Exploring Terms and Definitions of Key ERP Concepts

An enterprise resource planning (ERP) system is business process management software that allows an organization to use integrated applications to manage and automate back-office functions related to technology, services, and human resources. ERP platforms provide a centralized system to manage key operations across finance, human resources, manufacturing, supply chain, customer relationship management, and more. Read A Guide to Enterprise Resource Planning (ERP) for more information.

By integrating data and processes across these business functions into a single unified system, ERP software helps improve access to information, enforce standardized processes, enable complex reporting and analytics, and drive end-to-end workflow automation. This results in enhanced business process efficiency, informed decision-making based on data insights, and higher operational performance.

In the following sections, we will explore several key concepts related to ERP systems, including–defining ERP modules and capabilities that enable business process improvements, comparing deployment options like cloud vs. on-premise, best practices for managing upgrades and maintenance, strategies around facilitating user adoption and change management, as well as economic considerations like total cost of ownership and expected ROI from ERP implementations. The goal is to clarify fundamental ERP terms and how these systems aim to transform business productivity and innovation capabilities when successfully leveraged.

What is an ERP System?

An ERP system is modular software designed to integrate the main operational functions of an organization’s business processes into a unified system. ERP software will use a common database to store, manage, and interpret data from various business activities.

This enables data to flow between different departments and modules, including finance, supply chain, manufacturing, inventory, services, CRM, HR, and more. ERP facilitates information sharing between business units and ensures various departments can access the same information in real time.

Read our guides on Comparing Postmodern and Traditional ERP Systems and Showcasing Various ERP System Examples for more information.

Benefits of ERP Software

Implementing an ERP system can provide immense value through both quantitative and qualitative improvements. The integrated nature of ERP platforms allows businesses to realize benefits spanning multiple operational areas.

There are many potential benefits from implementing an ERP system:

• Increased efficiency through workflow automation
• Enhanced reporting and analytics
• Improved visibility across business units
• Centralized access to integrated data
• Reduced redundancy through shared services
• Standardized business processes
• Higher productivity and collaboration

The combination of streamlined processes, data centralization, built-in analytics, and unified systems results in both soft benefits around collaboration and hard ROI from cost reductions and revenue gains over time from ERP adoption.

ERP Modules and Capabilities

ERP platforms are modular enterprise systems integrating business processes and data across departments to enable organizational visibility, improved efficiencies, and technological innovation. These solutions consist of core modules aligned to key functional areas as well as embedded capabilities that drive process improvements and digital transformation.

Core Business Modules

ERP systems will include a range of modules that aim to manage essential business operations:

• Financial Management: General ledger, accounts payable, accounts receivable, asset accounting, cash and treasury management, and more.
• Human Capital Management: Payroll, recruiting, onboarding, training, diversity tracking, time and attendance, and other HR processes.
• Manufacturing Management: Production planning, manufacturing process workflows, manufacturing execution systems, capacity planning, quality control, materials requirements planning, inventory control, and shop floor management.
• Supply Chain Management: Procurement, vendor management, purchase order and requisition workflows, inventory control, logistics execution such as warehousing and shipping, transportation, and freight management.
• Customer Relationship Management: Sales force automation, marketing campaign management, customer service case workflows, call center operations, field service management.

These modules focus on supporting end-to-end processes within each business function through integrated systems and information sharing across modules.

Key Technology Capabilities

In addition to modules supporting business operations directly, ERP platforms provide technology capabilities leveraging the latest innovations:

• Advanced Data Integration: Seamlessly integrate structured and unstructured data across internal ERP modules as well as external systems of partners and customers.
• Intelligent Business Process Automation: Model, automate, and continuously improve complex workflows spanning people, systems, and bots for optimal efficiency.
• Robust Analytics and Reporting: Embedded reporting allows users to visualize ERP data easily for insights into operations, while predictive capabilities leverage machine learning for forecasting.
• Flexible Customization Tools: Platform configuration and personalization tools allow businesses to tailor systems to their existing and emerging process needs.

Driving Continuous Innovation

Together, ERP modules and capabilities can automate manual tasks, modernize legacy processes, provide data-driven insights for decision-making, and integrate emerging technologies–ultimately creating an adaptable foundation for digital transformation. The integrated modular platform facilitates innovation opportunities across business functions, leading to new data-driven decision-making practices, system-enabled process optimization, and accelerated technology adoption to stay ahead of the competition.

Deployment Considerations

Deploying an ERP system requires upfront planning and understanding of options available to determine the best software, implementation approach, and ongoing support model tailored for the organization. Below are key dimensions companies evaluate when embarking on an ERP initiative.

Cloud Solutions vs. On-Premise Deployment Models

• Cloud/SaaS ERP: Software is hosted on vendor servers and accessed via a web browser. This reduces upfront infrastructure requirements for faster rollout with monthly subscription-based pricing per user. The vendor handles automatic updates.
• On-Premise ERP: Software is installed on company servers, and hardware is managed in-house. This requires larger capital investment upfront but enables deeper customization and control. Internal IT oversees management, maintenance, and updates.

