How Does an ERP System Work?

Techwalla may earn compensation through affiliate links in this story.
A group of business colleagues in a modern office at work on their computers
Image Credit: shironosov/iStock/Getty Images

Enterprise resource planning refers to an integrated platform of software applications that form a cohesive business management system. ERP systems cover a wide range of business functions and processes. Everything from order processing to user authentication can be centrally managed and automated with a well-planned and properly implemented ERP system.


Business Problems ERP Solves

The modules that make up an ERP system streamline and unify enterprise operations. Barriers that existed between departments are quickly eliminated, and corporate data becomes easily accessible. The purpose of an ERP system is to simplify and automate the logistical process of daily business operations. A good example would be how ERP facilitates a multi-step process like order entry. When sales representatives take orders from customers, the ERP system allows them to instantaneously access credit ratings, customer order history and inventory. This cuts out the need to involve the warehouse or finance department, eliminating wasted time and inefficiencies.


Video of the Day

Technology Behind ERP Systems

The IT infrastructure needed to support an ERP system needs to be robust and diverse with many components able to interact seamlessly. The ERP software itself has to be deployed on an application server, which provides the runtime services and connections to the back-end database. The application server, along with other key components like a Web server and identity management server, falls under the category of middleware. Depending on the capacity needed, the database may be clustered with several database instances taking up the load. All these considerations can make a corporate ERP system and its supporting infrastructure extremely large and complex.


New Features of Modern ERP Systems

Through the use of mobile device connectivity, corporate field personnel have access to the entire ERP system as if they were at their office workstation. Smartphones and tablets have made it possible for salespeople to remotely process a sale from beginning to end. Technologies like Hadoop and NoSQL databases can give ERP systems the ability to capture and analyze massive datasets that traditional relational databases were previously incapable of handling. These big data analytics have greatly enhanced the business intelligence modules of ERP systems, giving organizations the insights necessary to accurately target future marketing campaigns.


Implementation and Cost

Time and cost are important factors to consider when planning a corporate ERP system. Depending on the size and scope of the project, an implementation can take anywhere from several months to a couple of years. Total costs for the software and implementation are difficult to estimate, but they can range from a couple of hundred thousand to several million. The three biggest ERP vendors are SAP, Oracle and Microsoft. Choosing the correct vendor can have a significant impact on both cost and implementation time, so a thorough analysis of a vendor's ERP package modules, custom features and supporting infrastructure is a must.