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March 26, 2020

types of erp systems

The development of ERP  has strived for an almost utopian ideal: the consolidation of all business processes under a single software system.

Of course, with life as with technology, no plan survives first contact with the enemy. With each new innovation, people have managed to find new ways to engage with the world and expand the scope of their business ambitions.

Because of this uncertainty, the project of creating a single software application for a single industry—let alone the entirety of human enterprise—has become a feat that may never be accomplished in our lifetimes.

ERP systems have evolved to cover a wide range of industries, business types, and users. While the core functionality of all these iterations remains generally the same, there’s a huge amount of variation between systems when it comes to accessibility and industry-specific modules that can make or break your experience with a given software solution.

Types of ERP by system model

When it comes to selecting the best software for your business, the industry in which you work will probably have the biggest impact on what software you buy.

This holds especially true with expansive systems like ERP which generally benefit from having modules and applications that are tailor-fit to utilize the specialization that’s gained from being embedded within a particular sector of the modern-day work landscape.

3 types of erp system

However, this doesn’t mean that you’ll always need to find the most niche or expansive ERP system to cover your needs. Some industries that require particular knowledge, such as accounting, may be just fine using a basic or broad-spectrum ERP system. This variation in system models is a key way ERP is differentiated from software solutions like CRM.

On the other hand, for industries that have specific material demands that might be overlooked by someone who isn’t well-versed in the particulars of the business, a more niche option will be the only way to properly attend to these demands.

Below are a few models that can be used to address the different demands of the business world. Read on to find out what option could potentially be best tailored to your organization.

Best-of-breed

Best-of-breed or “generalist” ERP systems is a category that’s usually made up of the big-name vendors. These systems provide a huge option of modules for your business to utilize and can enhance the operations of a wide variety of industry types. However, all pieces of a single product must be purchased as one, semi-comprehensive system.

A best-of-breed ERP system might be right for you if:

  • You are looking for a cutting edge, well-run, and quality system to handle the broad strokes of your business.
  • You want to purchase all the modules of an ERP system as a single bundle and ensure all departments are operating off the same software solution.
  • You want access to a wide range of best-in-class functions that can be tailored to each of your specific departments.
  • You have a large, enterprise business that needs a wide range of features.

With ERP, as with many things in life, you get what you pay for. Best-of-breed systems are generally highly tuned and afford a higher level of quality than other system types.

Despite these considerable advantages, a best-of-breed ERP might not be the correct solution for you if:

  • You need extremely specialized systems to help manage precarious elements of your industry and manage risks that might be overlooked by an outsider to your business and organization. Best-of-breed systems are powerful tools, but they are somewhat rigid and inflexible when it comes to customization.
  • You need a system that’s simple to use and easy to integrate. These types of ERP systems often require a great deal of coordination across all levels and departments of a given organization in order to avoid information inconsistencies.
  • You need a system that is able to change with your company as you grow and scale. While best-of-breed ERP systems cover such a wide swath of utility that they can often adapt to most general changes, they can sometimes be found wanting if your organization plans to begin specializing in particular niche industry elements and practices.
  • Your business is hyper-focused on a specific area.

Modular ERP

Modular ERP systems are, in many ways, an outgrowth of how ERP systems have functioned in the past: they began with a single function such as accounting and gradually added more features as the need for them grew.

This approach allows for the end-user to cut down on the costs of implementing an ERP system by only buying the parts they need without any of the extra bloat that can be found in larger, packaged ERP systems.

These systems are generally synonymous with what is known as “vertical ERP” or “Industry-Specific” ERP given their nice applications.

You might want to consider implementing a modular ERP system if:

  • You work in a specialized industry that has a high level of risk or potential loss associated with your goods or services. An example of this might be food production or distribution companies.
  • Your business handles highly sensitive information that needs specialized features to ensure proper risk management.
  • You’re interested in spreading out the costs of ERP implementation. A full best-of-breed system can be prohibitively expensive, and with a modular solution, you can implement different functions one at a time in order to reduce your overall software spend.

