Enterprise Resource Planning (ERP) Explained

One of the biggest business challenges in today’s fast-paced world is maintaining real-time connection and integration between teams.

Enterprise Resource Planning  provides a foundation for business operations and growth strategies and should be a key focus for any business, especially SMEs.

The ERP software market is projected to reach a staggering R2.02 trillion by 2030, in response to increasing demand across virtually all sectors such as manufacturing, construction, utilities, retail, healthcare, IT and telecoms, financial services and insurance.

In this article, we cover the main characteristics and benefits of ERP systems.

We also explain the different types of ERP deployment so you can decide which approach will be the best for your business.

After reading this article you’ll have a good understanding of what ERP is and if it’s right for your business.

Here’s what we’ll cover

What is ERP?

Enterprise Resource Planning, or ERP, is a process that a business can use to manage, integrate and automate the core parts of its day-to-day operations.

An ERP system is software that integrates the management of day-to-day business operations.

It’s typically made up of a central, unified database that allows information to be shared across departments such as finance, human resources, customer relations, inventory purchasing, product management, manufacturing, and sales.

This ensures that every team is working with the same data, to maintain accuracy and consistency.

On top of this, what makes ERP systems invaluable to SMEs is their ability to increase efficiency and productivity across these different teams.

This could be through the integration of various business processes, or through the automation of daily/repeatable tasks, or it could be providing real-time data insights to enable senior leadership teams to make quicker, more informed decisions.

In a recent survey, 97.7% of organisations claimed ERP improved their business processes.

“ERP is first an attitude; second a process, and only third, a set of tools.” Alexis Leon, bestselling author and software consultant

How did ERP evolve?

The term ERP first appeared in the 1990s, although the first electronic systems for planning resources—the forerunner of the technology we use today—emerged several decades earlier.

Initially, ERP began life as a process known as Material Requirements Planning (MRP) in the 1960s and 70s.

At the time, these systems were designed specifically to automate inventory and production planning in the manufacturing sector.

This included tasks such as calculating material requirements based on production schedules and bills of materials (BOMs).

Fast forward to the 1980s and MRP systems evolved into MRP II, which included additional functions such as finance, HR, and distribution.

By integrating these new functions, MRP II provided workers with a much more holistic view of their daily tasks, dependencies and deadlines.

By the 1990s, the technology had evolved again, into what we now recognise as ERP. At this point, they had the power to streamline and automate a far wider range of processes than ever before.

Systems started to provide a consolidated database with data flowing seamlessly across departments. This improved collaboration and ultimately, productivity.

By the late 1990s, ERP systems transitioned online, further improving collaboration between teams.

ERP systems inevitably moved towards the cloud in the mid-2000s, which brought with it further benefits such as lower infrastructure costs and scalability.

As technology progressed, ERP systems also embraced mobile technology, followed by AI and machine learning to further automate tasks and provide deeper insights through powerful analytics, giving us the ‘intelligent ERP’ we know and rely on today.

What are the key  features of ERP systems?

While the specific features can vary from one ERP system to the next, the main characteristics include:

Seamless integration

ERP systems store huge volumes of data in a single, unified database, ensuring de-duplication and consistency across all departments.

They also streamline processes that span multiple departments, such as order-to-cash, procure-to-pay, and production planning.

Automation as standard

ERP systems optimise workflows by automating routine tasks, reducing the manual effort required, but also minimising the chance of errors.

This improves efficiency and frees up your teams to focus on higher-value activities.

Real-time data for real-time decision-making

ERP systems provide up-to-the-minute visibility of key business metrics, enabling managers and other stakeholders to make more informed decisions based on live information.

Scalability and flexibility

An ERP system can be scaled up or down to accommodate any changes that might occur in your business, such as a sudden spike in growth, and can easily be configured to support your business processes as they evolve over time.

Reporting and analytics

An ERP system can be used to generate comprehensive reports and analytics in a few clicks, which provide invaluable performance insights that you can use to justify budgets, identify trends, optimise processes, and drive continuous improvement for the company.

What functions does ERP optimise?

As we mentioned above, ERP systems are invaluable to any business.

Not only are they built around a robust and unified data asset, but they are also flexible in that they can sit across a number of different teams and processes and be reconfigured as those teams evolve.

