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    An enterprise resource planning system, sometimes known as ERP, is a networked software system that manages the transactions to record-keeping for the fundamental activities of a company’s operations, such as sales, purchasing, accounting, and human resources. Installing an enterprise resource planning system (ERP) is one of the most audacious measures a company can take to computerize its business operations.

    ERP software comprises several interconnected but distinct components or modules, each enabling employees to carry out the responsibilities of a specific business process or departments, such as sales, customer relationship management (CRM), inventory management, and financial management.

    Unlike other forms of business software — such as simple accounting, scheduling, or task management — that are utilized by a single person or a small group and do not directly relate to other software, ERP is designed to work in a collaborative environment.

    What’s the big deal with ERP?

    Tapping onto the internet to expose these ERP channels to the outside world helps to align supply and demand by attaching the needs of consumers more closely to the activities taken by a firm, its suppliers, and partners to produce and deliver products and services to the market place.

    This continuous “digital transformation” of practically every corner of the corporate sector, made possible mainly by enterprise resource planning (ERP), has permitted the introduction of new conveniences such as mobile e-commerce. It has also contributed to the integration of the international economy by enabling — or, at the very least, facilitating — global manufacturing, supply chain analytics, and industrial Internet of Things (IoT).

    At the same time, digital transformation necessitates the development of a new set of ERP skills that place a strong emphasis on comprehensive business knowledge and cooperation to write the next chapter in the long-standing partnership between ERP and the business community.

    What can you find in an ERP?

    Core ERP Modules

    Most enterprise resource planning systems (ERP) manage the critical business procedures common to all types of businesses — either in dedicated modules or as subfunctions of other modules. On the other hand, the ERP finance module is included in every ERP package since every organisation needs the capacity to handle financial transactions and account for their results. Basic accounting, invoicing, financial analytics, forecasting, and reporting are all automated using this software.

    Additional modules with particular capabilities are required by businesses that manufacture or distribute items. The following are the most often encountered:

    • Material requirements planning (MRP);
    • Inventory management;
    • Manufacturing management, or production management;
    • And supply chain management (SCM): complex processes for demand planning and logistics, including transportation and warehouse management systems.

    Some firms go one step further and install still another layer of modules that are even more specialized or provide more sophisticated features. For example, in addition to the core HR services of an HCM system — such as payroll, benefits, and personnel records — a firm may choose to add talent management software, which includes modules dedicated to recruiting, training, assessing, and rewarding people on top of these basic HR activities.

    It is possible for a consultancy, construction firm, or other organization whose work is usually structured into projects to add a project management module to their existing software system. 

    A firm with its own distribution centres may choose to purchase an SCM suite from another vendor that includes sophisticated transportation and warehouse management software with pre-configured integration to the ERP rather than developing its own.

    Pros and cons of ERP

    ERP system Pros and Cons

    Oftentimes, the advantages of ERP often exceed the downsides in most cases.

    Pros of ERP

    • By optimizing operations, enterprise resource planning (ERP) can save money in the long term.
    • This solution delivers an integrated system that helps reduce IT, labour, and training expenses.
    • ERP provides a more complete picture of essential aspects of a company’s operations, such as sales, working capital, and inventory.
    • Improved data and analytics make reporting and planning more accessible, and it helps to save costs.
    • It enhances compliance and security by implementing standardized procedures and allowing for fine-grained control over user permissions.

    Cons of ERP

    • Deploying and maintaining ERP software may be a costly endeavour.
    • It is frequently difficult to put into practice.
    • It necessitates extensive change management efforts.
    • ERP modules are frequently less advanced than specialist software, and as a result, they are either left unused or must be updated.

    Tips on selecting an ERP system

    1. Assigning a team to work with. The ERP purchasing process begins with forming a project team managed by a project manager and often consists of department heads, senior executives, and information technology.
    2. Specifying the prerequisites. To understand the organisation’s present and future ERP use cases, the project team compiles the requirements and wish lists of various stakeholder groups.
    3. Vendors are being investigated. A framework for examining ERP software providers and inviting the most promising ones to reply to an RFP explaining how they will deliver the requirements is established during the requirements planning stage of the process. Some suppliers may be invited to make sales presentations to potential customers.
    4. Creating a shortlist of candidates. The project team selects a limited number of suppliers that it feels will most likely match the specifications.
    5. Demos should be scheduled. The nominated vendors must demonstrate how their software operates in real-world situations, which may include participating in a competitive “bake-off.”
    6. Finding and selecting a dealer. After negotiating the price and terms with the vendor of choice, the buyer signs a contract with that seller.

    ERP Implementation Methodologies

    The implementation of a cloud ERP system is a demanding task. In addition, the system change will most likely impact members of your organization and suppliers and customers.

    Starting on a cloud ERP implementation calls for a massive undertaking and may involve tremendous risks.

    Project leaders are responsible for communicating with key stakeholders, the software vendor, implementation partners, and project managers to decide the most appropriate implementation process.

    Cloud Implementation Methodologies

    ERP implementation

    Each cloud ERP implementation process has its own set of advantages and disadvantages. Learn more about each approach and choose the most appropriate one for your company’s needs.

