What Are the Basic Methods of ERP System?

ERP (Enterprise Resource Planning) systems are software solutions that manage and integrate key business processes across various organisational departments. They provide a centralized database and enable organizations to use integrated applications, including product planning, inventory management, manufacturing, sales, marketing, finance, human resources, and more.

ERP implementation brings various benefits, such as streamlined operations, increased productivity, reduced costs, better analytics and reporting, and improved collaboration and decision-making across departments. However, selecting and implementing the right ERP solution for your organizational needs can be complex.

We will cover the fundamental concepts, working, and basic methods used in ERP systems to help you understand this critical business software platform.

What is an ERP System?

An ERP software system is an integrated suite of customizable applications that manage core business processes such as procurement, manufacturing, sales, accounting, human resource management, supply chain management, customer relationship management, and more across an organization.

It is a central repository for all business data that integrates information flows across various departments into a uniform system environment. This enables real-time data access and information sharing within predefined user access controls. ERP systems consolidate business information onto a single, integrated software platform.

The Main Functions of an ERP System

The key functions performed by ERP systems across various modules are:

1. Central Database: ERP software consolidates data from across various business functions onto a single, unified central database accessible in real-time by different authorized departments.
2. Integrated Applications: It consists of modular integrated applications supporting diverse business processes across procurement, inventory, manufacturing, sales, marketing, finance, HR, reporting and more within a unified interface.
3. Workflow Management: ERP systems define, execute, monitor, control and optimize end-to-end workflows for order fulfilment, invoice processing, recruitment etc.
4. Data Analytics: It facilitates business intelligence, reporting and advanced data analytics across organizational data.
5. Audit Trails & Security: ERP software provides detailed audit trails and role-based access controls for managing data security.
6. Customization: The applications allow customizations to tailor the system as per unique business requirements.
7. Mobile Access: Modern ERP systems support mobile access via smartphones and tablets.
8. Cloud Deployment: ERP softwares is now commonly deployed on the cloud, providing increased flexibility, scalability and cost efficiency.

Key Benefits of Using an ERP Software

Implementing an ERP system provides various significant advantages:

1. Increased Operational Efficiency: By standardizing, automating and streamlining business processes across departments.
2. Better Collaboration: Enables data sharing and improved communications between cross-functional departments.
3. Enhanced Reporting & Analytics: Provides enterprise-wide reporting dashboard and BI analytics in real-time.
4. Reduced Costs: Minimizes costs and resource utilization through streamlined operations and integrated systems.
5. Increased Productivity: Via workflow automation, standardization and access to real-time data.
6. Flexibility & Agility: Ability to quickly adapt to changing business needs through customizations.
7. Improved Customer Service: By providing a unified view of customer data across all business functions.
8. Informed Decision Making: Using enterprise-wide information for better organizational decision-making.

Types of ERP Implementation Methods

ERP systems can be implemented using various methods based on the unique needs and complexity of an organization:

1. Big Bang Approach: Implementing all ERP modules simultaneously across departments. This fast-tracks ERP rollout but can be high risk.
2. Phased Approach: Implementing ERP functionality in stages by rolling out one module at a time across selected departments. It is more flexible.
3. Hybrid Approach: Using elements of both Big Bang and Phased Approaches by integrating different modules through multiple implementation stages.
4. Parallel Adoption: Running both old and new systems concurrently for a select period to ensure a smooth transition to an ERP system.

Factors Impacting the ERP Implementation Approach

The ERP implementation methodology depends on several factors:

– Organization Size: Large firms may prefer big bang, while small firms may choose phased rollout.

– Custom vs Packaged ERP: Custom-built ERPs suit phased approaches while prepackaged ERPs favor big bang methods.

– Business Complexity: Simpler businesses may select big bang, while complex organizations may opt for a phased approach.

– Budget & Timelines: Organizations with higher budgets and tighter deadlines may use Big Bang technique.

– Risk Appetite: Firms more open to risk may choose Big Bang, while risk-averse firms may opt for a phased approach.

– Resource Availability: Access to required implementation resources also impacts the selection between different techniques.

ERP Implementation Methodologies

While implementing ERP projects, organizations can choose between different standard methodologies:

Waterfall Methodology

This traditional methodology follows a sequential linear approach flowing steadily across standard phases without revisiting prior ones:

1. Requirement Gathering: Detailed analysis of business and technical requirements.
2. System Design: Designing overall ERP architecture, including applications, infrastructure, integrations etc.
3. Implementation: Configuring, customizing, testing and deploying designed ERP elements.
4. Integration & Testing: Integrating modules & extensive testing.
5. Deployment: Migrating business to production ERP environment.
6. Maintenance: Managing & enhancing the implemented ERP system.

Though simple, waterfall methodologies lack the flexibility to make iterative changes.

Agile Methodology

As an iterative approach, Agile methodology follows rapid cycles of development consisting of smaller ERP modules in short phases.

Each cycle involves cross-functional collaboration across business and IT to assess, analyze, design, develop and test smaller functional ERP increments in weekly or monthly sprints.

Customer feedback is continuously evaluated to re-align requirements and priorities in every cycle, enabling more flexible adaptations even later in implementation.

