Technological developments, the heating – or cooling – of the economy, the increase in the supply of credit and the reach of new markets are among the factors that significantly increase the competitiveness of companies. To continue growing, all companies need to have adequate management of resources, data and processes. One way to do this is to adopt ERP (or Enterprise Resource Planning defined on AbbreviationFinder) solutions, that is, business management systems.
But what is ERP, exactly? How can such systems help the business? Can companies of all sizes use ERP? In this text, I, Emerson Alecrim, answer these and other questions describing the concept of ERP, pointing out the advantages and disadvantages of these systems and giving other explanations on the subject, all in a language that is easy to understand.
What is ERP?
Imagine that you have a company that has multiple systems, one for handling accounts payable, one for payrolls, one for sales control, one for managing taxes, one for analyzing goals and performance, and so on. Rather than using a lot of isolated software, one for each department of the company, wouldn’t it be more efficient to have an integration between them, so that everyone was part of a unified system? This is exactly what an ERP solution offers.
With a single system integrating all departments – or at least the most important ones – internal communication becomes easier and less costly. The finance department, for example, can quickly find out how much money to settle taxes and how much to direct to pay employees, according to the information that the human resources (HR) sector makes available in the system.
In the same way, the head of a specific department can assess an employee’s performance and discuss with the HR manager how much the company can offer him with a raise. The marketing department, on the other hand, consulting the sales control, can identify a product that is not having a good outcome and develop a new strategy to revert the situation, at the same time that it verifies if the available budget is sufficient for this work.
Note, with these examples, that there are several circumstances in which systems integration is advantageous. Realize that, with different systems, each sector would have more difficulty communicating with others. This results in less productivity, more spending and even a loss of competitiveness.
In addition, without an ERP system, the company has to deal with many software vendors, which increases costs with licenses, technical support, servers, training, etc.
You must have realized, therefore, how important management systems can be for companies: they reduce costs, make communication more efficient, help in decision-making, allow a more accurate assessment of what is happening in the company, in short. It is no wonder that many companies consider this type of software essential to their activities.
Implementation of ERP systems
Despite the advantages, ERP is not always the type of software that can be purchased on a store shelf and then be installed on a computer and then be ready for use. Each company, in view of its activities and operational strategies, has different needs, therefore, ERP systems will only be functional if at least the most important characteristics of the company are taken into account when choosing the solution.
Just understand that a company that manufactures medicines, for example, has very different needs from another company that works in the transport business. The first needs to be concerned with obtaining raw materials, paying for patent licenses, research in laboratories, among others. The second, in turn, needs to be concerned with the age of the fleet, fuel costs, tolls and so on.
A company can also operate in more than one industry or operate in several states of the country, in order to be conditioned to pay different taxes in each location, for example. Finally, as you can see, each company needs to have a management system that adapts to it.
In order to control expenses, the company also needs to define which type of licensing is best suited to its operations: installation of the system on its own or virtualized servers, use of the system on third-party servers (usually offered by the solution provider), solution based on cloud computing, payment per user (or per access computer), a mixture of one or more of these modalities, in short.
Cloud-based solutions tend to cost less, as the company does not have to worry about servers, maintenance, updating, among others. In addition, this modality offers easier access for users who are outside the company’s facilities – a salesperson who is in another city visiting a customer, for example.
On the other hand, ERP systems in the clouds can generate higher expenses in the long run, because, in general, this type of licensing requires periodic payment, as if it were a subscription. Will this periodic payment pay off in the long run? This is an example of a question that needs to be asked at the time of adoption.
Note that it is important for the company to analyze the existing ERP solutions on the market and the licensing modalities offered by each one to find out which option is best suited to its activities. If the company does not have an Information Technology (IT) team capable of doing this analysis, it may be worth looking for a consultancy service.
Implementation time is also an important parameter. ERP systems don’t start working overnight, depending on the size of the company. Often, solution providers need time to adapt the software to the business, and in the process, they must assess the infrastructure, consider security features, test, train staff, integrate departments, migrate legacy systems, among others.
We must also take into account that, in many cases, the implementation of the ERP occurs in stages, so that certain modules of the system are installed only after this process has been completed with others. If the company is large, implementing an ERP can take several weeks or even months.
Modules of an ERP system
As I said at the beginning of the text, ERP systems deal with the various departments in a company. However, such software does not necessarily need to cover each sector, at least not at the same time. Depending on the company’s expectations in relation to ERP, it is possible to meet certain areas at first and the others progressively. For this, the providers supply the system in modules, which are divided according to their functionality.
