When implementing ready-made ERP systems, 53% of companies significant difficulties that require changes in business processes and organizational approaches, and 44% of companies face substantial technical problems. In this series of articles, we break down what an ERP system is, its advantages, how to determine the need for its implementation, what to consider when choosing a platform provider, and how to implement it.
The concept of ERP systems originated in the USA and translates literally as enterprise resource planning — Enterprise Resource Planning. Academically, it appears as: 'ERP is an organizational strategy for integrating production and operations, workforce management, financial management, and asset management, aimed at continuously balancing and optimizing enterprise resources through a specialized integrated software application package that provides a common model of data and processes for all areas of activity.'
Each provider may understand the system they developed in their own way, depending on its focus and the problems it solves. For instance, one ERP system may be more suitable for retail, but not for an oil refinery. Moreover, every company and its employee who uses the platform perceives it differently, based on the part they interact with in their work.
At its core, ERP is an information system for managing all business processes and resources of a company based on a single database.
What is the purpose of an ERP system
Like any information system, ERP works with data. Each employee and department continuously generates hundreds of megabytes of information. In a small organization, the manager has direct access to all information and time to monitor processes. If a large volume of data is generated within one or two business processes, it's enough for the manager to digitize them with targeted IT solutions. Typically, the organization purchases software for accounting and, for example, CRM.
As the company grows, the individual processes that used to require minimal time management transform into large volumes of information. In conjunction with other business processes, fragmented information flows require a huge administrative staff for their consolidation and analysis. Therefore, an ERP system is needed not only by small businesses, but by medium and large enterprises.
How to understand that a company needs an ERP system
The typical story of our clients looks like this. At some point, it becomes clear that all key processes are automated, but work efficiency is not increasing.
It turns out that each process is in its own separate information system. To link them, employees manually enter data into each system, and then management manually compiles duplicated data for analyzing the overall performance of the company. Essentially, this work mechanism is productive up to a certain point. The main thing is to identify the moment of achieving maximum efficiency before it occurs, and not when it is necessary to change the process mechanisms in emergency mode.
None of the information systems will ever notify that the moment has come when the company has reached a level that necessitates an ERP system. Global experience shows four main signs that will help identify this:
Data for making informed management decisions becomes insufficient.
Any business decision has consequences that ultimately result in financial losses or, conversely, in revenues. The quality of the decision depends on the information it is based on. If the data is outdated, incomplete, or incorrect, the decision will be wrong or unbalanced.
The main reasons for conflicting information include:
critically important information is scattered among individual employees and departments;
there are no regulations for data collection;
data collection is conducted by employees with different roles and at different times.
With an ERP platform suitable for your business processes, you can centralize all data. All information is created by each employee and department in a unified system in real-time. This means that the data you and anyone else in the company might need is always as accurate and up-to-date as possible.
A lack of integration between IT systems leads to operational failures and hinders company growth.
Each IT system has its own requirements for data format, built at different times and on various technologies, principles, and programming languages. This affects the employees' work, making it feel like they are communicating in different languages, and impacts the speed of interaction.
An ERP system integrates individual functions into one unified and comprehensible space. The ERP system acts as a translator that speaks multiple programming languages to ensure cooperation and consistency.
Your clients are dissatisfied with the service.
If clients are complaining or leaving, it's worth considering efficiency. This is linked to demand outstripping supply, late deliveries, slow service, or simply the overall feeling that the business lacks the resources or time to care for each client.
When a business grows to a medium or large level, ERP transforms dissatisfied clients into loyal ones. Clients begin to feel improvements in service and experience changes alongside the company.
You are using outdated systems.
According to According to the Veeam 2020 Data Protection Trends Report, the main barrier to digital transformation in businesses is outdated technologies. If a company is still operating with manual input systems or paper documents, it will definitely be left behind in the post-pandemic period.
Moreover, IT systems within the company may be quite modern but disintegrated. In this case, each department creates its own information silo, the data from which is released in a piecemeal or inaccurate manner. If integrating individual systems is prohibitively costly or impossible, then it is necessary to replace them with a unified ERP system.
