What Is ERP Software? A Comprehensive Buyer’s Guide

As your organization evolves, it will inevitably outgrow the use of spreadsheets and other old-school inventory management practices. To maintain your growth trajectory and continue to deliver for your customers, you need a single source of truth that provides real-time visibility into inventory, your supply chain, and the consumer journey. In other words, you need enterprise resource planning (ERP) technology.

Like most business professionals, it’s very likely you have heard the term “ERP software” before, but you may not know the specifics as to what it does, the benefits it provides, and how it fits into your business model.

To that end, the following comprehensive guide to ERP technologies will explore these innovative software systems, their capabilities, and the kinds of business models that would gain the biggest advantage from implementing them. Some tips will also be provided to help you choose the right system and vendor for your organization’s unique needs. 

What Is Enterprise Resource Planning Software?

Enterprise resource planning software takes the form of a multifaceted, module-based application that automates business processes and connects key functions, such as human resources, finance, sales, marketing, and inventory management. It serves as your single source of inventory, customer, and operational information, thereby providing reliable access to real-time data.

Investing in ERP software will modernize a wide range of critical business processes, such as:

  • Customer relationship management (CRM)
  • Product lifecycle management
  • Finance and accounting
  • Asset management
  • Warehouse management
  • Human resources
  • Supply chain management

By integrating so many applications and functions, ERP software works to expedite your organizational decision-making processes and provide you with a holistic view of the health and performance of your business.

Currently, you likely rely on multiple differing applications to manage your business processes, which means you know firsthand just how difficult making timely, efficient decisions becomes when your data is scattered across a network of disconnected systems. When you and your team are unable to readily access the data you need to fulfill your responsibilities, your productivity and efficiency suffer. 

ERP software remedies these problems by promoting data accessibility, visibility, and usability. In short, all of your data will be consolidated into a centralized database, which the ERP solution’s various modules and applications will tap into whenever an employee needs to query specific information or perform a particular action, such as processing an invoice. 

Increasing workflow visibility also sheds light on potential inefficiencies or bottlenecks in your processes. You can pinpoint sources of waste or inefficiency, implement strategies to remedy them, and monitor your progress within the ERP platform.

A Brief History of the ERP Software Model 

The origins of ERP software date back to the early 1960s, when large manufacturing organizations began applying the core principles of ERP to their quality control and inventory management efforts. 

Throughout the following decades, emerging, multifaceted technologies were often referred to as materials requirement planning (MRP) software, and were designed to meet the core requirements of manufacturers, especially those involved in producing heavy-duty or commercial equipment.

In 1990, the research firm Gartner coined the term “enterprise resource planning,” and although that new category of software had already started to take shape before then, the development of ERP jumped into warp speed in the early 1990s.

Today, ERP software is the glue that holds organizations together. Businesses of all sizes, from international enterprises to mid-sized regional manufacturers, rely on ERP to support their operations. 

How Does ERP Software Work?

ERP software, like most other business technology tools, has made the jump to the cloud, though some software vendors continue to support on-premises deliveries. 

Under an on-premises model, you are responsible for installing and maintaining the hardware, software, and associated infrastructure. You pay a one-time licensing fee, and the vendor provides you with the software. Accessing updates and upgrades requires that you make additional purchases and oversee the implementation of those new assets yourself.

Conversely, in pursuing a cloud-based route, the vendor maintains the platform and its servers, which you instead rent, paying a recurring licensing fee that is usually billed monthly or annually. While you and the vendor share responsibility for maintaining data security, they handle most of the other maintenance and upkeep tasks. 

Regardless of the deployment method you choose to leverage, the underlying architecture of ERP is essentially the same. ERP systems consist of a centralized database that serves as the repository for your business data. With an on-premises model, the servers for the database are located at your facility, while, with a cloud-based approach, the servers are remotely accessed via the internet. 

In addition to a core database, ERP software also features several interconnected applications, typically referred to as modules. You select the modules you want to use and pay the licensing fee. The vendor then makes them accessible, at which time you must integrate them into your database. 

