What Is Erp and What Does It Do 1
Technology

What is ERP?

Introduction

The evolution of technology, the heating — or the slowdown — the economy, the increase in the supply of credit and reach new markets are among the factors that increase significantly the competitiveness of enterprises. To continue growing, all companies need to have management appropriate resources, data and processes. One of the ways to do this it is the adoption of solutions of ERP (Enterprise Resource Planning), that is, systems business management.

But, what is ERP, exactly? How type systems can help the business? Companies of all sizes can use ERP? In this text, I, Emerson Rosemary, I answer these and other questions describing the concept of ERP, pointing out the advantages and disadvantages these systems and giving other explanations about the subject, everything in a language easy to understand.

Let’s get started?

What is ERP?

Imagine that you have a company account with multiple systems, one to deal with accounts payable, to payroll, one for sales control, one to manage tax, a to analyze goals and performance, and so on. Instead of using a lot of software-isolated, one for each department of the company, would it not be more efficient to count with an integration between them, so that everyone did part of a unified system? This is precisely what an ERP solution offers.

With a single system integrating all the departments — or at least the most important — communication internal becomes easier and less costly. The department financial, for example, you can quickly know how much money be intended for the discharge of taxes and how much direct payment of employees, according to the information that the human resources sector (HR) to make available in the system.

In the same way, the chief of a particular department can evaluate the performance of an employee and to discuss with the manager of HR how much the company can offer you increase. Already the department marketing, referring to the sales control, you can identify a product that are not having good output and develop a new strategy to revert the frame, at the same time that checks to see if the money available is enough for this work.

Note, with these examples, that there are various circumstances the integration of the systems shows to be advantageous. Notice still that, with separate systems, each sector would have more difficulty to to communicate with others. This results in less productivity, more costs and up in a loss of competitiveness.

In addition, without an ERP system, the company has to deal with many suppliers software, which increases costs of licenses, technical support, servers, training, etc.

You must have already perceived, therefore, how important management systems can be for businesses: lowering costs, make communication more efficient, help in making decisions, allow for a calculation more accurate than is happening in the company, anyway. Not in the least many companies consider this kind of must have software to their activities.

 

Implementation of ERP systems

Despite the advantages, ERP is not always the kind of software that can be purchased on the shelf a shop to be installed on a computer, and then be ready to use. Each company, in view of their activities and operational strategies, it has distinct needs, therefore, ERP systems will only be functional if at least the most important features of the company are taken into account at the time of the choice of the solution.

Just understand that a company that manufactures medicines, for example, has needs very different from another who works in the field of transport. The first need to worry about obtaining raw materials, payment of licenses, patents, research laboratories, etc. The second, in turn, need to worry about the age of the fleet, with expenses of fuel, tolls and so on.

A company can also operate in more than one branch activity or to carry out operations in several states of the country, so as to be conditioned to pay different taxes at each location, for example. Anyway, as you can see, each company needs to have a management system that suits it.

In to control expenses, the company also needs to define which type of licensing is most appropriate to their operations: installation of the system on your own servers or virtualized, use system in third-party servers (usually offered by the provider of the solution), the solution is based on computing in the clouds (cloud computing), payment by the user (or by computer access), a mixture of one or more of these modalities, ultimately.

Solutions based on cloud computing tend to have cost less, because the company does not need to worry about servers, maintaining, updating, etc. In addition additionally, this modality provides easier access for users who are outside the premises of the company — a seller that is in another city, visiting a client, for example.

On the other hand, ERP systems in the clouds can generate higher costs over the long term, since, in general, this type of license requires periodic payment, as if it were a signature. Is that in the long term this periodic payment will compensate? This is an example of questioning that needs to be done at the time of adoption.

Note that it is important to the company to review the solutions ERP available in the market and the modalities of licensing offered by each one to know which option is most appropriate to its activities.If the company does not have a team of Information Technology (IT) able to do this analysis, it may be worthwhile to search for a consulting service.

The implementation time is also a parameter important. ERP systems do not begin working the night for the day, depending on the size of the company. Many times, the providers of the solutions need time to adapt the software to the business and, in the process, should evaluate the infrastructure, consider the features of security, for testing, train staff, integrate departments, migrate legacy systems, etc.

We have to also take into account that, in many cases, the implementation of the ERP occurs in steps, so that certain modules of the system can be installed only after this process has been completed with the other. If the company is great, the implementation of an ERP can consume several weeks or even months.

Modules of an ERP system

As I said at the beginning of the text, ERP systems deal with the various departments of a company. However, these software does not need, necessarily, to cover each sector, at least not at the same time. Depending on the expectations of the company regarding the ERP, it is possible to meet certain areas in a first moment and the rest of the way progressive. For this, the providers make the supply of the system in modules, which are divided according to their features.

