ERP (Enterprise Resource Planning) is a software application for management and integration functions of key business processes such as finance, human resources management, the logistic chain and inventory management. It is essential that all of this takes place in an integrated system on a database.

The essence of an ERP system

An ERP system consists of software components or modules, each of which is based on a specific ERP systems are usually structured using modules. These focus on parts in the process landscape, such as sale, Purchasing, logistics, production, service, finance etc. business process concentrated. Some of these modules are relevant for almost all companies.

Financials key module of an ERP system

The finance module in an ERP software automates the accounting, Invoicing, forecasts and the reporting and analyzes based on them. This is often the main reason a company moves from standalone accounting software to an ERP system. Finance is the heart of the ERP system, so to speak, which converts information from all areas into financial data and controls the other connected business processes with appropriate impulses.

Human Resources (HR) in ERP software

Depending on the industry, personnel management or human resources (HR) is also of essential importance as an integrated module in an ERP system. The module, also known as Human Capital Management (HCM), manages employee data. It manages and controls the social benefits, controls the payroll. At the same time, areas such as further education, training and certification are becoming more and more integrated. Vacation and other absence management are often directly docked. Working time models and overtime management can also be found here, but are therefore essential for other areas of work control in other modules.

Or To Cash for trading

For trading companies, of course, the sales module is included Order to Cash process particularly relevant. The entire trading process is accompanied here, from the order to the delivery note to billing. The functions of a CRM application are often included in the functionality of the ERP software. Quotation and opportunity management then precede the sale.

ERP for purchasing

Purchasing (procurement) is also controlled within an integrated ERP solution. Whether a simple purchasing process or a complex framework order processing. As many purchasing processes as possible should be representable. The system can also map an e-procurement.

SCM, WMS & TMS

Companies that deal in physical products usually need a supply chain management (SCM) module. Inventory levels are tracked and all warehouse transactions are then controlled in the WMS module. Depending on, we still need a transport management system (TMS) as an extended logistics function.

production planning and production control (PPS)

ERP systems often have functions that were previously handled in specially programmed software. In fact, of course, this makes a lot of sense that almost all other processes depend on production. The type and selection of the functions of such a module differs greatly depending on the type of manufacturing company:

A rough distinction is made here between:

  • Once production / project production
  • small series production
  • serial production
  • mass production
  • Flow production / process production

What makes a good ERP system?

Of course, every company has to evaluate for itself which ERP software is good for it. However, some criteria have turned out to be correct and important, what makes a good ERP system.

Ssingle Source of Truth

The basis and fundamental characteristic of a good ERP system is the central database of all mapped modules within the software. This feature guarantees fast and simple networking and what is often referred to in IT as a "single source of truth". Central data maintenance prevents redundant data maintenance efforts and transmission errors.

Uniform operation

Uniformity is also at user interface advantageous. A uniform appearance and user guidance ensure fast and effective training and support. Processes that have been learned can often be used for the following processes service derive

The ability to network

Although ERP software tries to manage as many functions and information as possible itself, the ability to exchange data with other data sources is essential. It's actually the most essential feature that creates an ERP system to drive the digitalization to do in a company.

Stay up to date

In general, it is a huge challenge for most manufacturers of ERP software to keep up with constantly changing technology. There are often decades of experience in the functional processes, but these then also carry historically grown technical implementation with them. A regular renewal of this technical basis is therefore a permanent obligation.

Best practice and flexibility

Standardization has always been an essential part of ERP. best practices is the buzzword. Processes that have been tried and tested thousands of times have been optimized over the years in such a way that the best process in each case eventually emerged. So much for the theory, which also has some truth to it. A good ERP system should still be flexible enough to be able to adapt to the special features of a company that make up the company.

ERP ensures automation

Good ERP software naturally ensures extensive automation. Ideally, a large part of the manual input is then taken over by the software. Other modules are automatically supplied with information that they can use to control their processes.

Documentation and user base helps everyone

ERP software often has thousands of functions. The documentation of this is a separate large trade for ERP manufacturers. A good ERP system has a constantly growing documentation, which the user quickly understands. An indirect knowledge base is the knowledge of other users. The exchange with other users of ERP software is often the fastest and best way to get the information you need. Sufficient distribution of the software is of course a prerequisite for this.

The advantages of an ERP system

ERP software offers numerous advantages, which are mostly due to the uniform database and standards. The joint use of modules, instead of different individual systems, often makes it possible in the first place business processes to establish. The resulting data basis provides reports and analyzes with valuable insights and often makes exchange with other data systems possible in the first place.

In addition, ERP software can offer a number of other advantages:

  • Efficient processes through automation
  • Manage and overcome complexity
  • Monitoring of rules, regulations and risks
  • More transparency for everyone involved
  • Better customer services through better customer data
  • Better management of supply chain
  • Reporting with more and accurate information.
  • Basis for continuous digitization

ERP types

ERP systems usually differ in their type according to the size of the company. In addition, the company's industry certainly plays a role, but also other technical preferences in terms of infrastructure, location or strategy.

