What is an ERP and how does it work?

By: Martin McNicoll

 

Imagine flying high above everyone else and having a bird’s eye view of everything around you. Well, did you know that when it comes to managing business processes, it’s actually possible?

 

An ERP, or rather, Enterprise Resource Planning, is a software designed to provide a 360° view of all your core business processes. Of course that’s a very simplified definition, so let’s find out exactly what an ERP does and how it can be advantageous for your business.

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The evolution of the ERP platform has come a long way since its debut in 1913. Thanks to technological advances, it's no longer limited to paper. In modern day, an ERP is essentially a software that handles all the core functionalities of a company.

Integrating day-to-day activities such as financials, operations, inventory, and even human resources, it unifies all processes required by a business to run a company. Knowing which ERP vendor to implement is based on an organization’s size, budget, and goals.

The fall of brick and mortar has been advantageous to ERPs as businesses move to focus primarily on digitizing their processes. Many ERP platforms offer a cloud model, where users are able to log in anywhere and anytime as long as they have the internet.

It’s use is critical to organizations looking to collect information from multiple sources in a common database. As a software, an ERP can provide users with detailed analytics and reporting on each aspect of a company, whether it’s manufacturing or customer service. Its capacity for automation is a huge benefit for saving companies on time and money since previous structures relied on manual data entry.

An interesting fact regarding ERP systems is that their basic components are actually operating systems made up of multiple modules and applications that are carefully chosen by business executives to fit their industry and business challenges.

For example, a company selling products will invest in customizations that focus on inventory and order management; while a service-based company will require project management and professional services automation (PSA) modules.

An ERP system is designed to simplify the day-to-day operations of a business. However, it also provides an in-depth analysis of everything that occurs within a company. 

Let’s take a look at two different fictional companies to get a better understanding. 

Corporation A is a food and beverage company who distributes their products across North America. They’ve recently installed an ERP system to facilitate daily operations. As a result of their implementation, they’re able to examine reports outlining where their products are most popular, how much inventory they need, and track each retailers’ invoices.

On the other hand, Corporation B is a consulting company who specializes in Engineering-To-Order (ETO). Their employees often travel the country to consult on different projects. Without an ERP in place, everything from PSA to project management to expense reports are manually entered by each employee, with the only access available through the local office server. Reports missing, invoices lost, data inputted incorrectly - needless to say it’s a disaster waiting to happen.

For businesses with multiple systems to manage, an ERP is crucial to success and profitability. Its ability to highlight the current status of your business provides accurate data and automatically connects all information, used to consolidate important reports. There’s nothing quite like having access to clear and concise information for when you need it most.

What is an ERP system in accounting?

 

It’s long been assumed that an ERP is specifically designed for finance; however, it’s actually just a module of an ERP.

In terms of accounting, ERP Financials is the ideal solution. It centralizes all branches of accounting: financial accounting, subledger accounting, accounting hub, payables and receivables, revenue management, billing, grants, expense management - the list goes on.

Many ERPs also offer users with specific finance customizations. For example, if a business has multiple locations in different countries, it will prepare reports that take into consideration accounting standards and tax deductions based on each region.

We all love being spontaneous and letting the world decide what will happen next. Unfortunately, when it comes to business, without a plan in place, things are bound to go wrong.

An ERP system is a huge investment - financially and operationally - for an organization. It requires an implementation team, company engagement, and of course, the right vendor for your business. Once you have all these in place you can bet you’ll be successful in your outcome. 

So, what is included in an ERP strategy? It often depends on your organization’s targets and expectations. That being said, here are a few steps you can take in preparation for a successful implementation.

Identify IT Challenges:

Sit down with your IT team to consult whether or not your business can handle an upgraded system.

Manage Budget:

ERP is a big financial investment that requires a large budget to get started as well as the understanding you may go over the planned budget.

Outline Risks:

Always hope for the best, but prepare the worst. It’s crucial to lay out any potential risks and problems that may occur.

Prepare Your Team:

Define roles and responsibilities, objectives, and goals before moving forward. This will help you determine if you have bandwidth to advance on your implementation project.

What is an ERP vendor?

 

An ERP vendor is a company that specializes in and sells ERP software. Vendors are placed into three different categories: Tier 1, Tier 2, and Tier 3. Each tier offers distinct support, products and services, to learn which tier and vendor you should choose is summarized below.

