What is an ERP? Features, benefits and considerations for an SME

There is no doubt that ERP systems are key to optimal development of operations in any type of business organization. For this reason, we believe that it is essential to know its architecture and its operation; What are its main characteristics; What range of possibilities do we have within the market to which our organization belongs? what benefits they can bring to our business; and finally also take into account other important considerations so that our ERP implementation comes to fruition.

Definition of ERP

An ERP (Enterprise Resource Planning) system is a software solution from which we can plan, manage, and control all core business processes.

An ERP system is characterized by the digitalization and automation of day-to-day business operations, centralizing all processes into one solution. It synchronizes activities from different company departments, ensuring complete traceability of all processes. This premise allows for efficient planning of various business resources, as we have a record to consult everything that has happened in the company and from there, project where we want to steer and manage the business. However, it's important to note that this concept is being questioned in the market by various independent analysts, as in our case. It's known as the myth or fallacy of ERP.

Main Features

1. Modular: The solution comprises various management applications or modules: finance, purchasing, sales, inventory, manufacturing, supply chain, quality control, project management, human resources, payroll, and many more. Of course, we can always choose only the modules we need for our business or expand them as the company grows.
2. Consistency: It includes a single data source known as DBMS, ensuring a single record for each operation so that the company does not work in isolated units (silos). The same applies to the graphical interface, reducing training and user education costs.
3. Flexibility: An ERP solution can always adapt to business needs (although the degree depends on the solution and manufacturer), with two ways to do it; 1) configuration: the software itself allows certain adaptations by activating or deactivating parameters and 2) customization: which usually requires internal modifications, either by touching the source code or through the use of visual tools like low-code.
4. Automated: Due to the nature of an ERP system (as it is an information system), reports can be generated, statuses viewed, and alerts or alarms received automatically. However, sometimes it is necessary to complement it with a Business Intelligence (BI) solution for a broader, real-time overview of everything happening in our organization.

ERP Market Segments

ERP systems are primarily categorized based on company size and associated business complexity:

• ERP Level 1: Targeted at large corporations and governments (e.g., Samsung, P&G, Visa, Nike) and any organization with over 1000 employees. Level 1 solutions are extremely robust, capable of handling billions of transactions; however, their high costs and long implementation times make them challenging to manage. Well-known level 1 software manufacturers include Oracle, SAP, and Microsoft.
• ERP Level 2: Aimed at companies with or expecting international presence, conducting offshore operations with a factory in one country selling both locally and in other geographic areas. Level 2 solutions are usually more flexible and cloud-dominant. Some known providers are: Infor, IFS, Epicor, Sage, NetSuite, etc.
• ERP Level 3: Targeted at national SMEs (10-250 employees) needing to increase control and operational efficiency in the local market. These solutions are more affordable in terms of implementation time and cost, with several options offering great flexibility and rapid technology integration. Known providers include: Acumatica, Odoo, ERPNext, Holded, etc.
• ERP Level 4: Focused mainly on micro-enterprises with less than 10 employees, offering specific solutions in areas like customer management, inventory, or accounting. Examples include: Openbravo, Salesforce CRM, HubSpot, TradeGecko, etc.

Comparative Table

ERP Segment	Target Audience	Providers	Implementation Time	Annual Cost
Level 1	Large corporations and governments (+1000)	Oracle ERP, SAP S4/HANA, Microsoft F&O	+18 months	€€€€ (500k to +1M)
Level 2	International companies (250-1000)	Infor, IFS, Epicor, Sage, NetSuite	12-18 months	€€€ (100k - 500k)
Level 3	National SMEs (10-250)	Acumatica, Odoo, ERPNext, Holded	3-12 months	€€ (3k - 100k)
Level 4	Micro-enterprises (1-10)	Openbravo, Salesforce CRM, HubSpot, TradeGecko	1-3 months	€ (up to 3k)

Potential Benefits for Your SME

The list of potential benefits an ERP can bring to a company is extensive; here are the most direct ones:

1. Cost Reduction: Mainly due to the automation, standardization, and digitalization of core business processes.
2. Improved Customer Service: Centralized customer information, integration with digital media, automated marketing, sales lifecycle status.
3. Financial Control: Transaction records, invoice generation, income, expenses, cash flow understanding.
4. Efficiency: Implementing an ERP reduces the need for numerous repetitive tasks, manual processes, sending excel files, thus freeing up the team to focus on value-adding activities.
5. Mobility: The rise of the cloud and mobile devices allows for activity recording and active collaboration without physical limitations.
6. Regulation: Complete traceability of the production process and on-demand reporting provide reliability in compliance with regulations.
7. Planning: Better preparation for the future, making predictions, and creating scenarios based on past activity.
8. Security: An extraordinary gain is having a single set of valid data for the company, shared transparently. An ERP system has internal mechanisms to ensure data quality, consistency, and persistence.

Considerations to Keep in Mind

Without an ERP system, a company of certain complexity would be completely blind in managing its business: we wouldn't know how many orders we have to fulfill today; whether we have all the products to meet them; if not, which supplier we should turn to and when we can expect to receive them, and so on.

However, beyond analyzing potential benefits, we must consider some important aspects to avoid our ERP implementation from failing. According to consulting firm Gartner, about 75% of initiatives fail. Although we believe this figure is relative to implementations in corporations and large companies, there is a consensus in the market that in general, the failure rate in any ERP implementation is over 50%.

There are various reasons for failure: choosing the wrong ERP system, budget far exceeding initial plans, a system becoming obsolete due to business evolution, lack of training and education for proper usage, misalignment between business processes and the ERP system due to not conducting prior audits and change management.

In short, underutilization of resources or an ERP that does not adapt well to our business requirements can cause significant economic losses to the company, and unfortunately, the risk of failure is very high. The ERP will likely be one of the biggest investments in both money and time that a company will have to undertake.

Guide Your ERP Implementation with Assurances

If you have identified with any of these issues when evaluating, selecting, and implementing your new ERP solution, or if you are simply considering looking for a new solution. You can take a look at our specialized service "Technology and ERP Selection", where you will find more detailed information about how we can help you find the ERP that best suits your needs..

We are an independent ERP consultancy; we like working with multiple providers, solutions, and technologies, and we are not tied to any commercial agreement that prevents us from fulfilling our mission to help you find the ERP solution that best suits your business.