What Is ERP (Enterprise Resource Planning)

Growing companies eventually reach a point where spreadsheets no longer cut it. That’s where enterprise resource
planning software comes in: ERP systems collect and organize key business information and help organizations run
lean, efficient operations, even as they expand.
Most business professionals have heard the term ―ERP,‖ but they may not know exactly what enterprise resource
planning systems can do for their teams. We’ll explain exactly what ERP is, how it works, what it can do for your
business, how to choose the right solution and much more.
Read on for answers to just about any questions you might have about enterprise resource planning.
What Is Enterprise Resource Planning (ERP)
At its core, ERP is an application that automates business processes and provides insights and internal controls,
drawing on a central database that collects inputs from departments including accounting, manufacturing, supply
chain management, sales, marketing and human resources (HR).
Every business must complete work that requires numerous stakeholders with various responsibilities. But that’s a
struggle when the information needed to execute processes and make key decisions is spread across disconnected
systems. Whether data is held in basic business management software or spreadsheets, employees have a hard time
finding what they need and may lack access to it entirely. For example, the accounting and FP&A teams could each
have different spreadsheets with different figures for expense tracking.
These disparate data sources make it very challenging to keep everyone on the same page and hinders collaboration
and efficiency, especially as an organization grows. Staff waste time hunting for documents and potentially
duplicating work because there is no one place to look for up-to-date information on all aspects of the business
relevant to them. This also makes it difficult to see the full cause and effect of developments affecting your business.
An ERP system solves this problem by compiling information in a central database to grant managers and employees
cross-departmental visibility. It also eliminates the problems that come with conflicting sources of data and empowers
them to analyze various scenarios, discover process improvements and generate major efficiency gains. That translates
to cost savings and better productivity as people spend less time digging for needed data.
ERP software that’s tailored to meet the needs of an individual business pays major dividends, making these systems a
critical tool for companies across industries and of all sizes. Many of the world’s best-known and most successful firms
have leaned on ERP for the last quarter century. Now, this software can be configured and priced to meet the needs of
all-size businesses.
Put simply, an ERP system helps unify people, core business processes and technology across an organization.
Key Takeaways
 ERP is critical business software that collects information from various departments in a common database, enabling
leaders to monitor the pulse of a company using a single vision of reality.
 ERP systems unify critical business functions like finance, manufacturing, inventory and order management, customer
communication, sales and marketing, project management and human resources. One major feature is detailed
analytics and reporting on each department.
 ERP can generate major time and financial savings by providing organization-wide visibility that spotlights inefficient
manual processes and reveals opportunities for growth.
 There are several deployment models for ERP software, including on-premises, cloud and hybrid. While cloud ERP has
become extremely popular in recent years, the best approach for any given company depends on its needs.
 Businesses should make sure they understand the capabilities, implementation models, integration requirements and
total cost of ownership of a short list of software providers before picking a winner.
ERP Explained
Enterprise resource planning — a moniker coined by research firm Gartner in 1990 — can be a confusing concept
because ERP is not a standalone application. While ERP is a category of business software, ERP systems
comprise various modules, each addressing a specific business requirement. For example, products-based companies
typically have modules for accounting, inventory and order management, customer relationship management (CRM)
and, if they produce or assemble products, manufacturing. Services businesses may turn to modules for accounting,
project management, professional services automation and CRM.
Each module pulls information from and pushes information into the central database that is a key component of an
ERP system. This common data repository provides visibility into all departments and thus allows leaders to evaluate
and compare the business performance of different areas and understand the full impact of decisions. It also powers
other ERP benefits, like process automation, improved internal controls and smarter business intelligence.
There are two primary approaches to building out an ERP system. The first is to purchase software that can handle each
of these core business functions like accounting, sales, inventory and manufacturing from different vendors. These
solutions are then integrated with a central database (the ERP). The second is to buy all the modules you need from the
ERP vendor and avoid integrations since the applications are already designed to work together.
Getting most or all of the ERP modules you need from one vendor is the best option for the large majority of businesses
thanks to its simplicity. Integrating these disparate systems is often complicated and requires a sizable IT staff or an IT
services partner, so it doesn’t make sense for most small and midsize organizations. Once these integrations are set up,
they necessitate ongoing maintenance.
A unified platform, on the other hand, offers native integrations between modules and a common user interface as users
move between them. This makes for an easier ERP implementation. Information easily flows between modules to give
decision-makers a comprehensive view of the company.
Why Is ERP Important for Businesses?
ERP systems have become table stakes for businesses looking to use resources wisely. They can help leaders reallocate
human and financial capital or build more efficient core business processes that save money without sacrificing on
quality or performance.
An ERP is also an asset when it comes to planning and coordination. Employees can see current available inventory
and customer orders in detail, then compare supplier purchase orders and forecasted future demand. If necessary, they
can make adjustments to head off problems. ERP software improves communication and collaboration as well because
workers can check on the status of other departments to guide their own decisions.
As a comprehensive source of data, an ERP system also provides a host of reports and analytics that can be difference-
makers for the business. Turning a vast trove of information into charts and graphs that clearly illustrate trends and
help model possible results is an ERP capability executives find invaluable.
How Does an ERP System Work?
ERP systems work by using a defined, standard data structure. Information entered by one department is immediately
available to authorized users across the business. This uniform structure helps keep everyone on the same page. For
example, say a local food distribution chain has multiple locations that often share stock and personnel. As quality,
sales and employee data from these sites is fed into the ERP system, it’s formatted to indicate which location it comes
from.
Real-time data is then woven into business processes and workflows across departments. Leaders can see if one location
is doing significantly better at avoiding spoilage than a sister site a few towns over and work to figure out why, while
operations can make sure staffing levels align with traffic patterns. Finance can compare sales to rents to help
executives decide whether to consolidate.
ERP systems deliver the most value when a company has modules for each major business function and ensures timely,
accurate data entry. And, the more stakeholders have access, the better.
When a company uses business systems from multiple vendors, integrations are generally possible to make data
automatically flow into the ERP. This real-time data can then be used throughout the ERP instance to benefit any
process or workflow.
ERP Modules
There are ERP modules available to help with almost every core business function, from finance to supply chain to HR.
An ERP comprises a number of different modules — bundles of features tailored for various aspects of the business,
including back- and front-office roles. This goes well beyond financials and other fundamental functions like supply
chain management and customer communication. Here’s a quick breakdown of the most widely used ERP modules:
Finance. A finance module, the foundation of just about every ERP system, manages the general ledger and all
financial data. It tracks every transaction, including accounts payable (AP) and accounts receivable (AR), and handles
reconciliations and financial reporting.
Procurement. The procurement module manages purchasing, whether raw materials or finished goods. It can automate
requests for quotes and purchase orders and, when linked to demand planning, minimize overbuying and underbuying.
Manufacturing. Manufacturing can be complicated, and this module helps companies coordinate all the steps that go
into making products. The module can ensure production is in line with demand and monitor the number of in-progress
and finished items.
Inventory management. An inventory management module shows current inventory levels down to the SKU level and
updates those numbers in real time. It also measures key inventory-related metrics. Any products-based company
needs this module to optimize stock on-hand based on current and forecasted demand.
Order management. This application monitors and prioritizes customer orders from all channels as they come in and
tracks their progress through delivery. An order management module can speed fulfillment and delivery times and
improve the customer experience.
Warehouse management. A warehouse management module directs warehouse activities like receiving, picking,
packing and shipping. It can generate time and cost savings in the warehouse by identifying more efficient ways to
execute these tasks.
Customer relationship management (CRM). CRM is a popular module for businesses in a wide range of industries. It
tracks all communications with clients, assists with lead management and can enhance customer service and boost
sales.
Professional services automation (PSA). Services businesses often utilize a professional services automation
(PSA) module to plan and track projects, including the time and resources spent on them. It can simplify client billing
and encourage collaboration among staff members working on a project.
Workforce management (WFM). A workforce management (WFM) module keeps track of attendance and hours
worked, and some can also manage payroll. This tool can record absenteeism and productivity by department, team
and individual employee.
Human resources management (HRM). A human resources management (HRM) or human capital management (HCM)
module is similar to a workforce management module. It keeps employee records with detailed information, like
available PTO and performance reviews, and can tease out workforce trends in various departments or demographics.
Ecommerce. An ecommerce module allows retailers and brands to manage the back- and front-ends of their online
stores. They can change the site look and feel and add and update product pages with this application.
Marketing automation. This module manages marketing efforts across all digital channels — email, web, social — and
enables organizations to optimize and personalize their messaging. A marketing automation tool can boost leads, sales
and customer loyalty.

