What is ERP Software? Here is everything you need to know.
Summary
TLDRIn this video, Eric Kimberly, CEO of Third Stage Consulting, explains the evolution and importance of ERP (Enterprise Resource Planning) software. Starting from its origins in MRP (Material Resource Planning) for manufacturing efficiency, ERP has expanded to integrate various business functions across an organization. Kimberly discusses the market's range of ERP systems, including Tier 1 for large organizations and Tier 2/3 for niche solutions. He emphasizes the common challenges in ERP implementation, such as operational and people issues, rather than technology, and offers insights into successful ERP adoption strategies.
Takeaways
- 😀 ERP stands for Enterprise Resource Planning, which is a software system that aims to improve organizational efficiency and effectiveness.
- 🔍 ERP originated from MRP (Material Resource Planning), which was designed to help manufacturing organizations manage their operations more efficiently.
- 🏭 MRP systems were developed to address challenges in tracking customer orders, demand, and the necessary parts and supplies for production.
- 🌐 ERP evolved to include not just manufacturing but also warehouse management, procurement, financials, accounting, HCM (Human Capital Management), and CRM (Customer Relationship Management).
- 🔑 The goal of ERP is to provide a unified data set and a common workflow across an organization, offering transparency and a single system for all operations.
- 🏢 There are various tiers of ERP systems, with Tier 1 systems like SAP, Oracle, and Microsoft ERP being suited for larger, more complex organizations.
- 🛠 Tier 2 ERP providers offer niche-focused solutions, often targeting specific industries or sets of capabilities, while Tier 3 solutions are industry-specific or function-specific within ERP.
- 🤝 The 'best-of-breed' ERP model involves using different specialized systems for different segments of a business, which can provide a more precise fit for unique business needs.
- 📉 ERP implementation failure rates are high, often due to issues with operational and people-side challenges rather than the technology itself.
- 👥 People resist change, and this resistance can hinder the successful implementation of new ERP technology, regardless of its sophistication.
- 🛑 To implement ERP successfully, organizations should focus on finding the right software, ensuring strategic alignment, and prioritizing people and process improvements alongside technology.
Q & A
What is ERP software?
-ERP, or Enterprise Resource Planning, software is a system that organizations use to improve efficiency and effectiveness by integrating and automating many of their core business processes, tracking supplies, and managing various aspects of production and service delivery.
What does the acronym 'MRP' stand for and how is it related to ERP?
-MRP stands for Material Resource Planning. It is an older technology that originated in manufacturing organizations to manage production operations. MRP evolved into ERP, expanding its focus to include not just manufacturing but also warehouse management, procurement, financials, and other enterprise-wide functions.
Why were MRP systems created?
-MRP systems were created to address the challenges faced by larger manufacturing organizations in managing their operations, such as tracking customer orders, demand, and the necessary parts and supplies to fulfill that demand efficiently.
What is the significance of the 90s lean manufacturing movement in the context of ERP evolution?
-The lean manufacturing movement in the 90s emphasized maximizing manufacturing efficiency and quality. MRP systems played a significant role in this by helping organizations become more efficient and effective, which eventually led to the development of ERP systems.
What are the three biggest ERP software providers mentioned in the script?
-The three biggest ERP software providers mentioned are SAP, Oracle, and Microsoft.
What is the difference between Tier 1, Tier 2, and Tier 3 ERP systems?
-Tier 1 ERP systems are typically used by larger, more complex multinational organizations and offer a broad range of functionalities. Tier 2 ERP providers offer more niche-focused solutions, often targeting specific industries or capabilities. Tier 3 ERP systems are industry niche solutions, which can be smaller, simpler systems catering to specific industries or functions within ERP.
What is the 'best-of-breed' ERP system model?
-The 'best-of-breed' ERP model involves using specialized systems for different segments of a business rather than a single ERP system for all needs. This model provides flexibility and a more precise fit for unique business requirements but may also introduce complexity due to the need to integrate multiple systems.
Why do ERP implementations often fail according to the script?
-ERP implementations often fail not because of the technology itself, but due to issues related to operational challenges and people-side factors, such as inadequate business process improvements and poor organizational change management.
What are some key factors for successful ERP implementation?
-Key factors for successful ERP implementation include finding the right software that fits the organization's needs, ensuring organizational alignment on strategic direction, and focusing on people and process aspects during the implementation.
How are emerging technologies like AI, machine learning, blockchain, and IoT being integrated into ERP systems?
-Emerging technologies are enhancing ERP systems by automating business processes, identifying patterns and exceptions, improving traceability in supply chains, and providing real-time data from IoT devices on the shop floor, which can be integrated into the ERP system for better visibility and decision-making.
What advice does the speaker give for organizations considering an ERP implementation?