Each module pushes information to — and pulls data from — your database. By using a centralized database, ERP software maintains information accuracy and consistency across applications, departments, and teams. 

Typical ERP Features and Modules

The module-based design of ERP software is what makes it so versatile and useful. When implementing ERP technology, you can select the exact assortment of modules that best align with the needs of your business. 

The number of modules and scope of features vary by vendor, though most software vendors offer the following categories of ERP modules:

  • Finance
  • Human resources
  • Procurement
  • Inventory management
  • Manufacturing
  • Warehouse management
  • CRM
  • Order management
  • Marketing automation
  • eCommerce

Each module includes a bundle of features and tools that are designed to address various aspects of your business workflow. Typically, they include front-office and back-office features for the business process that they are designed to support.

Who Is ERP Software for? 

Where MRP software was originally designed specifically for manufacturers (and manufacturing still composes a large percentage of ERP users), enterprise resource planning systems are also used by businesses in a broad range of other industries, such as:

  • Telecommunications
  • Food and Beverage
  • Metal and Steel
  • Transport
  • Automotive parts manufacturers and distributors
  • Healthcare
  • Industrial services providers
  • Service businesses
  • Construction
  • Professional services
  • Distribution

As such, if your organization needs to manage complex processes and wants to consolidate HR, accounting, inventory, sales, and/or marketing data, you could benefit from ERP software. 

Unpacking the Business Case for ERP Software

By no means is ERP software the right solution for every business — but no software ever is. Nevertheless, enterprise resource planning systems represent the most versatile and dynamic solutions for managing resources, identifying business waste, and promoting business efficiency. 

An ERP solution is an incredibly worthwhile asset when you need to plan for the future, coordinate resource usage, and better understand the efficacy of your business processes. Your team can tap into ERP data to view real-time inventory information, better serve customers, and keep revenue flowing for your business. 

Furthermore, as an organizational leader, you can run timely, relevant reports to assess overall business performance and support decision-making, explore granular performance details, look at the big picture, and obtain the insights you need to achieve business objectives.

Counting the Cost of ERP Software

Several factors will impact the final costs of your ERP software, including (but not limited to) the following:

  • Number of users enrolled
  • Data usage
  • Deployment method
  • Number of modules licensed
  • Your chosen vendor

A mainstream vendor, like Oracle, Microsoft, or SAP, will typically charge a higher licensing fee than most others, but working with a leading provider means consistent access to better-quality software and a more expansive support network.

Your deployment model will also have a big impact on the total cost of your software solution. If you choose an on-premises deployment, you will need to pay a very high licensing fee, known as a perpetual license, as well as invest in servers and other on-site hardware, which further compound your initial costs.

With a cloud-based model in place, you will pay a much lower, albeit recurring, licensing fee that will cover the software license and server usage. Most vendors, including those mentioned above, charge a variable rate for cloud-based services based on the number of users you enroll, the modules you license, and the amount of storage and computing power you use each month. As such, smaller businesses with light usage habits will pay far less than those with hundreds of users and high data consumption rates. 

The Benefits of Enterprise Resource Planning

ERP software provides your business with a wide range of benefits, including the following:

End-to-End Visibility

When all of your applications live in a vacuum, visibility is virtually non-existent. Finance, sales, marketing, and customer support teams cannot readily share data, much less collaborate. And from a leadership perspective, you will have to access each system independently to gain insights into core processes and workflows. 

ERP software, on the other hand, provides end-to-end visibility, enabling you to monitor organization-wide data. What’s more, a unified solution promotes streamlined collaboration and communication between your teams and departments. From finance to sales, everyone can exchange information, work together to achieve shared goals, and deliver an optimized experience to your customers.

Scalability

Cloud-based ERP software is exceptionally scalable. You can access additional storage and computing power almost instantly, meaning the technology can meet the needs of your business both now and for years to come. 

