What Is ERP?

Types of ERP

The definition of ERP, which stands for enterprise resource planning, is a system that collects and organizes a businesses data for the purposes of planning, visibility and control. A comprehensive enterprise resource planning system is usually made up of smaller, specialized modules that can be customized to the business’s needs. The modules coordinate with each other through a central database, which can be on-site or in the cloud.

Businesses of all types use ERP software to manage and automate day-to-day tasks and overall business processes, including accounting and financial management, procurement, Human Capital Management, CRM,  planning and scheduling, and inventory management. . A complete ERP system also includes enterprise performance management software that helps plan, budget, predict, and report on an organization's financial results. By collecting an organization's shared transactional data from multiple sources, ERP systems eliminate data duplication and provide data integrity with a single source of truth.

There are a few different ways to answer the question of what ERP is. The types of ERP systems available today can be organized into three basic categories.

Business Size
Enterprise Resource Planning systems offer vast functionality based on the size of a company.  A small business with a single location has drastically different requirements than a large global organization with multiple facilities and business units.  

Industry Segment
Businesses in different industries have different requirements specific to the industry they serve.  For example, a manufacturing company has different business needs than a construction company, retail company, or healthcare system. Although there are generic ERP solutions, most ERP solutions have been developed to address each industry segment's unique business and workflow processes.  

Deployment options:
The three most common types are:

• On-premises ERP: Software is installed locally on a company's hardware and servers, managed by in-house IT staff.
• Cloud-based ERP: Software is hosted on the vendor's servers and accessed through a web browser, reducing IT infrastructure costs.
• Hybrid ERP: Combines elements of both on-premises and cloud deployments, offering flexibility in data storage and access.
• Cloud Hosted:  System is installed on a server in a data center (similar to Amazon Web Services (AWS), and managed by a third party. This is a service that may be offered by an ERP solution provider.

To understand the meaning of ERP, let’s look at what it does in more detail. What is enterprise resource planning and what does this software do?

Accounting and Finance

A good enterprise resource planning system will simplify and automate your accounting and finance processes, helping to eliminate human error and manual work by: 

• Facilitating tasks like payroll, accounts payable and receivable, budgeting, and reporting
• Analyzing costs and forecasting growth to manage cash flow
• Providing a complete, at-a-glance view of finances to improve visibility
• Handling risk management and tax compliance
• Helping your business make better financial decisions and improve profitability

Customer and Order Management

Many businesses use separate software for customer relationship management, but with ERP, you don’t have to. That functionality is often built in to your ERP system, tracking customer interactions and processes and managing lead generation, opportunity management, sales forecasting, customer service and support, and marketing campaign management so you can:

• Access the sales, purchase, shipping, and support history for every customer, vendor, and partner
• See detailed notes, quotes, and meeting activity
• Eliminate the need to enter and re-enter customer information
• Seamlessly share information between departments, so customer-facing tasks can be completed consistently and efficiently

Human Capital Management

Personnel management is a complex process that touches every part of an organization. HR features in ERP systems streamline workforce management and improve efficiency by:

• Processing payroll and benefits administration
• Tracking employee training and certifications
• Managing recruitment and onboarding
• Providing workforce analytics and reporting

Planning and Scheduling

Planning and scheduling features in an Enterprise Resource Planning System helps you accurately manage and schedule resources to ensure all the resources you need to a deliver a product are in place:

• Centralizing timelines and resource availability
• Progress and milestones tracking
• Optimize resource utilization and allocation
• Visibility of conflicts and constraints
• Facilitating team communication and collaboration 

Inventory and Procurement

Inventory control helps you track inventory through the procurement, receiving, and shipping process. It helps with resource planning, supplier management, order processing, and fulfillment. It can help your business:

• Improve vendor performance
• Deliver in full and on time
• Reduce inventory costs
• Forecast the materials you need to meet customer demands 

Shipping and Recieving

ERP can help streamline the entire shipping and distribution process, starting from when the order is placed through the warehouse, to the docks and beyond. The warehouse management module of the ERP system often includes features for barcode scanning, RFID tracking, and integration with material handling equipment and can help you:

• Automatically convert sales orders to pick tickets
• Generate advanced shipping notices for customers
• Create commercial invoices, including export declarations, certificates of origin, and certificates of conformance for international shipments
• Calculate and automatically adjust the volume and weight of boxes and pallets
• Schedule and track shipments to meet promised delivery dates, keep customers updated, and control costs 

ERP solutions can do a lot for your business, and that means it has plenty of benefits, too. It isn’t just about saving money. It’s about improving your entire business model, from the shop floor to the board room. 

