ERP Integration: Everything You Need to Know

Introduction

Have you ever tried assembling IKEA furniture without its manual or while blindfolded? Integrating your ERP into a new automation system can feel similarly challenging.

Your Enterprise resource planning (ERP) system serves as your organization’s financial control center, managing everything from customer records to inventory. Its true power emerges when it seamlessly interacts with other crucial parts of your business. ERP integration ensures all your business functions operate harmoniously together. In an era where data drives decision-making, leveraging technology to streamline operations is crucial for efficiency and minimizing errors.

In this blog, we’ll explore ERP integration: what it entails, its various types, and its significant benefits.

What Is an ERP Integration?

ERP integration is how a company connects its ERP software with other, specialised applications and processes across your entire business. This ensures seamless data flow across departments, improves operational efficiency, and enables better decision-making through unified information access.

Example of ERP integration:

An example of ERP integration is linking an ERP system with a CRM (Customer Relationship Management) platform to synchronize customer data, sales orders, and customer service interactions across departments seamlessly.

What Is an ERP System and How Does It Work?

 ERP is a business management software that helps organizations integrate all key departments such as finance, operations, manufacturing, sales and marketing, human resource management, customer service and more with a single data repository and automated workflows. 

ERP software collects and records information related to accounting, manufacturing, sales, marketing, etc., and helps track business processes across departments. ERP integration also reduces manual data collection efforts with real-time updates across your organization.

Types of ERP Integration

ERP integration involves connecting different software applications and systems within an organization to facilitate seamless data sharing and process automation. There are several types of ERP integration, each serving specific purposes. 

On a high level the ERP integration can be divided into three main buckets-

Vertical integration – It involves the integration of various departments within an organization. It allows for seamless communication and data sharing between different functional areas such as finance, human resources, sales, and manufacturing. 

By integrating vertically, organizations can streamline processes, eliminate duplicate data entry, and enhance overall efficiency and productivity. 

Horizontal integration – It refers to the integration of different systems or applications within a specific department. For example, integrating the sales and marketing systems can provide a holistic view of customer data, improve lead management, and enhance customer relationship management (CRM) capabilities. 

Similarly, integrating the manufacturing and supply chain systems can optimize inventory management, reduce costs, and improve production planning. 

External Integration – It involves integrating the ERP system with external stakeholders like suppliers, customers, and business partners to facilitate real-time data exchange, collaborative decision-making, and improved supply chain management. 

For example, integrating with suppliers streamlines procurement, updates inventory promptly, and enhances supplier relationship management. Integration with customers offers enhanced visibility into order status, delivery tracking, and post-sales support.

Within these three buckets, there are other sub-types of ERP integrations. Some of the most common ones are-

On-Premises ERP Integration: This type of integration connects various modules and systems within an on-premises ERP solution. It ensures that different departments, such as finance, HR, and manufacturing, can share data and communicate effectively.

Cloud ERP Integration: In a cloud ERP integration, organizations connect cloud-based ERP systems with other cloud or on-premises applications. This type of integration is often used to streamline data access and management across a distributed workforce.

Legacy System Integration: Legacy system integration involves connecting older, legacy systems with newer ERP solutions. This is common when organizations want to modernize their technology infrastructure without completely replacing their existing systems.

Third-Party Application Integration: Many organizations use third-party applications for specialized tasks like CRM, HR management, or e-commerce. Integrating these third-party apps with the ERP system ensures a holistic view of business processes and data.

Data Integration: Data integration focuses on sharing data between ERP and other systems. This can include batch data transfers, real-time data synchronization, and data warehousing to support reporting and analytics.

API-Based Integration: Application Programming Interfaces (APIs) enable seamless communication between different software applications. ERP systems often provide APIs that developers can use to build custom integrations with other applications.

Each type of ERP integration serves a specific purpose and can be tailored to meet the unique needs of an organization. The choice of integration type depends on factors like the organization’s goals, existing systems, and industry requirements.

There are various challenges that an organization can face without ERP integration, like hindering organizational growth, efficiency, and competitiveness. Let us understand them in detail in the next section.

