Enterprise Resource Planning (ERP) Systems Explained

What is an ERP system?

ERP refers to a set of business management software functions that businesses use to conduct day-to-day business activities, transactions, and processes including finance, procurement, manufacturing, supply chain, HR, and more. ERP software works across these facets of your business with centralised shared data and processes in a completely integrated manner. ERPs are a scalable solution that can help to consolidate data and smooth out any interdepartmental communication silos. When you bring the right ERP system on board, it keeps up with your needs as they change and expand.

Not only does it bring all your processes together and streamline your business operations, it provides data connectivity within your productivity tools, e-commerce, and even customer engagement solutions. An ERP system will boost efficiency and productivity, and ensure you connect all the dots for greater insights that facilitate decision-making as well as optimising processes across your entire organisation.

How does an ERP system work?

Because ERP systems integrate all business functions, create workflows and streamline processes, you and your teams have more time to work on your core, high-value tasks. ERP systems reduce the resources needed to run a business, while at the same time ensuring profitability, improvement and growth.

ERP systems automate processes wherever possible, which not only saves time but ensures accuracy. A fully automated ERP system performs data entry in the back end, while exchanging information with other areas that need it. For example, when an order is generated for the last item in stock, the ERP system's inventory management modules will record this information and inform relevant departments, so that the inventory can be replenished. The sales team will also be informed so that it doesn’t make promises that it can’t deliver.

ERP systems collect data from all areas of the organisation, putting it into a central location so anyone who needs to can access it. It gets rid of siloes, breaking down the barriers between the front and back office while providing the ability to adapt to new business priorities.

An ERP system typically offers dashboards where users can look at real-time data collected from across the business to measure productivity and profitability.

What industries benefit most from an ERP system?

Modern ERP systems are fully customisable, meaning they can be used across a range of departments, including finance, operations, sales, manufacturing, and construction. For example, the manufacturing industry has been using various ERP systems since the 90's, primarily to manage accounting and human resources. However, ERP systems today are designed to benefit enterprise-level organisations across almost all industries. Here are a few examples.

1. Manufacturing

Manufacturing departments can set up custom alerts, dashboards and modules based on their tasks. Finance benefit from custom reporting and projections, while operations and production teams can set up alerts for low inventory levels, broken machines, and recalls. If combined with a customer relationship management (CRM) system, recall alerts can be sent to every affected customer and vendor. Additionally, sales teams are able to communicate directly with warehouse teams to ensure real-time inventory accuracy and realistic client expectations.

 

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How an ERP system can remove constraints to growth for proven specialised and custom manufacturers.

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2. Construction

Construction companies need to have the right information for making decisions and driving communications. ERP software designed specifically for construction businesses will manage that information effectively and provide industry specific modules such as job costing and retentions to provide a complete and relevant system. By integrating various industry applications into one concise ERP system, construction companies gain all the essential tools they need to manage the full lifecycle of any project. This is crucial, because improper document management, scheduling, and accounting software can delay construction projects and cause them to bust their budgets, damaging a company's reputation and hindering growth.

Information: the most powerful tool for construction projects

How you can utilise ERP software to keep your construction projects on track

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3. Not-For-Profits (NFPs)

Like all industries, organisations within the NFP sector need to embrace digitisation and move their business management processes into the modern era. The right ERP system will help NFPs maintain an audit trail and account for every public or donation dollar and become more transparent and reliable. It will also ensure that stakeholders are engaged and informed. The accuracy, efficiency and productivity gains not only ensure NFPs can meet high audit standards but will better deploy staffing resources.

Imagine if NFP stood for 'Nimble Financial Protocols'

How New Zealand Not-For-Profit organisations can use technology to improve financial controls, visibility and reporting

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What kinds of ERP systems are there?

ERPs come in all shapes and sizes and are commonly separated by a tiered system as well as their computational make up.

ERP Tiers are a guideline for organisations to narrow down their search for an ERP system. The criteria to classify which organisations fall under which tier includes company annual revenue, employee size, user size, transaction volumes, and complexity. And depending on which part of the world you’re in, these tiers can have different implications. For example, a Tier 2 company in the USA can easily qualify as a Tier 1 company in New Zealand, if revenue is used as a criterion. In general, there are 3 ERP Tiers:

ERP Tier 1

These are ERPs for some of the biggest companies in New Zealand, such as Fonterra, Fletcher Building or Air New Zealand, and include solutions like SAP and Oracle. Complexity and diversity of requirements are some of the characteristics of such organisations, with many different business units across multiple industries, and complex and hierarchical reporting requirements. ERP implementations in such organisations can last for many months – even years – and the rollout requires highly effective project management and planning, resources and of course, significant costs. Tier 1 ERP systems are highly complex, so they can meet the diverse functional requirements and scalable to even thousands of users, with access across any device. Substantial capital and operational investment is a typical characteristic of Tier 1 ERP systems.