How Can ERP Improve or Help a Business?

ERP enables companies to identify areas of the business with room for improvement or opportunities for expansion.
User uptake is key: The more employees with access, the more likely teams will spot problems, whether a spike in
demand for a certain product, late shipments from a supplier or an impending cash flow crunch. Employees can then
proactively mitigate the issue to the extent possible.
Executives are generally focused on outcomes — using information to achieve objectives, like increasing efficiency,
reducing costs and responding to changing consumer needs or market conditions.
For business units, ERP software can automate many error-prone tasks, like account reconciliations, customer
billing and order processing, and provide the information teams need to operate more efficiently.
But the real beauty of ERP is that it can give both a 10,000-foot view of the company’s health and detailed insights
into a specific process or KPI by not only storing and organizing data, but identifying patterns and flagging anomalies
that require investigation. Try that with a spreadsheet.
Other business upsides:
Access to data from anywhere: Employees no longer need to shuffle through piles of papers or files scattered across a
desktop. With cloud-based ERP, a warehouse manager can log in from a mobile device while on the shop floor, or a
salesperson can check inventory while at a customer site.
 Information is always up-to-date: Because the ERP system is continually receiving information from various
departments, it’s updated immediately as inventory is pulled, a payment is posted or emails are sent to customers. This
provides a major advantage because decision-makers are basing their choices on up-to-the-minute data.
Business decisions based on the same data: With a common database, all decision-makers are on the same page. There
are no duplicate or conflicting sources of information, and companies have the ability schedule and distribute dynamic
reports automatically. Need more depth? Underlying data can be accessed simply by clicking the report.
Who Uses ERP?
Companies across every industry, with diverse business models, have realized the benefits that come with ERP. Flexible
solutions with extensive functionality can cater to a wide variety of organizations and requirements.
Industries that count on ERP to run their businesses include:
 Advertising and digital media
 Apparel, footwear and accessories
 Campus stores
 Consulting
 Education
 Energy
 Financial services
 Food and beverage
 Health and beauty
 Healthcare and life sciences
 IT services
 Manufacturing
 Media and publishing
 Nonprofit
 Professional services
 Restaurants and hospitality
 Retail
 Software and technology
 Transportation and logistics
 Wholesale distribution
Roles & Users
Within those organizations, a number of job functions benefit from ERP, including but not limited to:
 Finance/accounting: The accounting team is often the first adopter. This group will track and report on all transactions
and other financial information in the system, including accounts payable (AP), accounts receivable (AR) and payroll.
With ERP, financial planning and analysis (FP&A) experts — whether a separate role or part of the accounting
department — can turn comprehensive financial data into forecasts and reports on revenue, expenses and cash flow.
 Supply chain: Employees focused on operations, a group that includes purchasing agents, inventory planners,
warehouse managers and senior supply chain leaders, rely on the ERP system to ensure a smooth and continuous flow
of goods from supplier to customer. They count on accurate, detailed information provided by the system to optimize
inventory levels, prioritize orders, maximize on-time shipments, avoid supply chain disruptions and identify inefficient
or manual processes.
 Sales and marketing: An ERP solution can increase the productivity of and drive better results for your sales team by
automating lead management and monitoring the interactions prospects have with your company. Reps can document
discussions and change the status of prospects as they move through the sales funnel. Using those same records,
marketing can automate and manage outreach across all channels, from email to display ads to social media, and
measure the effectiveness of those messages and channels to better allocate its budget.
 Human resources: The HR department tracks all employee information and broader workforce trends in the ERP. It can
quickly find contact information, compensation and benefits details and other documents for each employee. HR can
also monitor metrics like retention by department, average pay by title, promotion rate and other metrics to better
allocate its own staff and assist line-of-business managers.
 When You Need ERP
While ERP software was initially designed for enterprises — as the name indicates — today’s cloud-based software-
as-a-service (SaaS) ERP offerings have lowered barriers to entry and helped countless emerging and midsize
companies increase their efficiency, visibility and, in turn, profitability.
Here are a few tips to help determine if ERP is for you:
 Regularly review your current technology and ask: Is our technology helping — or holding us back? When outdated
or inadequate systems introduce inefficiencies, muddy the data waters or can’t support changes the business wants to
make, it’s time to look for a new solution.
 Inaccurate data is another sign it’s time for your first or a new ERP system. If your data is unreliable, you can’t trust the
reports and insights it produces — and that’s a big problem.
 Are errors consistently causing issues, whether it’s sending customers the wrong items or misalignment between
purchase orders and demand? A unified system can organize your operations and improve processes to reduce these
obstacles.
 Over-reliance on email and spreadsheets to collate and share critical information is another indicator you need ERP.
Spreadsheets require frequent, manual updates, meaning they are often outdated. Sharing sensitive data via email
poses real security risks and can make it difficult to find what you need.
 A lack of integration among systems is another indication you’re ready for ERP. The system can eliminate manual data
transfers and fickle connections by pulling information from all key business functions into one place.
Although there are costs that come with purchasing and deploying ERP software, it often delivers a quick return on
investment. And, there’s help available for those looking to build a business case.
12 Benefits of ERP Systems
Today’s ERP solutions have rich feature sets that bring countless benefits to businesses. This software has become
universally adopted by almost all companies of a certain size because it drives real improvements. While what an
individual firm sees as the greatest value of this technology will vary, here are key universal advantages ERP delivers:
1. Cost savings. Perhaps the biggest value proposition of ERP systems is they can save your organization money in a
number of ways. By automating many simple, repetitive tasks, you minimize errors and the need to add employees at
the same rate as business growth. Cross-company visibility makes it easier to spot inefficiencies that drive up costs and
leads to better deployment of all resources, from labor to inventory to equipment. And with cloud ERP, companies may
quickly see incremental value from the software, over and above what they’re spending.
2. Workflow visibility. With all workflows and information in one place, employees with access to the system can see
the status of projects and the performance of different business functions relevant to their jobs. This visibility may be
particularly valuable to managers and leaders, and it’s far faster and easier than searching for the right documents and
constantly asking colleagues for updates.
3. Reporting/analytics. Data is useful only if companies can analyze and understand it, and an ERP helps with that.
Leading solutions have impressive reporting and analytics tools that allow users to not only track KPIs, but display any
metrics or comparisons they can dream up. Since an ERP is all-encompassing, it can help a business understand how a
change or problem with a process in one department affects the rest of the company.
4. Business insights/intelligence. Because ERPs can access real-time data from across the company, these systems can
uncover impactful trends and provide extensive business insights. This leads to better decision-making by
organizational leaders who now have easy access to all relevant data.
5. Regulatory compliance & data security. Financial reporting standards and governmental and industry-specific
data security regulations change frequently, and an ERP can help your company stay safe and compliant. An ERP
provides an audit trail by tracking the lifecycle of each transaction, including adherence to required approval
workflows. Businesses may also reduce the chance of errors and related compliance snafus with automation. ERP
software provides financial reports that comply with standards and regulations, and SaaS applications are well-
equipped to help companies with PCI-DSS compliance.
6. Risk management. ERP technology reduces risk in a few ways. Granular access control and defined approval
workflows can strengthen financial controls and reduce fraud. Additionally, more-accurate data heads off mistakes
that could lead to lost sales or fines. And finally, the ability to see the status of the entire operation enables employees
to quickly handle risks posed by business disruptions.
7. Data security. ERP providers understand that your system houses critical, sensitive data and take necessary steps to
ensure it is secure. This diligence is more important than ever as the volume and scale of cyberattacks increase.
Vendor-managed cloud ERP software, in particular, uses cutting-edge security protocols to ensure your company
doesn’t fall victim to a damaging attack.
8. Collaboration. Employees are most effective when they work together. ERP solutions make it easy to share
information — like purchase orders, contracts and customer-support records — among teams. It knocks down walls
