In the U.S. manufacturing industry alone, the federal government has issued at least one regulation every week since 1981. It’s no wonder, then, that more companies industrywide are hiring chief compliance officers. And while additional resources certainly won’t hurt in the battle to keep up with regulations, technology — in the form of an enterprise resource planning (ERP) system — could prove to be the most valuable weapon companies have. That’s welcome news, given the thousand- to multimillion-dollar price tags associated with noncompliance, including losses from penalties, business disruption, lost revenue, productivity loss and reputational damage.

As companies in every industry struggle to understand — let alone comply with — regulations from around the world, many have begun to discover how ERP systems can play a critical role in automating and simplifying regulatory compliance. But taking advantage of ERP’s compliance capabilities isn’t as simple as purchasing a software subscription. Because compliance requirements are unique for each industry and company, the software’s true power can be realized only by understanding how to adapt your ERP to your own policies and workflows addressing governance, risk management and compliance (GRC).

What Is Regulatory Compliance?

Regulatory compliance is a company’s adherence or conformance to the regulations and rules established by governments and regulatory agencies. Various international regulatory bodies, including governments and industry groups, create laws, policies and standards to control how business is conducted within their respective jurisdictions. The goal of these regulations is to protect individuals by requiring that companies follow safe and ethical business practices — everything from protecting employee data to preventing forms of harassment.

As a result, companies must build and maintain internal processes and policies that adhere to these oft-changing regulations. They also may need to prove to regulators that they’re in compliance. Regulatory groups can include government agencies, such as the U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA), a key manufacturing regulator; state agencies, including those for labor and health; and even city agencies. Sometimes industry groups build regulations, such as the U.S. credit card industry’s Payment Card Industry Data Security Standard (PCI DSS). Others include international regulators, which can require compliance for any company conducting business in their regions, regardless of where they are headquartered. Failure to comply with these agency regulations can have significant consequences, such as financial penalties and restrictions on business operations.

Regulatory compliance impacts companies of all sizes in every industry — for example, most companies are subject to tax regulations — and some industries, such as manufacturing, financial services and healthcare, have particularly stringent requirements. Examples of compliance regulations include:

  • Sarbanes-Oxley (SOX), which regulates financial and IT compliance for all U.S. public companies.
  • The Health Insurance Portability and Accountability Act (HIPAA), which prevents U.S. healthcare and health insurance companies from disclosing protected patient information.
  • The European Union’s General Data Protection Regulation (GDPR), overseen by regulators from every country in the EU, which governs how personal data is stored and managed for any EU citizen, regardless of where the company storing the data is located.

How Does Regulatory Compliance Relate to ERP?

Ever since Gartner defined ERP as “an integrated suite of business applications” back in the 1990s, these systems have become a critical hub for companies seeking a detailed, real-time view of their operations. Among their many ERP benefits, these systems help companies manage data and processes for core parts of their businesses in one unified system. Many companies add extra modules for specific business functions, such as finance, human resources, supply chain, logistics and manufacturing, and customer relationships — all areas subject to regulation. Leading ERP systems incorporate features that help companies build and maintain policies and procedures to comply with regulations.

Some ERP systems embed regulatory practices into their systems to make compliance easier. For example, public companies in the U.S. must follow Generally Accepted Accounting Principles (GAAP), a common set of accounting standards and procedures that ensures that all public companies report financials in a similar way. ERP systems can help companies codify those principles into their workflows to automate tasks, improve efficiency and reduce errors. In other instances, ERP systems provide features, such as automated workflows and audit trails, that dramatically simplify compliance. And in the case of cloud-based ERP, vendors routinely update their software to help customers keep up with, and stay in compliance with, ever-changing regulations.

Of course, an ERP system can’t do all the work for a business. It doesn’t guarantee compliance, and it can’t manage anything outside of the ERP itself. An ERP also doesn’t tell companies what regulations they need to follow, nor can it solve a problem with the push of a button. Rather, once a company builds its compliance framework — the regulations it must follow, as well as the policies and workflows needed to do so — the ERP can allow the company to embed those policies and processes into automated workflows, which can reduce error significantly.

Just as important, an ERP system provides a window into how well the company is maintaining compliance in all areas of the business. It often includes configurable dashboards, so different teams can monitor aspects of compliance in real time. A robust ERP solution also provides “traceability,” meaning, the ability to track every aspect of product development — each component, its source, where it was used and where the product eventually was sold. This is particularly important in manufacturing sectors, where automated traceability can be critical in determining safety after a recall, for example. Finally, ERP solutions with customizable reporting tools make it easier to track compliance on a regular basis and produce audits, should regulators request them.

