What is ERP and How Do ERP Systems Work?

Last Updated: September 7th, 2022
Researched and Written by: Lexi Wood

Most workplaces depend on an ERP to handle all sorts of business processes, from general accounting to human resources. Yet what exactly is ERP? How can one software suite serve so many departments in different ways? Find out what an ERP really is and how it can help your business flourish:

ERP Definition: What Does it Actually Mean?

ERP stands for “Enterprise Resource Planning”, the consolidated process of gathering and organizing business data through an integrated software suite. ERP software contains a suite of applications which automates business functions like production, sales quoting, accounting, and more.

In layman’s terms, ERP facilitates your company operations across every department. ERP solutions improve how you handle business processes, whether it’s:

An ERP creates a single source of information for all these different aspects of your business, allowing you to focus on your specific needs from a single system. There are many more expert ERP definitions out there, though almost all agree on this core truth: ERP implementation is designed to serve as many departments of a company as possible to facilitate better business processes.

Looking for an ERP system for your organization? Check out our full list of the best ERP software. Get free help finding the right one for your business from one of our software advisors.

The History of ERP Management Systems

Businesses have always tried to use enterprise resource management, even if it didn’t have that name, to balance all their different practices without sacrificing resources elsewhere. For a long time this meant companies had to create their own management systems to ensure each department completed back-office tasks correctly and on time.

The first traces of true ERP were found in manufacturing, with the economic order quantity (EOQ) model, a paper-based scheduling system. This was replaced by material resource planning (MRP) tools, sometimes called material requirements planning, developed in the late 1960s which eventually became manufacturing resource planning (MRP II) tools. Modern ERP practices began in the 1990s due to the rise of computer software being integrated with daily business operations. Coined by the Gartner Group, the term originally focused solely on the new digital tools allowing manufacturers to ease supply chain management to control inventory, automate accounting, and do so much more.

Today, these software systems are found across a variety of industries, not just manufacturing. And since the early aughts, new ERP software is now available on cloud-hosted platforms for accessibility anywhere in the world. Global enterprises and small businesses alike can now automate their business processes through software.

ERP Software Visualization
Streamline your business processes with an all-in-one ERP software.

Top Benefits of ERP

Enterprise resource management provides better business performance with these great benefits:

Workflow Visibility and Streamlining

Before ERP systems, coordinating between multiple worksites took a lot of time and effort. If you wanted updates on a specific part of your business, you had to call ahead or visit the site physically. Large corporations with interstate and international locations had to work around time zones and even language barriers.

Fortunately, ERP systems revolutionized workflow visibility. Now, even when you’re in your office headquarters, you can open a common database from your ERP suite to get real-time details about what’s simultaneously happening at your manufacturing plants abroad and distribution centers right at home.

Scheduling tools are a highly customizable part of ERP solutions. You can organize when workers come in for shifts, when inventory is delivered, and when your factories undergo maintenance. Then coordinate each schedule into a single calendar so all your departments and third-party partners stay on the same page.

Business Intelligence and Data Analytics

In order to run your business, your decision-making needs to be guided by accurate data. ERP solutions use business intelligence (BI) tools to provide data collection, analytics, and reporting methods. There are even ways to analyze data in real-time to make instant changes to your production processes. You can additionally use historical data for business forecasting.

Tired of the manual data entry necessary for complicated spreadsheets? Utilize ERP software to automatically import and share your data in customized reports. Present these documents to important shareholders, business partners, or your team to keep everyone informed of key performance indicator (KPI) metrics.

Cross-Department Collaboration

The more departments your company has, the more important it is to manage internal communication practices to avoid mistakes. And if your company has locations all over the world, you need a way for everyone to stay in contact across time zones and language barriers. A miscommunication between your raw material supplier and distribution center can lead to costly inventory errors. ERP communication tools organize scanned documents, files, emails, texts, and phone call recordings. There are even private, internal channels for instant communication.

ERP provides ways to improve communication outside your business with vendors and suppliers. You can also use customer relationship management (CRM) tools to schedule external customer interactions, like quote follow-ups and lead tracking.

Risk Management and Data Security

Protecting your company from fraudulent practices is more important than ever in the digital age. If your business operates online in any way, you can be at risk. Real-time risk management tools give your company additional security by performing automated audits and fraud monitoring.

In the expanding internet age, your company handles a lot of sensitive data. From payroll details to supplier lists, you need a way to stay secure when sharing information. Using a single ERP deployment provides security by keeping all your important documentation and communication in one place. You can also cut down on data duplication by keeping all your information within one cohesive system.

Connections of Cloud-Based ERP
Cloud-based ERP provides greater risk management and data security.

