Your Ultimate ERP Compliance Playbook (+ Examples)
ERP: The Compliance Companion: Enterprise resource planning systems streamline data security, enhance overall visibility, and improve quality control to help businesses remain compliant.
Plan in Advance: When implementing a new ERP, make sure to know your required regulations, implement strong security controls, and build data privacy measures, so you can ensure you have everything necessary in your system.
The Right Vendor Makes a Difference: Choosing the right ERP is an important step for compliance. Without the right provider, you could leave yourself vulnerable. Look at things like scalability, customization, and reputation to find your right solution.
Regulations. They’re the backbone of your business—and your enterprise resource planning (ERP) system.
As a business owner, I know how vital compliance is. But how exactly do you know if your ERP is helping you hit all the regulatory boxes? And how does it even do it?
That’s why I put together this clear, practical, and easy to apply ERP compliance guide. Drawing on my experience helping numerous companies with ERP implementation, I’ll discuss what ERP compliance entails and its impact on your business.
I’ll also use insights from industry leaders and my own experiences to help you find the best strategies to streamline your workflows and ensure compliance.
What Is Regulatory Compliance?
Regulatory compliance refers to the laws, regulations, and industry standards applicable to any specific company, depending on its industry and location. This includes compliance with:
- Financial reporting requirements
- Data privacy regulations
- Industry-specific guidelines
While that sounds pretty straightforward, compliance can get tricky, and fast. To help break it down easier, I built this table (which is something I definitely could’ve used when I started in ERP compliance):
| Regulation Type | What It Monitors | Example Industries |
| General Data Protection Regulation (GDPR) | Data processing, security and data breaches, auditing and accountability | • EU-based organizations, business who provide goods and services to EU • Any other businesses who monitor the behavior of individuals in the EU |
| Health Insurance Portability and Accountability Act (HIPAA) | Access monitoring, privacy and security, breach notifications | • Healthcare providers (doctors, clinics, etc.) • Insurance companies • Businesses who provide services for HIPAA companies (IT support, consulting, etc.) |
| California Consumer Privacy Act (CCPA) | Personal information, business data collection and use, consumer rights | • For-profit businesses in California |
| Environmental Protection Agency (EPA) | Air and water quality, soil contamination, hazardous waste | • Vehicle and engine manufacturers • Fuel providers • Industrial facilities |
| Food and Drug Administration (FDA) | Human and veterinary drugs, biological products, medical devices, food, cosmetics | • Retail businesses (grocery stores, cosmetic stores, tobacco sellers, etc.) |
These regulations are necessary to protect consumers and businesses. Failure to comply can result in severe penalties, including hefty fines, legal action, and reputation damage.
For instance, the Asian-Pacific, European, Middle Eastern, African, Latin American, and North American markets spend about $206 billion per year on maintaining financial crime compliance. The North American market alone spends $61 billion. These penalties can also have a long lasting impact, leading to loss of customer trust and a decline in business.
How Does ERP Relate to Regulatory Compliance?
You already likely knew about the importance of compliance—it’s why you’re here in the first place. But what does all of this have to do with ERPs?
The relationship between ERP software and regulatory compliance is simple: Automated systems make it easier to play within the lines.
If you have individual actors making compliance related decisions regularly, you expose yourself (and your organization) to the risk of an overly stressed executive skirting the rules to get something done. That, and it’s not cheap. The cost of federal regulations has increased to more than $2.1 trillion annually.
But if I’ve learned anything over the years, it’s that if you systematize the compliance process with ERP software, you eliminate this opportunity.
In the healthcare sector, for example, ERP systems play a vital role in ensuring compliance with regulations like the Centers for Medicare & Medicaid Services (CMS) guidelines and the Food and Drug Administration (FDA) requirements.
With dedicated ERP systems, healthcare businesses can manage patient data, track medical inventory, and automate reporting, helping them maintain compliance and avoid costly fines, all whilst simplifying employees’ lives.
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5 Ways ERP Compliance Works For Your Business
I’ve worked with many ERP consultants and architects on ERP implementations for several businesses.
These companies are often driven by a desire to take mandatory tasks, like maintaining compliance, off their plates, and while I have a strong understanding of compliance, I wanted further insight into the impact these regulations have on businesses from the source itself.
That's why, when the idea for an article on ERP compliance came to mind, I reached out to Edward Witchey, Senior Director of the IT Project Management Office for Merakey.
Combining his knowledge of software compliance with my experience in ERP implementation, I found eight specific ways that ERP systems can help with to improve regulatory compliance:
1. Streamlines Data Security and Privacy
As both you and I know, ERP systems centralize and streamline processes. But did you know that they also do the same for your data security and privacy?
By implementing strong access controls, data encryption, secure storage, and industry-specific compliance measures, you can safeguard sensitive information from unauthorized access and breaches, all within your ERP system.