between departments by giving employees appropriate access to real-time data on related business functions.
9. Scalability. The right ERP system will be scalable and flexible enough to meet your company’s needs today and for
the foreseeable future. Cloud systems in particular adapt to minor and major operational changes even as the amount
of data the organization captures and demand for access increase.
10. Flexibility. While ERP software helps businesses follow best practices, it also offers the flexibility to support unique
processes and objectives. The system gives administrators the ability to build out company-specific workflows and
create automatic reports important to different departments and executives. An ERP enhances your organization’s
innovation and creativity.
11. Customization. While most companies find that modern ERPs support their businesses ―out of the box,‖ some firms
need to add to the extensive built-in functionality. If you have a lot of specialized processes, look for an extensible
system that allows your integrator or IT staff to write code that adds needed features, or that can integrate with
homegrown or legacy solutions. However, before going the custom route, take a close look at your processes — the
prebuilt functionality and configurations modern ERP solutions support are based on best practices gathered from
thousands of companies. Aim to minimize customizations.
12. Customer & partner management. An ERP can strengthen a company’s partner and customer relationships. It can
provide insights on suppliers, shipping carriers and service providers, with the cloud enabling even better, more
convenient information exchange. When it comes to customers, the solution can track survey responses, support tickets,
returns and more so the organization can keep its finger on the pulse of customer satisfaction.
6 Disadvantages of ERP Systems
Despite all the value ERP brings, there are challenges companies may encounter in building the business case for a
system or implementing it. It’s important to be aware of these potential roadblocks before you adopt a system so you
can adequately prepare and temper doubts from stakeholders. At the same time, realize that many of these can be
avoided by creating a detailed plan and selecting the right ERP vendor.
As you prepare for an ERP project, keep these concerns in mind:
1. System cost. Because they were expensive to purchase, implement and maintain, early ERP systems were accessible
only to large companies. However, that hasn’t been the case for two-plus decades. While ERPs still require a time and
financial investment, the technology has become much more affordable thanks to both SaaS systems that charge a
recurring fee and more solutions designed for small and midsize businesses entering the market. Organizations can use
tools to calculate estimated savings after one and three years, for instance, to find out when returns will surpass costs.
2. Need for training. Like any new tech, ERP has a learning curve. Anyone who will use the software — that is, ideally,
most or all of your employees — requires some level of training. Although there may be resistance at first, that should
fade away as people realize how much the technology will help them. Newer systems that receive frequent updates
are more intuitive and user-friendly, reducing training requirements and increasing adoption.
3. Data conversion costs. When moving to a new ERP, you may need to convert some data into a format that’s
compatible with the new platform. This can lead to unexpected costs and delays, so review your databases, and work
with your IT team or an integration partner to identify potential data compatibility issues early on. Then, you can
factor conversion efforts into the ERP implementation plan.
4. Complexity. An ERP system is loaded with features, and that can be daunting to your workforce. But the software
available today is far easier to use than legacy systems because vendors have focused on improving the user
experience. Additionally, employees need access to only the modules and dashboards required for their jobs, which
can make it more approachable. Thorough training should temper concerns about complexity.
5. Maintenance. In the past, maintenance was a large expense that deterred lower-revenue businesses from adopting
ERP. Not only did a company need an IT staff to handle patches, security and required system upgrades, it often had to
pay the vendor or a third-party service provider for its expertise. This is less of a concern with a SaaS system because
the provider takes care of all maintenance and regularly moves all customers to the latest version — and it’s all built
into the subscription price. Companies concerned about maintenance should thoroughly vet a potential supplier to
ensure it offers a true vendor-managed SaaS system.
6. Doesn’t solve process and policy issues. If you have error-prone or inefficient processes, an ERP won’t necessarily fix
them, even though it may increase accuracy. It can, however, uncover problems in your operations and help you
brainstorm better ways to do business. The same goes for policies that hold the organization back — it’s up to you to
adjust those and then configure the system to support better ways of doing business.
5 Key Features of ERP Systems
So you know why ERP software is so critical to companies and the key benefits it provides them. But what is it that
makes an ERP system an ERP system and distinguishes it from other types of business software? There are a few key
features critical to realizing the full value of ERP, including:
1. Common database. Many of an ERP’s advantages stem from a common database that allows organizations to
centralize information from numerous departments. This single source of real-time data eliminates the need to
manually merge separate databases, each controlled by the business functions they serve. A common database enables
a consistent, cross-functional view of the company.
2. Consistent UX/UI. Across departments and roles, everyone uses the same user interface (UI) and has a similar user
experience (UX) with an ERP. Modules for inventory management, HR and finance all have the same look and feel and
shared functionality, provided you get them from the same vendor. This increases the software’s adoption rate and can
make it easier for staff to move between departments. A consistent UX and UI also result in efficiency gains because
users can quickly find and understand information from all corners of the business.
3. Business process integration. An ERP must be able to support and integrate the processes that make your business
successful, whether related to accounting, supply chain management or marketing. The right platform will have the
ability to unify a diverse set of processes — connecting workflows that play crucial roles in the company’s success
boosts productivity and visibility, and that translates to lower costs.
4. Automation. Another basic feature of ERP software is the ability to automate repetitive tasks like payroll, invoicing,
order processing and reporting. This reduces manual, and sometimes duplicative, data entry, saving time and
minimizing errors. Automation frees up your staff to focus on value-added work that takes advantage of their special
knowledge and skills.
5. Data analysis. One of the most valuable aspects of an ERP is that it breaks down information siloes. When you can
mix and match data from just about any part of your business into insightful reports, you uncover areas that are
performing exceptionally well and those that are failing to meet expectations. Leaders can analyze problems and get
to work resolving them right away.
Types of ERP Deployment Models
Various ERP deployment models address the needs of different organizations, and it’s important to understand the
unique characteristics of each so you can identify the best option for your business. There is some nuance here, like
multiple versions of ―cloud‖ deployment — it’s not just on-premises vs. cloud. Here’s an explanation of how each
method works and key differences between them:
On-premises ERP: With an on-premises system, the business runs the software on servers it owns and is responsible for
security, maintenance, upgrades and other fixes. Upkeep usually requires in-house IT staffers with the required
expertise. For many years, on-premises ERP was the only option, but the popularity of this deployment model has
declined rapidly in recent years, and market-watcher IDC predicts continued declines (see chart, below).
Cloud-based ERP: Cloud-based ERP runs on remote servers managed by a third party. Users typically access a cloud
ERP through a web browser, giving them greater flexibility — they can dig into information and reports from
anywhere with an internet connection. There are multiple deployment options for cloud ERP, including hosted cloud
and true cloud.
With a hosted cloud solution, a company purchases a license but runs it on remote servers managed by a third party.
The servers and other hardware is often rented from the hosting company. Your data is stored in a private cloud as a
separate instance of the ERP used by just one company. Your infrastructure is not shared with other organizations,
which is why this is sometimes called single-tenant. This setup can give the client greater control over the software and
allow for more customizations, but it also creates more work for the business. Think of it as a middle ground between on-
premises and true cloud software.
A true cloud deployment allows companies to pay a fee in exchange for access to servers and software that they do not
have to manage. SaaS ERP solutions are a popular version of a true cloud solution, as the vendor handles everything on
the back end including patches and upgrades. True cloud is also known as multi-tenant because multiple businesses
use the same software instance and hardware. This reduces the need for an in-house IT team and ensures that the
company always has the most up-to-date, secure version of the software.
IDC estimates that use of cloud-based ERP will more than double between 2019 and 2024.

