The phrase “We are only as strong as we are united, as weak as we are divided”, though coming from the fictional character of Albus Dumbledore in the Harry Potter saga, can also perfectly illustrate the importance of ERP integration to companies. An ERP system is often considered to be the backbone of an enterprise whether it is an eCommerce, supply chain, manufacturing or healthcare business. But to unfold the full potential of their ERP system, companies will need to integrate it with other applications to ensure a consistent data flow, provide access to accurate information across the entire company, and automate enterprise business processes.
So, let’s dive into the topic of why we should integrate ERP with other enterprise business systems in the first place, what the common scenarios are and what advantages they bring, and review the 3 current popular methods for ERP system integrations.
What is ERP and why it alone is not enough
ERP stands for Enterprise Resource Planning – and it’s a type of business software that helps companies manage core operations, processes and resources. Due to its numerous modules and complexity, ERP is often considered to be the main system of record, collecting data from multiple parts of the company such as accounting, HR, sales, manufacturing, ecommerce, and many more.
As a stand-alone solution, ERP can cover several business functions, with the most common being supply chain, human resources, customer relationships, finance, commerce, and manufacturing. It is, however, rather uncommon for organizations to use ERP alone for everything mentioned above. Oftentimes, ERP supplementary modules such as CRM or HCM cover quite basic processes such as payroll, personal record keeping, or contact management. They can serve well while the business is relatively small, but with the business growth come more complex needs and requirements such as sophisticated, in-depth customer behavior analytics, support for mobile devices, or top talent retention and onboarding of new hires.
This means that sooner or later, businesses reach the functional limits of some of the ERP’s embedded modules and start looking around for full-fledged solutions that can fill the gaps. In its turn, this necessitates connecting ERP to other applications and data sources, which leads us to the next section – ERP integration.
What is the purpose of ERP integration
Generally speaking, ERP system integration means connecting ERP software and synchronizing data with other enterprise business applications and software systems. Examples include customer relationship management (CRM) system, human capital management (HCM), eCommerce platform such as Shopify or Magento, management information system (MIS), learning management system (LMS), – scenarios and options abound.
The primary purpose of ERP integration is, therefore, to ensure that information is shared between several systems continuously, and stays up-to-date and relevant. This guarantees the efficiency and good performance of company operations and processes, as well as delivers a holistic view of all mission-critical data.
3 Key benefits of ERP integration
When companies integrate ERP with other systems, it allows them to ensure data integrity and use their ERP software as a true source of truth that is shared across the entire organization. This facilitates well-informed decision making and thorough business analysis. But the benefits of ERP integration are far more wide-ranging than that.
Costs reduction through less errors and higher process automation
When continuous data exchange between ERP and other applications is ensured, it significantly reduces the need for manual data entry – the biggest challenge that teams face across various departments.
For instance, the survey by the app development platform TrackVia found that 47% of managers and executives in construction and engineering still use manual data entry methods to capture critical project and site data. According to a study from HubSpot, 23% of sales people see manual data entry as their biggest challenge in using a CRM software. A survey by Reuters revealed that 55% of executives in the supply chain still make planning decisions using manual processes; 28% even claimed that their whole decision-making process has no system support.
The problem with manual data entry is not only that it is time-consuming and inefficient – just imagine spending hours entering or updating customer or product data while you could have been doing something more productive or useful during this time –, it’s also extremely error-prone. Slower lead routing that may lead to lost sales, wrong product prices that may lead to lower revenue, delays in product supplies that might lead to missed production deadlines – all that costs a business money.
Integrating ERP with other applications enables advanced automation of critical business processes such as order processing, customer management, accounting, inventory updates, purchase orders, and more. For example, once a sales order is placed through a company’s commerce platform, order details and customer information is transferred automatically to ERP, triggering order creation and fulfillment processes. No manual data entry, no accidental human errors involved.
Upgrade for legacy ERP systems
Remarkably, when it comes to ERP systems, the on-premises solutions are still very much prevailing. Recent study by IDG Research called Cloud-ERP Study 2021 (PDF, in German) showed that 45% of respondents run their ERP solution still on local servers, with further 22% pursuing the hybrid model, where the current ERP core system is extended through specific cloud functionalities.
