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WHAT IS ERP?THE ULTIMATE GUIDE

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2 / 35 What is ERP? The Ultimate Guide

Contents

Getting ready for ERP

On-premise or the cloud?

What is ERP?

The futureof ERP

References

The key benefitsof ERP

The problems with ERP today

A short historyof ERP

Introduction

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Did you ever wonder what enterprise resource planning or ERP is and how it can help your business? Or perhaps you know a little about ERP but you’re not sure if you should opt for an on-premise or cloud solution

and what to expect from your final choice.

Don’t worry. If you’re a business owner, manager or director in a mid-sized or growing

business and you’re confused about ERP, this guide will help you.


3 / 35 What is ERP? The Ultimate Guide: Introduction

Introduction




How this guide will help. If you’re struggling with issues like the implementation and maintenance costs of ERP, a poor user experience, or being unable to adapt your chosen software to the demands of your business, this guide will reveal the answer to your problems.

Why? Well, we’re going to demystify ERP and answer commonly asked questions about this type of software. You’ll get a short history of how this type of business management software evolved (did you know it’s been around since the 1960s?) and what the main types of ERP are today.

Then, we’ll explain what an ideal ERP solution should do for your business before detailing why ERP has a bad reputation today. Finally, we’ll reveal what the future of ERP looks like and how it will change how you and your business work.

4 / 35 What is ERP? The Ultimate Guide: Introduction




What is ERP? Enterprise Resource Planning is a type of management software for rapidly growing, medium and large businesses as well as enterprises. ERP integrates day-to-day processes including: inventory and order management, accounting; human resources, customer relationship management (CRM), and more.

ERP is popular in industries like manufacturing, distribution, purchasing, warehousing, marketing, IT, finance, and so on.

ERP enables users to share information across the entire business using a shared database that supports the way different business units work. In reality, this means employees in different divisions – for example, accounting and sales – can rely on the same information to meet their needs. ERP should bring the front-office and back-office together.

According to Nick Castellina, Vice-President and Research Group Director for the Aberdeen Group, “[ERP] helps the business leaders to have more drill-down capabilities into the metrics that your organisation is monitoring [like] the amount of products you're putting through, your operations.”

5 / 35 What is ERP? The Ultimate Guide: What is ERP?




“ERP is the solution that brings everything together and has all the data used to run your organisation. It also has financial information,

it has HR information, it has supply chain information... it’s really what supports your business from end to end.”

Nick Castellina, vice-president and research group director, Aberdeen Group

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The research and advisory firm Gartner is credited with coming up with the term ERP in a seminal 1990 white-paper A Vision of Next Generation MRP II. However, it’s possible to trace the roots of the concept of ERP to the 1960s.

Back then, software engineers in the manufacturing sector developed basic programmes to monitor inventory, reconcile balances, and so on. So, what we know today as “ERP” initially only referred to managing and controlling inventory.

1960s

1970s - 1980s

1990s

2000s

2006 - 2017

A short history of ERP


7 / 35 What is ERP? The Ultimate Guide: A short history of ERP



In the 1970s and 80s, software engineers developed these rudimentary systems so they could manage manufacturing and other business processes. These systems became known as Material Requirements Planning (MRP) and later Manufacturing Resource Planning or (MRP II).

1960s

1970s - 1980s

1990s

2000s

2006 - 2017






By 1990, it was possible to use an MRP system, or ERP, to manage inventory and other operational processes as well as for managing back-office functions like human resources.

1960s

1970s - 1980s

1990s

2000s

2006 - 2017






In the early 2000s, Gartner declared what we knew then as ERP was dead and that “ERP II” was the future.

This future comprised web-based software with real-time access to business-critical information. “ERP II” expanded to encompass business intelligence (BI) alongside front-office like sales force automation (SFA), marketing automation and even e-commerce.

“Since its inception, starting as MRP, ERP has continued to become more robust, more comprehensive, and is used to support more functions within an organisation,” says Castellina.

“ERP software vendors are continuously building more robust functionality for back-office processes, financial processes, as well as supply chain processes... that are very much industry-specific, featuring functionality that those industries may need.”

1960s

1970s - 1980s

1990s

2000s

2006 - 2017






During the past ten years, software-as-a-Service (SaaS) solutions or cloud computing has fuelled the growth of ERP and transformed it into a more affordable and easier to implement software.

