Project Management

What is Enterprise Resource Planning, And How Does It Help Organizations?

Written byContributing Writer
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Updated onMay 29, 2024

Enterprise resource planning (ERP) is quickly becoming a priority investment for businesses struggling to manage operations, optimize resources, and stay competitive. ERP systems are designed to integrate business functions like marketing, sales, manufacturing, finance, inventory, and human resources.

However, ERP systems must be implemented correctly to achieve the desired outcomes and return on investment. Skilled professionals, including project managers, play a vital role in this process.

Therefore, project managers should have a solid understanding of ERP. This knowledge can enable them to plan and execute projects involving ERP implementation or integration effectively. It also allows them to collaborate more efficiently with IT and business teams, ensure project requirements align with ERP capabilities, and proactively address potential implementation challenges.

If you’re an aspiring project manager wanting to learn the basics of ERP, this guide is for you. Read on as we explore ERP’s importance, operational functions, key modules, deployment types, and the pros and cons. At the end of the guide, we will recommend a project management program for those interested in more in-depth learning.

What is Enterprise Resource Planning?

ERP refers to software packages that support various business functions and objectives. These packages typically include systems for manufacturing, order entry, warehouse management, transportation, sales, and distribution, among others. Since the invention of computers, there has been a continuous effort to enhance work experiences and lifestyles using information systems. ERP solutions aim to contribute to this improvement by integrating various processes and data into a single unified system.

In simpler terms, ERP is a method to integrate different processes and data within a unified system. Leading businesses offer ERP systems to help achieve organized structures and maintain databases across organizational departments. Now, let’s delve into some facts about ERP and its implementation.

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A Brief History of ERP Systems

Enterprise resource planning systems were first developed in 1960. Initially, their focus was primarily on inventory control, which resulted in the emergence of different ERP software solutions centered around inventory control and management. After some years, the focus shifted towards manufacturing resources planning, which aimed to organize organizational distribution management activities.

As time progressed, numerous software solutions were developed to cover various areas such as engineering, human resource management, sales and distribution, financial management, project management, and customer relationship management. The term “Enterprise Resource Planning” was coined during this period due to its increasing relevance across enterprise requirements.

What is ERP, and Why is It Important?

Enterprise resource planning helps organizations save both time and money. Here are the main advantages of ERP:

Saving time and money: ERP software tools make it easier for businesses to plan, predict, and operate faster, which allows them to grow and become more profitable.
Automating processes: Automating a company’s processes eliminates unnecessary and inefficient tasks, boosts productivity, and creates room for growth and innovation.
Centralized system: With management systems (modules) for all departments in one place, teams can easily access up-to-date information throughout the organization. Reporting becomes simpler and accessible to everyone.
Secure, accurate data: Data is kept safe within the database system and is much more reliable than manual input. Plus, it’s available in real-time, allowing for easy tracking and monitoring of data such as procurement or sales. Reports can be generated instantly, which is helpful for planning, predicting, budgeting, and sharing insights with stakeholders and teams.
Cloud-based accessibility: Most ERP systems are now based in the cloud or offer cloud access options, enabling teams to access them from anywhere at any time.
Collaboration and knowledge sharing: ERP brings together all teams, promoting collaboration and knowledge sharing across the organization. Companies can grant access to the entire organization, fostering workplace unity and cooperation.

ERP System Examples

Here are some examples of popular ERP systems used by businesses:

SAP ERP: SAP ERP is one of the most widely used ERP systems globally. It offers modules for various functions such as finance, human resources, supply chain management, manufacturing, and sales. SAP ERP is known for its robustness, scalability, and extensive customization options.

Oracle ERP Cloud: Oracle ERP Cloud is a comprehensive suite of cloud-based ERP applications that covers finance, procurement, project management, risk management, and more. It is known for its flexibility, real-time analytics, and integration capabilities.

Microsoft Dynamics 365: Microsoft Dynamics 365 is a cloud-based ERP and CRM application that offers modules for finance, operations, sales, customer service, and marketing. It integrates seamlessly with other Microsoft products like Office 365 and Azure.

NetSuite: NetSuite is a cloud-based ERP system for small and medium-sized businesses. It offers financial management, inventory management, order management, CRM, and e-commerce modules. NetSuite is known for its ease of use, scalability, and rapid implementation.