What are the Challenges Faced without ERP Integration?

Without ERP integration, businesses face several challenges that can hinder their growth and efficiency. Let us take a look at some of them.

Data Silos: Without a centralized system, data is scattered across different departments and systems, making it difficult to access and analyze. This lack of visibility can result in delays in decision-making and can hinder the ability to respond quickly to customer demands. 

Manual Data Entry & Inefficient Processes: Another challenge is the lack of process automation. ERP integration allows for the automation of various business processes, such as order processing, inventory management, and financial reporting. Without this integration, businesses are forced to rely on manual processes, which are time-consuming, prone to errors, and can result in inefficiencies. 

Furthermore, without ERP integration, businesses may struggle with data inconsistency and duplication. Different departments may have their own databases and systems, leading to duplicate data and inconsistencies. This can lead to confusion, inaccurate reporting, and a lack of trust in the data. 

Limited Visibility & Scalability: As the business grows, managing multiple systems and processes becomes increasingly complex and difficult to maintain. This can result in a lack of standardization and control over business operations, hindering growth and making it harder to adapt to changing market conditions.

In short, without ERP integration, businesses face challenges in terms of data visibility, process automation, data consistency, and scalability. It is crucial for businesses to invest in ERP integration to overcome these challenges and achieve operational excellence.

Key Benefits of an ERP Integration? 

There are several benefits of ERP integration when it comes to managing business processes between teams. Here are some reasons why ERP integration is important for your company.

Streamlined Business Processes: ERP integration allows organizations to consolidate and automate their business processes across different departments. This streamlining leads to greater operational efficiency and reduced manual data entry, resulting in time and cost savings.

For example, ERP integration with AR software helps your team members send invoices quickly and collect payments faster. ERP also ensures consistency in workflows, especially for recurring tasks.

Real-time Data Access: With integrated systems, employees can access real-time data from various functional areas, such as finance, inventory, and sales. This ensures that decision-makers have up-to-date information to make informed choices.

Improved Data Accuracy: Integration eliminates the need for redundant data entry and reduces the risk of errors. Data consistency across systems ensures that information is accurate and reliable, which is crucial for financial reporting and compliance.

Enhanced Reporting and Analytics: Integrated ERP systems offer robust reporting and analytics capabilities. Organizations can generate customized reports, analyze data trends, and gain insights into their operations, helping them make data-driven decisions.

Better Customer Experience: ERP integration enables organizations to access comprehensive customer information collected from multiple locations via a centralized repository. This enables sales and marketing teams to have a unified and up-to-date view of customer data, enabling them to offer tailor-made solutions to customers and resolve disputes faster.

ERP integration with customer-facing tools further helps to enhance customer service and customer experience. For example, a sales portal integrated with the ERP software enables customers to view the pricing and engineering of the product. It will also allow them to enter the sales details directly into the self-service portal and access past invoices whenever they want. This improves the overall experience for the customer, resulting in higher retention rates and net promoter scores (NPS).

What are 3 ERP integration methods?

There are three methods for integrating ERP systems:

1. Integration PaaS (Platform as a Service): This cloud-based solution is ideal for linking ERP systems with SaaS and other integrated software.
2. Enterprise Service Bus (ESB): This on-premises solution uses connectors and adapters to translate and facilitate communication between different software types.
3. Point-to-Point Integration: This method directly connects two software programs for seamless interaction and data exchange.

Streamlining Accounts Receivable with ERP Integration

As mentioned above, ERP integration allows for seamless communication and data sharing between different functional areas such as finance. So let us now understand the process of ERP integration in accounts receivables.

ERP (Enterprise Resource Planning) integration in Accounts Receivable (AR) as a function involves connecting and aligning your AR processes with your organization’s ERP system. 

Integrating AR as a function within your ERP system means connecting the Accounts Receivable processes with the broader ERP framework. This integration has several key aspects:

Data Sharing: AR data, including customer information, invoices, payment receipts, and transaction history, is shared seamlessly with other modules of the ERP, such as General Ledger, Sales, and Inventory.

