What is Enterprise Resource Planning (ERP)?

Enterprise resource planning (ERP) describes the processes used by organizations to help manage and integrate vital aspects of their business.

The goal of nearly any business is to grow. Growth generally leads to improved visibility and brand-value, not to mention increased profit and output capacity. But with growth comes certain complications. For administrators, growth can mean an exponential increase to their already-heavy workloads. Managing disparate departments—such as accounting, procurement, supply chain operations, project management, and risk management and compliance—and coordinating their processes to function optimally together can be a nightmare. This is where ERP comes in.

ERP is a generic term that refers to the full range of tools and strategies designed to improve the way that businesses use their resources. Often, these solutions take the form of ERP software.

ERP systems exist to improve the efficiency of processes throughout an organization. They do this by optimizing and streamlining how essential resources are put to use. An ERP system reduces the total number of resources needed for the business to function at optimal levels, while also employing a centralized database of important business processes. Managing these processes is likewise simplified through the use of real-time dashboards and reporting, where administrators can review data and measure productivity and profitability, all at a glance.

Although often referred to as a singular entity, ERP actually encompasses a range of different applications, systems, and processes, often supported by a collection of specialized software applications.

What features do ERP systems typically provide?

Because ERP systems encompass the full range of business processes, they must offer diverse functionality. Generally, this means that ERP systems provide the following features:

  • Support for components and applications
    To function effectively, ERP systems must be able to work cohesively with a range of different components and software.
  • Real-time operation
    Business is dynamic, and so are many essential business processes. ERP systems must be capable of monitoring and processing data in real time, so that administrators can keep up with the pace of the real world.
  • Digital user interfaces
    Having a consistent look, feel, and functionality for all modules regardless of department allows for easier adoption, and helps significantly reduce the barrier to entry for staff that may move between teams.
  • Reliable automation
    Top ERP solutions allow organizations to automate manual, repetitive tasks.
  • Multiple deployment options
    Effective ERP systems are compatible with all deployment models, including on-premises, cloud-hosted, and SaaS.

Often, the terms ERP and financials are used interchangeably. However, strictly speaking, they are not actually the same thing.

Financials refer to business functions specifically related to accounting, revenue management, expense management, billing, payables and receivables, collections, and other finance-department functions. ERP is a much broader set of functions, relating to business processes across the entire enterprise. Financial systems are included within ERP systems as a subset of modules.

Financials are only one set of modules that make up the whole of ERP. The more business operations that may be reliably grouped into an ERP system, the more effective that system is likely to be. With this in mind, here are many of the most-common ERP modules:

Finance

Finance modules (also known as financials) are integral to nearly every ERP system, managing financial data and resources, and facilitating accurate, real-time reporting.

Inventory management 

Keeping real-time track of inventory levels and measuring essential inventory metrics, inventory management modules in ERP systems allow inventory-dependent organizations to forecast demand and optimize on-hand stock.

Manufacturing 

Manufacturing modules assist companies in matching production levels to meet demand, monitoring and reporting on planned, in-progress, and completed items, and coordinating the various steps and processes involved in manufacturing.

Order management 

Order management modules help organizations prioritize, monitor, and track their customer orders, from payment through delivery. Effective order management helps improve delivery times and reduce the likelihood of late or missing orders.

Procurement 

Managing and automating all company purchases—including finished goods and raw production materials—procurement modules help align procurement with demand and minimize the risk of overbuying and underbuying.

Professional services automation (PSA)

PSA modules are used to conceptualize, plan, and track projects. PSA is capable of monitoring and reporting on resource and time investments, while also improving project-team collaboration.

Warehouse management 

Receiving, storing, picking, packing, shipping, and monitoring of warehouse goods are all tasks associated with warehouse management. Warehouse management modules help direct and optimize these tasks, for improved warehouse efficiency. 

When ERP systems first became prominent, they were often classified based on the size of the organizations they were designed to service. Thus, they fell into one of the following categories:

  • Enterprise ERP
  • Mid-market ERP
  • Small-business ERP
However, it eventually became apparent that the company size was less important in differentiating ERP solutions. Today, the focus is more on whether the ERP system can effectively address the organization’s current and future business needs, regardless of size. Keeping this consideration in mind, a more-common categorization relates to ERP deployment options.

 

What are ERP deployment options?

Generally, ERP deployment options fall into one of three categories:

  • On-premises ERP refers to systems that are implemented and maintained onsite and are likewise hosted by the organization’s owned servers are known as on-premises ERP. This allows for optimal control and ownership of the ERP system, but also places full responsibility for maintenance, repair, and training on the company itself.
  • Cloud ERP refers to systems that are maintained offsite and accessed through the internet, cloud ERP is a form of software as a service (SaaS). These ERP options are generally purchased through a subscription payment model. Cloud-based ERP allows businesses to enjoy the benefits of ERP, without having to take responsibility for support, maintenance, updates, or training. However, they will also have less control over the ERP itself and may have to work with the provider to customize the system for optimal effectiveness.
  • Hybrid ERP refers to any combination of the other two ERP deployment options. Different providers will offer different hybrid ERP functionality, but generally allow their clients to migrate between deployment models and enjoy the flexibility to find a best-of-both-worlds solution to fit their needs.

