An ERP system automates business processes and provides insights, drawing on a central database that collects inputs from traditionally siloed departments such as accounting, manufacturing, sales and human resources. The benefits are nothing to sneeze at, including reduced manual labor, improved productivity, lower costs and more accurate reporting. Now, thanks to recent technological advancements, including affordable cloud-based software, ERP is accessible to small and medium-sized businesses as well.
Consider a small business where an accountant who creates and maintains spreadsheets using an accounting application works next to a salesperson who uses a separate database. This scenario can lead to redundant data entry and an increased likelihood of errors and delays. Using an ERP system, both the accountant and the salesperson would work within the same system and easily share up-to-date information from a centralized database. Additionally, modern ERP systems often incorporate advanced technologies, such as robotic process automation (RPA), artificial intelligence (AI) and machine learning (ML), to help companies operate even more intelligently, productively and profitably.
What Is ERP Automation?
ERP automation refers to the out-of-the-box automation of the traditional business processes integrated into an ERP system, including procurement, accounting, data management, inventory management and others. The second, more forward-looking definition refers to the way modern technologies, such as AI, ML, RPA and the Internet of Things (IoT), can be applied to the features and functions of the ERP system to provide more advanced automation and deeper insights. Either way, the goal of ERP automation is to automate manual, time-consuming tasks, reduce errors and improve productivity by providing real-time access to information, automating business processes and generating insights to support improved decision-making.
- An automated ERP system unifies a business’s siloed processes and centralizes its data to foster collaboration throughout an organization.
- Modern ERP systems increase efficiency by using the latest technology to automate time-consuming manual tasks, reducing costs and increasing productivity and accuracy.
- ERP automation provides businesses the foundation to regularly implement new technologies, such as artificial intelligence, machine learning and Internet of Things devices.
ERP Automation Explained
Automated, cloud-based ERP software can help a business transition from cluttered desks and storage rooms filled with filing cabinets to a streamlined operation across all business functions with secured data easily available to all employees who need it. ERP automation is also used to ensure compliance with internal company policies and external government and financial regulations, giving businesses the confidence to operate optimally and maintain the high standards necessary in today’s competitive market. Additionally, bookkeepers and accountants use ERP automation to make their month-end close a smooth and painless process, with software-generated financial reports replacing the seemingly endless manual minutiae of entering data into spreadsheets and reconciling information among multiple accounts and statements.
As an example, let’s look at a manufacturing company with siloed operations and explore how an automated ERP system streamlines and integrates its business processes. Assume that a customer wants to place an order on credit. In an old-school operation, the customer calls a salesperson who manually forwards the necessary information to the warehouse, where workers process the order — assuming enough inventory is in stock for fulfillment. Once the order is fulfilled, accounts receivable begins the process to collect payment.
With an automated ERP system, the customer places the order online from an ecommerce storefront with access to real-time inventory data. The order is then automatically forwarded to the warehouse, and once it’s picked and shipped, the customer’s online account is updated with tracking information and details on when and how to pay the invoice online. Once the invoice is paid, the ERP system tracks the cash flow and makes sure the payment is applied to the correct accounts and is accurately represented in the financial record. All the data involved — purchase orders, delivery estimates, prices, deposit slips and more — is automatically cross-referenced and checked for accuracy, bypassing the need for multiple parties to repeatedly input the data at every step. And if there are any problems — like an unexpected inventory shortage from a natural disaster — all relevant parties are notified at once to ensure proper steps are taken. ERP automation reduces the likelihood of a customer payment being applied to the wrong account or an order being shipped erroneously, saving the manufacturing company time and money.
ERP Automation Benefits
ERP software accounts for the largest share of enterprise software spending, reaching a total of $44.4 billion globally in 2021, according to Gartner. ERP automation touches most of a company’s key business processes, and the benefits of ERP can be substantial. Here are some benefits considered to be near universal.