Companies with ERP		Companies without ERP
Integration & data management
– Centralised data from various departments  – Improved data accuracy and consistency – Real-time data processing and reporting		– Data silos with isolated information – Higher risk of data inconsistencies and errors  – Delayed reporting due to manual data compilation
Operational efficiency
– Automation of routine tasks  – Streamlined workflows – Scalable processes		– Reliance on manual processes – Fragmented workflows – Limited scalability
Decision-making & reporting
– Comprehensive reporting tools – Informed, real-time decision-making – Better compliance and risk management		– Limited reporting capabilities – Slower and less accurate decision-making – Greater difficulty in maintaining compliance
Customer service & satisfaction
– Faster and more accurate order processing – Better customer data management – More responsive supply chain management		– Slower response times and potential errors – Disjointed customer data – Supply chain inefficiencies

What are the main types of ERP modules?

Given the multitude of ERP use cases, there are many ways to categorise the various modules of an ERP system.

Each ERP module interconnects within an ERP system to provide a 360-degree view of operations, which fosters transparency and efficiency across each function as follows:

Financial management

Automates financial operations, such as budget and cash flow management and provides your teams with real-time insight into the financial status of the company to help them “make more informed decisions and optimise financial activities”.

CRM

A built-in CRM functionality helps you manage your customer data easily in one place.

This, in turn, will help you deliver far more personalised and engaging customer experiences and, ultimately, drive sales.

Sales

Streamlines the entire sales process by automating tasks including order scheduling, processing and shipping, ensuring efficiency across all sales operations.

Business intelligence

Analyze large data sets and translate them into actionable insight, giving team leaders the confidence they need to make pivotal decisions.

Human resources

Covers all aspects of your employee relations and workflows, from recruitment to retirement.

An ERP system can automate processes such as payroll, employee performance tracking, and the management of personnel data, helping HR manage the company’s workforce more effectively.

Purchasing

Automates end-to-end procurement and logistics processes to maximise cost savings wherever possible—invaluable when you need to negotiate more favorable terms with suppliers.

Manufacturing

Helps you plan and optimise manufacturing processes and material resources so you can stay on top of product lifecycle management, all the way from design right through to production to maintenance.

Distribution

Warehouse processes and movements, so you can respond quickly to changes in supply and demand, optimise logistics, and make sure your products are delivered on time.

Supply chain management

Streamlines logistics and reduces lead times through improved demand forecasting and inventory management.

This means you get access to more accurate and timely information, so you can continually optimise inventory levels and reduce costs.

Project management

This is a core function of an ERP system, as it sits across multiple teams and processes, and can aid project management in many ways.

For example, it can provide tools such as resource allocation, time scheduling, and risk management to help you plan, execute, and monitor project tasks more efficiently.

Marketing automation

Automates a whole host of marketing processes such as building out personalised nurture campaigns, creating relevant social media content, or measuring the impact of marketing campaigns across different channels.

Ecommerce

Helps SMEs build and launch a fully operational B2B or B2C website, complete with integrated payment, order and inventory information feeds, so you can start selling products or services online.

Advantages and disadvantages of ERP

As with any software, there are pros and cons for the teams who use it, and for the wider organisation.

In a 2024 survey, respondents using ERP across a range of sectors reported the key advantages of ERP software as:

• Improved customer experience: 95.1%
• Standardisation: 90.7%
• IT maintenance costs: 90.5%
• Productivity and efficiency: 90.4%
• Interactions with suppliers: 87.5%
• Real-time data: 86.6%
• Compliance: 83.6%
• Removing silos: 80.0%

Naturally, without having all the right tools and support in place, ERP can also present disadvantages:

Complexity and resource intensity

Implementing ERP can be challenging, time-consuming, and expensive, placing significant stress on corporate time and resources.

What’s more, ERP implementation projects can end up requiring substantial investment and effort from both a business and engineering perspective, which in turn can pose challenges in terms of deployment and management.

User adoption and training challenges

While it’s natural for users of the platform to show some level of resistance, especially during the testing phase, this can severely impact adoption and can hinder the successful implementation of the system.

What’s more, ‘training transfer’ after the ERP system has been implemented can play a crucial role in ensuring everyone uses it effectively.

In fact, according to one study, over two-fifths (42.7%) of the variance in ERP training transfer can be explained by:

• Mastery goal orientation (striving to master the task according to the standards the user has set for themself).
• Computer self-efficacy (the user’s own judgment of their capability to use a computer).
• Transfer motivation (how willing the user is apply the learnings from their ERP training in their day-to-day work).

Concerns about planning and customisation

The selection and implementation of ERP systems require careful consideration and planning, not least because of challenges such as issues with taxonomy or complexities when it comes to implementing a cloud ERP system, but also because of the level of customisation you might need to meet the specific needs of an individual organisation.

Lack of real-time ERP data

The challenges and complexities with integration can also lead to problems with data access.

In fact, data automation firm Fivetran recently reported that 99% of companies implementing ERP encounter a range of data-related issues at some point.

Meanwhile, 86% of employees say that they’d benefit from tools which make information more easily available.