Key Takeaways

  • Top ERP systems have a host of built-in features that can dramatically improve a company’s ability to manage regulatory compliance.
  • But success depends on the ability to carefully establish the parameters, policies and workflows that an ERP can use to make compliance possible.
  • ERP solutions that incorporate advanced automation, audit and tracking capabilities, stringent data security controls, and detailed monitoring and reporting tools help companies cover all their bases.

ERP and Compliance Explained

In addition to industry-specific compliance issues like those common in healthcare and financial services, all companies must comply with labor laws, accounting standards and financial regulations, among others. The volume of data required to manage and verify compliance can quickly become unwieldy when stored in multiple systems across a company. While it may seem possible for small companies to manage that information manually for compliance purposes, the reality for any growing company is that those days are likely over. That’s because the process is complex, often including:

  • Forming committees for each regulatory segment and establishing policies and processes for compliance.
  • Having those policies and processes approved by leadership.
  • Gathering all documentation for regulatory compliance from multiple systems.
  • Getting required signatures for each regulatory filing.
  • Storing compliance documentation so it’s available for review.
  • Staying up to date on rapidly changing regulations.
  • Meeting regularly to revise outdated documentation.

Managing that process manually poses serious challenges. Redundant data entry, for example, can lead to errors, which can lead to costly penalties. Auditing compliance, whether for internal purposes or for external reports, can require significant amounts of time and resources. However, the development of ERP software has dramatically simplified compliance management for companies of all sizes by consolidating critical company and customer information into a single database, often hosted in the cloud. In addition, many ERPs help companies integrate regulatory compliance policies into their business operations.

While even the most modern ERP systems can’t manage every aspect of regulatory compliance (for example, they can’t determine all the regulations with which a company needs to comply), they can dramatically simplify compliance by making it easier for companies to automate regulatory policies and processes. Once companies establish the rules and regulations they need to follow — their regulatory framework — an ERP system helps companies monitor and verify compliance in their daily operations.

4 Tips to Improve Regulatory Compliance With ERP

ERP systems can dramatically improve regulatory compliance because they offer the ability to define and automate business processes and policies that help companies follow the rules. And, most important, because an ERP system manages such a broad range of organizational data, it provides the perfect central hub for simplifying compliance and providing greater efficiency, consistency, accuracy and transparency. Keep in mind that it’s still up to each company to build its regulatory framework. ERP systems don’t include magic HIPAA buttons, for example. But the most useful ERP systems do include features that each company can tailor to fit its compliance needs.

  1. Enhance Data Security

    The number of new regulations concerning data security has grown considerably since GDPR went into effect in 2018, as well as in the wake of high-profile data breaches involving personal customer information in recent years. For example, Apple, Meta and Twitter all announced data breaches in 2022 and 2023. And those are just external breaches. Companies also need to be sure they’re providing ample security from internal threats. While there’s no single U.S. federal data security regulation, states can enact their own (the California Consumer Privacy Act is one of the strictest). For its part, GDPR is an example of an international regulation for data privacy and security. In addition, HIPAA and PCI DSS are industry-specific regulations that require companies to protect personal and financial data.

    Among the features within an ERP system that help mitigate data security risks are:

    • Access controls: An ERP system can control and protect critical access to sensitive company data, based on “roles” companies set for different users. For example, does the person responsible for managing inventory need to see all company financials? With ERP, companies can give employees access to only the data they need to do their jobs and nothing more. Some ERP solutions let companies build a segregated set of roles — known as segregation of duties — that allows everyone to do their jobs, while also implementing access-based security to protect company assets.
    • Security measures: Additional security measures within an ERP system can help companies comply with regulations regarding data security. Data encryption, for example, protects sensitive information from unauthorized access by making it almost impossible for anyone without a decryption key to read it. In addition, the server-side processing model of ERP systems, particularly in the cloud, means all storage and processing happens centrally, rather than on individual computers. That makes it much easier for IT administrators to deploy firewalls, intrusion detection and data encryption. It also helps companies track access to detect unauthorized breaches. Finally, when it comes to business continuity planning, ERP systems keep data secure and recoverable in the event of disasters.
    • Industry-specific regulatory compliance: An ERP system can be particularly helpful with industry-related regulatory compliance. For example, an ERP system can automate key processes to ensure that banking and lending institutions comply with regulations from the Federal Reserve Bank. An ERP can also offer real-time reporting and embedded analytics to verify compliance. In the healthcare industry, ERP can help companies comply with HIPAA’s patient privacy regulations, using data encryption, access control, and backup and recovery services. In addition, the Affordable Care Act (ACA) requires healthcare organizations to report on care quality and costs. Real-time reporting and analytics can help healthcare companies verify compliance and identify issues.
  2. Increase Visibility and Control

