Types of ERP Systems – What is ERP? [20 Best To Consider]

| by Snehil Prakash

Types of ERP Systems – What is ERP? [20 Best To Consider]—>

ERP
Types of ERP Systems

Have you ever wondered how many ERP systems exist and how they can affect your business. There are several types of ERP systems, which have a great impact on your firm and therefore, choosing what suits you the best becomes a priority. So, we will tell you all about the different types of ERP systems in this blog.

Overview of ERP

There are various types of ERP systems. But, before we begin highlighting the types of ERP systems, we must know certain things about it. Through this, we will be able to understand how the idea has developed over the years and gained the prominence that it has.

I. Definition

ERP stands for Enterprise Resource Planning. It refers to the software and systems used to plan and manage all the core supply chain, manufacturing, services, financial and other processes of any organization. It simplifies the processes involved in business, thereby helping it function smoothly.

Individual ERP applications offer ‘software as a services (SaaS), while a complete suite of ERP applications (ERP system) can be used to effectively communicate. It helps bring together business processes to enable free flow of data between the applications.

II. History

“ERP” as a term was first used in the 1990s by the Gartner Group however, this kind of software has been used in the manufacturing industry for over a 100 years. Here is a timeline of how ERP has developed over the years, for your understanding:

  1. 1913: Ford Whitman Harris, an engineer by profession, developed the Economic Order Quantity (EOQ) model, a paper-based manufacturing system for production scheduling.
  2. 1964: Toolmaker Black and Decker adopted the first Material Requirements Planning (MRP) solution and combined EOQ with a mainframe computer.
  3. 1970s-1980s: With the evolution of computer technology, concept software began handling business activities outside of manufacturing, including finance, human resources data, and customer relationship management (CRM).
  4. 1983: MRP II was developed and featured “modules” and integrated core manufacturing components. It integrated manufacturing tasks into a common shared-data system.
  5. 1990s-2000s: Gartner Group coined the term “ERP” to distinguish it from MRP-only systems. ERP systems expanded to cover business intelligence while handling other functions such as sales force automation (SFA), marketing automation and eCommerce.
  6. 2000-2005: Cloud-based ERP software solutions arrived and ERP software makers created “Internet Enabled” products.

Today, ERP has reached new horizons by introducing software as a service (SaaS) and anything as a service (XaaS) among other things. Cloud storage provides better security, backup and integration, making doing business an easy affair.

III. How do ERP systems work?

ERP system is meant to increase organizational efficiency of an organization by managing and improving the utilization of its resources. It tries to improve or reduce the number of resources without affecting the quality and performance of the business. ERP systems cover several aspects of business operations and provide the following:

  1. An integrated system
  2. Common database 
  3. Real-time operation
  4. Support for all applications or components
  5. Common user interface across application or components
  6. On-premise, cloud hosted or SaaS deployment

ERP software can collect and compare data across departments and provide various reports based on user preferences. The collected data makes finding and reporting faster thereby, giving a complete view of  business performance with complete insights. It also arranges reporting and automation by reducing the need to maintain separate databases. Such a system offers valuable insight, providing apt information to make real-time business decisions.

IV. Why should you use an ERP?

An ERP serves as a unified database for your company and has a modular structure. It streamlines business processes, increases efficiency, and improves communication between the departments of the organization. To be sure, it also includes better reporting and planning, data visibility, efficiency and automation of manual processes.

When you use an ERP system, all your departments can retrieve necessary information without any obstacles, as they have access to various modules. This ensures better functioning of the organization.

Types of ERP Systems

There are three main types of ERP systems which are listed as follows:

  1. On-premise ERP
  2. Cloud-based ERP
  3. Hybrid ERP

On-Premise ERP software is deployed, as the name suggests, on-site and maintained in physical office space within an organization. It is hosted on the company’s own computers and servers for full control, support and ownership of the entire system after being implemented.

Cloud-based ERP software is a web-based solution, known as Software as a Service (SaaS), where an organization accesses and stores data on any device with an internet connection, usually through a subscription. It encompasses continual support, updates, training and flexible customizations which are supported by the software provider.

