Last Updated on March 2, 2024 by Asfa Rasheed
Your products and services may pack a punch, and you may have a brilliant, high-quality workforce. All these factors are crucial components of a profitable business. However, to achieve any of it, your business will face numerous challenges in all likelihood. Eventually, it is how you take on these challenges that will determine the survival of your business. ERP software solutions have proven to be extremely valuable and useful in helping companies to overcome such problems.
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What is Enterprise Resource Planning (ERP) Software?
ERP software can automate and simplify many tasks related to various business processes. ERP applications are available for procedures such as manufacturing, procurement management, supply chain operations, project management, finance and accounting, human resource management, customer relationship management, risk management, compliance management, and more.
You may opt for individual ERP applications for only specific business processes or, instead, a complete suite of ERP applications for all your business processes to create a comprehensive ERP system. An ERP system brings together all your operational processes on a single platform and enables a seamless flow of data among these processes. In other words, an ERP system connects every aspect of your business so that they perform better individually and together.
ERP systems are designed to increase organizational efficiency by bringing about an improvement in how organizations manage and utilize the resources available to their business. They enable organizations to make useful and accurate plans, budgets, and predictions and make timely adjustments to meet specific business ends.
How Does an ERP System Work?
ERP software acts as an integrated system and streamlines business processes. It creates a shared, common database. Any changes in data and updates are reflected in the ERP system on a real-time basis. It automates many activities related to various processes. ERP software solutions can also process large amounts of data about multiple departments and provide insightful reports based on multiple performance metrics and data comparisons to show how resources are being spent.
Types of ERP Software Systems:
There are a variety of ERP solutions for all kinds of businesses. Your choice of ERP software would depend on the size, nature, and specific needs of your business. ERP solutions also differ from each other in terms of their deployment- cloud/hybrid/on-premise.
– Cloud-Based ERP Systems:
These are web-based or SaaS ERP solutions. These ERP solutions are hosted on the cloud by the vendor. They can be downloaded as an application on internet-enabled devices or can be accessed through a website. The implementation process for such solutions usually consists of just a few steps and does not need much time. Cloud-based ERP solutions can be customized for specific business needs to only a small extent. They do not require much of an initial investment. They usually come with a one-time fee and an ongoing monthly subscription fee. They can be scaled up or down to support your business by merely adjusting the payment plan. The vendor is responsible for providing training and support, as well as carrying regular backups, updates, and maintenance.
– On-Premise ERP Software:
On-premise ERP solutions are hosted on the company’s servers for full control and ownership of the system. These solutions require a certain amount of physical space within the organization. They also need a technical team for carrying out maintenance, troubleshooting, and updates. All of this involves a considerable investment. However, they are ideal for companies that have precise requirements and need a custom-made ERP solution. Also, since data is hosted on the company’s servers, on-premise systems are believed to be extremely secure.
– Hybrid ERP Software:
These ERP solutions are designed to obtain the best of both worlds. They host a portion of the applications on the company’s servers while some are hosted on the cloud. Mid-sized organizations typically favor them because they have more room for customizations and offer an increased security level. While they do require a considerable investment, they do not cost as much as on-premise solutions.
– ERP Software for Large Organizations:
These ERP solutions come with a vast number of features and designed to solve the most complex business problems. They are typically deployed as on-premise solutions. They are best suited for businesses that register a turnover in billions of dollars, a considerable workforce and operations spread across various locations worldwide, and adequate resources to provide for an IT infrastructure to manage and maintain these ERP solutions. To obtain an ROI from such ERP solutions, they must be used frequently by a large number of users and must process vast amounts of data.
– ERP Software for Small and Medium-Sized Organizations:
ERP solutions for small and mid-sized businesses do not come with as many features as ERP solutions for large enterprises. In this way, smaller companies do not end up paying for features that they do not need. ERP solutions for smaller organizations also cost much less as they are usually offered as cloud-based or hybrid solutions. They are specifically designed for companies with a small workforce and a limited number of users. Since small businesses tend to undergo rapid growth and run the risk of outgrowing systems quickly, cloud-based/hybrid ERP systems work to their advantage since they are easily scalable.
Which Industries Can Use ERP Solutions?
ERP solutions were initially developed for the manufacturing industry. However, today, they have evolved into highly sophisticated systems that can find application in most industries. Here are some of the common industries that use ERP software to help them manage information, projects, their daily activities, and overcome day-to-day complications that come with the business territory:
– Hospitality
– Healthcare/Pharma/Life Sciences
– Construction
– IT/ITES
– Electronics
– Automobiles
– Agriculture, Farming and Agri-Based Businesses
– Industrial Machinery and Spare Parts
– Food and Beverage
– Retail and Consumer Goods
– Manufacturing
– Logistics
– Defense and Aerospace
This list is not exhaustive. Modern ERP solutions can cater to almost any kind of business, regardless of industry.
