What is ERP?

ERP stands for Enterprise Resource Planning.

Enterprise Resource Planning systems collect data and financial information from various areas within an organisation, then stores that data centrally on a computer. ERP systems are typically made up of different modules depending on the type of organisation and its’ requirements. For example, a firm of lawyers don’t need a stock control system as naturally they don’t carry any stock but will need to know how much time is being spent on every case that they are dealing with.

ERP systems can integrate the processes between a sales department, accounting department, manufacturing, logistics and stock. As a result, sales management will know what has been sold, know that an invoice can be generated for each sale and the items sold can be checked to see whether it is in stock. This therefore unifies the organisation by enabling various departments to see what is critical to their department but not necessarily within their control.

Types of ERP modules

ERP systems are made up of modules or components. What modules an organisation uses depends on the type of organisation and their requirements. The following are a list of some of the typical modules that may be required:

Financials or Accounting Modules

These include sales and purchase ledgers, nominal or general ledger, cash management and fixed assets.

Supply Chain Management or Logistics

Stock or inventory control, order entry, purchasing, stock explosion, supply chain planning, supplier delivery and commission calculation.

Human Resources

Payroll, training, time & attendance, holidays, benefits and pensions

Self Service

This can be used to allow customers to place orders or, for example, to see what products are in stock.

Business Intelligence

This enables users to generate detailed reports and analysis for example, how an individual team is performing not only in terms of turn-over but margins too. It may also be useful to see which product lines are the most profitable.

Job Costing

The job costing module will allow projects to be monitored for example to manage labour costs, materials required for example used when building a house.

What is the future of ERP?

Most large enterprise companies have an ERP system in place to enable them to monitor and gather vital information on a global basis, such as the volume of sales and invoices generated.
This is a trend that is set to continue but it is gradually filtering down into smaller companies as it allows the same elements and generation of information to allow a company to function more efficiently.

Why ERP?

With an ERP system in place, people in different departments can view the same information about customers, making sure that every single interaction with customers is based on accurate information. It also means that manual processes can be automated to free up people’s time and make internal processes more efficient.

For example, if a particular stock item is sold, the stock level is automatically corrected and another item is ordered to ensure that the company never runs out of important stock. It will, for example, save the salesperson having to ask the logistics department if a certain item is in stock when talking to a customer. This can be replicated across all functions within a company so when an order is received, the process is automatically sent across the various departments and eventually the ordered item is dispatched, delivered and invoiced with no human interaction.

Benefits of using an ERP system

The following outlines some reasons why organisations implement an ERP system.

Management Data

• ERP allows management to gain a clear and accurate understanding of the organisation’s financial position and performance at any time. It can reveal a full profit and loss position, how each business unit is performing in terms of how many sales they have made and what are the best and worst selling items. Management reports can be generated quickly and easily. Many directors’ of companies want to know the current financial position and how well the company is doing on a daily basis.
• ERP enables people to find important financial information in one place rather than having to speak with a number of different departments who are running their own software packages that may be difficult to integrate.
• Reduce stock levels. ERP allows companies to fully understand how many items that are in stock, which ones are the best selling items and what is not selling. As a result, an organisation will not keep too much stock of a product that is not selling. This helps reduce the value of stock it is keeping and prevents perhaps many thousands of pounds worth of stock just sitting on the warehouse shelves!
• Personnel and human resources. Processes such as payroll and working out tax and national insurance can be automated.

Disadvantages and potential pitfalls

1. Training.This is the most vital part of any ERP installation and it can take a great deal of time and expense. The reason for this is that employees have to learn a whole new set of processes and procedures. Unless your employees know how to best use the system, the benefits you anticipate will not be realised.
2. Entering information. The quality of the information entered by people using the system must be 100% accurate otherwise it will impact every part of the organisation. For example, if a person enters wrong information in the warehouse about stock delivered, part numbers or volumes, it will be a lengthy procedure to try and rectify it let alone finding more errors later on. Information can no longer be kept on scraps of paper or inside people’s heads!
3. Customisation. Sometimes it will be necessary to customise or change the software to meet the requirements of an organisation. This again, can be costly and time consuming.
4. Change. People generally don’t like change and this can have a massive impact on a company regardless of size. As a result, some employees may react badly to having to re-learn new processes or change the way that they have been working for years. An ERP system often requires people to change the way they do their jobs.
5. Consultancy. This tends to impact larger companies with more than 250 employees. Consultancy is often required to ensure the smooth running and installation of an ERP project but this can often over-run and more consultancy days need to be purchased. This can impact the cost of the installation and effect how long it will take.
6. Length of implementation. Sometimes, installing a new ERP system can be lengthy simply because of the amount of people and departments it may include to set up the processes in the fist place and then to customise the modules to meet their needs. The more subsidiaries around the world that need to be connected and integrated, the longer the implementation will take.

Four steps to successfully buying an ERP solution

Step one

• Identify the needs of your organisation and the users. It is vital to get the input of all of the users of the proposed system or a representative of each department that it may effect.
• Understand your requirements – this can be achieved by talking with perhaps two or three ERP providers.
• It might be a good idea to test or pilot any system before purchase in order to see how effective it is. It is important that at the very least a demonstration is given of the modules of the ERP system that the organisation will potentially be using and to the relevant personnel.

Step two
         

• Identify the right providers.

