What is an Enterprise Resource Planning System (+ Why You Need One)?

• Manage data

• Shorten the decision-making process

• Automate manual and repetitive tasks

• Improve team productivity

This guide will talk you through what an ERP system is, why it's useful, and how to get the perfect one for your team.

Table of contents:

• What is an enterprise resource planning (ERP) system?

• What are the five main components of ERP?

• What types of ERP solutions are there?

• What are the benefits of ERP software?

• Can I create my own ERP?

• ERP: Is it something that you need?

• Frequently asked questions about enterprise resource planning systems

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What is an enterprise resource planning (ERP) system?

An ERP application is a single system that centralizes all of your company data. It uses information modules to manage your core business processes and share information across departments in real-time. An ERP system uses logic to automate repetitive tasks and follows governance regulations. 

For example, ERP software can use the sales data coming from your online store to send information to the logistics department and plan deliveries. Then, it sends data to your CRM so your client gets an automated email with the purchase information.

What kind of business needs an ERP?

ERP applications are enterprise-level software used by big companies to handle large amounts of data. You should consider getting one of these systems for your business if:

1. Your team is making mistakes because the data is different across departments and platforms.

2. You’re using software that’s incompatible between departments (i.e. a CRM that doesn't connect with your logistics tool).

3. Your company is rapidly growing and your manual systems or spreadsheets aren’t enough.

4. You can’t keep track of new orders, customer requests, planning, manufacturing, and inventory, and it’s hurting the customer experience.

5. Data management is becoming too complex (e.g. your HR database is structured differently from your sales database)

6. You’re not following data security and data transferring regulations with your current systems.

7. You’re caught in bureaucratic loops because you don’t have an effective data sharing process across departments so everything becomes a bottleneck. 

What are the five main components of ERP?

These types of systems are composed of different ERP modules that simplify each part of core business operations. 

ERP applications have a front- and back-office module for each component. This means that someone has access to the raw data, and others can input personal information. For example, the front office of an HR module could facilitate employees making vacation requests.. The back office would only be visible to the HR professional that needs to download this data and add the vacation days to the payroll. 

The five main components of ERP software are:

1. Finances

2. Human resources

3. Manufacturing and logistics

4. Supply chain management (SCM)

5. Customer relationship management

1. Finances

This component is where employees enter and access the financial and accounting data including:

• Accounts receivable

• Accounts payable

• Cash flow

• General ledger

• Costs and expenses

• Budget 

• Profitability

People who access this ERP component can use the data to:

• Update the books

• Forecast financial scenarios

• Make sales and shipping decisions

• Come up with financial reporting

• Create reports to share with other departments

This module is the most important one in ERP systems as it helps businesses have control over revenue and expenses. 

2. Human Resources (HR)

This module keeps track of core HR capabilities. It can be used just to run payroll and track attendance but, depending on the ERP solution, it can also include performance rating systems and career management. It could even allow you to do vacation and promotion management in the same place.

This component aligns you with your country's laws and regulations so you can properly pay taxes and attributions. 

3. Manufacturing and logistics 

The manufacturing and logistics module is crucial for planning supply in line with demand. This component usually includes functionality for:

• Material requirements planning (MRP)

• Manufacturing execution

• Production scheduling

• Quality assurance

• Processing orders and planning deliveries

• Warehouse management

This module gives you information about demand, inventory, and delayed production. You can create reports to share with the sales department so they can make offers or avoid promoting a certain product. 

4. Supply chain management (SCM) 

An SCM is a network that simplifies the procurement, production, and distribution of your products. The supply chain is affected by different departments' actions and the SCM allows users to see data across them clearly. 

This module gives you visibility of your inventory, warehouse operations, transportation, and distribution. In this ERP module, you can review metrics like:

• Order management

• Delivery times

• Inventory management and cycle time

5. Customer relationship management (CRM)

The CRM is the module you use to connect with customers. This management system collects data and analyzes it in bulk. That way, you can get insights from your customers’ reactions to your communication and touchpoints across different channels. The CRM stores data from your customer purchase history, behavior, and demographics.