With ERP forming the cornerstone of many end-to-end operations, the multitude of tools offered by the software are constantly changing to keep pace with the latest business trends. Here are just a few to consider:

Customizable Solutions

Every company has to factor in some unique variables in their operations. Does your business work with international corporations? Do you regularly have to submit official documents for government audits? Does your marketing department target audiences across social media channels? Then here’s good news: there are custom ERP modules to fit your exact business needs!

Depending on the base software, you can either pick-and-choose from premade modules or configure your own with the help of the ERP vendor for an additional cost. Either way, your new ERP can come with the exact functionality you need.

Evolving Technology

New and improving technology is changing the capabilities of ERP applications by including artificial intelligence (AI) computing and the Internet of Things (IoT) solutions. Both can greatly automate analytical and forecasting opportunities, providing greater accuracy than ever before to your decision-makers.

New technologies have also led to an increase in cloud-based software. In recent years, many businesses have implemented cloud-based ERP solutions to gain additional workplace mobility due to an increase in demand for remote or work-from-home opportunities. Through these accessible systems, workers can log-in from anywhere and still get their work done without interruption.

Finally, cloud-based ERP also makes it easier for retailers to operate e-commerce stores entirely online. Real-time order management modules can ensure you are able to fulfill your orders from anywhere.

NetSuite Ecommerce Statistics
NetSuite ERP includes ecommerce tools for measuring your sales and customer statistics.

Want to start automating your business? Here is a small sample of the most popular ERP vendors in our Software Connect network. For a more exhaustive list, check out our full list of enterprise resource planning software.

★★★★★
★★★★★
(16)
NetSuite ERP
NetSuite ERP Screenshot
Price Range
   $     $     $     $     $   
   $     $     $     $     $   
Starting Price
$99/user/month
Client OS
Web
Deployment
Cloud Hosted
★★★★★
★★★★★
(4)
Oracle ERP Cloud
Oracle ERP Cloud Screenshot
Price Range
   $     $     $     $     $   
   $     $     $     $     $   
Starting Price
$175/user/month
Client OS
Web
Deployment
Cloud Hosted
★★★★★
★★★★★
(10)
SAP Business One
SAP Business One Screenshot
Price Range
   $     $     $     $     $   
   $     $     $     $     $   
Starting Price
$410/user/year
Client OS
Windows
Deployment
Cloud or On-Premises

The right ERP for your business might depend on your industry:

Types of ERP by Industry

No two businesses operate in the exact same way, so it’s no surprise there are many specialized ERP packages available. Just a few of the industry-specific options include:

  • Apparel: The clothing industry needs software to handle changeover whenever fashion trends change.
  • Automotive: Auto manufacturers can rely on ERP tools to handle inventory management, quality control, and scheduling.
  • Cannabis: These all-in-one solutions cover the cultivation, manufacturing, processing, and distribution of legal cannabis.
  • Construction: Construction contractors need to stay in control of labor, materials, equipment, and any subcontractors they’ve hired for a job. ERP software helps with construction task management.
  • Higher Education: College and university ERP systems support academic business processes ranging from tuition billing to exam grading.
  • Manufacturing (MRP): Going back to the origins of ERP, MRP provides production planning, personnel and machine workloads scheduling, and general inventory control along the supply chain.

Why is it so important to use an industry-specific ERP solution? The core business processes of a general ERP system might weigh you down with unnecessary features. For example, schools need a way to organize student and staff schedules. Yet it would be unnecessarily cumbersome for all ERP products to include student attendance modules. Instead, it’s better for educational institutions to seek specific software to address those needs.

If your ERP deployment is full of features you don’t need, all you’re doing is slowing down your own resources. Instead of overloading your computers with a bloated software package, save computing space by only installing the ERP you need for your business requirements.

Types of ERP by Deployment

There are also different implementation and deployment options for ERP software:

  • On-premise ERP: This is any ERP software which is deployed directly on local devices. These systems are designed for businesses of all sizes though may be more appropriate for small and medium companies.
  • Open Source ERP: This option lets you inspect, modify, and enhance your ERP source code to customize your application to better suit your workplace.
  • Cloud-based ERP: Any ERP software-as-a-service (SaaS) which is available over a cloud-hosting service rather than on-premise deployment. This option lets you access real-time data as long as you have Internet access and is suitable for large enterprises.
  • Hybrid ERP: Enterprise resource planning systems which blend on-premise and cloud-based deployment.

Cloud-based ERP software is ideal for companies with multiple locations which need to stay in coordination with one another. Wondering which is right for your business? Contact Software Connect for ERP software recommendations specific to your business!

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