What is ERP Software: A Comprehensive Guide

Every business needs to optimize costs, streamline operations, and leverage its potential. To this end, business processes must be carefully designed, from operations to finance and everything in between.

Integrations are crucial at an SME scale. With everything in one place, SMEs cut costs and shed much operational hassle, including IT support. That is an optimum situation for enterprise resource planning (ERP).

ERP is now an industry standard for businesses of all sizes to perform core business functions at scale and is becoming more integrated compared to siloed solutions aimed at one or a few business functions.

For a starter, an ERP system can be defined as a system of systems that combine a suite of business functions into one integrated, central system to manage them all.

To put ERP into a proper market context, ERP market share is projected to yield year-on-year growth to reach a market volume of USD 65.49 bn by 2029 at an annual rate of 4.26%.

As a business owner or executive manager, you should know how ERP helps you scale your business. Here are some questions for fodder:

• Why is ERP increasingly important for business?
• What types, if any, ERP systems have?
• How are ERP cloud and software offerings different? 
• How does ERP fit into a larger, evolving landscape of AI in business?

These and more questions about ERP are answered here. Read on to understand how ERP is a game changer for your business, big or small, anywhere.

What Does ERP Stand For?

As noted above, ERP stands for “enterprise resource planning.” ERP meaning is self-explaining. Each constitutive word explains what ERP is for.

ERP aims to help companies use automation to orchestrate core business functions such as finance, operations, HR, supply chain, legal, and more. SAP has a good working definition:

Enterprise resource planning (ERP) is a software system that helps you run your entire business, supporting automation and processes in finance, human resources, manufacturing, supply chain, services, procurement, and more. 

Today’s ERP implementations depart radically from earlier siloed deployments. For every business benefit, more recent ERP rollouts are automated, AI-powered, machine-learning-enabled, cloud-based, or all combined. More about the types and benefits of ERP systems in a bit.

Earlier ERP rollouts in the 1990s were more siloed, function-specific, and used different languages to refer to one concept, with broad implications for consistency, workflow smoothness, reportability, and more.

As ERP systems have continued to improve and get closer to AI-based implementations, disparate applications have continued to integrate and smarten, with game-changing consequences, particularly for SMEs, a typical integration-hungry client.

Fast-forward to today. ERP systems now provide businesses—especially SMEs—with process agility, collaboration capabilities, prompt responses, and more in a highly competitive market and increasingly challenging operating ecosystems.

What is an ERP System?

ERP is a comprehensive solution for managing your business. As such, ERP is not a stand-alone offering isolated from the core business functions you want to manage.

Instead, ERP can be considered an ecosystem, a hub, where your core business functions are centralized, streamlined, and integrated to leverage your business potential and maximize your market share and profits.

In essence, an ERP system helps to

• Unify enterprise language by using one concept across all departments.
• Streamline processes from multiple departments and, as such, save time, effort, and money.
• Maintain data integrity by ensuring data repositories and structures are organized and instantly recoverable enterprise-wide.

More automation, integration, scalability, and AI capabilities have made these enablers possible.

In short, an ERP system shifts the business management paradigm from management piecemeal to a systematic, synchronized, and integrated process.

How Does ERP Software Work? 

ERP software solutions come in different forms and are designed for every business size.

Still, all ERP offerings share five main features:

• Centralized: By culling data from multiple enterprise sources, internal and external, ERPs consolidate the data needed by various stakeholders enterprise-wide. 
• Scalable: ERPs are, by definition, scalable. Adapting to business needs, ERPs can be scaled up or down according to evolving needs.  
• Integrated: ERPs, particularly non-legacy implementations, are designed to integrate and analyze data from multiple sources, not just obtain and organize. This feature is indispensable for companies managing huge amounts of data.
• Integrable: ERPs operate not only vertically but also collaterally. That is, advanced ERP implementations, such as AI-powered or cloud-based ones, are designed to integrate with many in-place systems, legacy or not. 
• Real-Time Operating: ERPs operate in real-time, meaning ERP implementations perform assigned functions in real-time. As such, they are invaluable to monitoring, analyzing, and improving processes, particularly in industrial settings. 

Importance of ERP Systems for SMEs

So far, ERP systems show huge business potential for any enterprise, regardless of size, industry, or market.

