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Considering that enterprise resource planning (ERP) consists of most of your business’s core components (including finances and supply chain management), it will be no surprise that your chosen solution can make or break your business’s success. Ideally, this system will be modular, flexible, and agile. If your business is still using a traditional ERP, chances are it’s lacking these necessary features. But that’s where a composable ERP proves to be a game changer.

When you compare and contrast a composable ERP vs. traditional ERP, composable systems offer undeniable advantages. In this article, we’ll explore the key differences, provide real-world case studies, discuss the pros and cons of each system, forecast the future of ERP systems, and finally, guide you on why choosing Xledger’s cloud ERP solution can be one of the best decisions you ever make for your business.

The Basics: Composable ERP vs. Traditional ERP

Before moving on to the more intricate details, let’s first define composable and traditional ERP systems. 

Traditional ERP

Traditional ERP systems are a one-size-fits-all approach to managing business processes. First-generation ERP evolved from MRP (Material Resource Planning) in the 1960s. In the 90s, second-generation ERP introduced more functionality and flexibility. 

These systems consist of integrated modules designed to handle different aspects of your business. 

This includes 

• Accounting
• Supply chain management
• Human resources
• Customer relationship management (CRM)

These rigid systems require significant customization to fit a business’s specific needs. Fortunately, there’s a better alternative businesses can turn to.

Cloud and Composable ERP

Fast-forward to the 2010s, cloud ERP (third generation) changed the game in terms of implementation and functionality. Finally, we come to fourth-generation enterprise resource planning: composable ERP, the most modern and technically advanced option.

Composable ERP systems are built with flexibility in mind. They consist of independent modules users can easily integrate or swap based on a business’s needs. This more modular approach lets companies tailor their ERP system to fit their needs. 

Some of the critical advantages of composable ERP systems include: 

• Scalability
• Customization
• Adaptability
• Flexibility
• Cost-effectiveness

With composable ERP systems, businesses can easily add or remove modules as their needs change. In turn, it’s a far more agile and adaptable solution compared to traditional ERPs. 

Cost efficiency can prove to be enough of a benefit on its own: the modular approach allows for cost savings as businesses only pay for the modules they need rather than purchasing a one-size-fits-all system with unnecessary features. 

Transitioning from a traditional ERP to a composable ERP strategy transforms how organizations approach enterprise resource planning. Traditional ERPs and their monolithic ERP suites once served businesses well—they provided a unified platform to manage diverse business processes. But in 2024 and beyond, ERP solutions demand more flexibility and agility than traditional ERP systems.

Read this next: If This Happens, It’s Time To Change Your Online ERP System.

Key Differences: Composable ERP vs. Traditional ERP

When we examine what distinguishes these solutions, it becomes even more apparent why businesses are increasingly favoring composable ERP solutions.  

Traditional ERP:

• Monolithic suite with closely wound integrated modules
• Limited ability to customize
• Rigid structure—they’re tough to adapt or scale
• High upfront cost

Composable ERP:

• Divisible into independent modules that can be easily integrated or replaced
• Flexible enough to meet your needs once adapted or customized.
• Has the ability to scale with an organization as it grows effortlessly
• Cost-effective: only pay for the modules you need

Benefits of Composable ERP: Flexibility, Scalability, and Cost-Efficiency

With composable ERP systems, organizations can create their unique ERP solution to support their processes and workflows. This level of personalization allows them to operate more effectively and optimizes how they manage their overall operations.

Composable ERP systems have also made keeping up with emerging technologies much easier. This differs from traditional ERPs, which have a fixed design and lack customizability, making it hard for businesses to keep pace with technological trends.

Lastly, this move is practical even for a small business. Composable ERP solutions allow businesses to start small and add modules as they grow. This reduces initial investments while enabling smooth management over an extended period.

Here’s another article you don’t want to miss next: 7 Reasons ERP Implementations Fail Before They Begin.

More Advantages of Composable ERP

If you need a little more convincing about why composable ERP systems are the way to go, refer to this handy list:

• Monolithic vs. Modular: Traditional ERP solutions are built as comprehensive, all-in-one systems. They simply lack flexibility. In contrast, composable ERP platforms allow for a modular approach. This allows organizations to seamlessly integrate best-of-breed applications for a tailored ERP solution.
• Flexibility: The ease of customizing and adapting your ERP platform is key. Composable ERPs excel in this area—businesses can select and integrate modules based on specific needs without undergoing extensive and costly customizations.
• Implementation and Scaling: Deploying a composable ERP system is generally faster and more cost-efficient. Organizations can start with a basic set of modules and expand as needed. Conversely, traditional ERP implementations are notoriously complex and time-intensive.
• Future-Proofing: The composable ERP model facilitates updates and integration of new technologies. Thus, your ERP platform can adapt to future business needs and technological advancements.
• User Experience: Their emphasis on intuitive design means that composable ERPs tend to be preferred by all members of your team. They simplify daily operations for end-users, in contrast to the complexity of traditional ERP interfaces.

