The origins of enterprise resource planning (ERP) date back to over a century ago. The ERP process consists of linking or integrating the numerous and disparate functions of an organization - both back and front office operations. Rather than relying on an incompatible, cobbled-together group of platforms, software, and spreadsheets that require manual reconciliation, you can use an ERP system. ERP enables disparate departments like finance, manufacturing, procurement, sales, human resources, and administration to share data in a consolidated, centralized, and reciprocal data system.
This article includes traditional ERP initiatives, expert recommendations for solution characteristics, guidance on determining if your company is ready for ERP, and a discussion of the future of ERP.
What Is Enterprise Resource Planning (ERP)?
In 1913, an engineer named Ford Whitman Harris saw a need for greater efficiency and developed a production-scheduling model called economic order quantity (EOQ). This paper-driven precursor to process planning held the industry standard until 1964, when Joseph Orlicky developed materials requirements planning (MRP), and toolmaker Black + Decker became the first company to adopt an MRP solution that combined EOQ concepts with a mainframe computer. The rapid software adoption in the 80s led to integration capabilities that expanded functionality to include scheduling, bill of materials (BOM), and purchasing functions tied to corporate financial reporting. Encompassing considerably more manufacturing processes, manufacturing and resource planning (MRP II) replaced MRP as the standard for data management and efficiency planning. When the systems were expanded beyond manufacturing processes to include human resources and accounting, they were renamed enterprise resource planning (ERP).
ERP, called government resource planning (GRP) in the public sector, has traditionally been a large in-house initiative that aims to streamline both business processes and business information. When implemented properly, it is an integrated system that provides data clarity, flexibility, and operational agility. The foundation of an ERP solution is a shared database that acts as a central repository of information. All relevant stakeholders access this same repository of data. Reports are then culled from this singular, uniform system to provide transparency, efficiency, and consistency.
Be careful not to conflate Enterprise Resource Planning with a similar-sounding discipline, Enterprise Resource Management. Enterprise Resource Management refers to software solutions that manage an organization's human resource allocation and/or accessibility to systems. The term Enterprise Resource Management should not be confused with this article’s discussion of Enterprise Resource Planning.
Who Is Using Enterprise Resource Solutions?
You can implement an ERP system to streamline operational and administrative processes across every industry vertical including healthcare, manufacturing, retail, government, and technology. ERP works to integrate disjointed processes into one data system that the entire organization can view and act upon. All users - from executives to CIOs to customer service reps - can have access to the same real-time, up-to-date, and complete user-appropriate data and information.
Increasingly, companies that need to streamline and integrate operational functionality are turning to the nimble ERP solutions available in the current market. Companies need fast responses to the variances in the modern business climate and market forces to achieve market success and profitability. The business value of an ERP system is in its efficiencies and ability to quickly provide clear analytics. Businesses view data intelligence as a commodity that can be leveraged to enhance market share, competitiveness, and profitability. Having the right knowledge, clear reporting, and cross-function integration provides greater opportunities to identify areas for growth and expansion. ERP systems provide companies with the ability to respond to changing operational paradigms, new partnerships, acquisitions, increased supplier lists, decision-making tools, and mechanisms in order to adapt and move forward quickly.
Lisa Anderson, supply chain expert and business consultant, says, “ERP systems have become essential to compete in today’s Amazon-impacted marketplace, no matter the industry. My best clients are leveraging systems to provide superior service and rapid deliveries to customers, to gain quick access to information for decision making, and to utilize advanced technologies for customer and supplier collaboration and automation in support of profitable growth.”
The Characteristics of an Enterprise Resource Planning Solution
To accommodate the diverse needs of buyers, vendors offer on-premise, hosted, and cloud-based solutions to meet organizational implementation goals. Most ERP systems are based on a modular platform that vertically integrates elements — from the payroll and staffing requirements of an HR department to procurement and warehousing capacity, sales and marketing, and administration. One of the numerous goals of an ERP system is to lower operational costs by eliminating redundant systems, improving workflow, enhancing efficiency, and encouraging cross-function collaboration and communication. ERP systems also furnish the reports that reveal opportunities for insight, growth, and planning.
ERP began as a tool for manufacturing, but has been adopted by industries that provide services as well as finished goods. A strong ERP system combines integration, real-time operational support, and a centralized database. That centralized database will possess modern conveniences such as dashboards, cross-functional operations reporting, and instant views of the organization as an entire, integrated unit.
ERP system solutions fall into three categories:
- Large-scale enterprise organizational systems that integrate ERP into a single solution across the entire operational structure.
- Best-in-breed solutions. Since system integration is crucial to ERP, it’s important to research options that provide cross-functionality throughout the entire business.
- Software as a service (SaaS) and cloud-based systems that are flexible and cost effective. Small businesses are utilizing these solutions to streamline both manufacturing and service-oriented operations.
