UNIT V

What is ERP?

Enterprise resource planning (ERP) is a software system that helps you run your entire business,
supporting automation and processes in finance, human resources, manufacturing, supply chain,
services, procurement, and more.

ERP definition in detail

ERP stands for enterprise resource planning, but what does ERP mean? The simplest way to define ERP
is to think about all the core business processes needed to run a company: finance, HR, manufacturing,
supply chain, services, procurement, and others. At its most basic level, ERP helps to efficiently manage
all these processes in an integrated system. It is often referred to as the system of record of the
organization.

Today’s ERP systems are anything but basic and have little resemblance to the ERP of decades ago. They
are now delivered via the cloud and use the latest technologies – such as artificial intelligence (AI) and
machine learning – to provide intelligent automation, greater efficiency, and instant insight across the
business. Modern cloud ERP software also connects internal operations with business partners and
networks around the world, giving companies the collaboration, agility, and speed they need to be
competitive today.

Why is ERP important?

Sometimes described as “the central nervous system of an enterprise,” an ERP software system provides
the automation, integration, and intelligence that is essential to efficiently run all day-to-day business
operations. Most or all of an organization’s data should reside in the ERP system to provide a single
source of truth across the business.
 
Finance requires an ERP to quickly close the books. Sales needs ERP to manage all customer
orders. Logistics relies on well-running ERP software to deliver the right products and services to
customers on time. Accounts payable needs ERP to pay suppliers correctly and on time. Management
needs instant visibility into the company’s performance to make timely decisions. And banks and
shareholders require accurate financial records, so they count on reliable data and analysis made
possible by the ERP system.
 
The importance of ERP software to businesses is illustrated by the growing adoption rate. According
to G2, “The global ERP software market is projected to reach US$78.40 billion by 2026, growing at a
CAGR of 10.2% from 2019 to 2026.”

Six key benefits of ERP

A good ERP system offers many advantages — which can vary depending on how the system is
deployed. The benefits of cloud ERP, for example, are different than on premise. That said, there are six
major benefits that apply to all modern ERP solutions:

1. Higher productivity: Streamline and automate your core business processes to help everyone in
your organization do more with fewer resources.

2. Deeper insights: Eliminate information silos, gain a single source of truth, and get fast answers
to mission-critical business questions.

3. Accelerated reporting: Fast-track business and financial reporting and easily share results. Act
on insights and improve performance in real time.

4. Lower risk: Maximize business visibility and control, ensure compliance with regulatory
requirements, and predict and prevent risk.

5. Simpler IT: By using integrated ERP applications that share a database, you can simplify IT and
give everyone an easier way to work.

6. Improved agility: With efficient operations and ready access to real-time data, you can quickly
identify and react to new opportunities.

ERP examples in different industries

Businesses in every industry – from automotive to wholesale distribution – need accurate, real-
time information and effective business processes to compete and thrive. Different industries
rely on their ERP software for quite different reasons, however. Here are just a few examples:

 Utilities need to constantly review their capital assets, not only to meet demand for
future services but also for the replacement of aging assets. Without ERP, the effort to
 prioritize these major asset investments would be difficult and error prone. ERP also
helps solve another critical utility company issue: forecasting of spare parts. Not having
the right parts during an outage can create a significant customer service issue. On the
other hand, having too many spare parts means excessive costs and out-of-date stock.
 For wholesalers, importers, direct store delivery, and 3PL/4PL firms, on-time delivery is
key. All of these organizations want to reduce distribution costs, increase inventory
turns, and shorten order-to-cash time. To achieve these goals, they need integration of
inventory management, purchasing, and logistics functionality, as well as automated
processes that are customized to their needs.
 Discrete, batch, and continuous process manufacturers all rely on ERP and supply
chain systems to meet product quality goals, manage asset utilization, control overtime
costs, handle customer returns and more. Manufacturers can also gain end-to-end
inventory control by monitoring stock movements, pinpointing top and underperforming
products, and managing procurement more efficiently.
 Service companies – including accounting, tax, engineering, IT, legal, and other
professional services firms – require powerful, real-time mobile ERP technology to
balance service delivery commitments with financial health. Key to professional service
success is the ability to stay on schedule while managing project profitability, resource
utilization, revenue recognition, recurring revenue objectives, and growth opportunities.
 Retail has undergone a significant transformation now that e-commerce has merged
with other sales channels as well as brick-and-mortar operations. The ability to provide
self-service options for identifying, configuring, purchasing, and shipping products is
dependent on integrated data. A modern ERP also helps retailers reduce cart
abandonments, improve Web site conversions, boost average order value, and increase
customer lifetime value.