As this bar chart shows, investment in public ―true cloud‖ ERP has already increased substantially and will continue to
grow in the immediate future.
Hybrid ERP: Hybrid ERP combines elements of on-premises and cloud deployments. One hybrid approach is two-tier
ERP, where a corporation keeps its on-premises ERP in place at headquarters but employs cloud systems for
subsidiaries or certain regional offices. These cloud solutions are then integrated with the on-premises system. Other
companies may turn to cloud solutions for certain business needs while sticking with their on-premises systems for
other functions. Either way, the cloud systems must be linked to the on-premises platform to ensure a steady flow of
information — often easier said than done.
Open-source ERP: Like other open-source applications, open-source ERP is an inexpensive, and sometimes free,
alternative that’s suitable for some companies. Many open-source ERP providers allow businesses to download their
software for free and charge a low annual fee only if the customer wants cloud access. These solutions have improved,
with more modern web-based interfaces and a growing number of modules, but companies need to understand what
they’re taking on with an open-source ERP. Support from the provider will be minimal, and configurations and system
improvements tend to fall on the client. That means you need technical staff with a deep knowledge of how to develop
and configure the software.
ERP Systems by Business Size
Revenue and/or number of employees is just one factor shaping your ERP requirements. No single system will be best
for every small, midsize or large company, respectively. But there are features specific to these segments as well as
favored deployment models for each business profile, which we walk through below.
Small-business ERP: Small firms should map out their requirements before starting a search to avoid software that has
far more functionality than they need. This will keep costs down and reduce the training required for employees.
However, the system should have the ability to scale up and support new initiatives over time as well as a
straightforward implementation process. That’s why cloud ERP is generally the best option for small businesses — it
has lower upfront costs, a faster setup timeline and less need for technical resources compared with on-premises or
hybrid options. The cloud offers the scalability to meet the business’s needs as it grows, and the right provider can
supply modules and features as required.
Midsize-business ERP: Midsize companies should demand a platform that can support all its business functions with
specialized modules and, like smaller firms, select a vendor capable of scaling to meet future needs.
Because many midsize organizations lack large IT teams, cloud ERP software is very popular in this segment as well. In
addition to lower initial expenses, leading SaaS solutions can be more user-friendly for a company that has limited in-
house technical expertise. However, midsize businesses that require numerous customizations or must follow regulatory
policies that bar them from storing information in the cloud may opt for on-premises deployments or a hybrid
approach. This group is more likely to have the financial and human capital to support this model than small
businesses.
Enterprise ERP: Enterprises should opt for software that can support all components of their businesses, which could
quickly thin the list of contenders. Corporations require systems that can capture, process and interpret a vast amount
of data and handle the demands of many business units.
On-premises and hybrid ERP that combines cloud and on-premises solutions are most common with enterprises,
simply because they may have adopted ERP before pure cloud systems were available. While moving a massive ERP
to the cloud can be a time- and resource-intensive undertaking, more of the world’s largest companies are taking that
step as they realize the benefits and try to put themselves in a better position for future growth. Some enterprises have
also deployed two-tier ERP, which uses a SaaS solution for parts of the business and integrates with the primary on-
premises ERP.
ERP Best Practices
Most ERP software is built around established best practices. The software provider designs workflows and
functionality based on its experience working with hundreds or thousands of customers and encourages as much
conformity as possible, though there is often flexibility to adjust processes.
Adhering to industry-standard best practices has major business advantages. Companies often find that they improve
and modernize their processes, and in turn maximize operational efficiency and avoid falling behind competitors.
Observing best practices also helps companies comply with key financial standards. Leading ERP vendors offer
vertical-specific versions of their software that incorporate business practices that are best for each sector.
ERP Implementation
ERP implementations are important projects that, without proper preparation, can eat up a lot of time and money.
Exactly how long this project takes and how much it costs will depend on many factors, including deployment
model, implementation strategy, complexity of the system, size of the company and resources dedicated to it.
This ERP implementation checklist should help guide you.
7 Stages of Implementation
As with other initiatives, companies can avoid major challenges by taking the time to create a
detailed implementation plan. Preparation pays off.
Here are the seven key stages of an ERP implementation:
1. Discovery and planning. To start, pull together a cross-functional team to determine what, exactly, the company
needs from an ERP system. This team should identify inefficient processes and other roadblocks to business growth.
2. Evaluation and selection. Now that the team has a requirements document, it’s time to evaluate leading offerings
and select the platform that can best resolve existing problems, meet all departments’ needs and promote the
company’s growth.
3. Design. At this stage, the implementation team figures out whether the system can support existing workflows and
which processes may need to change. This is also the time to identify any required customizations.
4. Development. Internal and/or external technical professionals configure the software to meet your defined needs
and begin migrating the company’s data to the new solution. Now is also the time to decide how you will train
employees on the system and begin scheduling sessions and producing or acquiring needed training materials.
5. Testing. This is not a step to be skipped — it’s crucial to make sure everything works as expected and fix any
unforeseen problems. Include users from across the company when testing the platform.
 6. Deployment. It’s time to go live. There are often hiccups early on, and businesses should prioritize employee training
to mitigate resistance to change. Some firms opt for a phased rollout, while others push all modules live at once.
7. Support. Ensure users have everything they need to take advantage of the new system. This is an ongoing process and
could include additional configurations, often with the help of the vendor or specialized consultants.