ERP Tier 2

Tier 2 is suitable for most mid-size New Zealand organisations. They include solutions like Microsoft Dynamics 365 Business Central, MYOB Advanced and MYOB Greentree. Companies that have outgrown their current systems and are facing challenges such as growth in transaction volumes, too many manual intervention or standalone systems that do not integrate, will be looking to upgrade to a Tier 2 ERP system. These provide companies with the capability to automate their entire business operation, not just accounting. Similarly, larger organisations sometimes find their Tier 1 application too rigid, expensive and complex and they can get a better outcome with a Tier 2 ERP system. Tier 2 ERP systems typically have relatively broad functions to cater for all requirements of an organisation, including Finance, Distribution, Supply Chain, Manufacturing and Operations and even CRM. They also have integration capabilities via APIs (Application Programming Interface) to facilitate integration to external systems e.g. mobility and eCommerce applications. Rapid and cost-effective deployment is a key feature/requirement for Tier 2 companies.

ERP Tier 3

This is best suited to small businesses, where systems such as XERO, MYOB Essentials or Reckon will fit easily. In fact, there's even debate over whether Tier 3 solutions should be termed an ERP system, since just an accounting solution will suffice. Cost and ease of use are key factors and in most cases, a very short time frame (days/weeks) to implement. If these businesses need more than just an accounting system to manage their daily operations e.g. Distribution (Inventory, Sales, Purchases), they will look for add-ons to integrate with their base system. Hence, systems such as XERO partners with numerous technology partners provide Add-Ons to their system.

Deciding which tier would best suit your business means identifying your specific needs as relevant to the industry you're in. Post-Covid, some small businesses might find themselves with the opportunity to grow, meaning the Tier 3 solution they may have been using or are contemplating, won't be sufficient to help scale the business.

Similarly, medium-size enterprises may be using a Tier 1 ERP system that has become too 'heavy' for their needs.

In terms of computing systems there are three options for ERPs:

1. On-premises - the ERP system is deployed on-site and is managed by the organisation after it's been implemented. In most cases, a business will choose this option if they want to be in total control of the ERP system's security. However, it means there needs to be a team of dedicated IT resources to handle management, application and maintenance.
2. Cloud-based - the ERP system runs on a cloud platform, meaning an organisation can access it via the internet. It's the anywhere, anytime solution and that's also mobile-friendly. Demand for cloud-based ERP systems continues to grow because they can access and analyse massive amounts of data in near real-time. They have the same functionality as on-premises solutions without most of the downsides, such as upfront licensing fees.
3. Hybrid - this is a combination of the above, also known as a two-tier solution. It offers the best of both on-premises and cloud-based options, meaning they're cheaper than on-premises systems but offer similar reliability, as well as cloud-based features. Hybrid ERPs are flexible, allowing users to access its critical functions while on the go. Synchronisation between an on-premises ERP system and a cloud system means information can be accessed anytime, anywhere.

Deciding which one is best depends on an organisation's size, available computing gadgets, and the system’s ability to meet their needs.

Does your organisation need an ERP system?

If you’re reading this, chances are you're struggling with your legacy system and you probably already know that an ERP system could be the solution.

Does this sound familiar?

• Your current systems aren't letting your business grow
• Disparate systems are causing errors, delays, and communication issues
• You're failing to meet customer expectations

Ask yourself the following:

• Should we be hiring more staff to cope with demand?
• Do we have proper documentation around processes?
• Are we using too many workarounds?
• Are customer and supplier demands increasing?
• Are we making too many mistakes?

If you’ve answered ‘yes’ to some or all of the above, then your organisation is likely suffering because of out-dated systems. Not only that, but you might have noticed that your staff are growing increasingly frustrated, your customers are losing confidence in you, and your profits are being impacted.

The answer is a simple one: it’s not about working harder; it’s about working smarter. And that means moving with the times, accelerating your digital journey and investing in an ERP system that will help your business grow.

Choosing the right ERP system for your organisation

Deciding to bring an ERP system on board is a major investment for any organisation, so it's important to choose the right one. Not only do you need a system that will seamlessly integrate your core business functions, you’re also looking for the best of breed when it comes to software – and a partner who can provide you with world-class service and support.

Unless you have ERP experts in-house, your ERP journey should start by finding the right implementation partner. You're looking for one that offers a range of ERP solutions, with proven expertise in implementing and supporting them. Right from the beginning, they'll focus on understanding your organisation's needs, the systems you currently have on board, and what you want to achieve.

A project team will be created from your business and your partner's, and together you'll evaluate the available ERP options and decide which is the best fit for your organisation.

Your partner will take you through the pros and cons of the products they deploy and support and provide examples of how they've worked for businesses similar to yours.

Once you've made the decision to bring an ERP system on board, it's essential to find a partner who'll ensure you choose the right one.

We make sure you get the right solution for your goals

At Endeavour, we don’t just focus on one area of improvement. We work with a number of leading ERP and BI software solutions.

By implementing and supporting these solutions, we enable our clients to ‘join the dots’ in their businesses, helping them grow by empowering them with quality, real-time information

Learn more about our ERP solutions expertise

What modules does an ERP system feature?

ERP modules are designed for specific business functions, providing the data and supporting the processes that will help your teams complete tasks efficiently. Every module plugs into the ERP system, generating a single source of truth, even when you add new modules. Think of it like this: the ERP system is the toolbox, and the modules are the tools, each for specific uses.

Common modules include:

• Finance and accounting

• Procurement
• Inventory management
• Order management
• Warehouse management
• Supply chain management
• Customer relationship management (CRM)
• Workforce management
• Procurement

The great thing about a modular design is its flexibility — you purchase only the modules that are relevant to your business, and you can add or remove them as needed. It means you can customise the ERP system for your individual needs and requirements.