What is ERP and How Does it Work? Understanding This Valuable Software Solution

Enterprise resource planning (ERP) is a centralized process for efficiently managing key business processes.

Enterprise resource planning software (ERP software) empowers manufacturers, machine shops, and many other companies in a variety of industries to:

• Connect the key functions of an enterprise in one location
• Manage workflows alongside each other, in an integrated fashion
• Track resources, business obligations, related needs, and more
• Increase the transparency and accessibility of operational data in real-time
• Provide a single source of truth for the company

ERP solutions traditionally focused on manufacturing, resources, and similar needs and processes. However, modern solutions can stretch across a wide range of business operations. From accounting and human resources to asset management and production planning, business leaders can gain a full view of their company with ERP.

With a basic understanding of this software in hand, let’s take a closer look at this especially useful software. We’ll review what an ERP system does, how it functions, and more.

What is ERP in Simple Terms?

Having a clear view of the concepts that make ERP so valuable to modern businesses can make grasping the advanced details a little easier.

In short: ERP technology tracks business processes, often with a focus on manufacturing. However, it can and almost always does include functions like finance and distribution as well. Crucially, an ERP system connects different parts of a company in a single platform, as Investopedia explains. It falls under the category of business management software.

Using a single source of information that’s accessible by a variety of employees reduces duplicate work, saving potentially significant amounts of time. With ERP in place, it’s far easier to check on the status of a process, project, order, or task.

A shop foreman can more easily and quickly check production statistics by accessing ERP software, for example. Tracking down and reviewing manual records could take far more time out of their day. Similarly, an employee in accounts payable could use this software to check on order status before following up with a customer.

ERP software gives companies a variety of tools that improve efficiency, reduce waste, and support reporting with more insights and fewer errors.

How Does an ERP System Work?

ERP software grew out of various other programs designed to manage and allocate manufacturing resources. ERP incorporated these tools and still does, but takes a much broader approach.

One key difference is the focus on core business functions broadly, as opposed to just one part of operations. The concept of a single centralized database for a variety of business information is another. Similar but more limited software that only involves manufacturing can’t offer that benefit.

Infoworld explains the specific term “enterprise resource planning” emerged in the 1990s, coined by consultancy firm Gartner.

This brief history of this software can help us understand how it works today. ERP software emerged in an era when cloud computing wasn’t a viable option. Most businesses had no other options besides local ERP implementations on an internal server.

Now, cloud-based ERP is increasingly common for reasons ranging from accessibility to ease of use. That makes this software more flexible and valuable — business leaders and staff can access key information anywhere and at any time. However, on-premise ERP is still used by certain businesses for a variety of reasons. Those range from increased opportunities for customization to simply maintaining a legacy system.

Businesses have plenty of options when it comes to ERP implementation and setting up a system that aligns with their business. Modules and add-ons can build more functionality into the foundational system and address industry-specific needs. That might mean tools to track additional data and insights for the marketing team, for example. Or systems to support more granular supply chain management, along with many other options.

An ERP vendor will then support either an on-premise or cloud-based ERP implementation. They can handle technical needs and provide resources for training. Integrating ERP with existing workflows and tools is crucial for long-term success

Even the most effective and intuitive software won’t make much of a difference for a business without buy-in. If employees don’t recognize ERP’s value and regularly use it, it can cause major issues. That’s why it’s so important to have a partner that can help guide implementation efforts.