Introduction to ERP


ERP stands for Enterprise Resource Planning. ERP systems are the kind of
software tools that are used to manage the data of an enterprise. It helps different
organizations deal with different departments of an enterprise. Different
departments like receiving, inventory management, customer order management,
production planning, shipping, accounting, human resource management, and
other business functions. This article focuses on discussing an ERP system in detail.
Table of Content
 What is ERP?
 Features of ERP
 History of ERP
 Why ERP is Important?
 How does ERP Work?
 Types of ERPs
 Benefits of ERPs
 Weakness of ERPs
 ERP vs CRM
 ERP Solution Providers
 Tips for Choosing an ERP
 Conclusion
 FAQs
What is ERP?
Enterprise Resource Planning (ERP) is a software system that is used by
organizations to manage and integrate the important parts of the businesses. It is
the practice of consolidating an enterprise’s planning, manufacturing, sales, and
marketing efforts into one management system.
1. It can integrate all the processes that are needed to run a company.
2. It helps to improve efficiency, better reporting, and enhanced data security.
3. These systems can be customized according to the specific needs of the different
industries.
4. ERP systems are crucial for large organizations.
Before ERP
Before an ERP system, there were different databases of different departments
which they managed on their own. The employees of one department does not
know anything about the other department.
Figure – Before ERP

After ERP
After the ERP system, databases of different departments are managed by one
system called the ERP system. It keeps track of all the databases within the system.
In this scenario, employees of one department have information regarding the other
departments.

Figure – After ERP

Features of ERP
Below are the core features of ERP systems:
1. Financial Management: ERP systems are used to manage financial
transactions, produce financial statements such as balance sheets, manage
companies’ tangible and intangible assets, and track money owned by and to
the organization.
2. Supply Chain Management: ERP systems help to monitor the stock levels,
track inventory movement, manage the movement of goods, and automate the
purchasing process.
3. Human Resources: In an organization, ERP systems help to manage employee
records, automate payroll processing, and manage recruitment and onboarding.
4. Customer Relationship Management (CRM): ERP systems help in sales
automation, automate marketing campaigns, track customer interactions, and
improve customer satisfaction.
5. Project Management: ERP systems support project planning and scheduling,
and monitor project time and expenses for accurate cost estimation.
6. Manufacturing: ERP systems help in production planning, list all the raw
materials required for product manufacture, and monitor the production
process.
History of ERP
Key
Timeline Development Description

Material Requirements Planning (MRP) systems were

Beginnings introduced that were focussed on inventory
1960s management and production planning.

Material Requirements Planning (MRPII) is introduced

with a few additional manufacturing processes added
MRP Expansion
to MRP such as capacity planning, shop floor control,
1970s and quality management.

 This era marks the introduction of ERP which

integrated various business functions like finance,
Introduction of
HR, and procurement into a single system.
ERP
 Relational Databases were introduced that
1980s improved data storage and retrieval.

1990s Growth and  In this era there was a shift from Mainframe to
 Key
Timeline Development Description

Adoption Client-Server Architecture.

 ERP systems became more customizable.

 ERP systems enabled remote access and cloud-

based solutions.
Web-based ERP
 Emergence of SaaS ERP solutions offered lower
2000s initial costs and easier maintenance.

 There was widespread adoption of cloud-based ERP

Cloud and Mobile solutions.
ERP  Mobile apps and mobile-friendly ERP interfaces
2010s were introduced.

 Integration of AI and ML in ERP systems for

predictive analysis and enhanced decision-making.
 Introduction of Blockchain Technology in ERP
Intelligent ERP transactions enhanced security and transparency of
the transactions.
 Use of IoT devices in ERP systems for real-time data
2020s collection and monitoring.

Why ERP is Important?

