What is an ERP? An overview and considerations.

What is an ERP?

An ERP, or a Enterprise Resource Planning system, is business process management software that allows an organization to use a system of integrated applications to manage the business and automate many back-office functions related to technology, services, and human resources.

An ERP system is designed to bring structure to business processes by aligning key objectives with resources at the company’s disposal.  Essentially, an ERP should help streamline complicated workflows enabling a company to create efficiencies that should ultimately impact the bottom line.  Additional benefits include capturing data which can subsequently be analyzed; providing room for organizational growth; fostering collaboration through data sharing; and providing better business intelligence.  However, there are some disadvantages to ERP systems.  First, it may have a high upfront cost and implementation may be time consuming and challenging.  Additionally, tailoring the ERP system to the ERP needs may prove cumbersome or may require significant customization.

Selecting an ERP System

There are many ERP systems on the market designed for companies of all sizes and growth stages.  If you think your company is too small for an ERP system now, consider the future state of the organization and whether it would make sense to invest in an ERP system now that the organization can grow into.  Key items to think about when looking into ERP systems include what it is primarily tailored for.  Some ERP systems are specifically designed for larger organizations or specific industries (i.e. manufacturing, automotive, etc.).  If you are lucky enough to find an ERP system that is tailored for your company’s industry, this may mitigate the need for additional customization and may lower implementation costs. 

While selecting an ERP consider what size organization the ERP is tailored for.  If it is tailored for small companies and your small company is in a high growth stage, it may not be a good fit for the company five years from now.  Reporting features are also a key consideration.  Having information at your fingertips through mobile devices is very important in today’s fast-paced business environment; an ERP system that can provide data through multiple interfaces may be very relevant to your company’s needs. 

Finally, ensure there is a full cost analysis performed on the ERP system.  Implementation fees, cost of the software, subscription fees, support fees, etc. as these may vary under each different ERP system – including whether it is a system that is installed on-premise or a cloud-based system.  The less surprise around cost the better.

ERP Systems

There are many ERP systems that cater needs from small and medium-sized businesses to large organizations.  Widely-used ERP systems include SAP, Microsoft Dynamics, Sage, NetSuite, and QuickBooks.  Newcomer Xero is also making an impact in small organizations and especially in start-ups due to its low cost and easy to use interface.  While the smaller ERP systems may not provide nearly all of the features of the more complex ERP systems (i.e. SAP), they do cost less and may be a better fit to an organization if they can be tailored to specific industries. 

Many of the key features needed for start-ups or small companies are captured in the smaller ERP systems, such as the ability to automate journal entries by importing bank accounts, entering invoices, running mobile or user-friendly reporting, and customizing financial statements.  Furthermore, these smaller ERP systems can also be expanded to include additional functionality from third party apps through the use of application programming interfaces (APIs).  APIs may add cost to the ERP system; however, they may provide additional functionality that the larger ERP systems provide for a fraction of the price.

Conclusion

As you can see, there are numerous considerations when thinking about an ERP system to utilize.  Our experience indicates that a company should use an ERP system that will scale as the company grows.  The initial upfront cost may be higher, but there will be less pain in the future as the company grows. 

Plan ahead if your a start-up, it may be beneficial to utilize Xero or QuickBooks for the first few years and then upgrade to NetSuite or another comparable ERP system.  Though it may also be useful to invest in NetSuite later in year one of the organization as it will be a suitable ERP system for several years.  Whatever direction you go, ensure that there is a thoughtfulness behind the decision and due diligence is performed.  An ERP system should not be an afterthought for an organization.  It should be a critical piece of the puzzle to ensure success and growth of the company.

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