For example, in the financial sector, banks implement ERP systems with access controls to ensure only authorized personnel have access to sensitive financial information. Here’s how these security measures protect bank customers:
- Centralized data management and encryption protect customer data during transactions
- Secure storage protects data from physical theft or damage
- Payment card industry data and security standards (PCI DSS) protect customer payment information from breaches
Access control, encryption, and authentication mechanisms help protect data. Data security policies that require regular audits help monitor access to the data and prevent unauthorized changes or breaches.
2. Enhances Overall Visibility and Control
ERP systems enhance your company’s overall visibility and control by providing detailed dashboards, automated reporting, and real-time data analytics. These features enable you to:
- Monitor and track operations closely
- Identify potential issues
- Support informed decision making
- See visual representations of key performance indicators (KPIs)
- Ensure timely and accurate data submission
- Access immediate insights into business performance
For example, a logistics company can use an ERP system to track its fleet's performance, display real-time data on vehicle status, delivery times, and fuel consumption, and ensure compliance with transportation regulations, such as maintaining accurate logs of driver hours.
As Edward stated in our recent discussion:
ERP system’s features are designed to track business processes, transactions, and data flow in real-time.
And he couldn’t be more correct. This high-level type of overview you get with an ERP helps you build compliance, and maintain it.
3. Improves Quality Control and Tracking
Along with providing you with an overhead of your company processes, ERP systems can also help improve quality control, tracking, and management with strong document control and traceability features. These tools ensure:
- Products meet quality standards
- All documentation is accurate and up-to-date
- Every step in the production process can be traced
This is particularly important in sectors such as manufacturing, where quality control is vital to maintaining product integrity and regulatory compliance.
An example of this is the automotive industry, where manufacturers use ERP systems to manage their production process. The system's quality management tools ensure each vehicle meets safety and quality standards, and document control features record production records to make sure they’re accurate and accessible.
4. Automates Compliance-Related Tasks
Cloud-based ERP software provides centralized compliance by automating operational tasks. It offers a wide range of automation capabilities, including financial statements and reconciliations, as well as other reports and employee management. Not only does this free up time, but it also reduces human errors and risks.
Manual data entry is error-prone, whereas automatic data validation, reporting, and automated compliance checks reduce mistakes and save valuable resource time. By leveraging these ERP features, your business can ensure data integrity, which is critical for compliance reporting, and help maintain detailed records of transactions and activities.
With automated tasks, ERPs allow your business to achieve faster completion times, streamline processes, and address problems in real-time through:
- Employee Training Modules: Keep all staff up to date with compliance requirements through effective ERP training programs.
- User Access Management: Only allows authorized personnel access to sensitive data.
- Automated Reporting: Keeps compliance-related data accurate, recorded, and timely.
For example, in the healthcare sector, hospitals leverage ERP systems to manage compliance tasks, including updating regulations related to HIPAA requirements, providing employee training modules, authorizing user access, and generating automated compliance related reports.
5. Builds Transparency
Customers, shareholders, employees, and the general public want to know that the companies they buy from and work for are compliant.
ERPs support data collection necessary for transparent financial reporting, which in turn can foster stakeholder trust. Similarly, some ERPs even offer customer portals, which allow users to gain real-time visibility into order status and other information in a secure manner, increasing confidence in the brand and its ability to handle valuable insights.
Transparency is essential for regulatory reviews, so these audit trails provide traceability and clarity and help demonstrate compliance with security measures that protect the data.
For instance, a pharmaceutical company can integrate its ERP system with other technologies to achieve end-to-end transparency. This ensures each step in the supply chain, from manufacturing to delivery, is accurately and transparently documented for regulatory compliance, safeguarding your company's reputation with consumers, partners, and auditors.
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ERP Compliance Across Different Industries
The more I work with companies on ERP implementation, the more I notice how essential ERP compliance is across various industries. Here’s a look at some of the most highly regulated industries, and how ERPs help them meet compliance requirements.
Manufacturing
Businesses in the manufacturing industry, including fuel, automotive, and pharmaceuticals, are required to follow ISO 9001 compliance, the Occupational Safety and Health Administration (OSHA), the Environmental Protection Agency (EPA), and the Food and Drug Administration (FDA) regulations.
Within this sector, ERP systems help companies maintain quality control, workplace safety, environmental, and food safety protocol records to ensure consumer and employee safety.
Financial Services
The top regulators for financial services include the Federal Reserve, the Sarbanes-Oxley Act (SOX), and the Payment Card Industry Data Security Standard (PCI DSS). These regulations require stringent controls over financial reporting, data security, and audit trails, which ERP systems can provide.
