Enterprise Resource Management (ERP): What It Is and How They Work

4/08/2023 Author: Arizbé Ken 9 min de lectura

Enterprise Resource Planning (ERP), is a comprehensive solution that centralizes, coordinates, and optimizes business processes. Companies turn to ERP systems to integrate information from different areas, from finance to production, ensuring decision-making based on reliable and up-to-date data.

In the modern business world, organizations often face complexities in process management, from resource administration to inventory control and customer service. The changing demands of the market, the integration of new technologies, and the need for data-driven decisions are just some of the challenges they face.

For instance, a company experiencing rapid growth might struggle with coordination between departments or with the efficient management of its supply chain. Another organization might have difficulties in obtaining a unified view of its operations due to the dispersion of information across multiple systems.

This is where the ERP system comes into play. This solution provides a centralized platform that integrates various business areas, from finance to production, achieving a cohesive view of the company. The benefits are tangible: better decision-making, resource optimization, more agile processes, and a quicker response to market opportunities and challenges.

Moreover, with the inclusion of advanced technologies such as artificial intelligence, modern ERP systems go further, proactively adapting to changing needs and offering predictive insights that can be crucial for long-term success. Learn about different types of implementations, their advantages, and how these systems can aid your business's efficiency.

What is an ERP? 

The simplest way to understand the definition of ERP is to consider it as the set of all the fundamental processes required to run a business: finance, human resources, production, supply chain, services, purchasing, and more. Essentially, ERP facilitates the effective management of all these processes in a unified system.

Current ERP systems are far from basic and have almost nothing in common with ERPs from a few years ago. They are now delivered through the cloud and benefit from more advanced technologies such as AI and machine learning, so they are automatically optimized, increase efficiency, and provide real-time strategic information throughout the entire organization.

Furthermore, modern cloud-based ERP software also links internal operations with global business partners and networks, giving companies the collaboration, flexibility, and speed needed to remain competitive in today's market.

The evolution of ERP systems has been impressive, transforming from static tools to dynamic solutions that are constantly adapting to the changing needs of the business. Through the integration of various functions and departments, modern ERP becomes the operational core of a company, allowing more effective collaboration and quicker decision-making.

With the implementation of emerging technologies, ERP systems now play a vital role in driving innovation, improving customer experience, and creating sustainable competitive advantages.

This transformation reflects the complexity and versatility of today's market, in which ERP systems have become an indispensable tool for any company looking to thrive and grow in a globalized and highly competitive environment

How does an ERP work? 

An ERP system, also called an "ERP suite," is made up of integrated modules or business applications that collaborate with each other and share a common database.

Each ERP module addresses a specific area of the business, but they all work together with the same information to meet the company's needs. Modules typically cover areas such as finance, accounting, human resources, sales, purchasing, logistics, and supply chain.

The ERP system can be tailored to the specific requirements of each industry, either integrated into the core functionality of the system or through application extensions that are coherently incorporated into the ERP suite.

The acquisition of ERP software can be done through a cloud subscription model (Software as a Service) or a licensing model (on-premises installation).

Types of ERP Implementation

ERP models can be implemented in various ways: in a public or private cloud, on-premises, or in different hybrid scenarios that combine these environments. Below, we explain how they work so that you can determine the best option for your business.

ERP in the Cloud

Cloud-based ERP hosts the software on remote servers and delivers it via the internet as a subscription service. Typically, the software provider takes care of maintenance, updates, and security.

Today, cloud-based ERP is the most popular implementation option thanks to its advantages: lower initial costs, superior scalability and agility, ease of integration, among others.

On-Premises ERP

This traditional method of software implementation gives you total control. The ERP software is installed in your own data center, at the locations you prefer, with your team responsible for the installation and maintenance of hardware and software.

Hybrid ERP

For companies looking for the optimal combination of both models to meet their needs, there is the hybrid cloud ERP model. In this, some ERP applications and data are in the cloud and others on-premises. This approach is sometimes known as a "two-tier ERP.""

Main Advantages of ERPs

A well-optimized ERP system can offer multiple advantages, depending on how the system is implemented. However, there are five solutions that all ERP systems share regardless of the type of implementation:

Increase in Productivity

An ERP system for routine tasks should not only be well-structured but also improves a multitude of key business processes, eliminating redundancies and increasing efficiency. This allows employees to focus on more meaningful and strategic tasks.

The integration of different departments into a unified system also facilitates collaboration, allowing information to flow more easily between teams. By enabling a more agile and effective way of working, productivity is increased throughout the organization, allowing more to be done with fewer resources.

Deep Strategic Insight

Consolidating different data sources into a "single point of truth" allows for a clearer and deeper view of the organization. ERP systems eliminate information silos, making access to crucial data easier and enabling quicker and more grounded decision-making.

Integrated analytical tools in these systems can offer valuable insights into trends and patterns, helping business leaders make informed and aligned strategic decisions with the organization's goals.

Faster Reporting

An ERP system includes functionalities that facilitate the generation of financial and business reports. Through real-time data collection and analysis, reports can be generated quickly, allowing key results and metrics to be shared with stakeholders.

This improves transparency and allows for a quicker response to changes in the market or the company's internal conditions, supporting more dynamic and proactive management.

Risk Minimization

The visibility and control offered by ERP systems are crucial for risk management. By having access to real-time information, leaders can anticipate and prevent potential risks, from operational problems to regulatory non-compliance.

