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You know you need new ERP software, but before you dive in, you should understand the basics of this often-misused technology. Once you understand the basics, you can develop an ERP strategy.

What is ERP software?

Enterprise resource planning (ERP) software is used by organizations to integrate and organize the data necessary for front office and back office operations. ERP software integrates organizations’ key operations, including the manufacturing, distribution, financial and human resources, into one software system.

When properly implemented, an ERP solution increases organizational efficiency, performance and profitability. However, ERP implementations are challenging and often require an ERP consultant to manage the software selection, implementation, process management and organizational change. A large enterprise software implementation is particularly difficult when multiple, global locations are involved. Strong project management is key to achieving an integrated enterprise.

What are the most popular ERP vendors?

SAP, Oracle, Microsoft Dynamics and Infor are among the most popular ERP vendors. One of the most searched terms on Google is “SAP vs. Oracle.” That should tell you something about the popularity of these vendors.

SAP vs. Oracle Case Study

SAP and Oracle both invest heavily in cloud technology. However, our client was skeptical about cloud scalability and unsure if the products were mature and proven.

Niche software vendors are also popular, especially for smaller organizations or organizations looking for industry-specific functionality. Niche products are designed for specific industries or business functions. For example, Syspro, IQMS and Plex are specifically built for the manufacturing industry.

While you may want to select a well-known enterprise resource planning system, the best solution depends on your unique business needs. A better question is, “What are the best ERP vendors for my future-state processes and organizational goals?”

What kind of organizations use ERP software?

ERP software is beneficial to organizations regardless of size or industry. In recent years, small- to mid-sized organizations have fueled most of the growth in the ERP industry. While large enterprises dominated ERP usage in the past, niche solutions have made it possible for smaller organizations to implement ERP software.

Organizations pursuing digital transformation often implement ERP software to enable their digital strategies. These organizations use technology to create new business and operating models. Their goal in implementing new technology is to improve data insights and the customer experience.

What is the difference between ERP and CRM software?

Customer relationship management (CRM) software is a type of enterprise software that automates the sales and marketing functions of an organization. Many vendors include CRM software in their full suite of solutions, but some organizations take a best-of-breed approach. They’ll implement a CRM system from another vendor and integrate it with their main system.

CRM software provides real-time data on lead behavior and demographics allowing organizations to personalize their communication with leads and customers. CRM functionality enables organizations to maximize the benefits of their ERP implementations. Improving the customer experience is a common reason organizations implement software solutions.

What is manufacturing resource planning (MRP II) software?

MRP software is included in most ERP systems. While ERP automates the entire supply chain, manufacturing resource planning focuses on the manufacturing processes involved in product conception through production planning. For example, when you need to purchase raw materials to build a product, MRP software allows you to create an accurate bill of materials.

An MRP system can be purchased as a standalone system or as part of a full ERP system. Some organizations take a best-of-breed approach when it comes to the individual modules within an MRP system. For example, they may look for a specialized solution for a function like materials costing.

How much does ERP software cost?

ERP software for larger organizations tends to cost more than niche software. However, even the larger vendors offer point solutions that can be implemented individually. Organizations can save money by only implementing the functionality they need instead of implementing a full suite of solutions.

Licensing costs also depend on the deployment model. While cloud computing may be cheaper in the short-term, it is more expensive than on-premise software in the long-term. Cloud and SaaS ERP is subscription-based so you pay per user or per module. If you plan to implement software in phases, be sure you’re not paying for all licenses upfront.

Maintenance, customization and resources are other costs to consider. You’ll need resources for configuration, data migration and implementation. Beyond these technical components, you’ll need to budget for business process reengineering and change management. The ideal ratio of software costs to service costs is 2:3.

If a vendor’s proposal seems unreasonable, you can negotiate a better price by hiring an independent enterprise software consultant. An ERP selection consultant can facilitate apples-to-apples comparisons of vendors’ statements of work, so you know your points of leverage. Some ERP consultants save clients as much as 30-60% of what they would have paid otherwise.

While ERP software is expensive, cost shouldn’t be your main concern when deciding whether to initiate an ERP implementation. You likely will recoup your costs within three years due to the ERP business benefits you achieved.

What are some of the risks associated with ERP software?

While ERP has the potential to provide numerous business benefits, it can also be a risky proposition. If not managed properly, ERP projects can cost more and take longer than expected. They can also cause operational disruption and employee resistance.

Organizations assume the most risk when they approach their ERP project from a technical perspective instead of business perspective. If you don’t align new technology with your people and processes, you may not realize expected business benefits. You can’t improve data visibility if your ERP system can’t support optimized processes. You also can’t improve the customer experience if your employees don’t know how to perform optimized processes. Other than ERP failure, the biggest risk of ERP implementation is a low ROI.

A Business Case for ERP Software

Once you’ve recognized your need for new ERP software, you should define what kind of technology you need based on your digital strategy. This will help you develop a business case convincing executives to make the investment. Be sure to highlight not only benefits of ERP software but also the costs and risks.

Panorama’s ERP consultants can help you develop a strong business case so you can gain the executive support necessary for a successful ERP selection.