What is ERP enterprise resource planning )? Briefly discuss the components of ERP?

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Table of Contents Show

1. Human Resources
2. Customer Relationship Management
3. Business Intelligence
4. Supply Chain Management
5. Inventory Management System
6. Financial Management
Do Your Research
Benefits of ERP
Key features of ERP systems
Types of ERP solutions
ERP vendors
Selecting an ERP solution
ERP implementation
Why ERP projects fail

For every Thanksgiving dinner, you need, at the very least, the basics. It wouldn’t really be Thanksgiving without stuffing, sweet potatoes, green bean casserole, pumpkin pie and, of course, the turkey. It’s more than welcome to add some extra foods to the feast, but the minimum you need at every Thanksgiving meal are the main components.

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Enterprise resource planning (ERP) software is much the same. Your ERP system can be jam-packed with innovative and intuitive features, but if it doesn’t have one of the main components, it’s simply not worth it. So while you’re evaluating ERP vendors, make sure that they have each of the six main ERP components. And if they don’t, look elsewhere.

What are those six main ERP components? Well, we’re glad you asked:

1. Human Resources

Managing your employees should always be priority number one. Without them, you don’t have a company. Your HR ERP component should be able to handle the full spectrum of employee management, from onboarding to offboarding, and from benefits administration to timekeeping.

The biggest feature you need from a HR component is payroll software. Manually submitting payroll and issuing direct deposits is incredibly time-consuming and, frankly, not worth your time. Instead, an HR component automates payments, including tax and benefits deductions. With an integrated timekeeping feature, even payments to your hourly workers can be automated, so you don’t need to manually input their timesheets.

2. Customer Relationship Management

Managing your customers and leads needs to be your second highest priority, because without them, your business can’t survive, let alone grow. A customer relationship management (CRM) ERP component allows you to keep track of all of your customer and lead data within your ERP solution. The insights you can gain from a CRM help optimize your marketing and sales efforts.

One of the main uses of a CRM is tracking the buyer histories of your customers. With this data in hand, you can suggest additional purchases through cross-selling or upselling, or try to sell them a relevant product/service when they’re otherwise not as likely to buy. In addition, you can use a CRM to track the conversation history with leads, so you know who’s talked to them, when they talked and what they talked about. Using this data, you can more effectively lead them down the sales funnel by providing them with relevant marketing materials, and making sure that sales reps never double-up by calling about the same thing.

3. Business Intelligence

Business intelligence (BI) is pretty new. At least, it is when it comes to standard ERP components. But considering how many businesses are attempting to create data-driven decision-making processes, it’s quickly become one of the standard ERP components. The BI component of your ERP software collects and analyzes data, providing you with actionable insights related to your business processes.

The best BI ERP components deliver those insights in reports. A good reporting feature is the most important in a BI, so you can make sense of the data it analyzed. Some reports come in the form of numbers in different tables. But the best reports are visual, allowing you to spot trends at a glance. Make sure that data visualization is possible with the BI components’ reporting features. Otherwise, those insights will be a lot harder to decipher.

4. Supply Chain Management

Creating an efficient supply chain isn’t exactly easy, even when deploying software to help you out. The supply chain management (SCM) component of an ERP system is one of the most crucial for this reason. You need the best SCM features to be able to optimize your supply chain, and that starts by collecting real-time data.

Real-time data allows you to keep tabs on your supply chain, so you can find and fix issues as they happen, rather than waiting until you receive the data a day or more after the fact. It also makes predictive analytics possible. The SCM component, with the aid of real-time data, can help with demand planning, so you can create an up-to-the-minute accurate production plan that meets demand, but doesn’t exceed it.

5. Inventory Management System

An inventory management component is one of the most collaborative ERP components. Inventory management works in tandem with the SCM component, but also dips its toes in other processes, such as sales and warehousing. These main purpose of these components is to manage order fulfillment and stocking a warehouse.

The best inventory management components come with tracking features that all but eliminate manual inventory control. These features include multi-level serial number tracking, revision level tracking and multiple units of measure per product ID or SKU.

6. Financial Management

Last but not least, we come to the component that deals with data from all of the other ERP components. Since every business process involves money in one form or another, whether it’s paying your employees or paying to ship goods, the financial management component works with all of the other components in your ERP system.

This component stores and analyzes all of your financial data, including accounts payable, accounts receivable, costs, budgets and forecasts. It helps reveal insights into your spending, so you can discover profit trends and times of unusually high spending. Then you can put that data to good use by changing whatever processes are causing lower profits or high spend, so you can maximize your profits while reducing costs.