Case Study: What Happens When You Switch from On-Premise to Composable ERP

Reading about the potential benefits of a composable ERP is one thing, but seeing it in action is another. We have dozens of case studies, but we will highlight one in particular today: Galbraiths (a shipbroker to some of the biggest businesses in the world). 

Traditional ERP Implementation

For two decades, Galbraiths used a conventional on-premises ERP system. It served them well at first, but until the 2010s, a more modern solution wasn’t available. However, as the company grew and changed over time, so did its needs, which this model no longer met. Customizing it proved expensive and slow, creating bad user experiences and other maintenance issues.

Moving to Composable ERP

Galbraiths adopted Xledger’s composable ERP system in 2016. The transition was smooth and quick, with very little downtime or disruption during this period. With this new solution, Galbraiths easily integrated new technologies into their systems and could now adapt them according to their changing business needs.

Success: Results with Xledger

Upon switching from its previous ERPs to those provided by Xledger, Galbraiths experienced significant operational efficiency improvements across all areas, which led to better overall performance levels within their organization.

Namely:

• Flexibility: Galbraiths’ ERP system has been customized to their specific business requirements by allowing the addition and removal of modules at will. This move eliminated irrelevant clutter, which led to easier operation and higher productivity.
• Accessibility: With a true cloud-based system, Galbraith’s team members can access the ERP from anywhere with an internet connection. This change has been particularly advantageous for the company’s remote or traveling staff.
• Scalability: As their business continues to grow, Galbraiths can easily scale their ERP system to accommodate increased demand and data volume. This eliminates the need for costly upgrades or customizations.
• Real-time Data: Galbraiths’ team can access real-time financial and operational data with a unified data repository. This has greatly improved decision-making processes and overall business performance. 

What’s Next for ERP Systems?

Composable ERPs are the future, which means they will become more prevalent each year.

As Robert Kramer writes for Forbes in this January 2024 article:

“The value of the cloud-based ERP market is projected to grow from $49.80 billion in 2023 to $140.14 billion by 2030, representing a CAGR of 15.9% during this period—with 80% of new implementations being cloud-based.”

Even in their most rudimentary form, ERP solutions still offer significant benefits compared to traditional ERPs. Still, ERP technology advancements are being made, which will only continue to improve and streamline business processes.

Keep an eye out for some of these emerging trends in ERP systems:

Artificial intelligence (AI) and ERP

AI capabilities (such as machine learning and predictive analytics) help automate and optimize different components of ERP systems. 

Kramer explains:

“There is an increasing integration of generative AI in ERP systems, enhancing various aspects including transactions, financial operations and manufacturing. 

Specifically, AI improves financial analysis by detecting trends and anomalies and facilitating accurate forecasting and budgeting. It also optimizes inventory management with predictive analytics to maintain ideal stock levels. In maintenance, AI predicts equipment servicing needs, reducing downtime. 

Additionally, AI improves HR functions within ERP by analyzing résumés and profiles to select the best candidates, plus forecasting employee turnover and recommending training or career development strategies.”

Other trends in ERP systems to watch for include:

• Hyper-automation
• Machine learning (ML)
• Explainable AI
• A greater focus on sustainability, user experience, and security

Choosing between a composable ERP and a traditional ERP ultimately comes down to your organization’s unique needs and long-term vision. To make the decision as straightforward as possible, keep this in mind: virtually every business needs the basic functions and features of an ERP system, and opting for a composable ERP offers far greater flexibility and scalability. 

We encourage you to book a demo today to understand why a composable ERP strategy might be the right choice for your organization and explore what Xledger can offer over other options. Find out how your enterprise can benefit from the flexibility, efficiency, and competitive edge you’ll get from the market’s most automated and insightful ERP system.

Did You Learn a Lot about Composable ERP in This Article?

Here are three more to read next:

• Hidden Costs in ERP Licensing Fees
• 31 Questions You Should Ask Potential ERP Providers
• 4 Myths About Integration and Unified ERP