“Hybrid” ERP software refers to a combined implementation of cloud-based and on-premise ERP system solutions. It is a combination of the above two. It can provide ERP users the flexibility to migrate between delivery models or integrate benefits not available in the existing implementation. 

Moreover, there are some other types of ERP systems that are classified on the basis of certain characteristics:

a. Custom-built or readymade

Custom ERP software is built by the chosen ERP development company as per the exact requirements of your firm, to fit your business processes. A readymade ERP software, on the other hand, is a pre-built software package. This is also called off-the-shelf ERP.

b. Generic or industry-specific

Generic ERP software provides a wide variety of functionality to organizations across several industries. They offer good financial management and accounting tools, but lag in the area of operations. They cost less than their alternative and have many modules such as:

  1. Accounting and financial management
  2. Customer relationship management (CRM)
  3. Business intelligence (BI)
  4. Analytics
  5. Human resources (HR)
  6. Inventory management
  7. Supply chain management
  8. Planning and forecasting
  9. Manufacturing

Industry-specific ERP software is also known as vertical ERPs and it is meant for specific realms like professional services or distribution. They provide basic modules and tools with the addition of features necessary for their industry. These have specific features and tools to complete tasks unique to certain industries.

c. Designed for small, mid-sized or large companies

Small businesses have lesser operations than other ERPs and so, they generally don’t need a robust system with a full suite of functionality. Moreover, small businesses usually can’t afford to invest a lot in an internal system. 

Midsize companies usually seek new ERP systems when they want to implement a connected system that can provide visibility into all major business data. Large companies often go for on-premises or hybrid ERP systems to have unlimited control over their systems. This lets them connect company departments and share information easily.

Standard Features of an ERP Software

ERP software have certain standard features, which are part of the basic pack. Here is a list of all those features that are quite common:

  1. Accounting: Accounting capabilities on an integrated ERP are considered to be the true core of an ERP due to its ability to create company-wide detailed reports.
  2. Website/E-commerce: This one looks for basic features that let you design and configure your website. The ability to collect and process payments is also crucial.
  3. Project Management: This includes resource management, change orders, cost estimations, project overview and report. Its key features are task management and timesheet among others.
  4. Customer Service: Your customer service module should be centered on customer relationship management. It should be able to improve how your service to your customers by increasing their overall satisfaction.
  5. Human Resources: This feature encompasses standard human resource tools like employee records and a database for job profiles. They may also include performance reviews, payroll systems and employee training capabilities.
  6. Operations: This keeps you in charge of all your operations, production and supply chain processes. This is a good starting point for maintaining good revenue and a base for making important operational decisions.
  7. Sales: Sales orders are entered and this triggers movement for smooth functioning. Customer relationship management and marketing tools are included too as this tool is integrated into ERP systems.

What Industry Can ERP Be Used For?

ERP software can be used in any industry to help the business become more efficient. It provides effective communication and can manage information between internal and external departments, help with daily activities to manage projects, track adherence to guidelines and handle day-to-day issues. Here is a list of specific industries it is most commonly used in:

  1. Manufacturing
  2. Industrial Machinery and Components
  3. Construction and Home Improvement
  4. Electronics and Technology
  5. Automotive
  6. Aerospace and Defense
  7. Healthcare, Pharmaceutical and Life Sciences
  8. Agribusiness, Farming and Agriculture
  9. Food and Beverage
  10. Healthcare and Hospitality
  11. Clothing, Consumer Goods and Retail

It also includes certain areas in the functioning of any business:

  1. Financial Accounting
  2. Management Accounting
  3. Human Resources
  4. Manufacturing
  5. Order Processing
  6. Supply Chain Management
  7. Project Management
  8. Customer Relationship Management (CRM)
  9. Data Services

When Does Your Business Need an ERP?

