What Is Enterprise Resource Planning (ERP)? Benefits, Tips, and More

Spreadsheets and manual business practices could prevent your company from realizing its true potential. When these old-school processes and disjointed software applications cannot meet the current needs of your growing business, there’s no better time than now to invest in some new tech, namely enterprise resource planning (ERP) software.

As a concept, ERP has been around for a few decades now, so you’ve likely heard the term in passing. But as for what it can mean for your business, there’s plenty to discuss.

What Is ERP Software?

ERP software is an integrated suite of applications that manage core business functions. You can think of it as the central nervous system of your business, as it integrates various departments—from finance to human resources, supply chain management, and beyond—and streamlines data and processes across your organization, thus providing a common database that acts as your single source of truth. 

With a single source of information, you can tap into real-time data and gain actionable insights about business performance. The best solutions offer a holistic view of customer experiences, supply chain processes, and other key aspects of your business, enabling you to systematically identify and optimize weaknesses. 

Key Components of ERP Systems

Most ERP solutions are modular in design, meaning you have the freedom to choose which applications to implement. Still, the specific selection of modules that are available to you will vary depending on the platform. Some offer over a dozen distinct modules, whereas others are only designed to meet core business requirements.

With that being said, virtually every ERP system will provide the following key modules:

Financial Management

Without exception, every ERP includes a financial management module. This is an application that keeps track of your financial activities, including accounts payable, accounts receivable, and risk management. By shining a light on your finances, ERP technology helps you mitigate dangers to your business, maximize cash flow, and seize fleeting opportunities. 

More advanced financial management solutions are equipped with machine learning (ML) and artificial intelligence (AI) technologies. These advanced features allow modern enterprises to make use of predictive analytics to better understand what challenges may lie ahead and pivot accordingly. 

Human Resource Management

ERPs also feature human resource management functionality through an application that manages employee data, payroll, recruitment, and performance evaluations. By compiling your human resource data in one place, ERPs make it easier to manage and support your workforce.

You can also pull over employee performance data from integrated applications. Doing so lets you reward top performers and provide other employees with the additional support they need to thrive. 

Supply Chain Management

ERP tracks key supply chain business units and metrics like available inventory and order frequency, among others, and the insights you gain from those figures will help you more effectively manage and optimize your supply chain. You can proactively avoid stockouts, identify bottlenecks, and cultivate a lean supply chain that minimizes waste. 

Customer Relationship Management

Top ERP solutions offer customer relationship management (CRM) modules that help manage interactions with potential and current customers. Keeping track of customers and following up quickly are vital to your company’s long-term growth. Use the CRM features to nurture leads, re-engage with previous customers, and seize every opportunity to generate revenue. 

Inventory and Order Management

By combining inventory tracking and order processing with other core functions, ERP software helps you expedite deliveries, better manage customer expectations, and offer a frictionless purchasing process. The goal here is optimal efficiency and reduced waste. 

Analytics and Reporting

ERP solutions provide valuable insights through data analysis, helping you make informed decisions by taking the guesswork out of managing your business. You can consolidate your data and then analyze it using modern AI- and ML-powered tools, setting the stage for strategic decision-making and long-term planning.  

Project Management

Some ERP systems also offer project management functionality. You can create custom timelines, track deadlines, and much more, all from your single source of truth. Since the project management data is consolidated with financial, HR, CRM, and other data, you can view the impact of projects holistically. 

How Enterprise Resource Planning Technology Works

Running your business is almost like conducting an orchestra. Each section—sales, inventory, finance, human resources, and so on—plays a vital role in your success. And to thrive, you must ensure that each department is in alignment with every other team. ERP technology helps you manage and integrate these and other core processes. It acts as a central hub where all the different departments of your business connect. 

Instead of having a separate system for your finance, sales, and warehouse teams, ERP brings everything under one roof. For instance, when your sales team closes a deal, the system automatically updates your finance team about the revenue and your warehouse about the inventory that needs to be shipped. 

Every thread is connected, and the system keeps track of all these movements, providing real-time updates and reports. In return, you can see how your business is doing at a glance and go on to make informed decisions while ensuring everyone is on the same page. In short, ERP streamlines your business operations, making them more efficient and effective. 

Signs You Need an ERP

Admittedly, rolling out an ERP platform is a huge undertaking, and like any savvy business owner, you’ll want to evaluate your organization’s needs to ensure that adopting ERP software is the right move. 

With that in mind, here are some indications that may point to your business needing an ERP solution:

You’ve Got Tons of Data, But You Can’t Use It

If you have a huge pool of business data but find it difficult to access and leverage, it’s time to invest in an ERP system. 

Few things change faster than the business environment, and if it takes you weeks to track down data and run a report, the information may no longer be useful once you apply it to your decision-making processes. You need real-time data to maintain your edge; an ERP platform can provide that. 

You Are Inundated with Software Licenses

Juggling multiple applications and software licenses is a fact of life for the modern business owner. But you can still cut down on the headache by replacing several of your essential applications with an all-in-one ERP solution. One license means simplified IT management and, in many cases, reduced costs. 

Manual Processes Are Holding You Back 

Some tasks simply require human intervention, but most redundant work can be partially or even entirely automated, reducing the burden on your team and decreasing the likelihood of errors as a result. With an ERP system at your disposal, you can explore and implement automation to save time, cut costs, and get more done. 

