No matter what the company size is, business automation software can deliver fantastic results and help to fight competitors. Enterprise resource planning (ERP) software is one of the most popular and sometimes controversial examples of such tools.
Today we will talk about the advantages and disadvantages of ERP, different types of solutions available on the market, and share practical advice on how to choose the software that will benefit your business.
Why is ERP Important?
ERP can become a crucial element of the business infrastructure due to its nature. Such systems are used to centralize the corporate information flows, provide management with the basis for the data-driven and thus more efficient decision-making, reduce costs, and increase revenues.
As can be seen, the list of potential improvements is extensive, which means that ERP deals with almost every aspect of the company's everyday life. Here are business processes that are affected by every ERP implementation project:
Customer Relationship Management (CRM)
Production Management and Control
Inventory and Warehouse Management
Analytics and Reporting
What types of ERP systems are available and most popular on the market?
Cloud ERP vs. on-premise ERP
Nowadays, there are two major types of ERP solutions companies worldwide can choose from on-premise software and cloud systems.
On-premise or on-prem software works locally within the corporate infrastructure. Thus, the company has full control over its data, implementation process, upgrades, and system development. This requires time and resources; however, it also gives a higher level of flexibility.
In turn, cloud ERP works in the cloud, meaning the corporate data is stored off-site. Cloud ERP providers have a reliable infrastructure and provide services to multiple customers simultaneously. They have more significant experience in maintaining an ERP; however, the cloud offerings are usually feature-limited and can't be customized to fit all the unique corporate business processes.
There are also private clouds, which allow remote data access and a high level of customization to the specific company's needs. In this case, the company has full control over where the data is stored and who can access this critical business information.
To choose the type of ERP implementation that will suit the particular company best, you need to evaluate the price of the license and direct and indirect costs, security risks, and regulatory requirements that sometimes restrict companies from storing customers' data on remote servers abroad, etc.
Advantages and Benefits of ERP Software Solutions
There are multiple advantages to having ERP in place. Here are the most notable ones:
Effective production planning
ERP system allows switching from a spreadsheet-based production planning performed by one person to automated calendar management and task assignments. Thus, productivity bottleneck is removed. Also, an ERP is a perfect solution for cost calculation and predictive analytics of the project's ROI before it is even sent to production.
Real-time data collection
One of the popular pain points that force companies to implement an ERP is having lots of business solutions generating disperse data. To effectively use this information, it should be collected in one place and updated in real-time. This is precisely what an ERP system provides to the business, thus allowing more informed and data-backed decisions.
360-Degree View of the company
Another problem that lots of companies face is getting a 360-degree view of the entire business. Suppose there are multiple departments or legal entities that can even be located abroad. In that case, it is hard to automate the business process for the specific entity or department and get an opportunity to analyze operations at a whole company level. With an ERP, all the meaningful data on sales, planning, customer service, production, distribution, accounting, HR, or multiple legal entities is available immediately. This makes it hard to overlook some vital business trends or events. Also, all branches can perform accounting in local currency, which makes the process easier.
More efficient reporting
One of the main consequences of the ERP implementation is that the company gets the correct and up to date data on the whole business, which is super-useful for reporting. ERP systems allow creating comprehensive reports to understand the specific department's performance or even a business-process and generate estimates and predictions based on past data. This is also useful for the most efficient quoting. The company can calculate the projected ROI for every lead and offer discounts and custom terms accordingly to keep the profits positive.
Enhanced collaboration within the company
When every department has its software and processes, it is hard to collaborate on complex projects that effectively involve multiple departments. Poor communication often leads to a lack of data at every stage of the project or business process execution. As a result, the overall efficiency will be on a low level. The ERP implementation allows all employees to stay on the same page and up to date for better results and faster progress.
Better productivity = higher ROI
Data is the new oil, thus having lots of data, reports, and estimates to fuel the decision-making process and finding bottlenecks in business processes inevitably leads to higher productivity. And the higher productivity is, the more effective the company is, and the higher the ROI.
Savings on operational costs
ERP systems eliminate lots of manual labor, saving money immediately, and providing higher data accuracy due to manual information entry. As a result, the business gets more accurate data, and employees can do more critical work saving time on manual labor.
Improved customer service and marketing
Excellent ERP systems always provide marketing and customer relations features. For example, custom pricing and offerings, or built-in CRM are features that any sound ERP system should offer out of the box. Also, ERPs are accumulating customer data, which allows better personalization.