-The speaker advises organizations to ensure they have a clear vision and alignment, choose the right technology through an independent assessment, and focus on people and processes during the implementation to increase the chances of success.
Outlines
😀 Introduction to ERP Software
The video script introduces the concept of Enterprise Resource Planning (ERP) software, which has evolved from Material Resource Planning (MRP) systems used in manufacturing. The speaker, Eric Kimberly, CEO of Third Stage Consulting, explains the historical development of ERP from its origins in managing manufacturing operations to a comprehensive tool for managing various enterprise functions. He discusses the expansion of ERP to include warehouse management, procurement, financials, human capital management, and customer relationship management. The goal of ERP is to provide a unified data set and workflow across the organization, enhancing transparency and efficiency. The script also touches on the variety of ERP providers available, including Tier 1 providers like SAP, Oracle, and Microsoft, which cater to larger and more complex organizations.
🔍 The Evolution and Complexity of ERP Systems
This paragraph delves into the evolution of ERP systems from a single unified system to a model that sometimes incorporates best-of-breed solutions. The ideal proposition of a single ERP system capable of handling all organizational needs is contrasted with the reality that many organizations have unique requirements that necessitate a more tailored approach. The rise of best-of-breed systems, which focus on specific business segments or functions, is highlighted as a response to the one-size-fits-all model. The speaker also addresses the high failure rate of ERP implementations, suggesting that the issue is not with the technology itself but with operational and people-related challenges. The importance of aligning business processes and organizational change management is emphasized to ensure successful ERP adoption.
🛠 Critical Success Factors for ERP Implementation
The final paragraph focuses on the critical success factors for implementing ERP software. It stresses the importance of selecting the right technology that fits the organization's needs and having a clear strategic alignment within the organization before embarking on an ERP project. The speaker advises shifting focus from technology to people and processes during implementation, as these elements are often where ERP projects falter. The paragraph also mentions the integration of advanced technologies like artificial intelligence, machine learning, blockchain, and the Internet of Things into modern ERP systems, which are enhancing capabilities and providing new levels of automation and visibility. The video concludes with a recommendation to explore additional resources for understanding the best practices in ERP software selection and implementation.
Mindmap
Keywords
💡ERP Software
💡Digital Transformation
💡Material Resource Planning (MRP)
💡Lean Manufacturing
💡Warehouse Management
💡Procurement
💡Human Capital Management (HCM)
💡Customer Relationship Management (CRM)
💡Tier One ERP Systems
💡Best-of-Breed ERP Systems
💡Implementation Failure
💡Artificial Intelligence (AI)
💡Blockchain
💡Internet of Things (IoT)
Highlights
ERP software has evolved from older technology, originally designed for manufacturing organizations.
The origin of ERP can be traced back to Material Resource Planning (MRP) systems used to manage manufacturing operations efficiently.
MRP systems helped track customer orders, demand, and inventory to improve manufacturing efficiency.
ERP systems expanded beyond manufacturing to include warehouse management, procurement, financials, and human capital management.
The goal of ERP is to provide a unified data set and common workflow across the entire organization.
There are Tier 1 ERP systems designed for larger, multinational, and complex organizations, such as SAP, Oracle, and Microsoft.
Tier 2 ERP providers offer niche-focused solutions tailored to specific industries or capabilities.
Tier 3 ERP solutions are industry niche solutions, often simpler and catering to specific functions within ERP.
The ideal ERP implementation proposes a single system to manage all organizational needs, but often this is not feasible due to unique organizational challenges.
Best-of-breed ERP systems focus on specific segments of the business, providing a more precise fit for unique business needs.
ERP implementation failure rates are high, often due to operational and people-side issues rather than technology.
The key to successful ERP implementation includes finding the right software, organizational alignment, and focusing on people and processes.
Emerging technologies like AI, machine learning, blockchain, and IoT are being integrated into ERP systems to enhance capabilities.
Artificial intelligence and machine learning are automating business processes and identifying exceptions in processes like accounts payable.
Blockchain is used for tracking raw materials and products in industries like pharmaceuticals and food for regulatory compliance and recalls.
Internet of Things devices provide real-time data from the shop floor, tying back to the ERP system for complete organizational visibility.
ERP software, when implemented correctly, can significantly advance an organization's operational efficiency and effectiveness.
