What is ERP and how does it work?
Among so many essential tools for modern business management, the Integrated Business Management System, known as ERP (Enterprise Resource Planning), stands out as the right arm of any entrepreneur. Designed to integrate and optimize internal processes, this system has revolutionized the way organizations operate and manage their resources.
In addition to aligned and interconnected communication, the ERP System is capable of giving the company autonomy to resolve crises and to carry out daily tasks, integrating information and relieving the flow of activities.
To understand more about what ERP is, let's explore how it appeared, how it works, its importance, and steps for its implementation. Keep reading!
ERP: what is it?
The ERP (Enterprise Resource Planning) System works as a business management system capable of assisting in the internal functioning of a company, in order to guarantee the automation of originally manual activities.
It is an essential tool for the effective management of a company, as it centralizes and organizes crucial information in a single system accessible to all sectors. Its usefulness is focused on optimizing an enterprise to always achieve its exponential growth.
This system integrates various operational and administrative aspects of the company, such as finance, accounting, human resources, purchases, inventory, production, sales, distribution, logistics, among others. The idea is to provide a holistic and real-time view of all business processes, allowing for more informed and strategic decision-making.
The modules within an ERP may vary depending on the solution and the company, but generally include:
- Accounting and finance: account management, balance sheets, financial statements, cash control, accounts payable and receivable.
- Human Resources: employee management, payroll, benefits, recruitment, training, and performance evaluation.
- Supply chain: purchasing management, inventory, suppliers, production and distribution.
- Sales and marketing: sales control, orders, customer relationship management (CRM) and sales analysis.
- production: production planning and control, operations and quality management.
- Projects: project management, from planning to execution and monitoring.
- Quality Management: quality control, quality assurance standards and procedures.
How does an ERP system work?
To understand the functionality of the ERP, it is necessary to delve into the technical part that encompasses this subject. As we said, the main purpose of ERP is to organize a company's information, helping each department to carry out daily task fronts through its functionalities.
In practice, each department and each employee can enter into the ERP the activities related to business management that they carry out the most in their daily lives. The ERP centralizes all operational and administrative data and processes in a single system, integrating modules from each specific function (financial, human resources, inventory, etc.) and sharing in a central database.
In this way, it is possible for different departments to access and update information in real time.
How did the ERP system appear?
The ERP system is rooted in the need for automation and integration of business processes. Its evolution over time is strongly linked to the advancement of information technology and changes in business management practices.
The history of ERP begins in 1960, when organizations began using computer systems to automate business functions, such as accounting and payroll. However, these systems were independent, did not communicate with each other, and were often specific to a single function.
With the advancement of information technology and more powerful computers, there was a need to integrate different business systems to improve efficiency and communication. Companies realized that integrating information and processes, such as finance, inventory, and sales, could lead to increasingly effective management.
It was in the 1990s that the first modern ERP systems began to appear, largely due to the ease with which companies and individuals began to acquire microcomputers.
Thus, these systems had solutions based on a client-server architecture and allowed the integration of various business processes into a single database.
From then on, there was a transition to cloud computing and web-based solutions, providing greater flexibility and accessibility, as well as greater adoption and refinement of ERP systems.
What is the importance of the ERP system?
Through ERP, companies can improve operational efficiency, reduce costs, optimize processes, standardize procedures, and facilitate the flow of information between different departments. This results in a greater capacity to adapt to market changes and, consequently, in a competitive advantage.
ERP also works as an important tool for Business intelligence, a set of techniques that assist in decision-making within business segments. This is because the systems offer tools for analyzing data and generating detailed reports. These analyses aid in evaluating company performance, identifying trends, forecasting demands, and making strategic decisions.
What are the advantages of the ERP system?
The ERP system is a dynamic tool that offers flexibility and scalability, allowing organizations to easily adapt to changes in operations and market demands. Check out some of the main advantages of using an ERP system in your business:
Internal management assistance
The ERP system offers valuable assistance for the internal management of organizations. By centralizing data and processes in a single integrated system, it provides managers with a complete and consolidated view of the company's operations. This improved visibility allows for more effective and informed management, facilitating strategic decision-making.
