Enterprise resource planning (ERP): a comprehensive guide

Businesses constantly look for efficient ways to manage their processes. One option is implementing an ERP. Read on to learn all about ERP systems, what they are, how they work, and what are the benefits and challenges.

Last updated: 06.11.2023 13 minute read
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In today’s fast-paced and ever-evolving business landscape, organizations face numerous challenges in managing their operations efficiently, optimizing resources, and staying competitive. As businesses grow, so does the complexity of their processes, making it increasingly challenging to maintain streamlined workflows and seamless communication across different departments.

This is where enterprise resource planning (ERP) comes to the rescue, acting as a robust and integrated solution to tackle these intricate challenges.

This blog delves into the inner workings of ERP systems, examining the key features, benefits, and the various types available to suit different business needs.

Let’s kick it off by defining ERP.

What is ERP?

ERP stands for enterprise resource planning. It refers to a software or suite of applications designed to manage and integrate various aspects of a business’ operations and resources across different departments or functions. The primary goal of ERP is to streamline processes, improve efficiency, and facilitate data flow within an organization.

An ERP system typically includes modules that cover different business functions, such as:

  • Finance — Managing financial transactions, accounting, budgeting, and financial reporting
  • Human resources (HR) — Handling employee information, payroll, benefits, and performance evaluations
  • Supply chain management — Tracking inventory, procurement, order processing, and logistics
  • Customer relationship management (CRM) — Managing customer data, sales, marketing, and customer support
  • Manufacturing — Overseeing production planning, scheduling, quality control, and shop floor operations
  • Project management — Tracking project progress, resource allocation, and task management

By consolidating these various functions into a unified system, ERP enables better communication and collaboration across departments. It also provides real-time data and insights, helping management make informed decisions and respond quickly to changes in the business environment.

ERP systems can be implemented in various industries and organizations of different sizes, ranging from small businesses to large enterprises. The selection and customization of an ERP system should be based on an organization’s specific needs, workflows, and industry requirements.

Now that it’s clear what is ERP system let’s move on and see the different types of ERPs available.

ERP types

Illustration showing on-premise vs cloud ERP

ERP systems come in 3 types:

  • On-premise
  • Cloud-based
  • Hybrid

Let’s explore these in more detail.

On-premise ERP

On-premises ERP is a traditional ERP system where the software is installed and hosted on the company’s servers and infrastructure.

The organization is responsible for managing and maintaining the hardware, software, and IT infrastructure required to run the ERP system. This type of ERP offers greater control and customization options but may require higher upfront and maintenance costs and IT expertise.

Cloud-based ERP

Cloud-based ERP, also known as software-as-a-service (SaaS) ERP, is hosted on the vendor’s cloud servers and accessed via the Internet. Users can access the ERP system through web browsers, making it more convenient and flexible for remote access and collaboration.

Cloud ERP eliminates the need for on-premises hardware and IT maintenance, making it a cost-effective solution for many businesses. Additionally, cloud-based ERP systems often receive regular updates and backups from the vendor.

Hybrid ERP

Hybrid ERP combines elements of both on-premises and cloud-based systems. In this approach, some critical functions or sensitive data may be kept on-premises for security or compliance reasons, while other less critical aspects are managed in the cloud.

Hybrid ERP allows organizations to benefit from cloud flexibility while maintaining control over sensitive data.

How do ERP systems work?

Employees sitting around a desk looking at documents showing charts

ERP systems work by establishing a centralized database that stores data from different departments and functions, ensuring that information is consistent and readily available across the organization. ERP software consists of various modules, each dedicated to managing specific business functions such as:

  • Finance
  • Human resources
  • Supply chain management
  • Customer relationship management (CRM)
  • Manufacturing

These modules are interconnected and communicate with each other, enabling seamless data flow and facilitating collaboration between different departments. Employees from various roles and functions can access relevant information from the ERP system, which helps improve communication and decision-making.

The software automates routine tasks, reduces manual effort, and increases operational efficiency. ERP systems also provide robust reporting and analytics capabilities, allowing organizations to gain insights into their performance and make informed strategic decisions.

