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When the operations of an enterprise grow beyond a certain level of complexity, the familiar spreadsheets are no longer able to capture the value, support the proper coordination of activities and generate the insights for that enterprise to function efficiently and productively, and grow to the next phase.
This is why ERP (Enterprise Resource Planning) emerged as a single-system approach to business processes management, first in the 1960’s in the form of a Materials Requirements Planning collaboration between Black & Decker and IBM, and through the 1990’s and the first use of “enterprise resource planning” by Gartner.
As a developer you may be called upon to build ERP (Enterprise Resource Planning) systems to help enterprise clients manage their resources and build up to new levels of efficiency in their business processes.
To help illuminate all the corners of what Enterprise Resource Planning is and what it involves, we’ve put together this detailed guide to help you along the way. We hope it’s an enjoyable read and a useful resource.
Want a printable copy? Download this guide in PDF format.
Let’s begin with what an ERP system is.
What is Enterprise Resource Planning (ERP)?
An enterprise resource planning (ERP) system is a management system that integrates operations, functions, roles, and material and human resources across an enterprise or organization. An ERP software system is about integrating core business processes.
Advanced ERP systems are likely to include functions and modules related to supply chain management, inventory management and order fulfillment, finances, procurements, and logistics. It can also include functions and modules for managing product lifecycles, risks, performance, and human resources.
An enterprise performance module of an ERP system helps a business plan, budget and forecast financial processes and deliver reports on the financial outcomes of its operations.
ERP systems rely on the continuous and reliable flow of accurate data generated by business operations, and the sharing of that data between different teams with a view to generating insights and maximizing efficiency. In an ERP system, all departments reference the same pool of shared data with the required level of data integrity.
ERP systems are stored either on premises or in the cloud, depending on an organization’s needs. They are used by businesses and organizations of all sizes, from small and mid-sized businesses to multinational corporations. The larger the organization and the more complex the operations involved, the more benefit there is to be derived from deploying ERP systems and software.
Understanding ERP Systems
“ERP system” is a broad term that describes a category of business management software. Within that category there are products that cater to a wide range of business processes, and modules that manage a specific aspect of an organization’s business operations.
Every organization interested in deploying ERP software will “assemble’ the modules that are most relevant to its operations and create a custom system for its needs. The most common client for an enterprise resource planning system is, of course, the large multinational enterprise.
Some enterprises, for example, are product-focused, and they are likely to be interested in modules for managing accounting, inventory and manufacturing. Other enterprises focused on providing services are likely to be interested in modules related to customer relationship management and financial automation.
The Origins of Enterprise Resource Planning
Depending on how the idea is framed, the origins of enterprise resource planning can stretch back as far as the Industrial Revolution and the reorganization of work by the industrialists of the time.
A little closer to our age and the era of the paper-based manufacturing system, in 1913 an engineer by the name of Ford Whiteman Harris developed a production scheduling system known as the Economic Order Quantity (EOQ) model, a paper-based financial reports system for identifying the order quantity that leads to minimal holding and ordering costs for inventory, where the total cost is the sum of the purchase cost or production cost, ordering cost and holding cost.
Half a century later, as computers came to the fore, the opportunity arose to automate many management processes. For manufacturers in particular, MRP, or Material Requirements Planning, became the standard for inventory management and production scheduling.
Rolls Royce and General Electric are known to have computerized MRP in the 1950’s, but did not commercialize it. Material Requirements Planning was also used in the Polaris program, and the first book on MRP was published in 1975. Over 700 enterprises had implemented MRP by that year, and over 8,000 by 1981.
In 1983, MRP officially evolved into MRP II, or Manufacturing Resource Planning, and by the end of that decade, some $1.2 billion of MRP II software was sold to industrial enterprises in the United States, amounting to around one-third of the entire software industry at the time.
With time, MRP II software expanded its capabilities beyond manufacturing to include business processes like finance, human resources, order management, and customer relationship management modules. Eventually a new name was coined by Gartner for this business management technology and approach – Enterprise Resource Planning.
By the time the firm Garner first used the new term, ERP software had also developed a new foundation, in the form of a common database used across all the departments with hitherto disparate systems of an enterprise as a single source of reliable and accurate data. These departments also generated their part of that database to be referenced by everyone else.
ERP Software And The Cloud
Enterprise resource planning software made another big leap with the introduction of cloud-based early ERP systems in 1998, when enterprises could access real time data from any device with an Internet connection from anywhere, including from mobile devices. Deploying on cloud ERP became much easier compared to on premises ERP, with emerging technologies leading to much lower requirements for hardware and the people to manage them.