The types of businesses that benefit the most from ERP
What are businesses that benefit from the ERP implementation? This is a popular question, and here is the list of industries where companies experience the most significant positive outcome from using such software:
Wholesale & Distribution
The list is not full. There are lots of companies from other industries that have implemented an ERP and achieved excellent results. For example, on our website, we have a section called Customer Stories, where we publish case studies on our ERP implementations. As can be seen, the list of customers includes manufacturers, production, construction companies, and service businesses and wholesalers.
Why You Should Invest in ERP Software
That said, we can outline the main benefits of investing in ERP software from the business point of view. You will get:
More efficient business processes. The nature of an ERP technology suggests that your company will become more efficient at every crucial business process like sales, resource planning, or production by using such a system.
Accurate data for analytics and decision-making. Eliminating manual work and automated data collection from multiple sources will give the management team a more solid basis for the decision-making process. You will have a detailed 360-degree view of the company, key metrics, and KPIs and run historical analysis and forecasting.
More money due to savings and higher ROI. ERP system will allow the company to save money on ineffective processes and maximize ROI, which will lead to higher earnings.
Happy customers and partners. Having an ERP system that helps manage inventory, production load, and warehouse will help provide better customer and partner service. There will be no situations when the customer purchases the out-of-stock product and has to wait. Orders will be processed in a fast and efficient way.
What can go wrong: ERP disadvantages
As with everything in the world, the ERP implementation project will have two sides. Despite multiple advantages, there will also be some complexities and potential problems that could limit the positive outcome of switching to a new solution. Here are some of them:
ERP implementation is usually costly
The implementation project will undoubtedly require investments, which could be significant if the company has an extensive infrastructure, size, employee count, and lots of business processes to automate. As a result, lots of SMB companies struggle to choose an ERP that will solve their tasks and not cost an arm and leg.
Post-implementation support and development is hard
If the company's primary business is not connected to IT and technology, and there are not that many engineers in the team, it might be hard to support the system, customize, and scale it. The only chance to avoid this is to choose an ERP that is customizable and easy to adjust from the beginning. Most cloud ERPs can't provide these features.
Integration can be tricky
If the company has lots of business software used by different departments, it is good to integrate them with ERP to get all the data in one place. This might be tricky, as not all business tools are designed with such integrations in mind, and there are ERPs with limited integration capabilities.
ERP selection criteria
To avoid problems during the implementation and post-implementation management and the development of an ERP, you'll have to put much effort into choosing the right solution at stage one.
Here is a checklist of things to do to get the system that will perfectly suit your business, deliver outstanding results, and help to achieve positive ROI:
Outline requirements first
You won't succeed without first setting up a list of requirements your future ERP system should meet. First of all, understand what functionality you will need, what business processes to automate, what data might be required during the implementation.
The great idea is to form an ERP implementation team combining representatives from the management departments whose employees will use the solution to solve this task. This team will need to assess the implementation time and costs and the time and cost of migration to the new system. An ERP implementation will require to deprecate some current IT systems and tools or replace some with new ones.
Assess the feature list
ERP is a solution that works at a whole business level. The tool should have sufficient functionality to solve all needed tasks in the company from the specific industry. Very often, ERP vendors tailor their systems to a narrow set of tasks or industry-specific business processes. This will limit the efficiency of the system is used in different conditions.
For example, in a production company, an ERP that lacks planning, cost calculation, technological processes implementation, and variance control will be practically useless.
To avoid the situation when the company purchases an ERP that can't deliver any good result, you will need to develop a list of features that should be implemented in a basic implementation. Also, try to find a system with all the necessary parts available out-of-the-box with no need to pay every time you need a new feature.
Evaluate scalability and flexibility
Scalability and flexibility are two crucial factors that you should assess before making the final decision. The first thing to think about is whether the solution will still be right for your company when it grows 2x or even 5x. Will the ERP become too costly? Will it scale in terms of efficiency, or will it become more complex to use? Managing 20 seats and 500 is different, and you need to understand whether the system will still be capable of delivering exemplary results if you grow.
If the system is not flexible enough, it may be hard to use even at your current company size. And if it is hard to use from the beginning, it will be utterly useless in the future. Friction associated with the implementation will also be very high. As a result, the effectiveness of the solution will be limited. So try to find an easy-to-use and flexible system that supports multiple use cases and platforms.
Don't overlook customization opportunities
Every company is unique. So, there is no ERP that will fit all your business processes and peculiarities for 100%. You will always want to change or add something, and there are two possible ways to solve this: live with what you have or customize the solution. The customization case can either be an enterprise feature with the corresponding pricing, or the tool can be customizable by its nature.
The latter will allow you to invest some resources and get a tool that will be perfectly tailored to your needs fast. As so, you should always assess the customization options at the beginning of your ERP shopping process.