How do ERP systems work?

An ERP system – also called an ERP suite – is made up of integrated modules or business
applications that talk to each other and share common a database.
 
Each ERP module typically focuses on one business area, but they work together using the
same data to meet the company’s needs. Finance, accounting, human resources,
sales, procurement, logistics, and supply chain are popular starting points. Companies can pick
and choose the module they want and can add on and scale as needed.
 
ERP systems also support industry-specific requirements, either as part of the system’s core
functionality or through application extensions that seamlessly integrate with the suite.
 
ERP software can be bought using a cloud subscription model (software-as-a-service) or a
licensing model (on premise).

Common ERP modules

Enterprise resource planning systems include a variety of different modules. Each ERP

module supports specific business processes – like finance, procurement, or manufacturing –
and provides employees in that department with the transactions and insight they need do their
jobs. Every module connects to the ERP system, which delivers a single source of truth and
accurate, shared data across departments.
The ERP software system shown here illustrates enterprise resource planning use cases for sourcing and
procurement, as well as sales. Typical ERP modules also address finance, manufacturing, and supply
chain, among other applications.

Common ERP modules

Enterprise resource planning systems include a variety of different modules. Each ERP module supports
specific business processes – like finance, procurement, or manufacturing – and provides employees in
that department with the transactions and insight they need do their jobs. Every module connects to
the ERP system, which delivers a single source of truth and accurate, shared data across departments.

Components of an enterprise resource planning system

 The most widely used ERP modules include:

1. Finance: The finance and accounting module is the backbone of most ERP systems. In addition
to managing the general ledger and automating key financial tasks, it helps businesses track
accounts payable (AP) and receivable (AR), close the books efficiently, generate financial
reports, comply with revenue recognition standards, mitigate financial risk, and more.

2. Human resources management: Most ERP systems include an HR module that provides core
capabilities such as time and attendance and payroll. Add-ons, or even entire human capital
management (HCM) suites, can connect to the ERP and deliver more robust HR functionality –
everything from workforce analytics to employee experience management.

3. Sourcing and procurement: The sourcing and procurement module helps businesses procure

the materials and services they need to manufacture their goods – or the items they want to
resell. The module centralizes and automates purchasing, including requests for quotes,
contract creation, and approvals. It can minimize underbuying and overbuying, improve supplier
negotiations with AI-powered analytics, and even seamlessly connect with buyer networks.

4. Sales: The sales module keeps track of communications with prospects and customers – and

helps reps use data-driven insights to increase sales and target leads with the right promotions
and upsell opportunities. It includes functionality for the order-to-cash process, including order
management, contracts, billing, sales performance management, and sales force support.

5. Manufacturing: The manufacturing module is a key planning and execution component of ERP

software. It helps companies simplify complex manufacturing processes and ensure production
is in line with demand. This module typically includes functionality for material requirements
planning (MRP), production scheduling, manufacturing execution, quality management, and
more.

6. Logistics and supply chain management: Another key component of ERP systems, the supply
chain module tracks the movement of goods and supplies throughout an organization’s supply
 chain. The module provides tools for real-time inventory management, warehousing operations,
transportation, and logistics – and can help increase supply chain visibility and resilience.

7. Service: In an ERP, the service module helps companies deliver the reliable, personalized service
customers have come to expect. The module can include tools for in-house repairs, spare parts,
field service management, and service-based revenue streams. It also provides analytics to help
service reps and technicians rapidly solve customer issues and improve loyalty.

8. R&D and engineering: Feature-rich ERP systems include an R&D and engineering module. This
module provides tools for product design and development, product lifecycle management
(PLM), product compliance, and more – so companies can quickly and cost-effectively create
new innovations.

9. Enterprise asset management: Robust ERP systems can include an EAM module – which helps
asset-intensive businesses minimize downtime and keep their machines and equipment running
at peak efficiency. This module includes functionality for predictive maintenance, scheduling,
asset operations and planning, environment, health and safety (EHS), and more.

Types of ERP deployment

Modern ERP systems can be deployed in a number of ways: in a public or private cloud, on
premise, or in various hybrid scenarios that combine environments. Here are some of the high-
level benefits of each to help you identify the ERP deployment option that makes the most
sense for your business.