Improved Collaboration

ERP connects every facet of your business, from sales and marketing, to billing and accounting. That helps get everyone on the same page and improve collaboration between departments, which can lead to more qualified leads and closed sales.

Accurate Planning

This benefit is right there in the definition of enterprise resource planning: It enables you to plan more accurately. ERP can help you forecast sales, resources, and overall costs, so you can better plan your production schedule. It also provides real-time insights for more effective project planning. With a complete, single source of truth, you can analyze data across your organization and make better decisions with confidence.

Streamlined Processes

Improved collaboration, as well as the ability of ERP to connect all business processes through a central hub, naturally leads to greater efficiency. ERP breaks down data silos and enables seamless workflows, leading to cost savings on the back-end. And it can automate manual and routine tasks, like generating purchase and change orders, delivery estimates, and financial reports, eliminating redundant data entry and reducing errors associated with manual processes.

Better Customer Service

With all your customer information in one place, your team can respond faster and solve problems more effectively. They'll see the complete picture – from purchase history to preferences to support tickets – which means more personal service and faster answers. Your customers get better support and stick around longer.

Improved Inventory Management

Real-time tracking helps you keep the right amount of stock on hand and cut costs. You'll know what to order and when with smart forecasting and automated reordering. Your business saves money by avoiding overstock while making sure you never run out of what customers want.

Streamlined Compliance

Built-in controls and clear data tracking make meeting regulations straightforward. You get automatic audit trails, reports for regulations like GDPR and HIPAA, and tools for industry-specific requirements. Your business stays compliant with less work, and audits become much simpler.

Enhanced Data Security

Keep your sensitive information safe by managing all your data in one secure system. You'll have strong controls over who sees what, data encryption, and regular backups, keeping your business protected from data breaches and operations running smoothly.

Scalability

Your ERP system grows right along with your business, handling more volume and new processes as you expand. You can add new features, users, or tools whenever you need them without disrupting your operations. Whether you're moving into new markets or adding product lines, the system adapts to support your growth.

Competitive Advantage

Ultimately, what is ERP to your organization? It’s a way to unlock operational efficiencies and drive growth in new ways. When your employees spend less time on manual day-to-day tasks, they can spend more time bringing in new business and providing excellent service to the customers you already have. And when you can accurately forecast your supply chain and costs, you can stay ahead of competitors. In short? ERP is all about ROI.

Implementing ERP requires careful planning, strong leadership, effective communication, and a dedicated team. Here are some of the most common challenges.

Cost Challenges

Moving to a new ERP system takes a big investment upfront for software, hardware, and implementation services. You'll need to plan for ongoing costs too, like maintenance and support. Many companies run into unexpected expenses or find the project growing bigger than planned, so it's important to map out your budget and know what return you expect from your investment.

Data Migration Complexities

Moving your data from old systems to the new ERP isn't always simple. You need to make sure everything transfers correctly and stays accurate, while keeping your existing systems running. Connecting with other software you use can be tricky, and there's always a risk of losing or mixing up data during the move. You'll want to clean up and check your data before and after the switch.

User Adoption Hurdles

Getting your team on board with a new system takes work. People get comfortable with their usual way of doing things, and learning new software takes time. Your staff will need good training and support while they get up to speed. During this learning period, you might see work slow down a bit until everyone gets comfortable with the new system.

Project Management Demands

It's tough to predict exactly how long implementation will take and what resources you'll need. Projects often grow beyond their original scope, taking more time and money than planned. You'll need to coordinate between different departments while keeping your regular business running smoothly.

Change Management Requirements

Getting everyone excited about the new ERP software takes clear communication about its benefits. Your leadership team needs to stay visibly committed to the project, and you'll need a solid plan to handle the organizational changes. Managing expectations and addressing concerns becomes a big part of the process.

Technical Considerations

Your new ERP system needs to be fast and reliable. You'll likely run into technical issues during setup and afterward that need fixing. You'll also need to plan for system downtime during the switch and future updates, while making sure your IT infrastructure can handle the new software.

Security and Compliance

Protecting your data becomes even more important with a new ERP system. You need strong security measures and proper access controls, especially if you're using cloud-based services. The system must meet all your industry's regulations while keeping sensitive information safe.

Vendor Relations

Picking the right ERP vendor makes a huge difference. You need someone who understands your business and provides good support throughout the process. Get clear agreements about what they'll deliver, what support you'll receive, and how future upgrades will work.