Determining the Need for An ERP Solution for Your Business:
While any business can benefit from an ERP solution, here are some tell-tale signs that your business needs an effective ERP software system:
If you have an existing ERP system, here are some indications that you need to consider replacing it if-
- You find that the current ERP system is not efficient. It does not add much value to your business, and you regularly run into bottlenecks when you use it.
- The ERP system can no longer handle the growth of your business.
- The current ERP software does not meet your security needs.
- It has become technologically obsolete, and your IT team is spending too much time fixing and updating your legacy systems to grow with your business. It also does not support new technology such as artificial intelligence (AI), machine learning, and the Internet of Things (IoT).
On the other hand, if your company does not use an ERP system, you should begin by evaluating what is broken in your current processes to build a solid case for an ERP solution:
- Your day-to-day operations are paper-based, time-consuming, and labor-intensive.
- You are entering data and managing it manually using separate spreadsheets/documents and programs.
- You regularly find errors, discrepancies, and inconsistencies in data and reports, and such information is not readily available to you.
- You have lost sales or customers due to erroneous/mishandled data or lack of inventory.
- You are facing difficulties with managing finance and budgets, as well as bills, invoices, and cash flow.
- You are using too many standalone systems.
- Your business deals with sensitive information that can be misused.
How Does ERP Solve Business Challenges?
Here are some illustrations of how ERP software products can help businesses overcome some of the challenges we have discussed:
– Manual Data Entry:
Manual data entry can be time-consuming and prone to errors. Entering and re-entering data in spreadsheets, invoices, estimates, etc. increases the chances of manual errors and takes a long time to prepare. Still, it also increases the risk of the data falling into the wrong hands. When information is entered into a particular ERP system module, it is shared across all the other ERP system modules. Want to know about Essential ERP Skills Required for ERP Professionals.
For example, if an employee resigns from the job, the HR team updates the employee exit details on the ERP system. The payroll and accounts team receives updates so that they can make changes in the upcoming payroll cycle. The IT team receives notification so that they can plan to retrieve company assets and disable company accounts on the last working day of the employee. Everyone gets the same information as soon as it is entered into the system. An ERP system eliminates much human intervention, saves time, and reduces the scope of errors and duplicate entries.
– Standalone Systems:
When you do not use an integrated ERP system and rely on standalone systems, there are bound to be miscommunications or, worse, a lack of timely communication between the systems. It is common for growing businesses to use individual systems for their respective departments instead of one common platform.
The risk with standalone systems is that information remains restricted to a particular department. If the information is not made available to other departments correctly and on time, it can cause unnecessary disruptions in your service, and you may even risk losing a customer. For example, an order gets delayed because the sales team was not aware of a shortage of a particular product in the warehouse. ERP software solutions integrate multiple software onto a standard dashboard so that all departments have adequate real-time visibility.
– Global Operations and Compliance Issues:
Managing global operations can be extremely complicated. It involves managing compliance with regional statutory laws and regulations, international customer and vendor relationships, and keeping track of each location’s performance. Different time zones, languages, and currencies further complicate the situation. However, many of these challenges can be handled if all your offices worldwide use the same ERP suite.
Most ERP solutions are designed for large organizations with a global presence. They take into account specific customizations that may be required based on local requirements while also consolidating data from all the locations with headquarter systems. They can also factor in local tax and regulatory compliance requirements while offering multi-lingual and multi-currency support.
– Poor Data Access:
It is challenging to obtain real-time, accurate information with a manual process. An ERP system can produce reports based on the most current information. ERP systems act as a universal source of truth for all the data within the organization. ERP systems also allow access to data anytime and anywhere, as opposed to within office hours only. Some of them even come with mobile apps to enable access to the data from more than one device.
Lack of timely access to data can slow down the decision-making process and result in missed opportunities. An ERP system can ensure quick and sound decision-making based on the most recent, accurate data.
– Sub-optimal Workforce Utilization:
Manual processes can quickly overburden employees with drab, repetitive tasks, which can eventually cause them to feel overworked and unfulfilled. They can also distract employees from more strategic business activities that they may be better skilled to handle. ERP systems automate recurring, manual tasks to a large extent and can save your workforce much time and effort to enable them to concentrate on more substantial business goals.
