What is an enterprise resource planning (ERP) system, and how do you determine if your company really needs one? First, let’s define what an ERP system is. Then we can look into why you would need one. And whether the benefits of an ERP system for your company would more than justify the time and expense of selecting and implementing one.
As a business analyst, you may already know that an ERP system is a set of modules that provides support for integral business functions such as sales management, purchasing management, manufacturing management (if applicable), inventory management, human resources, and financials. Thus, an ERP system provides the integrated management of business processes and the automation of routine transactions. The specific business processes that are supported can vary based on your industry. The major benefits of an ERP system are increased productivity and efficiency, and these result from the integration and automation the software provides.
Considering An ERP? Here Are Two Main Reasons
Organizations looking for a new ERP system – whether they have a current ERP system or non-integrated legacy applications in place – do so for two main reasons. The first is that their existing systems are no longer adequate and business processes are no longer working, that is, these processes are broken. The second is that the existing systems no longer support the growth of the company and do not function optimally.
1. Broken Business Processes
Often the first noticeable symptom that you need a new ERP system is that some business processes are no longer functioning correctly – that is, something is broken. One example might be an inventory management issue, such as data not being constantly updated and pushed out to every relevant department. This can lead to obvious problems such as frustrated customers or overstocking.
ERP software is able to integrate and automate different functions precisely because it uses a single centralized database to store and retrieve all relevant data. This means that any time data is retrieved for a particular function, it is automatically up to date. For instance, what the sales department sees is the same as what the shipping room sees, although of course some types of information may be visible only to certain users based on their job function. Usually a breakdown is really a breakdown or delay in communications. Let’s say that your current systems require different departments to key in the same information separately – this can not only impede efficiency but also invite errors and duplications.
2. Rapid Growth
The second driver behind the need for new ERP software is a company’s response to growth or change. Many smaller companies can get along fine for a time with spreadsheets or some combination of disparate software systems. But as they either grow or merge with another business to become larger, the added complexity and size no longer allows for legacy systems to function optimally.
Closely related to this, and often a result of growth, is a change to business goals. For example, imagine a manufacturing shop decides to open additional locations or wants to offer more complex product lines or some form of on-demand or custom manufacturing. The systems in place may simply not be able to meet the new requirements that the new goals create.
Sometimes senior management will decide it’s time for an ERP system, but let’s assume it’s up to you to bring the need to their attention. Before simply hopping on the ERP bandwagon, it pays to show your bosses that you are a credible contributor by performing a comprehensive assessment before suggesting or proposing that you need a new ERP system. You’ll want to undertake an investigation and document your findings.
Gathering And Analyzing Needs
To investigate problems and identify opportunities where new ERP software could help, you’ll start by talking with colleagues from every department in order to understand what their pain points are and what’s driving the pressure to improve processes in each area. In some cases, it may not even be the case of things being broken but rather the need to respond to market forces and competitors’ offerings.
Knowing what’s causing specific tensions can help you focus attention on areas that need to be specifically addressed by the functions and features included in any new ERP system. Don’t rely on just one or two people to say what’s needed.
Rather than immediately seizing upon the notion that a new ERP system can solve every issue, try to identify which problems might be solved through business process changes. You can also consult your information technology (IT) or development staff to determine whether some of the issues your investigation turns up may be solved through changes or improvements to the current technology in place at your company.
Consulting your IT staff has two major benefits. First, it shows senior management that adequate emphasis has been placed on making the most of what’s already there. If you can specifically demonstrate areas that cannot be improved except with the right ERP software, that will help build a convincing business case. Second, keep in mind that there may not be any ERP system that can solve every single issue. Some issues may not be readily solvable simply by using software, but may need to be addressed by other means, such as using more resources. You may uncover areas that need to be addressed by training, or increased staffing, or something else.
Record all the issues that cannot be solved by any other means than by new software – these are signals that a new ERP system may be in order and will also help you refine a requirements list.
Dealing With Growing Pains
If your organization is growing rapidly, or plans to do business internationally, you’ll want to interview senior management to understand the roadmap and what growth levels are expected. If expansion across borders is planned, seek out subject matter experts within the company or do your own research to identify the challenges this will place on back-office operations and basic business processes. Once a company crosses borders, it will encounter barriers beyond just accommodating growth. These can include language issues, different currency, new sets of regulations, etc.
Once you’ve done this, circle back to front-line staff in process-driven departments such as accounting, inventory management, and sales. Those people can tell you whether the systems currently in place in their departments, and the processes they are following, can be adjusted to accommodate the expected growth, or the newly international presence. These will be the same people who would be the end users for any new ERP software, so pay close attention to what they reveal about what is working and what’s not, and what they expect will need to change.
You’ll also want to involve IT and development managers or staff at your company to see if the current technological infrastructure will be able to handle what’s planned and, if not, what sorts of changes will be needed. Pay careful attention and explore any areas that seem in doubt. These may indicate that your organization would do best with a new ERP system – provided the one that’s chosen is a good match for the requirements.
Beginning The Search For An ERP
Once you’ve completed this gathering of requirements and needs analysis, you’re ready to research what’s on the market. Today’s ERP landscape offers dozens or even hundreds of choices. Rather than feeling overwhelmed, think of how having a shopping list helps when you enter a supermarket. With a clear idea of what you need, it’s much easier to choose.
You may want to begin by researching which ERP solutions specifically serve your industry and vertical. That can help define your search, although you must remain aware that even industry-specific ERP systems may fit one company far better than another company because the requirements of each business are unique.
Bear in mind that some issues may be solved through a smaller piece of software. For example, perhaps the recruiting or retention of employees that a human resources department wants to solve could be addressed by a talent management solution, or a cloud-based inventory management module might need to be added to solve specific inventory issues.
Once your analysis is complete and you’ve identified that you do need a new ERP system, take your analysis to senior management. You’ll have all the information in place to answer any questions or concerns they voice and will be able to make a case for why you need a new ERP system.
Deeana Radley is a business and technology writer with over 5 years of industry insight. She has written extensively on technology trends, software solutions and market developments, and particularly enjoys rendering complex topics accessible to beginners.