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ERP Meaning: What Is ERP?

By
Tori Wiegers
Table of Contents

If you run a business with many moving parts, you likely have come across the term ERP.

So, you might be wondering, what does ERP stand for?

Here is what enterprise resource planning is and how it works with different types of eCommerce businesses. It’s important to understand ERP and its entirety to get the best out of it for your business. 

ERP Definition: What Does ERP Mean?

ERP stands for enterprise resource planning. It is a process used by many companies to manage and integrate important aspects of a business such as accounting, project management, supply chain operations, etc.

What Is ERP System: ERP System Meaning

An ERP system is a business process management software that integrates daily business activities. This ranges from providing real-time and accurate information to increasing interdepartmental communication to allowing leadership to make good decisions. These decisions are based on previous data the ERP system collects.

The key functions of an ERP vary across departments. It’s a system for companies to increase efficiency and can help manage budgets and organize different supply chains.

Here are five key features that an ERP system should have:

Key Components of an ERP System

  • Enterprise-wide integration. An ERP system integrates all data across departments. This allows for various departments to communicate with each other and share information. For example, the marketing team can communicate with the fulfillment department with ease when demand for a product changes.
  • Real-time operations. All data is uploaded simultaneously in the system, so operations aren’t paused. The means the business can run without any interruptions.
  • Consistent interface. The ERP system interface should appear professional and maintain branding. Every department in a company should be familiar with the interface. This allows all employees to know how to navigate the system, regardless of department.
  • Business intelligence. This component of the ERP system analyzes data. It provides you with actionable insights. For example, an operations manager will have greater control. It gives them a complete view of each department and each individual across the operation. 
  • Customer relationship management. An ERP system keeps track of all customer data. This helps optimize marketing and sales efforts as all information is accessible for each department. It should also monitor the status of your contracts. 

What Does an ERP System Do?

An ERP system increases organizational efficiency by managing and improving how company resources are used. It aggregates data from all parts of a business into a single database.

As companies grow and evolve, so do their ERP systems. This will allow your company to improve things like your warehouse management process flow. An ERP can cover a variety of functions in a business and how you use an ERP system depends on the variety of systems that you need to connect and what departments are involved. 

We compiled a list of benefits that each department can get from an ERP for you. 

ERP System Benefits

Department Benefits For Human Resources

An ERP system for human resources handles payroll and compensation management. It monitors and records employee training and development. It notes overall employee performance. It also provides workflows and workplace surveys to ensure every employee is satisfied.

Department Benefits For Finances

By having an ERP system linked to the finance department, it’s easier to automate cash flow throughout the entire company. You can keep track of any financial transactions and how they affect overall profit. An ERP system can give you detailed financial reports with fewer errors, saving you money.

Department Benefits For Manufacturing

Through manufacturing, an ERP system can help you provide enhanced customer service. It can manage the entire supply chain and let you respond faster to market conditions. The gathered data can allow you to estimate future resource requirements and calculate optimal reorder points.

Department Benefits For Supply chain

The ERP system keeps track of inventory. It can automate the inventory control process for you. With the supply chain managed, customer service will improve. This leads to a greater increase for repeat customers. 

It’s important to be aware of the disadvantages of having no ERP system. ERP systems aid in overall efficiency in a business. Without an ERP system, there’s unexpected setbacks.

Why You Should Use an ERP System

Without organization, your company is likely to be inefficient and an ERP system helps organize data from every aspect of your business. In a collaborative environment, your processes should be connected so other departments are aware of what you’re doing.

An ERP can also compensate for outdated systems and inventory tracking software. Data is gathered from other departments that fill in the gaps left by the older software. Not using it leaves more room for error, which will affect the overall operations of your company. 

ERP systems also provide real-time insight into data trends.With an automated system,you can reduce human error and catch costly mistakes faster. 

Finally, ERP systems help teams be more organized. The lack of communication means you’re not aware of all operations. This can lead to an inventory mistake, which would ultimately cost the company.

ERP Implementation Mistakes

There are a few exceptions where ERP systems have failed for some companies. This is mainly attributed to lack of communication or outdated systems. Implementation mistakes can occur when employees are hastily trained and not given time to properly learn the interface.

Some core problems:

  • Training. New users and internal teams need to be trained in the software. Sometimes, management quickens the training period. This affects the employees due to not knowing the system well which leads to improper usage. Integration. You need to think about how you will integrate a new ERP system with your existing software. It involves scheduling the IT team to come on the premises, making time to implement the system, and training the employees properly. Poorly integrated software means you can’t make the most out of an ERP.
  • People.  All leadership and important staff need to be involved in the implementation of a new ERPt. Since this includes the entire organization, it’s harder to plan. Not only that, everyone has to be collaborative and adaptable. 

Quiz: What Is at the Heart of any ERP System?

There are a lot of processes that go into any ERP system. It’s complex, but there is one thing every ERP system has in common. Take this short quiz and see if you can guess correctly.

A. CRM

B. Database

C. Shared data

D. Hardware

If you chose B, then you’re correct. There is a central database that links everything in an ERP system. This database collects all the information and feeds it to all ERP systems. The database is shared. Various departments can share information. This makes the process of running a business more efficient as well.

To help visualize the central database, think of the human brain. The brain is the control system. It allows us to make tough decisions and snap judgments. It ultimately guides our behavior, and we use experience as a roadmap. This can be compared to the database of any ERP system.

Quiz: Which Describes an ERP System?

ERP systems have a variety of functions. An ERP system provides a foundation for collaboration among all departments. It is the pillar of support, so departments are able to function.

Here is a quick quiz to see if you’ve been paying attention to what an ERP system is.

Which of the following describes an ERP system?

A. ERP systems provide a foundation for collaboration between departments

B. ERP systems enable people in different business areas to communicate

C. ERP systems have been widely adopted in large organizations to store critical knowledge used to make decisions that drive the organization’s performance

D. All of the above

If you chose D, then you’re correct. ERP systems have a variety of functions. And are especially used in large organizations. It can be used to make decisions that ultimately drive the organization’s sales to generate profit. 

ERP systems enable people in different departments to communicate effectively. Sometimes, sales needs to talk to the marketing team about products. Communication across platforms is critical for any company. 

Who are the Primary Users of ERP Systems?

You might be wondering, who are the primary users of ERP systems. The primary users are in different company industries. Anyone can use an ERP system, which is why the industries are so varied:

  • Finance
  • Accounting
  • Logistics
  • Production
  • Agriculture and farms
  • Food industries
  • Retail and commerce
  • Healthcare
  • Sales
  • Customer service

If you work in any one of these industries, odds are you use an ERP system. Companies need to keep track of every dollar they make. They need to know the profit and how much they’re spending in order to thrive.

Is That Wyatt ERP?

With an ERP system, your company will be able to function more efficiently. An ERP system connects all departments to one central database that helps streamline communication. Hopefully this article gave you a taste of whether or not an ERP system will benefit your business.