Castellina explains, ”When cloud ERP was first introduced, it was something that few organisations were willing to consider. What we’ve seen... is that the amount of organisations that are willing to consider a cloud solution has increased over the same time.”

Although cloud ERP solutions are more popular today, a significant amount of organisations opt for on-premise solutions to meet specific business requirements.

“At the same time, there are organisations that prefer to keep their solution in-house and on-premise,” says Castellina. ”It might be that somebody in IT has that preference, they have an existing, large IT staff [or] they are concerned about security [or] downtime.”

Modern ERP software enables real-time reporting business intelligence and should serve as a valuable tool for executives, managers and leaders who need to see what’s going on across their businesses.

Although the acronym ERP refers to enterprises, medium-sized and rapidly growing companies today turn to ERP software today when they’ve outgrown their accounting solution, and they need help with key business processes.

1960s

1970s - 1980s

1990s

2000s

2006 - 2017





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In rapidly growing and larger companies, managers often can’t see what’s happening in every area of their business. They may, for example, not know how much inventory their business has and requires at any one moment in time. Ideally, the right ERP solution should help managers solve these types of problems.

The integration of various pieces of software into one system or solution means owners and managers can see what’s happening in every area of their business including: administration and operational functions, financial, HR, procurement, manufacturing, warehousing, sales and marketing, customer service, and more.

The key benefits of ERP

12 / 35 What is ERP? The Ultimate Guide: The key benefits of ERP



“In addition to making you more efficient and enabling you to spend your time in other places on more higher-value activities, it also should give you more visibility and insights into what’s actually

happening in your business.”

Eric Kimberling of Panorama Consulting Solutions has more than 20 years advising businesses of all sizes on ERP, and he explains:






For example, consider the case of a financial director in a manufacturing and distribution business.

She depends on real-time information about her company’s inventory and financials to make more informed decisions, but she struggles to get this information to hand. As a result, decision-making is slower and more complex.

“From an accounting perspective, [ERP helps] understand in real-time what my inventory levels are or what my work-in-progress looks like at any given time, rather than having to wait 30 or 45 days... until you get to the end of a [financial] period,” says Kimberling.

Once the FD understands how much her company’s inventory costs and what the business should order in advance, she will be able to manage the company more efficiently. What’s more, she and other managers will be free to spend more time on higher-value activities, like business development.




“Beyond accounting, [ERP helps] me understand how much inventory I need to order to satisfy demand, and have better data and better

analytics to be able to make better decisions. Those are the sorts of things that will obviously lead to lower inventory levels, lower wasted

inventory, less work in progress that’s being wasted.”

Eric Kimberling, Panorama Consulting Solutions

“Beyond accounting, [ERP helps] me understand how much inventory I need to order to satisfy demand, and have better data and better

analytics to be able to make better decisions. Those are the sorts of things that will obviously lead to lower inventory levels, lower wasted

inventory, less work in progress that’s being wasted.”







In summary, the right ERP solution should enable:

A central repository of information about services, products, vendors, retailers, company financials, suppliers, customer orders, and so on

A means of analysis of sales and planning information that managers can act upon

Teams in different businesses to manage and collaborate on project information

Easy access to accurate company information and reports so managers can make more informed decisions





ERP has garnered a poor reputation over the past few years. According to many users and analysts, ERP often takes months to implement and is expensive and difficult to use. Business planning consultant David Hardstaff of DKNS Associates helps managers who are struggling with systems and processes implement solutions like ERP. Hardstaff believes that business managers almost always have specific requirements, which can lead to scope-creep and even cost over-runs.

“[The customer says], ‘I’d quite like [ERP] to do this, this and this,’ and [the consultant says], ‘[ERP] doesn’t do that out of the box, but we can make it happen.’ And they start to customise the system and modify it and you’re paying for all of this, and quite often... it doesn’t really work. There are problems.”

The problems with ERP today

17 / 35 What is ERP? The Ultimate Guide: The problems with ERP today



“The last time I implemented a full-blown old-fashioned ERP system it cost the company well over six figures.

It was about £150,000 in the end. That’s a big investment for a small business.”