- Reduced human error: Every time data is manually entered, the risk of human error increases. For accountants or other employees that spend all day manually entering data, burnout can raise that risk even higher. That’s where applying RPA to an ERP system comes into play. RPA uses software programs called bots that are designed to automate repetitive and tedious tasks to reduce human error and prevent costly mistakes.
- Lower costs: As companies grow, so do the tasks needed to run the business. By using an ERP system to automate aspects of the workflow, a smaller workforce can accomplish what would otherwise require a larger team. Instead of adding new hires, companies can reduce costs by using automation to get more effective work from a smaller team. Automation can also help find other cost cutting measures, such as more effective inventory management to reduce carrying costs.
- Easier, more accurate reporting: ERP systems can be configured to automatically scan through electronic records and instantly generate real-time reports or track key performance indicators, obviating the need for employees to search through piles of documents to find the necessary information to complete reports. This, in turn, helps the business ensure that it’s meeting its goals, including sales, production rates and other measures managers use to track results and adjust as necessary.
- Increased productivity: Reducing — if not altogether eliminating — repetitive and tedious tasks from the workday frees up employees to focus on higher-value business priorities that require a human touch. These could include direct customer interactions, problem solving, projects related to growing the company and more. ERP systems with a centralized database also streamline access to data across company departments, further increasing productivity and efficiency.
- Improved corporate responsibility: Businesses looking to “go green” might not consider investing in more powerful business technology to be an obvious solution, but an ERP system comes with environmental benefits. For instance, ERP automation allows a business to go paperless, leading to a smaller carbon footprint in terms of in-office efficiency and fewer paper transactions, such as bills, payments and invoices. ERP systems can also collect data to proactively plan manufacturing downtime or closed-office remote work schedules, giving companies more control over their social impact.
- Real-time accuracy: Accurate data refers to more than just the precise recording of information — accurate data must also be timely, usable and compliant. A decision-maker may want to review sales data to forecast demand before expanding a promising product line, but if that data takes a month to compile and analyze, the chance to ride a viral product wave may be gone before the report even makes it to the manager’s desk. With ERP automation, data can be robust and timely, giving a business the opportunity to get ahead of the competition and adjust strategies quickly and effectively. ERP systems also can automatically ensure data is compliant with internal company policies and external government and financial regulations.
ERP Automation Examples
Some small and medium-sized businesses may find that automating a specific task or investing in smaller and more focused software can get the job done. But as they grow, they will likely require a more sophisticated and integrated system that can handle all those individual tasks and more. Here are some of the typical tasks that an ERP system can automate.
- Purchase orders: ERP systems can optimize both customer and vendor
purchase orders. For example, when a business places a purchase
order to procure raw materials, it may be important that it pays the bill
quickly to ensure fast delivery or to satisfy credit terms extended by the supplier. ERP
systems can be customized to automate or require approvals for payments as the business
sees fit. For example, if a furniture manufacturer needs to maintain a steady supply of
wood to continue producing its goods, it may set up recurring supply orders every month.
But for specialty goods, like a certain wood that is chemically treated (for a premium
price), the business may want to be notified when supplies run low and request approval
before placing an expensive order. Through customized purchase order rules, ERP software
can automate what businesses regularly need and provide alerts when more hands-on
control from managers is warranted.
- Customer service: Businesses may worry that too much automation could
leave customers frustrated by bots and the inability to talk to a real person. But
customer service doesn’t have to be an either/or situation. For example, many businesses
implement a hybrid model for customer service, using automation for some tasks — such as
AI chatbots after hours and phone trees for answers to simple questions like business
hours — while maintaining an employee-staffed customer service or sales team for more
sensitive matters. This mix creates a best-of-both-worlds approach to customer service
and helps a business benefit from modern technology without losing the human connection
that customers expect.