In addition to providing on-demand resources and storage, cloud-based ERP solutions also allow you to effortlessly implement new modules and tools. For instance, let’s say that during your initial deployment, you only implemented a few core modules. As your company evolves, you decide you want to add workforce management and professional services automation tools to effectively oversee your growing team. With the right ERP solution, deploying those additional tools will be cost-effective and simple. 

More Efficient Workflows

Redundant data entry wastes your team’s time and talent while also increasing the likelihood of an error and compromising the integrity of your business information. Thankfully, ERP software elevates the efficiency of your workflows by reducing the need for manual data entry at multiple touchpoints. Once data is entered by one department, it is automatically routed to your centralized database and made available to other authorized users in other departments across the company. 

Better Data Accessibility

ERP solutions greatly increase data accessibility and usability. At the touch of a button, team members can access timely, relevant information that supports their functions within the business. As an organizational leader, you can view interdepartmental data, use it to run reports, and gain actionable insights about the state of your company.

Making data more accessible has become a necessity in the modern business environment. Opportunities wait for no one, so you must be able to act fast when you identify a chance to build your business, bolster revenue, or strengthen customer relationships. 

Increased Information Reliability

When you rely on antiquated legacy systems, you may be basing your decisions on data that is days or even weeks old. With ERP software, you can make your decisions on up-to-the-minute data.

Enterprise resource planning solutions continually receive information from each module and store that data in a centralized database, which means your inventory is constantly being updated, payments are posted almost immediately, and important communications are sent out or delivered instantaneously. 

Streamlined Decision-Making

The best enterprise resource planning solutions feature robust reporting capabilities that you can leverage to visualize organizational data in easy-to-digest graphs and charts, thereby promoting information sharing and simplified decision-making. You can also schedule automatic recurring reports and tap into underlying data to obtain granular insights.

In doing so, you’ll not only speed up decision-making but ensure the right choices are made for your business. You and other business leaders can review relevant facts, forecasts, and other data to identify the right path forward for your company. 

Setting the Stage for a Successful ERP Implementation

Implementing an ERP solution can be a massive undertaking for any organization, and those that are ill-prepared may take years to get their ERP platform fully integrated.

Lay the foundation for a successful ERP implementation by leveraging the following tips:

Define Your “Why”

Before you begin searching for a vendor or platform, you need to clearly define what you hope to achieve by implementing an ERP solution, whether that’s increasing organizational visibility, streamlining decision-making processes, or fueling the growth of your business.

Once you know what you want to accomplish, it will be much easier to get your team on board, and you can use your goals as a guide when exploring potential solutions. If you have more modest goals, a simpler and easier-to-deploy platform may better align with the needs of your business. On the other hand, if you want to future-proof your company, you may need to set your sights on a leading platform. 

Decide Whether You Want an On-Premises or Cloud-Based Solution

Carefully weigh the pros and cons of each deployment method. The benefits of an on-premise approach include things like:

  • Increased control over data and systems
  • Better integration with legacy systems
  • The ability to meet regulatory requirements

However, it does have major drawbacks, such as:

  • Increased initial costs
  • More responsibility for maintenance, upkeep, and deployment
  • Less resource scalability
  • Ongoing hidden costs (server maintenance, additional equipment purchases, upgrade fees)

Like the on-premises approach, the cloud-based deployment model features both pros and cons. The benefits of cloud-based ERP include the following:

  • Lower initial costs
  • Ongoing support
  • Better scalability
  • Access to additional resources and upgrades

Its potential drawbacks include:

  • A lack of ownership
  • Fluctuation fees
  • Limited customization opportunities

There is no one right or wrong option when it comes to your deployment method: Focus on the approach that makes the most sense for your company. 

Consider the Pros and Cons of Generic vs. Industry-Specific Software

A wide range of enterprise resource planning software is already available. More generic solutions support common business functions like HR, project management, and financial management, whereas more robust and industry-specific platforms will include tools and capabilities designed to meet the unique needs of your sector.

