What is Enterprise Resource Planning

What is Enterprise Resource Planning

ERP - Definition

Enterprise Resource Planning describes a system network of applications that unify and integrate business processes across departments. Typically, ERP systems operate on an integrated software platform and use uniformly defined data that converge in a database.

Enterprise resource planning was originally developed for the manufacturing industry - but the use of ERP systems has since expanded to many other industries - for example, the education and government sector, the hotel industry or healthcare and financial industry. Each industry has its own requirements for enterprise resource planning: authorities usually rely on contract lifecycle management instead of traditional procurement, while in the financial sector - for example, for checking checks and credit card data - Completely different process sequences must be mapped.

Enterprise Resource Planning - the benefits

ERP systems improve the efficiency of companies and organizations in various ways, the manufacturers promise: By integrating financial data in a single system, they unify financial data reporting, for example. ERP solutions also integrate order management and thus simplify production, inventory, accounting and sales - while at the same time reducing the susceptibility to errors.

Most ERP systems also include features for customer relationship management (CRM), for example to track customer interactions. This enables deeper insights and insights into the behavior and needs of customers. ERP software is also able to standardize and automate manufacturing and support processes and to unify procurement across the needs of the various business units of an organization. Standardized HR platforms are also among the things that can be implemented with the help of Enterprise Resource Planning - this makes it possible, for example, to centrally record time and attendance, expenditure management or further education. This facilitates cross-divisional reporting for companies, especially those operating in highly regulated industries.

If ERP systems function as they should, the time required for the execution of business processes can be drastically reduced. In addition, the use of enterprise resource planning through shared data pools and definitions contributes to improved collaboration and thus to optimized decision-making.

The standardization that is introduced through the introduction of an ERP system results in more flexible structures and can help to make companies more agile. Although the centralized database of an ERP solution is a larger target for attackers, it is much easier to secure than a patchwork of data distributed across different systems.

ERP systems - 4 key features

The scope, objectives and functionalities of ERP systems vary widely - but most solutions have the following characteristics:

• Company-wide integration: Business processes are integrated end-to-end across departments and business units. For example, a new order initiates an automatic liquidity check, queries product availability and updates sales planning. Once the order has been sent, an invoice will be sent automatically.

• Processes (almost) in real time: Because the processes shown in the above example run within a few seconds after the order is received, problems can be identified faster, which usually leaves more time to correct them.

• Common database: The use of a common database allows to set up a specific data definition that is used company-wide. Some ERP solutions split physical databases for performance improvement.

• Consistency in look and feel: Software with a consistent user interface requires less training time and looks more professional. If an ERP provider takes over other software houses, a consistent look and feel is often thrown overboard in favor of a faster market launch - but most providers resolve the inconsistencies relatively quickly.

ERP solutions - an overview of types

ERP solutions can be divided into four categories (Tiers), which are oriented towards the size and complexity of the companies and organizations that use them:

• Tier I ERP solutions help large, internationally active companies balance different requirements in terms of currencies, languages and regulators. For example, Oracle and SAP have always been suppliers of Tier I ERP systems. Meanwhile, Microsoft and Infor are also classified in this category.

• Tier I ERP systems for public authorities are aimed at large government institutions that have special requirements for accounting, HR and procurement. Providers in this area include SAP, Oracle and Infor.

• Tier II ERP software supports large companies that operate multinationally, but not globally. These can also be business units of large global companies. These enterprise resource planning solutions are less broad-based than Tier I systems. In this area - depending on the categorization - up to 45 different providers frolic.

• Tier II government solutions focus on local government institutions, including UNIT4.

• Tier III ERP solutions are aimed at medium-sized companies. These systems support a handful of different languages and currencies, but usually only one alphabet. Depending on the classification, this area has up to 100 different providers.

• Tier IV ERP systems are designed for smaller companies and usually focus on accounting.

Over the past few years, ERP vendors have launched new systems specifically designed for cloud environments. Enterprise resource planning from the cloud is becoming increasingly popular and can be divided into two main categories:

• ERP as a Service - multi-tenant: The customers who use these systems all operate on the same code basis and have no access to the source code. User companies can make individual configurations, but no changes to the software themselves. If such a system fails, all customers are equally affected.

• ERP as a Service - single-tenant: Other cloud ERP providers favor a single-tenant architecture. Each solution is based on an ERP core, which can be individually expanded and configured according to requirements. Each customer has its own cloud instance in which its own ERP runs.In case of outages, only individual customers are affected.

• ERP in an Iaas Cloud: Companies that want to expand their ERP independently but still do not want to do without a cloud solution also have the option of avoiding an Iaas provider such as AWS or Microsoft and operating their ERP system in the public cloud - either by themselves or by a service provider. This results in a relocation of their servers.

For the majority of companies, ERP as a Service offers three main advantages: The initial costs are lower, upgrades to newer versions are simpler and costly and time-consuming proprietary developments fall away (which can also be an advantage).

Find the best ERP software

Finding the right ERP solution is one of the biggest challenges faced by IT decision-makers. In addition to the categories listed above, a whole range of functionalities should be considered in this decision. In any case, it is important to choose a provider who has experience in the respective industry. If this is not the case, informing the provider about industry-specific requirements can be a time-consuming matter.

The article "The best ERP systems: 10 Enterprise Resource Planning Tools compared" of our US sister portal CIO.com. The article examines various ERP solutions from well-known vendors, such as Epicor, Infor, Microsoft, SAP, Netsuite and Oracle.

