What is an ERP system and what is it for?

Do you know what an ERP system is and how it helps companies around the world? We explain everything you need to know about this program.

An ERP is software that allows companies to control all the information flows that are generated in each area of ​​the organization. Its acronym in English stands for Enterprise Resource Planning or enterprise resource planning system in Spanish. 

The objective of ERP systems is to integrate departments. Where before we had a specialized program for each one, now we can ensure the existence of a single centralized database where information is managed in real time and efficiently.

In this way, ERPs are usually made up of different modules, corresponding to each department. The most common components are purchasing, sales, inventory, logistics, billing, accounting, human resources (HR) and CRMCustomer Relationship Management ).

ERP is the business management software most required by users. After analyzing data from more than 2,000 businesses, a study found that this type of program doubles the demands of others: almost 50% (49.17%) followed by CRM (14.35%) and HR (12.68%). 

But why? More than a tool, this software is a system that centralizes all the functions necessary to manage a company and helps with enterprise resource planning.

What is an ERP system for?

If we are guided by this definition, then the ultimate objective of any ERP system is to help a company in its administration and decision-making tasks, automating all its processes. Thanks to this we can obtain data in real time, improve back office tasks , control workflows and minimize errors.

Enterprise resource planning is often tedious, but with ERP software it can become automatic. For example, when talking about accounting, the user will only have to worry about making sales. The program will take care of the rest (creating invoices and recording expenses).

…the ultimate goal of any ERP system is to help a company in its administration and decision-making tasks, automating all its processes.

A company that already knows what an ERP system is and that has it, is undoubtedly at an advantage over its competitors that do not use one. This will be able to automate your administrative processes, you will have greater control over what you do and will be able to use information efficiently. It is no longer about solving problems, but about getting ahead of them and preventing them from appearing.

ERP system

According to a study (in English) carried out by Panorama Consulting, 52.66% of businesses are satisfied with their ERP system, 38.14% have a neutral feeling, 6.54% are slightly satisfied and 2.66% are not at all satisfied.

Most companies can see an increase in agility after adopting an ERP. And those that report difficulties are due to a lack of processes and administration problems. 

The choice of the ERP system to be used must be made very carefully and taking a lot of data into account since the company will invest a lot of time and resources in it.

What are the characteristics of an ERP?

There are many ERPs and they vary in scale and the functions they offer, but regardless of the size, we can find a set of features in ERP software.

  • Supply Chain Management – ​​The supply process can be easily followed. From production to distribution.
  • Information Analysis – As all the information is stored in a single database, it is easy for the ERP system to analyze it.  
  • Automation – ERPs always automate tasks such as creating reports, for example.  
  • Accounting – Finance and billing management. It is normally combined with purchases and sales.   
  • CRM – Customer relationship management, direct communication, follow-up of opportunities, etc.
  • Reporting – Because they handle so much data, all ERPs run reports. 
  • Purchase and sales management – ​​Options to control expenses and receipts from a single place. 
  • Project management – ​​Thanks to the integration with finance, it allows you to calculate profits. 
  • Stock and inventory management – ​​Organization from price and warehouses to orders. Especially if they are compatible with an app like Shopify.  
  • Integration – This integrates the different branches of a company and centralizes its data. This is absolute across departments and business units. 
  • Real-time operations – Problems are identified quickly, giving the seller time to react and find a quick response. 
  • Online payments – Online payment options and ease of connecting with applications such as PayPal and Stripe, for example. 
  • Customization – It is impossible to design the perfect software that fits all needs. For this reason, good ERPs are customizable and flexible. 
  • A uniform appearance – Different branches of the company are grouped under the same program, thus giving it a uniform appearance. 
  • Human resources (HR) – Payroll management, contracts, absences, employee information, etc.
Graph that shows the level of satisfaction that companies have with their ERP system

The origins of ERP system

Management systems for companies have existed since the 1940s , but the origins of the modern ERP system tend to be traced back to the 1960s. 

ERP in the 20th century

The origins of ERP programs take us back to the 1960s, when manufacturing industries began to develop the first management software. These were simple programs and were a solution for inventory management and stock control. 

In the 1970s, we saw the introduction of MRP or material requirements planning. This software was developed with the intention of controlling the manufacturing, purchasing and distribution information of raw materials. These tools were very expensive so only large companies could afford to use them. In this decade we also saw the first accounting programs.