According to Gary McTall, Co-Founder and Chief Technology Officer at GovSense “Top-tier ERPs of the future must fulfill these three criteria:
- Have a flexible framework for innovation, such as point-and-click customization, graphical workflow, or a true-cloud solution.
- Possess effective compliance and controls, such as a rule-driven reporting engine that is in accordance with multiple accounting standards (GASB, GAAP, IFRS), role and permission controls, and audit trails.
- Offer real-time reporting that includes personalized dashboards and financial analytics.”
The Leading Enterprise Resource Planning Vendors
According to most industry sources, including Gartner Research, the leaders in ERP solutions are SAP (which developed the first ERP system in 1972) and Oracle. Today, these companies continue to be the two largest providers of ERP solutions offering in-house and cloud-based technology. Gartner’s Peer Insights also cites Microsoft Dynamics, NetSuite, and Sage among the industry leaders, especially when you’re looking for small and medium-sized cloud-based solutions.
Industry-Specific Enterprise Resource Planning Solutions
The trend for developing industry-specific solutions is growing rapidly. There are hundreds of ERP solutions available: many apply generally to all industry verticals while others possess industry-specific functionality/modules (healthcare, manufacturing, retail, government, or technology). It’s essential to evaluate your processes and determine whether a generic solution will meet your needs prior to selecting a vendor. A Software Advice analysis using Gartner's research methodology found that there are almost 600 ERP software solutions currently available in the marketplace, offering a vast array of choices to fit any organization’s needs.
Angela Nadeau, CEO of CompuData Inc., discusses the varying industry needs: “Every industry and business is different, with disparate operational requirements, variations in general accounting requirements, and industry-specific regulations. These needs will drive the transition to an appropriate ERP solution.”
The Advantages of Enterprise Resource Planning Solutions
As stated, you can leverage a modular ERP software suite in numerous operational areas. While the system is meant to work as a single entity, individual modules can be onboarded to support operational functions for life-cycle management, supply chain management, and inventory and order processing. Functions to support sales, marketing, human capital and staffing management, and customer relationship management and can also help streamline an entire business. ERP systems provide real-time views into key performance indicators, inventory, and order processing.
Another frequently identified benefit is business intelligence (BI). By utilizing the same system across numerous functional areas, ERP solutions supply a truer vision of company health and standing. Advantages also include better cross-function communication and reporting, improved customer service management, better and more efficient operational management for procurement, inventory, sales tracking, and streamlined operations. Utilizing BI via predictive analytics allows for effective identification and implementation of new initiatives and opportunities for stability and growth.
According to Anderson, “Although ERP systems have many bottom-line advantages, the most compelling reason to pursue an ERP system is to gain a cross-functional — and even cross-organizational — platform to support scalable business growth.“
The Disadvantages and Challenges of Enterprise Resource Planning Solutions
On the other hand, an ERP solution can be a large and expensive initiative. Expenses include the capital and software needed for functionality, as well as the consultants, in-house IT personnel, and administrators to manage the system. Many of the challenges in implementing an effective ERP system stem from the hidden costs resulting from insufficient planning. Once deployed, business users can utilize the system and maximize its functions. However, they must first plan proactively, recognize the elements of operational and cultural change, and assign the appropriate assets and human capital to the project. Oversight in these areas is the main reason for costly delays and financial overruns.
Another widely recognized roadblock to achieving successful ERP is failing to provide sufficient training and education. As with all organizational or cultural change, supplying the tools to understand, comfort, and familiarize staff with the benefits and logistics of the new process is critical to gaining buy-in.
The most cited reasons for unsuccessful ERP implementation are the failures to adequately identify your needs, assign the right team or resources, and take ownership in a timely manner.
McTall says the most common challenge his organization encounters is “difficulty in staying the course after we’ve defined the requirements. At GovSense, we leverage Smartsheet to help our customers organize, manage, and rank their requirements. Having a single source of truth throughout the project helps mitigate the risks.”
Is Your Company Ready for an ERP Solution? A Readiness Checklist for Implementing ERP
According to A Framework for Applying CSFs to ERP Software Selection, a study conducted by Rekha Gupta and S. Kazim Naqvi, “ERP implementation is believed to be a high-risk investment process, as it requires substantial financial commitments and has an inherent high-failure probability.” Organizations that carefully plan their search, purchase, and implementation of an ERP solution are able to minimize many of the most common risks mentioned above. Utilizing the McKinsey 7s model, a 2011 framework for assessing ERP readiness calls for the following actions when planning an ERP implementation:
- Strategy: Align the goals of the ERP system with the overall business strategy.
- Structure: Identify the decision makers and elements of coordination and alignment.
- Systems: Analyze the needs of IT, useable/important data, and business processes.
- Style/Culture: Make the appropriate changes in alignment or business culture to adopt ERP.
