ERP | B2B Finance Glossary

What is an ERP System?

ERP stands for enterprise resource planning and refers to a type of software management system that organizations use to run their everyday operations. These include accounting, supply chain, procurement, manufacturing, project and risk management, employee benefits, and all other aspects of human resources, financials, compliance, and operations. ERP systems can also include enterprise performance management: tools that allow businesses to effectively strategize, budget, and conduct reports on all financial activity.

Why are ERP Systems Important?

ERP systems are fully integrated platforms that use cloud-based technology to oversee and operate almost every element of the enterprise. They can change the game for businesses because they help finance, product, and HR teams manage the most essential operations from one centralized location. In addition to that, they offer more transparency into how businesses are run.

ERP systems come with many benefits, including the following:

• Decreasing costs across the board. When companies have to spend less overhead on the countless hours it takes to do manual tasks, they lose out on mission-critical revenue that could be spent on growing and scaling the company instead. ERP systems make it easier to automate essential tasks, inevitably saving many different departments both time and money.
• Sharing and storing information. Because ERP systems make it easier to store critical data in one centralized location, they also make it possible for members of different departments to access that information easily. This improves visibility into crucial elements of the enterprise, fosters collaboration, facilitates communication among team members and enhances strategic planning and decision-making.
• Optimizing management activities. As accounting and enterprise software continues to be developed, ERP systems are improved consistently with new updates and integrations. As a result, managers can use ERP systems to automate essential tasks and reduce the resources required to operate disparate systems. This improves the ability of managers to more effectively do their jobs and, likewise, more effectively run their teams.
• Enhancing reporting activities. ERP systems ensure that all company data is coherent and consolidated in one centralized location. This helps by giving teams better insights into critical data to more accurately create reports on what is happening inside the company and then make plans for enhancing business activities across different departments.
• Improving company performance. ERPs also significantly improve company performance because aggregating data systematically removes the need for various teams to record this data manually. As a result, team members now have the time and energy to focus on the most critical aspects of their business: growth, expansion, hiring, product development, and driving revenue.

How do ERP Systems Work?

• ERP systems allow every sector of your company to operate from a single database. They are designed to decrease the number of resources your business needs to run efficiently while still helping ensure profitability.
• ERPs collect essential information from different parts of the enterprise and categorize it all under one centralized location. In this way, they help businesses escape the “information silos” – a phenomenon that can occur when information is not collected correctly and passed from one business segment to another.
• ERP systems use automation to collect information and then deliver that information to the areas of the business that need access to it the most. For example, suppose a direct-to-consumer business is running low on inventory, and a shipment order has been made for some of the last items in stock. In that case, the ERP’s inventory management sectors will take note of this and inform the departments in charge of restocking inventory that they need to restock soon. The sales and marketing teams will also be informed so that they can pause selling and advertising items that are currently not in stock.

What are the Different Types of ERP Systems?

There are a few different types of ERP systems available. Knowing the differences among them is vital so that you can choose the best option for your company’s needs:

• On-premise ERP systems. This type of ERP software is deployed on the premises of the specific business using it. Because this kind of ERP system is usually entirely controlled by the enterprise it’s linked to or the ERP consultant, it’s usually used by businesses prioritizing security. However, implementing this type of ERP application requires dedicated, on-prem IT resources that can handle tasks such as application and server maintenance. This kind of ERP system is also highly customizable and can be integrated seamlessly into your existing systems.
• Cloud-based ERP systems. Cloud-based ERP systems are also known as SaaS products, and a third-party service manages them. Cloud-based ERPs have flexible designs that give teams easy access to critical company data. While this type of ERP system requires you to trust a third-party vendor with some of your sensitive data, the upside is that it doesn’t require the same financial investment or specialized team needed to purchase an on-prem system.
• Hybrid ERP systems. Hybrid ERP systems are also known as two-tier ERP systems. They allow your company to combine on-prem ERP system technology with cloud technology. For companies that want to gain access to the expertise of ERP consultants without sharing highly secure company information with a third party, hybrid ERP systems are an excellent investment.

Tips for How to Choose the Best ERP System for Your Business

Here are a few questions to get you started with choosing the best ERP system for your business:

• Does the ERP system have the features and functionalities you need?
• Does the ERP system integrate with your existing software?
• Does the ERP service come at a cost within your budget, and does the ERP system have offerings and functions that can help you cut down on your company’s existing costs?
• Does the ERP system easily automate essential tasks that can help your team save more time?
• Is the ERP system well-known, and does it have a good reputation within your industry?