Breaking your ERP implementation into stages can help keep this multi-step project on track.
Implementation Best Practices
It would be misleading to label any ERP implementation as simple or easy. These are projects that will require some
time and effort, but some go much more smoothly than others. That’s where these implementation best practices come
in — adhering to these as you begin your project can make it a better experience with fewer issues.
 Secure an executive sponsor: Such a far-reaching and critical project needs support from top leadership — ideally
multiple executives who represent different business units.
 Start planning early: Leave ample time to map out ERP requirements, prioritize tasks, identify processes you want to
improve and evaluate several vendors.
 Communicate and collaborate: Communication is essential throughout the project, from discovery through
development, deployment and beyond. Solicit input from employees across the organization to make sure the software
will help everyone in their day-to-day jobs.
 Set reasonable expectations: Establish a clear timeline for each stage of the project, along with expected costs and time
required of specific employees. Make sure stakeholders understand there will be bumps along the way.
 Choose the best KPIs: Collaborate with a diverse group of business leaders to select the KPIs most valuable to the
company that the system should track. Keep the organization’s big-picture goals in mind.
ERP Integration
Virtually every organization considering an ERP implementation will have systems in place that could be replaced by
modules of the ERP under consideration. As such, part of adopting an ERP system involves determining which existing
systems will be replaced, which must be integrated and which will be left to stand on their own.
Remember, the more information that’s fed into the ERP, the more value you get from your investment, so avoid leaving
systems to stand apart from the ERP.
Deciding when to integrate existing systems with your ERP and when to replace those systems with modules from your
ERP vendor comes down to three considerations:
First, is the existing system doing the job you need it to do? If not, then there’s a good case to be made for using the
relevant module offered by your ERP vendor.
Second, if the existing system is a keeper, is there a connector available from the ERP vendor, the existing system
vendor or a third party to get data flowing between the ERP and your existing system? And if so, how good is it? Data
migration is complex. These connectors can do a decent job of integrating systems from different vendors, but quality
and commitment to updates can vary. Remember: Upgrades to either the ERP or the standalone system can break
connectors or require rework. In the worst case, the lack of a new connector could derail upgrade plans completely.
Third, if a connector exists, does it operate in real time and keep all necessary data flowing to and from each system?
Some connectors operate in real time, others sync up systems on a daily or weekly basis. Some move only a limited set of
data between systems, and some work in only one direction — say, from an inventory management system into the
ERP. If your team has done extensive custom configurations, some data types might not be known to the connector.
These potential complications highlight the advantage of using modules from a single provider to manage different
business functions. Whenever possible, it’s a good idea to use one vendor to address your needs. This avoids the entire
issue of integrations as these modules are built by the provider to work together. A unified ERP system not only
prevents problems but can also encourage adoption by flattening the learning curve.
If you decide to keep best-of-breed systems and integrate them with your chosen ERP, realize that verifying the
correct functioning of connectors will become part of every upgrade cycle and that extensive customizations can cause
issues. If your goal is to automate back-office functions with real-time updates, bidirectional operation is important.
Ensure you have the expertise, either in-house or through a partner or supplier, to keep data flowing.
Cost of ERP
The cost of an ERP project varies widely depending on vendor, modules and deployment model. Generally speaking,
total costs can range from less than $10,000 per year to millions of dollars annually. ERP systems are priced with the
needs of the target audience in mind, so those built for emerging and high-growth businesses will be more affordable
than those used by Fortune 500 enterprises.
Cloud-based ERP, and specifically SaaS options, usually have lower upfront costs than on-premises software because
there’s no hardware to purchase nor system experts to hire. With a SaaS solution, the vendor takes care of upkeep and
charges its customers an annual fee, often on a per-user basis.
The price of ERP will also vary based on which modules you need. Solutions may come with core functionality for
finance and basic inventory/order management, but adding complementary modules brings an additional fee.
With on-premises software, companies purchase a perpetual license that’s more expensive, but it’s a one-time expense.
As with SaaS, the price of this software will vary based on the type and number of modules needed. But those that
select on-premises systems also pay for the servers and other infrastructure to host the software, are often on the hook
for maintenance fees and may need to bolster their IT staffs. A hybrid model could be even more expensive, as it
requires many of the resources to support on-premises ERP in addition to the subscription fees for cloud applications.
Finally, remember that the costs of ERP go beyond licensing. When calculating the TCO of various ERP solutions,
factor in implementation and operating expenses related to customization, maintenance, training, upgrades and
support. These costs will vary from one provider to the next, so do your due diligence and ask a lot of questions to get a
clear estimate of the total outlay, both Capex and Opex.
History of ERP
What we now refer to as ERP started in the 1960s with the invention of material requirements planning (MRP) systems.
Manufacturers used MRP software to plan production schedules, make sure they had all the necessary supplies for
production runs and track finished inventory. Two decades later, technology providers developed manufacturing
resource planning, or MRP II, systems. While MRP II software still targeted manufacturers, it offered new capabilities
for improved production planning.
Not until the 1990s did ERP take on its current identity as a unified business management platform. This innovative
technology brought the entire business, from accounting to product development to manufacturing, order fulfillment