Cloud ERP software also meant the benefits were now accessible for smaller enterprises and businesses, including process automation, improved data integrity and availability, and gains in efficiency. Many companies updated their legacy systems deployed on-premises with cloud-based solutions, with data migration from local servers to the cloud.
After the year 2000 ERP II was introduced as a concept to encompass web-enabled real time data gathering from external sources like CRM, marketing, ecommerce and front-office apps, and back-end systems for supply chain and HR tools. The introduction of new data sources multiplied the amount of data available for analysis, and improved the quality of insights and opportunities it generated for enterprises.
ERP Systems Today
ERP systems have evolved into data gathering and processing behemoths supporting the improved performance of all kinds of businesses. There are applications that manage any combination of business operations and processes, using a common database, in every industry imaginable.
Enterprise resource planning is about operational efficiency. Increased data flow, communication between departments and improved coordination are all measured by their impact on the bottom line of an enterprise, and enterprise resource planning software has the power to bring about significant improvements in this direction.
The successful deployment of a well-built ERP software helps reduce human capital requirements, improves the quality of services and products, and greatly improves collaboration and time management among departments and teams. ERP automates inventory management and supply forecasts and orders.
The Importance of ERP
Why is deploying an ERP solution important? ERP software uses a centralized database to do everything for every department. It does more for a company’s finances than accounting software; it does more for the sales department than managing orders and inventory levels; and it does more for logistics and project management than delivering products on schedule. An ERP system is about business process integration, business intelligence and business performance.
ERP Deployment Models
ERP implementations take on different forms depending on the size of the enterprise concerned, its scope of operation and growth requirements. ERP systems deployment normally comes with three basic options:
On-Premise ERP Software
On-site or on-premise ERP systems are built, deployed and managed in-house and at a specific location, instead of ordering it externally or using hosted ERP software. After deployment the software is maintained by the company’s own IT personnel.
Pros And Cons of On-Premise ERP Software
One of the key benefits of on-premise ERP software is that an enterprise can custom-design it for its own purposes and business processes, and modify it as its requirements evolve. The owner of an on-premise ERP system can tweak and improve it on demand to get the best out of the software. This is something that is rarely enabled for hosted or cloud-based systems. Another argument in favor of on-premise ERP solutions is that the cost of SaaS solutions tends to be unpredictable and could spike beyond a certain tier, creating financial risks for the organizations using them.
While an on-premises ERP system allows for more control and ownership, the downside is that it requires a substantial investment outlay upfront to build the system, compared to the much more manageable monthly subscription fees paid for SaaS and cloud-based options.
Cloud-Based ERP Software
Most ERP systems are hosted in the cloud and can be accessed by customers through a multitude of devices and locations. In this type of deployment the software and the databases it uses are hosted and maintained by the original vendor.
Cloud-based ERP vendors are responsible for maintenance, updates, and importantly, security as well. Cloud ERP is generally considered easy to deploy and affordable, which makes it more easily accessible for small and midsize businesses, but it does come with unique considerations, discussed below.
ERP Systems And Organization Size
There is no single ERP system that works for all use cases, as ERP systems requirements for an organization are affected greatly by the number of employees, the number of countries and locations it operates in, revenues and financial goals, and deployment options.
ERP systems are thus designed to be flexible, offering any combination of ERP modules to suit the immediate needs of a business while also creating the necessary functionality to support potential scaling requirements down the road. From small business ERP for companies with a small number of business units to enterprise level systems, there are many ERP systems available on the market to choose from.
Pros and Cons of Cloud ERP Software
The key benefit of Cloud ERP software for both large enterprises and small to midsize businesses is that users get immediate access to advanced business management modules for any type of processes or operations they want. There is time spent on research, development, testing and deployment for a custom solution.
Another key benefit that springs from the first is that there is no need for a SaaS or cloud-based ERP solution to employ an IT team to maintain, troubleshoot and update on-premise software solutions. This leads to significant cost savings for many businesses.
Business operations that rely on cloud-based ERP are leaner, with lower manpower, space and time requirements. Enterprises are also offered frequent software and security updates, which keeps their systems fresh and up to date.
Real-time data analytics and insights is another advantage cloud-based ERP systems offer, with instantaneous adjustments to factors such as currency fluctuations. This saves time and leads to better decisions. Top-tier cloud-based ERP systems also offer good scalability and strong customer support.
Cloud-based enterprise resource planning systems also come with downsides, the biggest of which is the exposure of what should be closely guarded corporate data to the vendor that provides the software.
