How Do ERP Systems Work?

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Modern businesses have to manage several processes and functions, which include their supply chain, employees, human resources, marketing, and customer service. For the average business owner, it can be overwhelming to manage these business aspects manually. 

Fortunately, a large number of advanced digital solutions for different businesses are available today. But using different business solutions from different departments also creates data silos, which makes it difficult to manage data. 

This is where enterprise resource planning (ERP) becomes useful. By understanding how it works and learning the benefits of an ERP system, you can identify the weak points in your business as well as how to improve them. 

What Is An ERP System?

ERP refers to the process used by businesses to manage, integrate and organize data via one system. An ERP system can incorporate several business processes, including planning, inventory, marketing and sales, human resources, customer service and so much more. 

In layman’s terms, an ERP system is a suite of integrated apps and solutions for automating, managing, and connecting key business activities and resources—whether it’s staffing hours for human resources or raw materials from your supply chain. 

How Does It Work?

ERP systems work by reducing the number of resources and processes required to optimally run your business while still ensuring business growth and profitability. It allows other business solutions and modules to work from a single database. 

To better understand how it works, the three types of ERP are listed below:

  1. On-Premise ERP

This type of system is deployed on-site and is controlled mostly by your business after installation. An on-premise ERP system gives you total control of its security and use. 

However, it’s quite expensive since you’ll need dedicated IT resources to handle and maintain the system. 

  1. Cloud-Based ERP 

A cloud-based ERP solution is a Software as a Service (SaaS), which means that there’s a third party that manages the service. With this type, pricing is based on subscriptions. 

However, when choosing a cloud-based ERP, you need a reliable vendor, especially if you’re handling sensitive data. 

  1. Hybrid ERP

A hybrid ERP system offers the best of both worlds. It’s a modular, multi-sourced ERP system for modern digital enterprises. 

With a hybrid ERP system, ERP capabilities are preserved in an on-premise solution while ERP applications are deployed on the cloud.

In addition to these types, ERP can also be categorized into two based on their function: general and industry-specific. Generalist ERP can serve the general population of businesses and is suitable as a starting point for businesses. Meanwhile, industry-specific ERPs are customized or tailored to a specific industry like construction or retail.

When it comes to managing your information, an ERP system collects data from various departments and processes of your business. Then, it stores the information in a central location where it’s accessible to employees who need it. As a result, it removes the data silos that most businesses suffer from while ensuring that the right data is available to those who need it. 

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For instance, if a certain item is low in stock, this information is recorded by your inventory management software and your ERP system. Then the ERP system makes the data available to other relevant departments such as your procurement team so that inventory can be replenished right away as well as your sales team so that they don’t make promises they can’t deliver. 

In addition, a fully automated ERP ensures automated data entry and allows a seamless exchange of information with units and systems that need it.

Benefits Of An ERP System

The primary benefit of an ERP solution is increased efficiency. It allows businesses to automate routine and manual functions. 

The ERP system standardizes your common business processes and frees your employees from time-consuming tasks, so they can focus more on driving revenue for the company. In addition, it also helps in improving collaboration throughout your business. 

With an ERP system, you get to improve employee communication and engagement. Employees have access to on-demand operational data, allowing them to be updated on the company’s moving parts and the role they play within the company. Collaboration also extends outside your organization and allows your business to connect with key trading partners.

Furthermore, an ERP system also combines a number of different metrics and reports across various departments. This gives you a full view of what’s going on with your business and how resources are being spent. 

In addition, it can also provide you with important information about how to improve processes or use resources more effectively to grow your business. It also allows you to improve your strategies and tactics that can generate good returns.

Take Away

Modern businesses comprise different systems to manage specific processes. And to handle all these different systems on a single dashboard, you’ll need a reliable ERP system. Overall, combining and using your resources and solutions as efficiently as possible provides you with a better grasp of how your business is performing. 

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