What is an ERP?
ERP stands for Enterprise Resources Planning. In plain English, it’s a single software package in which all the processes and information of your company are centralised. All important operational, commercial and financial information is located in one database and linked together. This makes for more effective business operations that save the company time and money.
Companies that do not have an ERP system generally work with a number of different IT applications. This leads to multiple databases with duplicate and inconsistent data.
Why invest in an ERP system
ERP systems are a great asset to many organisations. Business processes run a lot smoother and more automatically, information is centralised and you get a clear view of your business as an entrepreneur.
The main benefits of an ERP package are described below:
1. Targeted and unambiguous IT costs
While ERP software is a big investment for many companies, it can cluster together your IT costs and improve the efficiency of your business. Instead of spending resources such as people, infrastructure, training, support, and licences on multiple applications, you can consolidate all the costs into one central software package. Centralising the software ensures that end users only need to master one system. You can even save on IT.
2. A consistent and centralised view
This benefit is one of the biggest selling arguments for ERP software. Although each department (sales reps, accountants, warehouse workers, field service technicians, etc.) works with its own screens/applications, an ERP system ensures that the data that they use are communicated to the other departments and are stored in the same database. When a sales rep sells something, it affects your turnover, stock, possible purchasing, delivery planning and ultimately it has to be invoiced too. An ERP keeps track of this information in real time, automates a number of the processes and supports the user in particular decisions.
Another concrete example. You check the stock of your products or parts on a regular basis. There are many relevant pieces of data: the quantity in stock, when the next delivery from the manufacturer will arrive, how many are reserved for customers, does this product sell well at this time of the year, etc.
ERP helps you to make decisions quickly and confidently, because you are certain each time that you see the complete picture.
3. A better insight and clear reporting
As well as a better overview, as an entrepreneur you also get a clear insight into your business. One source of truth across all the different departments. This information is valuable for you as a manager, but also for employees, so that the right decisions are made for the future. If you have a link to your accountancy package, you also instantly have a real-time overview of the financial result.
Many ERP suppliers offer a link to a BI (business intelligence) tool. With such a tool, you can quickly create tailored reports and present data in a visual manner.
4. Flexible and scalable
Most modern ERP systems have a modular structure. IT suppliers offer a base system which can be extended further depending on the different needs. In this way, you select what is essential (or not) for your business and do not buy an unwieldy, complex system in which most functionalities are not needed.
Another aspect is the implementation. The two most common approaches today are either on-premises (local) or in the cloud. With a local system, the software is placed on a server within the company. Employees then log in to this server to access the ERP system. With a system in the cloud, everything is handled entirely off-site, usually by the ERP supplier. Both systems have their advantages and disadvantages.
Furthermore, the ERP system must be able to grow along with the business. If you expand your customer base, tap into new markets, launch new products, etc., you also need to “upscale” your ERP system. This is possible with the right IT supplier.
5. Strong efficiency gains
A good ERP system can significantly reduce the time it takes for your employees to perform their daily activities. Repetitive and manual processes are reduced to a minimum. This allows employees to concentrate on your customers and/or the tasks that have a direct impact on your turnover.
With an ERP system, each employee has on-demand access to the wealth of data from across the company, allowing them to see the big picture. This, in turn, gives your employees the tools they need to make proactive decisions, which makes them feel more valued. The net effect on your business is increased efficiency and reduced operational costs with regard to manually tracking data, as well as a greater employee involvement.
Sector-specific software can also help your company to implement existing best-practice processes found within your sector. ERP suppliers with experience can pass on a great deal of the knowledge and know-how that they have built up over the years. These processes deliver consistent results which enable you to improve the way in which you run your organisation constantly. Because many processes are automated, errors and costs are greatly reduced. This leads to less friction and improved synergy between departments.
Advanced technologies such as Artificial Intelligence, Internet of Things, machine learning, etc. support this process automation and are already being applied in ERP applications today.
6. Customer service
Your customers also profit from the benefits that an ERP system provides. Your customer information is streamlined and located in one place at all times. Your sales team can concentrate on building and maintaining good relationships instead of spending their time on unnecessary administration. At the end of the day, this is one of the most important things a company has to worry about: the acquisition and retention of customers.
Most business software also supports eCommerce integration. This means that your business is able to handle web-based order processing and customer interactions. In other words, to be able to bring about an omnichannel narrative. Online customers are already pretty accustomed to this.
7. Data security
Again, a very strong argument in favour of an ERP system. A great deal of information is shared across the various silos of your company: customer service, sales, warehouse worker, accountant, etc. Within an ERP-system you can specify who can see which information and who is allowed to edit it. Many ERP solutions can go much further in this, down to the tiniest level of detail.