Deadline control
Deadline control is a vital part of business management, and the ERP system plays a crucial role in facilitating effective monitoring and management of deadlines related to various operations.
ERP allows teams to schedule and track tasks and projects, setting deadlines for each stage of the process, sending automatic alerts about impending deadlines, and allowing activities to be monitored in real time.
Automating tasks and increasing productivity
In addition to integrating processes and improving operational efficiency, ERP contributes significantly to increasing productivity within the organization. By automating manual and repetitive tasks, employees have more time to focus on higher value-added activities. In addition, automation helps reduce errors, improve efficiency, and free up time for more strategic activities.
Standardizing processes through ERP also allows teams to work in a more coordinated and effective manner, avoiding duplication of efforts and ensuring a more efficient allocation of resources and skills.
Reducing risks
By integrating and automating processes, the system helps minimize human errors and communication failures that can lead to financial losses or non-compliant actions. The improved visibility of business processes and transactions also allows for more effective oversight and early identification of any potential problems, also aiding in adherence to industry regulations and standards and reducing risks associated with non-compliance.
How does an integrated system contribute to information security?
Implementing an ERP system improves information quality and security. With a single centralized repository for critical business data, the consistency and accuracy of information are vastly improved. The data is updated in real time and the analyses are based on accurate and up-to-date information, providing a more accurate view of company performance.
In addition, the security features integrated with the ERP ensure that only authorized users have access to information, protecting business data against unauthorized access and possible security breaches.
Types of ERP
In today's market, it is possible to find a wide variety of ERP types, which offer a range of solutions to meet the different needs and growth stages of companies.
These types can be categorized based on the form of implementation, complexity, sector of activity, and customization, providing organizations with options ranging from traditional legacy ERPs to modern and specialized cloud systems. Below, we highlight the main types of ERP, exploring their features and benefits.
ERP Desktop
Desktop ERPs, also known as Legacy ERPs, represent the most traditional systems. They were developed before the popularization of the internet and require local installation on each computer that wishes to access the software, that is, they have limited access and use locally. These systems were widely used at a time when cloud computing was not predominant.
ERP with own development or by regional microenterprise
In this case, the company recruits programmers to create a customized system that meets their specific needs, or hires a regional microenterprise to customize an existing system.
This type of ERP allows a completely customized solution according to the company's needs, but it risks replicating existing functionalities in other systems, generating additional cost without being necessary.
An ERP customized for a specific company may also struggle to keep up to date and in compliance with regulatory changes.
Plastered cloud ERP
Plastered Cloud ERP Systems are simplified solutions hosted in the cloud, with standardized functionalities and affordable prices. They are suitable for start-up companies with simple and limited operations.
Generally, this type of ERP has standardized and limited functionality to serve a wide spectrum of small businesses, offering an economic option for microentrepreneurs and early-stage companies.
Because they are plastered, they do not allow many customizations to meet specific needs.
Specialized cloud ERP
This is a system specialized in specific sectors and hosted in the cloud, offering advanced functionality to meet the unique needs of certain sectors and maintaining an affordable investment for small businesses.
As they are designed for specific sectors, they are able to offer improved functionality for the operations of the sector they serve and allow customizations to embrace more complex processes within this sector.
Large-scale cloud ERP
Large-scale cloud ERP systems are robust and complete solutions designed for large companies and multinational corporations. They are complex, up-to-date and offer a wide range of modules and plugins to meet different business processes and needs.
This type of ERP offers a wide range of functionalities for managing complex business operations, and normally requires a significant investment in terms of licenses, training, and maintenance.
Differences between local ERP system and on-cloud ERP
ERP systems can be implemented in two different ways: local (on-premises) or in the cloud (on-cloud). Each approach has unique characteristics that can influence the choice of an organization, depending on its needs and preferences regarding costs, customization, accessibility, security, and scalability.
Local ERP system
The local ERP system is linked to the presence of a physical infrastructure, requiring installation on the servers and in the company's own structure. Because of this, the company itself assumes responsibility for the maintenance, updates, and security of this infrastructure. In this case, the costs encompass both the purchase of software licenses and infrastructure, in addition to ongoing expenses related to maintenance and technical support.