    Phased approach

    A phased approach divides a large project into many smaller projects. 

    For example, Phase 1 may consist of fundamental functionality, whereas Phase 2 may consist of additional, less-critical features.

    Phase 2 may involve:

    • The creation of new modules.
    • Integrating a third-party application.
    • Developing a seamless interface with your organization’s other systems.

    Advantages

    1. Changing the composition of the implementation team after each phase will not cause any significant interruption to the program.
    2. Because your implementation team is likely to be smaller, communication will be more straightforward.
    3. During Phase 1, you may understand how the ERP system operates before moving on to the next phase.
    4. Delivering functionality through a series of smaller initiatives reduces the chance of failure.
    5. At go-live, fewer functionalities must be configured and supplied, lowering the level of complexity.
    6. Because just a subset of the capability is provided, training is more focused on that subset.

    Disadvantages

    1. Because implementation will almost certainly take longer than anticipated, the overall program cost may be higher.
    2. Employees may get dissatisfied if necessary functionality is not implemented until a later stage, which might negatively influence change management.
    3. Because the systems and procedures will not be simplified until the next phase, employees may have to continue utilizing outdated systems and processes for a while.
    4. The project may be terminated by workers, contractors, or implementation partners after each phase since it is a natural moment for them to withdraw from the project.
    5. Because the project is divided into many phases, training will need to occur on several occasions.

    Big bang approach

    A big bang approach refers to implementing the whole system in a single large project, culminating in a single go-live for the entire company.

    This strategy is appropriate when breaking a project into sub-projects would have a detrimental effect on the end-user experience, which is often the case.

    Advantages

    1. The big bang approach is often the most efficient method of delivering all of the ERP features to your users simultaneously.
    2. Because the project will be completed in less time, you will be less likely to lose crucial resources throughout the project.
    3. Training is being devised and offered for the whole system, not just individual employees. Overall expenses are anticipated to be reduced since the implementation will be shorter, resulting in fewer human resource expenditures.
    4. There are no dependencies on legacy systems to fill gaps when the program is first implemented.

    Disadvantages

    1. An issue in one area might negatively influence the whole project’s go-live timetable.
    2. Because you must convert data from various systems simultaneously, data migration will almost certainly be more complicated.
    3. Delivering all of the features in a single release might be more complicated than implementing alternative solutions.
    4. Before you can use and grasp the subtleties of the primary ERP system, you must first install new capabilities into the system.

    Line-of-business approach

    With this line-of-business approach, your ERP implementation will take place in many stages, each of which is tailored to the requirements of your organization’s designated areas of business. For example, consider the following scenario: you are responsible for the ERP deployment of the company’s American division, the Canadian division, and finally, the European division.

    You might also separate your stages according to the product lines you sell. This strategy incorporates elements of both the big bang and phased approaches. When using a phased process, you may break the project down into numerous more minor tasks and then provide the full capability to one line of business at a time instead of when using a big bang method.

    However, we must recognize that the project team may need contributions from individuals who have not previously worked on an ERP installation project. For example, although the essential functionality, security, and reporting may be identical across lines of business, interfacing with third-party suppliers may be regional and need solely the support of the current line of business to perform effectively.

    Advantages

    1. Because you’re providing functionality in a series of smaller initiatives for specific lines of business, the overall program risk is reduced.
    2. You may postpone more complex needs, such as handling various currencies until later in the development process.
    3. You may complete the functionality needed by a single line of business in a single step.
    4. Releases might be prioritized depending on the requirements of different lines of business.
    5. When working on subsequent implementation projects, you will draw on your past implementation project expertise.

    Disadvantages

    1. It may be difficult to prioritize one business area without incurring organizational, political problems.
    2. Numerous critical project choices are almost certainly made during the first phase and may be tough to reverse when new lines of business are brought on board in the following steps.
    3. You may have to repeat prior work to meet the needs of other company lines.

    Conclusion

    Enterprise resource planning systems play a critical role in modernizing and automating business processes across industries. By integrating core functions into a unified platform, ERP enables organizations to improve efficiency, foster collaboration, and adapt to the demands of a digital-first world. Although implementation may pose challenges, the long-term benefits of ERP often outweigh its complexities.

    Start Your ERP journey today.

    FAQs

    1. What does an ERP system do?
      An ERP system manages core business processes like sales, purchasing, accounting, and human resources within a single, integrated platform.
    2. What are the main advantages of ERP?
      ERP helps reduce costs, improve operational visibility, streamline processes, and enhance compliance through standardized procedures.
    3. Why is ERP implementation challenging?
      Deploying ERP can be costly, time-consuming, and requires extensive change management to align with existing business operations.
    4. What are the different ERP implementation methods?
      Common methods include the phased approach, the big bang approach, and the line-of-business approach, each with its own advantages and challenges.
    5. Can ERP systems be customized for specific industries?
      Yes, ERP systems often include industry-specific modules such as material requirements planning (MRP), supply chain management (SCM), and talent management.