What is ERP System and how it works?

Today, Enterprise Resource Planning systems are an integral part of majority businesses. These companies consider ERP system as the oxygen of their business. Have you ever wondered what is an ERP and how it can benefit your business like millions of other businesses in the market?


What is ERP and how it works

 In the dynamic global market, every business has its own area of functioning which determines the goals, objectives of the organization. In the initial phase, it’s comparatively easy to manage business processes with simple excel sheets and file managers. With time your business leverages and the complexity in efficiently delivering the standardized quality can be hampered if your organization lacks a standalone system which can streamline your critical business processes and provide more accurate, faster and smoother interactions between employees and overall organization. Here comes ERP to the rescue. The software provides a robust set of tools to help your organization in achieving targets effortlessly.

Before we go further, let’s understand,

What is an ERP System?

To define Enterprise resource planning systems (ERP), the acronym ERP is not much of use. Enterprise resource planning software is hardly anything about planning or resource, and it’s more about an enterprise.

ERP Software is a set of business software tools that integrate information from all the departments and functions across a company onto a single system that can serve the unique and varied needs of different departments. It caters to the needs of HR, finance, warehouse, supply and any other department and process a business has. Though every department in any company has a software optimized and fulfils the demands of that particular department. What ERP does is, it fills in the gap and provides information which a particular department’s system might not provide. This ERP bridge providing information and integrating processes improves the efficiency and effectiveness of all the operations.

“ERP implementation is a huge change for most organizations. However, when it’s being done and when it has lived in the organization, there’s a huge payback”

                                                                                                               – Richard Aarnink

Enterprise resource planning system has come a long way from an application for manufacturing resource planning (MRP) and computer integrated manufacturing (CIM) to ERP Systems covering all core functions of business, regardless of its industry sector.

Why do you need ERP?

Okay, now you know about ERP but the big-time question ‘Why do you need ERP’ is still unanswered.

As a key business decision maker, you know about the goals and objectives of your enterprise very well and we are sure the word ‘Growth’ is an integral part of it. When we say growth, it does not come easily to any business. Your sincere efforts pay off with time as the business fetches new clients and the simple work process turns into a complex document loaded world where confusion in communication can be the real evil for your business. Timely attention to your otherwise miserable project/tasks handling can avoid the damage to your business by efficiently managing proper communication, automating workflows, smart data transfer, reporting, performance tracking and many more. With ERP, you can see a significant reduction in your overhead, operational cost and it simultaneously increases productivity and overall internal and external business.

Components of an ERP Solution

ERP software integrates many business applications and activities which enables the system to cater to most of the processes and department if not all. We have taken the liberty of listing down the vital functional modules of ERP software. Though it must be clarified that, this is by no means is a comprehensive list and that the reach of ERP within any organization extends far beyond these key areas depending on the type of the structure.

Components of ERP


Accounting and Finance

  • General Ledger
  • Accounts Payable
  • Accounts Receivable
  • General Journals                                                          
  • Trial Balance and Financial Reporting
  • Bank Reconciliation
  • Cash Management and Forecasting
  • Budgeting

Manufacturing and Distribution

  • Purchasing, Tracking & Sales Shipments of Inventory Items
  • Track by Lot and Serial numbers
  • Track Quality Tests
  • Warehouse Management functions
  • Conversion Tracking
  • Tracking Labor, Overhead and Other manufacturing costs
  • Provide the total cost of production


  • Order creation
  • Sales order processing
  • Purchase order processing
  • Online sales

      Service Management

  • Track and monitor post-sales service to products in the field
  • Warranties
  • Service Contracts
  • Product Lifetime Costing has become standard functionality in current ERP solutions.

How does ERP improve business performance?

ERP is an automation software. It automates business by performing various tasks more efficiently with information that otherwise would not be had been available. ERP simplifies most of the functions for the users ultimately improving the fundamental process which is order fulfilment wherein a company takes order from a customer, ships it, bills it and provides after-sales service. It more or less covers all the processes of the business. This is the reason, ERP is often referred to as back-office software. It provides a software road map for automating the different steps along the path to fulfilling an order. ERP has become a necessity for the survival of the business. Running reports in real time, hands-on information from all the departments, numbers with charts and results ready for analysis. 

Ultimately, for a small business ERP could help leverage time, resources, help cut cost and stay the head of competition. However, for any SME, SMB and large company, an ERP is as essential as any other software in the company. In an age where all business technology applications should provide some competitive advantage, 76 per cent of IT chiefs said operational efficiency was the goal of their organization’s ERP investment, followed by support of global business (12%), growth (5%) and IT cost reduction (4%).

How much time will it take for ERP implementation?

You might come across ERP vendors telling you about three or six months average implementation time. Don’t get fooled by it. There is no such thing as short time ERP Implementation. However, the implementation of a particular module or ERP does not take a long time.

We still stand by the point- ‘Implementing modules is not ERP implementation as a whole, it’s more like adding a feature or an expensive accounting system’

However, this is a smarter way. Rather than implementing ERP, you can extend the functionality by adding features that the current ERP lacks. Opensource ERP is becoming the increasing choice of CTO’s and CIO’s. Implementing modules is going to take a lot of time as well only that the process will be a lot smoother providing a better insight into the system and its working for your business. In the case of ERP, the focus is never on time it will take for ERP implementation but on understanding the need of ERP for the business and ways it will improve your business. The better you know ERP requirements for your business, the better and smoother the implementation will be.

“If you define requirements well, and you can have a solid set, everything else flows easily from that”     

                                                               -January Paulk  (Panorama’s Senior Manager)

When will I get payback from ERP and how much will it be?

There is no denying the complexity in defining the investment side of the ROI equation for an ERP implementation. It is true indeed that first time ERP implementation doesn’t have a perfect track record. Don’t expect to revolutionize your business with ERP. It is a navel-gazing exercise that focuses on optimizing the way things are done internally rather than with customers, suppliers or partners. It has a pretty good payback if you’re willing to wait for it.  No matter how agonizing the process be at the start, how much it makes the CTO’s groan, it would bring in results in the long run. A Meta group study of 63 companies found that it took eight months after the new system (31 months total) to see any benefits but the median annual savings from the new ERP system was $1.6 million per year.


Hence, adopting an  ERP system is the ultimate need to systematically run your business not only in present but in the long run too. The macro approach of ERP in business dynamics elevates the game where your productivity and return on investment is higher. 



Hopefully, you’re now more aware of the ins-and-outs of ERP. We provide complete ERP software for all business categories and business sizes.


If you have any query or looking for ERP implementation, please feel free to contact us

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Author Name: Diwakar Prabhu

If you would like to write to Diwakar Prabhu mail at [email protected].

One response to “What is ERP System and how it works?”

  1. A really detailed article on ERP system basic information, I enjoyed reading it, thanks for sharing

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