Still, ERP systems are, by definition, client-centered, highly customizable, and scalable. As such, ERP systems can be adopted only according to specific business needs and based on each company’s operating ecosystem.

From an SME perspective, the best ERP systems  - whatever capabilities or implementation form is - are enabling solutions that help:

• Optimize costs so SMEs can shift resources to more urgent needs or reprioritize needs such as to leverage business potential.
• Scale business up to outperform the competition, particularly from more prominent players who have much more significant financial clout or business muscles to flex and capture more market shares.
• Streamline business management process so operational bottlenecks do not bring business to a partial or complete halt - at considerable expense to service delivery and business reputation.
• Level up employee performance by investing in strategic business matters and spare more resources, including labor, to reinvest in R&D, market expansion, growth, and more.

In short, ERP systems are critical for SMEs to perform core business functions more agilely, cost-effectively, and scalablely.

Benefits of Using ERP Software

So far, you may have grasped more fully why SMEs would be interested in ERP systems. Now you understand how ERP systems work and could fit into your bigger business picture.

Still, as a business owner or manager, you should be aware of the direct benefits of ERP software in more depth.

The business case of ERP software cannot be overstated. Here are a few benefits:

• Lower costs: Intuitively, one of ERP's most apparent benefits is saving operational costs. Instead of allocating costs to multiple, siloed departments, costs are optimized down to a single department, unit, or employee.
• Security above and beyond: In contrast to on-premise systems, ERMs come with military-grade security capabilities, making breaches minimal and controllable.
• Quicker reporting cycles and deeper insights: By generating detailed, automated reports, SMEs can get instant insights to improve business processes in one or more areas. Also, readily available reports enable business owners and managers to get historical records of business performance and improve business strategy and decision-making processes.
• Improved efficiencies: Having a common language across departments and units, enhanced UX, quicker reporting cycles, and reduced latencies all improve efficiency across internal business value chains. 
• Reduced risks: ERP systems enable managers to anticipate risks and develop emergency planning strategies and protocols based on integrated data and streamlined financial controls.
• Stakeholder management and enhanced collaboration: Instead of silos, ERP systems further enable collaboration between external (e,g, customers) and internal (e.g., staff) stakeholders who can share data across multiple ERP channels and further reduce contracting, requisitioning, and purchase ordering cycles. 
• Scaled-down IT operations: ERP's centrality enables all staff to perform multiple functions with minimal IT interventions to restore operations to normal. 
• Streamlined infrastructure: Using ERPs to create a “same feel” UX creates a consistent UX enterprise-wide and makes users speak a common usability language, which has broad implications for overall productivity. 

These benefits are only examples based on industry practices and adoption patterns. As ERPs continue to evolve—as any technology inevitably does—more use cases, implementations, and deployments may evolve, redefining ERPs yet again.

Read Also: 6 Reasons that Shows You Why to Use Online Accounting Software

Types of ERP Systems

ERP systems offer business-friendly flexibilities to SMEs. Deployed in various scenarios and ecosystems, ERPs enable enterprises of all sizes to experience streamlined operations in preferred settings and deployment arrangements.

As noted, ERPs come in different forms and applications. For current purposes, only three major types that are most common in ERP system deployments are discussed:

• Cloud ERP System
• Cloud ERP Software
• Hybrid ERP

Cloud ERP System

This is one of the most popular ERP deployment forms. A subscription-based service, a cloud ERP system is a hassle-free SaaS deployment. With no software installations, no on-premise maintenance, and no security concerns, cloud ERP systems enable enterprises—particularly SMEs—to focus on their core business and leave behind running business operations smoothly, quickly, and safely.

A cloud ERP system is also compatible with broader ERP adoptions where automation, AI, and analytics are becoming more of an industry standard. More about ERP and AI under “Cloud ERP Software and the Age of AI.”

There are as many market offerings of cloud ERP systems as companies.

Cloud ERP Software

This is a more conventional form of ERP deployment. By installing and deploying software on-premise, companies have more control over software maintenance, upgrades, security, and other issues. 

Understandably, some industries, particularly defense and data-sensitive ones, may opt for on-premise deployments for data sovereignty and national security reasons.