Infor ERP: Infor offers a range of ERP solutions tailored for specific industries such as manufacturing, distribution, healthcare, and hospitality. Infor ERP systems provide comprehensive functionality for managing operations, finances, supply chain, and customer relationships.

Epicor ERP: Epicor ERP is a scalable ERP solution designed for manufacturers, distributors, and service organizations. It offers production management, inventory control, supply chain management, CRM, and financial management modules.

Odoo: Odoo is an open-source ERP system that offers various modules for various business functions, including accounting, inventory management, CRM, sales, and project management. Odoo is known for its flexibility, affordability, and user-friendly interface.

Also Read: What is Change Management in Project Management?

How Do ERP Systems Work?

Here’s how ERP systems work.

Collecting Information

First, the ERP system gathers information from all parts of the company. It collects data about sales orders, inventory levels, employee information, and financial transactions.

Centralizing Data

Once the information is collected, the ERP system organizes it neatly into one central database. This makes it easy for everyone in the company to access the same up-to-date information.

Connecting Departments

The ERP system acts as a bridge between different departments in the company. For example, when a customer orders, the sales department enters the order into the ERP system. Then, the inventory department can see the order and ensure enough stock to fulfill it.

Streamlining Processes

ERP systems also help streamline processes by automating repetitive tasks. For instance, instead of manually entering data into spreadsheets, the ERP system can do it automatically, saving time and reducing errors.

Making Informed Decisions

With all the data in one place, managers can use the ERP system to generate reports and analyze trends. This helps them make informed inventory management, resource allocation, and financial planning decisions.

Ensuring Compliance and Security

ERP systems also play a crucial role in ensuring compliance with regulations and maintaining data security. They often include features for tracking regulatory requirements and enforcing security measures to protect sensitive information from unauthorized access or breaches.

Supporting Collaboration

ERP systems facilitate collaboration by providing a platform for employees to share information and work together on projects. Whether sharing documents, communicating through messaging tools, or collaborating on tasks, the ERP system fosters teamwork and improves communication across departments.

Providing Real-Time Insights

Another essential aspect of ERP systems is their ability to provide real-time insights into business operations. By continuously updating data and generating reports in real-time, ERP systems give decision-makers immediate access to critical information, enabling them to respond quickly to changes and make data-driven decisions.

Continuous Improvement

ERP systems support continuous improvement by enabling companies to analyze performance metrics, identify areas for optimization, and implement changes accordingly. Through features like performance monitoring and analytics, ERP systems help organizations refine their processes, increase efficiency, and drive ongoing improvement.

Implementing ERP Systems

When ERP first started, it was mainly used by big companies. However, even small and medium-sized businesses started using it as time passed. Any organization that deals with a lot of data can benefit from using ERP systems to manage their information better.

Different ERP solutions are designed for other parts of a business. For example, the sales team can use ERP sales and distribution solutions to neatly track sales data. The HR department can use HRM solutions to handle hiring, compensation, and payroll. Similarly, the finance department can use financial solutions to manage money more efficiently.

There are plenty of ERP systems available for various processes within a company. However, implementing an ERP system requires careful planning and organized steps. Smaller ERP systems usually take less time to set up compared to larger ones. Moving data from old systems to an ERP system is a crucial undertaking.

Here are some steps involved in data migration:

Figuring out which data needs to be moved
Planning when to do the migration
Creating templates for the data
Choosing the right tools for migrating the data
Setting up the data migration process
Saving any data that’s still needed but not actively used

To become an expert at implementing ERP systems, you need both knowledge and hands-on experience with these solutions.

Key ERP Modules

Enterprise Resource Planning (ERP) systems contain modules designed to handle specific organizational functions. Some of the key ERP modules include:

Finance and accounting: This module manages financial transactions, budgeting, forecasting, and reporting.
Human resources (HR): HR modules handle employee data, payroll processing, benefits administration, recruitment, training, and performance management.
Supply chain management (SCM): SCM modules oversee procurement, inventory management, order processing, logistics, and supplier management.
Manufacturing: Manufacturing modules manage production planning, scheduling, quality control, shop floor control, and equipment maintenance.
Sales and marketing: This module handles sales order management, customer relationship management (CRM), marketing campaigns, and sales forecasting.
Inventory management: Inventory modules track stock levels, warehouse locations, and movements to optimize inventory levels and reduce stockouts.
Customer relationship management (CRM): CRM modules manage customer interactions, sales leads, marketing campaigns, and customer service.
Project management: Project management modules assist in planning, scheduling, budgeting, resource allocation, and tracking project progress.
Business intelligence (BI): BI modules provide data analysis, reporting, and decision-making tools by consolidating data from various modules to generate insights.
Reporting and analytics: Reporting modules generate customizable reports and dashboards to monitor key performance indicators (KPIs) and track organizational performance.