A Tier 1 ERP vendor is at the top for good reason. Tier 1 ERP vendors, such as SAP, are for large multinational corporations. Tier 1 vendors can handle the database and operational processes required by a global conglomerate. Flexible, with a state-of-the-art design, these ERP vendors can be very costly.

Moving on down to Tier 2 ERP vendors, which include NetSuite, Acumatica, Salesforce, and Sage, are for small to medium-sized businesses. These vendors have lower annual license fees; however, their scope is scalable to rapid-growing companies.

The final category is Tier 3. These ERP vendors, like Inuit’s QuickBooks, are for small companies that don’t need much operational complexity. A Tier 3 vendor is perfect for businesses that only have one location or vertical due to its limitations and low cost of operations.

To be honest, an ERP will revolutionize your business, but as the saying goes, nothing is perfect. 

There are often hesitations when it comes to deciding on an ERP solution. The biggest one is most likely cost. Implementing ERP is a long-term investment. That being said, if you’re able to get company engagement, it’s worth the price tags in the long run. You can also take into account the different tiers available for you in order to find the right fit.

After decades, the collection of data is in the millions. It’s often the case that an ERP is incompatible with the current legacy system a business is using. With this case, a business must work with their IT team and database to uncover potential inconsistencies. This is necessary to avoid any additional costs and delays that could occur down the line.

Adopting an ERP is filled with complexities that can be scary to work with at the start: modules, customizations, exclusive features, and personalized dashboards. Providing adequate training to employees throughout the whole implementation process will help them feel at ease and become masters of the ERP.

Maintenance deters companies from letting go of their legacy systems. The beauty of an ERP is that when it comes to software maintenance, a ERP user doesn’t have to worry about it at all. The ERP vendor will upgrade and maintain the programming and software, which is included in the subscription fees. Before choosing your ERP partner, it’s advised to read through the contract to make sure maintenance is included.

Over the past few years, ERP systems have become lifesavers for rapidly-growing companies. Those who have capitalized on an ERP’s efficient processes have saved on time and money, without forfeiting quality. 

While legacy systems hold back businesses, an ERP is backstage waiting to reveal the nitty-gritty of an organization. With an ERP system, users can see the drill down of inventory levels, purchase orders, and customer transactions - all of which can be used to forecast future demand.

Additionally, you can say goodbye to uncertainty, as an ERP enhances communication and collaboration between team members. By accessing the information on an ERP, employees can easily make important decisions based on reports and data available across departments. 

As businesses strive to mark their territory, an ERP becomes their treasure trove of strategic forecasting thanks to elegant graphs, which outline historical, current, and future trends. 

 

While it may become a considerable monthly expense, an ERP can help you uncover the problems within your operations and provide you with valuable insight on improving your daily business activities. 

To learn more about ERP and how it can benefit your business, contact one of our specialists today.

Video Transcript for What is an ERP?

 

Hi everybody, my name is Martin McNicoll, CEO of GURUS, and today I will answer the question: “What is an ERP?”

ERP stands for Enterprise Resource Planning. As per Wikipedia, it is a management software that integrates the core business processes of a company.

So, what does that mean?

Your company has all these departments or functions:

  • Finance
  • Marketing and Sales
  • Professional Services Automation or Service Delivery
  • Warehouse and Inventory Management
  • Shipping and Payment
  • eCommerce
  • Product Planning, Purchasing
  • Manufacturing

Think about a centralized software with all your business activities in one place, making it easy for all of them to communicate and share information.

This software tracks all your business resources and facilitates information flow between all departments and manages connections to the outside world.

With an ERP, you get a 360° view of your business in real time, everybody working with the same data, increasing productivity and reducing errors.

With the arrival of cloud computing, ERP systems have become more accessible to businesses of all sizes.

NetSuite has the tools to help you comply with payment formats to complete your operations with banks around the world, no matter the currency or the time zone.

And the best part is, if you are an existing NetSuite customer, you can install this bundle for free.

Thank you for listening. For more information on cloud based ERP, click on the links below, or check out my book, Scale Up Your Business with Cloud Technology: A Practical Guide to Building a Future-Proof Enterprise.
 

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About Martin McNicoll

Martin McNicoll is one of North America’s gurus in the cloud technology space.
As SaaS and cloud solutions continue to transform the business landscape, Martin McNicoll has become a trusted thought leader, helping organizations virtualize their enterprise platforms. Martin guides organizations to focus on scalable core processes that can be integrated into web-based solutions rather than on-premise technology that will become obsolete.

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