Tip: A bloated SaaS budget can be a huge detriment to any business’ dreams of growth. G2 Track has built-in, easy to use tools to help you manage licenses and keep on top of your SaaS spend to keep your finances on the right path.

Some potential drawbacks of modular ERP systems include:

  • A lack of coordination between different modules can lead to uneven, difficult integration for your company due to redundant or missing information.
  • Modular ERP and the new trends in SaaS and the Cloud as methods for ERP deployment don’t play well together. The lack of a single overall system makes it hard for just one vendor to provide the software needed to build a truly “modular” system. If you need the low up-front costs provided by cloud ERP, a modular system probably isn’t for you.
  • Managing large companies can prove difficult on a truly “modular” system. It requires so many different applications that you’d be better off considering a hybrid system instead if you still need to manage niche applications and business processes.

ERP Suites

A full “ERP suite” is identifiable through the fusion of several other smaller modules into a full system that can take on the role of a “true” piece of ERP software.

Oftentimes, these might be pieces of software that aren’t even affiliated with the ERP industry or traditional developers or vendors. Despite this, they still have enough of the same functionality to count alongside actual ERP vendors.

As the name suggests, ERP suites are made up of a variety of smaller applications that are fused together in order to create a single ERP system. This can be anything from an independent piece of accounting software to specialized supply chain management tools that are tailored to a specific industry.

Generally, though not always, this functions by having certain software vendors act as “partners” to produce a single solution for very specific clientele. Interestingly enough, this can include partnerships between best-of-breed vendors and more niche developers in order to create systems for specific industries, causing a company to be both a partner and a competitor to some ERP suites.

You might want to consider ERP suites if:

  • You need both the broad functionality and utility of a full ERP system alongside specialized modules.
  • Your business has wide-reaching operations that extend either vertically across the supply chain or horizontally across industries.
  • You have a large business that works in a specialized area.

An ERP suite might not be the best idea for your organization if:

  • You only need specialized modules or a general ERP system. ERP suites can be expensive to acquire and difficult to maintain, so make sure the benefits it's bringing to your business outweigh these drawbacks.
  • You have a small business. Regardless of industry, hybrid systems can be somewhat difficult for smaller operations to implement and maintain.

Types of ERP by deployment

When it comes to actually using software, the way in which it is deployed (delivered from the programmers and manufacturers to the vendors and into the hands of the end-user) has become an increasingly relevant factor when it comes to selecting the right piece of software.

It used to be the case that all business software required hefty physical infrastructure hosted on-sight at a company's offices in order to run. Nowadays, there are several deployment options that can be tailored to best fit your business needs.

types of erp systems

On-premise ERP

On-premise systems refer to the ‘traditional’ style of software deployment, where the program is manually installed on the local computers and servers owned and operated by the company itself.

This type of ERP deployment requires a capital expenditure (a hefty upfront cost) in order to buy a license for the program that then gives the end purchaser total control over the system.

However, total control also entails total responsibility, meaning that it’s up to the end-user to supply security and maintenance on their hardware systems and to provide security and troubleshooting to the individual users. This can generally take the form of a large in-house IT team but can also be outsourced to trusted vendors.

You might want to consider an on-premise ERP system if:

  • You want to avoid needless software spend over a long period of time and are looking to buy a solution outright.
  • Software flexibility is a concern for you and you don’t want the specific modules of your system to be determined by the vendor who produces a given ERP system.
  • Your organization already has a built-out and well-trained IT team that can assist with the maintenance of an ERP system.
  • Data control is a concern for you and your company. While intermediaries do business by being trustworthy with their client’s information, sometimes it pays to have total control over the dissemination of your business information.
  • You work in the industry of manufacturing, healthcare, ore construction and have need of a system to help you manage your specific records and ensure data security.

