ERP: what it is and how to select it

A definitive guide to selecting the most suitable ERP software for you

Why is ERP important for companies?

How does an ERP system work?

Let’s say that the heart of ERP is a single, powerful database. In this way it is possible to share all types of information entered by all users instantly and throughout the company.

Database

This centralized structure avoids having to enter the same data several times, always reusing the entered data.

The relational database used maintains total integrity of the data contained, and allows complete traceability of each modification of the information entered.

Detailed audit

We can know who entered a document for the first time, who and on what date modified it, and who canceled it.

The system has different layers that allow its functionalities to be managed in a disaggregated manner, depending on what is required.

• Business logic layer :Es el corazón del sistema, la estructura más profunda y común en todas las implementaciones.
• Business functionality layer: Contains the special functionalities of each business vertica
• Country layer: Contains the special characteristics of the system due to the requirements of the country where the ERP is implemented.
  
• Company layer: Contains the exclusive particularities of the company where the ERP is being implemented.
• User Interface – UI Layer : Contains the system display interface.

What are ERP modules and why do they exist?

“ERP”, for the acronym in English Enterprise Resource Planning, are the information systems that integrate, manage and plan many of the businesses associated with the operations and administration of companies.

Although ERP is a category of software, for commercial reasons software providers have separated it into several subsystems that they called modules , each of which addresses a specific functionality of the company and all of which extract their data from a centralized database. .

In short, the so-called modules are nothing other than functionalities. That is why there are modules for purchasing, sales, accounting, and manufacturing, to name just a few. Although it is possible for companies to independently acquire the different modules they need for their operation, the true advantage of ERP systems is being able to use all the modules they need for their activity and thus work in an integrated and transparent way

he concept of “module” is contrary to the philosophy of comprehensive ERP and the company can hinder its efficient operation if, for financial reasons, it does not contract a module that it truly needs.

A unified platform, on the other hand, offers native integrations between modules and a common user interface when users move between windows, thus making the ERP easier to use. Information flows easily between modules to give decision makers a complete view of the business.

How does an ERP system work?

“ERP”, for the acronym in English Enterprise Resource Planning, are the information systems that integrate, manage and plan many of the businesses associated with the operations and administration of companies.

Although ERP is a category of software, for commercial reasons software providers have separated it into several subsystems that they called modules , each of which addresses a specific functionality of the company and all of which extract their data from a centralized database. 

In short, the so-called modules are nothing other than functionalities . That is why there are modules for purchasing, sales, accounting, and manufacturing, to name just a few.

Although it is possible for companies to independently acquire the different modules they need for their operation, the true advantage of ERP systems is being able to use all the modules they need for their activity and thus work in an integrated and transparent way.

The concept of “module” is contrary to the philosophy of comprehensive ERP and the company can hinder its efficient operation if, for financial reasons, it does not contract a module that it truly needs.

A unified platform, on the other hand, offers native integrations between modules and a common user interface as users move between them, thus making the ERP easier to use. Information flows easily between modules to give decision makers a complete view of the business.

Recommendation

Take into account the current moment of your company and where you want to go in the medium term. Many solutions are too simple and will not solve the problems you will have in a few years.
Select software that grows with you.

Accounting as a management tool

Accounting is necessary to comply with tax obligations. Now, is it also possible to use accounting for more than just settling taxes? The answer is yes.

By applying a correct accounting definition and using a system that allows it, these data become valuable information for analysis and making better decisions.

Systems that manage to account directly from the operations and have the capacity to generate accounting entries according to good practices of “management accounting”, provide additional value as they will generate reliable information that will help managers and directors to make strategic decisions, planning of investments and cost control, which will result in better profitability.

ERP modules (or functionalities)

These are the most common modules or functionalities in ERPs:

1. Finance
2. Purchasing and Supply
3. Manufacture
4. Inventory
5. Warehouses
6. Sales
7. CRM Customer Management
8. Supply Chain
9. Projects
10. Human Resources
11. eCommerce
12. Accounting

Finance

It is the basis of almost all ERP systems and is closely linked to accounting, cash and bank financial transactions, and current accounts receivable and payable.

Warehouse

Manages all the company’s supply, whether finished products, services or raw materials. It begins with the need that the company has and advances with quotes and purchase orders.