Do Your Research

Long before you reach the ERP implementation stage, you need to research what components and features are available in an ERP system. Although you may need other ERP components, at the minimum, your system should have these six. And just as importantly, make sure that the components they offer have all of the features your business needs. Without doing the proper research, you’ll end up searching for a new ERP way sooner than you’d like.

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Enterprise resource planning (ERP) is a system of integrated software applications that manages day-to-day business processes and operations across finance, human resources, procurement, distribution, supply chain, and other functions. ERP systems are critical applications for most organizations because they integrate all the processes necessary to run their business into a single system that also facilitates resource planning. ERP systems typically operate on an integrated software platform using common data definitions operating on a single database.

ERPs were originally designed for manufacturing companies but have since expanded to serve nearly every industry, each of which can have its own ERP peculiarities and offerings. For example, government ERP uses contract lifecycle management (CLM) rather than traditional purchasing and follows government accounting rules rather than GAAP.

Benefits of ERP

ERP systems improve enterprise operations in a number of ways. By integrating financial information in a single system, ERP systems unify an organization’s financial reporting. They also integrate order management, making order taking, manufacturing, inventory, accounting, and distribution a much simpler, less error-prone process. Most ERPs also include customer relationship management (CRM) tools to track customer interactions, thereby providing deeper insights about customer behavior and needs. They can also standardize and automate manufacturing and supporting processes, and unify procurement across an organization’s business units. ERP systems can also provide a standardized HR platform for time reporting, expense tracking, training, and skills matching, and greatly enhance an organization’s ability to file the necessary compliance reporting across finance, HR, and the supply chain.

Key features of ERP systems

The scale, scope, and functionality of ERP systems vary widely, but most ERP systems offer the following characteristics:

Enterprise-wide integration. Business processes are integrated end to end across departments and business units. For example, a new order automatically initiates a credit check, queries product availability, and updates the distribution schedule. Once the order is shipped, the invoice is sent.
Real-time (or near real-time) operations. Because the processes in the example above occur within a few seconds of order receipt, problems are identified quickly, giving the seller more time to correct the situation.
A common database. A common database enables data to be defined once for the enterprise with every department using the same definition. Some ERP systems split the physical database to improve performance.
Consistent look and feel. ERP systems provide a consistent user interface, thereby reducing training costs. When other software is acquired by an ERP vendor, common look and feel is sometimes abandoned in favor of speed to market. As new releases enter the market, most ERP vendors restore the consistent user interface.

Types of ERP solutions

ERP systems are categorized in tiers based on the size and complexity of enterprises served:

Tier I ERPs support large global enterprises, handling all internationalization issues, including currency, language, alphabet, postal code, accounting rules, etc. Tier I vendors include Oracle, SAP, Microsoft, and Infor.
Tier I Government ERPs support large, mostly federal, government agencies. Oracle, SAP, and CompuServe PRISM are considered Tier I with Infor and CGI Momentum close behind.
Tier II ERPs support large enterprises that may operate in multiple countries but lack global reach. Tier II customers can be standalone entities or business units of large global enterprises. Depending on how vendors are categorized there are 25 to 45 vendors in this tier.
Tier II Government ERPs focus on state and local governments with some federal installations. Tyler Technologies and UNIT4 fall in this category.
Tier III ERPs support midtier enterprises, handling a handful of languages and currencies but only a single alphabet. Depending on how ERPs are categorized, there are 75 to 100 Tier III ERP solutions.
Tier IV ERPs are designed for small enterprises and often focus on accounting.

ERP vendors

The top ERP vendors today include:

Oracle
SAP
Microsoft
Workday
Sage
Infor
Epicor
ServiceNow
QAD
Salesforce

Selecting an ERP solution

Choosing an ERP system is among the most challenging decisions IT leaders face. In addition to the above tier criteria, there is a wide range of features and capabilities to consider. With any industry, it is important to pick an ERP vendor with industry experience. Educating a vendor about the nuances of a new industry is very time consuming.

To help you get a sense of the kinds of decisions that go into choosing an ERP system, check out “The best ERP systems: 10 enterprise resource planning tools compared,” with evaluations and user reviews of Acumatica Cloud ERP, Deltek ERP, Epicor ERP, Infor ERP, Microsoft Dynamics ERP, NetSuite ERP, Oracle E-Business Suite, Oracle JD Edwards EnterpriseOne ERP, Oracle Peoplesoft Financial Management and SAP ERP Solutions.

