What is ERP?

Many people have questions regarding ERP. Enterprise Resource Planning in business? Why you need Enterprise Resource Planning? What is the purpose of the ERP System? What is Simple ERP? What ERP stands for? What’s the ERP price? What’s the Best ERP for Distributors and Wholesalers?

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DEFINITION of Enterprise Resource Planning (ERP)

It’s really challenging to answers all those questions in one articles. Here, I take this opportunity to explain. ERP is acronym for Enterprise Resource Planning.

Enterprise resource planning 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.

Enterprise Resource Planning 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.

What is ERP? : ERP is an 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
ERP Evolution : A Brief Enterprise Resource Planning (ERP) History

EVOLUTION: A Brief History.

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 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 Enterprise Resource Planning 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.

History of ERP : 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.

ERP Finance defined

An ERP Finance Software is one that automates the tasks performed by various users in the finance department of a company. These users could be accounts clerks, accountants or managers. A Finance ERP allows you to configure the system accurately so that all the transactions are accounted accurately and reported automatically. ERP Workflow defined

An ERP Workflow is a configurable and extensible sequence of activities that is delivered by an ERP Application. Modern day ERP systems are rich in Workflows enabling different user groups to meet their unique requirements. An ERP Workflow is:

1. Configurable: Thousands of potential configurations in a typical ERP system enables many tweaks to the same basic process. For example a payables invoice workflow in a typical ERP system allows for different types of holds, different validation rules and different approval rules

2. Extensible: In addition to the standard workflow, most ERPs come with Workflow designer that helps the customer design unique workflows that are not catered to by a typical ERP System Workflows extends the power of ERP and enables different industry users to benefit from the same base application.

ERP Payroll defined

ERP for payroll is software that integrates the payroll activities with the overall business process flows in an Organization. The typical ERP for payroll handles various tasks of the payroll department including calculating the pay for the period, breaking it down into different cost elements with further breakdown into allowances and deductions. The system also calculates the tax eligibility and (optionally) transfers the tax deductions to the government treasury.

In addition to calculating the period payroll, a good ERP for the Payroll system also tracks loans and advances given to the employees till they are finally recovered from the employee. Finally the system also seamlessly integrates the payroll information with the account books completing a 360-degree process flow.

What is an integrated enterprise system?

An integrated enterprise system integrates the disparate systems within an organization so that these systems can share information across each other triggering event-based actions and decisions. A typical Organization may have at the minimum a purchasing system, an inventory system and order entry system, a pick and pack system, and an accounting system. An integrated system integrates these disparate systems to enable smooth information flow.

An Enterprise Resource Planning system is a single integrated system with built-in integrations between different business areas.

How ERP Helps Improve and Grow your Business?

  • Mobility
  • Reduction in costs
  • Process automation
  • Agility in responding to customer needs
  • Unified visibility of financial information
  • Improved process efficiency and Reduction in errors
  • Real-time reporting and business intelligence
  • Process standardization across multiple business units

ERP Technology : 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 the Cloud ERP model, the ERP is hosted on a Data Center owned by a third party vendor or Data Centre

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 the 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 Enterprise Resource Planning’ (term technology like Artificial Intelligence, Machine Learning, and Blockchain. Customers are moving to Digital Transformation, of which ERP is the backbone application.

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 Enterprise Resource Planning 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 on the technology bandwagon by investing in the most stable technology of all, Enterprise Resource Planning.

KEY FEATURES OF ERP

  • Enhanced data integrity
  • End to end visibility of operations
  • Single source of truth and elimination of data redundancy
  • Uniform look and feel and improved User Experience (UX)

How to make ERP Software project successful?

ERP’s success can be defined as how quickly and happily the users adopt it in their day-to-day business operations. This is commonly known as ERP Adoption.
This is facilitated by:

  • Effective user training
  • Optimal solution design
  • Simple and scalable configuration
  • High-quality documentation
  • Effective data migration: Users are familiar with their data. If they see their accurate data in Enterprise Resource Planning post-implementation, the adoption will be fast.

How to manage ERP System cost?

We can categorize ERP Cost into Fixed costs, Running costs, Hidden costs,

Fixed costs :

Infrastructure Costs

Maintain ERP Infrastructure. Applicable in case of On-premise / Hybrid ERP

License Costs

This is the cost of the Product paid to the product vendor, customarily calculated based on the number of users.

Implementation Costs

It is the one-time implementation costs paid to the System Integrator who helps to implement ERP

Running Costs :

  • Additional license Costs: Cost of new licenses procured every year in line with the growth of the Business
  • Cost to maintain the IT Team: Salaries and wages of the internal IT Team.
  • Stabilization Costs : This will include the cost of help desk support as a part of the stabilization of the ERP application
  • Support and Maintenance Costs: Paid to the Product Vendor for the maintenance and support of the application and generally calculated as a percentage of the license costs. In the case of Cloud, there are no separate support costs since the charges are based on the number of users per year.

Hidden (Unanticipated) Costs :

These are the unanticipated costs that may upend the project budget. These are costs typically not planned during the initial cost estimation.

  • Training & Testing Costs: System Integrators provide optimistic inputs based on which the Customers under-budget these costs
  • Data Migration Costs: This could be challenging, especially if there is a lot of historical data to process and load into Enterprise Resource Planning. System Integrators will provide the budgetary estimates. It will be prudent to plan for an escalation factor when budgeting for these costs.
  • Change Management Costs: If the initial evaluation process is not done correctly, the Organizations may find new requirements coming up in the middle of implementation. These change requests may lead to cost inflation and mess up with the ROI calculations.
  • Implementation Review Costs: It is a good practice to involve a third-party independent consultant to review the implementation, especially if it is not going well. Budgeting for this is typically missed during the initial budgeting exercises, as everyone is highly optimistic at that stage.

TYPES OF ERP System and Software Deployment Options.

We can categorize ERP Software into two groups, as shown in the diagram below.

 ERP Based on Server Location

On-Premise ERP :

The customer maintains the ERP server on their premises. The customer has an elaborate team to support Infrastructure and Applications.

Cloud ERP :

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.

Hybrid ERP :

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 the benefits offered by Cloud ERP. As a via media, they want to move some of the non-operational data like HR data to the Cloud. This combination of using both On-premise and Cloud is termed as Hybrid ERP.

ERP Based on Industry size

1

Tier I ERPs

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 offer these functionalities with a lower cost of ownership. Newer technologies gives young and innovative ERP solution provider opportunity to compete with old legacy companies.

2

Tier II ERPs

Tier II ERPs support large to mid-tier enterprises that may operate in multiple countries but lack global reach. Usually, revenues for these companies are 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.

3

Tier III ERPs

Tier III ERPs support small to up coming companies with revenue less than $100M. Customers opt for these types of ERP solutions as the initial steps in their long-term ERP roadmap.

How to avoid ERP Software Failures?

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.

Product Selection :

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

Product Evaluation :

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

System Integrators do not have a competent resource pool:

The implementation consultants did not understand the business requirements and delivered cumbersome solutions.

ERP Software Failure : 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.

Importance of ERP : 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

Data issues :

What is called GIGO (Garbage In Garbage Out) effect? Wrong data was input into the ERP system, and the incorrect output demotivated the users

Localization :

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.

Lack of clear cut success criteria :

Many Organizations go into ERP without clear-cut 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.

A mismatch between the customer’s agendas and the System Integrators:

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