ERP systems are critical for modern businesses and organizations. Below are some of
the points highlighting why ERP systems are important:
1. Reduces Manual Work: ERP systems help to reduce manual work, thus
freeing up employees for more strategic activities.
2. Improved Efficiency: These systems help to improve efficiency by integrating
different business processes and ensuring smooth operations.
3. Up-to-Date Information: ERP systems provide real-time data enabling
timely and improved decisions.
4. Fosters Collaborations: These systems ensure that all the teams work on the
same data thus reducing misunderstandings.
5. Reduces Operational Costs: They help in cost saving by streamlining the
processes and improving productivity.
6. Intergates CRM: ERP systems help to manage customer interactions and
improve satisfaction.
7. Tracks KPIs: ERP systems allow for better performance management by
tracking KPIs and other metrics.
How does ERP Work?
ERP systems typically work through a centralized database by integrating various
business processes and functions into a unified system.
1. Centralized Database
An ERP system stores all the data in a central database and ensures that all the
users have access to the most current data. This helping different departments to
access and share information seamlessly, thus helps them to make informed
decisions.
2. Modular Structure
ERP systems are composed of interconnected modules, focussing on specific business
functions allowing data to flow between them.
3. Business Process Integration
ERP systems automate workflows across various departments and support end-to-
end business processes, ensuring all the steps are streamlined.
4. User Interface and Access
In ERP systems users have specific roles and permissions according to which they are
granted access to relevant modules. They are also provided with dashboards and
reporting tools to monitor KPIs.
5. Customization
ERP systems are customized according to the specific needs of the organization. It
also allows for adjustments when the business grows ensuring ERP systems remain
aligned with the business goals.
6. Data Collection and Analytics
ERP systems capture data from various sources and use built-in analytics tools to
process data and generate actionable insights helping businesses to make strategic
decisions.
7. Compliance and Security
ERP systems ensure that all business processes comply with relevant regulations and
standards and implement robust security measures to protect sensitive data.
8. Implementation and Training
This involves planning, configuring, testing, and deploying the ERP systems. It also
involves conducting training programs to ensure all users are proficient in using ERP
systems.
Types of ERPs
ERP Type Description Benefits Drawbacks

ERP system is installed This is highly This ERP system has

On- locally on companies’ customizable and high maintenance costs
Premise servers and hardware. provides greater and IT infrastructure
ERP Type Description Benefits Drawbacks

ERP control over data. requirements.

ERP system is hosted This ERP system is Cloud ERP provides less
on vendor’s servers and scalable, low upfront control over data
accessed via the cost, and accessible security and relies on
Cloud ERP internet. from anywhere. internet connectivity.

This provides Hybrid ERP is costly

Hybrid ERP combines
flexibility to use both and complex to
Hybrid On-Premise and Cloud
on-premise and integrate and manage
ERP ERP features.
cloud functionalities. due to dual systems.

Open-source ERP
They require technical
systems have code They are highly
expertise for
available to the public, customizable and
Open- implementation and
thus allowing for cost-effective.
source ERP maintenance.
customization.

They offer
Industry-specific ERP They are less flexible to
Industry- specialized
are tailored to meet adapt to different
functionalities and
specific the specific needs of industries and are costly
compliance with
ERP particular industries. to customize.
industry standards.

Small These are designed for

They are affordable They offer limited
Business small medium-sized
and easy to use. features and scalability.
ERP businesses.

These are the

They offer extensive They are costly,
comprehensive ERP
functionalities and complex to implement,
systems that are
Enterprise advanced and longer deployment
designed for large
ERP customization. time.
organizations.

Best-of-Breed ERP They offer the They pose integration

systems combine the flexibility in choosing challenges and higher
Best-of- best modules from the preferred costs due to multiple
Breed ERP different ERP vendors. solutions. vendors.
ERP Type Description Benefits Drawbacks

It utilizes the primary They pose integration

ERP at the corporate complexity between
It offers cost savings
level and the tiers, thus causeing
Two-Tier for smaller units.
secondary ERP at the potential data
ERP departmental level. consistency issues.

