Tech Peak » What Is ERP and How Does it Work?

What Is ERP and How Does it Work?

by Deepali chandani

Growth requires consistent efforts that pay off with time.

When businesses start to scale up, simple procedures can get complicated. It then becomes necessary to streamline all processes to function smoothly.

You need to achieve a certain level of efficiency while performing your tasks to drive profitability. This is only possible if you include more sophisticated and automated visibility into your operations.


An ERP system allows companies to manage their business processes productively. It helps maximize your bottom line while reducing your overhead and operational cost to a minimum.

To better understand how ERP solutions can transform your business, let’s delve into what ERP actually is and how it works.


What Is an ERP System?

To begin with, ERP is an acronym for Enterprise Resource Planning.

At its basic level, it can be defined as a shared database approach to managing different processes of an organization.

It integrates the various functions of a company, including accounting, inventory management, human resources, customer relationship management, and more, into a unified system. It streamlines these processes and information, giving a broader perspective to run an organization from a single software.

For instance, employees from the purchase and accounting department can depend on the same information for their specific needs.


Who Uses ERP Software?

Traditionally, the best ERP software was intended only for large enterprises as those companies have multiple divisions with different data. 

However, soon enough, ERP vendors started targeting small-to-medium-sized businesses too. Such an ERP designed for small enterprises aims to automate the core functionalities such as customer management, finance, purchasing, and business analytics.

One good example is SAP Business One Solution, which is designed to help gain greater control over your business or subsidiary.

In fact, there are industry-specific ERP solutions too. Typically, the most targeted industry is manufacturing and distribution, but it also extends to retailers, healthcare, ecommerce, and more.

So irrespective of your business size and industry, you can take advantage of an ERP solution. This brings us to our next question:


Why Do You Need an ERP?

It is easy for any business to invest in underperforming tactics only to see they aren’t getting returns as much as they expected.

That’s why it is crucial to have key insights into how your processes are being performed and how they can be improved. It gives you a complete picture of how your resources are spent and how you can optimize them. 

An ERP solution combines various reports and metrics across different departments to a single platform.

The main purpose of an ERP solution is to help you optimize your resource usage while also maximizing the output, thereby increasing profitability.

It helps companies improve their efficiency in resource spending and allocation, including time, money, and staff. Thus, it ensures good returns.

Let’s look at some stats now:

In 2018, the global ERP software market was valued at $35.81 billion. It is now estimated to reach $78.40 billion by 2026, growing at a CAGR of 10.2% from 2019 to 2026.

It clearly indicates that the demand for an ERP solution is increasing. Companies are now starting to recognize the benefits of implementing an ERP system.


Implementation of ERP Software

Now that you know how it functions, there are various ways you can implement an ERP system in your organization.

You can either choose to have an on-premise installation or use it as a cloud-based solution.

Most vendors offer both installation methods. In fact, some might even offer a hybrid deployment.

In recent times, the popularity of the cloud-based solution is rising as it can be a cost-effective solution. It doesn’t require you to invest in heavy infrastructure to maintain the server.


On-Premise Installation

On-premise installation needs businesses to purchase their own hardware, servers, and other infrastructure to host and maintain the system. 

Companies that like to host their own data can opt for perpetual licensing. It is ideal for large companies with complex structures or those that have data security concerns.

The most significant advantage of an on-premise installation is that the software is available with or without an internet connection.

Some of these on-premise ERP solutions are Oracle’s JD Edwards ERP software, OptiProERP, and more.


Cloud-Based Solution

Deploying an ERP system as a cloud-based solution saves businesses from investing in infrastructure upfront. Companies only have to pay a monthly subscription cost, which is decided on the number of modules a company needs, the number of users, support, and maintenance cost.

It can be the best option for small businesses. It can be affordable as compared to an on-premise solution. Besides, the cloud solution allows you to access the system from any device with an internet connection.

Some of the examples are Microsoft Dynamics 365, Workday, and more.


Hybrid Environment

Hybrid deployment combines both cloud and on-premise implementation. Companies that have an existing legacy ERP system can also integrate with any cloud-based ERP modules.

Thus, businesses can still keep their traditional system in place and add flexible ERP applications via the cloud. Plus, the cost of hybrid solutions is generally less than on-premise systems.

Some of the providers of hybrid ERP solutions are Oracle, SAP, and more.

Every company has its specific needs. Depending on that, you will know which one is best suited for your business.

You may also like

Leave a Comment