Enterprise Resource Planning – the five most important questions when choosing an ERP system
An Enterprise Resource Planning System (ERP for short) is used in many different sized companies. It helps both start-ups and medium-sized companies as well as large corporations to make business processes more efficient. This is achieved through effective planning and optimization of all available resources. However, before an ERP system can be implemented in the IT infrastructure, company-specific requirements must be met – this article collects the five most important questions and answers for the selection.
What functionality must an ERP system offer?
ERP software can be divided into core and additional modules. The following core components should be included as standard:
- Accounting: Accounting is the be-all and end-all of a company that wants to be successful in the long term. Invoices must be written, salaries paid, and incoming and outgoing payments meticulously documented. Only in this way can an annual financial statement or balance sheet be guaranteed. An ERP system helps companies to combine activities centrally in one program. Through integrated templates and thanks to one click, the transfer of wages or salaries and the sending of invoices/orders are easy.
- Logistik: Fast delivery of orders has become a standard feature – not only for consumers in the retail sector but of course also for business customers whose production depends on another company delivering the necessary resources on time and in full. The digitalisation of logistics is, therefore, taking on an ever-increasing significance.
- Merchandize management: Running out of resources (see also Opportunity costs), bottlenecks or delivery difficulties cost a company not only money. Especially in online trading, such situations can lead to the loss of important customers. These assume that their desired goods are always and everywhere available. If this is not the case, they look for another supplier who can satisfy their wishes. This is where the merchandize management system comes in. Among other things, this is responsible for replenishing materials or goods so that production or sales do not come to a standstill (see also replenishment in intralogistics).
- Human Resources>/strong>: An important asset in a company are its employees. If someone drops out, they must be replaced as quickly as possible. If too few employees are assigned to a task, this can lead to delays in the worst case. Therefore it is essential that managers are always informed whether sufficient human resources are available to master all upcoming tasks.
- Production>/strong>: A manufacturing company must be able to filter process sequences within the production in an itemized way:
- – Are sufficient materials available to guarantee a smooth production process and prevent bottlenecks?
- – Are there delays or disturbances at the individual production points of a production line?
- – Are sufficient employees available to operate the machines if necessary, or are there failures that have to be compensated?
Many vendors/providers also offer the possibility to add additional functions individually. These can be any of the following:
Editor’s note: However, it is essential that companies are conscious about what they really need and what might be useful later on.
Choosing between individual or standard solutions?
Those who decide to implement an ERP system are often spoilt for choice. So there is a multitude of providers and an even greater selection of software solutions. Therefore, it is first of all important to work out your requirements. Based on these, a sustainable purchase decision can be made (see the following picture):
In addition, there are special forms, such as a functional ERP system, which only cover certain areas within a company. Relevant accounting or software modules for quality assurance are often used in these ERP solutions.
This decision should never be taken lightly. Every variant of an ERP system can be interesting for a company – regardless of the size or number of employees. Usually, the budget is the deciding factor:
- A standard solution, for example, is well suited for companies that do not have a special orientation and therefore do not need any additional features. Since this ERP model contains all the basic components, it is very easy to work with.
- For start-ups, an all-in-one solution can make sense, especially at the beginning, because it is cheaper to implement than, for example, individually adapted system environments. At the same time, however, cloud ERPs are also interesting, as start-ups can customize the functions according to their individual requirements. Furthermore, neither hardware nor IT specialists are required. Since the budget of most start-ups is limited, Cloud ERPs make sense.
- Large corporations usually resort to individual software. As a rule, this corresponds most closely to their requirements, since existing structures are significantly more complex than those of SMEs. Although individual programs are associated with significantly higher costs, large corporations also require a wider scope.
What costs arise in the course of implementation?
The more preparatory work a business does, the cheaper the ERP system becomes. If a company clearly formulates its requirements from the outset and sends these to the supplier in the form of a tender or performance specification, the more specifically the development can take customer wishes and technical refinements into account. As a rule, hidden costs can also be better revealed and discussed before the actual development phase. At the same time, of course, the type of ERP system is relevant. Individual software is always more expensive than an all-in-one version.
Many companies also forget the running costs that an implementation entails. Those who decide on an on-premise variant, i.e. a usage and licensing model, require IT specialists and the corresponding hardware, among other things. The company also takes care of support and maintenance itself. With an ERP system implemented in the cloud, the costs are not eliminated, but the provider’s surcharge can be more favourable in the long term by means of subscriptions. The manufacturer is responsible for support and updates. No own hardware is required.
In general, the implementation costs are very individual. It is therefore difficult to give an exact breakdown of expenditure – every situation or requirement is different, as are the needs and requirements of the companies concerned. In general, however, the following statements can be made:
- The acquisition costs amount to around 6,000 euros per workplace
- If no hardware is required, the price drops
- Individual requirements and additional features lead to increased expenditure
- Of course, the implementation and subsequent operations also require human resources. Companies should plan for between four and seven employees for maintenance and operations
- In addition, between two and three external experts will most likely be involved
- Modernisation, maintenance and updates also cost money. Approximately 1/3 of the acquisition costs can be expected. At the latest every five years, the ERP system should be modernized and updated
- The implementation can easily last twelve months
The importance of usability
Usability is an essential criterion when choosing an ERP system. The easier the software is to use, the easier it is for employees to become familiar with it. Intuitive operation also leads to less workload.
Relevant for the usability is, among other things, the interface. This should not appear too overloaded. The faster the user finds the desired function, the more efficiently he can work with the software. Clear and easy navigation is therefore recommended. Help functions integrated into the ERP software can also be very useful, e.g. by showing individual processes in an understandable way.
Companies that opt for a cloud ERP also have the advantage that users are not tied to an office or the corporate network. Instead, access is possible worldwide – in addition to a stable Internet connection, VPN access to the company network is required on the one hand, and on the other hand the cloud ERP solution must be DSGVO-compliant.
Data protection and privacy
Ever since the above-mentioned DSGVO came into force, the protection of personal data has taken on a very high priority. Especially in the area of Cloud-ERP, many companies are insecure in this respect. When choosing an ERP system, it is therefore important to consider the location of the provider. The new DSGVO states that both European and other countries must comply with data protection guidelines. Nevertheless, these often differ – especially when comparing the European Union with non-member countries such as the USA. If questions arise, it is always advisable to contact the responsible data protection officer and check whether the data of customers, employees and partners in the system is really secure. If a company doesn’t want to take any risks, it can also implement its systems locally and integrate them into their own IT infrastructure – access is then possible either local via the network or VPN connection.