As you already know, there is no single ERP system that, by itself, meets everything that is a company. It is necessary to customize the solution according to the company’s activities. On the other hand, there are certain processes that are quite common in all or most parts of companies, even due to legislation. Here are some categories of modules that fit this context:
- Human Resources;
- Fixed assets;
- Law Suit;
From there, we can find more specific modules, adopted on a larger or smaller scale and only if they are in accordance with the company’s activities, for example:
- Distribution of products;
- Foreign trade;
- Knowledge management;
- Recruitment and selection;
- Control of materials;
- Quality control;
- Signing of contracts;
- Commercial automation;
- Risk analysis;
- Store front;
- Industrial maintenance.
Realize that not every company needs to manage fleet or deal with commercial automation, for example. The advantage of the module layout is right there. The company implements only those that are useful to it and can add another one over time, motivated by the expansion of the business, by acting in a new market segment, in short.
Choosing an ERP solution
You may have already realized that an ERP system is a serious investment, which needs to be done carefully. But, how to choose a solution with so many options on the market? Only in Brazil, there are several companies specialized in ERP with good acceptance. Here are the best known:
- SAP ;
- TOTVS ;
- Microsoft Dynamics ;
- Oracle ;
- IBM (this usually establishes partnerships with other companies in the industry).
And there are even smaller companies like StarSoft, Cigam and Senior.
How do you know which is best for a particular business? Is considering price alone enough? Is it worth trusting a lesser known solution? The truth is that there is no formula that works for all companies, but I have several tips that can help in the most appropriate choice.
The first is to understand exactly what the company’s needs are in relation to ERP and then define what is a priority. This analysis indicates a way forward. For this, it may be necessary to hold meetings with sector managers, with employees who perform more critical functions, in short.
After that, it is easier to analyze the solutions offered by ERP suppliers. At this point, it is necessary to evaluate the proposals made by each company to, first, identify those that can best meet the identified needs. It is also important to check which of these providers have experience in providing software for the company’s industry.
As the ERP system needs to be “molded” to the company, it is also important to know what technologies the supplier provides for its solutions. With this, it is possible to have a clearer notion of costs with servers, updating, training, among others.
In this sense, it is also interesting to analyze the system’s integration and communication capacity, the possibility of implementing modules in the future, security features, compatibility with different platforms (mobile devices, for example) and so on.
Have more. It is very important to check the support and maintenance conditions offered by the providers. The software will certainly need updates over time to correct errors, improve processes, adapt to new needs (implementation of a new tax rule, for example), security adjustments, in short. Not to mention that certain circumstances may require assistance from the supplier, for example: a particular user may need support to have access to a data list to be submitted for external audit.
Price, of course, is also an important aspect to be considered, but it is a mistake to accept only the cheapest solution or to believe that the most expensive option, precisely because it is in this condition, will supply all the company’s needs. As previously informed, there are several forms of licensing, and it is essential to analyze rigorously which is most suitable for the business. It should also be considered that there are other costs linked, such as a support and maintenance plan (which can be renewed annually, for example), implementation, infrastructure, etc.
We have to consider that many companies that develop ERP software work with companies that act as intermediaries with customers, as if they were resellers. However, these partners can handle not only sales, but also other processes, such as support and implementation. Microsoft’s Dynamics division is one of the suppliers that successfully exploits this model.
As a final tip, it may be a good idea to initiate contact with companies that already use solutions from suppliers who have submitted proposals to your company. This initiative can help assess aspects of performance, support, maintenance, training and so on. But it is important to note that if an ERP system worked in a certain company, it does not mean that it will have the same success in the company that you represent, even when they both operate in the same industry – remember that each business is unique.
Main advantages and disadvantages of ERP systems
You already know that ERP systems can represent a significant differential in the daily lives of companies. However, it is important to keep in mind that this type of software will not solve all the company’s problems and, many times, it may not offer the results expected for certain activities.
For this reason, it is important to know the advantages and disadvantages of ERP systems. This not only helps in choosing the most suitable software, but also makes the risks linked to the implementation clearer. Note that this is an analysis that depends on the company’s objectives, but, as a rule, I can say that ERP systems can:
- Help in internal communication;
- Streamline the execution of internal processes;
- Decrease the amount of internal processes;
- Avoid mistakes – in calculating taxes and payments, for example;
- Assist in decision making;
- Assist in the development of operational strategies;
- Streamline data collection for certain scenarios;
- Decrease the delivery time of the product or customer service;
- Help to deal with large volumes of information;
- Avoid duplicate work;
- Make the company adapt to changes in the market or legislation.