Because ERP systems are designed to improve productivity, reporting, efficiency, and accuracy across essentially every part of a business, the potential benefits are nearly limitless. Here, we briefly detail some of the more-impactful advantages of effective ERP:

Decreased costs 

The primary benefit of ERP, encompassing many of the other advantages on this list, is the ability to reduce costs throughout an organization. Improved process visibility helps administrators identify and eliminate inefficiencies. Automation allows departments to reduce human error from manual input, while increasing focus on other essential tasks. Improved security cuts back on potential costs and damages associated with cyber-attacks and other threats. In each case, cost savings are the end result.

Improved visibility 

ERP systems bring workflows and other process information together, giving authorized employees and administrators an at-a-glance view of all relevant projects and functions. Project updates are available at the push of a button, and all-important documentation is kept secure and available within the system.

Reliable reporting 

Built in ERP monitoring tools capture relevant data and present it in a way that is fully comprehensive and easy to follow. This allows for improved accuracy in reporting, and real-time views of essential resources.

Actionable insights

Reporting on captured data is only half of the battle; built-in ERP analytics solutions help pull key insights from raw information, allowing businesses to make more-informed decisions and identify important trends. And, because ERP systems coordinate between all relevant departments and processes, business leaders can more easily identify how changes in one area of the organization affects other areas.

Dependable compliance

As financial reporting, data security, and other standards become stricter (and the penalties for failing to achieve regulatory standards become more severe), the right ERP can help organizations remain fully compliant. Cloud- and hybrid-ERP solutions are designed to remain up to date on all regulatory standards, and ERP audit trails make it easy to prove compliance or identify possible problem areas.

Increased data security 

Built-in security protocols add an additional layer of data security. These defenses are designed to operate across all business processes, and to protect the shared database from threats. This helps reduce the likelihood of threat actors gaining entry through overlooked systems.

Expanded collaboration

Because ERP solutions may also function as effective hubs for collaboration and communication. Users across the entire organization can share files, access customer-support records, set up huddles, see relevant data, and more.

Enhanced flexibility

To remain viable when managing the full range of business processes, ERP systems are designed to be extremely flexible. This not only means that they are generally capable of performing most necessary tasks out of the box, it also means that they may be customized to support unique tasks. Additionally, thanks to advanced automation and other resource-saving tools, ERP solutions allow businesses to scale easily to meet increased demand.

Stronger customer and partner management

ERP solutions benefit more than just internal processes and communications; they are likewise effective at improving customer and partner relationships. ERP systems can provide insights related to suppliers and service providers and facilitate optimal information exchange. These systems can also be used to track customer support tickets, returns, and survey responses, ensuring that no clients ever fall through the cracks.

Simplified IT

While the main benefit of ERP may be cost savings, the main goal is to simplify and aggregate IT processes. This simplifies many employee tasks, for improved data accuracy, increased productivity, and an overall-happier workforce.

Although there are many advantages to implementing an effective ERP solution, there are certain challenges to be aware of. These may include the following:

Inability to solve existing policy issues

ERP brings together processes and policies and optimizes management efforts related to each. What it generally cannot do, is fix broken processes. That said, it may be able to identify problematic issues within these processes and policies, so that organizations can make the necessary improvements.

Investment costs

By improving efficiency and productivity across the entire enterprise, most ERP solutions pay for themselves relatively quickly. That said, they still often require a semi-significant investment of time, money, and effort to implement and adopt. This includes the time commitment and productivity loss from training employees in how to properly use the ERP solution.

ERP solutions may benefit organizations of all sizes across nearly any industry. Here are several key indicators that a business may want to upgrade to ERP:

Daily activities are consuming too much time

ERP solutions help streamline processes, cutting down on the amount of time needed to perform them.

Processes are becoming difficult to manage

As organizations grow or as processes change, they may become unwieldy. ERP software can simplify these processes, making them easier to manage.

Business questions are hard to find answers to

Disparate systems and lack of available, reliable metrics may make it difficult to answer vital business questions (such as those related to revenue, product availability, output, returns, etc.). ERP systems provide clear visibility and reporting, providing answers wherever they may be needed.

Fast-moving opportunities are passing by

Manual, unconnected processes and systems demand a lot of attention, potentially preventing organizations from being able to pursue new opportunities. Automation and other machine-intelligence capabilities of top ERP solutions free up businesses to take chances and try new things, and built-in analysis capabilities help leaders identify best-possible courses of action.

Customer Expectations are being missed

Finally, if a company's processes are simply not allowing the organization to meet customer expectations or provide a positive experience, then they may benefit from ERP. The right tools and resources, backed by optimal analytics, automation, and collaboration between departments will help teams provide a better service to their clients.

ERP solutions come in many different shapes and sizes, and, unfortunately, not all of the created equal. In fact, with the proliferation of ERP software solutions necessary for a range of different use cases, some organizations are discovering that their ERP strategy is creating its own, difficult-to-manage data silos. To help ensure that all relevant data is being managed correctly, and that everyone involved has access to a single source of truth for all important company resources, successful businesses around the globe are turning to the ServiceNow App Engine.

ServiceNow App Engine is ServiceNow’s market-leading low-code app development and automation platform, allowing organizations of all shapes and sizes to accelerate their digital transformation. Incorporating advanced AI and analytics capabilities, and empowering users to automate, extend, and create digital workflow apps quickly using low-code, the App Engine provides the essential capabilities businesses need to operate at scale. And, by bringing all relevant information together on a single, centralized dashboard, the App Engine helps ensure that important ERP solutions don’t create difficult-to-manage data silos. Add to this the Now Platform’s optimization and support solutions, and it’s easy to see why so many companies are relying on ServiceNow to improve their resource-planning capabilities.

Enhance your ERP

Learn more about App Engine, and see how the right solution can take ERP further than ever before.