What is an ERP system? Enterprise resource planning (ERP) software is used by organizations to manage front office and back office operations. An ERP solution integrates and automates organizations’ core business processes resulting in easier collaboration and improved customer satisfaction.
Today, we’re taking a closer look at how this platform works and outlining the benefits it can provide.
What is an ERP System?
If you’ve reached the point in your company where spreadsheets no longer cut it, then you may be eyeing enterprise software systems that can automate and simplify your everyday processes.
This is where ERP comes in. These systems collect and organize all your business information into one central database (if you have a cloud ERP system, employees can access this information from anywhere, at any time).
From small startups to established enterprises, many different types and sizes of companies can benefit from ERP software. In fact, the functions of ERP go far beyond information management. For one, an ERP system automates many of your mission-critical workflows, allowing users to abandon manual methods that are not only time-consuming but leave too much room for human error.
This automation is most effective when the system receives inputs from different functional areas, including:
- Finance and accounting
- Project management
- Supply chain management
- Customer relationship management
- Risk management and compliance
- Human resources
Typically, each of these departments and functional areas relies on its own set of workflows and business processes. These processes can be difficult to integrate, especially with team members scattered in different locations and documents stored on disparate legacy systems.
An ERP system ties all those people and processes together, enabling shared transactional data to flow more smoothly. This shared access means you have one source of truth, which ensures data integrity and eliminates the risk of error or duplication.
The 2023 ERP Report
92% of respondents said they deployed or plan to deploy business intelligence at their organization. For the full story, download our report.
How Does ERP Work?
Now that we’ve shared a high-level overview, let’s get into the more technical details of how ERP systems work. In other words, how does one system effectively manage such a wide range of business activities?
An ERP system is a complete, integrated platform. This platform can exist either on-premise or in the cloud – when operating in the cloud, ERP software is often offered in a software-as-a-service (SaaS) model.
Most ERP systems are designed around one defined data structure, known as a schema. This schema has a common database, which helps standardize all information used across your enterprise. This way, all users have access to data they can manage based on common workplace definitions and user experiences.
Once these core constructs are established, they interconnect with the key business processes that take place across your various business departments, such as HR and marketing. This makes it easier for employees to organize, analyze, and distribute data across your organization.
As the ERP system gathers disparate data across the enterprise, it typically displays it in customizable, role-based dashboards that any authorized user can access and use.
A Brief History of ERP
To understand how ERP evolved into the critical system it is today, it helps to look back at the way this software has evolved throughout the years.
The 1960s: Early MRP Systems
In the 1960s, manufacturing companies needed a way to manage, track, and control their growth. Inventories were bursting, and it was getting difficult to keep track of what they had and what they needed.
As a solution, software engineers created the first material requirements planning (MRP) solutions. These basic systems allowed companies to oversee different aspects of their operations across each stage – from initial procurement to final delivery.
The 1970s to 1980s: MRP Advancement
Over the next two decades, MRP systems grew sleeker and more advanced. They also grew more feature-rich.
Manufacturing firms required software that could handle all their needs, including scheduling and production activities. These newer platforms were more expansive and allowed managers to achieve greater visibility into every part of their supply chain.
With this change came a new name. Instead of material requirements planning solutions, they were now called manufacturing resource planning solutions, or MRP II.
The 1990s: First ERP System
From the 1960s to the 1980s, MRP and MRP II systems were isolated mostly to the manufacturing realm.
However, that all changed in the 1990s. Companies in other industries began looking at the software and wondering how it could apply to their business needs. Instead of needing manufacturing oversight, these companies needed to automate other departmental functions, such as sales and accounting.
As the idea for the platform started to take a different direction, Gartner was the first to refer to the new platforms as enterprise resource planning (ERP) systems.
Today: Fully Integrated for Modern Enterprises
Now, ERP systems are fully integrated to support the modern, future-focused enterprise. They can simplify and streamline nearly every business function your company completes on a daily basis.
In addition to basic ERP functionality, you can find ERP systems designed to support specific industries and niches. You can also configure or customize most solutions to meet your unique business needs.
We regularly outline some of the top ERP systems in our annual reports. Some of the featured vendors include:
6 Benefits of ERP Software
1. Better Business Insights
ERP systems can generate real-time reports on a variety of business metrics, from monthly sales figures to inventory levels. Managers can use this data to make better-informed business decisions and move the company in the right direction.
2. Faster Response Times
When employees have to scramble to find the information they need, everyone suffers. Customers, team members, and stakeholders grow frustrated and increasingly impatient.
With ERP software, everyone can access what they need as soon as they need it. They don’t have to wait for an update from a different department before they can act. This makes it much easier to react, especially in high-stakes, time-sensitive scenarios.
3. Improved Data Accuracy
Are you confident that all your business data is accurate and up-to-date? If your key processes aren’t automated or standardized, it’s all too easy for employees to make a data entry mistake. Even one blunder can have significant consequences, especially in accounting.
An ERP system can integrate and automate most of your core functions, so employees can input, change, and share data with confidence.
4. Lower Operational Costs
Have you ever thought about how much time and money your organization wastes on inefficient business processes?
On the other hand, when everyone is following optimized processes, collaboration is streamlined, and there’s less risk of costly downtime or re-work. This frees up your employees to focus less on manual work and more on value-driving activities that can grow your bottom line.
5. Improved Operational Visibility
An ERP system allows managers to clearly see how each department is working with the other. They can visualize how one workflow feeds into the next, and what each participant is doing to facilitate that movement.
Without ERP, these activities are often disjointed and difficult to visualize.
An ERP platform not only provides this visibility post-implementation, but the act of implementing ERP is also an opportunity to gain visibility since this is when you initially define and streamline your core business processes.
6. Simplify and Unify IT Costs
An ERP system can unify most, if not all, of your core business functions into one central system. This way, your IT department doesn’t have to spend money on various systems that don’t integrate with one another.
Not only are such systems pricey to buy individually, but they also require their own dedicated staff, support, and infrastructure to operate.
Integrating all your functions into one platform saves your company money. With just one system to learn, you also save money on ERP training.
Learn More about ERP Systems Today
What is an ERP system? It’s a type of enterprise software that can streamline and automate your core business processes. As it’s evolved over the years, it’s shifted from a system built solely for the manufacturing sector into a platform that all companies can benefit from.
Are you interested in learning more about how an ERP system can transform your business? Contact our ERP selection consultants below for a free consultation.