ERP System: All You Need to Know

11.05.2023
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In the world of business, an ERP System has become a household name. ERP stands for Enterprise Resource Planning, and it is an integrated business management software that helps organisations manage their day-to-day activities. An ERP System can help companies streamline their processes and improve efficiency, making it an essential tool for businesses of all sizes. However, there are still some misconceptions about ERP systems, such as whether it requires coding, if it’s part of AI, and if it’s only for big companies. In this article, we will address these and other common questions about ERP Systems.

What is an ERP System?

An ERP System is an enterprise-wide software solution that helps companies manage their business processes. It integrates various business functions such as finance, accounting, human resources, inventory management, procurement, and customer relationship management into a single system. This allows businesses to streamline their operations, reduce manual processes, and increase efficiency.

Understand what ERP System is.

ERP vs. CRM

ERP and CRM are often confused with one another, but they are two different types of software. ERP Systems focus on managing the entire enterprise’s resources, while CRM software is more customer-focused and deals with customer data, sales, and marketing. An ERP System provides businesses with a 360-degree view of their entire operation, including their customers, while CRM software focuses only on customer interactions.

The 3 Common Types of ERP System

There are three common types of ERP System, which are:

  1. On-premise ERP System: This type of ERP System is installed locally on a company’s server and managed by its IT staff.
  2. Cloud-based ERP System: This type of ERP System is hosted in the cloud and accessed through a web browser. Cloud-based ERP System is managed and maintained by the software vendor, and businesses pay a subscription fee to use it.
  3. Hybrid ERP System: This type of ERP System is a combination of on-premise and cloud-based ERP System. Companies can choose to host some of their ERP System locally while keeping other parts in the cloud.

You can read more about the 3 common types of ERP System by clicking here.

Who Uses ERP the Most?

ERP Systems are used by businesses of all sizes, but it is most commonly used by midsize and large enterprises. These companies have complex business processes and require a robust software solution to manage their operations effectively. However, small businesses can also benefit from an ERP System, especially if they have plans to grow their business.

Why is ERP So Popular?

ERP Systems are popular because it offers a range of benefits to businesses, such as:

Increased Efficiency: ERP Systems streamline business processes, reduces manual processes, and improves efficiency.

Cost Savings: ERP Systems helps businesses save money by reducing labor costs, inventory costs, and operational costs.

Improved Visibility: ERP Systems provides businesses with real-time visibility into their operations, allowing them to make data-driven decisions.

Enhanced Collaboration: ERP Systems encourage collaboration across different departments, which leads to better communication and a more cohesive team.

Scalability: ERP Systems are designed to grow with the business, allowing businesses to add new modules and features as they expand.

Is ERP Still Relevant?

Yes, ERP Systems are still relevant and continue to evolve with new technologies. Today, ERP Systems incorporate machine learning, artificial intelligence, and automation, making it more powerful than ever. ERP Systems are also becoming more accessible, with cloud-based ERP solutions making it easier for small businesses to adopt this technology.

Why is ERP Better Than CRM?

ERP Systems and CRM software are different but complementary. ERP Systems provide businesses with a 360-degree view of their operations, including their customers, while CRM software focuses solely on customer interactions. While CRM software is critical for sales and marketing teams, ERP Systems provide a broader picture of the business, making it more powerful than CRM software alone.

Can CRM Replace an ERP System?

No, Customer Relationship Management (CRM) software cannot replace an ERP System. While both are important software solutions, they serve different purposes. CRM software focuses on managing customer interactions, such as sales, marketing, and customer service. ERP Systems, on the other hand, manage the entire enterprise’s resources, including finance, accounting, inventory management, procurement, and human resources. While there may be some overlap in functionality, CRM software cannot replace the broader capabilities of an ERP System.

Does ERP Require Coding?

No, ERP Systems do not require coding. Modern ERP systems are designed to be user-friendly and do not require specialised technical skills to operate. However, some customisation may be necessary to meet specific business needs, and this may require some programming expertise. Most ERP vendors offer customisation services, and some even provide low-code or no-code customisation options that do not require coding skills.

Can I Create My Own ERP System?

Yes, it is possible to create your own ERP System, but it is not recommended. Developing a custom ERP system is a complex and time-consuming process that requires significant resources and expertise. It may be more cost-effective and efficient to purchase an off-the-shelf ERP system or use a cloud-based ERP solution that can be easily customised to meet your specific needs.

Why Don’t People Use ERP Systems?

There are several reasons why some businesses do not use an ERP System. One of the primary reasons is the cost. ERP Systems can be expensive to purchase, implement, and maintain, and smaller businesses may not have the resources to invest in it. Another reason is the complexity of an ERP System. It can take time and effort to learn how to use an ERP system effectively, and some businesses may not have the resources to train their employees on it. Additionally, some businesses may not see the need for an ERP System if they have been using manual processes successfully.

Why Do 75% of All ERP Projects Fail?