Automation: AR processes are automated within the ERP, reducing manual data entry and the risk of errors. 

For example, when an invoice is generated, it can automatically update the relevant financial records and inventory levels.

Real-time Insights: The integration allows for real-time visibility into AR metrics and financial performance. CFOs and financial managers can access up-to-date information on outstanding payments, aging reports, and cash flow forecasts.

Improved Decision-making: With integrated data, organizations can make informed decisions related to credit management, customer relationships, and resource allocation. For instance, assessing the creditworthiness of a customer can be based on historical transaction data.

Streamlined Processes: Integration streamlines the AR processes from invoice creation to payment collection. This leads to quicker invoice processing, reduced Days Sales Outstanding (DSO), and improved customer satisfaction.

Let us understand this with an example.

Scenario: Imagine you work for a medium-sized manufacturing company called “ABC Manufacturing.” ABC Manufacturing uses an ERP system to manage various aspects of its business, including inventory, production, and financials. The company manufactures and sells electronic devices to retailers and wholesalers.

Order Processing: When a customer places an order for ABC Manufacturing’s products, the ERP system generates a sales order in real-time. This sales order includes details like product quantities, prices, and delivery dates.

Invoice Generation: Once the products are shipped to the customer, the ERP system automatically generates an invoice based on the sales order. The invoice includes the customer’s billing information, a breakdown of items ordered, prices, and the total amount due.

Data Synchronization: The ERP system integrates Accounts Receivable (AR) functionality by synchronizing the invoice data with the financial module. This means that as soon as the invoice is generated, the financial records are updated accordingly.

Payment Tracking: When the customer receives the invoice, they can make a payment using various methods, such as electronic funds transfer or credit card. When the payment is received and processed, the ERP payment system records the payment in the ledger.

Real-time Updates: The ERP system provides real-time updates on the status of customer payments. The AR team can quickly access information about which invoices are paid, partially paid, or unpaid, along with the payment dates.

Credit Management: The ERP system also assists in credit management. It can assess a customer’s credit limit based on their payment history and current outstanding balances. If a customer exceeds their credit limit, the system can automatically trigger alerts for review.

Aging Reports: The AR function within the ERP system generates aging reports, which categorize outstanding invoices by their age (e.g., 30 days, 60 days, 90 days). This helps the AR team prioritize collection efforts.

Financial Reporting: At the end of the month or quarter, the ERP system provides comprehensive financial reports, including cash flow statements, income statements, and balance sheets. These reports are accurate and up-to-date because the AR data is integrated with the financial module.

Customer Self-Service Portal: ERP system also offers a customer self-service portal. Customers can log in to view their outstanding invoices, and payment history, and make payments online, enhancing their experience.

In short, the seamless integration of Accounts Receivable within the ERP system allows ABC Manufacturing to manage its cash flow efficiently, reduce manual data entry errors, provide better customer service, and make informed decisions regarding credit management and resource allocation. 

It ensures that the financial and operational aspects of the business are closely aligned, leading to smoother and more effective business operations.

Which Types of Systems Integrate with ERP Software? 

Third-party software commonly integrated with ERP systems are:

• CRM (Customer Relationship Management)
• eCommerce platforms
• AP automation software
• Product Lifecycle Management (PLM) software
• Project Management Software
• Business Intelligence software (BI)

How Can Highradius Help You With Your ERP Integration?

Now that we know ERP integration is important for an organization’s growth, the next step is to select and think about the right vendor for the integration.

Selecting The Right Vendor

Selecting the right vendor for your ERP (Enterprise Resource Planning) integration is a critical decision for any organization. The choice of vendor can significantly impact the success of your integration project and the long-term efficiency of your business operations. Here’s how to choose the right vendor

Here’s why choosing the right vendor is of utmost importance:

Alignment with Business Goals: Choose a vendor that aligns with your organization’s strategic objectives. Their integration solution should support your business’s long-term vision and provide a clear path to achieving your goals.

Communication and Transparency: Opt for a vendor with strong communication practices. They should maintain open channels, provide regular progress updates, and address concerns promptly.

