July 31, 2021

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Enterprise Resource Planning (ERP)

Enterprise Resource Planning (ERP)

Overview

ERP system is a term that encompasses a whole range of tools. The abbreviation stands for Enterprise Resource Planning. When it comes to a small company that can be handled by a small team of professionals, there is no need to think about Enterprise Resource Planning (ERP). A manufacturer that makes several dozen or even hundreds of items that require a huge number of components, with a staff of more than several hundred people needs a completely different system.

Enterprise Resource Planning (ERP) system is a software solution that creates an automated system for managing an enterprise’s activities, including storing and processing large amounts of information and combining all information resources into a single database. Having access to all the information and analytics in one place contributes to a more effective distribution of resources, as well as making the most informed management decisions.

Good planning for a large business is an important element of successful work. Every enterprise has a database that stores all information about the ongoing processes. However, the ERP system with its modules for planning and optimizing all resources, including finances, time, inventory, and so on is fundamentally different from simple information storage.

Enterprise Resource Planning (ERP)

In other words, the ERP system always operates with the most relevant information. It is able to analyze the current situation and make informed decisions, which it communicates to the staff. However, why introduce this system, if among production processes everything that is possible is already automated: personnel management, accounting, inventory, etc.?

The fact is that the work of the ERP system is not limited to any particular area or division of the enterprise. It is a business-wide automation tool that allows you to link all individual processes into a single center based on a powerful software platform.

The integrated management system unites everything that happens in production into one system. Thanks to this, less time is needed to search and use information. ERP system is able to cover the maximum number of functions of the enterprise. Read on to find out all the advantages of this IT solution and when it might not be the best option for your business.

Purpose

The goal of deploying any Enterprise Resource Planning is to optimize the costs and resources of the organization. To achieve it, this system is used to create a common space for the interaction of all the business processes, configure the exchange of data, make access simple, understandable, etc. It sets uniform standards for processes in production and the work of remote departments and employees and makes it much easier to determine their effectiveness.

The successful implementation helps to abandon the transfer of information dependent on the human factor. The mission of ERP is to help the enterprise avoid delays, downtime, and errors, which arise if the company is not one, whole system of interconnected processes. It allows to meet the deadlines for delivery contracts, the warehouse does not accumulate excess inventory for “just in case”, and so on. Among other tasks that the implementation of the Enterprise Resource Planning (ERP) systems helps with we can name the following:

  • management of all the company’s resources, and not their individual blocks;
  • creation of a company-wide information environment and database for the integration of tasks for all departments;
  • effective, well-grounded planning of the enterprise, which allows you to develop your business, grow your customer base, and increase profits;
  • management of financial flows through optimized accounting (including tax accounting), minimizing the time required to prepare reports;
  • automation of workflow and optimization of the speed of access to data;
  • organized, transparent budgeting at all levels;
  • transparent control of the work of remote units, departments, employees;
  • transparent management of inventory, production, personnel, and other processes in the company based on reliable and complete data.

Shortcomings

Noting only the positive aspects of the automation system can give the reader the wrong picture. Thus, we want to point out that the ERP systems are not perfect and have a number of disadvantages. In particular, implementation takes a long time and is expensive. Management is forced to consider spending money and resources on automation as a strategic investment that will begin to pay off in 2-3 years.

There are also less significant disadvantages:

  • Several people will have to be trained to interact with the program.
  • The solution must be high quality to withstand challenging working conditions.
  • Systems that are integrated into the ERP must work quickly and reliably.
  • You need a reliable security system to protect the information, especially when it comes to accessing important documents from remote departments online.

All these points bring us back to the cost of the project, more precisely, the purchase and maintenance of the solution. Nonetheless, for larger enterprises, such systems are a smart investment that soon starts to help the company bring in even more profits.

Does my business need an ERP system?

Now, all spheres of business are actively developing, therefore, almost every enterprise sooner or later faces the need to implement a solution that will help optimize some part of the company’s work. This is required in order to remain a competitive company and reduce the resources that are used in operations.

As we mentioned above, the implementation of an ERP system is most often required for large enterprises with a complex production process, a large range of products, and a wide network. In this case, the acquirement of the system is reasonable in the long term perspective due to more competent resource planning and accurate business management. Here are a few signs that can tell you it’s time to change the system you have:

  • Employees have to spend a lot of time on routine and simple tasks that are easy to automate.
  • It is difficult to obtain relevant information in order to make urgent decisions.
  • Too many different products and a project that cannot be combined into one and information cannot be transferred from one software to another.
  • There is no objective and timely data on the balances in warehouses, the movement of finances, goods, etc.
  • You cannot study and analyze reports outside the office, only from a specific computer at the workplace.
  • Accounting documents are prepared for a very long time.
  • All sales and communication with customers, in general, are complicated and ineffective.
  • It is difficult for departments to interact with each other.
  • There is no suitable level of control over the actions of personnel.

To be sure that implementation is necessary, it is worth conducting a more thorough analysis of the company and what will change with the Enterprise Resource Planning (ERP) introduction. Keep in mind that given the high cost and complexity of ERP system implementation, ERP automation in small and medium-sized businesses is considered impractical. Such a large-scale decision can, on the contrary, slow down the processes and lead to unjustified losses.

Enterprise Resource Planning (ERP)

Choosing an ERP system

Where can I get an ERP system for my business? There are two ways to get the software that will help you plan your resources.

  • Buy a ready-made platform. If you make the right choice and order additional customization, you will get a typical software, which can perfectly complete all the required tasks. –
  • Order development by professionals. It is more expensive, but there is a possibility of getting a result that will be completely adjusted to the wishes and needs of your business. However, there is a risk of getting a poor-quality product at a very high price if you do not find a great development team.

The IT market offers numerous options for the Enterprise Resource Planning (ERP) systems. You can find a solution from developers such as SAP, Microsoft, Oracle, PeopleSoft, and Sage. Going with a well-known company, you can be confident in a well-defined production planning algorithm and a great deal of practical experience in product development. These can be used in enterprises of any sphere. The disadvantages include the high cost of the system.

It is important to understand that installing the ERP system is always a laborious task. When choosing a company, you need to take into account what professional services the developer provides: technical support, software updates, employee training, etc.

When choosing a product for your business, it is also helpful to know the different options available on the market. You can go for an on-premises system or find a great cloud-based solution. The biggest difference is how they are deployed. The first one is installed locally on your own hardware. Accordingly, you will need IT staff on your team to manage the whole system. With the cloud-based software, the vendor has the software installed on its servers and you access it online. In this case, everything related to the software and hardware maintenance and updates is taken care of by the vendor.

When making this important decision, consider that on-premise solutions require huge investments to purchase and manage the software and hardware. This includes not only the initial acquirement but also large spendings on management and maintenance, including hiring and possibly training IT personnel, on an ongoing basis. With cloud-based ERP, the initial costs are significantly lower. The provider will bear the costs of hosting and maintaining the infrastructure.

There are numerous other advantages to choosing to go with the cloud solution. For instance, if your software needs to be updated, the update will be done without any effort from your side. In addition, you will always know how much this system will cost you, with no unexpected maintenance costs. If your business grows, you can add new features much easier. The key advantages of the on-premises option are greater security and customization possibilities.

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Author: Charles Lutwidge

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