What is ERP? Your guide to enterprise resource planning

Enterprise resource planning (ERP) is a software solution that integrates various business processes and functions to streamline operations and provide a comprehensive view of an organization's data. It centralizes information across departments such as finance, human resources, sales, and production, enabling better decision-making and improved efficiency.

If you run a business and face challenges like managing multiple locations,, coordinating supply chains, and handling intricate financial transactions, ERP can be the solution. 

By automating manual tasks, eliminating data silos, and providing real-time insights, ERP helps address these pain points and achieve greater operational excellence.

How do ERP systems work?

Why and when ERP is important

Types of ERP implementation

Benefits of ERP

Understanding the total cost of ERP

What to look for in an ERP system

Implementing your ERP

Navigate midsize and complex business challenges and opportunities

What is ERP FAQ

How do ERP systems work? 

ERP systems integrate various business processes and data into a centralized platform. This integration is achieved through a common database that stores information from different departments. 

Here are some of the key components of an ERP service:

• Modules: Specialized software components that handle specific business functions, like accounting, inventory management, or customer relationship management (CRM)
• Database: A central repository that stores all relevant data from different modules
• User interface: A platform through which you can access and interact with the system
• Reporting tools: Tools that generate reports and analytics based on the stored data

With that sorted, let’s take a look at how enterprise resource planning software works:

1. Data collection: ERP services collect data from various sources within an organization, including transactions, customer information, and employee records.
2. Integration: This data is then integrated into a centralized database, creating a single source of truth.
3. Process automation: ERP can help automate many business processes, such as order processing, inventory management, and financial reporting.
4. Real-time insights: ERP provides real-time access to data, enabling you to make informed decisions quickly.
5. Reporting and analytics: ERP systems offer powerful reporting and analytics tools that can help identify trends, patterns, and opportunities.

Why and when ERP is important 

ERP services are essential tools for businesses seeking to improve efficiency, streamline operations, and make data-driven decisions. These are not the only benefits of ERP—enhanced collaboration, scalability, and risk mitigation are some more.

Also, ERP systems help optimize several business functions. Here are some examples to get a better idea of how an ERP software program works:

• Financial management: Handling accounting, budgeting, and financial reporting
• Human resources: Keeping track of payroll, benefits, employee data, and performance reviews
• Customer relationship management: Managing customer interactions, sales opportunities, and customer service
• Supply chain management: Coordinating the flow of goods and services from suppliers to customers
• Project planning: Planning schedules, tracking work, and managing quality control

In short, ERP solutions integrate various business functions, providing a comprehensive view of your organization's operations and enabling better control, efficiency, and decision-making.

Types of ERP implementation

There are three primary deployment models for ERP systems: cloud-based, on-premise, and hybrid. Each model offers distinct advantages and considerations for businesses. Let’s take a closer look at each type of ERP.

Cloud ERP 

Cloud ERP services are hosted on a third-party cloud platform, such as Amazon Web Services (AWS) or Microsoft Azure. This model eliminates the need to invest in hardware and IT infrastructure, as the ERP provider manages all technical aspects of the system. 

Advantages of cloud ERP include:

• Lower upfront costs: You don’t need to invest significant capital in hardware and software.
• Scalability: Cloud ERP can easily scale up or down to accommodate changes in business needs.
• Accessibility: You can easily access ERP software from anywhere in the world. All you need is an internet connection.
• Regular updates: Cloud providers typically handle software updates and maintenance.

On-premise ERP 

On-premise ERP solutions are installed and operated on a company's own servers and hardware. It gives full control over ERP systems but requires significant upfront investment and ongoing IT management. 

Here are some advantages of on-premise ERP:

• Complete control: You have full ownership and control over your ERP data and systems.
• Customization: On-premise ERP can be highly customized to meet specific business requirements.
• Security: Some businesses may prefer the perceived security benefits of having their data on their own premises.

Hybrid ERP 

Hybrid ERP combines elements of cloud and on-premise ERP—certain modules or components in the cloud, others on-premises. This approach offers flexibility and can be useful in complex IT environments or specific security requirements. Hybrid ERP offers several advantages, such as::

• Flexibility: You can choose which components to deploy in the cloud and which to keep on-premises.
• Cost-effective: Hybrid ERP can be a cost-effective option for businesses with varying needs.
• Security: You can maintain control over sensitive data while benefiting from the scalability and accessibility of cloud-based components.

