It’s really challenging to answers all those questions in one articles. Here, I take this opportunity to explain ERP. ERP is acronym for Enterprise Resource Planning (ERP).
Enterprise resource planning (ERP) is an integrated software application that standardizes and streamlines business processes to improve productivity and efficiency, improve internal and external communication, offers easy access to information to make business decisions. It integrates business processes across all business functions, including accounting, finance, human resources, purchasing & procurement, distribution, manufacturing, warehousing, inventory management, sales, and other departments. Enterprise Resource Planning (ERP) systems operate on an integrated software platform using standard data definitions working on a single database.
ERPs were designed and leveraged by manufacturing companies to drive operational efficiencies. All industries, including Wholesales and Distribution Industry, Retailers, B2B and B2C eCommerce, service industries, education, hospitality, health care, financial services, and government have adapted and leveraged ERP concepts to streamline and integrate business processes to stay competitive.
The initial steps to integrate business processes with technology started in the 60s with Inventory Control (IC) applications. These early applications were developed in COBOL or Fortran (Two primary computer languages). The applications used technology to identify requirements and set targets, providing replenishment techniques and options, Monitoring item usage, Reconciling balances, and Status reporting.
The 1970s saw the advent of Material Requirements Planning (MRP) applications. The planning engines used the manually created Master Production Schedule (MPS) as one of the MRP inputs. The Bill of Materials and Inventory Records are inputs to MRP. MRP used these inputs to schedule Production orders and Raw material purchase requisitions.
By the late 80s, Vendors were expanding the MRP applications to include other business areas like Financials, HRMS, Order Fulfillment, and Procurement. In 1990, the global consulting firm Gartner coined the term Enterprise Resource Planning (ERP) to describe a slew of applications that integrated the end to end business processes in an organization.
Over the next two decades, the scope of ERP expanded to cover other business areas, including Supply Chain Planning, Project Management, Customer Relationship Management, and Warehousing, to name a few. This phase of ERP evolution has been termed as Extended ERP, ERP II, etc.
From the early 90s till about 2010, ERP followed an On-premise model where the customer owned the infrastructure that hosted ERP. From around the first decade of the 2000s, aided by advancements in technology and the broad adoption of the Internet, more and more customers are adopting Cloud ERP. In Cloud ERP model, the ERP is hosted on a Data Center owned by a third party vendor or Data Centre.
The customer users connect to the ERP through the Internet. The benefits to customers include Reduction in infrastructure costs, Reduction in resources, and resource costs. World-class security, Automated version/application upgrades, Latest technological developments.
This is where most of the ERP market is today. However, the unrelenting force of technology innovation has seen ERP adapting and evolving. The newer versions of ERP, called ‘Post-Modern ERP’ (term technology like Artificial Intelligence, Machine Learning, and Blockchain. Customers are moving to Digital Transformation, of which ERP is the backbone application.
ERP (Enterprise Resource Planning) concepts and technology are constantly evolving and driving innovations. The newer versions of ERP, called ‘Post-Modern ERP’ or “Next Generation ERP” (term technology like Artificial Intelligence, Machine Learning, and Blockchain). Customers are moving to Digital Transformation, of which ERP is the backbone application. This is where we are now. As the world of technology is evolving, this is the right time for Organizations to jump into the technology bandwagon by investing in the most stable technology of all, ERP.
We can categorize ERP Cost into Fixed costs, Running costs, Hidden costs,
Maintain ERP Infrastructure. Applicable in case of On-premise / Hybrid ERP
This is the cost of the Product paid to the product vendor, customarily calculated based on the number of users.
This is the one-time implementation costs paid to the System Integrator who helps to implement ERP
We can categorize ERP Software into two groups, as shown in the diagram below.
The customer maintains the ERP server on their premises. The customer has an elaborate team to support ERP Infrastructure and Applications.
In this model, the ERP application is hosted on a third party server like AWS, Microsoft Azure, or the infrastructure provided by the ERP Vendor. The Cloud Service Provider maintains the application, and the customer has a lean team to oversee the IT requirements.
Cloud ERP is classified as SaaS (Software as a Service) or PaaS (Platform as a Service). Latter is used in case a customer has many customizations to the ERP application to handle unique business processes.
Despite the comprehensive data security provided by Cloud Vendors, many customers are hesitant to move their critical data completely to Cloud. Besides, many customers are still not clear about the benefits offered by Cloud. Finally, some customers have made investments in On-premise ERP, and they would like to gradually transition to Cloud.
However, they want to leverage benefits offered by Cloud ERP. As a via media, they want to move some of the non-operational data like HR data to Cloud. This combination of using both On-premise and Cloud is termed as Hybrid ERP.
Tier I ERPs support large multi-billion $ global enterprises and handle all internationalization issues, including currency, language, alphabet, postal code, accounting rules, etc. For years, Oracle and SAP were considered Tier I. Now, many ERP companies including Ximple ERP companies offers these functionalities with lower cost of ownership. Newer technologies gives young and innovative ERP solution provider opportunity to compete with old legacy companies.
Tier II ERPs support large to mid-tier enterprises that may operate in multiple countries but lack global reach. Usually revenues for these companies is between $100M to $1B. Tier II customers can be standalone entities or business units of large global enterprises. Most of these ERPs have some internationalization but lack Tier I breadth.
Tier III ERPs support small to up coming companies with revenue less than $100M. Customers opt for these type of ERP solution as the initial steps in their long-term ERP roadmap.
Globally about 50% of ERP implementations are considered to be a failure. Here, the definition of failure is that they did not meet the expectations. Instead of improving the process efficiency, they slowed down the operations and impacted the revenues and bottom line.
Instead of looking at the critical requirements and choosing the best Product that meets the requirements, customers started with a strict budget and purchased the Product that had the lowest costs but which did not meet the critical needs
The MUST have business requirements were not evaluated during the procurement process. Later it was found that it required extensive workaround or customization to meet those requirements
The implementation consultants did not understand the business requirements and delivered cumbersome solutions.
What is called GIGO (Garbage In Garbage Out) effect. Wrong data was input into the ERP system, and the incorrect output demotivated the users
Local taxation is complicated in some countries and may not have been handled well. This will lead to statutory compliance issues and is the quickest way to ERP failure.
Many Organizations go into ERP without clearcut success criteria and hence do not have the required KPIs to track and measure the success. Naturally, the project fails since no one has a clue.
The System Integrators have a short-term vision to complete the implementation. The customer has a very long-term vision to deliver benefits out of ERP for the next ten years, for example. This mismatch in vision could impact the quality
• Does ERP Software meet your system requirements?
• Is ERP solution aligns with company goals?
• Will ERP Software Integrate/compatible with existing systems?
• Have partner Network/Availability?
• What type of training/support options offered by the ERP Solution provider?
• Have references and recommendations from customers?
• Is the ERP provider invest in tomorrow’s technology?