As you already know, there is not a system of ERP one, and that, by itself, meets all that is company. It is necessary to customize the solution according to the company’s activities. On the other hand, there are certain processes which are quite common in all or in greater parts of the companies, even for the sake of legislation. Here are some categories of modules that fit in this context:

  • Financial;
  • Accounting;
  • Human resources;
  • Fixed asset;
  • Processes;
  • Engineering;
  • Projects;
  • Legal.

From there, we can find modules more specific, adopted to a greater or lesser scale, and only if they are in compliance with the the company’s activities, for example:

  • Stock;
  • Distribution of products;
  • Fleet;
  • Foreign trade;
  • Knowledge management;
  • Recruitment and selection;
  • Control of materials;
  • Quality control;
  • Signing of contracts;
  • Commercial automation;
  • Risk analysis;
  • The front of the store;
  • E-commerce;
  • Industrial maintenance.

Note that not every company needs to manage the fleet or in dealing with automation commercial, for example. The advantage of the scheme of modules is precisely there. The company may only implement those that you are useful, and can add another with the time, motivated by the expansion of the business, by acting in a new thread market, ultimately.

 

Choosing an ERP solution

You must have already perceived that an ERP system is a serious investment that needs to be done with care. But, how to choose a solution with so many options in the market? In Brazil alone, there are several companies specialized in ERP with good acceptance. Here are the most known:

  • SAP;
  • TOTVS;
  • Microsoft Dynamics;
  • Oracle;
  • IBM (this is usually to sign partnerships with other companies in the industry).

And yet there are smaller companies such as StarSoft, Cigam and Senior.

How do you know which is the best for a particular business? Will consider only the price is enough?It is worth to trust in a solution that is less well known? The the truth is that there is no formula that serves to all of the companies, but I have several tips that can help in the most appropriate choice.

The first is to understand exactly what the needs of the company in relation to the ERP to then define what is priority. This analysis indicates a path to follow. For this, it may be necessary to hold meetings with managers of the sectors, with employees who perform functions more critical,anyway.

After that, it becomes easier to analyze the solutions offered by ERP vendors. At this point, it is necessary to evaluate the proposals made by each company for in the first place, identify the ones that may well meet the identified needs. It is also important to check which of these providers have experience in the provision of software to the branch of the company.

As the ERP system needs to be “molded” to the company, it is important to know which technologies the vendor it offers to its solutions. With this, it is possible to to have a clearer notion of costs with servers, update, training, etc.

In this sense, it is also interesting to analyze the capacity of integration and communication system, the possibility of implementing of modules in the future, the security features, compatibility with different platforms (mobile devices, for example) and so on.

Has more. It is very important to check what the conditions support and maintenance offered by providers. The software surely will need updates over time for the correction of errors, improvements, processes, adaptation to new needs (implementation a new rule for the tax, for example), adjustments, security, anyway. Not to mention that certain circumstances may require aid of the vendor, for example: a given user may need support to have access to a relationship data to be submitted for external audit.

Price, of course, is also an important aspect to be considered, but it is a mistake to accept just the solution cheaper or believe that the more expensive option, just by being in this condition, it will supply all the needs of the company. As reported previously, there are several ways licensing, being essential to analyze with accuracy what is more appropriate to the business. One should also consider that there are other costs trailers, as a plan of support and maintenance (which may have the annual renewal, for example), implementation, infrastructure, etc.

We have to consider that many companies developing ERP software working with companies that act as intermediadoras with customers, as if they were dealers. However, these partners can deal not only with sales but also with other processes, such as support and implementation. The division Dynamics, from Microsoft, is one of the suppliers that exploit successfully this model.

As a final tip, it may be a good idea to initiate contact with companies who are already using solutions from vendors who have presented proposals to your company. This initiative can help you assess the aspects of performance, maintenance, support, training and so on. But it is important to note that if a system of ERP worked in a particular company, does not mean that you will have the same success in the company that you represent, even when both operate in the same branch of activity — remember that every business is unique.

 

The main advantages and disadvantages of ERP systems

You already know that ERP systems can represent a differential significant in the daily lives of companies. However, it is important to keep in mind that this type of software will not solve all the problems of the company and, often, may not offer the expected results for certain activities.

For this reason, it is important to know the advantages and disadvantages of ERP systems. This helps not only in choose the software most suitable, as it also becomes more clear the risks tied to the implementation. Note that this it is an analysis that depends on the goals of the company, but, as a rule, I can say that the ERP systems are able to:

  • Assist in internal communication;
  • To expedite the execution of internal processes;
  • Decrease the amount of internal processes;
  • To avoid errors in calculations of taxes and payments, for example;
  • Help in making decisions;
  • Assist in the preparation of operational strategies;
  • Streamline the retrieval of data for certain scenarios;
  • Decrease the time of delivery of the product or service to the customer;
  • To help deal with large volumes of information;
  • To avoid duplicate work;
  • To make the company adapt to market changes or legislation.