    Because ERP systems provide a centralized platform for managing complex business processes and data, they provide a critical, consolidated window into regulatory compliance. Using dashboards, automation, advanced workflows and security measures, ERPs can help companies track, manage and report on compliance-related activities. Several ERP features can be particularly helpful, including:

    • Access controls: As stated in the previous section, ERP software allows companies to restrict access to information based on employees’ roles. This lets companies control permissions and eliminate unauthorized access to sensitive information. An ERP might also offer alerts that could prompt the need for immediate visibility into data management, noting what data was changed, by whom and when. Alerts allow companies to act quickly in the event of compliance issues.
    • Automated reporting: Automated reporting gives organizations immediate insights into their compliance status. More important, it simplifies and accelerates the process of gathering and consolidating data from around the organization for compliance reporting. With automation, companies can reduce the possibility of errors and inconsistencies in data.
    • Audit trails: An ERP can track the history of data — who accessed, updated or deleted it and when. This provides visibility into where compliance efforts may have broken down, for example.
    • Workflow management: Workflows improve the speed and efficiency of compliance efforts by automating approval processes, ensuring consistency in those processes and providing immediate insight into bottlenecks.
  3. Focus on Quality Control and Traceability

    Particularly in the manufacturing industry, quality control and traceability are crucial for regulators to ensure public safety. Regulators like the Food & Drug Administration (FDA) have stringent requirements for manufacturers, as do the Environmental Protection Agency (EPA) and OSHA, among others. Safety regulations require manufacturers to understand almost every detail of how their products are built and distributed — from the origin of all source materials to the final shipping destination. Details such as these become critical in the unfortunate event of a recall, for example, helping manufacturers and regulatory agencies locate which products contain defective materials and where they were sold.

    Quality-control and traceability features in an ERP solution can provide critical assistance with these regulations. Quality control allows companies to set quality standards and monitor how well they’re maintained through the manufacturing process. For example, a manufacturing company can use an ERP system to define product quality specifications for its products, such as chemical composition, and monitor adherence to those standards. These specifications can be mapped to industry standards to help maintain compliance. Traceability is the process by which companies track the components of their products. An ERP system can provide a detailed history of each product, including production data, lists of raw materials and processing information. This helps companies comply with regulations that require clear labeling of product ingredients, for example.

  4. Automate Repetitive Tasks

    Automation of tasks is a key component of an ERP system that not only reduces data-entry errors but also frees up staff so they can focus on more strategic efforts. When it comes to regulatory compliance, those resources will only have to dot the i’s and cross the t’s. As a result, ERP automation turns data-entry clerks into analysts who maintain and proactively improve compliance.

    ERP also automates several other tasks that improve compliance, including:

    • Automated reporting, which gives companies real-time views into their compliance efforts and easier reporting ability to satisfy regulatory authorities.
    • Automated audit trails, which provide windows into compliance tasks and histories to determine breakdowns in efforts.
    • Automated tracking, which gives companies real-time views into product development, manufacturing and distribution to help monitor compliance status.
These ERP features can reduce the risk of falling afoul of regulators.

What Industries Have Regulatory Compliance Issues?

In short, every industry has regulatory compliance challenges. And companies of all sizes face possible regulatory scrutiny. Just by virtue of the fact that a company collects revenue and has expenses, it must adhere to proper accounting principles, regardless of whether it needs to provide regular reports to regulators. Should the company’s practices come into question — in, say, a lawsuit — the company will need to prove it followed proper accounting procedures.

Having said that, some industries have particularly onerous regulations. Some of the most heavily regulated industries in the U.S. are:

  • Manufacturing, particularly petroleum and coal, motor vehicles (with self-driving becoming more important) and pharmaceuticals. Top regulators include EPA, FDA, OSHA and the International Organization of Standards (ISO).
  • Financial services, specifically lending, insurance and credit cards. Top regulators include the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision.
  • Transportation, especially air transportation. The U.S. Department of Transportation is a top regulator.