David Hardstaff, business planning consultant, DKNS Associates






ERP projects also sometimes fail due to a lack of planning by the management team rolling out the solution. Nick Castellina of the Aberdeen Group points out that managers need to figure out if their business is ready for ERP before investing.

“If you want to avoid a failed implementation, it’s important to determine beforehand if your business has outgrown its accounting software and other business management software… and then how an ERP solution can help.”

He continues, “If your business is continuing to operate and you’re not being hindered by your technology, it might not yet be time to [choose] an ERP solution.”

Castellina is more cautious about the failure rate of ERP projects, pointing out that these failures can be attributed to poorly defined requirements.




“The reason any [ERP] solution implementation is going to fail is because you have poorly defined requirements of what

you’re looking for in a solution [or] you’re not implementing the functionality that your business needs.”

Nick Castellina, vice-president and research group director, Aberdeen Group






According to our research we found that:Percentage of users who disliked the implementation of maintenance costs of ERP

38%

Percentage of users who wanted a more flexible solution that they could adapt

36%

Percentage of users who disliked ERP for being unintuitive

32%

Percentage of users who complained that ERP doesn’t always support mobile devices

24%





One thing is clear: a business manager who wants an ERP solution to succeed, whether it be on-premise or in the cloud, must gather requirements from all stakeholders and carefully plan the project in advance if they want to get a return-on-investment.

Cloud-based ERP solutions are typically cheaper to adopt and implement than on-premise solutions, due to the nature of SaaS. This would suggest that cloud ERP is the future.





Before selecting an ERP solution, it’s critical to understand what the needs (and pain-points) of your business are and how a proposed solution will help you address them.

For example, inconsistent data from different business areas or an inability to find information when you need it are often key signs that your business is outgrowing its accounting or business management software. However, recognising that your company is ready for a new solution is only the first step.

A lot of ERP projects fail because managers don’t consider:

Getting ready for ERP

How processes in the business will be impacted by ERP

How people within a company will use ERP as part of their role

The cost of an ERP project from beginning to end

The time it will take to implement such as solution

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So how long should this process take and how much will it cost your company? Well, there is no easy answer because it depends on the size and scope of your organisation.

However, according to Panorama’s independent ERP research over the past five years, the average cost of ERP implementations is approximately $6.1 million with an average duration of 15.7 months.





“You don’t want to treat [ERP] as a small project. You want to make sure you have a dedicated focus on the people that are addressing the organisational change management aspects... People always think end user training when they think of organisational change, but there’s so much more that needs to

happen before the end user training in order for that to be successful.”

Eric Kimberling of Panorama Consulting Solutions has spent twenty years advising managers considering ERP, and he explains:




“Now you don't need to be spending that kind of money... There are lower level offerings... they’re simpler to operate. They focus on what

business owners want to do and a lot of these modular systems...interface with a third-party CRM or an e-commerce solution.”

The good news is the costs of an ERP solution are continuing to fall, particularly for newer and mid-sized businesses. David Hardstaff explains:






Does the solution in question provide a complete package for running all aspects of a business?

Does it support the latest technologies?

Is it easy to use?

Is this solution flexible enough to be adapted in the future?

Can this solution be easily customised?

Does this solution provide a detailed online help system?

Does this solution reduce the amount of time my colleagues will spend manually inputting information on multiple screens?

Can this solution increase performance in weaker areas of my business?

Is this solution cost-effective to implement and run?

Whatever your needs, remember ERP represents an investment of time and resources. So, when considering a solution, ask yourself:





One question many business owners and managers ask is: should I choose a cloud-based ERP solution or is an on-premise solution more appropriate? Typically, the size and organisation of your business dictates whether on-premise or the cloud is the right choice.

“If you’re a company that’s very decentralised and you have very independent business units and operations then maybe a best of breed solution is better,” says Kimberling.

For example, a relatively new small business that doesn’t have a lot of well-defined business processes or sophisticated IT will be able to implement and use a cloud ERP solution quickly and easily. However, an older, larger business may need a different type of solution that takes longer to plan and implement.

Kimberling explains, “But...if you’ve got disparate business processes and now you’re trying to scale the company for growth – maybe you’re a family-owned company and you’re third-generation, and now you want to take it to the next level – it may be that there’s a different solution out there. Maybe it’s not cloud.”

On-premise or the cloud?

