What is ERP & How Does it Work?

Last updated:
June 15, 2021

What is ERP?

ERP or Enterprise Resource Planning provides a company with the tools, platform, and data to become more effective in operations. Companies using ERP gain accurate information about what's going on inside their business at all times, which helps them make better decisions faster. These systems also provide businesses with increased visibility into external markets such as vendors, distributors and customers by integrating different aspects of an organization's activities across multiple functions like sales, finance/accounting and manufacturing. The result for companies is improved operational efficiency leading to higher profits from the reduced waste throughout the supply chain while delivering greater customer satisfaction.

Planning GIF by memecandy


Why ERP Is Critical for Your Businesses

If you're in business, chances are your company relies on a computerized system for inventory management, customer service or any number of other tasks. And if you rely on those systems to keep your business running smoothly and efficiently, then they must be up-to-date with the latest technology.

Enterprise resource planning (ERP) is an integrated suite of applications used by companies large and small to manage core functions such as manufacturing, finance/accounting, human resources/employee benefits administration and procurement services etc. These functions allow organizations to operate more intelligently--and make better decisions faster--by providing them access not just to their own data but also external information about suppliers, distributors and customers.

Therefore, ERP systems play a vital role in the success of any business by helping them to maintain and improve their operations.

ERPs are designed specifically for managing enterprise-wide processes that involve both people and technology. This includes but is not limited to customer service or personal information management (HRM) activities such as recruiting, training, succession planning etc.; providing financial services; supply chain management; manufacturing inventory control and warehousing/distribution; quality assurance/control programs; production scheduling process improvement initiatives etc. 

The term "ERP" can be used generically to broadly refer to all types of business applications that integrate various departments within an organization allowing better decision-making through automation. So ERP is a set of software to solves problems for enterprises.

An ERP system typically includes enterprise resource planning (ERP), customer relationship management (CRM), supply chain management, inventory control, financials/accounting or other information systems such as human resources and product lifecycle management. The ERP process begins with capturing data about goods in motion - from suppliers towards customers via warehouses, distribution centers etc.; then triggering activities needed at each step related t order processing, production scheduling and inventory management.

The ERP system in use at any organization is shaped by the needs and size of that organization (i.e., small, medium or large). It also varies according to industry type: manufacturing, retailing, service companies etc.; other factors include customer location - domestic or international; regulatory requirements; company culture and legacy systems already in place.

In a typical situation where a customer orders widgets from an e-commerce website operated by Acme Inc., these are some of the steps taken to fulfill that order via ERP automation:

Business Applications | Microsoft Dynamics 365


How Can ERP Help Improve and Grow a Business?

ERP systems are used for:

  • Tracking orders and inventory.
  • Managing finances.
  • Scheduling production, etc.


Software like ERP can be the difference between a company that fails to grow or thrives in competition with larger companies. By utilizing ERP software, businesses can make better decisions about investing their time and resources.

For example:

If a company is considering expanding into Asia or Africa, they'll want to know the costs of having the staff there. ERP Systems allows them to compare this with other cost scenarios such as opening in Europe instead.

Businesses also use ERP systems for forecasting sales volume and assessing demand levels before ordering inventory from vendors, which saves money on unneeded supplies that may not sell at all.

These are just some examples of how an ERP system can help grow a business by providing insight into areas like finance management, capacity planning, supply chain analytics and customer relationship.


How to Decide If/when Your Business Needs ERP

If you are experiencing any of the following issues, your business could be a good candidate for ERP software:

  • Lack of scalability in current systems or processes.
  • Poor integration with other company departments (human resources, manufacturing, marketing) and their data sources. This may result from an inability to expand on existing platforms and a lack of information coming into these companies' systems.
  • A need for increased efficiency due to high demands when it comes to the speed at which they process orders and deadlines. For example, if customer needs have changed and now expect goods delivered within 12 hours instead of 24 hours, this will not work without fast delivery methods such as internet shopping carts that can take payment over phone lines.
  • Lack of real-time data is an organizational need that cannot be met without ERP software.
  • The company may have outgrown the current system, or it's a new business looking for help with management and growth to stay competitive.
Girl Why Dont We Have Both GIF

The challenge of ERP software is that not all organizations need it. You have to know your business and industry to make the correct decisions about implementing a system or upgrading the current one. Some industries, such as manufacturing, require more complex systems than others like retail. They may already be using point-of-sale (POS) systems for customer transactions at stores, so they don't need an additional system just yet.

In addition, some companies are small enough where they either do not generate high volumes or their needs can be met with basic desktop software instead of having to invest large amounts upfront on expensive hardware and licenses from providers. These businesses will often purchase what's needed when there's growth rather than wasting money upfront before knowing if they'll need it.

In today's world, there are many free-of-charge ERP packages available for download and use in the enterprise market. These include:

  • Kloudless Cloud Accounting Service - Kloudless offers an affordable online accounting service, with many clients using this software to manage their business finances. One key feature they offer customers is the ability to add bills and invoices and receive real-time notifications, so you always know what needs attention first before things get out of hand or become too unmanageable. This software has made managing day-to-day tasks much easier than ever before!
  • FreshBooks - Freshbooks is the perfect choice for freelancers who need an easy-to-use accounting solution. They offer both free and paid options, which are completely customizable depending on what level of service you need at the moment. This means whether it's invoicing, billing, expense reports, or managing expenses, all tasks can be completed efficiently from one dashboard where everything is managed efficiently.
  • Wrike - Wrike offers enterprise solutions with affordable pricing plans available for small and medium-sized businesses. They offer an easy, intuitive interface that can be tailored to your specific needs. This means you'll end up with a company management system that is unique to yours!
  • Zoho - Zoho offers many different business software solutions, including CRM, ERP, HRM and more, for both large and small companies alike. The pricing plans are scalable, so they depend on how much help you need and the size of your company which also means it's a great option when growing or scaling your organization into something bigger in the future.
  • Xero - XERO has been providing accounting software for over 15 years now, making them one of the most experienced providers out there today. Their goal is to provide their clients with world-class services designed to make the process of managing your business as painless and efficient as possible.
  • Other popular ERP software providers include Sage, QuickBooks Enterprise Solutions, Microsoft Dynamics NAV(Dynamics 365 Business Central)/GP/AX, Oracle EBS and NetSuite.
  • Oracle - Whether you're a small company or a large enterprise organization looking for an ERP solution, they have something for everyone. So many people trust their products because all of their solutions come with full support from experts who know what they’re talking about, which means you don't need to be afraid to ask questions!
Oracle Announces Improvements To Cloud ERP And Fusion Cloud ERPOracle  Announces Improvements To Cloud ERP And Fusion Cloud ERP
  • NetSuite - With NetSuite's suite of web-based applications, businesses can stay focused on running their operations instead of writing software. NetSuite is built to grow and adapt as your business needs change.
  • Microsoft Dynamics NAV (Dynamics 365 Business Central) - one of the longest-standing ERP providers, Microsoft Dynamics, has been providing solutions for over 25 years now, so you know they're doing something right!
Business Central Sign In | Microsoft Dynamics 365
  • QuickBooks Enterprise Solutions - With features such as inventory control, customer service management and more, Quickbooks can handle all of your accounting needs with ease. They also offer a range of add-ons that allow for greater customization depending on what exactly you need them for
  • Sage 50cloud - Sage's cloud version means it never requires hardware or maintenance, which makes this option perfect for small businesses who don't want the hassle or expense of an in-house system."
Sage X3 - Cloud ERP Solutions | Sage Canada

Pros and Cons of ERP System


  • ERP systems provide a centralized database (common database) of all information from suppliers, customers, and other departments, updated in real-time. A single source of truth can eliminate data collisions.
  • The system manages the inventory or materials flow while ensuring no "holes" or gaps in production orders.
  • Many businesses have yet to adopt it because they don't want to put their financial data on a single computer server where hackers can get access. However, storing into a cloud provider is a lot safer than an in-house server which might be easier to get hacked.
  • ERP systems also help you to have a better understanding of the flow and movement of inventory.
  • You can get timely reports on your production efficiency with ERP for manufacturing, which helps in improving profit margins.
  • The system is easy to use, so it's feasible that an inexperienced user can learn how to navigate through its various functions quickly enough to make up for his/her inexperience.
  • It has graphical interfaces and doesn't require coding knowledge (or any other IT skills).
  • There are plenty of free resources online if you're looking into implementing or upgrading an ERP system at your company.
  • Some ERP comes with artificial intelligence to improve your business performance by streamlining your core business processes automatically.



  • One of the major disadvantages is that ERP systems are costly and require a considerable investment in time. This can be especially difficult for small businesses with tight budgets or new companies without any history to speak of. The system must also be constantly updated as changes occur within a company, which means constant updates from programmers who know what they're doing. Finally, some people have concerns about how much control an ERP system grants one party over another's data, though this concern isn't universal across industries or circumstances.
  • Potential business partners may not be comfortable with your company's level of security if you're using an ERP system without adequate backup procedures for your central storage databases.
  • The cost of implementing an ERP system can be high.
  • Every change to data in the ERP needs to conform with a relevant standard or process.
  • Updating for new scenarios requires input from various stakeholders often leading to prolonged development cycles (heavy business requirements gathering).
  • Increasing customization leads to complexity not only within individual modules but also across entire systems.
  • Implementation is often complex and requires significant training for users.
  • Increased complexity makes it difficult to maintain the system, implement changes or integrate new data sources.
  • ERP systems are often designed for a specific industry or business process and only have limited functionality.

What Is a Cloud ERP System?

Cloud enterprise resource planning software systems are, in most cases, offered through cloud computing services like Amazon Web Services or Microsoft Azure, which allow customers to easily get started with an affordable monthly fee at any time without having to make major investments upfront.

These web-based enterprise resource planning software provide almost instantaneous access on any device from anywhere because they're accessible online 24/365 for all users and can be accessed by employees anytime, whether during work hours or not, depending on your organization's settings.

Cloud ERP systems can be implemented more quickly and easily than on-premises systems because the installation process is simplified, but there's no need for IT resources.

The cloud environment enables you to use many devices such as smartphones or tablets without having to worry about compatibility issues. There are never any worries that your device will become obsolete in a few years so long as it has an internet connection.

One thing which business owners often find appealing about cloud ERP systems is that they're able to scale their operations up or down depending on fluctuating demand by adding new employees, leasing additional space, buying equipment – all with just the click of a button when needed thanks to elasticity features available through many ERP providers.

The need for IT personnel is also reduced in the cloud environment due to its ability to automate many functions which would otherwise require human input either through coding or manual labour. These include data entry, validation and processing of transactions, as well as reporting on production statistics.

  • The installation process can be simplified with cloud ERP applications because there's no need for an IT team to set up servers or other hardware
  • Cloud systems enable users to access information from any device they choose: laptop, tablet or smartphone
  • The continuous development of cloud technologies has led to a proliferation of new features and capabilities that make it an attractive option for businesses looking at the future.

ERP can be found in many different types of industries, from HR to manufacturing - meaning there's bound to be one out there that suits your company's needs!

The last thing you want is a technology provider with outdated tools when you need innovative solutions for growth.


So how do I find the right ERP system? There are three things we recommend asking yourself before signing on any dotted lines:

  1. What am I trying to accomplish?
  2. Do I have enough funding available?
  3. What kind of support will I receive after deployment?

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