This is the main reason why companies that normally deal with large amounts of highly sensitive data that require high levels of clearance prefer to deploy on-premise solutions. They have no other choice than to keep their data accessible only for the people who need to see it. Companies involved in industries like defense, space technologies, banking and medicine tend to opt for on-premise solutions and the data privacy they offer.
Data that is hosted on the cloud is also exposed to security defects that can be exploited by hackers. Exposure to hackers is also true for on-premise ERP data, but in the case of cloud-based solutions, the security is provided by the ERP vendor, and there is a significant risk associated with the fact that the vendor is responsible for data security across the system.
Another big disadvantage of a cloud-based ERP solution is that the company using that software as a customer has zero ownership over the solution. Updates implemented by the vendor are applied irrespective of whether the customer needs or wants them.
Updates can also lead to bugs, and force a customer to incur costs to train employees on the updates and implement unavoidable changes at inopportune times. Zero ownership also precludes any possibility of customizing a module to industry-specific or company-specific requirements, forcing the customer to adjust to to the software instead of the other way round.
Dependence on Internet access is another potential risk associated with using a cloud-based ERP system. This is especially true of large enterprises with offices across the globe, including locations where Internet access is unreliable or expensive.
Last but not least, users of cloud-based enterprise resource planning software are forced to incur all the costs associated with going beyond a certain tier, and these costs can be substantial. Meanwhile, the dependence on ERP integration prevents a customer from moving to another solution. Over time the costs associated with a cloud-based ERP solution can far surpass the one-time investment in an on-premise ERP system.
Want a printable copy? Download this guide in PDF format.
Hybrid ERP Software
Hybrid ERP systems are designed to combine the advantages of both on-premise and cloud-based enterprise resource planning software. The goal is to provide enterprise customers with the flexibility and security they need to adjust the system to their needs.
ERP Features And Modules
There are a number of features and components that are common to most enterprise resource planning systems. Here are the most important:
1. Data Sharing Features
ERP solutions derive a large part of the benefits they offer from using a shared database as a single point of reference among all the modules. This means all the departments of an enterprise are using “a single source of truth” for all their analytics and decisions, and this supports consistency and effective collaboration throughout the enterprise.
2. Process Integration Features
ERP systems enable departments across an enterprise to know what the other is doing, and collaborate using the same real-time datasets as a reference. Meanwhile, management gets both a central high-level view and detailed analysis of commercial operations across the entire organization in real time.
3. Analytics and BI Features
With data coming in from internal and external sources in real time into a shared database, the natural next step is to run analytics on the data and generate insights that can support effective decision-making and optimized gains.
Analytics and business intelligence create opportunities to further optimize processes, cut costs and improve product design and the customer experience.
4. Automation Features
Automating repetitive tasks, including order processing, payroll, invoicing, inventory upkeep, maintenance tasks and data reporting is another core feature of a well-designed ERP system. Automation can lead to big leaps in efficiency and productivity, and have a significant impact on a company’s bottom line.
The benefits of an ERP system for key business functions are amplified even further when combined with emerging fields like artificial intelligence and robotic process automation.
5. Reporting Features
Enterprise resource planning technology is designed to enable insights through leveraging the deployment of a single system that looks at the same data. To do this, such systems come with powerful reporting components.
After all, having more data flow is not of much use without the deeper insights it can generate and the better business decisions it can support. Improved reporting, especially financial reporting and broader business performance reporting, leads to more productive and efficient business processes and operations, and helps identify and address issues early on.
6. Visibility Features
ERP technology creates visibility across an entire business organization or enterprise, especially to real-time data from both internal and external sources. The elimination of data silos enables the shared tracking of metrics and improved collaboration between teams.
7. Customer Relationship Management Modules
ERP integrations enable Customer Relationship Management modules to be added to the system, empowering sales and support teams and leading to improved order management and customer service. Automation that tracks customers and communicates with them as they flow through the sales pipeline is another benefit of CRM module integration.
8. Supply Chain Management Modules
SCM, or Supply Chain Management, modules help track everything related to supply chain, such as logistics, distribution, manufacturing, and demand and delivery. The supply chain ERP module improves operations through automation and integration across locations, from manufacturing to storage to sales and delivery. Supply chain management modules also forecast demand, identify potential supply issues, and distribute orders.
9. Manufacturing Modules
Optimizing manufacturing processes is where it all began, after all. Typical ERP modules are perfect for optimizing product manufacturing planning, raw materials sourcing, and production volume forecasting. Advanced ERP systems will also provide integrated core manufacturing components for assembly, floor control, and financial components like generating work orders and bills of materials.