28 / 35 What is ERP? The Ultimate Guide: On-premise or the cloud?



”It's not that there’s one-size-fits-all or one answer for everyone. You have to [understand] what your goals and objectives are and what

your overall strategy is and what that strategy drives, what the scope of your ERP initiative is, whether it’s one single ERP system or whether

it’s best of breed or whether it’s some other type of option.”



29 / 35 What is ERP? The Ultimate Guide: On-premise or the cloud?




Since its inception in the 1960s, the concept of ERP has evolved from a tool for materials to a solution for managing every area of your business.

However, today ERP doesn’t encompass what growing businesses need. Often, when a customer adopts ERP, they struggle to get support or find fixes for bugs. Similarly, it can take years for a business to generate a return on investment on a traditional ERP solution, and these solutions are difficult to adapt.

Today, a business management solution accomplishes more than what ERP is capable of. Whether based in the cloud or on-premise, it streamlines business processes and improves collaboration for organisations operating in multiple countries or that collaborate across the supply chain.

The future of ERP

30 / 35 What is ERP? The Ultimate Guide: The future of ERP




It solves the problems typically associated with ERP, for example being difficult and expensive to implement and use. It also supports multiple languages, currencies, companies, sites, and legislations and enables individual divisions or countries to follow business rules while sharing information.

For example, consider a manager of a distribution company. He or she may want to scale up their solution as the holiday season approaches and add additional users based in the business’s warehouses. Later after the holiday season when demand reduces, this manager can scale down their business management solution and remove users.

Sage X3 is an example of a powerful next-generation business management solution that delivers a return on investment faster. According to independent analyst Forrester, a composite company using Sage X3 achieved “a 177% ROI” or “$1.7M from cost savings over three years”.




“With Sage X3, we can invest our resources in growing the business, not in managing the software and maintaining an IT infrastructure. In a growing business, we all wear many hats and are on the go at all times. I love that I can access Sage X3 from by desktop, my laptop, my tablet,

and my phone – all I need is an Internet connection and a browser.”Grant Morehead, CEO and CFO, Southern Silicones






Unlike ERP, a business management solution:

Reduces the costs of implementing and maintaining

your software

Enables the reviewing of business-

critical information in real-time

Is flexible and can be adapted to changing business

requirements

Helps you and your management team focus on growing

your business

Offers you and your team a modern

and intuitive user experience

Simplifies every part of your

operation and helps reduce costs




WORK DIFFERENTWITH A BUSINESS MANAGEMENT SOLUTION, YOU CAN FINALLY

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Forrester, January 2016. The Total Economic Impact™ of Sage X3. Cost Savings And Business Benefits Attributed To Sage X3. Available at http://www.sagex3.com/~/media/markets/erpx3/forrester/sage-x3_forrester-tei-case-study_feb-16.pdf?la=en-gb

Gartner, March 2, 2016. Gartner Says Through 2018, 90 Percent of Organizations Will Lack a Postmodern Application Integration Strategy. Accessed at http://www.gartner.com/newsroom/id/3233217 on October 13, 2016

Gartner 1990. A Vision of Next Generation MRP II.

Panorama Consulting Solutions, 2015. 2015 ERP report. Accessed at http://go.panorama-consulting.com/rs/panoramaconsulting/images/2015%20ERP%20Report.pdf on October 13, 2016.

Sage, 2016. Interview with Nick Castellina, vice-president and research group director for the Aberdeen Group, October, 2016.

Sage, 2016. Interview with David Hardstaff, DKNS Associates Limited on October, 2016.

Sage, 2016. Interview with Eric Kimberling, Panorama Consulting Solutions, October, 2016.

ReferencesSage is the market leader for integrated accounting, payroll, and payment systems, supporting the ambition of the world’s entrepreneurs. Sage began as a small business in the UK 30 years ago. Over 13,000 colleagues now support millions of entrepreneurs across 23 countries as they power the global economy.

We reinvent and simplify business accounting through brilliant technology, working with a thriving community of entrepreneurs, business owners, tradespeople, accountants, partners and developers. And as a FTSE 100 business, we are active in supporting our local communities and invest in making a real difference through the philanthropy of the Sage Foundation.

Sage – the market leader for integrated accounting, payroll and payment systems, supporting the ambition of the world’s entrepreneurs.

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