WHAT IS ERP? ENTERPRISE RESOURCE PLANNING SOLUTIONS

Last year, ACC celebrated 20 years of work in the Business Solutions/ERP industry.  We’ve found that after so long, working with a complex subject like ERP, it’s best to take a step back and review where you’ve been, and where you are so that you can better predict where you’re going.

So, let’s start at the beginning: What is ERP?

The ERP acronym stands for Enterprise Resource Planning.  But that’s not really a comprehensive answer.  It doesn’t describe what ERP software is or what it does to help you run your business.  To really understand what ERP applications are and how they benefit your business, you need to think about all of your business processes.  This includes accounting, order management, inventory, distribution, manufacturing, operations, production, job costing, reporting, e-commerce, HR, marketing, sales, customer service, and more.

The principal function of ERP is to integrate these various functions into one efficient system, automating where appropriate, in order to streamline processes and information across all departments and functions.

The key feature of all ERP systems is a shared database, where data from multiple business processes can be stored, updated and accessed by multiple business units.  This includes some degree of synchronized reporting and automation across departments.  So, ERP effectively eliminates inefficiencies such as manual processes and disparate databases through integration, automation, and reporting.

A Brief History Of ERP

The term ERP was coined in 1990 by Gartner but the history of ERP goes back more than 100 years.  In 1913, Ford Whitman Harris developed what was later referred to as the economic order quantity (EOQ) model, a manufacturing system for production scheduling.  This paper-based model soon became the standard for manufacturing until 1964, when toolmakers Black and Decker became the first company to adopt a material requirements planning (MRP) solution which utilized a mainframe computer combined with EOQ concepts.

MRP became the new standard until it was reworked into MRP II (manufacturing resource planning) in 1983.  This reboot featured new module-based functionality and integrated core manufacturing components including purchasing, bill of materials, scheduling, and contract management.  This marked the first time that manufacturing tasks across departments were integrated into a common system.

Throughout the 1970s and 1980, models similar to MRP II were developed for industries and business activities outside the scope of manufacturing, such as finance, customer relationship management, and HR data. Thus, setting the stage for ERP as we know it today.

In the beginning of the twenty-first century, ERP adoption grew rapidly as organizations relied on ERP to create front-to-back-office integration, streamline core business processes and improve data visibility.  However, the cost of ERP implementation rose quickly both in terms of expensive capital investments and the cost of custom coding, consultants, and training.

Meanwhile, ERP technologies began to embrace the new digital frontier.  The internet brought with it new features and functionality for ERP users.  As the digital floodgates opened for technological innovations like smartphones and the associated increase in security demands, many organizations found that their on-premises ERP systems just couldn’t keep up.

Enter the Software as a Service (SaaS) delivery model, made possible in part, by cloud technology.  “In the cloud” simply means that the ERP software is hosted on a network of remote servers, instead of on-premises at the business’s location.  Traditionally, ERP applications were stored on your servers, meaning that your business was responsible for upfront hardware costs, long-term hardware maintenance, and expansion, and data backup and recovery.  The SaaS-based apps are stored on cloud-based servers which eliminates the need for a hefty IT stack, additional IT staff to maintain the stack, and allows more funds and energy be invested in growth opportunities.

History and evolution of ERP

(Post)Modern ERP – ERP Software In 2017

The research organization that originally coined the term ERP, Gartner has declared that we have entered the postmodern ERP era.  They define postmodern ERP as a technology strategy that automates and integrates administrative and operational business capabilities like finance, HR, purchasing, manufacturing, and distribution with appropriate levels of balance between vendor-delivered integration against business flexibility and agility.

Administrative ERP Strategy– This strategy focuses primarily on administrative functionalities like financials, human capital management, and indirect procurement.  This is a more service-centric approach to ERP, for industries that don’t require comprehensive operational capabilities.  Some industry-specific functionalities may be incorporated in the overall ERP strategy, but at its core, the focus is on administrative functions.