- Staff: Select the right project team and provide support.
- Skills: Provide the training and education to acquire or improve the necessary skill sets.
- Shared Values: Adopt the elements to assure buy-in, including overall business commitment.
Once you decide to proceed with implementing or improving an ERP solution, consider the following:
- Developing a dedicated team of IT and non-IT professionals to lead the initiative
- Analyzing the current system and areas that need improvement
- Identifying the best deployment option for your business (SaaS/Cloud vs. On-premise)
- Investigating industry options, vetting vendors, and obtaining references
- Planning the costs realistically (hardware, software, change management, staffing, and training)
- Creating a training protocol for ongoing education and user buy-in
- Planning for the data transfer (what information to import to the new system and why)
- Preparing a reasonable and actionable time frame before going live
Many of these considerations are dependent on the size of your business, the business units requiring support, and industry vertical. Factors such as general or industry-specific solution, and cloud, SaaS, or on-premise deployment will all be large part of the decision making process.
Enterprise Resource Planning Best Practices
Much of your readiness assessment will vary based on your industry vertical. Industry- focused ERP software vendors place best practices procedures and reporting in many of the modules. Part of due diligence is identifying the reporting needed for function areas like quality and regulation. Many ERP solutions have financial and compliance reporting functions that are germane to a certain industry. The right system can assist and provide data to support issues of proper data storage and security, financial reporting, and ISO support, as well as the banking considerations of IFRS, Basel II, and Sarbanes-Oxley.
The Evolution of Enterprise Resource Planning
Gartner’s “postmodern ERP,” which recognizes that a one-suite solution may not always be in a company’s best interest, effectively articulates the continuing evolution of ERP. A departure from a single vendor approach, postmodern ERP advocates a multi-tiered plan that can solve many pertinent issues by integrating disparate systems and scaling for growth. This approach is especially useful for companies or divisions with remote teams or who are in the midst of corporate mergers and acquisitions. The key to postmodern ERP is striking the right balance between components, software, hardware, and modules, all while managing the complexity that can come with integrations.
The Future of Enterprise Resource Planning
The traditional ERP implementation was large, complex, and primarily accessible to enterprise-sized organizations.
According to Peter Contreras, P&G’s ERP Oil and Gas, Aviation, and Consumer Goods Project Manager, “These multi-phased, multi-year, multi-million-dollar projects that were hugely popular in preparation for Y2K are diminishing due to the demand for a more agile approach to technology, including apps that act as more user-friendly components of ERP solutions.”
Ultimately, the goal is to simplify.
According to an article by Ron Gill, Why Cloud Computing Matters to Finance, “About two-thirds of mid-sized businesses are running old versions of their enterprise resource planning (ERP) system. In some cases, it’s software that’s three or more versions old. This is the legacy of decades of on-premise (in-house) software deployments, incremental releases that never seemed worth the pain of a major upgrade migration project, and the fear of losing critical customization.” The article outlines the costs and inefficiencies of the continuous repair of large, complex, out-of-date systems.
ERP providers have adapted their offerings to meet the demands for agility and mobility. As SaaS and subscription-based cloud technologies find greater acceptance, many small and medium-sized companies can take advantage of cost savings by eliminating expensive hardware expenditures, complex licensing, and maintenance.
McTall echoes the demand for cloud ERP solutions: “Cloud ERP enables organizations to manage IT costs, optimize operational efficiency, streamline order management and procurement processes, eliminate manually-intensive, spreadsheet-based reporting, and improve employee productivity, while shifting ERP expenses to OPex rather than CAPex.”
Today’s ERP systems are shedding their reputation for costly, time-consuming, and rigid deployments, while continuing to solve and improve upon key business functions like data integrity and process efficiencies. As the world moves through the era of digital transformation, businesses continue to recognize the need to leverage data to maintain or achieve a competitive advantage. Current ERP systems provide visibility, coordination, integration, and versatility. Future systems will offer the enhanced functionality, flexibility, reporting, and centralized data vital to meet the competitive demands of busines.
Manage Enterprise Resource Planning with Smartsheet
Effectively managing enterprise resource planning helps ensure that you have the right materials on hand at any given moment. To do this efficiently, many of the world’s most productive companies turn to Smartsheet to provide seamless communication and visibility into collaborative work.
Smartsheet is a work management and automation platform that enables enterprises and teams to work better. In fact, QAD, a leading provider of enterprise resource planning software for global manufacturing companies, uses Smartsheet to coordinate more than 1,600 employees and 90 partners across the globe. They use Smartsheet in many areas of their business including human resources, finance, sales, and services. Gaining instant visibility into project statuses reduced time spent on email, phone, and other manual updates, and also helped company leaders make better decisions in a timely, conscientious manner.
Discover how your team can seamlessly manage enterprise resource planning with Smartsheet.