ERP implementation is a complex process that requires careful planning, preparation, and execution. Despite these efforts, many ERP projects fail, with some estimates putting the failure rate as high as 75%. There are several reasons why ERP projects fail, including:

  1. Poor planning and project management: ERP implementation requires a significant investment of time, resources, and money. Without proper planning and project management, the project can quickly become derailed.
  2. Lack of user adoption: ERP systems are only effective if they are used correctly. If employees are not properly trained or do not see the value in using the system, they may resist adoption.
  3. Data quality issues: ERP systems rely on accurate and up-to-date data. If the data is incomplete, inaccurate, or outdated, it can lead to errors and inefficiencies.
  4. Customisation challenges: Customisation can be necessary to meet specific business needs, but it can also lead to delays and complications if not managed properly.
  5. Technical issues: ERP Systems often require significant technical expertise to install, configure, and maintain. Technical issues can lead to delays, cost overruns, and software that is difficult to maintain.
  6. Insufficient testing: ERP Systems are complex, and testing is crucial to ensure that it is working as intended. Insufficient testing can lead to errors, bugs, and software that is difficult to maintain.

What is the most common criticism of an ERP System?

The most common criticism of an ERP system is that it is too rigid and inflexible. ERP Systems are designed to automate core business processes, and as a result, it often requires significant changes to the way organisations operate. This can be difficult for organisations that have established processes and procedures in place. Additionally, ERP Systems often require a significant investment of time and resources, which can be difficult for organisations that are already stretched thin. Finally, ERP Systems are often criticised for being difficult to use and requiring significant technical expertise.

What problem does ERP solve?

ERP Systems are designed to solve several business problems, including:

  1. Lack of visibility: ERP Systems provides organisations with a centralised view of their operations, enabling them to monitor and manage all aspects of their business from a single platform. 
  2. Inefficient processes: ERP Systems automate core business processes, reducing the time and effort required to complete tasks, and increasing efficiency.
  3. Poor data quality: ERP Systems ensurs that data is accurate, complete, and up-to-date, enabling organizations to make better-informed decisions.
  4. Lack of integration: ERP Systems integrate data and processes across the organisation, enabling better collaboration and communication between departments.
  5. Limited scalability: ERP Systems are designed to grow and scale with the organisation, providing the flexibility needed to adapt to changing business needs.

We created a blog post to better answer the question: what problems does ERP solve?

The 5 Components of an ERP System

1. Financial Management

Financial management is one of the primary components of an ERP System. It helps businesses manage their financial resources, including accounts payable and receivable, general ledger, cash management, and financial reporting. The software automates financial processes, which makes it easier for businesses to manage their finances and make informed financial decisions.

2. Human Resource Management

Human resource management is another important component of an ERP System. It helps businesses manage their workforce, including recruitment, payroll, benefits administration, time and attendance tracking, and employee training. The software enables businesses to streamline their HR processes, which can lead to increased productivity and improved employee satisfaction.

3. Supply Chain Management

Supply chain management is a critical component of an ERP System, especially for businesses involved in manufacturing and distribution. It helps businesses manage their supply chain operations, including stock management (read about the top 5 stock management tips), order processing, procurement, and supplier management. The software enables businesses to optimise their supply chain processes, reduce costs, and improve customer satisfaction.

4. Customer Relationship Management

Customer relationship management (CRM) is another important component of an ERP System. It helps businesses manage their customer interactions, including sales and marketing activities, customer service, and support. The software enables businesses to improve customer satisfaction, increase sales, and build long-term customer relationships.

5. Project Management

Project management is the final component of an ERP System. It helps businesses manage their projects, including project planning, resource allocation, task tracking, and budgeting. The software enables businesses to complete projects on time, within budget, and to the satisfaction of all stakeholders.

Read more about the 5 components of ERP Software.

Is ERP Risky?

Implementing an ERP System can be risky for businesses, especially if they are not adequately prepared. ERP implementation requires significant investment in time, resources, and money. If not done properly, it can lead to a waste of resources, loss of productivity, and damage to the company’s reputation.

The Risks of Implementing ERP System Include:

High Cost

ERP implementation can be costly for businesses, especially if they are not adequately prepared. The software requires significant investment in hardware, software, and personnel. If the implementation is not done properly, it can lead to additional costs, which can strain the company’s finances.

Disruption of Operations

ERP implementation can disrupt business operations, especially if the software is not integrated properly. The implementation process requires significant time and resources, which can lead to delays in other projects and activities.

Complexity

ERP Systems are complex, and the implementation process can be challenging for businesses. The software requires significant customisation to fit the specific needs of the business. If not done properly, it can lead to additional complexity and confusion.

Resistance to Change

ERP implementation can be met with resistance from employees, especially if they are not adequately trained. Employees may resist the new system, which can lead to a lack of adoption and productivity loss.

Data Security

ERP Systems involve the centralisation of data, which can pose a significant risk to data security. If the software is not adequately secured, it can lead to data breaches and other security risks.

What is the disadvantage of ERP System?