An ERP application also helps you maintain a high level of data security. There is ultimately only one data entry system. Merging information from multiple systems often causes conflicts. However, having one repository for your data facilitates the accuracy, consistency and security thereof.
Both on-premises and cloud-based ERP systems offer your organisation a higher level of security. The database system on which the ERP software runs also makes it possible to produce centralised backups of your critical and sensitive data. Cloud-based ERP systems, despite what many people think, can provide an additional layer of security. Since all of your company’s data are managed via the cloud, many suppliers employ security experts 24 hours per day to ensure their servers are protected.
8. Simplified compliance with regulations and/or legislation
One of the biggest challenges for entrepreneurs is complying with all the regulations and legislation. Maintaining perfect accuracy within your financial administration is not exactly easy, but it still needs to be done. ERP systems help with regulatory compliance by providing secure and validated data, combined with built-in reports.
Are there changes in the legislation? Then ERP suppliers respond proactively to any changes and release new updates for the software. You receive information about this and are immediately aware of them.
9. Improved supply chain
For companies involved in moving physical goods and production, an ERP system strengthens the supply chain in a number of ways. This improvement leads to reduced lead times, more timely deliveries and many other benefits that improve the overall operation and success of your company.
Via a well-designed ERP platform, your supply chain can become better and more responsive thanks to improved demand forecasting, inventory management, purchasing and more. A streamlined supply chain also facilitates manufacturing innovations, which can help you to reduce costs and to develop new products that give your company the competitive edge that it needs to stay ahead.
Moreover, an ERP system can drastically improve profitability and reduce surpluses with regard to inventory and production. Through a uniform view of sales, production and delivery schedules, the inventory level can be optimised.
To guarantee the success of your business, you need to keep a sharp eye on the future. All too often however, companies do not plan well and they experience serious growing pains that become obstacles to their progress. Having a system that can support the growth of your business in an efficient manner is of the utmost importance.
Adding new functionalities to help support the growth of your business is possible with the right ERP supplier. Good agreements and communication are indispensable in this.
Are there also disadvantages?
Besides the benefits that ERP systems offer, there are often also disadvantages and/or risks associated with them. Much depends on the expectations, the ERP solution and the supplier.
A number of matters which you’re better off taking into account are listed below:
1. The costs
Implementing and setting up a new system can require a great deal of effort. Fortunately, you have the opportunity to exercise a great deal of influence on these. Take your time to inform yourself, compare systems and choose a supplier that has already proven its services with similar organisations. Good agreements and communication are the most important factors here.
2. Implementation and maintenance
Although the software alone is a large investment, companies must consider the cost of the manpower and time required for a successful implementation. Your employees need to be trained and get to know the system. In addition, all infrastructure needs to be installed and secured. A good IT partner can support you in this, help to make the process as efficient as possible and provide you with an estimate of the costs in advance.
Many ERP suppliers also often require the payment of an annual licence fee for new updates and support in the use of the software. After all, they need to invest resources each year in order to be able to continue supporting your software and in helping your employees with any problems.
Today there are also many SaaS (Software As A Service) systems on the market. IT suppliers offer their software on a rental basis. The initial investment is thus minimised and offers entrepreneurs the opportunity to spread the costs. Large investments in terms of hardware and training are needed less often.
Customisation is one of the most appreciated aspects of ERP software, but it does not come without risks. Amending your software takes time, effort, expertise and money. All too often, companies underestimate how many resources are needed and do not complete the changes they want or go way over budget. Customisation can sometimes mean that the “best practices” built into the system no longer function optimally and, for some suppliers, it makes it more difficult to move to the “next version” in the future.
Again: a good analysis, agreements and communication are very important.
An ERP system often offers numerous possibilities, but this also means that the software can be complex and less user-friendly. Some companies often invest in systems that are too big or too complicated for their processes, leading to a poor ROI. As a consequence, employees are not too eager about using the system each day.
Avoid systems with more functionality than you need, but also keep the future in mind. Invest in good user training based on the user’s specific role within the company. Appoint a number of key users who can follow all the training and get to know the system inside out.
Should you invest in an ERP system (or a different one) or not?
When deciding, it is important to weigh up the pros and cons. Even if your company already has an ERP system, you can do the exercise to see if it still meets expectations and that you are experiencing the envisaged benefits.
For most companies, the benefits outweigh the costs. A strong ERP system offers long-term perspective, time and space to grow. Business software helps you to minimise overheads and to make your company more profitable.