By helloDarwin
December 19, 2023
What is ERP and how does it work?
Retailers that can stabilize their supply chains and operating procedures will be in a better position to adapt to whatever disruptions the future might bring. This means working to improve efficiency and responsiveness across channels. One of the best ways to do that? Put your company’s data to work.
Today’s e-commerce companies have access to more data than ever before. There are many ways to leverage this data for competitive advantage and profit, from supply chain improvements to new revenue streams to market demand forecasts. But how can your business centralize and make sense of this data? With enterprise resource planning.
Get caught up on the latest e-commerce trends and optimization tips with our recent articles on omnichannel retail and social commerce. Or, read on to learn the basics of ERP and the benefits they can bring to your business.
What does ERP stand for? ERP software defined
Enterprise resource planning (ERP) refers to the software and systems that a business uses to manage day-to-day activities and automate business processes. ERP ties together a multitude of data sources and departments—such as supply chain, sales, accounting, manufacturing, and procurement—and enables the flow of data between them.
The idea behind ERP is to help organizations become more agile and efficient, and make data-driven decisions that result in better business outcomes. By compiling all this information in a central location, ERP systems give business owners greater visibility and access to real-time data, anytime, anywhere.
You can use an ERP system to:
- Collect business process information in real time
- Track manufacturing and supply chains
- Manage benefits, payroll, and employee information
- Create organization-wide strategies
These systems continue to evolve and incorporate new technologies in order to support a range of functions. But the goal remains the same: improve business processes and increase profitability.
ERP vs CRM: What's the difference?
An ERP system is similar to a CRM system in the sense that they both collect and standardize data and improve efficiencies in business processes. However, they each serve a very different purpose.
A customer relationship management (CRM) system records and stores every piece of information regarding your customer interactions. For example, a member of the outbound sales team might enter new information such as contact details after having a call with a prospect. Then, someone in marketing might use that information to tailor a new, personalized newsletter.
ERP software is also designed to streamline business operations, but an ERP system focuses on reducing costs by making business processes more efficient. The fundamental difference between ERP and CRM is that CRM primarily focuses on sales and customer service, while ERP is integrated and implemented across multiple departments.
The reality is that both CRMs and ERPs serve as vital data repositories that can be used to increase the overall profitability of your business. These systems overlap in some areas, and while they’re sometimes built on the same platform, the software is often bought separately and integrated when needed.
Benefits of ERP
So how does an ERP help you make sense of your company’s data?
Think of your business activities as the components of a car’s engine. Being able to look under the hood can help you make decisions about preventative maintenance and improvements before you wind up in the shop with a broken transmission. An ERP provides a centralized data system that gives you this needed visibility.
However, if your online storefront is not integrated with an ERP system, it’s harder to “look under the hood” because key types of data, such as shipping/tracking, inventory, customer details, and fulfillment, are all linked to independent systems that don’t necessarily communicate with one another.
According to Accenture’s 2020 ERP report, nearly 40% of chief information officers (CIO) say it’s not easy for them to access company and customer data for business decision making.
Image source: "Turning Intelligence Into Value: 2020 ERP Trends", Accenture
ERP systems help solve this problem by consolidating and synchronizing the software you use throughout your business, allowing you to access store data in one central location and track key performance indicators (KPIs) in real time.
ERP integration also eliminates the risk of data duplication and ensures data integrity by creating a single source of truth. That translates to improved organizational alignment and better productivity as people spend less time digging for needed data.
ERP software can help save you money by:
- Reducing operational data entry costs
- Increasing supply chain efficiency
- Streamlining cross-departmental collaboration
- Providing smarter business intelligence
By creating a single source of truth in your business, ERP gives you access to real-time insights in one place—enabling you to identify patterns and predict trends with more accuracy than would otherwise be possible.
Types of ERP systems
While not usually marketed as such, ERP software can be divided into a few different categories. Understanding what sets these categories of ERP apart as well as what each one can offer will help you understand the current landscape and determine which type of ERP is the best fit for your business.
On-premise ERP solutions
On-premise ERP is when the organization owns the data center. On-premise software can be purchased with a one-time fee through perpetual license and can be hosted internally or externally.
Characteristics of on-premise ERP systems include:
- Installed locally on a company’s computers and servers
- The business is responsible for hosting, maintenance, software updates, and operational costs
- Data security is the company’s responsibility
- Some systems require customization, making it difficult to make changes
- Can take months or years to deploy
Most legacy systems are considered on-premise, and it’s still a recommended practice for large enterprises to use on-premise ERP because they have the money and resources to manage maintenance and infrastructure changes.
Cloud ERP software
Similar to other technologies, the past few years have seen a shift from on-premise software to cloud software, which is hosted in data centers with providers managing the platform. Cloud ERP systems are accessed over the internet instead of a local computer or installed software, and they typically use a subscription pricing model.
Characteristics of cloud ERP systems include:
- Hosted in the cloud and can be deployed as a hosted model or software as a service (SaaS)
- Comes with all hosting, server, maintenance, and software updates
- Data security is the cloud vendor’s responsibility
- Easy to integrate with third-party systems and quick to make changes
- Faster deployment times and scalable as needed
With a cloud ERP system, you can access your company’s data anywhere, anytime, and from any device. Even better, a cloud ERP can cost up to 46% less than a comparable on-premise solution.
Two-tier ERP systems
It used to be that companies would deploy one ERP system for their entire organization, from regional offices to HQ. But this one-size-fits-all approach can be costly and difficult to implement, making it far from ideal for many businesses today.
Two-tier ERP systems offer a potential solution by letting organizations use their current legacy ERP systems (tier 1) while smaller business units use a different, often cloud-based ERP solution (tier 2). To meet this need, several cloud solutions now have built-in integrations to work with corporate ERP systems and ensure data moves between the two tiers safely and efficiently.
At the end of the day, choosing the right product and vendor depends on understanding your business’s unique needs and operating procedures. Every company is different, but an ERP system can help address common issues that most organizations face at one point or another. ERPs an invaluable tool to help you enhance operational efficiency and better prepare for the next curveball to come your way.
Related Tags
ERP
E-commerce
Management software
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