Benefits of ERP 

ERP systems offer many benefits to businesses of all sizes. By integrating various business processes and providing a centralized platform for managing information, ERP systems can deliver significant advantages in terms of cost savings, scalability, data management, reporting, and productivity. Here’s how:

• Cost savings: Streamlines processes, eliminating redundant tasks, and improving efficiency
• Increased productivity: Automates accounting processes and streamlining workflows
• Scalability: Seamlessly adapts to a company's growth and changing needs
• Centralized data: Provides a single source of truth for all business data, improving data accuracy and accessibility

What’s more? ERP software offers powerful reporting and analytics tools that can help identify trends, patterns, and opportunities.

Understanding the total cost of ERP 

The total cost of ownership (TCO) for ERP implementations has more aspects than you might know. This includes visible costs, as well as others that you might overlook.

Visible costs

Other than the software licensing fees, i.e., the initial cost of purchasing the ERP software, visible costs include:

• The cost of acquiring or upgrading hardware and IT infrastructure to support the ERP system
• Fees for consultants, project managers, and other professionals involved in the implementation process
• Training cost to educate your employees on how to use the ERP system to make the most out of it
• The cost of customizing the ERP solution to meet specific business needs

Unexpected costs

Unexpected or underestimated costs are less evident than visible costs and can significantly contribute to the overall cost of ERP implementation. It includes:

• The cost of migrating existing data into the new ERP system
• The cost of modifying or redesigning business processes to align with the ERP system
• The potential loss of productivity during the implementation process and as employees adjust to the new system
• The cost of maintaining the ERP system, including software updates, technical support, and security patches

Carefully considering all costs can help you make informed decisions about ERP investments and allocate resources accordingly. Another thing that can help is understanding the factors that affect TCO:

• ERP system complexity: More complex ERP systems generally have higher costs.
• Business size and industry: The size and industry of your business can influence the total cost of ERP implementation.
• Customization requirements: The level of customization you need can significantly increase costs.
• Implementation methodology: The chosen implementation methodology (e.g., Big Bang, phased, etc.) can impact costs.

What to look for in an ERP system 

First and foremost, look for functionality. Ensure the ERP system meets your specific business needs, including modules for finance, HR, sales, production, and other critical areas. Here are some other things to consider when evaluating ERP systems:

• Scalability: The ERP system should be able to accommodate your business's growth and changing requirements.
• Integration capabilities: Check if the ERP can integrate with other systems you use, such as CRM or enterprise accounting software.
• User-friendliness: The system should have an intuitive interface that is easy for employees to learn and use.
• Customization options: Assess whether the ERP can be customized to fit your unique business processes and workflows.
• Security: Make sure the ERP system includes strong security measures to safeguard your sensitive data.
• Support and maintenance: Look for an ERP provider with a strong track record of providing support and maintenance.

Do you need an ERP system?

To determine if your business is ready for an ERP system—or for the right accounting software selection—ask yourself these questions:

1. Are your current processes inefficient or manual?
2. Are you experiencing challenges with data management or reporting?
3. Do you need a more comprehensive view of your business operations?
4. Are you struggling to scale your business due to limited resources or outdated systems?
5. Are you facing increasing regulatory compliance requirements?

Implementing your ERP 

You may face several challenges while implementing an ERP service, especially if it’s your first time. For instance, ERP implementation can be costly, requiring careful budgeting for software licenses, hardware, implementation services, training, and ongoing maintenance. Other implementation challenges include: 

• Employee training: Adequately training employees on the new ERP system is crucial for successful adoption and utilization.
• Data conversion and migration challenges: Migrating existing data from legacy systems to the ERP can be complex, requiring careful planning and execution.
• Resistance to change: Employees may resist changes to their work processes and systems, which can hinder ERP adoption.
• Dedicated IT resources: ERP implementations often require significant IT resources for configuration, customization, and ongoing support.

Also, while ERP can streamline processes, it won't solve underlying process or policy issues that may be affecting efficiency.

Navigate midsize and complex business challenges and opportunities

Midsize businesses face unique challenges and opportunities. Resource constraints, scalability, and data management are common hurdles. Yet, midsize businesses also possess agility, innovation potential, and niche market opportunities.

Enterprise resource planning systems can address these challenges by streamlining processes, centralizing data, and providing insights for informed decision-making. We are here to help you choose an ERP that’s right for your business. If you’re a midsize business seeking solutions to similar problems, advanced accounting software like QuickBooks Online Advanced can improve your processes.  

If your business is more complex, an all-in-one enterprise resource planning system like Intuit Enterprise Suite can help you manage your finances with precision and ease. Keep growing with a more powerful suite, and boost productivity with business and financial management all in one solution. Make faster decisions with real-time data and visibility across your portfolio.