and HR, together on a common database. These early ERP solutions had steep capital and operating expenses.
Companies needed to buy servers, hire an IT team with the appropriate expertise and then pay for licensing and
implementation. After that came big bills for maintenance and upgrades.
While hosted ERP solutions were available from application service providers, these systems tended to be expensive
and complex.
Then, in 1998, NetSuite launched the first true cloud ERP. The cloud operating model revolutionized this space because
it greatly reduced the upfront investment and made operating costs predictable. With SaaS ERP, there was no need to
purchase servers or hire an IT staff because the vendor managed the infrastructure and pushed out upgrades
automatically.
This put ERP within reach of smaller companies, in turn spurring growth and profitability.
Cloud ERP has since taken off and fueled much of the innovation we’ve seen over the past two decades. This computing
model has allowed companies to better collaborate both among internal departments and with external partners,
sparking new insights that save businesses time and money and push them forward.
Future of ERP
Now that companies understand the tremendous benefits that come with an ERP, they’re looking for ways to up the
game. Technology like artificial intelligence (AI), blockchain, augmented reality (AR) and the internet of things (IoT)
are shaping today’s ERP trends. Many of these technologies are already embedded within industry-leading ERP
solutions.
AI and machine learning, for example, can automate account reconciliations and flag transactions that call for a closer
look. This saves the accounting team time and offloads a task most don’t look forward to. Machine-learning technology
improves as it processes more transactions, and it can help develop more accurate forecasts.
Blockchain packages data in a secure format and can increase transparency among companies in a supply chain.
Specifically, it can show the status of specific products in detail and creates an in-depth audit trail of an item’s journey
from raw material to finished good. This also provides information from which the ERP can draw insights.
Augmented reality has gained a foothold in retail, allowing consumers to virtually place a rug or 3D image of a piece
of furniture in their living rooms to get a sense of how it would look before purchasing. All the data points and images
needed to make AR work can be stored in the ERP.
Finally, more companies are recognizing the value of IoT devices, like sensors, scanners and cameras, that can feed
information back to the ERP. A sensor that monitors the performance of a piece of warehouse automation equipment,
for instance, could alert a manager when the machinery starts operating more slowly. That could be a sign the
equipment is in need of repair, and the business can intervene before it breaks and disrupts operations. An IoT tracker
on a delivery truck could show that drivers are taking inefficient routes and suggest they always use GPS.
Aside from these buzzy technologies, more businesses are looking to consolidate all their applications on a single
platform. Recent research from Gartner reveals that 40% of services companies will unify core processes like
financials, HR, order-to-cash, procurement and operations in a single suite by 2026. As software providers expand
their offerings and more businesses realize the value of a unified ERP system, this will become increasingly common.
Choosing the Right ERP System
An ERP is a critical business system that must mesh with how each company operates, so there is no one ―best‖ platform.
Required capabilities, preferred deployment model and company size will all affect your decision when buying an
ERP system. Look to established vendors with proven records of success working with companies in your vertical.
Always ask for reference customers, and check out success stories.
Businesses should also consider the software provider’s roadmap for emerging technologies like IoT and blockchain.
Start with the modules foundational to your business and build from there. Companies often begin with a finance
module to automate basic accounting tasks and allow leaders to easily view available cash and the flow of money into
and out of the organization. Products-based companies typically want to digitize inventory and order management
right away because that can generate rapid and significant savings around procurement, storage and shipping. An
ecommerce application that plugs into the ERP is a priority for sellers that rely on this sales channel. Services
organizations, on the other hand, may start with a PSA (professional services automation) application to simplify
employee time and resource tracking and project billing.
After that, a CRM module is a prudent investment because it can improve customer communications, while supply
chain management modules for manufacturing, procurement and/or warehouse management can better align
purchasing and production with demand. A marketing automation solution integrated with the ERP to attract and
retain customers through creative techniques may be another logical addition.
Businesses with lots of employees should add human resources management (HRMS)/human capital management
(HCM) systems sooner rather than later to improve the employee experience and earn a reputation as a great
workplace.
NetSuite offers a unified, true cloud ERP system to help companies run their entire business in one place. Its offerings
include applications for financials, inventory and order management, HR, professional services automation,
omnichannel commerce and advanced analytics. All these applications are natively integrated, meaning there are no
connections to manage and users enjoy a common interface as they move between modules.
NetSuite was born on the cloud and today has more than 31,000 customers ranging from startups to multinational
enterprises. It has robust reporting capabilities to deliver insights across your business and role-based permissions so
employees only have access to the information they need.
The ―right‖ ERP system for your company is the one that supports your needs now and is scalable enough to grow with
your business, with modules and features that drive savings and help you capitalize on opportunities.
This is a big decision, so take the time to thoroughly evaluate all options.
Purchasing and implementing an ERP platform used to be intimidating, even overwhelming. But the solutions
available today allow companies to take it one step at a time and add what they need when they need it. Never before
has this software been within reach for more organizations, and leaders need to take advantage of that. An ERP has
become table stakes for any company that wants the visibility and insights to compete and win.

