Choosing the right ERP software for your organization is a big deal. This will be a huge investment for your business, thus you need to have a thorough consideration before choosing an ERP system vendor.
Before going into the discussion on how to choose an ERP system that best suits your business requirements, you must have an understanding of what ERP software is.
This article will be the first chapter of your guide to a successful ERP journey.
The Definition of ERP Software
ERP which stands for Enterprise Resource Planning is a modular software system designed to integrate the main functional areas of a company’s business processes into one integrated system.
ERP software standardizes, simplifies, and integrates business processes including finance, human resources, procurement, distribution, and other departments.
In 1990, Gartner coined the term ERP to describe the evolution of material requirements planning (MRP) and manufacturing resource planning (MRP II) as both expanded beyond manufacturing into other parts of the company, usually finance and human resources.
The ERP software grew rapidly in the 1990s in response to the Y2K and the introduction of the Euro. Most companies needed ways to increase efficiency in their businesses, and ERP provided a cost-effective way to replace old systems with a standardized package that can simplify complex business processes.
Tiers of ERP Software
ERP systems are usually categorized into tiers based on the size and complexity of the companies served. Here are the ERP tiers in general:
Tier I ERP Systems
This ERP software supports large, global companies and handles all internationalization issues, including currencies, languages, alphabets, postal codes, accounting rules, and so on.
Tier I Government ERP Systems
Next, the Tier I Government ERP systems support large government agencies (mostly federal). The systems support governmental accounting, human resources, and procurement.
Tier II ERP Systems
This ERP system supports large companies that may operate in many countries but lack global reach. Customers of ERP Tier II can be stand-alone entities or business units of large global companies. One of the great examples of ERP II systems is EQUIP that is developed by HashMicro.
Tier II Government ERP Systems
Meanwhile, the Tier II Government ERP systems mainly focus on state and local governments with several federal installations.
Tier III ERP Systems
Tier III ERP systems support medium-scale businesses. Most of the systems handle multiple languages and currencies but only one alphabet.
Tier IV ERP Systems
Tier IV ERP systems are specifically designed for small businesses. These systems usually only focus on accounting and are often not considered complete ERP systems by IT professionals.
Why Do Companies Implement ERP Software?
You’re probably wondering why so many companies choose to invest in ERP systems.
The following are some common reasons why they use ERP.
To integrate financial information
Without an integrated system, each department, such as finance, sales, etc., must rely on a separate system. This requires companies to pay different fees for each system. Employees must also spend time reconciling financial data rather than figuring out how to improve the company.
To manage orders and inventory
With ERP software, companies can easily manage orders, production, inventory, and distribution. Since the entire process is managed through a single system, delays can be avoided, inventory is always at an adequate level, and customer expectations are always met.
To manage and analyze customer data
Most ERP systems provide CRM modules to track all customer interactions and provide information regarding orders, shipping, returns, service requests, and others. ERP software also allows retailers to gain insight into customer behavior and needs.
To standardize and speed up production
Manufacturing companies, especially those with a desire for mergers and acquisitions, often find that several business units make similar widgets using different computational methods and systems. ERP systems can standardize and automate manufacturing processes. This standardization saves time, increases productivity, and reduces costs.
To manage human resources
Many companies, especially those with multiple business units, have difficulty managing employee needs, distributing salaries and incentives, or tracking their working hours.
ERP systems allow companies to maintain employee information, manage payrolls, monitor attendance, track expenses, manage to leave requests, provide assessments, manage taxes, and a lot more.
Employees can also be granted access rights to submit leave and reimbursement requests, view paychecks, record working hours, view information about other employees, and so on.
To handle procurement
Without the help of an integrated system, companies will have difficulty managing the purchase of goods and communicating with suppliers. ERP systems allow companies to automate purchases, control costs incurred for purchasing goods, and speed up order management.
To gain comprehensive insights
Generating reports is a time-consuming task. But with an ERP system, financial, tax
summaries, sales reports, etc. can be created in just seconds. ERP systems allow companies to create accurate and complete reports that can help stakeholders make better business decisions.
ERP Software Implementations
Currently, there are three types of ERP deployments implemented by many companies; on-premise (conventional) ERP, cloud ERP, and hybrid ERP.
Implementation of on-premise ERP systems requires companies to have their own servers which need more maintenance and costs. This is why conventional ERP systems are more widely used by large-scale companies.
Cloud-based ERP systems don’t require companies to have the infrastructure needed to store and manage their data since everything is stored in the cloud. These ERP systems require less cost, time, and energy compared to traditional ones, thus making them more popular among small and medium enterprises.
Hybrid ERP systems allow companies to run their software under their own control by using servers while at the same time storing some of their data in the cloud.