What types of ERP solutions are there?

Enterprise resource management solutions can be hosted in a cloud, on-premise, or in a hybrid model. Choosing one over the other will depend on your requirements, budget, and security regulations. 

Cloud-based ERP 

Cloud ERP means the enterprise application is hosted in the cloud and accessible through an internet connection. It’s the software-as-a-service (SaaS) version of an ERP. This type of hosting is usually easy to use as the software provider is responsible for maintaining and updating it. 

Cloud-based ERP is growing in popularity as it’s easier to integrate with your data and systems, is less expensive than other options, and it's lightweight and scalable. The only issue is that it might be more susceptible to security issues and data leaks.

On-premise ERP 

This is similar to buying software off the shelf. You pay for the license of the ERP system and host it on your local servers. Getting the ERP hosted on-premise, makes you responsible for maintaining and updating your servers. 

On-premise ERP usually means you have better data security and control over your information, but it’s also more expensive and harder to maintain. 

Hybrid ERP

The hybrid ERP model is a mix of both cloud- and self-hosted systems. It helps you meet some specific business requirements, like securing customer data on-premise, but having employee information stored in the cloud. Following the hybrid model, you could host the majority of data in the cloud, but keep some on-premise to comply with data security requirements. 

What are the benefits of ERP software?

Using enterprise resource planning software for your business comes with great benefits to improve efficiency and performance. It can also: 

Increase your productivity and agility

Giving your staff access to data in real-time allows them to improve decision-making, automate workflows and optimize operations. Also, as they won’t need to enter as much information manually, you’ll be able to do more with fewer people.

Turn business intelligence into a competitive advantage

By sharing accurate information across multiple departments, your staff will be able to reach insights fast and without worrying about having an outdated version of a report. Eliminating data silos allows your team members to come up with ideas to solve internal problems and gain a competitive advantage.

Minimize the risk

Having shared access to the most updated information, you minimize the risk of someone selling more than what was on inventory or promising delivery dates that you can’t meet. ERP systems also let you forecast and anticipate future risks by having accurate access to data.

Simplify your staff’s life

ERP makes it easier for your staff to do their jobs. Adding one to your company can help you increase productivity, engagement, and results. 

For instance, if your product supply team spends two hours a day creating inventory reports, an ERP would allow them to do it automatically. You reduce the possibility of making mistakes and simplify things for your staff.

Can I create my own ERP?

Yes, you can create your own ERP if you want to go down the custom enterprise software development route.  But developing enterprise-level software isn’t a simple solution—you need a strong dev team.

If you need to deploy a solution fast, or don’t have the budget to hire developers, you could just buy consumer off-the-shelf (COTS) ERP software and customize it to suit your organizational needs. 

That said, there are some major advantages of custom enterprise software to consider.

Advantages of creating a bespoke ERP

• You get to customize the new ERP to match your unique requirements

• You can include all security policies and regulations that you need 

• You can then sell the ERP solution to other similar, niche businesses

Disadvantages of creating a bespoke ERP

• It’s expensive to develop and maintain

• You’re responsible for fixing any bugs or future code malfunctions

• You might need to pay for local servers

ERP: Do you need one?

Enterprise resource planning is an all-in-one software solution that integrates the different business functions using a common database. You might need to use an ERP if:

• Your business is rapidly growing

• Your team is making mistakes with manual data uploading

• You take too much time to decide and get data insights

• You have too many manual and repetitive tasks

If you’re thinking about getting an ERP for your business, you should first look at the different existing options as there are several companies that will provide you with an excellent solution (e.g. Oracle or SAP). If those don’t cut it, you can hire a team of developers to create a customized solution. 

If you need an expert opinion, check out NaNLABS’ consultancy services. We have over 9 years of experience helping businesses solve their inefficient processes with bespoke Agile software development. We’ll help you define the best option for your business and refer you to the right people or resources. 

Ready to build your own custom software with a team that cares about you and your processes? We’re not code monkeys, we care about you. 

Get in touch. We don't byte