Prepare ERP implementation

As a rule, successful ERP implementations are carried out under the aegis of an executive sponsor. This provides the business case with a budget, obtains the necessary permits, monitors the progress of the project and removes obstacles. He is in close contact with the CIO, who is responsible for the integration of existing systems, data migration and the necessary infrastructure upgrades. The CIO also supports the identification of the right partner for the implementation of the ERP system.

Since the implementation of a system for enterprise resource planning is accompanied by new business processes, roles and responsibilities, a person responsible for change management should also be involved in the project. This is the only way to ensure that all parties involved develop a comprehensive understanding of how the ERP software affects their responsibilities and workflows. In many cases, change management is also outsourced to external service providers, who may be able to contribute a better, because independent perspective.

Project and IT project managers are also important when it comes to implementing an ERP system. If service providers are used for the implementation, their representatives should be included in the core team.

ERP implementation in 5 steps

In practice, companies structure the implementation of ERP software in five steps:

1. Obtaining an authorisation

The Executive Sponsor shall oversee the documentation necessary for the approval. The relevant document usually provides information on the following points:

• Definition of requirements

• Description of the scope and objectives of the programme

• Assumptions

• Costs of implementation

• Timetable for the implementation

• Risks in development and operation

• Desired benefits

If the documentation is complete, the Executive Sponsor will present it to the Board for formal approval of the project.

2.Programming

The rough schedule of the documentation is then set up granular and should include the following steps:

• Determination of team members

• Finalization of relevant contracts (software, technology and services)

• Planning of infrastructure upgrades (for example processors, storage resources)

• Schedule and timeline creation (specific tasks, dependencies, resources)

3.Configuration of the software

This is the most complex and difficult phase of the ERP implementation, and the main steps include:

• Gap analysis: The knowledge of gaps in previous business processes and applications helps the project team determine how exactly the processes need to change in order to interact optimally with the ERP software.

• Configuration of parameters: The ERP system is adjusted accordingly to the new business processes.

• Completion of additional development tasks: If necessary, interfaces must be programmed for other systems or for the migration of data.

• Data migration: Data definitions are standardized and data sets are checked for their quality and redundancy. In the final step, the cleaned-up data is migrated to the new ERP system.

• System test

• System documentation: The functional and technical documentation is created. Vendors usually have documentation that can be adapted to the standards of the user company.

• Infrastructure upgrades

4.Deployment

Before the ERP solution enters the production phase, a number of steps have to be completed, including:

• Employee training: All participants must be trained in how to use the system and receive the necessary permissions.

• Support planning: A support team is needed to help with any questions or problems regarding the ERP.

• System test: The new solution must be tested extensively to ensure that it is safe and responsive and meets all the requirements of the business case.

• Go-Live: If the Executive Sponsor has the ERP system for "production-ready", the conversion or commissioning of the new ERP solution follows.

5.Stabilisation of the system

Following the deployment of the ERP system, performance losses occur in most cases. This is due to the introduction of new processes, roles, tools and metrics. In addition, insufficiently cleaned data sets and bottlenecks in the infrastructure can cause difficulties.

Enterprise Resource Planning - hidden costs

Four factors are regularly underestimated in the course of ERP project planning:

• Change in business processes: Most employees are satisfied with their working environment if they have not previously worked with better, more modern systems. When the improvements are noticeable, many teams feel motivated to strive for further improvements. This can often lead to additional effort and costs.

• Change Management: Although process optimizations lead to more efficiency and effectiveness, changes are also accompanied by a certain degree of uncertainty. A change management program offers the workforce support and helps to create acceptance for the changes. Managers who are inexperienced in this field often underestimate the cost of such change initiatives.

• Data migration: Before implementing a system for enterprise resource planning, companies often struggle with overlapping databases and lax regulations. The more binding the rules on data definition are, the less time data migration will take. However, the time frame for migration is often underestimated - especially when not all data sources are identifiable.

• Tailor-made systems: Adapting ERP software to your own needs has always been a matter of course in the business environment - which does not mean that it is also a "best practice". On the contrary: the adjustment of ERP systems significantly increases the costs, because users will demand numerous features. This can lead to problems with the warranty: Problems must be reproduced on unmodified software in order to be able to make use of it. The upgrade capability also suffers from independent adjustments: Each update by the provider usually requires further tests and new adjustments. The migration to new releases should therefore also be included in the cost calculation.

Why ERP projects fail

The reasons for failed ERP projects coincide with those of all other projects: The most common cause is a weak executive sponsor who cannot assert himself at all levels of the company, has no interest in the project or is distracted by other responsibilities. Other reasons for ERP failures are poorly defined project goals, weaknesses in project management, insufficient resources or poor data management.

There are also reasons for the failure of ERP projects directly related to the software:

• Wrong choice: ERP solutions (especially Tier I systems) are very complex and offer a variety of options. Some companies are convinced that Tier I is just right for every purpose. In practice, even global companies often use only a fraction of such systems. On the other hand, Tier II and Tier III systems are not suitable for complex, global business processes.

• Internal resistance: Although any introduction of new software can cause resistance, this is particularly the case with ERP solutions. This is often due to the fact that individual departments misunderstand the standardisations introduced by Enterprise Resource Planning as control mechanisms of management. This can lead to certain employees trying to torpedo the implementation - or drag the upstream processes as far as possible.

Proponents of ERP implementation can also fall victim to general disillusionment - for example, if the team responsible for implementation does not provide proper support or is unable to communicate adequately. Such disillusioned ex-proponents can turn into vehement opponents when they feel abandoned.