What Is Enterprise Resource Planning or ERP?

December 5, 2023
Posted in Blog, ERP
December 5, 2023 Ken Jacobsen

What Is Enterprise Resource Planning or ERP?

For many enterprises, an Enterprise Resource Planning or ERP system is already the backbone of business success. In 2022, 60% of executives stated that digital transformation was their most important driver of growth, and that trend will only continue to expand. 

Still, some entrepreneurs hesitate to change their business operational solutions because they feel overwhelmed with the technical challenges involved.

If that’s you, you’re in the right place. Let’s talk about the benefits of ERP software and the challenges in picking the right one.


Understanding ERP and Its Benefits

In a nutshell, ERP refers to a business software suite for business process management and back-office automation. Think of it as a virtual representation of your operation, with components dedicated to finances, supply chain management, customer relationship management, job costing, service management and analytics.

These days, many modern ERPs include artificial intelligence (AI) and machine learning (ML) capabilities to enhance operations management. For example, AI assistants can help automate core business processes in different departments, analyze data patterns, prevent manual process errors and even power chatbots for employee training or customer relations. Depending on the way in which ML is embedded in the respective platform, they can also use historical data to continuously improve operational efficiency or adapt to user preferences.

While it’s easy to recognize the technical capabilities of a modern ERP platform, measuring their ROI can be a challenge. Here are some of the benefits to look for in a successful ERP implementation:

Cost savings: ERP software eliminates redundant and duplicate processes and therefore reduces labor expenses by providing a single source of truth.

Increased efficiency: Streamlined workflows and automated data sharing reduce errors like wrongly entered shipping addresses in order management.

Revenue optimization: Increased process visibility allows you to increase sales, identify cross-selling opportunities and match human resources to demand.

Financial accuracy: Real-time data sharing ensures accurate financial management, billing and auditing.

Enhanced decision making: System-wide data access and business analytics empower strategic and informed decisions across all departments.

Spot risks: Live data streams allow you to address issues in your supply chain or service offerings as they happen, not just after the yearly report.

Brand reputation: Consistent order delivery and customer satisfaction build brand loyalty and further trust in you as a reliable business partner.

Scalability: ERP systems facilitate future business growth through customizable features and extension capabilities.

Overall, ERP maximizes ROI by streamlining operations and reducing costs and errors while enlightening an organization with unified data and business intelligence for competitive decision making. While the initial implementation process requires an investment of staff time and capital, the long-term tangible and intangible benefits make an ERP system invaluable to the business.


ERP Deployment Models

Although the businesses are slowly but surely moving toward the cloud, you’ll still encounter various deployment choices for ERP systems, namely on-premise, hybrid and cloud solutions. If you’re still undecided which one to pick, here are some factors to consider.

On-Premise ERP Software

Your first instinct might be that cloud solutions are less secure and inconvenient, but on-premise solutions aren’t without their own faults. For one, they allow you to choose your own hardware, giving you more control over functionality and performance.

However, it should go without saying that these hardware options translate to higher long-term costs. Some enterprises may even find that they’ve boxed themselves in because their initial hardware investments can’t be updated as quickly or easily as a cloud solution.

An important factor to consider is the amount of on-premise support you’ll require. In-house solutions mostly require in-house IT staff, which means you’ll either have to hire technical support yourself or have to contract an outside consultant to do upgrades and keep your systems secure and backed up.

An on-premise solution may seem to also make you more independent of the internet because it will only need your internal network to function. However, businesses today are connected in multiple ways to the internet for email, banking and numerous other functions. Although your software is installed on a server in your office, you will still be dependent on the internet and vulnerable to security risks.  

An on-premise ERP application is a viable choice for businesses requiring direct access and control of their systems, but this does not come without a cost in money and operational flexibility. Still, you need to factor in system support, aging hardware, software update cycles, backups and security systems which still require a significant investment in staff, hardware and maintenance.

Cloud ERP Solutions

When we talk about cloud ERP solutions, we usually refer to a software license that gives you access to certain functionalities on a vendor’s servers. This setup has certain advantages, the first being acquisition cost. Where an on-premise ERP system can require a significant initial investment for hardware and software, cloud solutions cost you a subscription license fee usually based on users. Depending on your ERP vendor, even the fees may be staggered based on your needs.

Cloud solutions also translate to lower maintenance costs because the provider takes care of backups and software updates for you as part of the subscription. These costs are basically lower than on-premise solutions because they end up being shared by multiple companies that are all using the same software in the same data center.