Choosing the Best ERP for Your Business

When choosing an ERP, it’s important to begin by understanding your company’s unique circumstances, such as your technology architecture, growth plans, immediate and long-term needs, resources, budgets and more. The same considerations are just as important when choosing an ERP that suits your company’s compliance needs. Compliance is only as good as the knowledge applied to it before ERP implementation. So you’ll also need to understand your company’s specific compliance environment — for example, what regulations apply to your company and how you’ll gather and monitor compliance data — and build a solid governance framework that your ERP can then manage efficiently.

Once your framework is set, the vetting process for an ERP begins. Here are a half-dozen important compliance features to assess when choosing an ERP:

  • Workflows and subscripts: When all your transactions follow a predictable path, you don’t need to hunt high and low for documents on someone’s hard drive. Customized workflows automate approvals for every transaction, build your delegation of authority into the system and keep a reliable audit trail, including a time-and-date stamp of the approval.
  • Financial drill-through capability: To conduct an audit, regulators may require system documentation all the way down to a vendor bill or a receipt copy. An ERP system can offer drill-through capabilities that allow companies to click on data in a dashboard to view the source of that data, which may reside in a separate but integrated application.
  • Reporting on audit trails and system notes: Always-on audit trails let you track changes to transactions and data, including what was changed, who changed it and when. Make sure your solution includes reports and searches to track data management, user-access administration and transaction history. Even better is if the ERP solution also lets you create real-time alerts when someone alters sensitive data.
  • Roles and permissions: Roles-based access means staff members get the least amount of access they need to do their jobs. Some ERP systems allow you to segregate roles to keep the business running while, at the same time, limiting access to protect company assets.
  • Customization: Your ERP should provide the ability to adapt to the specific compliance needs of your company or industry. With regulations changing all the time, your ERP also needs to be able to keep up with them. This is where cloud-based ERP solutions can be particularly advantageous: As vendors frequently update their solutions, the updates are pushed automatically to appropriate customers.
  • Integration: While ERP solutions centralize data across multiple departments, you may also house data in other systems, such as proprietary software used in specific industries. Integration with those systems improves compliance by making workflows and data consistency as efficient as possible.

NetSuite ERP Makes Compliance Easy

NetSuite ERP has compliance features built right into the design: Audit-ready solutions support and empower your governance, risk and compliance (GRC) programs, for example, with a wide range of capabilities and built-in processes to handle complex regulatory, operational and compliance challenges as your business grows. NetSuite provides a sustainable GRC process and proactively manages risk on an ongoing basis. Key features include:

  • Automated controls: Automating workflows, scripts and alerts in NetSuite helps you build customized preventative and detective controls.
  • Audit trails: Track changes for configuration, customization, and administrative and master data with always-on audit trails that give executive leadership and auditors a way to investigate compliance efforts quickly and easily.
  • Third-party audit reports: NetSuite includes a wide range of compliance features to support independent reports and certificates, including SOC 1 Type 2 and SOC 2 Type 2 (SSAE18 and ISAE 3402) standards as well as ISO 27001 and 27018, PCI DSS and PA DSS, to help manage risk and ensure accurate financial statements.
  • Additional features: These include security monitoring, audit and compliance reporting, and securing master data.

An ERP system is ideally suited to help companies of all sizes contend with complex regulatory challenges, but only if those companies spend the time up front to understand their regulatory requirements and find a solution that can adapt to those needs. Compliance is ultimately about people, process and technology — in that order. Once people and processes are established, the right ERP system should have all the tools necessary to help you and your auditors rest easy.

ERP Compliance FAQs

What is compliance ERP?

Compliance ERP refers to the features within an ERP solution that improve a company’s ability to manage regulatory compliance. Features may include automated workflows and controls, audit trails, audit reporting, security monitoring and advanced data security features, such as access controls and encryption. Top ERP solutions embed features that address specific regulations, such as financial and accounting regulations, as well as a wide range of other regulatory requirements.

What is ERP short for?

ERP is short for enterprise resource planning, which is a type of business software designed to help companies manage large parts of their organizations, including finance, human resources, logistics and manufacturing, supply chain management and customer relationships. ERP systems help companies store and manage data regarding these key functions, which improves efficiency and bolsters decision-making.

What are some important ERP requirements?

The answer will vary from one organization to the next, but among the most common requirements is support for accounting and finance, human resources, manufacturing and distribution, inventory and order management, supply chain management and customer relationship management.

What are the 5 components of ERP?

ERP solutions are generally composed of components, or modules, that manage key areas of a company’s business, such as finance, human resources, logistics and manufacturing, supply chain and customer relationships. ERP pulls data from each module to give employees across the organization access to the information they need to do their jobs. ERP improves data accuracy and consistency to drive better decision-making, more efficient processes and greater cost savings.