Another recent study by Panorama Consulting Group (PDF) found that 35% of respondents still have home-grown, legacy ERP systems.
The problem with legacy solutions, though, is that they often lack many functionalities that are nowadays business-critical to gain a competitive advantage, improve operations and increase employees’ productivity, such as advanced analytics, real-time data insights, transparent data flow, and immediate data availability.
It might seem plausible to just recommend companies switch to a cloud ERP or even better, a postmodern ERP solution, but such switch can take years. While legacy systems might have many flaws from today’s point of view, they have one great advantage – they allow an extremely high level of customization to meet all business’s needs. But what makes them so superior to many standardized cloud solutions also makes them very hard to replace when they no longer apply to the present zeitgeist.
By pursuing ERP integration, organizations can breathe new life into their legacy system. The missing functionalities that are meant to support the company’s business model such as advanced BI, cross-organizational inventory management, or ensuring superb customer experience can be added through integrations with other systems. As long as the legacy ERP remains functional, a company can continue using it without risking disrupting existing operations, and still improve and automate their business processes greatly.
Better decision making through centralized data
Business success is equivalent to quality data plus insights. Businesses do generate a lot of data on a regular basis, but there is a difference between having a lot of data, and having the accurate data and being able to access it preferably in one place and to analyze. The latter is becoming increasingly important to company success.
Yet a significant number of companies, as the ERP report 2020 by Accenture (PDF) showed, still have troubles leveraging their data through ERP.
Integrating ERP with other business applications guarantees that all relevant customer, product, order, sales, fulfillment and other data that builds toward superb customer experience creation is centralized and kept up to date. As a result, the accuracy of data improves significantly. In addition to that, it ensures that all departments have direct access to the most recent data; for instance, the accounting department doesn’t have to wait for revenue information from the sales department.
Such transparency, accuracy and availability of data facilitate better and faster decision making, but also, ensure smooth business operations in general.
…and 3 main challenges of ERP system integration
Implementation of an ERP system can already be challenging and resource-consuming on its own. In fact, up to 50% of such projects fail the first time around, according to various research studies, due to a variety of factors. For instance, a Gartner report from 2020 (gated content) says that CIO don’t put enough emphasis on data management before beginning with an ERP implementation or “are not sufficiently aware of what data management actions need to be taken”.
Integrating ERP with other business software applications and systems can be a totally new level of complexity. That is why it is so important to have a good ERP integration strategy. Here are just a few examples of challenges and aspects that need to be accounted for in such a strategy.
Unclear strategic priorities and stakeholders
“We bought a new CRM, now we need to integrate it with our ERP” is not the kind of decision that should trigger an ERP system integration project. To get the most value out of it and ideally, use only as much development resources as really necessary, such a project needs to be tackled from the perspective of business and not technology.
For example, which top ten business workflows must be automated through this integration in order to increase revenue, increase employee efficiency, and improve customer experience? Answer these questions and you will get a clear sense of how you need to approach your ERP integration project.
It also means that it is important to bring together the IT team and the key stakeholders in business units to identify critical business processes and automation requirements for the integration to really meet business needs.
Shortage of technical expertise
Lack of enough expert resources to integrate various systems that might have different data formats and types can lead to project delay in the best case scenario; worst case, it can result in a large amount of errors and false data, ultimately harming the business.
The problem is – even if two applications provide same-type APIs, they are most likely to use different nomenclature for data objects (see more on data mapping). If your ERP is heavily customized, this is most certainly going to be the case. And what if most of your applications are built on REST APIs, but your HCM and Accounting software run on SOAP? Or what if you need to build a bridge to your B2B partner’ IT stack and connect with their ERP solution via EDI?
All these are different knowledge areas, and you’ll need experts on your team for all of them.
Not putting real-time first
This is another technical aspect, but it’s an important one. Business process integration in ERPs has traditionally been batch-oriented, which worked effectively as transactions were mostly one-way integrations – from an application XY to ERP.