The implementation and customization of ERP systems are tailored to each organization’s unique needs, ensuring that the software aligns with the company’s specific business processes and requirements.

Next, we’ll review some of the critical features of most ERP systems.

What are some of the key features of ERP?

ERP systems offer a wide range of features to support various business processes and functions. Some of the key features commonly found in ERP software include:

  • Centralized database — ERP systems have a centralized database that stores all relevant information from different departments, ensuring data consistency and integrity.
  • Integration — Seamlessly integrating various business processes and functions, ERP enables smooth communication and data flow between different modules.
  • Financial management — This feature handles accounting, financial reporting, budgeting, and financial analysis, helping businesses manage their finances effectively.
  • Human resources management — With HR modules for employee information, payroll, benefits administration, performance management, and talent acquisition, ERP streamlines HR processes.
  • Supply chain management — ERP helps manage the entire supply chain, from procurement and inventory control to order processing and logistics.
  • Customer relationship management (CRM) — The CRM module in ERP manages customer data, sales leads, marketing campaigns, and customer support interactions.
  • Manufacturing and production management ERP systems assist in planning, scheduling, and optimizing manufacturing processes, ensuring efficient production operations.
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  • Project management ERP supports project planning, resource allocation, progress tracking, and collaboration for managing projects effectively.
  • Reporting and analytics — ERP provides comprehensive reporting and data analysis tools to gain insights into business performance and make informed decisions.
  • Security and access controls — With robust security features, ERP protects sensitive data and restricts access based on roles and permissions.
  • Regulatory compliance — ERP systems help organizations comply with industry regulations and standards by implementing necessary controls and reporting features.
  • Customization and flexibility — ERP solutions often allow customization to fit the specific needs and processes of the organization, adapting to unique requirements.
  • Workflow automation — By automating repetitive tasks, ERP reduces manual intervention and improves overall process efficiency.

It’s important to note that the availability of these features may vary among different ERP vendors and versions. When choosing an ERP system, organizations should carefully assess their specific requirements and select a solution that aligns with their business goals and processes.

ERP systems by business size

Illustration of 3 different size buildings representing different size businesses

ERP systems come in different sizes and complexities to cater to the varying needs of businesses, ranging from small manufacturing businesses to large enterprises. Here’s an overview of ERP systems categorized by business size.

Small business ERP

Small business ERP solutions are designed specifically for startups and small companies. These ERP systems offer essential functionalities such as accounting, inventory management, and basic reporting. They are often easy to implement, user-friendly, and cost-effective. Small business ERP systems help streamline operations, improve efficiency, and lay a solid foundation for growth.

Mid-market ERP

Mid-market ERP systems are tailored to meet the needs of medium-sized businesses that have outgrown their basic accounting software. These solutions provide more comprehensive features, including human resources management, customer relationship management (CRM), and supply chain management. Mid-market ERP systems help companies optimize processes, gain better visibility into their operations, and support expansion.

Enterprise ERP

Enterprise ERP solutions are designed to meet the complex requirements of large organizations with multiple departments, divisions, and global operations. These systems offer robust functionalities, extensive customization options, and scalability to handle high data volumes and a large number of users. Enterprise ERP systems provide advanced analytics, real-time reporting, and integration with various third-party applications.

Vertical-specific ERP

Some ERP systems are designed for specific industries, like:

These vertical-specific ERP solutions offer industry-specific features, compliance support, and best practices tailored to the needs of organizations operating in that particular sector. Whether it’s manufacturing, healthcare, retail, or other industries, vertical-specific ERP systems address the unique challenges faced by businesses in those sectors.

Cloud-based ERP for growing businesses

Cloud-based ERP solutions are becoming increasingly popular across all business sizes due to their flexibility, accessibility, and lower upfront costs. They are particularly advantageous for growing businesses as they offer scalability, automatic updates, and reduced IT infrastructure requirements. Cloud ERP enables companies to adapt to changing needs and scale their operations seamlessly.

Selecting the right ERP system based on business size is crucial, as it directly impacts the system’s implementation, functionality, and cost.

Small businesses might focus on ease of use and affordability, while large enterprises require robust features and scalability. Additionally, businesses should consider factors such as industry-specific needs, future growth projections, and the ability to integrate with existing software when choosing an ERP system that best aligns with their current and future requirements.

