Basic Concepts of an ERP

Basic Concepts of an ERP

When they ask us to investigate about a management software or we look on the Internet which software can help us to automate tasks, collect data and abandon the large number of excel files, the word “ERP” arises and there all doubts begin.

What is an ERP? What are the characteristics of an ERP? What is an ERP for? On premise or SaaS? These are some of the many questions that appear, and other concepts are still missing! We’re not talking about implementation, cost, or ROI, to name a few others.

Let’s start at the beginning. An ERP software is an integrated system that covers all processes of organizations to manage their daily business activities. Whatever the field and the number of employees, at some point a company or SME needs to implement an ERP.

Four basic characteristics to continue understanding what ERP is

In we delve more about the characteristics of an ERP is a more detailed report. But let’s see in a general way what are the main characteristics of an ERP:

  1. Prefabricated - It was not developed for a specific business need.
  2. Integrated: allows you to link the business processes of the company and share the data regardless of who generates it.
  3. Modular: made up of a broad set of modules that cover most of the business operations. These are parts grouped by functions that can be assembled (implemented) at different times to facilitate their putting into production or their coexistence with other systems.
  4. Adaptable to the needs of each client: it can be adapted to different business practices. The ERP has the ability to configure its modules or processes according to the outputs required by each department of the company, and thus obtain the most accurate and useful information possible.

In we delve more about the characteristics of an ERP is a more detailed report.

What is an ERP for?

Many examples are used to demonstrate the value of ERP. One of the best known is the order fulfillment process; It begins with a customer’s order, which is processed and invoiced, affecting accounting records and the company’s income. That is why the definition of an ERP is sometimes referred to as back office software.

Take a customer’s order, for example. Typically, when a customer places an order, it begins a journey that loops through different “trays” in the company, being entered and redirected into the computer systems of different departments along the way.

Everything causes delays and sometimes losses. A query by different computer systems invites possible errors. Meanwhile, no one in the company really knows what the status of the order is at any given time, because there is no way for the finance department, for example, to log into the warehouse’s computer system to see if the item has been shipped.

The ERP provides a software roadmap for automating the different steps on the way to fulfill the order. When a sales or service representative enters a customer’s order in an ERP planning system, they can have all the information necessary to complete it:

  1. The customer’s credit rating, order history.
  2. The inventory levels of the company.
  3. The transportation possibilities from the place of embarkation and more.

People in these different areas see the same information and can update it. The process is automatically moved from one manager to another. The origin of the order can be located at any time. You only need to enter the management system . The ordering process moves like a ray of light through the organization, and customers receive products faster and with fewer errors than before. ERP can apply that same magic to other important business processes, like employee benefits or financial reporting.

How important are management systems for a company?

An enterprise resource planning (ERP) system will change the way your company does business. By helping increase profits through greater efficiency, facilitating decision-making and identifying problem areas that hinder the growth and success of the organization, an ERP system can be the most important purchase to make for your business.

Very often, companies are not completely satisfied with the implementation of their ERP or the chosen solution. This is very concerning considering the positive change that can be initiated with a proven ERP system that is properly implemented.

How do you configure the management software?

Management systems have to be flexible to meet the needs of the companies that install them. It is a truism to say that no two companies are run exactly the same and therefore their ERP software will not be the same either. Which is fine, but can ERP be flexible enough? Can ERP handle everything you want it to do the way you want it to? That is a difficult task and sometimes the answer is ‘no’.

The need to adapt P management software leaves the project team with a basic choice between:

  • Configure the system as much as possible until it does what you need.
  • Develop custom programming code, written to try to make things work exactly the way you want them to.

Configuration is the equivalent of manipulating switches and collecting values from pre-defined picklists. It is the basic method for the implementation installation of a system. It is very clear and defined, but limited in what it will allow you to do. In fact, pre-configured ERP software is delivered and yet process management is not ensured.

Personalization, also known as “customization”, on the other hand, consists of writing program code to integrate it with the ERP system. You can do almost anything with custom code if programmers are given enough time and money. However, implementing an ERP with a lot of custom code gets a bad press. Indeed, its reputation is preceded by three characteristics:

  1. They go over budget.
  2. They are never ready on time.
  3. They don’t deliver all the promised functionality

What is ERP on premise?

The ERP on premise is the traditional implementation of the management system where the software is installed on the company itself, within the server and infrastructure. The company incurs significant upfront costs for software licenses, new or upgraded servers, and network equipment. Updates and maintenance are the responsibility of the company.

What is ERP in the cloud or as a service?

The ERP in the cloud or Software as a Service (SaaS) is a model that represents lower costs for a company. In this case, you do not have to buy any software or hardware, but rather you hire it instead of buying it with a flat fee or in a metered manner. This is like the way you pay for electricity; you pay for the service on a monthly basis instead of paying in advance for the entire service.

ERP as a service solutions are typically billed per month and per user. The company can fully fund its new solution and charge the expense as operating costs rather than as a capital investment that, in many cases, turns into a sunk cost.

Today, an ERP is an essential element in the management of thousands of companies of all sizes and from all sectors. For these companies, the ERP is as essential as the electricity that allows them to have light.

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