If your company needs to facilitate an expedited deployment but has a limited budget, a generic enterprise resource planning system might seem like an appealing option, but you may still need to invest in complementary platforms to address more complex, industry-specific business processes.

Fortunately, there are a multitude of solutions available that are designed to augment the capabilities of your existing ERP platform. For instance, Cavallo offers several that can integrate with your current enterprise resource planning technology, including business intelligence, sales, and order management software. 

Sort Through Vendor Options

In the world of ERP software, there are a few dozen vendors and hundreds of sub-vendors, often referred to as “partners” or “implementation partners.” Software vendors include Microsoft, SAP, Oracle, and Acumatica, just to name a few. 

Sub-vendors and implementation partners provide varying types of service and support. Some, such as Cavallo, provide complementary software to augment the capabilities of ERP solutions like Microsoft Dynamics, while others offer ERP implementation support. Some even do both. 

While you can purchase your ERP license directly from its vendor, working with a sub-vendor or implementation team often proves to be the better option. An implementation partner will not only sell you the license but also plan and manage the entire deployment process.

Complete the Design and Development Phase

After you have selected a vendor and platform, your next step is to identify the specific processes and workflows your new system will be able to support. From there, determine whether there are any necessary customizations and modify your workflows as needed.

During the development stage, technical professionals will configure the software to meet your needs. They will also build any customizations to maximize your ROI and ensure that the final deliverable supports all of your core business processes. 

Prepare Your Data for Migration

Data migration, alongside design and development, are co-occurring processes. As such, while you are in the design phase of your ERP software implementation, you must prepare your data for migration.

First, identify the scope of your data, including what applications it is included within. Next, begin cleaning your data, deleting duplicate records, and either fixing or removing incomplete files. Starting with a clean slate of accurate, reliable, and relevant data will help you get the most out of your new platform. 

Test Repeatedly

Once your team begins migrating its data, you can start testing your ERP solution, which serves as one of the most critical phases of your enterprise resource planning implementation. It allows you to ensure that everything works as designed, identify any bugs or glitches, fix them, and make the necessary modifications to your platform to prevent new ones from popping up.

After each round of changes, test your ERP again to ensure that you did not unintentionally affect another function or feature. Thorough testing will allow you to minimize the risk of surprises once you go live. 

Make Change Management a Priority

In the buildup to your launch date, remember that the changes your ERP solution brings are going to be challenging for everyone. Develop and implement a comprehensive change management strategy to ensure your staff is ready for the transition.

Change management begins long before your launch date. In fact, you should keep your team in the loop about your ERP implementation the moment you decide to invest in a new solution. Let them know what platform you have chosen, how it will impact them, and what you are doing to ensure a seamless transition.

As the day you go live draws near, provide comprehensive training that gets your team members up to speed on the new platform. If they are confident with the new tools and software in front of them, they will embrace change, not shy away from it.

Go Live

You are finally ready to go live. There will inevitably be at least a few hiccups, even if you followed the above best practices to the letter, so always ensure you have extra tech support available. 

If you’re concerned that you won’t have the resources available to support a full-scale rollout, consider using a phased approach, pushing one or two modules live at a time, as opposed to all at once. 

Gather Feedback and Improve 

Proactively gather feedback from your team, especially in the days immediately following your deployment. Find out what is working alongside the potential hurdles that have been encountered. Apply what you learn from your staff and continuously work to improve the functionality and performance of your ERP software.

Gathering feedback and modifying your system is an ongoing process. If you want to maximize the lifetime value of your ERP solution, it’s important to commit to continuous improvement. 

Elevate the Capabilities of Your ERP Software

The right ERP software can revolutionize the way you manage your business and serve your customers, but if you want to derive the most value from your ERP investment, you need Cavallo.

To learn more about how you can leverage Cavallo’s solutions to propel your business forward with dynamic applications and business intelligence software, schedule a demo. Our team of experts can help you choose the right combination of Cavallo software and facilitate a seamless implementation from start to finish.