- Data management: By using an ERP system’s centralized database and
secure data management capabilities, any authorized employee that answers a customer
call can access that account’s information and help solve a problem without having to
transfer the customer three or four times to get an answer. Happy customers are more
likely to be repeat customers, and few things make customers less happy than having to
repeat their account information just to be transferred and start the whole process from
the beginning. Centralized data helps employees at all levels — not just customer
service reps — get the information they need quickly without interrupting other stages
of the workflow.
- Finance and accounting: One of the biggest benefits afforded by ERP
automation is associated with finance
and accounting. Automation helps minimize human error and can instantly
cross-reference data across the business. For example, matching purchase orders with
accounts payable balances and cross-referencing accounts receivable with invoices can be
tedious, time-consuming tasks for a team of bookkeepers. But with ERP automation, what
once took days could take minutes — and provide a more transparent and accurate
accounting process, too. Accurate books help prevent fraud and keep data on the most
important aspect of a business — the money — transparent and accessible to all
- Inventory management: If a business overproduces its goods, it ends up paying to create and store products that may never sell. If it underproduces, customers will be left with backorders and delays, increasing the likelihood that they take their business elsewhere. ERP systems collect data that businesses can cull to more accurately forecast demand and plan effective inventory management strategies For example, if a food supplier used its ERP system to generate well-organized and comprehensive sales reports from the past few years, it can effectively balance ramping up production during a seasonal rush without overproducing goods that will expire and be rendered unsellable.
ERP Automation Trends
ERP statistics show that more and different types of businesses have been adopting ERP systems in recent years as the systems steadily improve in areas such as data collection, dashboard interfaces, standardized designs, mobile device support and ease of use. Alongside those advancements, ERP vendors have begun to incorporate advanced technologies into their solutions, including the cloud, AI and ML, enhancing ERP automation and ease of use even further.
While some businesses prefer to run their ERP systems on-premises, it can be cost-prohibitive, especially for small and medium-sized businesses, because it requires a larger capital investment and ongoing in-house IT maintenance. Many businesses instead opt for a cloud-based, software-as-a-service (SaaS) model when implementing ERP, which shifts the burden of maintenance, updates and improvements to an external company, typically one that operates a cloud-computing business software platform. In fact, Gartner reports that 53% of ERP market revenue comes from cloud-based ERP offerings, as compared to 47% from on-premises solutions. Furthermore, Gartner predicts that by 2024, over 60% of product-centric businesses will use cloud-based ERP platforms, which are scalable and can lower operating costs and capital expenses because business customers only pay for the services they need.
An effective ERP system can do more than just help a company maintain visibility and automate tasks. Modern ERP automation uses AI and ML to provide business insights and adapt to a business’s operations, continually improving workflow. AI, for instance, can be used to analyze large amounts of data to generate insights that can support improved business decisions or spot emerging trends. In addition, the increased use of AI for routine functions, such as stock reorders, gives employees the freedom to focus on tasks that AI isn’t suited for, as well as on their own skills training. ML, meanwhile, can analyze data from an ERP system to identify patterns and trends in sales data, which can be used to forecast future demand and optimize inventory levels. ML can also be used to automate tasks within an ERP system, such as automatically categorizing and reconciling financial transactions or flagging potential fraud or errors.
Some additional ERP trends to keep an eye on include multitiered ERP systems that create different levels for corporate/subsidiary operations, and the integration of other technology solutions, such as warehouse management systems and digital/social media marketing platforms, into an existing ERP system.
ERP Automation Through IoT
Another new development in the world of automation is the introduction of IoT devices, which are equipped with sensors and network connectivity so they can communicate with each other, share data and interact with users via the Internet. ERP systems that incorporate IoT technology can provide information and alerts on the status of parts, components and finished products to help streamline production runs, add visibility to the supply chain and increase the efficiency of purchasing operations. Additionally, IoT technology can ultimately lead to improved product design because the data collected provides information on how customers are actually using the products in the real world.