Implementation Methodologies

• ASAP: SAP’s structured methodology focused on best practice processes to guide ERP configuration decisions and adoption.
• Agile: Iterative implementation style allowing progressive software configuration through multiple development sprints and changing requirements.
• Hybrid: Combined waterfall and agile approaches, balancing structure needs with flexibility.

Implementation Partners

Leveraging qualified third-party partners can provide software development services, customization, data migration, change management, training, and ongoing support. Relying on experts helps reduce deployment risk.

Evaluating Scalability

Since scaling ERP requires significant reconfiguration, assessing long-term needs upfront is imperative before embarking on rollouts and determining required modules, integrated capabilities, and infrastructure elements.

Carefully examining options for deployment method, implementation approach, service partners, and long-term extensibility prevents costly rework down the road while optimizing ERP solutions to an organization’s culture, objectives, and growth plans.

Upgrades and Maintenance

The platforms require periodic upgrades and continual maintenance for ERP systems to fulfill their promise of driving long-term process improvement and supporting evolving business innovation.

Definitions

• Technical upgrades focus on infrastructure changes needed to maintain optimal performance.
• Functional upgrades incorporate new features and modules, enabling users to benefit from the latest tools.

Upgrade Strategies

• Technical upgrades happen more frequently to address bugs and maintain system health.
• Functional upgrades are less common to balance new capabilities against the impact of change.

Ongoing ERP Maintenance

Post-go-live, IT teams will continuously monitor system KPIs and address issues through access troubleshooting, performance tuning, patching vulnerabilities, providing end-user support, planning skill improvements, and refining integrations with other updated enterprise applications. This sustains operational reliability.

Regular platform revisions coupled with dedicated maintenance are imperative for ERP solutions to continue delivering ROI through transformed workflows and visibility as business needs shift.

User Roles and Changing Management

Successfully rolling out ERP systems requires defining access and governance policies while proactively managing organizational change impacts through structured programs.

Optimizing User Access

ERP licenses should be provisioned based on employee roles and functional needs. Two primary approaches exist:

• Named Users: Specific employee credentials permit system access. This links usage to individuals.
• Concurrent Users: A shared pool of licenses allocates access when needed, allowing flexibility. It better suits shifting teams.

Additionally, licenses can be tiered by functional permissions:

• Read Only: View data and records
• Limited User: Update certain types of records
• Power User: Access full features
• Administrator: Manage overall configurations

Setting access constraints balances security, risk, and compliance concerns against user productivity. Organization role mapping to license types and access levels streamlines ERP usage.

Change Management Tactics

Transformation requires readying staff for changes to processes, systems, and reporting flows caused by ERP rollouts through structured programs:

• Stakeholder Alignment: Executive sponsorship signals the importance organization-wide
• Capability Building: Self-service training and support enable confidence
• Community Development: Establish user groups and feedback channels to share best practices

Proactively managing business disruption using these change management tactics accelerates user adoption, ultimately empowering employees to leverage ERP capabilities tailored to their workplace needs effectively.

Economic Considerations

While ERP systems aim to improve long-term business performance, the solutions do require significant capital investment across software, services, maintenance, and internal change management initiatives.

Evaluating the total cost of ownership across the ERP lifecycle and aligning vendor selection to key considerations allows companies to effectively weigh costs against expected gains in productivity, efficiency, and revenue acceleration.

Key considerations include:

• Software licensing fees or monthly SaaS subscription costs
• Implementation services like customization, data migration, and testing
• IT infrastructure, operations, and internal team support
• End-user training initiatives and organizational change management
• Ongoing upgrades, maintenance, troubleshooting and patch management
• Evaluating functional scope alignment to stated requirements
• Assessing technology innovation pace for emerging capabilities
• Vetting implementation approach, ecosystem support, and services
• Researching analyst recognition and customer validation
• Ensuring pricing and total cost transparency

Carefully examining both the full breadth of expenditures and critical vendor criteria allows decision-makers to build sound cases linking the significant ERP investments to measurable operational transformation and data-driven business performance gains over the long term.

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Grow together.

Frequently Asked Questions

What are the main reasons companies implement ERP software?

The top drivers for ERP software adoption include needing to replace outdated legacy systems, wanting to standardize processes for efficiency gains, seeking to integrate systems across business units, and needing better visibility and reporting.

What core functions does an ERP system help manage?

ERP systems help companies manage essential back-office functions related to finance, accounting, supply chain, manufacturing, inventory, procurement, project management, HR processes like payroll and recruiting, as well as customer-facing processes such as sales, marketing, and customer service.

Should I use cloud or on-premise ERP?

Cloud ERP systems have become more popular in recent years due to faster deployments, lower upfront costs, and reduced burden on internal IT teams for management and updates. However, on-premise ERP may still make sense for companies wanting maximum control and customization capabilities beyond what out-of-the-box cloud systems offer.

How long does an ERP implementation take?

ERP implementation timelines vary substantially based on scope and complexity – anywhere from 3 months for a basic cloud roll-out to over a year for global or multifaceted deployments. The methodology used also impacts duration.

What are ERP modules?

ERP modules refer to the different software components that focus on supporting specific business processes. This includes modules for finance, accounting, supply chain, manufacturing, inventory, procurement, project management, human resources, payroll, CRM, sales, marketing, and more.