10 benefits of ERP

Two employees at a desk looking at a handheld mobile device showing a chart titled benefits

Implementing an ERP system can bring numerous benefits to an organization. Here are 10 key advantages of implementing ERP.

1. Improved efficiency

ERP streamlines business processes and eliminates redundant tasks, reducing manual work and improving overall operational efficiency. This leads to increased productivity and resource optimization.

2. Enhanced data visibility and accuracy

ERP systems centralize data from various departments, providing real-time access to critical information. This leads to better decision-making, as managers can make informed choices based on accurate and up-to-date data.

3. Better collaboration and communication

ERP encourages cross-functional collaboration by breaking down information silos. Employees from different departments can access the same data, improving communication and teamwork.

4. Cost savings

By automating processes and optimizing workflows, ERP helps reduce operational costs. It minimizes the need for manual labor and paper-based documentation and reduces inventory carrying costs.

5. Streamlined reporting and analysis

ERP systems offer robust reporting and analytics tools that allow organizations to gain insights into their performance metrics. This helps in identifying trends, spotting opportunities, and addressing issues promptly.

6. Compliance and risk management

ERP systems can facilitate compliance with industry regulations and internal policies. They often include features to track and manage risk factors, ensuring the organization operates within legal and ethical boundaries.

7. Customer satisfaction

ERP systems with integrated CRM modules help improve customer service and support. A comprehensive view of customer interactions helps organizations respond to inquiries faster and personalize their services.

8. Scalability

ERP systems are designed to accommodate the growth of an organization. Businesses can easily scale up their ERP system as the company expands to accommodate additional users, functions, and locations.

9. Data security

ERP systems implement robust security measures to protect sensitive company data. This includes role-based access controls, data encryption, and regular backups to ensure data integrity and confidentiality.

10. Competitive advantage

By optimizing processes, streamlining operations, and improving decision-making, ERP gives organizations a competitive edge in their industry. They can respond more effectively to market changes and customer demands.

It’s essential to note that while ERP offers significant benefits, its successful implementation requires careful planning, adequate training, and ongoing support to ensure that the system aligns with the organization’s unique requirements and objectives.

As implementing an ERP system can be quite a gargantuan task, it also comes with a long list of challenges.

10 challenges with ERP

Multiple workers around a desk putting together a white jigsaw puzzle

While ERP systems offer numerous benefits, their successful implementation and operation are not without challenges. Organizations may encounter various hurdles during different stages of ERP adoption. Below you’ll find 10 common challenges associated with implementing and using ERP.

1. Implementation complexity

ERP implementation is a complex process that requires careful planning, resources, and coordination across departments. Integrating multiple modules, migrating data, and customizing the system to meet specific business needs can be time-consuming and demanding.

2. Cost overruns

ERP implementation costs can sometimes exceed the initial budget, especially if not adequately planned. Factors such as customization, training, data migration, and unexpected technical issues may contribute to cost overruns.

3. Data migration and integration

Transferring data from legacy systems to the new ERP database can be challenging, particularly when dealing with vast amounts of information and ensuring data integrity throughout the migration process.

4. System integration

Integrating ERP with existing software and third-party applications can be complex, and compatibility issues may arise. Seamless integration is vital for data consistency and efficient cross-functional workflows.

5. Customization and upgrades

While customization allows tailoring ERP to specific business needs, it can complicate future system upgrades and compatibility with newer versions of the software.

6. Vendor selection

Choosing the right ERP vendor and system that aligns with the organization’s needs and goals is a critical decision. A poor vendor choice can lead to subpar support and difficulty in future expansion.

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7. Resistance to change

Employees may resist adopting new ERP processes, fearing changes to their existing workflows or job roles. Overcoming resistance and ensuring proper user training are crucial to successful ERP adoption.

8. Performance and scalability

As businesses grow, the ERP system must be scalable to accommodate increasing data volumes and users. Ensuring consistent performance and responsiveness is vital for user satisfaction.

9. User training and adoption

Proper training and change management are essential to ensure employees fully understand and embrace the new ERP system. Insufficient training can hinder user adoption and impact productivity.