Another factor to consider is your system’s scalability. With ERP cloud solutions, you can adjust your chosen modules, system settings and user counts simply by updating your subscription. That same change can require a hefty investment if you have to buy all your own servers and set them up yourself. And, if you need to reduce user, storage or system capabilities, all you have to do is update your subscription. With your own servers in house, you don’t have this flexibility. 

That said, the cloud doesn’t just have advantages. While it is possible to adjust software modules, users and services, some vendors don’t allow customization and access to ERP tables are restricted. So, if you already know that your business operations require an especially unique setup, you need to confirm your chosen ERP cloud solution allows for customization and configuration. 

In short, a cloud-based ERP can be a great solution for a small to midsize business trying to save on initial system costs or those with limited resources for technical support. For corporations with several branches, they can even contribute to streamlined processes and reduced downtime. However, If you are in an area with an unreliable internet connection, you might find cloud solutions limiting.

Hybrid ERP Solutions

It’s not fair to throw all hybrid ERP solutions in one basket because the term can apply to a wide range of setups. Maybe you simply want to outsource data storage without having to rely on a certain vendor’s servers. Maybe you choose to outsource one feature to a vendor’s server-based solution. Or maybe, you’re just trying to lower acquisition costs while maintaining a level of flexibility that the most prominent vendors don’t provide. 

The reasons for a hybrid solution can be incredibly diverse, which is why it’s hard to blindly recommend the entire category. As a rule, it’s worth looking into hybrid solutions if you notice that on-premise and cloud solutions don’t check all the boxes for you, whether that’s in compliance, setup flexibility or support.


Challenges and Weaknesses of ERP Software

No system is perfect, and given the amount of complexity of ERP solutions, it’s no wonder they come with certain weaknesses. Here are some technical and human factors to consider.

First, we can’t overstate the importance of a thorough needs assessment, scoping and estimating process. Even though cloud ERPs come at a lower price tag, you still have to consider costs for consulting, training, customization and data migration. 

Also, it’s important to account for the employees who end up working with the software, which can translate to additional training and change management. Besides these factors, you should also plan for enough time to migrate any legacy data into the new system.


Industry-Specific ERP Solutions

Some of the issues we’ve mentioned can be a result of the unique needs of your business and industry. After all, a manufacturing company has to track different processes than a mining enterprise. Most mainstream ERP solutions successfully cover the needs of countless businesses and industries, but you may also find that there is an ERP solution built specifically for your industry.

AIM Computer Solutions, for instance, offers a manufacturing solution optimized for automotive suppliers, and Dice Corporation has a system built specifically for the security industry. However, both of these software companies have decided it makes more sense to integrate to the Microsoft Dynamics ERP solutions that The TM Group represents instead of building their own accounting systems. In the past, many industry-specific solutions built their own accounting modules too, but this has changed quite a bit in the current age of cloud ERP.

Ultimately, the advantages you realize from solutions like these depend on your industry. In many cases, you’ll benefit from industry-specific features or possibly even product updates that help you keep up to date with industry trends or niche regulations. However, if you’re dealing with diverse lines of business, an industry-specific package can really limit your operations.


Data Privacy, ROI and Other Factors To Consider Before Choosing an ERP Solution

Pulling it all together, it’s clear that you’ll have to consider a range of factors before choosing a new ERP solution. 

To start, you should compare various solutions from several vendors, weighing the pros and cons of each to determine the best fit for your business needs, budget, IT resources and scalability needs. Data privacy, security and compliance consideration should certainly play into that decision. 

No matter which solution you pick, you should always have a few key project success indicators in mind, whether that’s project timing, implementation speed or cost savings. Some systems may not give you that room to breathe, so you should consider expected business developments from the start.

With all those technical questions out of the way, you also want to take a look at different vendors’ support commitments, integration capabilities and overall reputation. This will ensure your system and provider aligns with your business values and you’ll get the support you need. If the solution is delivered through a partner channel, like the Microsoft’s solutions that The TM Group represents are, you also have to make sure you chose the right implementation partner. Since the software is the same no matter what partner you use, the partner selection is just as important as the software selection.

Finally, it’s worth planning for internal feedback, system training and change management. These strategies will help you notice department-specific issues you may not be aware of and adjust your expectations based on employees’ technical knowledge and attitudes toward the new system.


Find Out What ERP Can Do for Your Business

ERPs can help you run a more effective and profitable business, whether that’s through optimizing your customer service, efficiency gains, risk management or cost savings. Still, it’s easy to get lost in the weeds when you’re researching all the options available and to align them with your strategic business objectives.

If you’re ready to change your business systems but are still undecided about the right solution, the TM Group can help.

Speak with an expert today to find out which ERP system may be right for you.


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