The 1980s saw the evolution of MRPs in different sectors. By then, the programs offered their services to companies with a greater diversity of activities. They started adding finance and the first human resources functions. 

The ERP system as we know it today was born in the 1990s. In fact, it was at this time that the Gartner group created the term Enterprise Resource Planning. In these years, all the functionalities we already had were refined and new ones such as billing and engineering were also added. 

For most of this period, software was installed in companies’ systems ( on premise ), but at the end of the decade, ERPs that were accessed through the Internet were introduced. What would later be called ‘the cloud’, a much simpler system for project management.

ERP in the 21st century

In these 20 years, thanks to the development of new technologies, a new step has been taken in business resource planning. Cloud solutions and SaaS (Software as a Service) have contributed to the rapid expansion of these systems. 

SaaS and the cloud

SaaS is a business model that allows users to access programs over the internet. Unlike traditional software, this does not require installation and stores the information in the data center of the company that provides the service. This can be free (Gmail, Google Drive) or have a cost. Normally, you pay a monthly fee that contrasts with the one-time payment for on-premise programs . Also, users have the opportunity to choose free ERP system (that is accessible and modifiable or proprietary with licenses and guarantees).

Thanks to Internet access, solutions such as CRM have been integrated into ERPs to contact customers directly through email and other channels. Additionally, supply chain issues can now be resolved in real time. 

Its great expansion also results in cost reduction. ERPs no longer require a large investment and are now much easier to implement and manage. From now on, small and medium-sized businesses can also centralize all their information and automate processes with this technology.

Types of ERP

As we have already seen what ERP software is, now we must understand the types of ERP that exist: 

ERP by size

These are classified according to the size of the companies they provide services to. There are ERPs that are designed for SMEs but there are other software that have been created exclusively for large companies.

ERP for small businesses

This is an ERP that can vary in complexity but will always cover the needs of a local business, especially in enterprise resource planning. Those who manage business information in a specialized sector also fit here. 

ERP for small and medium businesses

It is a more scalable ERP than the previous one since it is designed for growing companies that can potentially cover the business processes of more than one industry. 

ERP for large companies 

These are the most powerful ERPs on the market and are designed to cope with the complexity of a larger company, as they have the ability to accommodate multiple industries and business units. ERPs for startups also fall into this category as they have the ability to scale with the business.

ERP per facility

When it comes to ERP, we have the option of installing it in our systems ( on premise ) or accessing it through the cloud ( cloud ) and each option has its advantages and disadvantages . 

Local ERP ( on premise )

This option allows the user to have more control over their company data. It also means that it is he who is in charge of its security and updating. Requires extensive staff training for best performance. 

Typically, it is a larger company that opts for on-premises software as they prefer not to store their information with third parties and have the resources to keep it up to date.

ERP system

ERP in the cloud ( cloud ) 

The ERP in the cloud is the one that is accessed through the internet. It does not require any installation and you can usually start using it after creating an account. 

With this system, the user does not have the same level of control as with the ‘local’ program but they save a lot of time and business resources since they do not have to worry about maintenance, security or updating. Another benefit is that they do not require much training since, normally, these solutions offer a support team. 

According to the information compiled by SoftDoit, of the Spanish companies that are considering adopting an ERP, 47.5% will do so in the cloud, 26.4% on the servers themselves, and the rest were undecided or did not consider it as a factor. determining factor in choosing software.

What are the most important ERPs?

It would be impossible to define which are the ‘most important’. There are many ERP systems on the market, but not all are the same. Many companies believe that it is enough to implement a planning system, but what they do not know is that they could be integrating an outdated program that has not been adapted to the needs of a modern business. 

Therefore, we recommend gathering all the necessary information and following the following steps so that you can find quality software that adapts to the needs of your company. 

1. Define the plan

In the first phase, a company must define the areas in which they will use the new software, what objectives they want to achieve, what information will be collected and which team will work with the ERP.

2. Discover your needs 

In this step, teams will need to collect data and identify current problems that they hope to solve with the ERP. For example, low productivity in a specific area. By having clear problems, it will be much easier to choose software that suits your needs. 

3. Seek opinions 

The implementation of new software will not only affect your company but those who work with you as well. Relationships with advisors, distributors and suppliers may be affected by this change, so it would not hurt to send them a proposal for the ERP system that you are thinking of adopting. 

4. Select your ERP

By now, you are clear about your needs and the goals you want to achieve with your new ERP software. Now you can select the one that suits your company.

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