Manufacture

Manufacturing can be complicated and with this functionality you will be able to order, control and plan production: the list of materials, production stages and cost management.

Inventory

All product-based companies require this functionality to manage their available, in-transit, and warehouse stock levels.

Sales

It helps manage the business process from customer order to billing. Management of sales orders, pending management, customer returns, price lists with bonuses and discounts.

CRM Gestión de clientes

This functionality tracks potential customers, possible sales quotes, until they become customers of the company.

Cadena de Suministros

The company’s supply management allows purchasing at the best cost, in the shortest time and in the most controlled and safe manner possible.

Projects

Many service companies need project functionality to manage and control their activities. They will be able to plan, manage their resources and track them, billing services quickly and safely.

Human Resources

Maintains records of your employees, their news and everything necessary to carry out payroll settlements.

eCommerce

It allows retailers to jointly manage their electronic store with their backoffice. This is extremely important when multiple sales channels are used as it allows you to control the inventory online and in order.

Accounting

The accounting functionality is transversal in the ERP, since all its modules impact your accounting records.

Benefits that an ERP system will bring you

Disadvantages of ERP systems

Best practices in an ERP

You already know the advantages and disadvantages of implementing an ERP system in your company, but why will an ERP system help your company become professional and better managed? The answer lies in the best administrative and operational management practices that these systems have incorporated and that make it easier for companies to adopt them. Here we will name some of them.

Standardization of processes

During the growth of companies, normally the staff on their team, through their previous experiences, create processes seeking to facilitate work and growth; However, repetitive, inefficient or disorderly processes are often created. An ERP system standardizes these processes, providing a unique way of performing tasks.

Ease of adoption of best practices

Most ERPs have the best international management practices incorporated, so it will not be necessary for these practices to be designed by the company itself. The company should only evaluate the convenience and need for their implementation, according to its situation, size and governance.

Business process integration

They will have the ability to unify a diverse set of processes that are used daily in companies, must connect the workflows that play a crucial role in the success of the company, increasing productivity and visibility,

Automation

Another basic feature of ERP software is the ability to automate repetitive tasks such as payroll, invoicing, order processing, and reporting. This reduces manual and sometimes duplicate data entry, saving time and minimizing errors.

How to determine if you need an ERP

Although by the acronym of its name the ERP is the system created to manage companies, you must analyze what type of ERP you need by studying your needs in depth. You should analyze the processes you currently use to identify areas where the software can help. Use the following tips to identify your current weaknesses and requirements:

• Define the problems you want the software to help you solve.
• List your current and future needs, analyzing what priority each one has, then define which are essential and which are desirable.
• This procedure will allow you to identify the main problems and align them with the requirements of the system that you define.

Some examples that indicate that you need an ERP:

• Do you feel that the company handles inaccurate or unreliable data?

• Are your systems unable to generate the reports you need to make decisions and do you have to generate them in auxiliary spreadsheets?

• Do you have frequent billing errors or stock outages?

• Do you have spreadsheets shared with your team that become unsafe to control?

• Do you rely too much on email to communicate with your team and your clients?

• Do you lack integration between the systems used?

• Do you enter the same data more than once into your software systems?

• Do you feel like you manually perform many processes that could be automated?

   

Recommendation

It is important to find a correct balance between the simple and linear or the complex and variable.
If your company is small, a simple solution without automation will be enough. On the other hand, if your company is growing, it will require automating more functionalities and implementing slightly more complex workflows, and there you will need a robust solution

Define what type of software you need

When it comes to managing a company, not all solutions are the same. In general, companies rely primarily on one or more methods that evolve as companies evolve. The most used methods ordered by company size are:

Papers and Excel

All companies start this way thanks to the great tool that is Excel spreadsheets , relying on manual processes and sharing the spreadsheets with people on the team.

This method is not only difficult to keep up with growth , but it has little interaction between staff and normally each person applies their own criteria to create and maintain them.

Several separate systems separados

The normal evolution of payrolls when the company grows is to incorporate a billing and accounting system, and when you feel that this is not enough, add systems to complement it.

Data dispersed in individual and separate software solutions: one for operations, another for billing and accounting, another for payroll settlement, and they add systems as they are needed and their system does not solve it. Or, they probably have expensive integrations between some systems and administration.

This method has the advantage that it starts small and is complemented, but in addition to being very expensive, it does not guarantee the uniqueness of the data nor does it allow you to have a 360-degree view of your company.