The reporting and analytical features of ERP systems can help you forecast your human resources requirements correctly so that you do not risk over-utilizing or underutilizing your workforce and have enough staff on board to meet your business objectives.
– Process Inconsistencies:
A universal system introduces much standardization to processes as well as procedures. Disparate or manual systems do not necessarily follow a fixed template, which can lead to miscommunication and ambiguity. When all the departments within the same organization use the same data and share information in the same format, it creates an enduring framework that consistently supports your organization even years down the line. Processes become less dependent on specific employees. An ERP system enforces a standard operating procedure that remains unaffected to a large extent if an existing employee leaves or a new employee joins the network.
– Communication Challenges:
Communication is central to smooth business operations. Communication gaps can disrupt operations and cost your business slowly. If you have to rely on another employee to obtain information, you will sooner or later find yourself when that employee is unavailable to provide you with that information exactly when you need it. An ERP system ensures that everyone has all the information they need on a real-time basis. Anyone who is authorized to access specific information can easily do so without depending on one particular employee.
– Managing Customer Data:
Nowadays, it does not matter when you are a small business or a full-fledged corporation. Customers have come to expect a certain standard or customer experience and personalization. Having as much information as intel about your customer and their history with your organization also makes it possible to gain valuable insights about your products and services. It can also go a long way in securing a loyal customer base.
It is often mainly the salesperson who has dealt with a customer in close quarters, who has all the essential information regarding the customer, which creates a dangerous dependency. An ERP system ensures that you have a complete record of a customer’s information, including contact details, order history, feedback, issues, etc. so that any member of your team can offer a personalized service to the customer.
– Financial Mismanagement:
Finance management can be extremely tricky, and it is a skill that one cannot learn overnight. However, businesses cannot afford to lose sight of their money and how they are using it at any given point in time. Lack of cash flow can sink a business more quickly than anything else. Companies must be able to budget and forecast their finances correctly to remain profitable.
An ERP solution can simplify finance management. It can keep track and account for all incoming and outgoing payments as well as production and delivery expenses. They can ensure a healthy cash flow by providing that bills are issued, and payments are received on time. ERP systems can also support multiple currencies, making it much easier to manage money when you have global operations. Insightful reports can ensure that you have budgeted and forecasted your finances correctly and that you remain within your budget.
– Issues in Managing Inventory Levels:
Having too much inventory can affect your cash flow, and not having enough stock can delay order fulfillment and upset customers. Maintaining optimal inventory levels ensures that you can meet the demand for your product successfully. Many things complicate inventory management- managing many vendors and suppliers at a time, factoring in lead times, and ensuring that orders are placed on time.
ERP systems can help manufacturers determine suitable inventory levels and facilitate effective production planning. If there is a lack of inventory, ERP systems will bring that to the attention of all those concerned immediately so that it can be ordered without delay. Products that cannot be manufactured become unavailable for order requests. ERP systems can also help organizations review usage patterns and rule out any chances of misuse.
Additional Benefits of ERP Systems:
While the significant benefits of ERP systems are apparent from the ways ERP solutions can help businesses overcome the challenges they face, let’s take a look at some more advantages that they bring to the table:
– Cost-Savings:
The increased productivity and efficiency resulting from process automation and integration can help you extract the maximum ROI from your resources.
– Risk Management:
Data is stored securely. Human intervention in data management is minimized, and the scope of errors is reduced. Intelligent business insights obtained from reports ensure accurate budgeting and forecasting.
– Enhance Collaborative Efforts:
A universal system ensures that everyone is on the same page and has all the information they need to help each other overcome blockers in day-to-day activities.
– Scalability:
It is much easier to scale a universal system to meet the growing needs of a business as opposed to manual or multiple standalone systems.
– Better Vendor/Internal/External Customer Relationships:
Having all the data at your disposal helps you gain context and resolve queries, issues, and misunderstandings much more quickly and effectively.
Selecting the Best ERP Solution to Overcome Business Challenges:
There is no shortage of ERP solutions in the market. However, only the right fit can help you manage the challenges you face in your business. Here are some things you must bear in mind to find an ERP system that will be the best fit for your organization:
- Does the ERP software have all the modules and features you need?
- Is it compatible with your existing technology stack?
- What do the product reviews and ratings indicate?
- What is the extent of training and support that the vendor will provide?
- Who will back up and maintain the system?
One of the most critical factors determining the success of an ERP system is that it is adopted wholeheartedly across the organization. Ensure that you involve people who are meant to use the system in the selection process.
Conclusion:
Business and risk go hand in hand. To ensure the survival and growth of your business, you cannot ignore the various challenges that come its way. ERP solutions are a universal solution to the most common problems in business.
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