ERP, or Enterprise Resource Planning is nothing more than a big piece of software. It sits at the centre of big organisations, handling lots of important tasks.
More recently, smaller scale ERP applications have come onto the market. These allow new and small businesses to get the benefits of linked back office functions. This is due, in large part, to the availability of managed, cloud-based software.
Why do we Need ERP Systems?
The largest ERP systems represent huge investments for the organisations that install them. So, there must be a compelling business case driving their adoption. There is little more we need to do here, than list some of the claimed benefits.
- Reduced Costs. The bottom line is that running these systems reduces costs. Where this outweighs the cost of building and maintaining the ERP, the case is solid.
- Increased Productivity. The ERP can run processes more efficiently, with fewer lost hours and reduced waste.
- Inventory Control. With an ERP at the heart of your supply chain, you can manage suppliers and supply chains with more rigour.
- Happier Customers. ERP systems were first designed to support back office functions. But they now include modules to support customer relationships, lead acquisition, and customer service and retention.
- Regulatory Compliance. Industry specific modules can support and even implement compliance with regulations. Peace of mind and protection from litigation have a big value.
- Data Analysis. By having one common data store for your whole business, you can access a lot of consistent data. Give it enough raw processing power, and you can get great analysis in real time.
- Greater Collaboration. Your whole management and workforce share data and analysis. So, ERP vendors claim they drive collaboration, faster problem solving, and better decisions.
What is ERP?
Enterprise Resource Planning is a type of software. It manages a wide range of business processes, across the organisation. It does this by integrating application modules, designed for each function.
Originally, these functions were back-office processes like accounting, services, and personnel. Then, more operational capabilities started to appear. These included: production planning, supply chain management, and procurement. Now, we see firmly front-of-house functions included. Examples include sales, marketing, and customer relationship management.
Definition of ERP
Not surprisingly, there is no fixed definition of ERP. Each vendor defines it in terms of the capabilities their product excels at. The other challenge is that most definitions are jargon-ridden. I give you:
Enterprise resource planning (ERP) is the integrated management of core business processes, often in real-time and mediated by software and technology.
Enterprise resource planning (ERP) is a process by which a company (often a manufacturer) manages and integrates the important parts of its business. An ERP management information system integrates areas such as planning, purchasing, inventory, sales, marketing, finance and human resources.
My favourite, though, because it has less jargon, is:
ERP is an IT system that helps businesses run important processes, such as financials, materials planning, and HR.
Big ERP and Small ERP
The E of ERP stands for enterprise. ERPs were first designed for the biggest tier of corporations. Smaller, often cloud-based solutions are now available.
The big ERPs need large teams of contractors and consultants to set them up. And they need a team of analysts and developers to for day-to-day support and ongoing upgrades.
Small business ERPs have standard customisations. That’s not a contradiction. Different standard versions exist for each industry type. This makes ‘customisation’ as easy as selecting components that match your business. This has opened up the benefits of ERP to a far wider number of businesses.
How to Implement ERP
Step 1: get a big pot of cash. The bigger the better.
Step 2: Hire expensive consultants. And expect the team to grow.
Step 3. Grit your teeth and settle in for the long haul.
That’s how it seemed to me when I was working for an expensive consulting firm (not installing ERP).
But seriously, here are the essential steps in outline…
- Figure out what you want to achieve and why.
This is important, and will inform your business case and robust decision-making. ERP can solve a lot of problems. Which ones do you need to solve?
- Project Definition.
Set the scope of your ambition, and set up a project with a project team. Pay careful attention to good project governance, as ERP projects tend to over-run and over-spend.
- Evaluate your Options.
Don’t believe what the salespeople tell you about their ERP. Instead, visit reference sites (that you choose) and set up tests. ‘Measure twice, cut once’ is the maxim. If you select quickly, you’ll have more time for regret.
This will be a bit of a black box to most of the business. But don’t let the consultants and engineers intimidate you. Ask questions and understand what they are doing. It’s your data they will be migrating. It’s your processes they will dictate. The key technical components will relate to:
- physical hardware infrastructure
- interfaces with other systems (a minefield)
- data cleansing and migration
- data back-up
- customisation (a black hole for cash)
- piloting and testing
- Change Management.
Don’t underestimate the scale of the cultural and work practice changes an ERP creates. If you are not planning and allocating resources to change management, you’ll have a great system… That nobody uses properly.
ERPs are complex. Getting the best from them means using them properly. So prepare for a major training programme. This will mean a lot of disruption and complicated logistics, so plan well in advance and start early.
- Go Live.
There will be a day when you switch off your old systems and turn on the new ERP system. Hopefully all will work well. But you’ll need contingency plans and the ability to revert to working systems if it doesn’t. Dual running is one option.
- Ongoing Support.
ERP is not like the To Do app on your phone. It needs a lot of support for users, and a lot of behind-the-scenes administration to keep it healthy.
- Figure out what you want to achieve and why.
Who are the Players?
It is not our job to help select an ERP system. But if you want to be well-informed, you do need to know some of the big names. The two biggest are SAP and Oracle with a third of the market between them. Increasingly Sage is moving up the scale of SMEs to bigger clients. Unsurprisingly, Microsoft is working hard to win bigger accounts for its ERP services. Other names to know include Infor, NetSuite, Epicor, and newer entrants like Kronos and Workday.
What is Your experience of ERP?
We’d love to hear your experiences, ideas, and questions. Please leave them in the comments below. But please, no adverts for services or products. We’re not equipped to evaluate them, so we’ll just delete them instead!