July 14, 2021

What is an ERP System? How does it work?

What is an ERP System? How Does It Work?
The term “ERP” is widely used in business circles as an embodiment of digitalization and growth. Of course, there are tons of different automation software solutions on the market other than ERP. But this single system can cover all of your business processes without the need for additional technological solutions. In this article, we will provide the ERP definition, elaborate on how it works and what makes it so popular amongst business owners.

What is an ERP system?

ERP stands for Enterprise Resource Planning. It is an all-in-one system of software applications, interconnected through the shared database. The database contains and maintains information about every business process. The information is usually displayed in a form of a dashboard, which shows real-time data about a certain area of the business.

ERP provides a clear image of what is going on in your company. That allows you to plan how to use the resources – whether it’s human labor, money, time, etc. – across the enterprise, which brings us to the enterprise resource planning meaning.

ERP also eliminates or automates the tasks, reducing the number of manual work and the costs. It also provides consistency in business processes, making them universal for the whole enterprise.

How does an ERP system work?

ERP has a strictly standardized structure, which brings unity to all areas of your business. Since it’s a system of integrated applications, the information put in any of them immediately becomes accessible to every user of the system. This provides the employees from different departments with real-time information about the company’s performance and gives them the means to evaluate it and make decisions accordingly.

A full view of the company’s metrics helps to gain deep insights into the workflow and manage resources to benefit the growth of the company.

Due to its standards, ERP also makes the process of training new staff members a lot easier, as each process has templates to follow.

How does an ERP system work?

What are the main features of an ERP system?

We’ve already mentioned that an ERP system can cover every business process of your company. Now, we will go into detail about each possible area where ERP can help.

Finance and accounting

The finance and accounting business area has lots of manual or even paper-based tasks. With an accounting module integrated into an ERP, the amount of time spent on every task reduces drastically. It automates different financial processes, such as creating and sending invoices, purchase orders, and payrolls. Another thing where ERP is helpful is turning data into reports and forecasts, making your cash flow easy to monitor.

Human Resources

The HR part of the ERP can track the information about all current employees regarding their department, contact information, attendance, benefits, etc. It also helps to manage PTO days, scheduling, salary rates, and promotions. And the fact that all information is stored in one place gives the ability to monitor the metrics of the whole enterprise.

Not only the current employees can be put into the database, but also potential candidates, which reduces the time of the job hunting.

Inventory management

If your business has inventory, what is an ERP system’s role in it? ERP helps to accurately track inventory numbers without the need to manually calculate them. Furthermore, it can predict when a certain product will go out of stock and automatically reorder it. It also showcases the items that are on their way from the vendors or manufacturers. Other than that, ERP can predict the demand based on the customers’ purchasing levels. All of these functions save from money losses due to incorrect inventory management, over- or understocking.

Manufacturing

Similar to inventory management, Enterprise Resource Planning meaning for manufacturing lies in tracking the number of materials left. It also determines the date when the factory will need restocking based on the popularity of different items.

Moreover, ERP automates the process of production scheduling and quality control, improving an overall factory performance.

CRM and marketing

ERP is great for sales and marketing due to its Customer Relationship Management module. CRM allows recording the entire sales funnel and changing the statuses of your leads. This can help to analyze the reasons behind successful or failed deals. It also can keep the customer updated about their purchases.

As for marketing, ERP can analyze customers’ search and purchase history to display promotions suited to their tastes. This attracts far more customers than non-targeted promotions.

Customer Relationship Management

What are the types of ERP?

There are different types of ERP systems based on how they operate:

  1. Cloud-based ERP is stored on the vendor’s cloud-hosting servers. With this solution, any authorized user can have access to the ERP from any device, as long as it has an Internet connection.
  2. On-premise ERP needs to be installed on the hardware devices, such as computers or tablets, and it uses your business’s servers.
  3. Hybrid ERP definition is a blend of both cloud-based and on-premise ERP systems.

What are the primary business benefits of an ERP system?

Due to its broad spectrum of modules, the benefits of the ERP may vary, but here is the list of the most common ones:

  • Complete workflow visibility;
  • Advanced analytics;
  • Deep business insights;
  • Risk management;
  • Improved agility;
  • Higher productivity;
  • Enhanced level of communication.

Inventory Management

Whether you are ready for an ERP or not, we know for sure that technological solutions are a must in today’s business management. Coreteka has different cutting-edge solutions for logistics and retail that could become a part of your ERP system, each of them can be suited for your business needs to solve precisely your problems.

If you want to be on foot with digitalization, contact us!