ERP for SMEs vs. medium-sized companies vs. large companies

For smaller businesses, some manufacturers offer basic ERP products that do not go beyond basic HR, finance and other commonly used components such as order management and CRM and are relatively easy to integrate.

Other offers are aimed at medium-sized companies. Definitions vary, but this market is broadly defined as companies with several hundred employees and annual sales between EUR 20 million and EUR 1 billion. Midmarket ERP solutions have more additional modules. These include, for example, SCM and/or WMS. – and they cater to more users than entry-level ERP solutions.

A class of its own are ERP solutions that are aimed at specific industries. The advantages of such software are usually obvious: It comes up with functions that fit the special requirements that make up an industry.
Before that, the disadvantages that arise from the fact that these solutions are rarely backed by large manufacturers with their development power often fade away.

Another category are large companies: companies with a turnover of more than EUR 1 billion and typically thousands of employees. Not surprisingly, ERP systems for such corporations tend to have the most modules. At the same time, the structure of the software is also structurally different from those for small or medium-sized companies. Orientation towards clearly defined processes helps to control large, complex structures. However, the flexibility that smaller companies urgently need also suffers.

On-premises vs. cloud vs. hybrid ERP

For a long time, ERP systems ran “on site” on the company's IT infrastructure. Over time, companies started running their ERP applications in outsourced data centers. Today is the cloud the trending environment for deploying the software. The models that combine the different types of deployment are now the real trend. This is also referred to as hybrid ERP systems that combine local and cloud-based components.

One on-premises ERP must be paid for through the purchase of software licences. This is largely based on the number and type of users. Implementation can take time and updating to new versions is mostly a small project in itself. However, an on-site installation also has great advantages compared to typical cloud ERP. Customisation to specific requirements is easier to implement. Integration with other locally installed software systems is also usually easier.

Some companies are reluctant to implement mission-critical software for a variety of reasons cloud relocate. Concerns about security and controllers of the data are often significant. Even companies in strictly regulated industries or authorities are not flexible enough to go to the cloud with their systems in terms of the requirements that have to be met.

In contrast, a cloud ERP may incur somewhat lower initial costs. The software license is usually paid for by a monthly rental. In the long run, however, rent is also more expensive than ownership. The greatest cost savings usually come from SaaS systems with multiple tenants using one instance of the business software. The structure of the software is the same for everyone and only the data that is organized about it is managed separately. SaaS ERP is typically lighter and handles a smaller number of business processes than on-premises ERP.

Most medium-sized companies are now moving their systems to the cloud. However, these are often more of an ERP concept that is implemented on the basis of a PAAS (Platform as a Service). The infrastructure is highly standardized, but the ERP software that is provided on it is then quite individually tailored to the needs of the individual company.

The more industry-specific the requirements for an ERP system become, the fewer companies find SAAS offers that meet these requirements. For the manufacturers of such ERP software, who mostly operate in a niche, it is often not worth converting or even offering your industry software in parallel.

History of ERP

The origins of Enterprise Resource Planning go back more than 100 years. In 1913, Ford engineer Whitman Harris designed a paper-based system for planning production. The priority was to find an economically optimized order quantity. This process remained central to the manufacturing industry for decades. The manufacturer of tools Black and Decker introduced the computer in 1964. A mainframe supports the company's material requirements planning (MRP). Of course, IBM was also involved in the early days of the ERP software. The systems from "Big Blue" mainly addressed MRP processes. However, all of these systems had one thing in common, they were specially developed for companies and often a kind of bonus mostly still expensive hardware.

In the 1970s, manufacturers – including the two start-ups SAP and Baan – began developing mainframe software to control financial processes in a central database. The integrated software, which is structured in modules, was constantly being further developed and also included functions from human resources and accounting.

In 1990, the market research company Gartner created a new category of software. Enterprise Resource Planning (ERP) corresponded more to the ever-expanding demand. Most ERP systems have an MRP module or map the functions integrally.

Up until the 1990s, ERP software ran on mainframe computers. More and more manufacturers are now starting to convert the systems to the client-server model. From then on, desktop devices communicated with a central server. This also had an impact on the prices. Significantly cheaper, ERP software was now also interesting for medium-sized companies of all sizes. Usability kept getting better from the cumbersome, character-based interfaces of the mainframe days. It was essential for this that the ERP manufacturers implemented graphic user interfaces in the style of Microsoft Windows.

The advent of cloud ERP systems in the early 2000s represented another fundamental novelty in deploying and consuming ERP solutions. The cloud has enabled companies to more easily communicate ERP software with customers, suppliers, and partners. In many cases, web browsers became the user interface of ERP systems.

In the recent past, ERP manufacturers have focused their development work on their cloud-based systems. However, the reason for this is also that the computer capacities of the Internet are required for future trends. These include AI and machine learning, blockchain or predictive analytics and other new technologies.

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