As possible disadvantages, we have:

  • The high cost of customization and implementation;
  • Implementation time-consuming — a software ERP is not ready for use in the evening to the day;
  • Risk of loss or decline of performance with unexpected errors of the system;
  • Possible issues with support and maintenance if the vendor of the software to be sold or shut down their activities;
  • Dependency, which can hinder the activities of the company when the system is, for some reason, unavailable;
  • Adaptation and training on the part of employees it can take longer than expected;
  • Resistance to new on the part of employees, in the case of implementations or updates;
  • The system may require changes in certain aspects of the culture the internal of the company;
  • You can-if you realize belatedly that this solution does not provides the benefit-cost ratio expected;
  • Over time, updates and additions modules can make the system overly complex or slow.

It is clear that it is possible to apply efforts to ensure that the benefits take the form and the disadvantages are mitigated. For this, it is necessary to dedication of the team IT, commitment on the part of the entire management structure, tracking the constant of stages of development and implementation, the aforementioned choices of a solution and a vendor appropriate to the needs of the company, analysis of possible internal and external factors that may influence in the design, development a good security policy, and so on.

With respect to the analysis to identify potential problems, we can take as an example the aspect of training: many times, it is necessary to train employees not just so that they know handling the program, but also to be able to identify the purpose what, a procedure that helps to avoid errors and omissions.

 

ROI (Return on Investment — Return on Investment)

The ROI (Return on Investment) is a way for the company to determine the relationship between the value applied on an investment — in in our case, an ERP solution — and the financial gains obtained with this. In other words, with the ROI we know if the implementation the system gave the expected result.

However, this is a measurement subjective, since it is based on estimates. The company must consider a number of factors to make the assessment more appropriate. One of them is the time.

As you already know, in some cases, ERP solutions take months to be implemented. Accompanied by the costs of this phase are expenses related to maintenance, support, training, etc. Therefore, expect the ROI to happen within a short time is often a misconception. Not infrequently, the benefits of using the system will only appear after a considerable period of time of use.

To assess the ROI, the company needs to determine all estimates cost of the system and, essentially, to compare these information with the savings that this provides. For example, the ERP did with the support of the company became more agile, attracting more customers? Internal communication has improved, making the processes faster? The inventory management is more accurate, avoiding waste or delays in production lack of items? Employees are spending less time to perform certain tasks, thus improving productivity? And so forth.

There are several ways to calculate the ROI of a system ERP. If the company does not have a staff trained to do this assessment, you may hire specialized consultants to get aid in this task.

 

ERP for small and medium-sized enterprises (SMES)

ERP is only for large companies, right? In fact, small and medium-sized enterprises (SMES) can also benefit of business management systems. A lot!

Small and medium-sized businesses tend to have a lot of resources limited, therefore, an ERP system can help the company to optimize what is at your disposal. Imagine, for example, a small factory that only have three employees. With an ERP system, the owner can have access easy to the list of customers, open purchase orders, to the the materials that are in stock, the taxes that must be paid for, anyway.

Depending on the business, if the small business owner have that to perform all these tasks by referring to notebooks, spreadsheets, isolated and paper documents, you may lose time, and even make mistakes.

The good news is that there are increasingly more software ERP for the SME segment. By being more simple, these systems can be implemented more quickly. In many cases, not it is necessary to install anything: the service works in the clouds, as a cloud ERP. Today, there are up to options for professionals, such as accountants, lawyers and architects.

Many of these solutions have low cost licensing or monthly fees. Some are even free for certain types of activities.

Finishing

When it comes to ERP, there are often association of the concept with other types of software for the corporate segment, between they, CRM (Customer Relationship Management), BI (Business Intelligence) and SCM (Supply Chain Management). Everyone can act in conjunction with the ERP, including modules of this.

Such as the ERP, these systems are there because they can help the company be more competitive: CRM systems operate in relationship processes with the client; software BI can assist in data analysis and in making decisions; solutions SCM help in the efficient management of the supply chain.

These examples show how great and promising is the market business software, especially if we take into account that the number of connections broadband Internet access is increasing and that there is an offer each more services based on cloud computing, allowing ERP systems and the like to reach a growing number of companies.

This is a scenario good for everybody: for the companies that develop,

because it generates the prospects of business opportunities; to the professionals IT increases the number of slots in the segment; and for customers, because a market crowded results in better products, increasing the chances of the company finding a solution really adequate to your business.

What Is Erp and What Does It Do 1