• Use Conjungo’s search facility on www.conjungo.com.
• Who has the experience of working a company of the same size and profile as yours?
• Does it have experience of working within the same industry type as your company?  For example, the needs of a lawyer will be completely different than those of a small manufacturing company.
• How many similar installations have they made?
• Ask for references from a couple of similar companies to ensure that the company is capable and reliable.
• Ask to speak with a couple of their customers in order to see what benefits have been gained.
• Get a credit check to ensure that they are financially stable. You can get this directly from the supplier details found from your Conjungo search.

Step three

• Request a proposal from three or four of your preferred suppliers.

Step four

• Select a proposal.

• Who best demonstrates that they understand your business and your requirements?
• Is the solution flexible and scaleable and therefore able to meet future demand? You don’t want to find out later that by investing a little more money now you could save money in the long term.
• Is it cost effective? Does it demonstrate clearly the functional benefits – rather than telling a list of particular features, does the proposal clearly show what the benefits are? There is no point on spending money for system with features that are of no benefit or that you will never use!
• How much will the software licences cost?
• How much will software support cost?
• Can any savings be made by agreeing a multi-year contract for support?
• How will your potential supplier support and maintain your system afterwards?
• How much will this cost?
• What is the other costs for example, consultancy and training. These are frequently under-budgeted but are very important.
• Have you spoken to a couple of your preferred suppliers’ customers?
• Agree on financial terms – you may be required to pay a deposit but do not pay the whole amount in advance of delivery.

Points to remember when installing an ERP system

It is unlikely that you will install an ERP system yourself but by knowing the following steps you will be aware of what the process is, in order to achieve a fully functioning system.

As a simple guide for a small business of, for example, 25 users in one office, the following would be necessary:

1. Depending on the system, you may either have to install the software on the main server and potentially a copy on remote users’ laptops. For example, if you have mobile sales people they may need to access the stock control module in order to see what products are available to sell and at what price.
2. Each department will need to work with your suppliers’ consultants so that that the system meets exactly the requirements of each department e.g. warehouse, HR Department, Payroll etc.
3. Make sure that you have a capable administrator trained, who can add new users and give access to the relevant personnel for the relevant module. Likewise you may want some people to be able to access information but not to make any changes to it. For example, while it may be necessary for sales people to access the stock system, you might not want them to be able to make any changes!
4. If the organisation has someone who is responsible for personnel matters, they should be kept involved with all of the processes and procedures.
5. Only certain senior level personnel should have access to view the all modules as you won’t everyone to be able to see confidential information e.g. payroll records.
6. It is a good idea to run the new ERP and current system (whether manual or computerised) concurrently for at least six months in order to ensure that all processes are captured and that no mistakes are made. It will also capture any potential errors.

Conclusion

Before embarking on purchasing a new ERP solution, it is important to understand exactly what you require and what you hope to achieve by implementing a new system.

Be certain in terms of where and how your organisation will benefit and this will be supported by discussing your requirements with a number of potential suppliers.

You may want to involve your accountants in the process as it is possible that they will have an understanding in certain key areas such as the finance modules.

ERP - FAQ’s

What is ERP?

Enterprise Resource Planning software collates key data such as financial information and the processes of an organisation and stores it centrally on a computer.

It will for example integrate stock or inventory management, sales ledger, purchase ledger (accounting and finance), payroll, manufacturing and human resources to name a few.

Why do I need ERP?

It will allow you and your organisation to be able to quickly access key information and run the organisation far more efficiently.

For example, a sales person can easily check whether an item that a customer wants is in stock and how much it costs. Likewise, the system will automatically generate an invoice once that item has been despatched.
 
What sort of information will it show?

ERP software will generate all sorts of management and financial reports, for example, a profit and loss sheet, a balance sheet, most popular selling products or services and the most (or least) profitable – any key metrics that will help run your business more effectively.

Is it something that I can install myself?

It is possible to install ERP yourself but naturally this will depend on your requirements and numbers of people using it.

It can get quite complicated so you may need to have the support of your supplier to implement it. It is important to get the system set up right from the beginning.
 
How do I find the right supplier to buy from?

Conjungo is a great starting point because it will let you search for a supplier according to your location, company type, size and whether they have the right accreditations. Furthermore, Conjungo is completely unbiased, lists most of the major vendors’ resellers, and it’s free to use.

What’s the downside of installing ERP?

The main potential downside is that unless it is used properly by everyone who has access to it, and it is kept up-to-date, it will not be effective. ERP is only as good as the information within it.

For example, when taking delivery of new stock items, this must be entered accurately into the system otherwise errors will occur. Likewise, if a lawyer is not filling their time sheets correctly, then the incorrect amount will be billed to the client.
 
How do I measure whether the package I’ve purchased is making me money or saving me money?

ERP systems can pay for themselves relatively quickly because it will give you a ‘snapshot’ of how your company is performing at any one time. It will for example, enable you to only keep items in stock that sell well rather than buying items that will rarely sell, or keep too much stock thereby having capital invested when it could be working better elsewhere.

Is ERP easy to use?

Yes - or at least it should be! If it isn’t then people won’t use it. This can be overcome by training but generally speaking, ERP packages are intuitive and easy to learn. The key element is to ensure that everyone is trained to use the elements that they need and that the system is correctly set up.

I have a CRM package – can I get my ERP package to integrate with it?

This depends on which CRM and ERP software that you are using. Some do work together, and some cover both areas within the same package, but it best to qualify this before making a purchase.