Common Agile methods used in ERP implementation include:

• Scrum: 30-day sprints building ERP capabilities using Scrum techniques.
• Kanban: Visual project management approach using Kanban boards.
• Extreme Programming (XP): Rapid iterative cycles rapidly developing incremental ERP capabilities.

Hybrid Waterfall-Agile Approach

This combines both methodologies into a hybrid model with waterfall Used to structure overall implementation into predictable long-term phases while agile brings in flexibility to make iterative improvements within phases:

• Requirements Gathering: Waterfall
• ERP Infrastructure: Waterfall
• Core ERP Modules (Finance, HR, etc.): Agile iterations
• Add-on Modules Development: Agile sprints
• Integration & Testing: Waterfall
• Deployment & Maintenance: Waterfall

The hybrid approach aims to utilize the strengths of both methodologies.

Types of ERP Deployment Models

ERP systems are typically deployed using:

1. On-Premise Model: Here, the licensed ERP software, hardware, middleware and supporting IT infrastructure is implemented at the organization’s own data centres and offices. It requires significant investments and internal resources to manage but provides full control.
2. Cloud-Based Model: In this model, the ERP software application, along with IT infrastructure, middleware, databases, etc., is hosted, managed and maintained by the ERP vendor or managed services provider remotely and accessed by organizations over the internet as a web-based application. It converts high upfront costs into flexible operating expenses based on usage and allows quick deployment.

Security concerns and vendor dependencies are key considerations for cloud ERP models. Hybrid models consisting of a mix of cloud and on-premise are also common nowadays.

ERP Implementation Steps

Though it varies between software packages and vendors, typical high-level steps for implementing ERP systems are:

1. Planning: Define scope, evaluation criteria, implementation methodology, timeframe and budget for ERP implementation. Also, form a project team. Conduct a cost-benefit analysis.
2. Vendor & Software Selection: Issue RFP, evaluate vendor offerings, shortlist options, conduct demos and POC to select ERP software and implementation partner meeting defined criteria.
3. Process Analysis & Design: Analyze existing processes and global best practices to redesign improved processes aligned to software capabilities.
4. System Configuration: Tailor the system to meet redesigned processes and business rules through configurations without changes to the base code.
5. Customization: Customize the source code per unique processes and requirements not met by configurations.
6. Data Migration: Strategize data migration methodology and migrate data from legacy systems into new ERP databases through ETL tools. Maintain data integrity.
7. Integration & Testing: Extensively test configured system, integrations, data migration outcomes, interfaces, reports etc. Conduct user training.
8. Go-Live: Deploy the extensively tested ERP system across the business by managing change and support.
9. Optimization & Enhancements: Continuously monitor system performance, user feedback and business needs to optimize and enhance ERP for sustained benefits.

ERP Implementation Best Practices

Critical best practices to follow for successful ERP adoption include:

1. Involve key users across departments in the project to tap process expertise and gain user buy-in.
2. Carefully assess and select the ERP software that closest aligns with your business requirements.
3. Invest adequately in change management initiatives to prepare end-users for the new system.
4. Extensively test ERP integrations, interfaces, reports, data migrations early through rigorous QA.
5. Phase out legacy systems gradually only after careful ERP transition planning.
6. Start off with critical processes first during phased implementations.
7. Limit software customizations by opting for configurations to lower costs and complexity.
8. Evaluate cloud-based or hybrid hosting models for increased flexibility.
9. Budget for post-go-live stabilization support and optimization activities.
10. Plan proactively for ongoing upgrades, maintenance and enhancements.
11. Develop clear rollback contingency plans for each implementation stage.
12. Ensure rigorous data security, access controls and backups are in place.

In summary, ERP adoption necessitates strategic planning, accurate requirements analysis, adaptable implementation techniques, extensive testing, comprehensive change management and adequate IT controls for succeeding. Carefully choosing the right methodology and best practices based on your organizational landscape is vital.

FAQs

Q1. Which ERP methodology is better – waterfall or agile?

Answer: Waterfall provides an orderly approach, but agile enables more flexibility in change. Using a hybrid model helps utilize the strengths of both methods efficiently.

Q2. What are the most critical ERP implementation best practices?

Answer: Defining clear objectives, securing management commitment, extensive user involvement through change management and rigorous QA testing are among the most vital best practices.

Q3. How long does an ERP implementation usually take?

Answer: On average, ERP implementation can take around 6 to 12 months for small-medium firms and 12 to 24 months for larger or global organizations, depending on scope and complexity.

Q4. What are the main challenges faced in ERP adoption?

Answer: Significant challenges include unclear requirements, poor project planning, change resistance from users, inadequate executive support, extensive customizations and insufficient testing.

Q5. How can risks be mitigated during ERP roll out?

Answer: Following a hybrid waterfall-agile approach aids flexibility. Conducting proof of concepts and testing mitigates technical risks. Investing heavily into organizational change management reduces user-adoption risks post-implementation.

Conclusion

ERP systems deliver immense value but necessitate strategic planning, accurate requirements analysis and adaptable implementation techniques. Carefully choosing the right methodology and best practices based on your organizational landscape is key to maximising success. Utilizing the collective strengths of traditional waterfall and modern agile approaches via a hybrid model can enable organizations to balance stability with flexibility for their digital transformation initiatives.