ERP Software

What Is ERP Software?

An ERP system is a type of software designed to encompass all aspects of your business. ERP software typically offers a series of connected modules for business processes, such as:

Advertisements

ERP software also collects data across all these modules and offers analysis tools to help you gain insights into your business.

Importantly, by providing these modules, ERP software enables all your departments to use the same software platform rather than relying on individual, department-specific solutions. This ensures that information can easily be shared across your company.

Examples of ERP systems include Oracle Fusion Cloud ERP, Microsoft Dynamics 365, and SAP ERP.

Do I Need ERP Software?

While ERP platforms have “enterprise” in the name, they aren’t just for Fortune 500 companies. Many small- and medium-sized businesses can benefit from ERP software, including Main Street retailers, online businesses, manufacturing companies, construction firms, and more.

Here are some key indicators that your business could benefit from ERP software:

  • Information is getting lost between departments
  • Your existing software solutions don’t integrate with one another
  • You want to find new ways to increase your business’ productivity
  • You want to identify opportunities to boost revenue or cut costs

Key Features and Benefits of ERP Software

ERP software provides numerous benefits for your business through a combination of department-specific tools and company-wide data sharing.

Increased Information-Sharing

One of the most important benefits of using ERP software is that it enables employees across departments to share information.

Your sales team, for example, can get information about where items are in your supply chain and relay that information to customers. ERP HR tools enable your HR team to share information about employees’ certifications and training with your risk management team.

Seamless information-sharing not only increases productivity and encourages collaboration but also reduces duplication of effort by breaking down silos.

Enhanced Productivity

Modern ERP platforms support automations and customizable workflows that you can use to enhance your workforce’s productivity. Each department can create its own workflows, and you can also set up cross-department automations to share data and trigger alerts.

Many ERP providers are now incorporating AI into their platforms, which promises to further boost employees’ productivity in the future.

Centralized Data Reporting and Analytics

ERP software enables you to access data from every department in a single, centralized reporting dashboard. You don’t need to move between multiple software platforms to review data about supply chain efficiency, customer satisfaction, and spending.

Even better, having all this data in one place enables you to gain new insights into your business. For example, you can see how changes to your inventory impact customers’ purchasing behavior or satisfaction. You can also correlate changes in profitability with supply chain or manufacturing process changes.

This integrated data analysis makes it easier to spot opportunities to increase efficiency, cut costs, and improve customer retention.

Streamlined Supply Chain Management and Logistics

ERP software provides tools for managing your supply chain, inventory, and order fulfillment process. These tools are crucial for ensuring you never suffer delays in production due to a lack of raw materials. You can spot shortages well before they happen and find alternative suppliers.

ERP software also enables you to visualize bottlenecks in your supply chain so you can build redundancy and make it more resilient to disruptions. Inventory and fulfillment features ensure that products are always delivered on schedule, keeping your customers happy.

Improved Customer Service

Many ERP platforms include a customer relationship management (CRM) software module, which offers tools for providing customer service. Since data is shared with your customer service team, representatives can see a customer’s entire history with your business and provide a highly personalized service.

Offering outstanding customer service is key to customer loyalty. So, ERP software can help you turn customers into repeat buyers and advocates for your business.

Cost Savings

While ERP software can be expensive, it’s often less expensive than buying a dedicated software platform for every department in your company. This is especially true if you have to pay to build custom integrations to get those platforms to share data.

How To Choose ERP Software

Choosing ERP software is a major undertaking, so it’s important to get the process right to ensure your new platform achieves your business objectives. We’ll explain how to choose an ERP platform in four steps.

Step 1: Create an Internal Committee

All your business departments will rely on the ERP software you choose. Therefore, it’s important to involve stakeholders from across your company early on in the decision-making process.

Form an internal ERP software selection committee that includes representatives from each department. Members of this committee will be responsible for identifying what each department needs from an ERP platform and directing the selection process.