Despite its many benefits, an ERP System also has its disadvantages. One of the main disadvantages of an ERP system is their cost. Implementing an ERP system can be a significant investment for businesses, both in terms of money and time. Not only is the software expensive, but there are also additional costs such as customisation, training, and maintenance. Some businesses may struggle to justify the cost of an ERP system, especially if they are small or just starting out.

Another disadvantage of an ERP System is the complexity of the system. ERP systems are designed to handle complex business operations, which means they are often complex themselves. It can take a considerable amount of time and effort to learn how to use the software, and it may require specialised training or hiring new staff with expertise in the system. 

ERP Systems also require a significant amount of data input to function correctly. This means that businesses need to have accurate and up-to-date data on all aspects of their operations, from finance to inventory management. If the data is incorrect, incomplete, or inconsistent, the system’s output will be inaccurate, which could lead to serious problems.

That is the reason that Herbst Software lives to make business simple. After so many years of developing and evolving the same code lake, the simplicity of our erp system and the implementation has become our biggest advantage.

Is ERP only for big companies?

There is a common misconception that an ERP System is only suitable for big companies. However, this is not necessarily the case. ERP systems can be beneficial for businesses of all sizes, depending on their needs. Small businesses can benefit from the automation of business processes, improved data accuracy, and increased communication between departments that ERP systems provide.

The main consideration for small businesses is the cost of the system. As mentioned earlier, ERP systems can be expensive, and small businesses may not have the budget to justify the investment. However, there are ERP systems available specifically designed for small businesses that are more affordable and offer a reduced feature set.

Who will benefit from ERP System?

ERP Systems can benefit businesses in many different industries, including manufacturing, retail, healthcare, and financial services. Any business that has complex operations that require coordination between departments can benefit from an ERP System. ERP systems can streamline processes, automate tasks, and provide real-time data analysis that can help businesses make better decisions.

In addition, ERP systems can also benefit employees. With an ERP system, employees can access the information they need to do their job more efficiently, and they can collaborate with colleagues more effectively. This can lead to increased job satisfaction and productivity.

What is the biggest issue with ERP system implementation?

ERP system implementation is a massive undertaking that requires significant investment in time, money, and resources. It involves a lot of planning, analysis, customisation, and training. Despite all the efforts and investment, many ERP system implementations fail or fall short of expectations. The biggest issue with any system implementation is the lack of preparation and planning.

A system implementation requires a lot of preparation and planning (Herbst Implementation Guide), and this is where many organisations fall short. Before implementing an ERP system, an organisation needs to assess its needs and requirements, identify the scope of the project, define the objectives and goals, and develop a plan for the implementation. Many organisations skip or rush through these steps, leading to issues during the implementation process.

Another issue with implementation is the lack of stakeholder involvement and buy-in. ERP Software affect various departments and functions in an organisation, and it is crucial to involve all stakeholders in the planning and implementation process. Lack of stakeholder involvement and buy-in can lead to resistance, lack of cooperation, and poor adoption of the new system.

Another issue with ERP Software implementation is poor data management. ERP systems rely on accurate and up-to-date data to function correctly. If an organisation’s data is incomplete, inaccurate, or outdated, the ERP system will not provide accurate results, leading to issues with decision-making, planning, and forecasting.

Finally, another issue with ERP Software implementation is the lack of customisation and training. ERP systems are highly customisable to fit an organisation’s specific needs and requirements. Lack of customisation can lead to issues with functionality and efficiency. Similarly, lack of training can lead to poor adoption and under-utilisation of the new system.

Who creates ERP Softwares?

ERP Softwares are created by software companies that specialise in ERP solutions. These companies invest significant resources in developing ERP Systems that meet the needs and requirements of various industries and businesses. ERP System companies employ teams of developers, analysts, consultants, and other professionals who work together to design, develop, and deploy ERP solutions.

ERP System companies offer various ERP solutions, ranging from off-the-shelf solutions to customised solutions. Off-the-shelf solutions are pre-packaged ERP solutions that are designed to meet the needs of a specific industry or business size. Customised solutions are tailored to meet the specific needs and requirements of a particular organisation.

ERP System companies also offer implementation and support services to help organisations deploy and maintain ERP solutions. Implementation services include planning, customisation, configuration, and training (Herbst Professional Services), while support services (Herbst Customer Portal) include troubleshooting, maintenance, and updates.

One such ERP System company is Herbst Software, a leading provider of ERP solutions for various industries, including manufacturing, distribution, quarry, agri, food & drink, and engineering. Herbst Software offers a comprehensive range of ERP solutions that are designed to streamline and automate various business processes, improve productivity, and enhance profitability.

Conclusion

ERP system implementation can be a challenging and complex process that requires significant preparation, planning, and investment. The biggest issue with ERP system implementation is the lack of preparation and planning, which can lead to various issues during the implementation process. It is essential to involve all stakeholders, manage data effectively, customise the system to meet specific needs, and provide adequate training to ensure successful ERP system implementation. 

Herbst Software has been developing ERP for 40 years focusing on solving specific problems for specific industries. Get in touch with us so we can discuss your requirements and reach a smooth and efficient implementation which will bring great results to your organisation.

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