An ERP system is software that connects a company's core processes (orders, inventory, purchasing, production, invoicing and reporting) in one system with one database. Data is entered once and everyone works with the same version. This article explains what an ERP system is, which modules it consists of, what makes up its cost, and how to choose between an off-the-shelf product and a custom-built system.
Contents
- What is an ERP system?
- Which modules does an ERP system consist of?
- What is the difference between ERP and accounting software?
- When does a company really need an ERP system?
- Off-the-shelf ERP or a custom system?
- Cloud or your own server?
- How much does an ERP system cost?
- How does an ERP implementation work?
- The most common implementation mistakes
- Frequently asked questions
- Summary
What is an ERP system?
ERP stands for Enterprise Resource Planning. You may also see it described as a business information system, which means the same thing: one system in which a company manages its key processes.
The point of ERP is not the number of features. It is that every department works on shared data. Sales can see stock levels, the warehouse can see incoming orders, and accounting receives the invoice without anyone retyping it.
Which modules does an ERP system consist of?
An ERP system is made up of modules, and a company chooses the ones it needs. The most common are:
- Sales and orders: quotes, orders, delivery notes.
- Inventory: stock levels, goods in and out, stocktaking.
- Purchasing: supplier orders and delivery tracking.
- Production: planning, capacity and material consumption.
- Finance and invoicing: invoices, payments, a link to accounting.
- CRM: customers, enquiries and communication history.
- Reporting: revenue, margins, utilisation and job status.
A small company often starts with two or three modules and adds more as it grows.
What is the difference between ERP and accounting software?
Accounting software records documents: what was invoiced, paid and booked. An ERP system manages the whole flow of work that comes before those documents, from the enquiry through the order and stock issue to the invoice.
That is why companies usually keep their accounting software and connect the ERP to it.
When does a company really need an ERP system?
Not every company needs ERP. It starts to make sense when these situations keep repeating:
- you retype the same data into two or more systems,
- you can only find out the status of stock or a job by calling a colleague,
- the monthly report is built by hand in Excel and takes days,
- errors in orders and invoices grow with every new employee,
- when a key person is off sick, part of the company stops.
If you recognise one of these, automating a single process is often enough. With three or more, it is a systemic problem that is solved by digitalising your processes into one system.
Off-the-shelf ERP or a custom system?
Neither route is better in every case.
An off-the-shelf ERP system can be deployed faster and its features are proven across many companies. However, you also pay for modules you will not use, and you adapt your way of working to the software. Any change beyond the standard is expensive and depends on the vendor.
A custom ERP system is built around how your company actually works. It contains only what you need and connects to the tools you already use. It takes more time at the start and needs a good analysis, otherwise bad habits are carried over into the software.
A practical rule: if your processes are common (sales, simple inventory, invoicing), start with an off-the-shelf product. If your competitive advantage lies in doing something differently from everyone else, a boxed product will hold you back.
Cloud or your own server?
A cloud ERP system runs at the provider and you use it through a browser. You do not have to look after servers or backups and you can connect from anywhere. A system on your own server gives you more control over the data, but you are responsible for operation and security yourself.
Most small and medium-sized companies now choose the cloud. Your own server makes sense when there are strict requirements on where data is stored, or when the system connects to machines on the shop floor.
How much does an ERP system cost?
The cost of an ERP system is not a single number. It consists of several items, and you should ask for all of them when comparing quotes:
- Analysis: mapping the processes and designing the solution. Saving here does not pay off.
- Licences or development: a monthly fee per user for an off-the-shelf system, a one-off development price for a custom one.
- Integrations: connections to accounting, the online shop, carriers or the bank.
- Data migration: moving customers, products and history from the old systems.
- Training and support: without them, people stay with Excel.
That is why a general figure makes little sense; the price is individual for every company. We are happy to go through your case with no obligation and send you an indicative price within 24 hours.
For off-the-shelf systems, calculate the total cost at least three years ahead. A monthly fee looks low, but it is multiplied by the number of users and months.
How does an ERP implementation work?
- Analysis: which processes the system will cover and which it will not, for now.
- First version: one process from start to finish, for example from order to invoice. A quick way to test it is a prototype.
- Testing with people: the system must be tried by those who will work in it every day.
- Data migration: moving data from old systems and spreadsheets.
- Gradual expansion: further modules only after the first one works.
The most common implementation mistakes
- Everything at once. A gradual rollout takes longer on paper but less time in reality.
- Choosing by feature list. What matters more is whether the system fits your processes.
- Leaving out the people who will use it. A system designed without them gets bypassed with Excel.
- Neglected data. Duplicate customers and outdated prices are carried over into the new system too.
- Parallel spreadsheets. As long as they exist, they remain the main source and nobody uses the system fully.
Frequently asked questions
What does ERP stand for?
Enterprise Resource Planning. It refers to software that connects a company's processes in one system.
What is the difference between ERP and CRM?
CRM looks after customer relationships and sales, ERP looks after the internal running of the company. In a custom system they can form one whole.
Is an ERP system only for large companies?
No. A company of ten people also saves time if it has many orders or more complex inventory. What matters is the complexity of the processes, not the number of employees.
Can an ERP system be connected to the accounting software we already have?
In most cases, yes. A link to the accounting software is a common part of the implementation.
How long does an ERP implementation take?
It depends on the scope. The first process can go live much sooner than the whole system, which is why we recommend starting with it and expanding step by step.
Summary
An ERP system connects orders, inventory, production and finance in one system, and it makes sense when a company loses time retyping data and searching for information. For common processes, start with an off-the-shelf product; for specific ones, consider a custom system. In both cases, start with an analysis and one process, not the whole company at once.
If you want to know which route fits your company, book a free consultation.