Step 2: Consider What Modules and Features You Need

While many ERP platforms share modules in common, you and your committee members should think about the specific features your business requires. This can be informed in part by considering the circumstances that have led you to search for an ERP solution.

For example, if you identified a lack of automation tools as a shortcoming in your business’ existing software, then choosing ERP software with customizable workflows should be a priority.

Remember to consider not only what modules and features your business needs now but what features you may want in the future. The ERP software you select must be able to grow with your business.

Step 3: Establish a Budget

Once you have an idea of what you need from an ERP system, you can establish a budget for the software. ERP costs can vary widely, from less than $1,000 per user per year to more than $2,500 per user, per year, depending on what modules you require and your business size.

One of the biggest drivers of cost will be whether you choose an on-premise, cloud, or hybrid ERP implementation. We’ll explain these types of ERP deployments in more detail in the next section.

Step 4: Evaluate ERP Providers

Make a list of ERP providers that offer the features you want, then work with your committee to identify a shortlist of two to three top providers. Reach out to these providers directly to get pricing quotes and a demonstration of their software’s functionality.

When evaluating ERP providers, make sure to look beyond the software itself to what support and training you’ll receive. This can make a big difference in successfully rolling out new ERP software across your company.

Three Types of ERP Software: On-Premise, (Multi)Cloud, Hybrid

ERP software can be broadly divided into three types based on how it’s hosted and implemented.

On-Premise

On-premise ERP software is hosted on servers at your physical company location. The benefit of this is having control over how your platform runs and the ability to configure it to best meet your business objectives.

Pros:

  • Highly customizable
  • You control all hardware required to run your ERP system

Cons:

  • High upfront costs to build the IT infrastructure needed to run your ERP software
  • You’re responsible for rolling out upgrades, including security updates
  • Difficult to scale up as your business grows

(Multi)Cloud

Cloud ERP systems are the most common type of ERP implementation today. These systems are run on servers at a third-party data center. Your workforce interacts with your ERP software over the Internet.

Pros:

  • Requires little to no on-premise IT infrastructure
  • Your software provider will manage security updates
  • Easy to scale up as your business grows
  • Employees can access your ERP system from anywhere

Cons:

  • Less customizable than on-premise software

A growing number of businesses are turning to multi-cloud deployments to achieve more personalization in cloud ERP software. A multi-cloud solution relies on different ERP software providers to run different modules of your platform.

Multi-cloud systems can be complex to set up and more prone to security flaws. However, they offer a degree of customizability similar to what can be achieved with on-premise systems.

Hybrid

Hybrid ERP software uses a combination of on-premise and cloud implementation to achieve maximum flexibility.

With a hybrid system, companies can keep ultra-sensitive data on-premise while leaning on the cloud to process most of the data their ERP system uses. Alternatively, they can operate most of their ERP software on-premise while using cloud infrastructure for data-heavy analyses.

Pros:

  • Significantly reduced IT infrastructure compared to a fully on-premise solution
  • Highly customizable configurations

Cons:

  • Much higher IT costs compared to a fully cloud-based ERP software

Bottom Line

ERP software offers a company-wide platform with modules for project management, supply chain management, customer relationship management, human resources, accounting, and more. It facilitates information-sharing across departments and enables you to leverage your data to gain insights into your business.

ERP software is a major investment, so it’s important to think carefully about your business needs and the type of ERP system you want to implement. With the right platform, your business can be more productive, reduce costs, and better serve your customers.

FAQs

What is an ERP system, and how does it work?

Is ERP software different from CRM software?

How much does ERP software cost?

Advertisements

Related Terms

Margaret Rouse
Technology Expert

Margaret is an award-winning technical writer and teacher known for her ability to explain complex technical subjects to a non-technical business audience. Over the past twenty years, her IT definitions have been published by Que in an encyclopedia of technology terms and cited in articles by the New York Times, Time Magazine, USA Today, ZDNet, PC Magazine, and Discovery Magazine. She joined Techopedia in 2011. Margaret's idea of a fun day is helping IT and business professionals learn to speak each other’s highly specialized languages.