Is ERP right for my business?

Before investing in any ERP solution, it’s important to:

• Break down your business needs. Has your SME grown so quickly that you need more integrated systems, streamlined processes, and data visibility? Could your business benefit from a centralised system that connects various departments and functions?
• Familiarise yourself with the capabilities of ERP systems, such as how they can be used to automate different processes or manage your data.  Do these features align with your business objectives, and can they address your operational challenges?
• Consider the scalability of different ERP systems. Will they accommodate your business growth and expansion, as well as support future development?
• Calculate the total costs, including software licensing, customisation, training, and maintenance. Does the investment align with your budget and expected ROI?
• Consider how well it integrates with your existing software applications and systems used in your organisation. Can the ERP solution seamlessly integrate with other tools to ensure data consistency and efficiency?
• Evaluate the user-friendliness of the ERP system interface and its functionalities. Is it intuitive and easy for teams to adopt, with minimal training?
• Research the reputation and track record of ERP vendors in the market. Are they stable? Do they have good customer reviews?
• Look at the customisation options available to tailor the solution to your specific processes and requirements. Can it be configured to align with your workflows?
• What data security measures are in place to protect sensitive business information? Does it comply with data protection regulations?
• Consider the level of support and training provided during and after implementation. Do they offer comprehensive training programmes and ongoing support to assist your team?
• Evaluate the reporting and analytics capabilities to generate insights and drive informed decision-making. Does it provide you with real-time data visibility and tools for customisable reporting?
• Look for case studies of businesses that have implemented ERP systems. How have they benefited organisations in your industry?

ERP deployment models: How to roll out ERP in your organisation

Fundamentally, there are four distinct strategies you can choose to roll out deployment in your company.

Depending on the specific needs, size, and capabilities of your SME, as well as the complexity of the ERP you’re implementing, and of course the timeframe and budget you have available.

1. ‘Big Bang’ approach

This approach involves transitioning from a legacy system to a new system in a single switchover, with all of your team moving to the new system on a set date.

It requires extensive planning, training, and resources to ensure a smooth and successful transition to the new system.

The pros? It is typically quicker and less expensive than other methods because it involves a single, major effort rather than a series of smaller, prolonged efforts.

However, the risk is potentially higher, because it can cause significant disruptions if you encounter any problems during the transition.

To mitigate this risk, you need to be set up to handle such a sudden change and be capable of fixing issues swiftly as they arise.

2. ‘Phased Rollout’ approach

The phased approach involves implementing the new system in stages, with each stage focussing on different modules, or business functions, or locations, transitioning them from the legacy to the new system gradually.

The pros? There is less risk because any issues can be identified and resolved in one phase before you move on to the next. It also allows everyone to adapt to the new system over time.

However, it can be more costly and time-consuming, because you need to manage multiple transitions and maintain support for both the new and old systems during the implementation period.

3. ‘Parallel Adoption’ approach

This involves running both the legacy and new systems simultaneously for a certain period, which gives everyone a chance to get accustomed to a new way of working while still having the legacy system as a backup in case they encounter any issues.

The pros? It offers a safety net because you can continue to operate the legacy system if significant issues arise that prevent your teams using the new ERP system properly.

Also, you can easily compare the performance of the new ERP system with the legacy system, mitigating risks associated with a sudden switch.

However, operating two systems at once can be a drain on your resources.

What’s more, it can be confusing, and therefore inefficient, to use two systems at the same time for a prolonged period.

4. ‘Pilot Implementation’ approach

A pilot implementation tests the ERP system with a smaller subset (i.e. department or location) of your organisation using it extensively before a full rollout takes place.

The pros? Similar to phased rollout, this allows you to identify any potential challenges, gather everyone’s feedback, and make necessary adjustments before you sign off on a full-scale implementation.

However, if the pilot doesn’t fully represent your business’ wider needs, issues that are specific to other areas might not be identified until later phases.

The future of ERP

Integration with advanced technologies

Right now, AI is rolling out into our lives and workplaces faster than we can keep up and smart technologies are already being adopted into ERP systems.

In the future, however, we’ll see even more advanced integrations using AI, Internet of Things (IoT) and blockchain to further enhance their capabilities.

In fact, this new era of generative AI will enable ERP systems to provide more intelligent insights and automation in business processes.

For example, by analyzing historical data to forecast future trends and behaviors, SMEs will find particularly useful in areas such as inventory management or strategic planning.

Cloud-based ERP solutions

The adoption of cloud-based ERP systems is on the rise, allowing SMEs in particular to leverage the scalability, flexibility, and cost-effectiveness of cloud computing.

This shift will continue to grow, enabling better and quicker access to data and applications—anytime, and from anywhere.