Customization and Scalability: Choose a vendor whose solution is not only scalable to accommodate your organization’s growth but also capable of tailoring the integration to meet your unique needs. It should seamlessly handle increased data volumes, additional users, and evolving business processes, minimizing disruptions.

Data Security and Compliance: ERP systems often contain sensitive financial and operational data. A trustworthy vendor will prioritize data security and compliance with industry regulations, protecting your organization from data breaches and legal issues.

Support and Training: A good vendor should offer comprehensive support and training for your team. They should be accessible for troubleshooting, updates, and additional training as needed, ensuring that your staff can use the integration effectively.

Selecting the right vendor for your ERP integration is a critical decision that can impact your organization’s efficiency, data security, and overall success. Thoroughly evaluate potential vendors based on their expertise, experience, reliability, and alignment with your business goals to make an informed choice.

Why is HighRadius the Best Vendor Choice for Your ERP Integration Needs?

HighRadius is the leading provider of integrated receivables, record-to-report, and treasury solutions that help companies optimize their accounts receivables, accounting, and treasury operations respectively. When it comes to ERP integration, HighRadius offers a range of features and benefits to streamline and enhance the finance functions.

HighRadius is an ERP agnostic software that easily integrates with all major ERPs, like SAP, Microsoft Dynamics 365, Oracle, and NetSuite, and can be easily scaled to meet the needs of growing organizations, making it a flexible and adaptable solution.

HighRadius Changing The Game For Your IT Team

• Centralized Data Repository: HighRadius provides all the information in one place which helps you access real-time data when required and eliminates the chance of redundant or missing information.
• Limited Intervention From Your IT Team: HighRadius handles most of the IT-related efforts during implementation. All HighRadius needs from the IT team is to configure programs to generate and transmit the open AR, master data, and bank payment files.
• Easy & Secure Connectivity: HighRadius uses SFTP and API-based integrations to ensure secure transmission of data and are SOC I, SOC II, ISO27001, and GDPR compliant.
• Rapid Implementation, Faster Value Realization: HighRadius uses an implementation methodology that ensures that deployment is quick and the clients realize the value and start seeing measurable business results within 3 months.
• 24/7 Support Provided Across Time Zones: Customers can submit support tickets through an online portal – 7 days a week / 24 hours a day. HighRadius also offers a user-friendly support portal for logging issues, questions, and requests, and the ability to track all support communications in one place.

HighRadius has a preBuilt HEX (HighRadius Extractor) plug-in for ERPs to completely automate the extraction of the required information, enabling easy data flow exchange.

FAQs

1) What is meant by ERP integration?

ERP integration refers to the process of connecting an ERP system with other software applications or systems within an organization. It ensures seamless data flow and functionality across different departments, enhancing efficiency and enabling better decision-making throughout the organization.

2) What is ERP and how does it work?

Enterprise Resource Planning or ERP is a business management software that helps organizations integrate all key departments such as finance, operations, manufacturing, sales and marketing, human resource management, customer service, and more with a single data repository and automated workflows. 

3) What are examples of ERP systems?

Examples of ERP systems include SAP ERP, Oracle ERP Cloud, Microsoft Dynamics 365, NetSuite ERP, Workday Financial Management, and more. These systems provide comprehensive solutions for managing various business processes such as finance, human resources, manufacturing, and supply chain management.

4) What is the primary purpose of an ERP system is integration?

The primary purpose of an ERP system is integration, which consolidates various business functions and data into a unified platform. This integration enhances communication across departments, streamlines processes, improves data accuracy, and facilitates informed decision-making within the organization.

5) What are the disadvantages of an ERP system?

Disadvantages of an ERP system include high initial costs, ongoing maintenance expenses, complex implementation requiring significant time and resources, ERP integration challenges, potential resistance from employees accustomed to existing workflows, and the risk of system customization and more.

6) Why would a company choose to implement an ERP?

A company chooses to implement an ERP system to streamline operations, enhance efficiency, improve data accuracy, facilitate better decision-making with real-time insights, standardize processes across departments, and achieve overall cost savings through integrated management of business functions.