What is ERP? Understanding ERP Systems

Enterprise Resource Planning (ERP) is the ability for an organisation to manage the majority of their core business functions, from lead management to finance, within a single platform.

It's about interconnectedness - being able to answer questions by having connected data across the business, such as understanding work availability, material needs, pricing, profitability, and process efficiency.

For manufacturers, enterprise resource planning allows them to answer critical business questions quickly and comprehensively. Do you have enough work? Do you have enough materials to manufacture what you need? Are you setting prices correctly to make a profit? How long are processes taking compared to previous periods?

The interconnected information enables manufacturers to track, compare, and make informed business decisions across different functional areas, providing a holistic view of your operations.

An ERP system is typically made up of core modules covering three main business units: operations, finance, and CRM/sales functionality. Core ERP modules cover:

• Operations: Manages material needs, capacity constraints, staff scheduling, job tracking, and communication about operational processes. Helps track how long jobs take and manage staff skills and availability.
• Finance: Includes Accounts Payable, Accounts Receivable, General Ledger, Payroll (Single Touch Payroll 2 compliant), fixed asset management, and cost of goods sold management.
• CRM/Sales: Tracks lead status and management, likelihood of conversion, tracking from quote to order to delivery, helping businesses understand and manage their sales process.

An ERP system allows users to retrieve information that is automatically connected across the system. The system helps businesses manage core business processes from sales to getting paid, providing interconnected data that enables you to track costs, efficiency, and performance across different operational areas.

This approach reduces administrative work, lowers operational costs, and provides more streamlined processes while maintaining precise job-specific cost allocation.

Unlike traditional systems like spreadsheets or paper-based systems that have multiple disconnected systems, an ERP system provides a connected, integrated approach to managing business processes.

It enables you to update information in one place, which is then visable across other divisions and areas of the business. For instance, when a customer contact changes, you update it once, and that new information appears across all interactions with that customer.

The system provides real-time feedback and insights, such as tracking how long jobs actually take to complete compared to estimates, identifying potential inefficiencies, and allowing you to investigate why business processes might take longer than expected.

Enterprise resource planning software connects various business functions - from lead management to delivery, from material procurement to financial reporting - ensuring that data flows seamlessly and provides a comprehensive view of your business functions.

To achieve peak efficiency, a business first needs to identify all its inefficiencies - known and unknown. There's a difference between data and information - while businesses produce huge amounts of data, it may not be useful to inform smarter decisions.

For example, instead of raising a separate purchase order for each job or project with the same supplier, a smart ERP system can consolidate demand across all jobs and raise one comprehensive purchase order.

When the order is received, the system can then split the costs back to individual jobs, ensuring accurate cost tracking for each project.

ERP software improves visibility by providing real-time feedback on actual job progression. For instance, if a manufacturer assumes a job takes 45 minutes on a particular machine, the ERP system tracks the actual time taken and allows investigation into why a job might take longer or shorter than estimated.

This enables you to understand if underestimations are consistent, compare current performance to past performance, and make more accurate estimations.

In a time of thin profit margins, this visibility is crucial for understanding and potentially correcting operational inefficiencies in business processes.

Faster collaboration with cloud ERP means the ability to access real time data from anywhere on the planet with internet access through a central data repository. It allows off-site workers and business units to access the software system on-the-go, relieves the burden of maintaining hardware and servers, and eliminates the need for managing backups, security protocols, and disaster recovery checks.

With cloud based ERP software, if something goes wrong, it's managed by the ERP provider whose primary focus is managing these systems, enabling faster and more flexible collaboration across different locations.

ERP technology reduces costs and improves ROI by giving back time to staff, particularly those in more expensive roles. ERP eliminates the need for staff to walk around looking for information, follow up on late invoices, or check if purchase orders have arrived. The system creates an easy flow of information, reducing time-consuming manual processes.

While no single efficiency moves the needle completely, when these improvements are bundled together, they create substantial value. The key is the time saved for your staff to focus on more strategic business processes, rather than getting bogged down in administrative work.

The key difference is that ERP software provides a comprehensive business management system, while accounting software deals only with finances.

With ERP software, financial data is integrated across the business, decreasing the data duplication and errors. Financial insights based on accurate data allow for better financial decisions from accurate quoting to identifying your most profitable jobs, which isn't easy to generate with traditional accounting software.

An on-premises ERP involves having all server architecture residing within an organisation's physical location. The advantages traditionally included better performance due to proximity.

However, on-premise ERP systems require you to be responsible for:

• Purchasing hardware
• Managing backups
• Maintaining data security protocols
• Performing disaster recovery checks
• Updating and testing software
• Rolling out updates

On-premise systems can initially seem cheaper but become more expensive when factoring in IT personnel costs and ongoing maintenance. They offer less flexibility compared to cloud-based systems and require more direct management from your IT team.