Implementation models of an ERP system

There are mainly 2 ERP system deployment models that address the needs of different types of companies and it is important to understand the characteristics of each one so that you can identify the best option for your business.

Here we describe the differences in relation to the main characteristics.

Local ERP

With an on-premises system, the company runs the software on its own servers and is responsible for security, maintenance, updates, and other fixes. Maintenance generally requires qualified personnel who may be own or hired. For many years on-premises ERP was the only option businesses had, but with the cloud the popularity of this implementation model has rapidly declined.

ERP in the cloud

The implementation of an ERP system in the cloud allows companies to pay a single fee for the use and maintenance of the systems, outsourcing all services. SaaS ERP solutions are a popular version of a true cloud solution, since the provider handles everything on the back end, including patches and updates.

 L O C A L S E R V ER      CLOUD SYSTEM

Software customization

Many times you will need to customize the solution due to exclusive cases of your company that are totally necessary for your way of managing and provide a differential added value to your business. If you detect this, find out carefully the possibilities of each provider to allow this customization as well as its cost. Keep in mind that a good supplier will always help you analyze whether it complies with good management practices and will offer you the best alternatives to implement them.

Make sure that the customizations you make are made in such a way that they last in new updates, otherwise you will lose them and have to redo them.

Recommendation

We suggest you select open systems that are easily extensible with the personal characteristics of your company. Avoid closed systems with difficult or expensive customizations.

A management system must accompany the company in each of its areas, allowing everything that is done today to be carried out, but also new ways of doing things, which will possibly make the processes more efficient. For this reason, it is very important to understand each of the functionalities that the system allows, not only looking at today, but also at a possible future.

ERP systems by company size

No ERP system is good for all sizes of companies. Here we have to look at several indicators that will give us an idea to estimate what type of ERP is convenient.

The most important indicators are:

• Billing

• Staff amount

• Number of features you need

ERP systems by company size:

No ERP system is good for all sizes of companies. Here we have to look at several indicators that will give us an idea to estimate what type of ERP is convenient.

The most important indicators are:

• Billing
• Staff amount
• Number of features you need

ERP for small businesses

Small businesses, typically with limited budgets, should identify their requirements as clearly as possible before beginning a search to avoid software that has many more features than they need. This will save your costs and reduce the training of your employees. However, the system selected must have the ability to scale and respond to the needs of growth.

Therefore, cloud systems are the most appropriate due to their characteristics of speed in implementation and deployment, as well as their price as they do not have the initial outlay of hardware and infrastructure. In this case, it is the provider that is in charge of everything related to infrastructure, security, updates. Cloud systems are also easily scalable as they can easily have greater resources or functionalities in the case of growth.

ERP for medium-sized companies

These companies often have a need for specialized functionalities, so the requirement determination stage is key. The type of functionality you need will depend on the sector where you operate. Many times these types of companies have needs greater than what their budget allows, so a format that absorbs relatively little capital at the beginning, such as the implementation of ERP software in the cloud, may be the most appropriate. In addition, cloud deployments allow rapid and economical scalability.

ERP for large companies

Large companies require systems that have all the professional functionalities, so the list of suppliers is considerably reduced. In these cases, it is necessary to analyze whether the company has to manage several countries, business units, currencies and other complex situations that will determine the short list of suppliers.

Stages in ERP implementation

The implementation of an ERP system is an important project, and must be prepared properly to avoid time and money gaps.

These are the seven key stages of ERP implementation:

Investigate-evaluate

Once the company feels that it must take the step of changing or implementing its first ERP, it begins with creating a cross-functional team to define what it needs from an ERP system. This team must identify processes that are currently inefficient and that can be improved by adding technology.

Requirement-select

Writing a document with the requirements will allow suppliers to make offers in an exact and detailed manner. The software requirements document must be clear enough so that the company can easily compare the differences in functionality and features of each proposal and must include options for future growth and support.

Design

In this stage the implementation team verifies the workflows in the new system and determines if any of them require changes. Customizations or missing features that need to be added may also be identified.

Implementation and development

Implementers perform identified configurations and requested customizations. At this time, data migration from the previous system is also defined and performed.

Evidence

At this stage, the system must be tested with each necessary functionality, with the selected use cases and in the activities that are carried out daily or sporadically. These tests must be rigorous and cover all system capabilities.

