What is ERP? The basics of enterprise resource planning & the advantages of a cloud ERP

ERP is a popular software solution that helps optimize business processes in companies of various sizes and industries. In this article, we will highlight the main principles of ERP and its benefits, as well as the question of choosing an infrastructural platform for the system.

What is ERP and why do businesses need it?

ERP stands for «enterprise resource planning», which is the company’s strategy in terms of organizing business processes. These processes include optimizing production, managing assets, finances, risks and employees etc. An ERP system is a set of software tools that help solve these tasks effectively.

The ERP complex covers all aspects of business management and unites them into a centralized system. This helps companies form a clear understanding of how it operates, what its financial status is, how to allocate funds, what needs to be reported to the fiscal authorities, how to manage employees, what direction to develop in and how to adapt to the current satiation to achieve strategic goals.

The ERP solution market is diverse and largely depends on the locality. Popular examples of ERP systems include Oracle, SAP and Microsoft Dynamics.

These are the main principles of ERP that will be useful for businesses:

• works in real time;
• has a shared data base which supports all apps and modules;
• unites all modules into one system;
• works on various servers and operating systems;
• can be accessed through the client interface wherever and whenever needed;
• includes both vertical and horizontal access rights based on the org structure and the departments;
• can be deployed in a server or in the cloud.

The main purpose of an ERP system is to optimize the company’s business processes. This is achieved through, automation, systematization and analytics. For example, the system creates reports automatically based on the information in the data base. This helps lower expenses and minimize the risk of errors.

ERP uses work with a single data base. Confidential data is not stored on employee workstations; this increases security and simplifies access to information. Access rights depend on the hierarchy of the org chart, the department and other factors. The system can be accessed from anywhere in the world, no matter the hardware platform. Remote employees can enter the system using mobile gadgets based on Android or MacOS while staffers that work in the office connect to the data base using Windows.

Data centralization facilitates business analytics. The ERP system contains data regarding the company’s inventory, supply chains, clients, revenue etc. The analytics of the ERP can be used to plan sales based on demand analysis, to monitor the company’s warehouse and identify inefficient spending. The system also helps analyze and optimize the work of each department thanks to unified reports.

ERPs use a modular architecture. This allows users to compile the system in stages, based on the company’s priorities. For example, you can add the accounting and the warehouse management modules first, then later add a CRM and an employee management module. If you don’t need the full stack of ERP modules, the architecture of the system allows you to only install the ones you need.

ERP systems support multiple languages and currencies, as well as adaptability in terms of local legislation. This will be useful for transnational companies and corporations that serve customers worldwide. However, this will also be an advantage for small businesses. It’s likely that your preferred ERP supports your language and currency by default while taking the specifics of your country’s laws into account. This way, it won’t take long for you to find a suitable solutions and you won’t have to adjust the system yourself.

The system can be scaled based on the company’s org structure. This means that various organizational levels are included in a single system, such as parent companies and divisions, branches, affiliated structures etc. It also supports various forms of ownership, tax systems, charts of accounts, accounting policies etc. The same principle is used when forming ERP systems for companies with territorial branches.

The benefits of enterprise resource systems are largely a consequence of their main principles and structures. The ERP system:

• accumulates, processes and presents reports on data necessary for decision making;
• automates the document flow and business management processes;
• increases the efficiency of employees due to the use of IT algorithms and tools;
• provides full control over each department’s activities;
• optimizes and synchronized business processes;
• lowers spending for businesses with branching org charts;
• facilitates analytics, planning and decision making;
• provides employee management tools for hiring, professional growth, motivation, training, loyalty management etc.;
• improves data safety using security policies and access rights.

Each company that uses ERP solutions can add its own benefits to the list above. However, the main consequence of these advantages is an increase in revenue due to optimal resource management and transparent data.

What kind of ERP infrastructure should I choose?

When installing an ERP on the company’s local server, it is vital to take business growth into account. The configuration of the server must be able to handle the system’s workloads as they increase. This can only be achieved using Enterprise-class server components, which are often expensive. The infrastructure for a system that holds critically important data must also be fault-tolerant. The business will have to use reserve components, which will increase spending at least by a factor of 2.

Deploying an ERP on-premises is a costly and time-consuming process; however, the task is further complicated by the need to maintain the server. The company will have to hire IT staffers to support the infrastructure, dedicate physical space for the equipment and pay for the power consumed by the server. It is also important to note that a server is not a one-time purchase. Components need to be updated periodically. Companies that find this solution financially inefficient would be well-advised to choose IT infrastructure rental.

A company that rents a server for an ERP does not have to buy components, organize fault tolerance or maintain the infrastructure: this becomes the responsibility of the provider. Besides, storing confidential data in a secure data center is significantly safer than deploying it on-premises. For example, SIM-Networks servers are stored in an ISO/IEC 27001-certified data center in Germany. The international certificate guarantees that the security systems in the data center meet international standards while German laws protect client data from illegal seizures.

Limited scaling capabilities are among the downsides of server rental. If a client needs more resources, they will have to rent a new server with a suitable configuration and redeploy the system. The issue of fault tolerance is only solved in part. Reliable providers use redundant components, power supply units and network connections; however, redundancy in a server is limited on the architectural level.

Cloud rental is a solution that offers all the benefits of infrastructure rental while solving the issues of scaling and fault tolerance. Clouds are built based on server clusters; each process uses the computing power of multiple physical machines. This computing power is presented as a united pool for the user to manage however they wish. Resources can be added or turned off at any moment; the price changes accordingly. This allows businesses to expand their infrastructure without purchasing equipment or redeploying data in a new server from scratch.

A hardware failure in one or even multiple servers will not affect the functioning of systems in the cloud due to its cluster architecture. This is especially important for apps that require stable uptime, such as ERPs. Some clouds also use component redundancy on the architectural level. For example, we use 2N+1 redundancy: each piece of hardware has a parallel copy plus one more reserve component.

The cloud is a good fit for ERP deployment due to a number of security measures. Cloud infrastructures use hardware-based encryption, as well as secure network connections. Some providers offer preinstalled services that increase security in the cloud. SIM-Networks offers firewalls, DDoS protection and VPN with its public cloud by default. These measures protect the company’s internal data from unauthorized access.

Data loss prevention is an important factor that needs to be considered when choosing an infrastructure for an ERP system. If the infrastructure happens to fail, there needs to be a mechanism that will save the company’s documents, reports and analytics. BaaS (Backup-as-a-Service), a service that automatically creates reserve copies of data, is often used in the cloud for this purpose. You won’t have to set up this service manually, as you would in a local server; BaaS is a ready-made instrument.

How do I use my ERP to its full potential?

ERP is a set of tools that optimize the company’s business processes. It unites data in a single system, facilitates analytics, creates automatic financial predictions and simplifies sales planning. These benefits will be useful for companies regardless of their size and industry. Choosing an infrastructural platform is a vital stage of ERP integration.

Deploying an ERP in on-premises infrastructure forces the company to spend time and resources on IT by purchasing and updating hardware, supporting the server, employing administrators etc. This is why it’s more cost-efficient for a small business to store the system in rented infrastructure. The provider becomes responsible for these tasks and the company saves its funds.

The choice of platform for an ERP is largely an individual question. However, various infrastructural solutions have their pros and cons that have to be taken into account. Renting an Enterprise-class server is more cost-efficient that maintaining one on-premises; however, it is difficult to organize fault tolerance and scaling in a physical server. If these tasks are a priority for your company, cloud ERP solutions are a great choice.

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