What Is ERP And How Does It Work? - Digital Planet
What Is ERP And How Does It Work

Enterprise Resource Planning, popularly known as ERP, is a business management software allowing businesses to automate their operations. ERP enables organizations to integrate and streamline their operations from procurement and finance to inventory and vendor management.

This software is essential for businesses to maximize efficiency and profitability and is used by companies of all sizes, from small enterprises to global corporations. In this guide, we’ll demystify the question, “What is ERP and how does it work?” to manage the supply chain and other departments in a company. So, let’s get started.

What Is ERP?

Enterprise Business Planning is an integrated business management system combining multiple business processes, such as human resources, finance, inventory, manufacturing, customer relationship management, etc., into a single and integrated system.

The systems are designed to collect, store, and analyze data from multiple sources to view a company’s operations and performance comprehensively. ERP software was invented in the 1990s, but its root went deeper into the 60s. The modern ERP is a more sophisticated version of the MRP system manufacturers use.

Now, manufacturers use this system to manage their inventory, raw materials, and other parts of organizations. Over time, the system evolved to include more advanced features and capabilities and became more popular among enterprise-level businesses.

Key Features of ERP

Key Features of ERP

An Enterprise Resource Planning system is a comprehensive suite of integrated software applications to provide organizations with a complete view of their business operations. It includes features that streamline business operations and make all the processes more efficient.

Let’s see some key features of the ERP system:


ERP is a unified system integrating all relevant data and processes into one system. This allows different departments of an organization to access the same data simultaneously from the same page.


Various automated tasks and processes are key features of the ERP system. And because of this, businesses can access more accurate data and streamline their process with an efficient workflow.

Real-Time Insight

ERP system provides real-time insights and analytics into the business’s operations. So, all the departments of an organization can make informed decisions and better forecasting.


The security features of the ERP system are top-notch. It has robust security features to protect sensitive business data from unauthorized access.

Benefits of Implementing an ERP System

Benefits of Implementing an ERP System

Implementing an ERP system can benefit a business by providing a comprehensive view of its operations and processes. Here are some key benefits of the ERP system:

Better Business Processes

ERP systems help streamline and improve various business processes, such as inventory management, financial reporting, order processing, etc. With automation in these processes, companies can reduce errors and speed up, resulting in enhanced efficiency and cost savings.

Increased Visibility

With a 360-degree view of your business by integrating all of your operational data into one place, the ERP system makes it easier to track performance, identify problems, and make decisions to improve your business.

Informed Decision Making

You will get real-time data and analytics from the ERP system. So, with access to accurate and updated data, you can make informed decisions faster and more accurately. It will help your business grow to success.

Better Collaboration

ERP system enables better collaboration between departments of a business and teams by providing a single source of data and information. As a result, it helps teams work more efficiently using the same data set.

How Does ERP Work?

You may wonder how ERP system work. ERP is software that integrates all the functions and departments of a business into one complete system. It makes all the productive processes of a business by streamlining them.

ERP system typically comprises various modules, each focusing on a different aspect of a business operation. So, there is a module for every major business department, from finance to supply chain management.

Let’s talk about some of the significant modules used in ERP systems to streamline a business’s manufacturing and operational processes.

Finance & Accounting

This module includes accounting and financial management functions like budgeting, reporting, forecasting, financial analysis, etc. It has features like general ledger, accounts receivable, accounts payable, fixed asset management, etc.

Human Resources

The Human Resources module manages employee information, recruitment, pay & benefits, training, and performance management. So, it deals with managing the workforce of an organization.

Inventory Management

The inventory management module of ERP manages and tracks inventory levels and stock movements. It also deals with activities like purchasing, order fulfillment, inventory reporting, etc. 


This module is used for managing various production and manufacturing processes. It deals with everything related to manufacturing and production, including work order management, material requirement planning, production scheduling, the number of units to produce, etc.

Sales & Marketing

The sales & marketing module manages customer relationships and sales activities. This ERP module deals with activities like lead management, customer segmentation, campaign management, etc.

Customer Relationship Management

This module plays an active role in the ERP system by managing customer relationship data and interactions. It offers features like contact management, customer service, self-service, etc.

Supply Chain Management

The supply chain management ERP module is used to manage and optimize the supply chain operations of a business. This module has features like supply chain management planning and optimization, warehouse management, transportation management, etc.

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Types of ERP Systems

Types of ERP Systems

Modern ERP systems are computer-based software packages designed to integrate various business functions of a business and organization. It can be customized for any business size and used in various industries.

Three types of ERP systems are available for businesses, each with unique features and benefits.

On-premise ERP

On-premise ERP systems are software programs installed and managed within the company’s own IT infrastructure. It is a single integrated system used to manage a company’s all core business processes, such as inventory management, accounting, CRM, human resources, supply chain management, etc.

An on-premise ERP system is owned and controlled by the company, meaning that the company is responsible for all of the software, hardware, and infrastructure needed to run the system. It offers great customization and flexibility, allowing businesses to make the system per their specific needs.