One of the advantages of this system is the greater flexibility for customization, meeting the specific needs of the organization and providing total control over the system and the data. However, it is worth mentioning that access to the system is restricted to the company's internal network or requires a VPN connection, which may limit accessibility for teams that work remotely or on the move.
As for scalability, it is linked to the capacity of the physical infrastructure, and may require hardware updates to expand the system.
On-cloud ERP system
Unlike the local ERP, the on-cloud ERP system is hosted on remote servers and can be accessed via the internet. This type of installation requires less initial costs compared to the local one, since it is not necessary to purchase physical servers and the entire infrastructure is managed by the cloud service provider.
This allows access to the system from anywhere with an internet connection, promoting convenience and collaboration in a remote work environment and can be used on different devices.
A great advantage of the on-cloud ERP system is the ease of expanding or reducing resources according to needs, without the obligation to invest in more infrastructure. This allows for agile scalability, adapted to business growth.
When it comes to customization, however, the on-cloud ERP may be a bit more limited than the local one, since the system prioritizes standardization to facilitate updates to the infrastructure and software
ERP for SMEs vs ERP for large companies
When choosing an ERP system, it is necessary to pay attention to the complexity and specific operational needs of the company, in order to ensure that the chosen system is appropriate to the size and growth stage of the business.
These are some key aspects to consider when understanding whether an ERP is ideal for small and medium-sized businesses (SMEs) or if it meets the operations of a large organization.
Scope and complexity
While the scope of ERP functionalities for SMEs is more simplified and focused on essential operations, for large companies the systems need a certain complexity to be able to manage operations in various areas.
In the same way, larger companies also require their systems to have a more flexible customization, with the possibility of adapting to the highly specialized and unique processes of large corporations.
Cost
For large companies, the initial investment is substantial due to the extensive functionality and customizations required, in addition to extensive training.
For SMEs, on the other hand, the cost of acquiring and implementing an ERP is more affordable, in line with the budget of small and medium-sized companies.
Speed of implementation
In small and medium-sized companies, the implementation of ERPs is faster, aimed at allowing the company to start reaping the benefits of the system as soon as possible.
For large companies, on the other hand, implementation needs to be strategically planned and may take longer due to complexity and the need to align the system with existing processes.
Support and training
Because of its greater complexity, the ERP system that serves a large company normally requires extensive training, aimed at empowering users to fully explore the range of ERP functionalities to optimize operational efficiency.
While in SMEs, ERP providers already offer targeted support and training to help utilize the system with its limited resources effectively.
What are the stages of implementing ERP software?
It is important that the deployment of ERP software be a smooth and effective process. Here are some of the steps that can help with this transition:
- Initial planning: evaluate existing business processes and identify the needs that the ERP must meet.
- Budget and resource assessment: estimate the costs, budget allocation, and resources required for successful implementation.
- Search for suppliers: make a selection of ERP suppliers that meet the needs of your organization, also evaluating the customization capacity of the ERP.
- Testing and validation: starting from an initial configuration, verify that the ERP precisely meets the company's processes and verify that each part of the system works individually and in an integrated way.
- Training and empowerment: provide training to users on how to use the system; and to IT staff or administrators on how to manage it.
- Implementation and migration: transfer the data from the old system to the new ERP, in order to carry out a gradual or total implementation, depending on the strategy adopted.
- Review and continuous improvement: vest feedbacks and perform post-deployment performance evaluations to ensure that objectives are achieved and that necessary adjustments are made.
Digital solutions in business innovation
The successful implementation of an Integrated Business Management System (ERP) represents a crucial impetus for innovation and sustainable growth in the modern business environment.
In line with the digital evolution that transforms the way companies operate, ERP is one of several solutions that optimize the operational routine of organizations, allowing more time and resources to focus on growth strategies, product innovation, market expansion, and improvement of the customer experience.
This is the case, for example, of the electronic signature, which brings an additional dimension of efficiency and security to the business management process. By eliminating the need for physical signatures and paperwork, this feature considerably speeds up transactions and approvals, simplifying operations.
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