What is ERP Software? Here is everything you need to know.

Summary

In 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

00:00

😀 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.

05:00

🔍 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.

10:01

🛠 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.

Keywords

💡ERP Software

ERP, which stands for Enterprise Resource Planning, is a type of software that organizations use to manage day-to-day business activities such as accounting, procurement, project management, risk management, and supply chain operations. In the video, ERP is the central theme, with the speaker discussing its evolution, benefits, and the challenges associated with its implementation.

💡Digital Transformation

Digital transformation refers to the integration of digital technology into all areas of a business, fundamentally changing how an organization operates and delivers value to customers. The speaker mentions being a CEO of a consulting firm that assists clients with their digital transformation journeys, which includes the implementation of ERP systems.

💡Material Resource Planning (MRP)

MRP is an older system that originated in manufacturing organizations to manage the tracking of supplies and raw materials needed to fulfill customer orders. It is the precursor to ERP, as mentioned in the script, showing the evolution from a manufacturing-focused solution to a comprehensive enterprise management tool.

💡Lean Manufacturing

Lean manufacturing is a philosophy derived mainly from the Toyota Production System and focuses on minimizing waste within a manufacturing system while also maximizing productivity. The script discusses how MRP systems addressed the movement towards lean manufacturing in the 90s, aiming to improve efficiency.

💡Warehouse Management

This refers to the management of the warehouse's day-to-day functions, such as warehousing, storage, and inventory control. The script mentions that ERP systems evolved to include warehouse management, expanding beyond their initial focus on manufacturing.

💡Procurement

Procurement in the context of ERP systems refers to the process of acquiring goods, services, or works from an external source. The script explains how ERP systems started to incorporate procurement to streamline the purchasing process and improve efficiency.

💡Human Capital Management (HCM)

HCM is the comprehensive management of an organization's workforce or human resources. The script notes that ERP systems have expanded to include HCM, showing how these systems have broadened to cover various aspects of enterprise management.

💡Customer Relationship Management (CRM)

CRM is a technology for managing a company's interactions with current and potential customers. The video discusses how CRM can be a part of the ERP system or operate as a separate 'best-of-breed' system, focusing on the sales side of the business.

💡Tier One ERP Systems

Tier One ERP systems are the largest and most commonly used by bigger organizations. The script mentions SAP, Oracle, and Microsoft as examples of Tier One providers, which are typically suited for larger, more complex organizations with multinational operations.

💡Best-of-Breed ERP Systems

Best-of-breed refers to a strategy where an organization uses the best available systems for different segments of the business rather than a single, unified ERP system. The script explains that while the ideal is to have a single ERP system, the reality is that many organizations have unique needs that are better met by specialized systems.

💡Implementation Failure

The script discusses the high failure rate of ERP implementations, which is often not due to the technology itself but rather the operational and people-side challenges. It emphasizes the importance of addressing business process improvements and organizational change management to avoid failure.

💡Artificial Intelligence (AI)

AI in the context of ERP systems is used to automate business processes and improve decision-making. The script gives an example of how AI can be used to automate the accounts payable process and flag potential issues, demonstrating the integration of advanced technologies into ERP systems.

💡Blockchain

Blockchain is a technology that allows for secure, transparent, and traceable transactions. The script mentions its use in industries like pharmaceuticals and food, where it is crucial to track materials and products throughout the supply chain for regulatory compliance and recalls.

💡Internet of Things (IoT)

IoT refers to the network of physical devices, vehicles, and other items embedded with sensors and software that enable them to connect and exchange data. The script provides an example of how IoT devices on the shop floor can track data and tie back to the ERP system for complete visibility into operations.

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]