This is no longer the case. There are nowadays many scenarios where there is a need to feed data real-time from ERP to other enterprise applications and systems – for instance, homegrown APIs, web portals, mobile or IoT devices may all rely on instant data updates. System integrators who are used to traditional ERP integrations might not be able to handle this.
Common ERP integration scenarios
Just like ERP supports many business processes, it can integrate with a wide variety of business applications. However, most common scenarios include:
- Customer relationship management (CRM)
- eCommerce platform
- Human capital management (HCM)
- Business intelligence solution (BI)
- Product lifecycle management (PLM)
- Enterprise resource planning (ERP)… – yep, that’s right, another ERP
CRM ERP integration
As mentioned previously, it’s not uncommon for businesses to use embedded CRM functionality from their ERP system. But at some point, when this functionality has reached its limits, the implementation of a stand-alone CRM solution becomes unavoidable, and with it, comes the need for data synchronization between the two systems to ensure high operational efficiency and data accuracy. Here are some of the benefits of CRM ERP integration project:
- Enabling salespeople to deliver more accurate quotes, lead times, as well as shipment details by giving them real time access to stock levels of inventory and most current product prices
- Delivering a better understanding of customers purchase behavior and buying trends by providing the sales with such information as order histories and communication with customer support
- Ensuring more accurate budgeting and forecasting, which ultimately leads to decreasing the risk of inventory shortages or overage, optimization of delivery schedules, and better planning around customer trends
eCommerce ERP integration
Many small to medium retailers are likely to have their business and operational needs covered with just one single eCommerce platform such as Shopify or Magento. The larger a business becomes, though, the higher will be the need for an actual resource planning solution. Here’s where it makes the most sense to integrate an eCommerce platform with ERP:
- To produce sophisticated, in-depth reports about which products are popular with the customers or where your selling strategy might need improvement
- To support an omnichannel initiative that implies combining back-office, in-store, and online shopping experience
- To decrease operational costs and improve customer experience by enabling instant, automated product information, inventory, prices, and fulfillment status updates on the shop’s frontend
Additional reading: Preparing for ERP eCommerce Integration Like a Pro
HCM to ERP
As mentioned above, some ERP solutions cover certain HR functionalities; however, they will never be able to be on par with a stand-alone HCM software that usually combines the functionalities of both HR information system (HRIS) and HR management system (HRMS) to manage not only payroll or vacation requests, but also such complex processes as new hires onboarding. Integrating an HCM software with ERP can be beneficial for various reasons – advanced reporting being one them –, but to mention just a few:
- Perform better human capital budget planning by combining data on average time to hire and cost to hire with the cost of replacement hires, since you can have easy access to your employee turnover statistics by department and location in your ERP
- Unify data on the full lifecycle of an employee, from recruitment to termination or retirement, enabling automatic transfer of employee records across several systems, quick onboarding of new hires, and better performance management and planning efforts
- Access workforce management functions such as time tracking in your HCM to enable touchless project based billing through your ERP or speed up expense approvals in ERP by automatically transferring the employee’s manager role within HCM
BI and ERP system integration
This one is huge. Thorough business data analysis is what any company strives for to be able to make well-informed decisions and predictions fast. And if ERP is treated within a company as a single source of truth that collects data from multiple touchpoints, it becomes a reservoir of data that only waits to be analyzed effectively and shared across departments. This is where a BI solution enters the stage, with its ability to visualize complex data in order to make it easy for all to understand. Some of the benefits of integrating ERP with BI include (but are not limited to):
- Providing deep insights and giving the freedom to generate custom reports on department-specific data to meet each department’s own goals
- Enabling to utilize ERP’s historical data for predictive analysis and process modeling
- Facilitating the consolidation, organization, and analysis of large data sets in real-time, thereby increasing business agility and competitiveness
PLM ERP integration
While PLM helps manage a product throughout its lifecycle and organize it information such as design, distribution channels or product documentation, an ERP system focuses on certain business processes such as order processing, resource management, or costs management. Both systems on their own are very powerful, but when combined, you can use their joint power to streamline your processes and make them more efficient. This will enable businesses to:
- Actively manage the product development and execution with improved asset utilization, optimized delivery schedules, and shortened time to market
- Develop new, well-differentiated products that meet customers’ demands while improving product data quality and reducing costs
- Improve collaboration between customer / sales and engineering in the quotation process, as well as effectively coordinate the work of cross-functional development teams
ERP to ERP system integration
While this doubtfully can be considered really “best practices”, sometimes companies end up having several ERP systems, be it through mergers or acquisitions, extension of a legacy ERP capabilities through a cloud based solution, or, depending on the size of the company, even due to unique preferences of some departments. No matter what the future of such “satellite” ERPs is, it is a good idea to connect them to each other in order to create an accurate view of all data, avoid duplications and keep customer and product information up-to-date across the entire organization.
