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ERP systems have evolved from a nice-to-have into a decisive competitive factor. Among small companies with 10–49 employees, only about one in five uses one; in medium-sized firms (50–249 employees) the figure already exceeds half. Large enterprises with 250 or more staff now regard ERP solutions as standard, with adoption approaching three quarters. Manufacturing leads the way: across all size classes, usage rates there run roughly 20 percentage points above the average, so nearly 60 % of industrial firms already deploy an ERP system versus just under 30 % in the economy as a whole. Company size and production depth therefore raise the need for integrated enterprise software significantly.
ERP stands for Enterprise Resource Planning. An ERP system is software designed to deploy a company’s resources effectively and efficiently. These resources include
The system helps plan these resources, both operationally and strategically, so that—just as in logistics—they are available in the right quantity, at the right place, at the right time. Extending this idea, the six-R rule adds the right quality, the right cost and the right information. In this way an efficient value-creation process and smooth operations can be maintained.
The origin and core task of ERP is material requirements planning, whose purpose is to procure the materials needed to manufacture a product in accordance with the six-R rule. Key performance targets are therefore:
Material requirements planning usually involves three steps:
An integrated ERP system, for example, would create a matching production order after a purchase in the company’s own shop (make-to-order) or trigger picking for shipping if the item is in stock.
If production lowers inventory below the minimum level, the system automatically generates a purchase proposal so new raw materials or parts can be sourced.
Because the ERP system makes data and information readily available, regular orders can also be scheduled to cover average demand. Advanced users may, depending on the part (e.g. based on an ABC/XYZ analysis), factor in stochastic distribution and plan requirement by service level (e.g. 80 % availability). Companies may also carry materials with a use-by date; ERP supports this as well.
Although these issues arise first in material planning, they affect every resource in the enterprise, making an ERP system an indispensable tool once a business reaches a certain size.
Beyond material requirements planning, ERP systems handle many other tasks, though materials management remains their core. Numerous company processes can be mapped and controlled in the ERP. Classic fields include:
ERP systems also cover areas such as
Hundreds of ERP systems exist, often offered in two variants by the same vendor: on-premise or cloud. Each has pros and cons driven by the effort of self-hosting (on-premise) versus reliance on a provider (cloud). Details are discussed in our white paper.
Besides the on-site/cloud choice, other criteria help select the right ERP:
Some ERP systems are universal, covering many industries and typical sector processes—either built-in, modularly or via partner add-ons. Others specialise in one or very few sectors and address their challenges more precisely.
Company size is another factor: larger firms often gain from cloud ERP because it scales easily and demands less client computing power—thin or zero clients that merely display a web interface can suffice.
Functional needs vary. One example is support for an e-commerce system running on the company’s website, accessible to customers stored in the ERP’s CRM module, with orders posting straight into ERP—something not all solutions provide.
Cost is critical too: purchase price, total cost of ownership (licences, operations, hosting) and total cost of change (implementation, maintenance, adaptation) all matter. Though hard to quantify, lock-in costs should also be weighed.
Distinguishing ERP from other software can differ. Especially in smaller firms, separate tools—for CRM, MES or HR, for instance—may be chosen and linked only via interfaces. Numerous providers such as Salesforce, Zoho, Pipedrive and HubSpot have emerged. This approach is called a best-of-breed strategy.
Here, vendors specialise in one solution (e.g. HubSpot for CRM, Selfbits for MES) and often surpass universal ERP providers in their niche. A system integrator then connects the standalone solutions, sometimes through simple scheduled table synchronisations or via middleware that keeps data aligned. This Software-as-a-Service model charges only for actual users and eliminates deployment or hosting effort aside from training.
Additional advantages include
Drawbacks lie in the high financial and time investment for implementation, the effort to maintain master data and configure the software so it yields lasting benefit, and the lock-in effect: once chosen, switching is difficult and costly, tying the firm to its vendor’s problems, strategy shifts and pricing. Further disadvantages explain why adoption among small companies is low:
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