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Enterprise Resource Planning (ERP) has taken on a central role in the organisation of companies in recent decades. Modern ERP systems enable the efficient management and control of various business processes and resources. In this article, we will explain what an ERP system is, how it works, and the differences between ERP solutions for start-ups, SMEs and large enterprises. The development of ERP systems has progressed so rapidly in the recent past that we want to give you an overview of the performance in all areas that can benefit from an ERP solution. This applies to information procurement as well as to human resources services and the provision of operational data.
Table of Contents
- What is an ERP system?
- Evolution of ERP systems
- Modern ERP systems
- Cloud ERP and Software as a Service (SaaS)
- ERP applications for start-ups, medium-sized companies and large enterprises.
- Selecting and implementing an ERP system
- Relationship between organisational model and planning models in ERP systems.
- Organisational models and their importance for the ERP system.
- Planning models in the ERP system
- Planning approaches for companies of different sizes
- The role of ERP databases in the use of ERP systems
- What users should look for when selecting and implementing ERP systems
- Advantages and disadvantages of different database solutions for ERP systems
- Support for supply chain and operations optimisation
- ERP systems and supply chain optimisation
- ERP systems and the identification of weak points in the value chain
- ERP systems and the support of processes and employees
- Summary and recommendation
What is an ERP system?
The abbreviation "ERP" stands for Enterprise Resource Planning. An ERP system is an integrated software solution that is used to manage and control the various business processes and resources of a company. These include finance and accounting, human resources, sales, procurement, manufacturing and supply chain.
ERP systems enable companies to store all relevant data and information centrally in a database, thus ensuring efficient decision-making, planning and control of business processes.
Evolution of ERP systems
The origins of ERP systems go back to Material Requirements Planning (MRP), which was developed in the 1960s. MRP was a computerised system for planning and controlling manufacturing processes. In the following decades, MRP systems were further developed and additional functions were added until they finally became today's comprehensive ERP systems.
Modern ERP systems
Modern ERP systems offer a wide range of functions and services to support the business processes in a company. They integrate the different departments and enable a smooth exchange of information between them.
Over time, various ERP vendors have established themselves in the market, offering different ERP solutions for different industries and company sizes. Some of the most popular ERP systems are Dynamics 365 Business Central (formerly Dynamics NAV or Navision), SAP and Oracle.
Cloud ERP and Software as a Service (SaaS)
In recent years, the trend towards cloud ERP systems and software as a service (SaaS) has increased. In these solutions, the ERP software and database are hosted in the cloud and companies can use the software over the internet. This offers advantages such as lower IT costs, easier implementation and scalability, and higher availability of the systems.
ERP applications for start-ups, medium-sized companies and large enterprises.
Depending on the size and requirements of a company, different ERP solutions can be used. The differentiations for the use of ERP applications for start-ups, medium-sized enterprises and large enterprises are explained below.
ERP software solutions for start-ups
Startups usually have different requirements for ERP systems than established companies. They need flexible, cost-effective and easy-to-implement systems and solutions that can scale with the business. Cloud-based ERP systems and SaaS offerings are particularly attractive to startups because they require little to no investment in IT infrastructure and are often based on usage-based pricing models. Examples of ERP solutions suitable for startups are Dynamics 365 Business Central, Zoho One and Odoo.
ERP solutions for mid-sized companies
Mid-sized companies often have more complex ERP system requirements than startups, as they usually have more departments, employees and business processes. They therefore need more comprehensive and powerful ERP solutions that are still easy to use and manage. Some ERP providers have specialised in SMEs and offer tailor-made solutions for this target group. Examples of ERP systems suitable for SMEs are Dynamics 365 Business Central, SAP Business One and Sage 300.
ERP solutions for large companies
Large enterprises have the highest requirements for ERP systems due to their size and complexity. They need powerful, scalable and adaptable solutions that can integrate a variety of business processes and departments. Large enterprises therefore often rely on comprehensive and highly customisable ERP systems such as SAP S/4HANA, Oracle ERP Cloud or Microsoft Dynamics 365.
Selecting and implementing an ERP system
Selecting and implementing an ERP system is a complex and lengthy process that requires careful planning and preparation. Businesses should first be clear about their requirements and goals, and based on this, create a list of potential ERP solutions.