Here, user training will begin and will continue until the final deployment.

Deployment

It is the live output of the system. It is a tense moment, in which users are deeply trained in the functionalities. The deployment can be in stages or total; There may also be parallel management for some time or unparalleled verifications.

Training-support

Post-live support is very important to resolve any details that may arise. This support will ensure full use of the capabilities of the new system.

Recommendation

We recommend a system that has a clear implementation strategy, with measurable timelines, that can be implemented quickly and that has an online learning platform, supporting documentation and live training sessions with a consultant.

ERP cost

In the past, the total costs of ERP systems were really very expensive and therefore were only within the reach of large companies. Currently, and depending on the way the system is deployed, many ERP software providers for small and medium-sized companies have modified the way they market them, managing to significantly reduce costs.

On own server:

When we talk about cost, we must consider the Total Acquisition Cost, understanding that this varies depending on the provider’s licensing model as well as its support options. Among them we find:

• Hardware
• Hardware Maintenance
• Operating systems maintenance
• Management Software Licenses
• Implementation costs
• Management Software Support
• Human Resources Software License
• Human Resources Software Support

The initial cost of an implementation was closely related to the time it took to analyze the company’s needs, parameterize, verify, and monitor the live output. This implementation process, according to the company, could take months and often years, making the investment that the company had to make very important.

Total costs depend on the contracting form selected, the modules required and the number of users required. Remember: for the comparison of different alternatives to be correct, you must calculate the Total Acquisition Cost of each option.

ERP in the cloud

With web technology and cloud-based ERPs, this has completely changed allowing the Total Cost of Acquisition to be only a fraction of what it once was.

The characteristics that influence the reduction of ERP systems implementation costs:

Verticalization:

Systems verticalized by industry are already parameterized with the most common functionalities and processes of companies in the sector. In this way they significantly shorten the live output time since only the processes used must be parameterized and verified.

Cloud deployment:

To understand and analyze different options, it is important to know exactly the differences between each of them, with the aim of knowing what each offers and, in this way, being able to make a more accurate comparison.

Fast deployment system

Some providers are implementing forms of fast deployment that reduce live output times by up to 50%. This rapid implementation system is based on clear and predetermined processes and the use of pre-parameterized ERP systems.

Best practices in implementing an ERP

Create your internal ERP project team

When creating the team, look for people from all departments with subject matter expertise.

The objective will be to form the project team, define the detailed schedule and present the project to the entire organization to understand its key elements (activities, times, resources, requirements, specific processes and implemented controls).

Project Manager

Your figure is extremely important for the success of the project.

When selecting, look for someone who is intimately familiar with the business, has proven project management skills, and can work well with a variety of people with different interests.

Planning

While it may be tempting to jump into implementation design as early as possible, it is critical not to rush in the initial planning stage. This stage should create a firm foundation for the entire project and ensure that what is requested is clear and can be controlled.

Data strategy

The data strategy includes the steps necessary to migrate information from your current system to your new ERP platform. To do this successfully, you must define clear data conversion and verification processes, with those responsible for the information by area.

Clear and written requirements

This is where you will provide a detailed list of ERP functional needs and technical specifications broken down by each business area. If possible, cataloging each requirement if it is mandatory or desirable.

• IR=Immediate Required

• RNI=Required Not Immediate

• RMT=Required in the Medium Term

• D=Desirable

This is the most important part and should be as detailed as possible. You are required to go through each business process point by point and in an extremely clear manner.

Review current processes

Whenever a new technology is implemented, it’s a good time to take a second look at your current processes. Where can you standardize and optimize to increase efficiency?

Design the test plan with use cases

Conducting deep usability testing plays a critical role in the ultimate success of the project and should be considered and planned well in advance in an implementation project, so that sufficient time is allocated, training the necessary project team, and incorporating the cycle testing in the overall project schedule.

Change Management

There’s no denying that ERP projects can be bewildering for employees, especially those who haven’t been involved in the effort since its inception. For this reason, you may experience a bit of a setback when you prepare to implement your new ERP solution.

To help calm that anxiety, it’s important to ensure project awareness. In other words, define any role changes that are required and communicate them as far in advance as possible. Clear and detailed communication is very important for the success of your project.

Frequent Questions