Methods and approaches to ERP integration
There are several ways to approach ERP system integration with other business software applications and systems. Which one your IT should choose depends largely by such factors as what types of systems you currently use – on-premises or cloud-based, the available budget for integration projects, and development resources. Here are some approaches to consider:
Inhouse integration development with APIs
Nowadays, the vast majority of business software solutions have application program interfaces (APIs), which define how systems can communicate with each other and exchange data. Key benefits of API based integrations are:
- Business software applications can actively request data from each other
- They can also pro-actively let each other know when a specific event happens
In addition to that, IT can develop their own APIs that would streamline the communication between external systems and home-grown applications.
A word of caution, though: While this approach undoubtedly has many advantages, it can also be rather resource-consuming, because developers will need to study each single application’s API documentation and develop every integration manually.
What Makes a Good API | 6 Aspects That Make it Fit for Integration in 2022
APIs Types and Their Integration Specifics | A Quick Guide
How do you do REST integration | Step-by-Step Methodology
Integration tools provided by vendors
With the growing understanding of how important in-built integration capabilities are for successful application adoption, many vendors nowadays offer their own solutions for connecting applications with each other.
The methods and approaches as well as the landscape of integrated systems behind these solutions vary. Some vendors use third-party integration middleware under-the-hood, which means that essentially, when integrating their application with other software, you’re using the tool provided by an integration platform vendor.
Other vendors develop in-house middleware technology and provide integrations off-the-shelf. And some vendors work with partners to outsource the development and maintenance of integrations, though still providing them through their own marketplaces.
The benefit of this approach is that it can save an insane amount of resources. But the potential drawback is the relative inflexibility of provided solutions. Since they are oftentimes standardized to accommodate for the most common scenarios and business processes, they might not fit if a business has performed a lot of customizations to the ERP or, say, CRM (think Salesforce and its ability to allow the creation of custom objects).
Using third-party integration middleware
A large number of software vendors specialize in providing integration platforms and middleware that reduce or even eliminate the need to build in-house integrations between ERP systems and other software applications. These solutions can be built with various architectural patterns, with each of them having its own advantages and drawbacks.
The purpose of such dedicated integration tools is to automate the flow of data between various systems while eliminating the need for the rigid point-to-point integrations, facilitate data transformation, and enable centralized management of integrations.
One of the tools whose popularity has been growing significantly in recent years is integration platform as a service (iPaaS). The main reasons behind this growing popularity are:
- The cloud-based nature of iPaaS solutions, which makes them lightweight, more flexible and scalable when needed
- The low-code or no-code approach to building integrations, which on the one hand saves development time and costs, and on the other hand, gives the necessary flexibility to cater for custom, home-grown APIs and applications, and on-premises systems
- Support for multi-tenancy and user role definition, event-driven architectures, and real-time access to data
If you’re curious to learn more about the advantages of integrating ERP with other systems using iPaaS, read this success story from an Italian B2B retailer who uses elastic.io iPaaS to connect their on-premises Microsoft Dynamics Navision with cloud-based MS Dynamics CRM and online shop:
Fabric Houses reduces 85% development costs through iPaaS implementation
However, using third-part tooling also implies the risk of a vendor lock-in, which means that choosing the right vendor requires careful evaluation of business needs and requirements, active collaboration of IT with other business stakeholders, and a clear vision of the future development of business processes automation.