However, this is changing, and security and data-sensitive organizations are also considering cloud ERP system options on a case-by-case basis. Conversely, cloud ERP software implementations involve several downsides, including:

• Additional installation, maintenance, and upgrade costs.
• More security upkeep load on IT staff.
• Legal liabilities in cases of security breaches or data loss.
• Less strategic focus.

Hybrid ERP

As you may have guessed, a hybrid ERP system combines a cloud ERP system and cloud ERP software applications and capabilities.

Depending on evolving business needs, market conditions, scalability considerations, and other factors, hybrid ERP systems represent a solution of choice for companies that wish to combine—perhaps in a free trial—the benefits of a cloud ERP system and cloud ERP software and avoid the downsides of each before fully adopting one option.

In short, hybrid ERP systems are a good opportunity for companies to try each ERP class. Companies may adopt a full-fledged cloud ERP system or cloud ERP software depending on evolving business needs and market dynamics.

By deploying a hybrid ERP implementation, enterprises balance the flexibility, agility, and scalability benefits of cloud ERP systems with the control and security benefits of cloud ERP software.

Main 6 Modules in ERP System

“Modules” is just a fancy word for functions. ERP systems are developed and designed to support core and additional business functions. But what are “core” and “additional” business functions anyway?

That is, how do companies define what is core and what is not core function, and based on which criteria? Intuitively, no one size fits all. A global enterprise has more “core” functions compared to smaller SMEs.

For example, “Risk Management” and “Workforce Analytics” may be “core” functions for a global architecture consultancy to manage and assess business risks at a global scale and break down a hybrid of on-site and remote workforce dispersed globally with all involved regulatory and compliance risks.

Meanwhile, core functions for a 200+ employee enterprise include essential business functions such as finance, sales, accounting, and HRM.

For current purposes, six modules are explained in more detail:

• Sales
• Accounting
• Inventory
• HRM
• Operations
• CRM

The following is a detailed explanation of each module, use cases, and more. 

Sales

Enterprises selling products or services perform various sales activities, from market research and generating leads to invoicing and payment. To manage everything, companies conventionally—still do—use paper-based documentation of sales processes, which can be quite a headache, particularly upon recovery or delivery.

Then, enter ERP systems.

A centralized system to manage end-to-end sales is an indispensable asset that companies, particularly SMEs, are keen to acquire. ERP systems empower companies in numerous ways by enabling them to leverage the sales management process at manageable cost and operational agility.

Managing sales processes using ERP systems significantly changes how companies perform financial planning overall. Sales is an integral part of financial planning, involving essential sub-processes such as invoicing and quoting, POS transactions, pricing, commissioning, insuring, and more.    

Accounting

Likewise, accounting is an indispensable core function of many enterprises, particularly SMEs. Unlike legacy and conventional accounting practices, ERP systems enable companies to manage accounting processes seamlessly, instantly, and compliantly.

Specifically, ERP systems enable companies to automate accounting processes and documents, including:

• Generating general ledgers
• Managing expenses
• Managing assets
• Performing joint venture accounting
• Enhancing cash flow management and forecasting

The potential is almost limitless.

Accounting is also crucial to financial planning because it helps us understand a company’s financial position and, more broadly, investment standing.

Read Alos: Differences between ERP and Accounting Software

Inventory

Also sometimes alternatively referred to as “procurement” or “supply chain” (but not the same), inventory is a critical function for companies engaged in supply activities, more so on a global scale.

Having an ERP system in place enables companies to:

• Track inventory movements in real time
• Automate, track and analyze quotes
• Create and send purchase orders
• Enhance supplier relations
• Simplify and streamline the inventory management process

In doing so, ERP systems make inventory management less burdening, gain-prone, and more enjoyable, enhancing client relationships. 

HRM

Managing human capital is critical for startups to grow. Talent-dependent startups attract and invest heavily in high-value employees. To keep an up-to-date tap on performance, benefits, scheduling, workflows, attendance, and more, startups need an easy-to-use and affordable solution.

Enter ERPs again. 

ERP systems are best suited to perform HRM activities automatically because they are designed to centralize, curate, and analyze data. The need for ERP systems becomes even more urgent for giant enterprises spanning multiple continents. Managing a global workforce is not something a vast HR department is apt to do, more so according to best-in-industry practices. 

