Since the invention of the first calculating frame around 3000 B.C., humanity has always been trying to get more data about the surrounding environment, better understand, and simplify processes for better efficiency. This trend has not ended and accelerated even further with the invention of the internet.
Nowadays, many software products help people become more efficient everywhere, from personal life to business. And speaking about the latter, ERP software is undoubtedly one of the most significant improvements in the last decades. Today we will talk about these tools, how you can use them, and what you should know about this technology.
What is ERP software
ERP stands for “Enterprise Resource Planning,” i.e., the management consolidation and organization of the business data using a single solution. Usually, ERP software consists of several modules each used for the automation of the specific business processes like production, sales quoting, accounting, and more.
Simply put, the ERP is used to analyze, optimize, and boost operations in every department. Here is a list of crucial modules every good ERP software should include:
Customer relationship management (CRM). The CRM module helps businesses to manage their customers, leads, and optimize sales processes. Basic CRM features of the ERP system usually include contact lists, comments, and a history of interactions with the specific customer. This allows companies to understand their customer base, run promotions, and adjust marketing based on the purchase history data.
Human Resources. This module deals with the whole employee list of the company. The Human Resources module of an ERP solution collects data on every employee, including payroll, vacations, etc. Automating such accounting and H.R. tasks usually lead to higher data accuracy and fewer mistakes due to manual data collection and management.
Financial management. Financial management-related modules are the core functionality of any ERP solution. For example, these modules can provide features for real-time revenue and ROI calculation and assessment based on sales data.
Sales. First, an ERP business solution should provide flexible features for working with corporate finances, including sales and invoicing. For example, 1C:ERP allows using multiple payment methods, including Cash, Electronic, and others (e.g., checks). Users can even use terms templates to quickly set payment terms for partners and customers with no need to define each payment term manually.
Inventory and supply chain management. For businesses that sell goods and manage their warehouses, inventory, and supply chain management are crucial. Planning demand peaks is essential to avoid situations when the company runs out of goods during high-demand spikes or has an over-filled warehouse when sales are low. Both cases lead to direct and indirect losses.
Procurement. Another important module of an ERP system is procurement. This module combines the functionality related to everything the company needs to buy and purchase to support its business processes and production.
Production planning and control. ERP software allows uploading the data on business and production processes, which then will automatically apply. This helps the company to ensure the sustainability and high quality of the production process.
Tax management and reporting. Tax management and reporting is a crucial part of any business. ERP systems are used to provide compliance with local regulations, automatically apply VAT withholdings, and more.
Types of ERP
There are also several types of ERP software:
On-premise ERP. Such solutions are deployed directly on the business' in-site devices. Companies of all kinds can use such implementations, but usually, on-premise ERP is something you can meet in medium and large enterprises.
Cloud-based ERP. Alternatively to the on-premise implementation, cloud-based ERPs are accessible via the internet.
Hybrid ERP. Some solutions combine cloud and on-premise functionality.
Open Source ERP. As always happens with open-source, these are systems that can be developed and changed to tailor the software to the company's needs better. Most often, such tools are used by companies with experienced software development teams.
Benefits of using ERP
The implementation of an ERP system allows the company to automate its vital business processes, and start to collect all business-related data in one place instead of having a dispersed toolbox of different apps and Excel files to use.
With ERP software, all the business processes become more transparent and predictable, which is good for more effective planning. This allows the management team to stay on top of the business' KPIs, understand what is going on in the company, what key metrics are, and how they evolve and make more informed decisions. Thus, it is easier to achieve a better growth pace.
How to choose an ERP
After we've talked about the types of ERP, key modules, and benefits, it is an excellent time to go through the things to analyze when choosing such a solution.
Before choosing the ERP system, it is crucial to analyze its functionality. Often such systems are tailored to specific types of business (services, wholesale & distribution, apparel, production, etc.) If you have a production company, you will need your ERP to provide production planning, cost-calculation, technological process control functions, and variance control for working with sophisticated goods.
A common mistake when choosing an ERP is overlooking its scalability. Some software products are excellent and affordable for small teams but become inefficient and costly once the business has grown up. To better understand the real scalability of the specific ERP, you will need to study its documentation carefully, talk to other users, and ask the developers to explain the pricing model that will apply once you need more features.
The best plan is to find the solution with all the necessary features out of the box with no additional costs for adding new features.
Not all ERPs are flexible enough to support the current business infrastructure and its unique business processes. Choosing such a system may lead to a situation when the company adjusts its business processes to fit into the ERP model. When the company has to adjust its processes to fit the ERP better, it can lose its unique competitive advantages. This will prevent the business from standing out from the crowd. The ERP should adapt to your business, not vice versa. This is the only way to get the most out of technology.
So, the more flexible the software is, the better the result will be. The better ways of using the system, the more extensive the list of the supported operating systems and database formats is. The system should also be able to integrate with other business applications to aggregate all the data in one place.
Also, chances are you will one day need to implement something that is not developed in the standard realization of the ERP. This should not be a problem as the good ERP systems nowadays provide customization opportunities like:
adding CAD/PDM connectors,
setting up custom dashboards and reports,
conducting multi-currency accounting,
supporting several processes within one solution (e.g., sales and services),
managing stocks in real-time.
Your business data is the company's asset, which should be secured. This is why you should choose an ERP that provides a high level of security. There should be an opportunity to set flexible access permissions, implement additional security measures like two-factor authentication, etc. If there is an option of using the ERP as a standalone implementation deployed in a corporate intranet or a private cloud, it is a plus as well.
Once you've understood the concept of an ERP system, it is easier to navigate through different systems, crucial modules, and things to analyze. If chosen right, an ERP software can deliver great results, giving you a 360 degrees view of the business and all critical KPIs. As a result, the whole company and each department will become more efficient.