What does ERP stand for?

ERP stands for enterprise resource planning, a term research firm Gartner coined in 1990 to refer to the business
management platforms enterprises had begun using.
What is ERP in simple terms?
ERP is software that businesses rely on to run and monitor the business performance of their daily operations. It stores
data from across the company, from finance to supply chain to human resources, in a central repository and can analyze
and report on all of that information.
How does ERP work?
An ERP is an application that makes use of a central database that receives information from various departments
within a company. The ERP includes integrated modules dedicated to functions like accounting, inventory
management and CRM. An ERP gives companies a single place to store, view, manage and interpret data.
What is an ERP system?
ERP systems are comprised of modules that focus on certain business processes, such as accounting, manufacturing and
CRM. These modules function using a central database, allowing access to real-time data, and give visibility into
business performance across these departments while minimizing data duplication. A complete ERP system will help
companies budget, plan, and report on financial results.
Why is ERP used?
Companies use ERP systems to connect data from multiple business functions within a centralized system, using the
same data to maintain a ―single source of truth.‖ This allows different departments to operate with the same results.
Companies also save time and money by automating manual processes and reducing opportunities for errors.
Is ERP just for finance and accounting?
While financial management and accounting are key ERP functions, the system’s capabilities stretch far beyond this
department. It can automate and better manage tasks related to purchasing, inventory and order management,
manufacturing, project management, workforce management, sales and marketing and more.
Why do companies use ERP?
ERP software has become an invaluable tool for companies because it generates major time and cost savings. Beyond
automating tasks, an ERP provides company-wide visibility and reporting that tells executives and managers where
teams should focus their time and attention, which may mean addressing pressing problems.
What’s the difference between ERP and MRP?
An MRP, or material resources planning, system was a precursor to ERP used by manufacturers to better prepare for
production runs. The manufacturing-related tasks MRP systems handled, like procurement and inventory tracking, are
just one component of today’s ERP systems.
What is two-tier ERP?
Two-tier ERP is an approach that has gained traction among larger companies with subsidiaries, distinct business units
or regional offices. Instead of forcing these business units or offices to use the legacy ERP, they run on a less-resource-
intensive ERP — often a SaaS solution — that’s integrated with the Tier 1 system.
What are the advantages of cloud-based ERP?
Many of the advantages of cloud ERP fall under lower costs and fewer headaches. A cloud solution is usually cheaper
and faster to implement, and post-implementation expenses may be lower because the vendor takes care of all
maintenance and upgrades. A cloud-based system can also seamlessly support your growth, as the vendor manages all
hardware.

In this latest installment of our ERP Readiness series, we take a close look at a comprehensive business process model
and how we use it to orient clients to a process readiness conversation. It starts with this chart . . .