What benefits does an ERP system provide to a business?
An ERP system is a product that a company purchases at its own expense. Its implementation is viewed as an investment that should yield profit. No ERP system manufacturer guarantees that it will lead to increased revenue for the company. This applies not only to ERP systems but to all IT solutions. However, all the advantages of implementation indirectly affect profitability:
Savings on IT Systems
Instead of spending resources on several disparate systems, each requiring specialized support, infrastructure, licenses, and employee training, all expenses can be focused on a single ERP platform. It consists of modules that replace fragmented systems with integrated components.
If the ERP system is developed from scratch according to the specific requirements of a company, it can incorporate external systems and services that facilitate collaboration among business partners, suppliers, clients, and other stakeholders.
Complete Transparency
ERP gives management full access to every business process in any department 24/7. For instance, inventory can be tracked daily, including scheduled deliveries and shipments in transit. With a complete overview of inventory levels, working capital can be managed more accurately.
Automated Reporting and Strong Planning
ERP creates a unified reporting system for all processes. It automatically generates useful reports and analytics at any time. This means management won't have to manually gather spreadsheets and emails.
Thus, the platform frees up time for strategic planning, higher-quality analysis, and comparison of departmental metrics. The ERP system helps identify trends in analytics that may have gone unnoticed before and were even impossible to detect.
Increased Efficiency
The ERP system by itself is not a panacea. It's important not only to align with the specifics of the business but also to implement correctly. According to 315 providers of ready-made ERP systems, the share of implementations that were only partially successful is estimated to be between 25 and 41 percent, depending on the industry. An appropriate ERP significantly reduces the time and effort spent on routine tasks.
Customer Service
Customer service is a key part of the business. An ERP system shifts employees' focus from maintaining customer records to building and nurturing customer relationships.
Statistics show that 84 percent of customers with a company if they do not receive adequate responses to their inquiries. An ERP provides employees with all the necessary information and customer history at the moment of contact. With it, employees focus on attracting and retaining customers rather than on bureaucracy. Customers feel the benefits of its implementation without even realizing changes within the company.
Data Security
There is hardly an information system that can provide an absolute guarantee of data security. Personal data of customers and employees, emails, intellectual property, financial information, invoices, contracts – the more systems managing this data, the harder it is to track risks. An ERP system introduces standardized access, data entry and output, and centralized information storage.
However, the larger the market share of a ready-made ERP system, the more frequently it becomes a target for hacker attacks. Developing a custom ERP system would be preferable, as access to the codebase would be exclusively yours. If the ERP system for your company is built from scratch, hackers cannot find copies of the system to pre-test for vulnerabilities.
Collaboration Productivity
Interest in collaboration among departments or employees often dwindles as data transfer requires numerous routine tasks or due to the company's psychological climate. A unified system automates access to information, eliminates the negative impacts of human factors, and accelerates communication within the company.
Unified Business Processes
Ready-made ERP systems are developed according to best industry practices. This allows enterprises to standardize their own processes.
However, in reality, companies face a difficult choice: either spend a long time and significant resources customizing and refining an ERP system to meet their standards, or painfully adjust their own business processes to fit the standards of the ERP system.
There is a third way – to initially develop the system tailored to your own business processes.
Scalability
Whether you are expanding your client base, entering new markets, implementing new processes, departments, or products, or otherwise scaling your business, the right choice of ERP provider will allow the platform to adapt to changes.
Since the ERP system is implemented across all company processes, the list of benefits can grow depending on the specifics. The market has developed dozens and hundreds of ready-made solutions that confine buyers within the limits of subscriptions, update speeds, support, proprietary functionality, and architecture – all tied to a single provider. Only developing a custom ERP system offers maximum opportunities without any constraints.
To learn how to choose an ERP system manufacturer, what questions to ask to avoid losing money, and what to consider when planning implementation, read the following articles.
Source: habr.com