Cloud-Based ERP

Cloud-based ERP systems are hosted in the cloud and are accessed through the Internet. Usually, a third-party service provider provides this service. As a result, cloud-based ERP services are more user-friendly and cost-effective compared to an on-premise system.

Plus, these systems are more accessible and implemented, and maintained. It will reduce a company’s IT cost and the time to implement the system. So, it’s suitable for small and medium-sized businesses.

Open Source ERP

Open-source ERP systems are software programs developed and maintained by a community of developers and users. These ERP systems are usually free to download and come with many customization options.

Open-source ERP systems are an excellent option for businesses seeking flexible, cost-effective solutions. However, implementing and maintaining it may require more technical expertise than the other two types of ERP systems.

Challenges of Implementing an ERP System

Challenges of Implementing an ERP System

ERP is a complex and integrated software solution that provides companies with many benefits like improved efficiency, cost savings, etc. But there are many challenges as well that come with implementing an ERP system.

Here are some of the significant challenges of implementing an ERP system for a business:

Cost of Implementation

Implementing an ERP system can be expensive for a company. However, the cost of implementation can vary widely depending on the size of the company, the complexity of the system, and the length of time it takes to implement the system.

Implementation costs may include software and hardware costs and technician costs for installation, configuration, customization, testing, and maintenance. So, it can be challenging for many companies to cope with the cost.

Integration with Existing Systems

Integrating a new ERP system with an existing one can be complex and time-consuming, especially for an on-premise ERP system. It requires the integration of data, processes, systems, and applications.

This is a challenging process because it may require various changes to existing systems. It also requires extensive testing to ensure the new system functions properly with the old one. The whole process requires a lot of time and effort.

Change Management

Change management is vital for any ERP system implementation. It requires planning, communication, and execution of changes needed to ensure a successful transition to the new system.

Change management is necessary for implementing ERP in a company to ensure all stakeholders understand the changes and can benefit from the new system. But the process is quite challenging and requires an extensive amount of time.

Data Migration and Cleaning

Migrating all the company data from existing systems to the new ERP system is a potentially time-consuming and expensive process. In addition, all the data must be properly formatted and organized to ensure accuracy and consistency.

This data migration is challenging as it requires many expenses and complex processes. Another challenging task in Implementing ERP is data cleaning. Data must be cleaned appropriately to ensure errors and duplicates are free. But it will also take a lot of time to clean data.

Training and Support

Training and support are two key components of any successful ERP system implementation. Training is necessary to ensure that all ERP users understand how to use the new systems. At the same time, support is necessary to solve any issues quickly and effectively.

Both training and support are essential to ensure that users can use the system and understand its full potential effectively. Unfortunately, both of these are challenging to achieve as it requires a lot of workforce and budget.

Best Practices for Implementing an ERP System

Best Practices for Implementing an ERP System

Clearly Define Goals and Objectives

Defining goals and objectives is essential for implementing an ERP system. Clear goals will provide a roadmap for the project and help to ensure it is completed on time and within budget. They also help to ensure that the system meets the organization’s requirements.

Choose the Right ERP System

Choosing the right ERP system is a daunting but crucial step in implementing a successful ERP system. You must research different options based on cost, compatibility, and scalability with existing systems. So, you should seek help from experts in this field.

Assigning A Dedicated Project Team

Assigning a dedicated project team is necessary to successfully implement an ERP system in a company. The team should have members from different departments and experts on ERP systems. It will ensure that all the aspects of a business are taken into account.

Plan For Data Migration and Cleaning

It is another essential process for the successful implantation of an ERP system. Data migration and cleaning involves transferring data and cleaning errors from the data. So, data in your new system will be accurate and error-free.

Training Employees and Provide Ongoing Support

Employees of your organization should be trained on how to use the ERP systems and provided with support if they face any issues. Companies can arrange regular training sessions and updates to keep employees updated with the system.

Monitor and Evaluate the System Regularly

Regular monitoring and evaluation can be done by tracking performance metrics such as customer satisfaction, productivity, and cost savings. Companies can review the system periodically to ensure it is aligned with the organization’s needs.

Frequently Asked Questions

What does ERP mean?

The complete form of ERP is Enterprise Resource Planning. It is a software program that manages a company’s core business processes like finance, marketing, inventory, production, human resources, supply chain, etc.

How does ERP work?

ERP is a software-based Enterprise Resource Planning system that centralizes and integrates data from multiple business processes into one unified system. As a result, it offers better visibility, control, and coordination across departments.

What are the uses of ERP?

Enterprise Resource Planning software streamlines a company’s processes and makes them more cost-effective. It can also consolidate data, improve efficiency, and improve decision-making.

Final Thoughts

In conclusion, we have explored the realm of enterprise resource planning (ERP) and answered the question, “What is ERP and how does it work?” With its robust functionalities and ability to streamline business processes, ERP is a powerful tool for enhancing organizational efficiency. ERP systems enable businesses to thrive in today’s competitive landscape by centralizing data, automating tasks, and fostering collaboration. Our Digital Planet team of experienced developers is ready to assist you in developing and implementing these transformative ERP systems. So contact us today, and let us help you harness the full potential of ERP for your business success.