ERP Basics: The Questions You Should Be Asking

Enterprise resource planning software (ERP) is widely utilized by both large and small businesses. However, while basic small business software is straightforward, ERP can be intricate and bewildering, especially for newcomers. To provide clarity, here are five fundamental questions about ERP basics and their corresponding answers.


What is ERP?

Enterprise resource planning (ERP) software is designed to manage, integrate, and streamline various business processes and data, ranging from order management, production, finance, procurement, human resources, distribution, and supply chain operations. By effectively integrating these functions, ERP software provides a unified platform that analyzes, standardizes, and optimizes data.

Traditional ERP systems often require significant investment due to the costs associated with software, implementation, and computer infrastructure. Additionally, their deployment can be time-consuming as it involves change management and customization to meet specific industry requirements. These characteristics make traditional ERP better suited for larger enterprises with complex operations and high volumes.

Cloud-based ERP solutions offer small and medium-sized enterprises (SMEs) a more affordable alternative. Hosted on secure infrastructure provided by external service providers, cloud ERP eliminates the need for hardware investments and allows browser-based access to data and functionalities, which is beneficial in today's hybrid work environment.

Cloud ERP can be deployed through pay-per-use or subscription models, shifting the cost structure from capital expense (CAPEX) to operating expense (OPEX) compared to traditional ERP. Being cloud-based, this type of ERP ensures predictable security, reliability, availability, and expense management, reducing risks for businesses.

Cloud deployments offer simplified user experiences without compromising core functionalities, and they can be implemented more swiftly than traditional solutions. In most cases, they provide the same comprehensive ERP capabilities accessible globally as on-premise counterparts. With easier deployment and reduced customization requirements, cloud-based ERP projects are more likely to succeed compared to large-scale traditional ERP projects.

Who uses ERP?

Virtually every organization involved in managing people, processes, products, or services, including sales and accounting, can gain advantages from adopting cloud-based ERP solutions. ERP serves as a comprehensive software platform that efficiently manages these essential functions while offering industry-specific configurations to address specific challenges within your business.

Businesses should contemplate adopting a cloud-based ERP system when they have surpassed the threshold of 10 employees and generate annual revenue of at least $1 million. Even medium and large enterprises can opt for this approach instead of implementing traditional ERP systems, which tend to be rigid, expensive, and often plagued by unsuccessful implementations.


How to justify the need for and investment in ERP?

If your business is small with a limited number of employees, you might manage with separate accounting, inventory, and sales ordering platforms. However, as your business expands, with increased headcounts, growing transaction volumes, and the need to collaborate with external suppliers, transitioning to an ERP system becomes essential.

ERP provides a centralized and reliable source of data, minimizing redundant tasks and errors caused by inputting the same information into multiple software platforms. By automating processes, ERP enhances efficiency, boosts productivity, and reduces costs associated with excess inventory by offering real-time insights for informed decision-making. With ERP, you can make accurate predictions to stay ahead of your competitors.

The costs associated with an ERP system vary depending on factors such as company size, chosen platform and implementation partners, customization requirements, training, change management, and other considerations. As each system is tailored to the specific needs of the company, there is no fixed cost.

Cloud-based ERP solutions generally have lower implementation and operating costs compared to on-premise systems. For small and medium-sized businesses (SMBs), typical implementation costs range from $50,000 to $500,000. Medium to large enterprises can expect implementation costs ranging from $500,000 to $2 million.

Subscription costs for cloud-based ERP vary depending on the chosen system. Generally, for 20 users, annual subscription costs range from $20,000 to $35,000 for SMBs. While large enterprises with over 100 users can expect costs between $250,000 and $400,000 per year.

To assess the total cost of ownership and return on investment of an ERP system, businesses should consider factors such as cost savings, increased sales opportunities, improved productivity, and enhanced efficiency.


Is my data safe with ERP? Does ERP support compliance?

Cloud ERP providers implement rigorous infrastructural and operational security measures to safeguard the underlying network, servers, and applications, while also controlling access to sensitive corporate data. In the majority of cases, the security of business data within a cloud ERP surpasses that of self-managed, on-premise solutions.

Cloud ERP systems can be tailored to support compliance regulations, ranging from data privacy regulations like GDPR to industry-specific rules enforced by organizations like the FDA for life sciences businesses, as well as financial regulations. Cloud ERP is frequently employed by businesses operating in regulated industries to handle backend processes, providing assurance that your business can achieve compliance as well.

Prepackaged industry solutions contribute to ensuring that cloud ERP is properly configured to meet compliance requirements within a specific industry.


How do I know which ERP vendor and solution is right for my business?

The ERP market consists of numerous vendors, with most offering solutions that can meet the needs of businesses. When selecting an ERP vendor, it is crucial to consider factors such as the level of support provided, the availability of solutions tailored to the company's industry, and the existence of a reliable partner network for implementation, integration, and ongoing support.

Among the leading ERP vendors, the "big three" options are SAP, Netsuite, and Oracle. Opting for any of these vendors generally ensures a solid choice for businesses.

SAP, in particular, merits consideration due to its status as the largest ERP vendor. It offers a range of software solutions designed for businesses of various sizes, with the flexibility to migrate to larger solutions as a company grows. For businesses venturing into ERP for the first time, SAP provides options like SAP Business One, SAP Business ByDesign, and SAP S/4 HANA Cloud, Public Edition specifically tailored for fast-growing early-stage and mid-market companies.

To delve deeper into ERP and its potential benefits, you can download our complimentary guide, "Understanding Cloud ERP." Or reach out to our consultants at (801) 642-0123 or email for further assistance.



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