You should employ an ERP solution when existing business systems and processes are:

  1. No longer function efficiently (throttling/bottlenecking) 
  2. No longer support the growth of the company
  3. Lack current security requirements to mitigate risk

Here are some signs that point to the need of an ERP in business:

  1. Relying heavily on separate databases that require manual processes for data management.
  2. Information and analytics are difficult to access or out of date.
  3. Day-to-day processes are difficult or overly time consuming.
  4. Sales and customer experience are suffering due to inaccurate or incomplete data.
  5. Inefficient IT processes.
  6. Does not support new and advanced technologies like artificial intelligence.

How To Choose the Right ERP Software?

You cannot just use any ERP software for your business. Before choosing one, you should consider a wide variety of factors, because your choice can impact your business directly. Ensure that you focus on these five main points, before selecting an ERP software for yourself:

  1. Accessing the current state of your organization: The ERP you choose must be able to do all that you want it to. Try to create detailed list of requirements that can help your ERP vendor understand your needs. Keeping a track on project timeline and budget will also get easier with this.
  2. What are the technical implications of ERP: Cloud ERP usually has lower costs as computing resources are leased by the month. You must find a service provider to help you with a cloud-enabled ERP among other things.
  3. Determining the total cost of an ERP and your budget: You must consider the costs related to the software license, estimate the costs of deployment and pay attention to the required support and potential scalability.
  4. The Desired Scalability of your ERP System: It is necessary to check that the software you choose is not stagnant, and that each new modification is not very complex to implement.
  5. Other Important Criteria To Consider: There are some other factors that must be considered like flexibility, dynamics, functional coverage, documentation and accessibility.

Top Types of ERP Systems by Company Size

Here is a list of the major types of ERP systems by company size, which might help you.

Company SizeCustom DevelopmentReadymadeCloud-basedOn-premisesGenericIndustry-specific
SmallIn-house or out-staffingSage Business Cloud, Oracle Netsuite, Acumatica General Business EditionOracle Netsuite, Acumatica Cloud ERP, Infor CloudSuiteMicrosoft Dynamics GPEpicor ERP, Infor ERPQAD, Sage Intacct
Mid-sizedIn-house or out-staffingOracle Netsuite, Microsoft Dynamics 365 Business Central, Oracle JD EdwardsOracle NetsuiteMicrosoft Dynamics GPSAP Business OneSYSPRO ERP, Microsoft Dynamics
LargeIn-house or out-staffingSAP ERP, SAP S/4HANAOracle ERP CloudSAP ERPSAP ERPMicrosoft Dynamics

Top Types of ERP Systems by Company Size

How ERP Improves Business?

ERP Software is used in a business to overcome all sorts of challenges, as they provide innumerable benefits. Their benefits are as follows:

  1. Cost savings and improved ROI efficiency: Increases productivity and efficiency from the integration and automation provided by ERP.
  2. Improves business insight: Improves decision-making with a single aggregated source of truth and real-time data.
  3. Manage Regulatory Compliance: Manage and monitor compliance with regulatory standards.
  4. Reduces risk: It automates core business operations, manual tasks and reporting by reducing human errors.
  5. Enhances collaboration: It breaks down communication barriers for efficient collaboration and coordination to improve job efficiency.
  6. Optimizes customer and partner management.

Drawbacks of ERP System

Like every other thing, the several types of ERP systems have their drawbacks too. They can be found as under:

a. Expensive

If you buy the traditional package, you will have to pay for a license. But, you can reduce the cost by choosing a cloud system or a monthly subscription plan. Remember that UI/UX design matters a lot for usability, so ensure that you order the best services for yourself.

b. Paid service

If you buy a system and it does not meet the requirements, then it is tuned accordingly. However, this process is not free of cost. Also, all data must be reliable, digitized and presented in a standardized form. 

c. Third-party vs. custom-designed solutions

While choosing an ERP, you will be faced with two options: first, create a completely custom solution that suits your business, or second, buy a ready-made third-party solution that meets some or most of the requirements at hand. 

Verdict

With that being said, the several types of ERP software are certainly visible. No matter what the size of your business is, there is something for all and this is the best part about it. You can deploy specific ERP systems for your business, which will suit your requirements.

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