Transcripts
ERP software or enterprise resource
planning software has been around for a
long time it's helped a lot of
organizations improve and become more
effective and efficient but what exactly
is the ERP software I'm going to give
that answer here today my name is Eric
Kimberly I'm the CEO of third stage
consulting or an independent consulting
firm that helps clients through their
digital transformation and ERP
implementation journeys and I've been in
the ERP software space now for over 20
years and whenever I'm talking to family
or students or someone who's not
familiar with the ERP space that I'm in
people often ask what in the world is
the ERP and what does that mean and I
mentioned before that enterprise
resource planning is what it stands for
but there's a lot more to it than that
and I'm going to talk about that here
today
I mentioned that ERP stands for
enterprise resource planning an ERP is
actually an evolution from some older
technology that was really originated
with a lot of manufacturing
organizations and that software was
called MRP material resource planning so
the origin of MRP came to be when a lot
of larger manufacturing organizations
were finding that they were struggling
with managing their entire manufacturing
operations they had trouble tracking
customer orders and tracking demand
tracking what kind of parts and supplies
they would need to purchase to be able
to meet in fulfill customer demand
so MRP systems were a way to handle that
it was a way to manage the tracking of
what supplies and raw materials we might
need to manufacture for our customers it
was a way to manage the manufacturing
shop floor so that we could prioritize
orders and make sure that we maximize
throughput and it was really a way to
address the whole movement in the 90s
toward lean manufacturing and trying to
maximize manufacturing efficiency and in
the u.s. a lot of US manufacturers were
struggling with manufacturing efficiency
and manufacturing quality and there were
being beat by Japanese
Manufacturing organizations at the time
so MRP systems were a way to help
organizations of all origins and all
nationalities to help them better become
more efficient and more effective so
over time MRP evolved and morphed into
something more than just a manufacturing
solution it started to focus on
warehouse management and procurement and
financials and accounting even HCM or
human capital management or customer
relationship management on the sales
side it took the core of MRP and started
to expand in other parts of the
enterprise to where organisations were
moving towards single systems that could
tie together the entire organization
provide one unified data set provide a
common workflow across the organization
and for lack of a better term provide
one system that provided all the
operations and data and transparency
into what was happening enterprise wide
and so that's the whole evolution of how
ERP came to be it really traces its
origins back decades ago when enterprise
technology was first emerging
now there are a plethora of erp software
providers in the marketplace the biggest
ones the ones that are most commonly
used by bigger organizations our
companies like sa P Oracle is another
one Microsoft provides its own ERP
solution those are the three biggest
ones and a lot of organizations and
industry analysts will refer to those
larger ERP systems as the Tier one ERP
systems those are the ones that are
typically better suited for larger
organizations multinationals more
complex organizations multi location
types of organizations those tier one
providers are generally trying to
provide a breadth of functionality that
can meet the needs of those
organizations
there's also tier two ERP providers and
these are the providers that are more
niche focused solutions they might focus
on one industry might focus on one set
of capabilities just to give you a few
examples at the core and in for for
example our two manufacturing ERP
systems that are very common in the
manufacturing space but you don't see
them a lot in other industries you don't
see them for example in a lot of
financial services organizations or
professional services organizations they
tend to focus more on manufacturing and
distribution and nothing else so that is
in another example or another segment of
the ERP space is that whole tier to
market and then you have your tier 3 or
industry niche solutions that are there
are probably dozens or hundreds of
different ERP solutions that fall into
that segment they're either smaller
simpler solutions that can provide
capabilities to specific industries or
perhaps certain functions or
capabilities within ERP they may not
even be providing full ERP capability
they may be focusing on just one small
segment within ERP and like I said
there's a ton of different options and
solutions in that space so overall if we
look at all the different types of VRP
systems out there there are easily
dozens if not hundreds of ERP systems
that can be used for your organization
now I talked about how ERP evolved from
the need to have a single unified vision
and visibility into how an organization
works and typically the going in
proposition with ERP implementations is
that you're gonna have one ERP system
that can do everything that you would
need technology to do for your
organization now that is an ideal
situation it's a perfect world scenario
but the reality is is most organizations
have unique needs and unique challenges
they can't be met by one single ERP
system that's trying to be everything to
everyone
so what the single ERP system model has
done is its created a niche or a void
that's being filled by what we call
best-of-breed ERP systems and these are
systems that are not meant to be one
single ERP system that's going to be
everything for everyone within your
organization but it might be that you're
focusing on different segments of your
business so for example within your
sales organization you might have CRM or
customer relationship management
software within your HR department you
might use a separate or a different
human capital management software that
specializes in that at workday for
example is a good example of a system
that provides just HCM capabilities you
might have a different system that
provides financial and accounting
capabilities and you could also in
addition to those examples be using a
core back-office ERP system to tie it
all together so best-of-breed systems is
a common trend that we're seeing in the
market and it's in some ways more
complex because now you have multiple
systems that you have to tie together
but in other ways it provides more
flexibility it provides more precise fit
with what your unique business needs
might be and there's certainly
trade-offs to both the best-of-breed
model as well as the single ERP model
but when talking about ERP it's
important to look at the whole picture
what are those spectrum and continuum of
options available to you in the
marketplace