Some of the most important factors to consider when selecting an ERP system are:
- Functionality and adaptability: the system should cover all the required functions and be adaptable to the specific needs of the business.
- Cost: The total cost of acquiring, implementing and operating the ERP system should be in proportion to the expected benefits and savings.
- Technology and architecture: The ERP system should be based on modern technology and offer a flexible, future-proof architecture.
- Vendor and support: The ERP vendor should have sufficient experience, know-how and resources to successfully implement the system and provide long-term support.
The implementation of an ERP system should be carefully planned and carried out by an experienced project team. The following steps, among others, should be considered:
- Project planning and management: The implementation of an ERP system should be considered as a project that includes clear goals, milestones, responsibilities and timelines.
- Business process analysis and optimisation: Before implementing the ERP system, the existing business processes should be analysed and, if necessary, optimised to achieve maximum efficiency and effectiveness.
- Data migration: The existing data from the various departments and systems must be transferred to the new ERP system. This process requires careful planning and execution to avoid data loss or corruption.
- Adaptation and integration: Depending on the company's requirements, it may be necessary to adapt the ERP system or develop additional modules and interfaces to integrate it into the existing IT landscape.
- Training and change management: The company's employees should be trained and prepared to use the new ERP system. Change management measures can help to reduce possible resistance to the changes and promote acceptance of the system.
- Test and quality assurance: Before the ERP system goes live, a comprehensive test phase should be carried out to ensure that the system functions correctly and meets all requirements.
- Go-live and continuous improvement: After successful implementation and test phase, the ERP system can be put into operation. Subsequently, a continuous improvement process should be established to optimise the system on an ongoing basis and adapt it to changing requirements.
Relationship between organisational model and planning models in ERP systems.
Management overview:
The relationship between a company's organisational model and the planning models used in the ERP system is an important factor for the success of the implementation and use of the software. Taking the organisational model into account and selecting the appropriate planning models and functions enable efficient and effective management of business processes and resources in companies of all sizes.
Start-ups, medium-sized companies and large enterprises should carefully analyse their specific requirements for planning models and functions and select a suitable ERP system on this basis. In doing so, they should consider the support of the required planning models, the adaptability to the organisational model, the scalability and the integration options into the existing IT landscape.
The use of cloud-based ERP systems and Software as a Service (SaaS) solutions can be a flexible, cost-effective and scalable option, especially for smaller companies and start-ups, to provide the required planning models and functions.
Overall, a good fit and collaboration of the organisational model, the planning models and the ERP system helps to increase the efficiency and effectiveness of business processes, strengthen the company's competitiveness and support long-term value creation. Careful planning and implementation are crucial in this regard to ensure the success of the ERP implementation and the benefits for the company
Successful implementation and use of an ERP system depends not only on selecting the right software and its technical implementation, but also on taking into account the company's organisational model and the planning models used. In this section, we will explain the relationship between the organisational model and different planning models in an ERP system and examine which planning approaches are most suitable for companies of different sizes.
Specifically, the organisational models are explained in detail below:
Organisational models and their importance for the ERP system.
The organisational model of a company describes the structure in which the various business processes, departments and resources are organised and managed. There are various organisational models that can be used in companies, such as the functional, divisional or matrix organisation.
The chosen organisational model influences how the business processes and resources need to be mapped and managed in an ERP system. A good fit between the organisational model and the ERP system is crucial to ensure the efficiency and effectiveness of the business processes and to realise the full potential of the ERP system.
Planning models in the ERP system
An ERP system supports a variety of planning models and approaches that help organisations plan and manage their resources and processes efficiently. Some of the most important planning models used in ERP systems are:
Sales and production planning
Sales and Operations Planning (S&OP) is an integrated planning approach that coordinates sales, production, inventory and procurement. The goal is to optimally satisfy customer demand while maximising operational efficiency. S&OP is particularly important for manufacturing companies and can be supported in ERP systems by special modules and functions.
Material Requirements Planning (MRP)
Material Requirements Planning (MRP) is a planning approach that aims to determine material requirements for production based on sales forecasts and inventory levels and to manage procurement and production processes accordingly. MRP is a central element of many ERP systems and is particularly suitable for companies with complex manufacturing processes and material flows.
Capacity planning
Capacity planning is a planning approach that aims to optimally utilise existing capacities (e.g. machines, personnel) and avoid bottlenecks. Capacity planning is closely linked to production planning and can be supported in ERP systems by special functions and algorithms.