The graphic, above, is the comprehensive business model we use when talking to clients about process readiness. It
ensures everyone at the table has a common vocabulary when discussing common business process without being
overly prescriptive. At the end of the day, every business must pay attention to many, if not all, of these processes in
order to succeed. Whether documented and well-planned-out or ad hoc and seat-of-the-pants, these business
processes are what businesses do.
ORIENTATION TO THE MODEL
―Develop Vision and Strategy‖ appears at the very top of the model. First and foremost, all business processes derive
from and, in turn, support a well-developed company vision and strategy. From there—and particularly before you
begin any major change initiative—making sure you have a plan and a roadmap for using company resources well is
really important. Take the time to build your roadmap to the future, one that is grounded in your strategic objectives,
company culture, and utilizes your people, processes, and technology, and you’ll have a foundation from which to
grow. We have a video that walks organizations though the creation of an enterprise resource strategy. Most of the
concepts introduced in the video apply to general business strategy, not just planning for ERP.
Next, you’ll notice nine separate blue ―swim lanes‖ with arrows pointing from left to right. Each of these swim lanes
describes, in broad terms, one business process. One process that we have repeatedly used as an example in this blog is
the order-to-cash process (the third swim lane down). On the left side of the model is Order, on the right is Cash, thus
the five steps in between describe the steps taken in the process to turn a customer order into cash in the bank. The steps
are as follows:
1. Receive Order
2. Process Order
3. Distribute Goods
4. Invoice Customer, and
5. Manage Accounts Receivable.
Similarly, there are five steps between concept and product that make up the concept-to-product process, five in the
market-to-customer process, and so on.
Each of these five steps are intentionally broad. Each step may or may not involve one or more sub-processes. For
example, receiving an order may be as simple as getting a phone call, email, fax, or webform while processing the order
may involve multiple steps in a spreadsheet or accounting program. Two businesses may differ in how they execute
each of the steps in the order-to-cash process, but both businesses will have an order-to-cash process that conforms in
some way to these five steps.
THE FOUR CORE PROCESSES
The first four processes are those we consider to be the Core Processes of any business. These four business processes are
the revenue generators for your business:
1. Concept-to-product
2. Market-to-customer
3. Order-to-cash, and
4. Demand-to-supply
All four processes must be in place for a business to be profitable. As such, it is vital for an organization to be crystal
clear about how these processes are executed on a day-to-day basis. If your business chooses not to document all nine
business processes, we strongly recommend that you document at least these core four processes to foster clarity across
the organization. Along the way, you will no doubt identify inefficiencies that you can work to improve.
THE SUPPORTING CAST
The next five processes are we call the Enabling Processes. These five processes do not generate revenue in-and-of
themselves. However, the five enabling processes provide critical support for the four core processes that do. The five
enabling processes are:
1. Procure-to-pay
2. Invest-to-divest
3. Maintain-to-improve
4. Hire-to-retire, and
5. Finance-to-manage
The fact that these five processes are listed under the four core processes is not in any way intended to imply that these
five processes are less important. On the contrary, these processes are under the four core processes because they are
foundational. If the enabling processes are efficient, robust, and clear it is almost always the case that valuable
resources are freed-up to pursue the four core processes more aggressively. Said differently, businesses that spend the
time documenting and streamlining their enabling processes are able to scale faster and become more competitive in
their marketplaces than businesses that do not.
BUBBLE WRAP FOR YOUR COMPANY
The model contains one final piece to consider. There is a series of orange boxes that represent what we call Integral
Processes. These five processes are not sequential in the same way that the core and enabling processes are. Rather, the
integral processes serve to integrate the core processes with the enabling processes and vice versa—the glue between
the two kinds of processes, if you will. Executing quality systems and regulatory compliance and managing
stakeholder relationships, information resources, and process improvements are done across all core and enabling
processes. They run vertically across the model. Integral processes serve and protect the entire organization; they help
to manage risk and enable things to run more smoothly. Think of integral processes like the bubble-wrap around an
important parcel shipped across the country.
In future posts, we will discuss how to conduct a readiness assessment and continue to flesh out this model. We will
consider how it can be used to support organizational transformation initiatives like technology and enterprise
solution changes or how it might be used to create a continuous improvement culture within your organization.

WHAT IS A CORE PROCESS

Core processes are the strategically important processes in the company. They derive from the core competencies of an
organisation.
Definition Core Process – We also find the term ―core process‖ in the area of quality management – A good definition
can be found in the book Quality Management: Terms and Definitions, 12th updated edition 2017 (at the status of ISO
9001 : 2015) – TÜV SÜD Akademie GmbH
―Coreprocess – process that is strategically important taking into account the company’s orientation and contributes
significantly to business success. Core processes are characterized by the following aspects: Value creation, the
(external) customer is at the beginning and end of the process, they contribute significantly to the company’s success
and customer satisfaction, they have direct customer relevance and direct customer impact, the Customer is willing to
pay for the output of the process.‖
The customer’s wishes and its fulfilment by the core process at the centre. In this article you will learn more about the
reasons why we attach great importance to the topic of the core process.

Core Processes Process Optimization SAP

WHY IS IT IMPORTANT TO DESIGNATE THE CORE PROCESSES?

Business process management in practice
Each company must focus on developing these core processes so that it can fully exploit its competitive skills in process
performance. Depending on the competitive strategy, there are different requirements for organisation and processes.
Management’s naming of core processes has numerous advantages. Communication is greatly facilitated and the
project team can focus better. A lack of analysis of the business processes at the beginning of the introduction of ERP,
CRM, SCM and SRM systems usually leads to inefficient communication between the departments and the project
team, the project quality suffers and customer expectations remain unfulfilled .
Knowledge of core processes has 3 key benefits
Knowledge of the core processes has the following 3 advantages for a company:
1. Streamlined and clearer core and support processes by separating support processes
2. Quality improvement as employees focus on and optimize core competencies
3. Potential for savings in support processes – feasible through more efficient organization of the process
DOCUMENTATION OF CORE PROCESSES – GOALS
 Targeted introduction of ERP, CRM, SCM or SRM systems
 Facilitating:
 Transfer business processes to other locations
 Employee training and induction
 Communication
 Transparency for employees, customers and suppliers
 To avoid loss of knowledge (e.g. through employee departure)
 Determination of process key figures and monitoring of process performance
 Preparation / execution of a business process optimization

CORE PROCESS – CHARACTERISTICS & INFLUENCING FACTORS

A core process has 3 characteristics
 high strategic importance
 Cross-location to traditional departments
 enormous reach: – from the interface with suppliers to interfaces with customers; the process starts with the
customer and ends there again
PROCEDURE FOR DETERMINING THE CORE PROCESSES
Analysis of:
1. Business/competition strategy
Strategy includes two perspectives
– Market-oriented view: market competencies (cost leadership vs. differentiation)
– Resource-based view: core competencies
Depending on the competition strategy, different
– Efficiency criteria and success factors
– Requirements for organization and processes
2. Business model (relationships with business partners)
3. List of the main processes
4. Determination of Strategic Relevance: Core Processes – Support Processes

Core Processes – Focus on the Essentials

Criteria for the identification of core processes
 Direct reference to core competencies
 Strategically crucial
 Making a perceptible customer benefit
 Establishing a sustainable competitive advantage
 Focus on external beneficiaries (immediate market contact)
Questions for the identification of core processes
 Who is the target group / target market for the result of the process?
 What is our offer for this target group?
 How does our offer stand out from the competition?
 What is the competitive advantage?
 What proportion of the processes is in the company’s success (turnover, margin, etc.)
 What is the strategic significance of the process for the business?
 How often is the process?