Transportation
Regulations for transportation businesses are enforced by top agencies such as the Department of Transportation (DOT) and the Federal Aviation Administration (FAA) to cover areas, including vehicle maintenance, driver safety, and environmental standards. This is especially true for air transportation.
ERPs in this sector help businesses keep a close eye on their maintenance schedules and view real-time data into inventory levels and fleet performance.
Healthcare
The healthcare sector manages sensitive client data on a regular basis. As a result, they need to meet the requirements of top regulators, including the Health Insurance Portability and Accountability Act (HIPAA) and the Food and Drug Administration (FDA).
With strong ERP systems in place, healthcare businesses can securely manage patient data, maintain accurate records of medical devices, and comply with privacy and security standards.
How to Achieve ERP Compliance
ERP compliance may sound scary—trust me, I know—but your company can achieve it with the following tips I’ve picked up:
1. Know The Necessary Regulations
First, conduct an in-depth audit of your industry’s regulatory landscape by researching the laws, standards, and guidelines relevant to your sector. Each regulation may have detailed provisions that dictate how your business should operate.
For example, say you run a financial company. You need to ensure its ERP system supports SOX compliance by verifying that it has strong internal controls, accurate financial reporting mechanisms, and secure data storage solutions.
Implementing necessary adjustments and enhancements to your ERP system will help bridge compliance gaps and provide seamless regulatory adherence.
2. Implement Security Controls
From there, it’s important to implement strong security controls to prevent unauthorized access, data breaches, and other cyber threats that could compromise your organization’s integrity. Here are some fundamental security measures to include when setting up your ERP:
- Access Control: This prevents unauthorized personnel from accessing specific data or system functionalities by defining user roles and permissions.
- Encryption: This is a critical security control that protects data both at rest and in transit to make sure information isn’t intercepted or accessed without authorization, and remains unreadable and secure.
- Regularly Security Patching: This is necessary to address vulnerabilities and protect against emerging threats. Make sure your ERP system is up-to-date with the latest patches to help prevent exploitation by cybercriminals and reduce the risk of data breaches.
Putting these security controls in place is particularly important in your financial company to preserve and protect the sensitivity of financial data. By implementing financial ERP systems, your company can protect its data, maintain regulatory compliance, and build trust with its stakeholders.
3. Build Data Privacy Measures
Data privacy is a cornerstone of ERP compliance, particularly in light of stringent data protection regulations. Here’s what you can do in this regard:
- Remove or mask personally identifiable information (PII) from datasets to protect individual privacy.
- Implement data anonymization within your ERP system to ensure that sensitive information and compliance requirements are met.
- Provide consent management, including tracking consent statuses and offering mechanisms for individuals to withdraw their consent.
- Ensure your ERP system supports data subject access requests (DSARs), allowing individuals to access, correct, or delete their personal data as required by law.
These techniques can protect customer information while still allowing the company to perform financial analyses and generate valuable insights. By building strong data privacy measures into the ERP system, your financial company can demonstrate its commitment to protecting customer data and complying with regulatory standards.
Common Challenges With ERP Compliance
Implementing ERP compliance can come with challenges such as these.
- Migrating Fragmented Data: Manually migrating siloed data across multiple disparate systems can be time consuming, error prone, inaccurate, and complex.
- Lack of Real Time Monitoring and Alerts: Without an ERP system, your company may struggle to monitor compliance in real time, making it difficult to proactively identify and address potential issues.
- Difficulty Adapting To Changes: Regulatory environments are constantly evolving, and companies without a robust ERP solution may struggle to adapt quickly to new compliance requirements.
Future Trends in ERP Compliance
As technology continues to evolve, so too do the regulatory landscapes and compliance requirements. Stay ahead of these changes to maintain ERP compliance and mitigate potential risks.
Choosing the Right ERP
When selecting the right ERP system to meet your business needs and support your regulatory requirements, consider the following:
| Requirement | Things to Consider |
| Scalability | ERP systems must be able to grow with your business and adapt to changing regulatory landscapes. Can it support your business requirements now, and in the future? |
| Customization | Your ERP system should meet your company’s specific compliance needs and business functions, providing seamless connectivity with your other essential business systems. |
| Vendor Reputation | Look for ERP providers with a proven history of helping companies in your industry achieve regulatory compliance management. Consider their commitment to ongoing support and updates, as well as regular software updates and customer support. |
| Overall Cost | Determine upfront costs, implementation costs, and maintenance. Does it fit in your budget? |
Embracing the capabilities of ERP systems enables your business to simplify its regulatory compliance processes, ensure effective risk management for non-compliance, reduce associated costs, and maintain the trust and confidence of its stakeholders.
This allows you more time to focus on core business objectives while ensuring that your operational finance complies with the regulatory landscape and changes.
Still unsure of where to start? Consider reviewing the CFO Club’s top ERP alternative tools to help get you started.
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