ERP Deployment Options 

Regarding ERP software, three main deployment options are available to you: on-premise deployment, cloud-based deployment, and a hybrid approach.

An on-premise deployment is generally a more old-school approach in that you set up and manage your own servers and hardware. The ERP and all of its data are stored on your devices, meaning you are wholly responsible for ensuring everything works as intended.

Nevertheless, some businesses still prefer on-premise deployment models because the approach gives them total control of their software configuration and data. If you are already running some on-premise legacy systems and need to integrate them with your ERP platform, on-premise deployment may be the best option for your business. 

The more modern practice is cloud-based deployment. Under such a deployment model, your ERP software and business data are stored on cloud servers. The service provider is responsible for maintaining the cloud environment, ensuring uptime, and allocating resources to your business based on real-time needs. A cloud-based model is often more cost-effective and infinitely more scalable, as you can tap into additional computing resources on demand. 

Lastly, you can also explore the option of a hybrid approach, which involves both on-premise and cloud-based resources. It is by far the most complex option, but it allows you to reap some of the benefits of both deployment models. 

Benefits of Implementing an ERP System

There are a plethora of benefits associated with ERP systems. But the specific benefits you’ll encounter will vary based on the type of deployment model you choose, the system you implement, and the complexity of your existing business processes. 

In any case, some of the most common and impactful benefits are outlined below:

Access Cloud-Based Resources

By pursuing a cloud-based approach, you’ll be able to access your information from anywhere. This feature is particularly appealing to businesses that offer remote and hybrid work opportunities. Even if you use a traditional business model, the remote accessibility of cloud-based ERP systems can still provide a notable edge for your business. 

Gain an Edge on Other Businesses

Remain competitive by streamlining your operations and improving decision-making processes. You can access real-time data insights and even predict emerging trends through powerful analytics software. 

Better Serve Your Customers

With integrated CRM components, you can better understand and meet your customers’ needs. You can apply these insights to your digital marketing strategy, product design processes, and sales tactics to create a holistic and personalized journey. 

Enhance Data Accuracy and Decision-Making

Unified data improves accuracy and assists in making well-informed business decisions. You can turn data into insights while it is still relevant and useful, and since you’ll be able to pull from multiple data sources, you can also create more accurate and detailed reports that incorporate information from interconnected departments like sales, marketing, and fulfillment. 

Improve Efficiency and Productivity

Tapping into an ERP software’s automation capabilities reduces manual work, boosting efficiency and productivity alongside morale, as your team can devote their time to more dynamic and rewarding tasks. 

Reduce Costs

Streamlining your operations and improving efficiency will significantly reduce operational costs, and you can use that extra capital to pursue growth opportunities, such as investing in new products.

Challenges You May Encounter

Rolling out an ERP platform isn’t easy, even if you have a great deployment partner in your corner, as there are numerous roadblocks that you might encounter during your implementation journey. The good news is that you can avoid many of them by familiarizing yourself with the challenges that lie ahead. 

The Process Can Be Costly and Lengthy 

For one, implementing an ERP solution often involves a significant investment of time and resources. Poorly planned deployments can easily go off the rails, leading to tens of thousands in resource waste. 

Balancing Customization vs. Standardization

Finding the right balance between a customized and a standard solution can also be tricky. Naturally, you want to configure your ERP system in accordance with your company’s unique needs, but you need to consider the potential benefits of each customization as well as the costs. 

For instance, customizing your inventory management module might yield huge short and long-term benefits, whereas reconfiguring your HR module may not be worth the time or money. 

The Need for Employee Training

Successful ERP implementation requires thorough staff training, and you’ll need to develop a change management strategy to make the transition easier for everyone. Keep your team in the loop from day one, gather feedback, and include them in the process wherever possible. 

Choosing the Right ERP system

Selecting the right ERP system is crucial. You must consider factors like your business size, industry, scalability, and the level of support available. Also, be mindful of hidden costs, like per-user pricing changes, as well as the expenses associated with adding new modules. Ensure you obtain a comprehensive price breakdown before committing to an ERP platform so you can protect your bottom line. 

ERP and Technology Trends

While ERP technology has been around for decades, it is by no means stagnant. Modern ERP solutions embrace emerging tech like ML and AI-driven software, thereby enabling them to provide innovative new functionalities to businesses. 

That said, constantly chasing the “latest and greatest” ERP is impractical. A more pragmatic approach involves finding an ERP solution with a thriving ecosystem of third-party vendors, such as Microsoft Dynamics GP and Business Central, which are both supported by innovative vendors like Cavallo. 

ERP in Different Industries

ERP systems are versatile and can be tailored to different industries. Some sectors that benefit most from the technology include retail, manufacturing, distribution, and professional services, but there are many other verticals that can boost their efficiency and increase visibility through ERP software. 

The Future of ERP Systems  

The future of ERP is exciting, with advancements like Internet of Things integration and advanced analytics on the horizon. Staying updated with these trends can help you leverage your ERP technology more effectively and maximize your return on investment. 

Get More out of Your ERP with Cavallo

Reimagine your order management processes and workflows with Cavallo’s top-tier solutions for Microsoft Dynamics GP and Dynamics 365 Business Central. Combine powerful analytics capabilities with a frictionless user interface that integrates with your ERP—and that’s just the beginning.

To learn more about the future of ERP and its evolution over time, read our short eBook: The New Era of ERP. But to go one step further and learn how you can transform your ERP into an efficiency-boosting system, start a conversation with one of our experts.