10. Human Resources Modules
The HR modules of modern ERP solutions support full-scope employee management, including hiring and onboarding, performance monitoring, compensation and benefits, saving enterprises a great deal of time, money and effort with human resources data analysis.
11. Marketing and Sales Modules
Marketing and Sales teams across an enterprise benefit greatly from ERP systems integration, as nearly all aspects of these two activities benefit from the closer integration and automation of business processes and functions, including forecasting, purchase orders, commissions management, price quotes, lead generation, campaign planning and execution, customer behavior tracking, and more. Using the relevant ERP modules, sales and marketing naturally integrates closely with the finance team to measure the impact on the company’s bottom line and profit margins.
12. Accounting and Finance Modules
The accounting and finance modules of an ERP system are where the impact of every operations event is recorded. Commercial activities reflect on the general ledger, accounts payable and receivable, budgets, depreciation schedules, revenue, currency reconciliation, financial forecasting, taxation planning, and asset management. All these activities are managed through the integration of financial ERP modules and an organization’s accounting software. Accounting and finance modules also greatly reduce the time it takes to “close the books” at the end of the month or the financial year and keep an organization consistently aligned with regulatory compliance, while easy and fast automated financial reporting keeps management up to date at all times.
Building and Deploying an ERP System
Building an on-premises ERP software solution for enterprise customers is a large undertaking with a high level of complexity. A developer’s mission in the context of building an ERP solution is:
- Determine why and how the existing ERP system, if present, fails to meet the customer’s requirements.
- Help an enterprise identify the business functions and modules that are most relevant to these functions.
- Register an enterprise client’s current needs for software solutions, the manual processes that can be automated, and the modules it requires to take operations to the next level.
- Register the scope of the required ERP projects
- Develop and test the modules that the enterprise client has ordered.
- Create the necessary level of integration between these ERP applications and the shared data pool that supports them.
- Integrate the ERP implementation itself with all the external tools the enterprise client uses.
- Help the enterprise client transition from the old system to the new ERP system without causing a slowdown in operations.
Where to Begin: The Big Enterprise Application Development Questionnaire
If you’ve been contracted to build ERP applications, you’ll need to determine the client’s needs, and plan how to deliver the project.
The Big Enterprise Application Development Questionnaire is designed to simplify this complex task and help you get started on the right foot. The guide contains the 132 most important questions, covering 11 core categories, you need to answer before you can define the specs and plan your ERP software system.
These 11 categories are:
- Customer Profile
- Business Operations
- Corporate Processes
- Strategic Goals
- Project Limits
- Information Management
- Task Management, Teamwork & Collaboration
- Data Security
- Scalability, Update and Migration
- After-Sales Support & Maintenance
Download the Big Enterprise Application Development Questionnaire here, or click on the image below:
Building an Enterprise Resource Planning Software System With RAD Studio®
RAD Studio® is an advanced IDE for rapidly building single-source multi-platform native apps in Delphi® and modern C++ with powerful visual design tools. Owned by market-leading software provider Embarcadero, RAD Studio® helps developers quickly build, deploy and maintain advanced ERP applications for all kinds of customers, from small business ERP to highly advanced solutions for multinational corporations.
Using an easily maintainable single codebase, developers compile native apps for any target platform with RAD Studio’s powerful custom compilers. RAD Studio® users also help companies efficiently automate manual processes, improve business process efficiency, and easily and safely migrate and modernize legacy systems.
The Professional Edition of RAD Studio®, Delphi® and C++Builder® is ideal for developers creating desktop and mobile applications with high speed and performance, and applications connecting to local peripherals and devices. Developers choose the Professional edition for the deepest Windows 10 API integration in the market, plus rapid low-code application prototyping with stunning native UI, providing the best end user experience.
The Enterprise edition of RAD Studio®, Delphi® and C++Builder® includes all the power of the Professional edition, plus a host of powerful enhancements and additional libraries for highly connected application development and secure mobile data storage.
RAD Studio® Enterprise offers powerful capabilities for taking your data beyond the local machine to deliver powerful native full-stack applications. Following the write-once, compile-everywhere ethos, RAD Studio® Enterprise offers a unique mix of a single code base with fully compiled source code, enabled thanks to its cross platform libraries based on strong Object Oriented Programming.
The intention of this blog post was to explore how Enterprise Resource Planning (ERP) systems work, and how to get started building ERP applications for your enterprise customers.
We also looked at how RAD Studio, Delphi and C++Builder Enterprise and Architect are designed to help to quickly design and easily deploy and maintain enterprise-grade ERP systems.
Need more information? We can help you assemble the software you need to take your business to the next level and build advanced ERP systems.
Want a printable copy? Download this guide in PDF format.