ERP implementation

Most successful ERP implementations are led by an executive sponsor who sponsors the business case, gets approval to proceed, monitors progress, chairs the steering committee, removes roadblocks, and captures the benefits. The CIO works closely with the executive sponsor to ensure adequate attention is paid to integration with existing systems, data migration, and infrastructure upgrades. The CIO also advises the executive sponsor on challenges and helps the executive sponsor select a firm specializing in ERP implementations.

The executive sponsor should also be advised by an organizational change management executive, as ERP implementations result in new business processes, roles, user interfaces, and job responsibilities. Reporting to the program’s executive team should be a business project manager and an IT project manager. If the enterprise has engaged an ERP integration firm, its project managers should be part of the core program management team.

Most ERP practitioners structure their ERP implementation as follows:

Gain approval: The executive sponsor oversees the creation of any documentation required for approval. This document, usually called a business case, typically includes a description of the program’s objectives and scope, implementation costs and schedule, development and operational risks, and projected benefits. The executive sponsor then presents the business case to the appropriate executives for formal approval.
Plan the program: The timeline is now refined into a work plan, which should include finalizing team members, selecting any external partners (implementation specialists, organizational change management specialists, technical specialists), finalizing contracts, planning infrastructure upgrades, and documenting tasks, dependencies, resources, and timing with as much specificity as possible.
Configure software: This largest, most difficult phase includes analyzing gaps in current business processes and supporting applications, configuring parameters in the ERP software to reflect new business processes, completing any necessary customization, migrating data using standardized data definitions, performing system tests, and providing all functional and technical documentation.
Deploy the system: Prior to the final cutover, multiple activities have to be completed, including training of staff on the system, planning support to answer questions and resolve problems after the ERP is operational, testing the system, making the “Go live” decision in conjunction with the executive sponsor.
Stabilize the system: Following deployment, most organizations experience a dip in business performance as staff learn new roles, tools, business processes, and metrics. In addition, poorly cleansed data and infrastructure bottlenecks will cause disruption. All impose a workload bubble on the ERP deployment and support team.

Four factors are commonly underestimated during project planning:

Business process change. Once teams see the results of their improvements, most feel empowered and seek additional improvements. Success breeds success often consuming more time than originally budgeted.
Organizational change management. Change creates uncertainty at all organization levels. With many executives unfamiliar with the nuances of organization change management, the effort is easily underestimated.
Data migration. Enterprises often have overlapping databases and weak editing rules. The tighter editing required with an ERP system increases data migration time. This required time is easy to underestimate, particularly if all data sources cannot be identified.
Custom code. Customization increases implementation cost significantly and should be avoided. It also voids the warranty, and problems reported to the vendor must be reproduced on unmodified software. It also makes upgrades difficult. Finally, most enterprises underestimate the cost of customizing their systems.

Why ERP projects fail

ERP projects fail for many of the same reasons that other projects fail, including ineffective executive sponsors, poorly defined program goals, weak project management, inadequate resources, and poor data cleanup. But there are several causes of failure that are closely tied to ERPs:

Inappropriate package selection. Many enterprises believe a Tier I ERP is by definition “best” for every enterprise. In reality, only very large, global enterprises will ever use more than a small percentage of their functionality. Enterprises that are not complex enough to justify Tier I may find implementation delayed by feature overload. Conversely, large global enterprises may find that Tier II or Tier III ERPs lack sufficient features for complex, global operations.
Internal resistance. While any new program can generate resistance, this is more common with ERPs. Remote business units frequently view the standardization imposed by an ERP as an effort by headquarters to increase control over the field. Even with an active change management campaign, it is not uncommon to find people in the field slowing implementation as much as possible. Even groups who support the ERP can become disenchanted if the implementation team provides poor support. Disenchanted supporters can become vicious critics when they feel they have been taken for granted and not offered appropriate support.

Cloud ERP

Over the past few years, ERP vendors have created new systems designed specifically for the cloud, while longtime ERP vendors have created cloud versions of their software. Cloud ERP There are a number of reasons to move to cloud ERP, which falls into two major types:

ERP as a service. With these ERPs, all customers operate on the same code base and have no access to the source code. Users can configure but not customize the code.
ERP in an IaaS cloud. Enterprises that rely on custom code in their ERP cannot use ERP as a service. If they wish to operate in the cloud, the only option is to move to an IaaS provider, which shifts their servers to a different location.

For most enterprises, ERP as a service offers three advantages: The initial cost is lower, upgrades to new releases are easier, and reluctant executives cannot pressure the organization to write custom code for their organization. Still, migrating to a cloud ERP can be tricky and requires a somewhat different approach than implementing on on-premises solution. See “13 secrets of a successful cloud ERP migration.”