10. Business process reengineering

To maximize the benefits of ERP, organizations may need to reengineer their existing processes to align with ERP functionalities. This can be a time-consuming and complex undertaking.

Through careful planning, communication, and collaboration between stakeholders, ERP vendors, and implementation teams, businesses can overcome these challenges, leading to significant rewards in terms of improved efficiency, better decision-making, and enhanced business performance.

Cloud inventory platform — tailored solution for SMBs

Enterprise resource planning systems have long been considered essential tools for efficient business management, providing seamless integration of various processes. However, for small and medium-sized businesses (SMBs), the cost and implementation time associated with traditional ERP solutions can be a significant barrier sending businesses to look for alternatives to

Additionally, many standard ERP systems come bundled with numerous modules that might not be relevant to every business, leading to unnecessary expenses for features that go unused.

Enter Katana — a game-changer for SMBs seeking flexible and cost-effective multichannel inventory management software as an alternative to NetSuite or other enterprise-level solutions.

Katana lets you create your own ideal ecosystem by integrating your favorite business tools. Unlike traditional ERP systems, Katana’s cloud-based inventory management platform offers precisely what you need without the unnecessary bulk.

Streamlined inventory and production management

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Katana is designed to streamline inventory and production management processes for businesses in various industries.

From order fulfillment to raw material inventory control, Katana ensures you have the right tools at your disposal to optimize your operations.

Its user-friendly interface empowers your team to manage and monitor inventory in real time, enabling better decision-making and improved efficiency.

Seamless integrations

 

With Katana, you have the freedom to integrate with the essential business tools you are already using. Whether it’s your e-commerce platform (Shopify, WooCommerce), accounting software (QuickBooks Online, Xero), or another service, Katana seamlessly integrates with a wide range of third-party applications.

This integration capability not only saves time and effort but also reduces the risk of data discrepancies between systems.

Scalable solution

As your business grows, so do your needs. Katana understands the importance of scalability for SMBs. The platform can effortlessly accommodate increasing production volumes, changes in workflows, and additional users.

This scalability ensures that Katana remains a reliable partner throughout your business’ expansion journey.

User-friendly implementation

Implementing Katana is a breeze, even for non-technical users. The platform’s user-friendly interface and straightforward setup process mean you can start using Katana without months of training and complex configuration.

Inventory visibility and control

Katana offers a clear overview of your inventory, production processes, and order statuses, all in one place. This transparency allows you to make informed decisions, prevent stockouts, and optimize production schedules.

Katana’s inventory control features help you maintain optimal stock levels and reduce carrying costs, ultimately improving your bottom line.

Don’t want to spend tens of thousands on implementing a bulky ERP system? Sign up for a free 14-day trial now and test out Katana’s cloud inventory platform.

ERP FAQs
What is ERP in simple terms?

ERP is a software system that helps businesses organize everything they do, like handling money, keeping track of products, managing employees, and taking care of customers.

It brings all these important parts together, making it easier for businesses to work efficiently and make smart decisions. Instead of having separate systems for each task, an ERP brings everything under one roof, making work simpler and more effective.

What are the 3 common types of ERP?

The three common types of ERP are:

  • On-premises ERP — Traditional ERP systems that are installed and hosted on the company’s own servers and infrastructure.
  • Cloud-based ERP (SaaS ERP) — ERP systems hosted on the vendor’s cloud servers and accessed via the internet.
  • Hybrid ERP — A combination of on-premises and cloud-based ERP, with some functions hosted on-premises and others in the cloud.
What is the difference between ERP and CRM?

ERP focuses on integrating and managing various business processes and resources across different departments, while CRM (customer relationship management) is specifically designed to manage and improve interactions with customers, sales, and marketing efforts. In short, ERP covers a wide range of internal processes, whereas CRM is primarily focused on customer-facing activities.

Henry Kivimaa Photo

Henry Kivimaa

Copywriter

Henry is an avid traveler with a passion for writing. Having lived most of his adult life abroad, he’s amassed a variety of experiences from many different fields. From ForEx trading to compliance to mobile engineering to demolition, he’s definitely not afraid to test out new things.

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