Some disadvantages of on-premise ERP systems include:

  • An extremely high up-front cost that can limit its accessibility to all but the largest of organizations.
  • A shorter shelf life than that of cloud ERP systems. While what you buy may be the bleeding edge at the time of purchase, the advancement of technology is as sure as the rising sun. Once you get an on-premise ERP system, it will be up to you to keep it up to date on the latest features and security unless you want to spend a lot of money having the vendor do it for you.
  • Difficult implementation due to the requirement of furnishing the appropriate hardware, training your team in how to use it, as well as allowing time for your IT department to learn how best to secure the data that flows through the software.

Cloud ERP

Cloud ERP is the current hotshot in the ERP space.

With the increasing development of the Internet of Things (IoT), the ability to transfer increasingly complex software solutions over the web has never been greater. Because of this, the idea of software as a service (SaaS) has exploded in popularity with a revolutionary new approach to both pricing and accessibility.

Unlike on-premise ERP systems, cloud ERP is much cheaper upfront. However, these software solutions are usually delivered as part of an ongoing monthly subscription service. These fees pay for continued access to the software while also funding continuous development from the software vendor in the realm of security and new features.

A cloud ERP system might be the right choice for you if:

  • You don’t have a high amount of flexible capital to invest in an on-premise system and the surrounding supportive infrastructure.
  • There isn’t a dedicated, on-sight IT team for your organization that can help roll-out updates and keep your data secure.
  • You need to access the data in your ERP system on the go.
  • You have a smaller business.
  • You want to stay on the cutting edge of the software solutions for your industry.

Some disadvantages of cloud ERP include:

  • A lack of control over the applications you have access to. Once you choose a vendor, you’re stuck with their specialty, so make sure you choose one that’s well respected for your industry and organization type.
  • Over a long enough period of time, you will probably end up spending more for your cloud ERP system than you might have otherwise done if you had bought an on-premise system outright.
  • While cloud ERP vendors remain competitive by offering strong security for their client’s data, they might not quite be up to your standards, especially if you work with highly sensitive information.

Hybrid ERP

Some businesses need extremely specialized systems and have to mix and match the various benefits given by on-premise and cloud solutions. Luckily, hybrid options are readily available from many vendors and can help organizations fill the gaps in their software infrastructure.

The general way this works is by having companies operate business-critical modules and features with specific technical applications on-premise while gaining the added advantage of cutting-edge solutions from cloud-based vendors.

These solutions offer what’s known as a “two-tier” approach wherein the backbone of the system (financials and accounting) are hosted on sight and other modules are delivered remotely based on departmental need. That way, everyone has access to the same overall database, but there is less of a need for each department to have access to the full suite of your systems’ capabilities.

This approach blends the capabilities of the aforementioned options and offers a cost and implementation timeframe that is somewhere between the two primary options.

You might want to consider a hybrid ERP system if:

  • Your organization is already using a legacy in-house system or you’re already using an on-premise ERP.
  • Your business requires integration with web-based services.
  • You need flexibility and control over core processes but want up-to-date industry- specific modules.
  • You want the benefits of an on-premise ERP system without having to build out the entire IT infrastructure that comes along with it.

Some disadvantages of hybrid ERP systems include:

  • The complexity of hybrid systems can make them difficult to manage. While you don’t need a full IT infrastructure as you might for an on-premise system, you still need to have a dedicated core of people able to manage and operate the aspects of the software you’re hosting.
  • A lack of technical specialization makes hybrid ERP systems less efficient than their more focused counterparts. It never affords quite as much control and flexibility as an on-premise system, while also lacking the true flexibility and ease of use that comes with cloud ERP.
  • Ironically, one of the problems that hybrid ERPs can cause is the initial issue that ERP systems were designed to solve in the first place: data siloing. While this can be avoided with the proper time and management, it’s possible for the different modules used by separate departments to lead to a bottleneck of information or data that should be easily accessible to the entire organization.

All systems go

Whatever the type of business you run, chances are that there’s a type of ERP system that’ll be the best for your operations and workflows.

Understanding the various components of each will go a long way towards ensuring that you don’t waste your money on larger systems than you need or time trying to implement the incorrect modules across your departments.

Choosing the right ERP software can be a daunting task. If these systems seem too specialized for your needs, check out our complete category on accounting software for much of the basic functionality of these systems.

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