1.Cloud ERP

With cloud ERP, the software is hosted in the cloud and delivered over the Internet as a service
that you subscribe to. The software provider generally takes care of regular maintenance,
updates, and security on your behalf. Today, cloud ERP is the most popular deployment method
for many reasons – including lower upfront costs, greater scalability and agility, easier
integration, and much more.

 2.On-Premise ERP

This is the traditional model for deploying software where you control everything. The ERP
software is typically installed in your data center at the locations of your choice. The installation
and maintenance of the hardware and software is your staff’s responsibility.

 Many companies are modernizing and upgrading their on-premise ERP systems to cloud
deployments. This requires careful planning of your ERP upgrade as well as a thoughtful process
of evaluating ERP software and deployment options.

 3.Hybrid ERP
For companies that want a mixture of both to meet their business requirements, there is
the hybrid cloud ERP model. This is where some of your ERP applications and data will be in the
cloud and some on premise. Sometimes this is referred to as two-tier ERP.

4.ERP integration

Today’s ERP systems provide an enormous range of business functionality, but they still need to
connect to and synchronize with other applications and data sources – such as CRM and HCM
software, e-commerce platforms, industry-specific solutions, and even other ERPs. With ERP
integration, companies can gain a unified view of information from different systems, increase
business process efficiency, improve customer experiences, and facilitate collaboration across
teams and business partners.

Modern ERP systems are open and flexible – and can easily integrate with a wide range of
software products using connectors or customized adaptors, such as application programming
interfaces (APIs). Other methods for ERP integration include ESB (enterprise service bus) and
iPaaS (integration platform-as-a-service). iPaaS, which offers a cloud-based approach, is a very
popular option for modern businesses. iPaaS platforms can rapidly sync on-premise or cloud-
based ERP with SaaS applications from the same vendor or third-parties. They typically require
little-to-no coding, they’re flexible and relatively inexpensive, and they offer a whole host of
other uses – such as automatic API generation, machine learning data integration, Internet of
Things (IoT) network integration, prebuilt content, and more.

Cost of ERP:The total cost of ERP

The cost of ERP depends on the software vendor, the modules selected, and the deployment
method. Generally speaking, cloud-based ERP has lower costs than on-premise ERP because
there is no hardware that needs to be purchased – and no expensive in-house IT experts that
need to be hired. The vendor handles the maintenance and charges the customer an annual or
monthly subscription fee, usually based on the number of users.

 When calculating the return on investment (ROI) and total cost of ownership (TCO) of a new
ERP implementation, the initial and ongoing workforce costs are just as important as the
software selection and deployment costs. With cloud and hybrid options, new factors must be
evaluated. For example, software maintenance, facility, computer capacity, downtime, recovery,
security, privacy, and IT staff costs are all important considerations. As mentioned, cloud options
significantly reduce both capital and operating costs – improving both ROI and TCO.

ERP history: The rapid evolution of ERP

Computerized business applications were born in the accounting and finance world in the 1960’s
using mainframe computers. These pioneering applications were faster and more accurate than
manual processes – but were expensive, limited in functionality, and still slow. Before long,
these applications spawned the development of dedicated, standalone solutions such as sales
order processing and manufacturing requirements planning (MRP).

 In the mid 1980’s, competition in the manufacturing sector was exploding and new tools were
required. New MRP II software integrated accounting and finance, sales, purchasing, inventory,
and manufacturing planning and scheduling – providing the manufacturer with an integrated
system.

Near the end of the 1990’s, ERP was introduced. ERP transformed the technology sector by
serving a broader range of industries and by combining MRP II, human resources, project
accounting, and end-user reporting.

 In the short span of the 21st century, faster Internet speeds and new development tools have
again revolutionized ERP suites. The introduction of browser-based software paved the way
for cloud ERP software, a breakthrough that has expanded both the reach and the functionality
of ERP solutions.

 Today – in the era of digital transformation – modern ERP systems are increasingly taking
advantage of new intelligent technologies such as AI, machine learning, robotic process
automation (RPA), the IoT, natural language processing (NLP), and in-memory databases. They
provide businesses with the ability to run even more efficient processes, leverage up-to-the-
minute insights from both transactional and unstructured data, and ultimately remain
competitive in a time of unprecedented change.

The future of ERP

Digital transformation is speeding up – and ERP is at the core. As enterprises adopt digital
technologies in every part of the business, they are fundamentally changing the way they
operate.
  

