What is an ERP-System

ERP - Publications By: Dr. Harald Dreher - Mar 29, 2021

Benefit from 3 decades of experience in IT strategy, digitalisation, ERP consulting and process optimisation...

An ERP system is often unknown outside the I.T. sector and production. We advise our customers and interested parties on a daily basis on topics related to ERP systems and time and again we are asked questions such as:

what is erp and how does it work?

An ERP system is often unknown outside the I.T. sector and production. We advise our customers and interested parties on a daily basis on topics related to ERP systems and time and again we are asked questions such as:

  • What is an ERP system?
  • What is ERP software?
  • What can ERP software do and
  • What does an ERP system contain?.

In order to shed some light on the subject, I have written this jargon-busting article, which is intended to be a little help for both newcomers to the topic and for people who would appreciate confirmation of certain aspects without un-necessary technical talk.


What is an ERP system?

As an ERP consultant, it is a matter of course to deal with I.T. or ERP requirements, to answer technical questions or to illustrate connections in programme processes. This makes it easy to explain the idea and concept of what an ERP system is and what it can do. To make it understandable for non-I.T. specialists, I try - as far as possible - to avoid technical terms, you will be confronted with terms like integration tools, databases and their properties, machine learning or A.I. requirements only in a generally understandable way.

It is not easy to describe ERP systems for non-I.T. specialists in a generally understandable way. I realised while writing this article that it is much easier to discuss requirements, systems and functions with project teams, managers or among ERP consultants, whereby the terminology is familiar to all.

With this publication, I would like to support the description or discussion of the benefits of ERP systems, ERP architectures, large amounts of data to be processed, workflows and interface management, and to give employees and managers outside I.T. a little help and overview of how an ERP system works.


What is the added value that comes from employees outside an I.T. department knowing what ERP systems are and what ERP software can do?

The more understanding and the more information there is in a company already at the definition of the requirements (ERP specifications) about the possibilities that ERP software can offer, the better it can be defined how teams later want to design value creation for the customer. It is also helpful when a clear vision for the transformation to digitalisation needs to be developed with the help of a modern ERP system.


ERP software automates businesses

In short, ERP software and an ERP system are able to automate a wide range of operational processes (and most) functions in a company. It digitises and systematises things like order entry, inventory management, point of sale, warehouse management and other critical business functions and business processes. The intention is to consolidate business processes and data into one central system (database, data source). This can be done through a single ERP system across the enterprise or through a number of different integrated systems. It is also possible to implement this across different locations of a company.

However, implementing this is much more difficult than it sounds at first. Even if you want to use one of the leading ERP systems or ERP software, it is a big business challenge (financially as well as organisationally). In various publications on our website you can read about the requirements that need to be taken into account if an ERP project is to be implemented successfully.


ERP systems touch all processes in a company

Imagine, if you will walking into a retail shop like the ones you find in many towns and cities. If you walk through a shop with the eyes of someone responsible for processes, you will notice that everything is interconnected, starting with marketing automation, demand forecasts (i.e. fulfilment so that goods can be put back on the shelf or hook), planning programmes to control finances and handle accounting, the connection of the sales checkout to the ERP system. Everything is somehow interconnected, building on information and passing on information. Good ERP software touches every real corner of a business.
Provided you have planned it that way and then implemented (configured) it that way.


The different modules of an ERP System

erp_modules_graphic_AdobeStock_276502511 [Konvertiert]-01This is especially true for a complex and global supply chain. Orders, stock, money, suppliers, customers can come from all over the world. Therefore, understanding and looking at the entire supply and value chain of a company is key to ensuring that ERP systems can be used to add value to your business and then work.


The Amazon effect

It never ceases to amaze me how quickly this company evolves. In the wake of the Covid 19 issue, how quickly customers have become accustomed to easy ordering and effortless delivery. Just take a look back at conversations among your acquaintances, or start one on the subject of internet shopping. You might find out which value proposition encourages people to buy from Amazon. You will probably also notice that even consumers without formal business training are developing a sense of how disruptive Amazon is to urban retailing. There is a clear sense here of the benefits that digital transformation can bring to consumers. You vote with your feet and simply shift your shopping to the internet. Conveniently from home. This only works for Amazon because a sophisticated ERP system manages the merchandise management and logistics in the background. Admittedly, in this particular case, there are other systems and, in part, elements from AI and an enormous ability to analyse data (again, elements from artificial intelligence and statistics) that ensure this level of service. Providers who pay too little or no attention to the digitalisation of customer services will eventually no longer be able to withstand this provider pressure. Behind all these customer processes is a sophisticated ERP system.

We work with a number of manufacturing, service and distribution companies that are struggling to provide the same level of responsiveness and data analytics capability as Amazon, primarily because that is just how the world is evolving now - not necessarily because Amazon is a direct competitor.


ERP software: technology is now driving better business processes

In conversations with our customers, we hear again and again that they were surprised how it is possible to make companies better and more profitable, and how interesting it is to learn to align all processes with the customer.
This is another capability that an ERP system can, and we believe must, provide to support business processes. But this is about business processes not about software features or functions of a programme. Most of the leading ERP systems have enough of these built in as standard.
It's about intelligently linking process flows that add value for customers and therefore make them customers. This is also a challenge for ERP consultants in the context of requirements management, to design the best customer processes and have them supported efficiently by ERP software. Technology is usually part of the solution.
But: it is not always a prerequisite for improving competitiveness. We have examples where process improvements, new distribution of tasks or training of employees and better utilisation of existing tools and software already lead to the goal.


The idea of what ERP software has to do has not changed much in 20 years.

When I have to describe ERP software or ERP systems to customers, it doesn't sound much different than it did 10 or almost 20 years ago.
Of course, some things have changed technologically in the technology, the software architecture or through solutions from and in the cloud. Software today is equipped with artificial intelligence, machine learning, with Internet of This IoT. These technologies did not exist back then. 

But the main purpose of ERP software has hardly changed. It's still about. using ERP software to make your business more efficient and effective.

If you are struggling with the selection or procurement of ERP software, it might be interesting to read an article or two on the topic: What should you look for in an ERP selection or "ERP consultants- what is their added value".


At the Beginning of the Article I Asked the Question: What is An ERP System?

  • In summary, the answer: -
    It is a software system that can cover all areas of a company, with the claim of central data storage and with the ability to support customer processes and the complete value chain. It can be installed in a company's own premises or used in cloud systems. An ERP system is able to connect other programmes via interfaces and exchange data.

Do not hesitate to make an appointment with me free of charge if you have any questions. Our added value is definitely that we have a lot of experience through projects of the last 25 years, what is important in an ERP project or what tasks an independent ERP consultant has to fulfil in order to complete an ERP project successfully.

And believe me, the big challenges start after the purchase of an ERP system. Especially when the ERP specifications have shortcomings. But these risks can be kept small if experience and a systematic approach are used in the project work.



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It's about intelligently linking process flows that add value for customers and therefore make them customers. - Dr Harald Dreher