What’s ERP? Why and When Your Business Needs It?
This article intends to be in plain “non-technical” language to be clear to business people and executive decision makers
ERP stands for “Enterprise Resource Planning”, what does that mean? it simply means a business software that manages your entire business processes in one place.
Employees who have access to ERP systems called users. Some ERP systems provide Customers and Vendors access to the ERP and they also called users but they have different permissions to access specific data related to them.
Each business process such as Accounting, Human Resources, Inventory, etc. usually called a module in ERP systems. for example, Accounting Module includes the functions required in accounting such as Accounts Receivable and Accounts Payable.
ERP Systems must include reporting and analytics module to generate detailed reports and dashboards to present the high-level reports in a graphical format. This is in addition to some other administration tools to manage users, user’ permissions, and to perform some technical jobs can’t be performed by regular users.
The backbone of any ERP System is the Accounting module since all the other modules must have an impact on this module. That’s why all the transactions occurred in these other modules reflects in the financial statements.
Accounting System Vs. ERP System
It is important to know the difference between Accounting Systems, also called Accounting Packages, and ERP Systems. Accounting Systems have Accounting Module only however in some cases they also have Payroll and very simple Order Management. On the other hand, ERP Systems are more sophisticated and usually include Customer Management, Marketing, Human Resources, Manufacturing, etc.
Another differentiator also could be the level of customization or how deep you can tailor the system to be aligned with your business process. Accounting Systems are usually lower in customization and it is limited to the Invoice or Purchases Order templates and some other minor reports customization.
Nowadays ERP Systems can be vertically aligned perfectly with industries since most of the known ERP systems developed a readymade version for each industry. So it is common to find the same ERP brand for construction or manufacturing. which is not an option in Accounting Systems.
What’s Cloud ERP?
Cloud ERP Systems simply is an ERP that can be used from your internet browser. The same way of using Facebook or LinkedIn. Browse to a web address “URL”, enter your username and password and that set. So all you need to access your business information is a device connected to the internet. Most of Cloud ERP Systems are also mobile-ready i.e. they have a mobile App connected to the system where you can access your business information at your mobile device that connected to the internet.
Non-Cloud ERP Systems usually called On-Premises and that means you have to buy a server, install the ERP system on the server, and the users connect to this server from their computers in your office only. For sure, On-Premises ERP Systems are more costly since you have to buy hardware and hire an IT team to maintain it. In addition, in most cases, you have to pay the software license upfront that is plus annual maintenance and upgrade fees. On the other hand, in Cloud ERP systems you need to pay annual or monthly subscription fees only.
Why do you need an ERP System?
You need an ERP System mainly for control. You will never be in control of what is going on in your business without an ERP System. To be in control; you need 100% visibility of each business transaction. To get such visibility, every process activity should be entered in a software. This requires software that manages every process your business has. And simply ERP Systems only can track every single process and transaction of your business.
Alternatively, due to budget limitation when the business starts many business owners start with a simple accounting system. day after day, they add on some small applications to manage other processes, and eventually, they end up using tons of software isolated in different islands. As the business grows, business owners think in integrating these small software packages to minimize the manual work and reduce the inaccuracy in their reports. This adds more complexity, cost of integration and inefficiency.
4 Signs tell you, you need an ERP System?
There are some signs when they appear, you have to think in an ERP System:
- When you find your business trapped in many small applications manage many different business processes
- When you feel you spend more than budgeted on integrating many isolated systems
- When you think you lost visibility on your business transactions and therefore control
- When you search online for the best software to manage my business
When any of these signs appear, look for an ERP Consultant to advise you if you really need an ERP System? will you get the ROI “Return on Investment” if you invest in an ERP System at this stage? What’s your payoff period? and the most important question, what ERP should you choose?