According to Gartner, one of the core digital business accelerators is to “banish drags” – in other
words, eliminate any negative force that slows the business down, including outdated processes
and systems. So, it’s not surprising that companies are already demanding more robust ERP
systems.

Following are three major trends that build on the momentum we see today:

1. Cloud, cloud, cloud: Preference for cloud ERP will continue to intensify as more and more
companies discover the benefits – including “anywhere” access, reduced cost of hardware and
technical support, greater security, and integration with other systems, to name just a few.
According to Panorama Research in their 2020 ERP Report, “More than half of organizations are
selecting cloud software (63%) instead of on-premises software (37%).” As the speed of business
continues to accelerate, cloud becomes even more essential.

2. Vertical integration: The tug of war between best-of-breed solutions and integrated ERP is
officially over. Going forward, we believe that companies will demand the best of both worlds –
a fully integrated ERP system with vertical extensions. This allows companies to get the specific
functionality they need, without painful integration issues or data locked in information silos.
We also see the shift toward ever greater flexibility, as business processes are tailored to
individual company needs.

3. User personalization: Staff, customers, and suppliers all want content and functionality that
matches their specific needs or interests and makes them more productive. The changing
demographics of the workforce, particularly in industries such as manufacturing, are also driving
interest in low-code, no-code platforms. These platforms allow users to get the experience they
want, rather than having to adapt to the software. Users can also expect customized
dashboards, AI-driven search, personalized chat, and personalized workflows across devices.

10 things to look for in an ERP system

Any modern ERP system will have a long list of capabilities based on the industry they serve and
the modules they offer. However, there are 10 fundamental features that all enterprise resource
management systems should have:

1. A common database: Centralized information and single version of the truth – providing

consistent, shared data and a cross-functional view of the company.

2. Embedded analytics: Built-in analytics, self-service BI, reporting, and compliance tools that can
deliver intelligent insight for any area of the business.

3. Data visualization: Visual presentation of key information with dashboards, KPIs, and point-and-
click analytics to assist in quick and informed decision-making.
4. Automation. Automation of repetitive tasks as well as advanced RPA powered
by AI and machine learning.

5. Consistent UI/UX: The same look and feel across modules – as well as easy-to-use configuration
and personalization tools for processes, users (including customers and suppliers), business
units, locations, and product lines, for example.

6. Integration: Seamless integration of business processes and workflows – as well as open and

easy integration with other software solutions and data sources, including from third parties.

7. New technologies: Support for AI and machine learning, digital assistants, the IoT, RPA, security
and privacy, and mobile.

8. Technology platform: A fast, proven, and stable technology stack for this long-term investment
– including a low-code/no-code platform, iPaaS, data management, and more.

9. Multinational support: Including for languages, currencies, and local business practices and
regulations – as well as technical support for cloud services, training, help desk, and
implementation.

10. Choice of deployment: Cloud, on-premise, or hybrid.

ERP isn’t just for global enterprises. ERP solutions are designed for businesses of all sizes – small,
midsize, and large. You can also get industry- and company-specific functionality to meet unique
business needs. Regardless of your business sector and size, you’ll want to plan your ERP
implementation project carefully, following best practices.

 Small business ERP

ERP software for small businesses can help you move beyond spreadsheets and efficiently
manage every aspect of your growing company – from sales and customer relationships to
financials and operations. Small business ERP tools are typically in the cloud, quick to install, and
designed to grow with you.

 Mid-Market ERP

Today, ERP software designed for mid-market companies and subsidiaries benefit from built-in
analytics, rapid deployment, and best practices for dozens of different business processes –
financials, HR, supply chain management, and more. Midsize ERP tools help growing businesses
scale and compete, even with limited resources. Modular, cloud-based enterprise ERP
systems are also a popular choice for midmarket companies with complex processes or plans for
rapid growth.

 
Enterprise ERP

Large companies with global or subsidiary operations need a robust, market-leading ERP

system with embedded AI, machine learning, and analytics – and intelligent automation to
transform business models and processes. ERP systems can be deployed on premise, in the
cloud, or in a hybrid scenario depending on business need. They can integrate with existing
databases or, ideally, run on newer, powerful in-memory databases.

Many companies are modernizing and upgrading their on-premise ERP systems to cloud
deployments. This requires careful planning of your ERP upgrade, as well as an ERP
evaluation and review of your deployment options.