Financial planning and controlling
Financial planning and controlling are central aspects of business management and include the planning, control and monitoring of financial resources and results. ERP systems offer extensive functions for financial planning and financial controlling, such as budgeting, cash flow management, cost accounting and reporting.
Human resource planning
Human resource planning is an important area of business planning that aims to optimally align human resource needs and resources with the strategic and operational goals of the business. ERP systems support human resource planning through functions such as personnel needs analysis, recruitment, resource planning and personnel development.
Planning approaches for companies of different sizes
Depending on the size of the company and the complexity of the business processes, different planning approaches and models are useful and necessary in an ERP system.
Planning for start-ups
Start-ups usually have less complex business processes and resources than larger companies and therefore need less extensive and complex planning models. Nevertheless, they should pay attention to important planning aspects such as sales planning, simple material planning, financial planning and personnel planning. Cloud-based ERP systems with usage-based pricing models offer start-ups the opportunity to use the necessary planning functions cost-effectively and flexibly.
Planning for medium-sized companies
Medium-sized companies usually have more complex business processes and resources than startups and therefore require more comprehensive planning models and functions in their ERP system. These include advanced sales and production planning, material requirements planning (MRP), capacity planning, financial planning and human resource planning. Medium-sized companies should make sure to choose an ERP system that supports these planning models and functions and is adaptable to their specific requirements.
Planning for large enterprises
Due to their size and complexity, large enterprises have the highest requirements for planning models and functions in an ERP system. They need powerful, scalable and adaptable planning solutions that can integrate a variety of business processes and resources. For large enterprises, advanced planning models such as Sales and Operations Planning (S&OP), Material Requirements Planning (MRP II), Enterprise Resource Planning (ERP), Advanced Planning and Scheduling (APS) and Integrated Business Planning (IBP) are of particular importance. Large companies should take care to choose an ERP system that supports these planning models and functions and can be seamlessly integrated into their existing IT landscape.
The role of ERP databases in the use of ERP systems
ERP databases play a crucial role in the use of ERP systems as they serve as the central storage and management unit for all business data and information. A powerful, reliable and secure database is essential for the efficient operation of an ERP system.
What users should look for when selecting and implementing ERP systems
When selecting and implementing ERP systems, users should pay attention to various aspects to ensure optimal use and performance of the software. These include:
Database performance: the ERP database should be able to process and provide large amounts of data quickly and efficiently. This is especially important for companies with high data volumes and complex business processes.
Scalability: The database should be scalable to keep pace with the growth and changing needs of the business. A scalable database allows the company to flexibly expand and adapt its business processes without compromising the performance of the ERP system.
Security: Database security is a critical aspect of using ERP systems. Users should ensure that the database solution provides robust security mechanisms and policies to ensure protection of sensitive business data and information.
Integration: The ERP database should integrate seamlessly with the company's existing IT infrastructure and provide the ability to consolidate and manage data from multiple sources and systems.
Advantages and disadvantages of different database solutions for ERP systems
There are various database solutions that can be used in ERP systems, and each has its own advantages and disadvantages. Below are some common database solutions for ERP systems and their respective advantages and disadvantages:
Relational databases (e.g. Oracle, Microsoft SQL Server, MySQL).
Advantages:
• High performance and efficiency in processing structured data.
• Good scalability and adaptability to different requirements
• Broad acceptance and support by various ERP software providers
• Robust security features and policies
Disadvantages:
• May be less suitable for processing unstructured or semi-structured data
• May degrade performance with high data volumes and complex queries
• Higher costs and resource requirements for database management and maintenance
NoSQL databases (e.g. MongoDB, Couchbase, Cassandra).
Advantages:
• Flexibility in processing unstructured or semi-structured data.
• Scalability and adaptability, especially in distributed environments and Big Data applications
• Fast and efficient query and storage mechanisms for large amounts of data
• Easier administration and maintenance compared to relational databases
Disadvantages:
• Less support from ERP software vendors as NoSQL databases are still relatively new.
• Possibly less robust security features and policies compared to relational databases
• Complexity of integration with existing systems and data migration.
In-memory databases (e.g. SAP HANA, Oracle TimesTen).