Sustainable software

As we become more aware of the need to implement low-emission or carbon-offsetting technologies and processes, there is a growing emphasis on Sustainable Enterprise Resource Planning (S-ERP) systems to manage more sustainable business practices.

What’s more, future ERP systems are likely to incorporate more features that support environmental sustainability and green initiatives.

Meeting the needs of SMEs

As the demand for ERP soars, novel frameworks for choosing and implementing the right ERP systems are emerging to inform best practices and—for the first time—create industry standards for ERP.

These frameworks are agile to meet the needs of SMEs (or indeed global organisations), based on their sector, size, and individual objectives.

In particular, we’re seeing a growing focus on ERP implementation in SMEs, to help them overcome the challenges of today and seize the opportunities of tomorrow.

Future ERP systems will offer even more tailored solutions and frameworks designed for small, medium and large enterprises, marking a new dawn of scalable, customisable, smart business solutions for all.

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In a world where technology is driving efficiencies across all pockets of the organisation – from sales and marketing to finance and HR and everything in between – it’s important to embrace the right tools for the best outcomes. To find out more about how cloud solutions can help transform your business, visit Sage Intacct.

Or for more information on how to choose the right ERP software for your teams’ individual needs, visit Sage X3.

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FAQ

What are the signs I need ERP software?

If your business operations are becoming too labour-intensive and time-consuming, it might be time to rethink your current systems and processes. Start by asking yourself the following questions:

• Is my data becoming more and more fragmented?
• Do I have increasingly limited visibility into—and control over—my data and/or operations?
• Am I struggling to scale operations?
• Has my reporting become inconsistent?
• Am I feeling overwhelmed by regulatory compliance?
• Could I improve the company’s customer support capabilities?
• Are my operational costs spiraling out of control?
• Am I struggling to keep on top of inventory management?
• Are my current project management tools too basic for my needs?

If the answer to any of these is ‘yes’, it’s time to consider implementing ERP for your business.

What’s the difference between ERP and CRM?

ERP and Customer Relationship Management (CRM) both manage different aspects of your day-to-day operations, but in different ways.

The main difference is that ERP software automates back-office functions such as admin, accounting or regulatory compliance. While CRM software automates the client-facing ‘front office’ of your business.

ERP software integrates transaction-based data and processes across your business.

This means it typically handles internal data related to product planning, cost, manufacturing, fulfillment, sales and marketing.

CRM software focuses on managing customer interactions, by processing external data related to customer accounts, lead generation, sales opportunities, and customer support.

This helps customer success teams enhance service quality, increase customer advocacy, and provide competitive advantages.

ERP	CRM
Back-office functions such as admin, accounting or regulatory compliance.	Client-facing ‘front office’ of the business.
Integrates transaction-based data and business processes.	Focuses on managing customer interactions to enhance service quality, increase customer advocacy, and provide competitive advantages.
Processes internal data related to product planning, cost, manufacturing, fulfillment, sales and marketing.	Processes external data related to customer accounts, lead generation, sales opportunities, and customer support.
ROI is driven by factors such as reduced operational costs and enhanced data accessibility.	ROI is attributed to increased sales and improved customer relationships.

Modern ERP systems often include CRM modules to help manage customer relationships more effectively.

Therefore, opting for an ERP system with a built-in CRM module allows you to:

• Align business logic—which is already embedded in your ERP—with the more customer-focused functions of your CRM. This type of integration can add real business value because it helps to improve core metrics such as return on assets and sales.
• Manage your business opportunities.
• Accurately predict performance.
• Optimise your overall profits.

What is cloud ERP?

Cloud-based ERP refers to ERP software hosted on a cloud computing platform rather than on-site servers.

The main advantages of hosting ‘in the cloud’ include lower upfront costs, scalability, and the ability to access the platform from any location with internet access.

This means you can be agile and quickly adapt to changing needs without heavy investment in your IT infrastructure.

What’s more, cloud ERP systems are typically updated automatically by the service provider.

You know you’ve always got access to the latest features and security improvements without the need for manual intervention.

What’s the difference between ERP and financial software?

As we have gone into detail above, ERP is a system that integrates functions across an organisation into a single platform. This allows real-time data to be shared across departments.

By nature, ERP systems are scalable and customisable.

Financial software is focused specifically on the financial management of a company.

The software offers tools that assist with core accounting such as:

• general ledger
• accounts payable and receivable
• payroll
• financial reporting
• budgeting
• forecasting

Financial management software can ensure compliance with accounting standards and tax regulations, and helps with financial reporting.

While ERP systems encompass multiple business processes across all departments, financial software is tailored to the finance department.