Operational ERP Strategy– Product-centric industries like manufacturing, distribution, retail, etc. will likely expand their ERP strategy to beyond administrative tasks into operational areas, such as order management, inventory management, manufacturing, and supply chain, to maximize operational efficiencies.

ERP For SMBs

As the name may indicate, in the past, ERP systems had such a high price tag that they were often only a realistic solution for enterprise or large businesses.  However, with the adoption of SaaS and cloud technology, smaller companies can leverage the same robust ERP solutions that larger enterprises have enjoyed for decades.

Built For Digital

Both at home and at work, we are living in the digital age.  In order to stay relevant, ERP platforms must utilize modern, web-friendly UI that is easy to access and consume across devices. Today’s ERP also embraces advanced reporting features such as Business Intelligence, data visualization, and data analytics.  It must be flexible enough to take advantage of emerging technologies like the Internet of Things (IoT) and Big Data in order to provide comprehensive, real-time business insight.

Multi-Cloud Means APIs Over Function

API stands for Application Program Interface and it defines the way that software interacts with external programs.  Essentially, APIs allow your ERP’s internal functions to share data with other programs without revealing the ERP’s internal code, which saves time and reduces security risk.  This is increasingly important as your business begins to embrace the multi-cloud world.  When turning your business into a multi-cloud hub, it’s important to evaluate an ERP vendor’s API portfolio and cloud interoperability in addition to more traditional financial and/or logistical functionality considerations.

The Future Of ERP

Technology is advancing exponentially.  It seems clear that mobile, multi-cloud, business intelligence, big data and the internet of things are all here to stay.  However, with so many new buzzwords and emerging technologies, it can be difficult to predict which will stick around, and which will fade into obscurity.  That being said, there are a number of potentially influential developments that we suggest you keep an eye on in the coming years.

  1. Blockchain – A blockchain or Distributed Ledger Technology (DLT) tracks the transactions of digital assets like bitcoins, making it a digital ledger that remains current when new transactions, in the form of a new block of encrypted data, is added to the chain of transactions.  The blockchain isn’t exclusive to digital currency.  It can be used to track any digital asset without the need for a central authority, making it extremely fast.  Used in conjunction with your ERP system, a blockchain can drastically minimize downtime for service or secure the supply chain management process.  For example, the IoT allows manufacturing equipment to predict breakages and failures to proactively prevent issues.  By adding a blockchain between your ERP and your parts supplier, your smart equipment can safely order its own replacement parts to arrive in time for an engineer to fix it.
  2. Virtual and augmented reality – Augmented reality (AR though not to be confused with Accounts Receivable) and virtual reality (VR) aren’t just gaming concepts anymore.  AR virtually layers information over the physical environment, think Pokemon Go or Google Glass.  While VR fully immerses a user in a virtual world, as I’m sure you’ve seen in the form of VR gaming headsets.  The enterprise applications of both AR and VR are only limited by your ability to imagine them, from replacing video calls to providing engineers with a virtual world in which to build prototypes or even taking the premise of data visualizations to the next level.  However, before either of these technologies can be implemented, the business must have an end-to-end data management strategy powered by a robust ERP application.  After all, the AR and VR technologies not only run on data, they also produce a lot of actionable data.  ERP software, in essence, is the backbone of any realistic enterprise application of AR or VR technologies.
  3. Robotic Process Automation (RPA) – It’s software that automates other software! What could possibly go wrong?  RPA performs high-volume, manual, repeatable tasks by mimicking how humans interact with computers.  Cognitive computing leverages Machine Learning (ML) and Artificial Intelligence (AI) to mimic human problem solving and decision making.  The potential for RPA lies in working in conjunction with ERP to automate as much as 90% of business processes.  However, many organizations are still skeptical of robotics and RPA seems, for now, too good to be true.

Hopefully, you now have a better understanding of what ERP is, how it became what it is, and some projections for the future.  ERP uses modules to create out-of-the-box customizability for businesses of any size.  Eliminate inefficiency, utilize modern technologies, break down data silos and make your data actionable! Contact one of our representatives today!

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