For customers, benefits of IoT technology include reduced product failure rates due to early detection of problems, as well as reduced operating expenses, such as the ability to power down equipment during periods of inactivity. IoT technology can monitor the lifecycle of products and allow customers to schedule service or order replacement parts when maintenance or repairs are needed. IoT-enabled ERP systems can also provide real-time tracking updates for orders.
Get the Benefits of ERP Automation With NetSuite
ERP systems have many customizable features and options, and choosing the right one is crucial for any business. NetSuite ERP is an all-in-one, cloud-based solution that streamlines and automates business processes to free up staff to focus on innovation and growth. NetSuite ERP helps businesses integrate their siloed operations into a single technology solution, giving leaders the tools they need to remain competitive and make better decisions based on accurate and up-to-date data, all easily available on customizable dashboards and automatically generated financial and operational reports. NetSuite ERP is also scalable, so whether a company is expanding globally, managing multiple subsidiaries or just planning for long-term growth, NetSuite ERP can meet the demands of the business, no matter how large or quickly it grows.
Historically, investing in an on-premises enterprise resource planning system was reserved for large companies with deep enough pockets to fund the implementation and the ongoing maintenance required. But thanks to the rise of cloud-based ERP systems, which don’t require an up-front investment in hardware and software licenses and are maintained and updated by a third-party service provider, small and medium-sized businesses looking to modernize their operations can get in on the ERP action. By using automation built into many modern ERP systems, businesses of any size can improve every step of their workflow, from inventory management to financial reporting to order processing and more. Modern ERP systems have also begun using advanced technology such as AI, ML and IoT to provide business insights and adapt to a company’s operations to continually improve the workflow, leaving business leaders to focus on what they do best — running and growing their business.
ERP Automation FAQs
What are the benefits of automation through ERP?
Automation through enterprise resource planning (ERP) helps businesses reduce human error and costs, achieve more accurate reporting and improve productivity and corporate responsibility. All of these contribute to less waste and smoother business operations. As ERP systems incorporate more advanced technologies, such as artificial intelligence, machine learning and the Internet of Things, they will be able to generate insights that can in turn support improved business decisions or spot emerging trends.
Who are the primary users of ERP systems?
In the past, enterprise resource planning (ERP) systems were primarily used by large companies with the ability to fund and maintain on-premises platforms and ongoing maintenance. Now, thanks to the availability of cloud-based, software-as-a-service (SaaS) solutions, ERP systems are more accessible to small and medium-sized businesses.
What is the future of the ERP industry?
The future of the enterprise resource planning (ERP) industry will likely entail a more refined use of artificial intelligence and machine learning to make even more accurate predictions and useful suggestions. Cloud-based ERP systems offered as a SaaS solution will become more commonplace, and companies will integrate more aspects of their business into a centralized ERP system.
What is an ERP example?
Enterprise resource planning (ERP) systems can be used to automate business processes throughout an organization, from manufacturing and inventory management processes to procurement, finance, accounting, marketing and more. To illustrate a single use case of ERP systems, consider purchase orders. For example, if a furniture manufacturer needs to maintain a steady supply of wood to continue creating its goods, it may set up recurring raw material purchase orders every month through its ERP system. But for specialty goods, like premium wood that is chemically treated, the business may want to be notified when supplies run low and request approval before placing an expensive order. By customizing purchase order rules, an ERP system can automate what the business regularly needs and flag items that require hands-on control from human managers.
Is ERP an RPA?
Robotic process automation (RPA) is an automation method in which a bot mimics the steps a person would take to accomplish a task using software. Enterprise resource planning (ERP) systems may use RPA for many of their automation tasks, but ERP systems include a wider range of features than just RPA, such as integrated business processes and a single centralized database for use throughout the organization.
What are the five components of ERP?
The five primary components of an enterprise resource planning (ERP) system are finance, customer relationship management, logistics and manufacturing, human resources and supply chain management.