now if you've done any research on erp
software in general you've probably seen
that ERP implementations quite commonly
fail in fact many statistics put the
failure rate at above 80% of
organizations that try to implement ERP
whether it's a tier 1 system at tier 2
or 3 system or a single year P
best-of-breed ERP doesn't really matter
the failure rate is fairly high so the
question becomes if the technology is
great and there's so much demand for
this technology how could they possibly
fail as often as they do and if you
check out my channel and some of the
other videos on my channel just search
the word failure and you'll find a bunch
of videos I've created about how to
avoid failure why projects fail what
some of the common challenges are but in
a nutshell the reason the ERP
implementations typically fail is not
because of the technology but it's
because of the operational and the
people side of things the technology in
general is very robust it's very
sophisticated its innovative it can do a
lot of different things that's usually
not the problem although technology can
create complications during
implementation but the more common
challenges in problems with ERP
implementations are that we haven't
adequately addressed our business
process improvements we haven't
adequately addressed our organizational
change management or people needs so in
other words and to put it simply people
don't like to change and because they
don't like to change new technology no
matter how great it is is going to be
difficult for your organization to adapt
to so in its simplest terms people in
processes or why ERP implementations
fail like I said I encourage you to
watch some of the other videos on my
youtube channel that go into that topic
in more detail but in general that's why
implementations fail
so the question becomes how do we
implement erp software if most of them
fail what can we do differently to
implement well and to simplify and to
summarize what I've also talked about in
other videos on my youtube channel the
first thing is to find the right
software or technology that's the best
fit for your organization that's kind of
the first step that's the minimum ante
that you need to be able to succeed is
to make sure that the software
technology you're implementing is a good
fit with what your needs are and make
sure you get an independent assessment
and view and an objective evaluation of
the different options in the market
place you can find the best technology
for your organization a second critical
success factor is to ensure that your
organization is aligned on what it wants
to be when it grows up a lot of times
organizations are trying to implement a
RP software at a time of turmoil at a
time of misalignment or at a time of
strategic misalignment where the
organization isn't on the same page with
the direction it's going it doesn't have
a clear vision and then you try to
overlay new technology on top of that
and that's a recipe for failure so
making sure you have clear alignment on
your overall organization is very
important and again I haven't included
some videos below that will help you
further dive into that topic and then
the implementation itself when we focus
on the implementation it's important not
to focus too much on the technology but
to shift some of the time resources and
attention from technology over to the
people and process side of things if we
do the people and process side of things
very well and we also have alignment and
we've also picked the right software or
technology for our organization we have
the best chances to succeed but the
problem is most organizations fail and
one or more of those three critical
success factors and like I said I
encourage you to download some of the
content I've included links to below
that'll dive more into what you need to
do to be successful for your ERP
implementation
so ERP software had its origins many
years ago with some very simple types of
objectives it was trying to accomplish
it was just trying to track inventory
and orders and activities better within
an organization sounds simple enough but
over the years it's evolved into more
than that it's not only trying to tie
together an organization provide one
common single source of truth for what's
happening in the organization but it's
also now trying to introduce more
advanced technologies and capabilities
into earpiece so for example there's new
artificial intelligence that's helping
organizations automate some of their
business processes better
there's machine learning that looks for
patterns and exceptions to things as
simple as accounts payable processing of
invoices machine learning for example
can automate the accounts payable
process and use artificial intelligence
to flag the exceptions or the things
that look like outliers or the things
that look like could be potential
problems in your accounts payable
invoice processing so that's just one my
new example of how machine learning and
artificial intelligence is being used to
take the RP to a whole nother level
you also have blockchain which is being
used by many organizations and
pharmaceutical and food companies for
example they need to track every raw
material in part in an entire production
process an entire distribution process
so that if there's ever a recall or a
regulatory problem blockchain can be
used to trace problems back to the
supplier and that's a new technology
that's being provided and then finally
one other common trend we're seeing is
Internet of Things if you have an Apple
watch and your Apple watch is tracking
your daily activity that's an example of
Internet of Things it's tracking that
information it's storing it in the cloud
and what you do with that information
and how information like that could type
back to an enterprise is very important
for example a lot of manufacturing
organizations will have Internet of
Things type devices out on the shop
floor that will be tracking data on the
shop floor that will then tie back to
the ERP system so that you can see
complete visibility into what is not
only happening within
the corporate headquarters but also
what's happening out on the shop floor
so those are just a few examples of some
of the trends that are emerging in the
ERP space
[Music]
so we air P software can be very
powerful thing
if managed correctly implement it
correctly and leverage correctly
organizations can go to the next level
in their respective journeys but it
requires the right focus the right
discipline and also just finding the
right technology so I encourage you to
look at some of the downloads I've
included links to below that will give
you more of a picture of some of the top
erp software systems in the marketplace
some of the best practices around how to
implement erp software i've included
links to some white papers and blogs
below that might help you through that
journey so I hope you found this
information useful and we have a great
day
[Music]
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