What Is an ERP System and Why Would I Need One?

The question of what an ERP system is, and why a business would need one, was discussed at length in a recent webinar we held with business leaders who are trying to break through common business growth barriers.
We discussed common ERP Myths as well as explaining in plain English the advantages that ERP systems give to growing businesses. We also explored how the accessibility of ERP systems has transformed over the last 30 years and how these “big business” systems  support transformation and change management.

ERP Systems Enable Sustained Business Transformation

Many businesses are trying to implement transformation to support business growth and change the way they interact with their customers, their suppliers, and even their staff.

Within that change there are often underlying business processes that need to be changed in order to achieve improved efficiency, or improved outcomes for customers.

However when transformations are a struggle, or unsuccessful, businesses will often look to their personnel and wonder what link in the chain in the is missing, frequently hiring more staff to manage routine tasks. What often happens is that the business does not have the systems to support transformation and major changes.

A tightly connected ERP system underlies major operational change and allows businesses to scale without simply adding additional people to push paper around the office.

The right ERP system will support your personnel and your business in the adoption of industry leading best practices.

ERP Systems Unify Your Business

The best way to imagine a unified business is to think of a single situation that results in a sale for your business. Keeping things oversimplified, your customers journey might start with a price enquiry through your website.

With an ERP system in place, this query would come via your website directly into your CRM, where it is routed to a customer service member. The customer details are captured, and an automated alert is generated so that a sales member can follow up the query at a point in time and convert the query into a sale.

The sale transaction automatically generates a picking order which is fed through to your warehouse, from which all related fulfilment activities are automatically created and assigned.

Meanwhile both your inventory and balance sheet are adjusted in near real time to reflect the sale.

The customer invoice is also automatically generated and sent. For the sales representative, any commission they’re owed is automatically applied and updated against their pay check.

If at any point in time the customer, or the business owner were to query the status of this single order they would know in an instant what was going on.

Now imagine your business managing this single transactional activity, without error, without interruption, thousands of times a day.

This is the difference an ERP system makes to a business.

An ERP System Delivers So Much More Than A Glorified Accounting System

When your business starts out you find yourself needing a system to record and manage your finances, so you take on a small business accounting system like Xero or Account Right.

It serves your business well for several years, then as your business grows you find you need an Inventory system, or a job cost management system, so you – or your accountant – finds you an add-on or bolt-on application.

This effectively patches over the issue and gets you through another stage of growth. Then you start to add more bolt-on’s….and before you know it you’re stuck in a situation where you’ve got several bolt-on’s running.

•  Each bolt-on cost substantial amounts of money.
•  Almost none of the bolt-on’s support the intended process/ department 100%.
•  You’re still reliant on dozens of spreadsheets and manual data updates because none of the bolt-on’s talk to each other.
•  You’re unable to generate the reports that matter in time to matter.

An ERP system on the other hand is a complete suite of functionally rich, purpose built, business applications, where each if designed to thoroughly support the industry leading practices around that function. Each application feeds directly into your financials, and crucially, they also integrate tightly with each other, so your customer service team understand what is happening in your warehouse – while your inventory team understand what’s happening in sales.

ERP Systems Are Simpler Than Best Of Breed Integrated Applications

Maybe your finance team is managing just fine with their small business accounting software, but the service and sales side need a CRM system. So you start shopping for CRM systems and decide you want the best of breed CRM, similarly you want a best of breed inventory system and so on.

Sure, it’s easy to integrate all these different systems together. The way to do that is middleware.

The need for middleware is just the beginning of the unforeseen costs associated with this strategy. By the time factor in the license costs for a suite of best of breed applications, you’re costs are likely to have blown out well beyond your initial expectations, as you now pay for many instances of software licenses to multiple vendors – plus middleware licenses and data transfer.

The other side of this, that often isn’t considered is that you also need a team of IT personnel – either externally sourced contractors, or full time direct employees, to manage everything. Their job is to ensure security is tight across all systems, control any vendor updates and apply patches, deliver internal support when things aren’t working as intended, manage the different licenses and ensure that information is flowing between the many different systems at all times.

ERP systems, such as NetSuite, are a suite of purpose-built applications, some of which are even considered to be within the class of best of breed applications for the support of particular business functions. They already talk to each other – so no middleware, the vendor maintains the security and software, so no IT department, the vendor or your implementation partner also manages support.