An on-premises ERP involves having all server architecture residing within an organisation's physical location. The advantages traditionally included better performance due to proximity.

However, on-premise ERP systems require you to be responsible for:

• Purchasing hardware
• Managing backups
• Maintaining data security protocols
• Performing disaster recovery checks
• Updating and testing software
• Rolling out updates

On-premise systems can initially seem cheaper but become more expensive when factoring in IT personnel costs and ongoing maintenance. They offer less flexibility compared to cloud-based systems and require more direct management from your IT team.

Cloud ERP is where server components are hosted in a remote data centre, accessible via the internet. Key characteristics include:

• Ability to access data from anywhere with an internet connection
• No need to purchase or manage server hardware
• Reduced IT responsibilities
• Automatic software updates
• Improved security managed by the ERP provider
• Scalable licensing
• Lower upfront costs
• Easier implementation
• Accessible from any device

Cloud based ERP relieves businesses of maintaining hardware, performing backups, managing security protocols, and conducting disaster recovery checks.

The system provides faster collaboration, allows off-site workers to access information, and offers greater flexibility compared to traditional on-premises systems.

A hybrid ERP model involves a combination of cloud based ERP and on-premises ERP elements. Specifically, it could be on-premises software that is still maintained by the business, but hosted in a cloud environment alongside other software.

The hybrid model tends to have the downsides of both cloud and on-premises systems:

• It's not fully on your premises
• You are still responsible for installing software
• You must handle upgrades and maintenance
• Security might be managed by an IT service provider

Hybrid models can come with challenges, inheriting limitations from both cloud based ERP and on-premises approaches, rather than providing the full benefits of either system.

Higher productivity through ERP systems is about getting the right data to the right people at the right time, enabling them to make the best decisions possible.

This is done in a cost-effective manner, eliminating the need for your staff to walk around searching for information. The goal is to deliver data to your employees when they need it, not just making it accessible.

ERP solutions allow your staff to focus on more strategic tasks, reducing time spent on administrative work and providing the information and time needed to uncover business efficiencies.

Deeper business insights come from giving business owners both the time and information to uncover efficiencies. Typically, small business owners are so consumed by day-to-day tasks - covering for sick staff, managing end-of-month finances, handling administrative work - that they never get to analyse their business for potential improvements.

ERP software provides insights by giving you the information and the time to investigate areas where you can add value. For example, you might want to examine whether a particular product is cost-competitive, but daily operational demands prevent this strategic analysis.

ERP systems help surface these insights and provide the breathing room to act on them.

Accelerated reporting and decision-making in ERP software means automatically generating reports at the most appropriate time. For example, instead of manually creating a report for a Monday morning stand-up meeting on a Thursday, the system can automatically generate the report at 6 AM on Monday and email it directly.

The core principle is enabling faster and more efficient decision-making. ERP solutions automate the reporting process, ensuring decision-makers have timely, relevant information precisely when they need it.

Compliance is often the first thing to be overlooked when businesses are focused on efficiency. Compliance becomes critical only when something goes wrong, such as being unable to provide a material certificate when required.

By designing systems where being compliant is the simplest path, businesses and staff are more likely to maintain proper compliance. The ERP system makes it straightforward to attach necessary documents, track certifications, and ensure all required documentation is in place.

The goal is to prevent situations where you might be sued or face significant risks due to missing documentation. ERP solutions make compliance a natural part of your workflow and business processes rather than an additional burden.

Cloud-based ERP means simpler IT infrastructure because you only need to worry about your end-user device such as a laptop, desktop, phone, or tablet.

All backend infrastructure, server management, and technical maintenance are handled remotely, eliminating the need for you to manage complex IT systems.

The focus shifts from maintaining servers and infrastructure to simply ensuring the devices used to access the system are functional.

AI is emerging as a major trend in most ERP systems, offering the ability to highlight trends that are difficult to identify manually. These systems can flag significant changes, such as a major customer's orders dropping 20% from their average, increased spending with a particular supplier, or potential price changes in materials. The goal is to provide insights that add value to your business, customers, and suppliers.

Resilience is another critical trend, focusing on a business's ability to handle potential supply chain or other unforeseen disruptions. This includes preparing for scenarios like tariff changes, supply chain interruptions, or unexpected global events.

Modern ERP solutions are enhancing supply chain management by providing businesses with the resilience to analyse potential disruptions, identify alternative suppliers for critical materials, and develop strategies to mitigate risks from external events or unexpected market changes.