While many ERP systems might look similar at first glance, each has its own strengths and specialized features. Here are the key factors to consider when making your choice:

• Business size and industry: Look for a system that fits companies like yours. Make sure it includes features for your industry, meets all regulations, and can handle your specific workflows.
• Functional requirements: Consider which core features you need, from finance to HR to supply chain. Think about how you'll use the system daily, including reporting needs and whether you need mobile access.
• Total cost of ownership: Factor in all costs including licenses, implementation, support, training, and any hardware upgrades. Don't forget to calculate your expected return on investment.
• Deployment options: Decide between cloud-based or on-premises systems based on your security needs, IT resources, and how much control you want over the system.
• Growth potential: Choose a system that can grow with you. Make sure it can handle more users, locations, and transaction volumes as your business expands.
• Integration capabilities: Check how well the system connects with your existing software. Look for built-in connectors and tools that make data migration easier.
• Vendor support: Research the vendor's stability, support quality, and update frequency. A strong user community and good training resources are valuable extras.
• User experience: Pick a system your team will actually use. Look for intuitive interfaces and good training materials to help with adoption.
• Customization options: Balance ready-to-use features with your need for customization. Make sure any changes won't cause problems during updates.
• Security features: Verify that the system has strong security and meets all your compliance requirements, including data encryption and access controls.
• Reporting tools: Check that you can get the insights you need through built-in reports, custom options, and real-time analytics.
• Implementation process: Understand how long implementation will take and what resources you'll need. Look for vendors with clear methodologies and phased options
• Future innovation: Consider the vendor's track record for innovation and their plans for new technologies. Make sure they'll keep up with your future needs.

Now that you've chosen an ERP system, you still need tips for how to implement it. Follow these best practices to get the most of your system.

Clear Objectives and Success Metrics

Your ERP implementation needs to align with your business strategy from the start. Set specific, measurable goals and define clear KPIs to track your progress. Create a balanced scorecard that looks at financial, operational, and customer metrics, and take baseline measurements so you can see improvements.

Executive Support and Stakeholder Buy-in

Get your leadership team on board early and identify a C-level champion for the project. Build a steering committee with members from every affected department. When leaders actively support the change and communicate its benefits clearly, you'll see less resistance and better results.

Thorough Planning and Realistic Timelines

Start with a deep dive into your business processes and create a detailed project plan. Account for unexpected issues by building in extra time and resources. Consider how your business cycles might affect implementation and be ready to adjust your plan as needed.

Change Management and Training

Put together a solid change management plan and keep everyone updated on progress. Offer different types of training to match various learning styles, and identify power users who can help others adapt. Make sure you have clear documentation that's easy to find when people need help.

Data Preparation and Migration

Take time to clean up your data before moving it to the new ERP system. Check everything for accuracy, remove duplicates, and carefully map how data will transfer between systems. Test thoroughly after migration and have a plan for storing historical data you won't need right away.

Phased Implementation Approach

Break your implementation into manageable chunks instead of trying to do everything at once. Start with the most critical functions and use pilot programs to work out any issues. Give yourself time between phases to stabilize and learn from what works and what doesn't.

Post-Implementation Optimization

Schedule regular check-ins after go-live to see how things are working. Listen to user feedback and fix problems quickly. Keep an eye on system performance, make sure everyone knows how to use new features as they're released, and always look for ways to improve your processes.

Strong Project Management

Put an experienced project manager in charge who can focus on the implementation. They’ll know how to watch for potential risks, have backup plans ready, and keep detailed records of everything throughout the project. Give them the project management tools they need and make sure they hold regular status meetings.

Testing and Quality Assurance

Test everything thoroughly before going live. Include your end users in testing to make sure the system works in real-world situations. Check how the system handles heavy loads and make sure all your business processes work correctly in the new system.

Go-Live Preparation

Create a detailed checklist for ERP launch day and practice with a mock go-live first. Have backup plans ready for any major issues and provide extra support during the first few weeks. Watch the system closely and be ready to fix any problems that pop up.

Want to learn more about what ERP is? DELMIAWorks is one of the best examples of ERP.  Our comprehensive ERP software helps organizations stay agile, competitive, and compliant. It’s a flexible, scalable system that can be customized to your business, incorporating the modules you need now and adding more when the time is right.

DELMIAWorks eliminates silos and third-party data integration, taking care of everything in one place – the way ERP should be done. Check out the customer stories to learn why businesses like yours trust DELMIAWorks as their ERP software.