Advantages:
• Extremely fast processing and provision of data through storage in random access memory (RAM) instead of on hard disks
• Enables real-time analysis and decision making
• Improved performance for complex queries and high data volume
• Scalability and flexibility through the use of in-memory technologies
Disadvantages:
• Higher hardware and software licensing costs compared to other database solutions.
• Possibly less suitable for companies with limited IT resources and budgets
• Need for regular backups and security measures to prevent data loss.
Choosing the right database solution for an ERP system is critical to the performance, efficiency and security of the software. Users should carefully consider the advantages, disadvantages and functionality of different databases and solutions and select the one that best fits the company's needs and resources. The productivity of the employees and the software solution, not only in manufacturing, but also in areas such as finance and accounting, shop floor data collection, market evaluations, resource planning and many other requirements need quick answers, the provision of which must be ensured by a high-performance database solution.
Regardless of the database solution chosen, users should ensure that the database is well integrated into the existing IT infrastructure, offers the necessary scalability and has robust security features. Careful planning and implementation of the database solution are critical to ensure the success of the ERP implementation and the benefits to the business.
Support for supply chain and operations optimisation
Supply chain and operations optimisation is essential for companies of all sizes to gain competitive advantage, reduce costs and increase customer satisfaction. ERP systems play a critical role in this by providing comprehensive support for planning, managing and optimising the supply chain and operations.
ERP systems and supply chain optimisation
ERP systems support supply chain optimisation through the following features and benefits:
Central data management and real-time information.
By centrally managing data and providing real-time information, ERP systems enable a better understanding of the current supply chain situation, including inventory levels, supplier performance, customer orders and demand forecasts. This enables companies to react faster to changes in the supply chain and make informed decisions.
Business process automation
ERP systems automate a variety of business processes along the supply chain, such as order processing, supplier management, warehouse management, transportation planning and invoicing. This leads to more efficient use of resources, a reduction in errors and an improvement in service quality.
Improved collaboration and communication
By integrating supply chain partners, such as suppliers, carriers and customers, into the ERP system, companies can improve collaboration and communication along the supply chain. This leads to better alignment of processes, increased transparency and closer collaboration between partners.
ERP systems and the optimisation of operations
ERP systems support the optimisation of operations through the following functions and benefits:
Process integration and standardisation
The integration and standardisation of business processes in an ERP system enable companies to make their operations more efficient, reduce redundancies and implement best practices. This helps to improve productivity, quality and value creation.
Resource planning and control
ERP systems provide comprehensive functions for planning and controlling resources, such as personnel, machinery, materials and finance. This enables companies to optimise their use of resources, reduce costs and increase operational efficiency.
ERP systems and the identification of weak points in the value chain
ERP systems help companies identify value chain vulnerabilities or broken supply chains through the following features and benefits:
Data analysis and reporting
Through comprehensive analysis and reporting capabilities, ERP systems can uncover weaknesses in the value chain and broken supply chains. This enables companies to identify problems early on and take targeted action to improve their processes and supply chains.
Monitoring key performance indicators (KPIs).
ERP systems enable the monitoring and analysis of key performance indicators (KPIs), such as supplier performance, inventory turnover, lead time and productivity. By identifying deviations and trends, companies can continuously optimise their value chain and identify potential weaknesses.
ERP systems and the support of processes and employees
ERP systems support processes and employees in various ways to ensure optimal performance and efficiency in the value chain:
Providing work instructions and training.
ERP systems can provide work instructions, training and best practices for employees to improve their skills and understanding of business processes and supply chains. This helps to improve productivity, quality and employee satisfaction.
Improve decision-making
By providing real-time information and comprehensive analytics, ERP systems support decision-making at all levels of the organisation. This enables employees to make informed decisions based on up-to-date data and insights, and helps improve productivity.
Summary and recommendation
An ERP system is a central tool for the efficient control and management of business processes and resources in companies of all sizes. Modern ERP systems offer a variety of features and applications to meet the diverse needs of start-ups, mid-sized companies and large enterprises. Cloud-based ERP systems and SaaS offerings are becoming increasingly important and offer a flexible, cost-effective and scalable alternative to traditional ERP solutions.
The selection and implementation of an ERP system requires careful planning, preparation and execution to ensure success and long-term value creation for the business. Companies should clearly define their requirements and goals and, based on this, select a suitable ERP solution that meets their needs. Factors such as functionality, cost, technology and support should be considered.