Additionally, ERP systems can be configured to ensure compliance with applicable laws and regulations, reducing the risk of sanctions and improving the company's reputation in the market.

Simplified Information Technology (IT)

Integration is one of the most significant advantages of ERP systems. By unifying various applications and processes into a single system that shares a common database, IT management is greatly simplified.

This reduces complexity, lowers maintenance costs, and improves consistency across the organization. Moreover, it provides employees with a more uniform user experience, facilitating adoption and maximizing the value obtained from the system.

A well-optimized and implemented ERP system can transform an organization, providing advantages at many levels. From improving efficiency and collaboration to providing strategic insights and reducing risks, the benefits of an ERP system are broad and deep.

The key is to select and implement the right system, tailored to the specific needs and goals of the organization, to fully leverage these common solutions that ERP systems offer.

Integration of ERP with Other Systems

Current ERP systems offer a wide range of business functionalities, but they still need to connect and synchronize with other applications and data sources, such as CRM and HCM software, eCommerce platforms, industry-specific solutions, and even other ERPs.

With ERP integration, companies can achieve an integrated view of information from various systems, improve the efficiency of business processes, enrich the customer experience, and foster collaboration between teams and business partners.

Modern ERP systems are open and flexible in nature and can easily be integrated with a variety of software products through custom connectors or adapters, such as APIs.

Who Should Use an ERP?

Depending on the size of your company, the usage of ERP programs will vary, and you'll also gain different benefits. Below we explain how to make the most of it, regardless of the size of your business.

ERP Applied to Small Businesses

ERP software for small businesses allows you to go beyond spreadsheets and efficiently manage every facet of your growing business, from sales and customer relationships to finances and operations.

These ERP tools, typically hosted in the cloud, are quick to install and are designed to evolve alongside your business.

ERP Applied to Medium-Sized Businesses

Currently, ERP software targeted at medium-sized businesses provides built-in analytics, swift implementation, and best practices for various business processes, including finances, human resources, and supply chain management.

These ERP tools support growing businesses by enabling scalability and competitiveness, even with limited resources.

Cloud-based modular ERP systems present an attractive option for medium-sized businesses with complex processes or rapid expansion plans.

ERP Applied to Large Enterprises

If you have a large company with global operations or subsidiaries, you will need a robust, market-leading ERP system that includes AI, machine learning, and integrated analytics, along with intelligent automation to transform business process models.

ERP systems can be installed locally, in the cloud, or in a hybrid environment, depending on your business needs. They can be integrated with your current databases or, even better, run on newer, more powerful in-memory databases.

Maintenance of ERP Systems

The maintenance and support of an ERP system are not simply an afterthought; they are an integral part of the system's lifecycle. Attention to these aspects can make the difference between smooth operation and costly downtime or system failures.

Regular updates ensure that the system is up-to-date with the latest features, security fixes, and efficiency improvements. It is vital to plan and execute updates carefully to minimize the impact on daily operations.

Some organizations may choose to have an internal support team, while others may hire an external provider. Proactive monitoring can help identify and solve problems before they affect the business. Using appropriate technology to monitor system performance and generate alerts can be crucial. As the system updates and changes, staff must be properly trained to use it effectively.

The maintenance and support of ERP systems is an ongoing task that requires careful planning and execution. It is a vital aspect that, when handled properly, ensures that the ERP system remains a valuable and efficient tool in supporting the organization's goals, which is fundamental to keep in mind.

Future of ERP Systems

Even though different types of ERP already offer us continuous improvement benefits in our operations, these systems continue to evolve, and the importance of this lies in understanding the trends to know what will determine the future of these systems.

  • Integration with Advanced Technologies: With the growing adoption of Artificial Intelligence (AI), the Internet of Things (IoT), and Big Data, ERP systems are becoming smarter and more autonomous, capable of performing predictive analysis and adapting to the changing needs of the business.

  • Mobile and Accessible ERP: The demand for real-time access to critical information from any device and location is driving the development of mobile and cloud-based ERP solutions.

  • Customization and Flexibility: Future ERP solutions will be increasingly customizable to meet the specific needs of each organization, allowing for greater agility and adaptability.

  • Focus on Sustainability: As awareness of environmental issues grows, ERP systems are beginning to incorporate functionalities that help companies follow sustainable and responsible business practices.

  • Enhanced Security: With growing concern about cybersecurity, future ERP systems will incorporate more robust security technologies to protect sensitive data.

The future of ERP systems is exciting and full of possibilities. As technology continues to advance, ERP systems will become even more powerful and versatile tools for organizations around the world.

¿Por qué implementar un ERP?

We know that modern businesses need greater agility to manage and synchronize information between various areas of the business without unnecessary redundancies or excessive administrative expenses.

This type of structure offers flexibility in the operation layer and a clear distinction between the management and execution of business processes.

ERP systems can be a vital solution and a complete guide if you are looking to drive important projects, whether they are multichannel operations, CRM integrations, or even mobile applications for business management. Process managers can continue to manage everything through the interface as usual.

Facing the new challenges and demands of the digital age, ERP systems provide power, flexibility, and possibilities as they allow for constant changes.

Moreover, as a tool and not just for user use, it has helped to optimize operations for both administrators and executives; so if you are thinking about optimizing your business, whether it's a site, an app, or an eCommerce, ERP technology is your best option.

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