is no software to install on-site; the software can be updated more easily and more often because it’s managed by the vendor; and it’s much cheaper because it’s billed on a subscription basis.
Infor is one example. Infor is a provider of industry-specific enterprise software including ERP applications and now offers its Infor10 Business Cloud via Amazon Web Services. The company touts quick deployments, scalability and easily configured test environments for customized applications as advantages to the as-a-service model.
ERP is not right for every business; however, companies struggling to overcome the limitations of information silos within their organizations can benefit from migrating to an ERP system. ERP implementation can be a boon to an organization as long as careful planning is part of the process.