What Is An ERP System And How Does It Work?

What is an ERP System? Two of the most significant keys to success in business are efficiency and profitability. You want to perform the necessary and profit-driving processes of your business as efficiently as you can. 

But you need to maximize your bottom line while keeping overhead costs to a minimum.

Achieving this level of efficiently and profitability requires a company to scale its business procedure managing strategy to include more sophisticated, automated visibility and measurement of operations. 

What Does ERP Stand For? In business, ERP stands for enterprise resource planning. 

It is a shared database approach to managing the many moving parts of a company.  This approach allows you to achieve a more broad perspective.

ERP enables you to gain a fuller picture of what’s going on with your business and the ability to manage all of the individual reports created by the various business processes in the same software.

These processes include things like:

  • Sales
  • Human resources
  • Warehouse/inventory
  • Customer relationship management (CRM)
  • Purchase/finances
  • e-commerce
  • And more…

What Does An ERP Do?

The purpose of an ERP system is to improve efficiency (and thereby profitability) through improving how company resources are spent, whether those resources be time, money, staff or something else.

If you can reduce how many resources are being used, without sacrificing quality/performance, then you can grow your business more efficiently and appropriately.

ERP software combines a number of different reports and metrics across various departments into the same environment.

This makes it easier to get a full view of what’s going on and how resources are being spent.

From this vantage point of the business, you can discover key insights into how processes might be improved or resources better spent to generate higher growth.

Without an ERP system and proper planning of how resources should be spent to maximize growth and the bottom line, it is much easier to invest resources in tactics that underperform.

Conversely, a great ERP software platform allows a business to allocate resources away from underperforming tactics and into those that are generating good returns.

An ERP system also makes it faster to find the information or report you’re after because everything is in the same place.

You don’t have to search through spreadsheets or look through different business applications to find that kernel of data you need; it’s all available and accessible right from the ERP interface.

What Are The Benefits Of An ERP System?
The obvious answer to this question is that an ERP system enhances efficiency and profitability, as stated before.

Digging a little deeper into how ERP software achieves these overarching goals, we uncover a number of other perks to this resource management platform.

An ERP system can:
  1. Reduce your overhead costs by folding a number of business tools and applications into one system
  2. Cause individual operations/departments (warehouse, accounting, HR, etc.) to work faster
  3. Automate specific processes that would otherwise require manpower to complete
  4. Improve business data analytics for better, more accurate and actionable insights
  5. Positively impact customer relationships by being an overall faster, more efficient company to work with
  6. Be customized to focus on the aspects of your business that are most aligned with your current goals and needs
  7. Outside of these benefits, it is also worth mentioning the ease of use that an EPR system can provide.

If you’re still handling fundamental business processes through excel spreadsheets or on paper, the modern interface of an ERP system can alleviate a lot of headaches and vastly speed up the process.

ERP systems will integrate with your existing equipment and business tools, so there are no substantial upfront costs needed to upgrade old equipment.

Most ERP software can be loaded onto any Internet-capable computer, tablet or even a smartphone device.

Again, this helps save on business costs because you don’t need to invest in a whole new system or computer; the software will work with your existing devices.

Lastly, running your ERP system through a mobile device allows you to keep track of your business even when you aren’t physically there.

For some types of companies, this power is a necessity.

Otherwise, it is merely a handy tool for the business owner that likes to always have an eye on things.

What Are The Different Features Of ERP Software?
ERP software can differ depending on the package you purchase and the provider.

That being said, there are some key features that you should look for when researching ERP providers. Your ERP software should, at the bare minimum, offer the following modules:

Accounting: Manage all of your financial reports in the same interface, such as purchase orders, expenses, sales reports, payroll, etc.

This makes it easier to monitor your cash flow and revenue and determines how money might be better spent or how you can reduce your burn rate.

Inventory and warehousing: If your business has inventory or warehouse processes, your ERP software needs to be able to integrate those operations to better track and manage goods.

This makes it easier to see how much inventory is available, what inventory is going out for delivery, what inventory is coming in from which vendors and more.

Carefully monitoring and tracking these processes helps protect a business from running out of stock, mismanaging a delivery and other potential issues.

features of erp systems
If your business has inventory or warehouse processes, your ERP software needs to be able to integrate those operations

eCommerce and web: It’s essential for a business to be able to see the eCommerce side of their business separate from physical, retail sales.

After all, the tactics you leverage to encourage online sales are different than the ones you use for your physical stores.

An excellent ERP system will enhance your existing web offerings to include better purchase options for customers to choose from.

Human resources: As much as a business strives to keep customers happy and retained, it is equally important that your employees remain happy as well.

The HR module of your ERP system contains all of the employee management processes, including payroll expenses, recruitment, performance evaluations, attendance, scheduling and more. It’s a one-stop module for all employee management and communication efforts.

CRM and marketing: Your brand-customer relationships are ultimately going to drive repeat business.

It’s important to know how effectively your marketing tactics are working at engaging and re-engaging customers, whether those tactics are email marketing campaigns, social media offers, surveys, follow-up phone calls and others.

The CRM module will better express what’s working and what isn’t and how marketing is translating into added revenue.

Project management: The last should-have feature of your ERP software is a project management tool, which allows you to communicate productively across your organization to plan and execute projects internally.

This helps ensure company cohesion by getting every involved stakeholder or employee on the same page and in-the-know as to the most current business objectives and goals.

Benefits of Cloud Vs On-Premise ERP
Over the last several years, cloud computing has revolutionized how businesses and people store data and run applications and software.

An ERP system is such a tool that can be held on-premise or in the cloud.

On-premise, in this case, meaning the software is organized and run from your computer system, while a cloud-based ERP stores your various reports in the cloud and can even leverage cloud processing to run the multiple applications and features of your system.

This means you don’t need sophisticated, expensive computer equipment to run the software. 

Cloud ERP systems are increasingly becoming more popular because they hold a lot of benefits over an on-premise system. That said, there are drawbacks to a cloud-based solution as well. Firsts, let’s look at the benefits:

Performance: As hinted at before, in-house ERP can require a pretty sophisticated computer system and other equipment to run efficiently. If you don’t have the best computer equipment on hand, the performance of your ERP system will suffer if you go the on-premise route. A cloud solution guarantees performance, as long as you have a steady Internet connection.

Costs: If you do need to upgrade your equipment to manage an on-premise ERP system, then you’re facing potentially high upfront costs. Depending on the size of your company and the scope of this upgrade, you may even need to hire new employees to install and manage the system.

With cloud ERP software, there is little-to-no upfront cost, aside from purchasing the service. This may be a small upfront price, with a monthly fee attached.

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