Benefits of ERPs
Here are the key benefits of implementing the ERP systems:
1. Improved Efficiency: ERP systems reduce the manual effort and risk of errors
by automating repetitive processes.
2. Integrated Business Processes: ERP systems streamline operations by
integrating various business processes and enable seamless data flow across the
departments.
3. Reduced Redundancy: ERP systems eliminate duplicate data entries and
improve data integrity.
4. Timely Data Access: ERP systems provide real-time data access, thus helping
in making timely and informed decisions.
5. Reduced IT Costs: ERP systems consolidate IT systems, thus lowering the
infrastructure and maintenance costs.
6. Maintain Compliance: It help to maintain compliance with industry
standards.
7. Enhances Customer Service: ERP systems helps to improve service delivery by
providing quick access to customer information and data.
Weakness of ERPs
ERP systems offer numerous benefits but they also come with several weaknesses
and challenges. Here are some of the weaknesses of ERP systems:
1. High Implementation Costs: Implementing an ERP system can be expensive
and time-consuming. It requires significant investment in hardware, software,
and personnel, as well as training and consulting costs.
2. Complex Customization: Customizing an ERP system to meet the specific
needs of an organization can be complex and require specialized knowledge.
This can lead to delays and additional costs.
3. Resistance to Change: ERP systems often require significant changes to an
organization’s processes and workflows, which can be met with resistance from
employees who are comfortable with existing practices.
4. Data Security Risks: Centralizing sensitive business data in an ERP system
creates potential security risks, especially if the system is not properly secured or if
there are vulnerabilities in the software.
5. Limited Flexibility: ERP systems are designed to provide standardization and
control, which can limit the flexibility of an organization to respond to changing
business needs and market conditions.
6. Dependence on Vendor Support: Organizations that use ERP systems are
often heavily dependent on the vendor for support, maintenance, and upgrades.
This can create a risk of vendor lock-in and limit an organization’s ability to
switch to other systems or providers.
ERP vs CRM
ERP and CRM are both software systems that serve different purposes and manage
different aspects of a business. Below are some of the differences between them:
Enterprise Resource Customer Relationship
Features Planning (ERP) Management (CRM)

ERP integrates and automates CRM manages and improves the

essential business processes interactions with current and
Definition across various departments. potential customers.

ERP has a central database for CRM has centralized customer

Data internal operations. data and interaction history.

ERP is ideal for organizations

CRM is ideal for organizations
needing to integrate and
focussing on improving customer
automate multiple business
Ideal For interactions.
processes.

Customization can be complex Customization is generally easier

Customization and expensive. and straightforward.

Training ERP systems require extensive CRM requires less extensive

Requirement training for various modules. training.

ERP systems are scalable but CRM is scalable but with less
Scalability require significant investment. complexity.

ERP systems offer various CRM systems offer various

benefits such as improved benefits such as enhanced
efficiency, informed decision- customer relationships, improved
making, data accuracy, and customer service, and many
Benefits many more. more.
 Enterprise Resource Customer Relationship
Features Planning (ERP) Management (CRM)

Financial Reporting, Inventory Sales Tracking, Customer

Management, HR Payroll Support, Email Marketing
Example Processing. Campaigns.

ERP Solution Providers

Here are some of the leading ERP solution providers:
1. SAP: SAP offers a variety of products SAP S/4HANA and SAP Business One and
offers features like financial management, supply chain management, and
human resources. The target market is large enterprises and small to mid-sized
businesses.
2. Oracle: Oracle offers products like Oracle ERP Cloud and Oracle NetSuite.
These products offer features such as financial management, project
management, and supply chain management.
3. Microsoft: Microsoft offers Microsoft Dynamics 365 ERP Solution. It offers
features such as Finance, Operations, Retail, Human Resources, and Customer
Service Modules. The target market of Microsoft Dynamics 365 is small to large
enterprises.
4. Epicor: Epicor offers products Epicor ERP and Epicor Kinetic. It offers services
such as financial management, supply chain management, and human
resources.
5. IFS: IFS offers products like IFS Applications and IFS Cloud. It offers services such
as Enterprise asset management, project management, and supply chain
management. The target market is large enterprises, particularly in asset-
intensive industries such as aerospace, defense, and energy.
Tips for Choosing an ERP
Here are some tips to help choose the right ERP system for the organization:
1. Assess Business Needs: Determine functionalities that the business needs such
as financial management, supply chain, manufacturing, etc.
2. Understand Challenges: Understand the current challenges in existing
processes that an ERP should address.
3. Engage Stakeholders: Engage stakeholders from different departments to
make sure that ERP meets diverse needs across the organization.
4. Set a Budget: Consider upfront costs and ongoing costs and create a total
budget.
5. Customization: Evaluate the system’s ability to be customized to fit specific
business processes.
6. Availability of Vendor Support: Assess the availability of vendor support
including training, customer service, and technical assistance.
7. Availability of Training Materials: Check the availability of training
materials and documentation to help users quickly adapt to the new system.
Conclusion
In today’s rapidly evolving business landscape ERP systems emerge as a powerful
solution that seamlessly integrate various business processes into a unified platform.
They enable organizations to streamline operations, reduce costs, and make
informed decisions. Implementing ERP systems not only improves customer
satisfaction but also strengthens data security and regulatory compliance.