Operations

Also sometimes alternatively referred to as “project management” (although not the same), operations is a critical function for companies operating on a project basis. Many details are shared among multiple departments, units, functions, and assignments in any project or resource-based effort.

Consider a local construction project to build a community recreation center. Assigning resources and tasks—from material procurement to work breakdowns—can be daunting unless you have a system to manage everything.

Enter ERP operations. 

By enabling companies to manage, track, and review schedules, budgets, tasks, resources, and more, ERP operations is a go-to solution for many big and small enterprises to streamline operations and deliver as and when required beyond project scope creep, delays, or overheads.

An ERP operations module is also highly beneficial for performing cost forecasts, anticipating overheads, optimizing the supply value chain, and more.

CRM 

Know your clients—an established business piece of wisdom. You cannot manage what you do not measure—a second important adage.

Going a conventional way, seeing whether your customers are happy is useless. Instead, ERP systems enable companies  - like you - to accurately measure how you do your business with your customers.

Specifically, ERP systems enable you to track, manage, and measure various metrics, including prospects, sales volume, order and communication history, quotes, agent performance, and many more. The ultimate goal is to make customers happy and maximize by identifying service bottlenecks or gaps.

That said, ERP modules are not limited to six but can be expanded, phased out, or limited—and redefined—according to each company’s needs and evolving market conditions.

You choose.

Read more about customer relations management from our complete guide.
 

Cloud ERP Software and the Age of AI

AI is now the buzzword in every industry. Likewise, ERP is part of the sweeping changes AI is making across industries. Two AI adoptions in ERP systems are particularly interesting:

AI-Powered Industrial ERP

Industrial settings are data-intensive and, as such, are prone to high-impact breakdowns. Tracking, managing, troubleshooting, and forecasting pain points have historically been significant concerns in industrial settings.

Adopting AI-powered ERP in industrial settings, however, not only helps improve process management but also:

• Improve process design.
• Enhance demand forecasting.
• Better control of inventory levels and supplier access.
• Improve overall quality and QA audits.
• Increase throughput.
• Maximize productivity.

Embedded Generative AI 

Automation is one step ERP has taken in the AI direction. Given current developments, more and more enterprises are embedding AI as an integral part of in-place ERP systems.

Specifically, AI is becoming increasingly an industry focus to help further automate and smarten in-place ERP implementations, with the ultimate goal of leveraging compliance, lifecycle management, extensibility, and scalability issues.

What Is the Best ERP Software? 

The short answer is: No one size fits all.

Long answer:

Business needs evolve as big and small companies continue to scale up or down in response to internal requirements and external market dynamics. As needs evolve, companies respond - are advised to - act accordingly. That is where essential adoption criteria come in, such as:

• Process Flexibility
• Operational Agility
• Scope Scalability
• Overall Business-Fitness

So, as a business owner or executive manager, you choose the “best” ERP software.

That said, Enerpize is an industry-changing ERP solution that helps many enterprises navigate business management complexities with a mouse click.

Try us out and scale up your business to the best of your and your customer’s satisfaction.

Final Thoughts

ERP systems are creating waves of change in how businesses operate and deliver services and, more importantly, on promises. Introducing ERP systems - particularly platform-based implementations - into organizations has consistently shown to be a game changer for all stakeholders involved: customers, staff, collaborators, regulators, and more.

ERP systems are not new but have been evolving for decades. However, leaps have been made in recent years in how they are implemented and rolled out.

Centralized, scalable, integrated, integrable, and real-time-operating ERP systems are game changers, introducing several benefits to businesses:

• Lower costs
• Enhanced security
• Quicker reporting cycles and deeper insights
• Improved efficiencies
• Reduced risks
• Stakeholder management and enhanced collaboration
• Scaled Down IT Operations
• Streamlined infrastructure

Three types of ERP systems are discussed: cloud ERP systems, cloud ERP software, and hybrid ERP, along with the best-fit use case for big and small companies.

Six ERP modules (Sales, Accounting, Inventory, HRM, Operations, and CRM) are also explained here. However, as mentioned, no one size fits all, and enterprises large and small can opt in or out of any or redefine each according to evolving business needs.

The way forward with ERP is AI-based. Two use cases are discussed: AI-powered AI in industrial settings and Generative AI-embedded ERP with broad implications for productivity, business performance, and more.