Possible disadvantages include:
- High cost with customization and implementation;
- Time-consuming implementation – ERP software is not ready for overnight use;
- Risk of loss or loss of performance with unexpected system errors;
- Possible problems with support and maintenance if the software vendor is sold or terminates its activities;
- Dependency, which can hinder the company’s activities when the system is, for some reason, unavailable;
- Adaptation and training by employees may take longer than expected;
- Resistance to the new by the employees, in case of implementations or updates;
- The system may require changes in certain aspects of the company’s internal culture;
- It can be realized late that that solution does not offer the expected cost-benefit ratio;
- Over time, updates and additions to modules can make the system excessively complex or slow.
Of course, efforts can be made to ensure that the advantages take shape and that the disadvantages are mitigated. For this, it is necessary the dedication of the IT team, commitment on the part of the entire management structure, constant monitoring of the development and implementation stages, the aforementioned choices of a solution and a supplier adequate to the company’s needs, analysis of possible factors internal and external that can influence the design, elaboration of a good security policy and so on.
Regarding the analysis to identify possible problems, we can take the training aspect as an example: it is often necessary to train employees not only so that they know how to handle the program, but also so that they can identify the purpose of that, a procedure that helps to avoid errors and omissions.
Return on Investment (ROI)
ROI ( Return on Investment ) is a way for the company to determine the relationship between the amount invested in an investment – in our case, an ERP solution – and the financial gains obtained with it. In other words, with ROI we are able to know if the implementation of the system gave the expected result.
However, this is a subjective measurement, as it is based on estimates. The company must consider a number of factors to make the most appropriate assessment. One is time.
As you already know, in some cases, ERP solutions take months to implement. Accompanied by the costs of this phase are expenses inherent to maintenance, support, training, among others. Therefore, expecting ROI to happen within a short time is often a mistake. Not infrequently, the benefits of using the system will only appear after a considerable period of use.
To assess ROI, the company needs to determine all of the system’s cost estimates and, essentially, compare that information with the savings it already provides. For example, did ERP make the company’s service more agile, attracting more customers? Has internal communication improved, making processes faster? Is inventory management more accurate, avoiding waste or production delays due to lack of items? Are employees spending less time to perform certain tasks, improving productivity? And so on.
There are several ways to calculate the ROI of an ERP system. If the company does not have a trained team to carry out this assessment, it can hire specialized consultants to obtain assistance in this task.
ERP for small and medium-sized enterprises (SMEs)
ERP is only for large companies, right? In fact, small and medium-sized enterprises (SMEs) can also benefit from business management systems. Is very!
Small and medium businesses tend to have many limited resources, so an ERP system can help the company to optimize what is at its disposal. Imagine, for example, a small factory that has only three employees. With an ERP system, the owner can easily access the list of customers, open orders, materials in stock, taxes that need to be paid, in short.
Depending on the business, if the small business owner has to carry out all of these tasks by consulting notebooks, isolated worksheets and paper documents, he may lose time and also make mistakes.
The good news is that there is more and more ERP software for the SME segment. Because they are simpler, these systems can be implemented more quickly. In many cases, it is not necessary to install anything: the service works in the clouds, like a cloud ERP. Today, there are even options for professionals, such as accountants, lawyers and architects.
Many of these solutions have low licensing or monthly fees. Some are even free for certain types of activities.
When it comes to ERP, there is often an association of the concept with other types of software for the corporate segment, including CRM ( Customer Relationship Management ), BI ( Business Intelligence ) and SCM ( Supply Chain Management ). Everyone can work together with the ERP, including as modules of it.
Like ERP, these systems exist because they can help the company to be more competitive: CRM systems act in the customer relationship processes; BI software can assist in data analysis and decision making; SCM solutions help with efficient supply chain management.
These examples show how large and promising the business software market is, especially if we take into account that the number of broadband connections to the internet is increasing and that there is an increasing offer of services based on cloud computing, allowing ERP systems and the like reach an increasing number of companies.
It is a good scenario for everyone: for developer companies, as it generates prospects for business opportunities; for IT professionals, as the number of vacancies in the segment increases; and for customers, because a competitive market results in better products, increasing the chances of the company finding a solution that is really suitable for its business.