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Types of ERP Deployments

There are various ways in which an ERP system can be deployed. Each deployment method has its advantages and considerations. Here are the main types of ERP deployment:

On-Premises Deployment

With on-premises deployment, the ERP software is installed and maintained on the company’s servers and hardware within their premises. This gives the organization full control over the software and its data. They manage and secure the infrastructure, including software updates, backups, and maintenance. On-premises deployment is suitable for organizations that require high levels of customization and have the necessary IT resources to manage the system internally.

Cloud Deployment (SaaS)

In cloud deployment, also known as Software as a Service (SaaS), the ERP software is hosted and managed by a third-party provider in the cloud. Users access the software over the internet through web browsers or dedicated applications. The provider handles all aspects of maintenance, updates, security, and scalability, making it a convenient option for organizations that prefer a subscription-based model and want to avoid the upfront costs and IT overhead associated with on-premises deployment.

Hybrid Deployment

Hybrid deployment combines elements of both on-premises and cloud deployment. Organizations may keep certain modules or sensitive data on-premises for security reasons while leveraging cloud-based solutions for other functions. This allows for greater flexibility and scalability while maintaining control over critical systems and data.

Hosted Deployment

Hosted deployment is similar to cloud deployment in that the ERP software is hosted off-site by a third-party provider. However, unlike SaaS, where the software is shared among multiple users, hosted deployment provides dedicated resources for each organization. This gives organizations more control and customization options while still benefiting from the scalability and accessibility of cloud-based solutions.

The Pros and Cons of Enterprise Resource Planning Systems

One of the best things about using ERP systems is how easily you can move data around. This simplifies managing data and keeps your organization’s information safe. ERP systems offer other advantages, too, like speeding up the hiring process and making it easier to deliver things to customers quickly.

However, there are some downsides to using ERP systems. One big drawback is the cost—setting up and maintaining these systems can be expensive. Plus, sometimes the software is so complicated that it takes time to figure out how to use it properly.

The Future of ERP

In the coming years, we can anticipate ERP systems evolving to meet businesses’ dynamic needs. With technological advancements, these systems will seamlessly integrate with emerging trends like artificial intelligence and machine learning. This integration will enhance data analysis capabilities, automate repetitive tasks, and offer predictive insights to drive smarter decision-making across organizations.

Moreover, the shift towards cloud-based ERP solutions will continue, providing companies greater scalability, accessibility, and cost-effectiveness. This transition will enable businesses of all sizes to leverage ERP’s benefits without the burden of hefty infrastructure investments.

Furthermore, user experience will be a focal point in the future of ERP development. ERP vendors will prioritize intuitive interfaces, personalized dashboards, and mobile accessibility to improve usability and streamline workflows. Additionally, there will be a heightened emphasis on data security and privacy measures to address growing concerns in an increasingly digital landscape. By embracing these trends and innovations, ERP systems are poised to play a pivotal role in driving efficiency, agility, and growth for businesses in the years to come.

Empowering Businesses with ERP and Project Management Expertise

Enterprise resource planning systems serve as indispensable tools for organizations navigating the complexities of modern business operations. ERP offers a comprehensive solution to meet diverse business needs, from streamlining workflows to optimizing resources and enhancing competitiveness.

However, effective implementation requires skilled project management to ensure successful integration and utilization. As businesses strive for efficiency and innovation, the guidance and expertise gained from a project management bootcamp become invaluable assets in maximizing the potential of ERP systems and driving organizational success.

It is aligned with PMI-PMP® and IASSC-Lean Six Sigma standards and offers live online classes, a capstone project, and career services.

Want to sharpen your project management skills and learn the digital-era tools, technologies, and best practices? Enroll today!