Running a business involves many moving parts — from finance and operations to human resources, inventory, and customer relationships. When each department relies on its own system, important details can slip through the cracks.
Enterprise resource planning (ERP) systems help prevent that by connecting core business functions in one unified platform. With ERP, teams can share real-time data, automate everyday tasks, and make faster, more informed decisions.
In this guide, we'll explain what ERP is, how it works, and the benefits of implementing an ERP system. We’ll also explore common ERP components and deployment types.
What’s ERP
An enterprise resource planning (ERP) system is a type of software that helps businesses run more smoothly internally. It links departments like sales, finance, and inventory so they can share information and coordinate workflows in real time.
Think of ERP systems like your central nervous system. Just as your nervous system sends signals between your brain and different parts of your body, ERP sends critical data between teams — keeping everyone on the same page. When all departments are connected through a shared system, it’s easier to make company-wide decisions, avoid mistakes, and get work done more efficiently.
How Does an ERP System Work?
Behind the scenes, an ERP system acts as a single source of truth for the entire business. It stores data in one place, uses a standard format for consistency, and gives teams access to the most current information as soon as it's available.
Here’s a closer look at how an ERP system functions:
Data collection: The system gathers information from different parts of the company — such as sales numbers, invoices, employee hours, and inventory levels — and stores it in one central location.
Integration: That data flows automatically between different parts of the system, such as finance, HR, or supply chain. Because everything is connected, teams don’t have to enter the same data more than once. This reduces mistakes and saves time.
Automation: The ERP system uses the data to handle routine tasks automatically. For example, it might send out invoices, run payroll, or generate a purchase order when stock runs low.
Real-time updates: Because the system updates instantly, employees always have access to the latest information. This helps them make better decisions quicker.
User access and security: Different users have access to different parts of the system, depending on their roles. This helps protect sensitive information while allowing teams to see what they need to do their jobs.
Reporting and insights: Most ERP systems come with tools that can generate reports or dashboards. These help businesses analyze trends, track performance, and plan for the future based on real data — not guesses.
Main Components of ERP
ERP systems consist of different parts called modules, each focusing on a specific area of the business, like finance or inventory. Because of this, companies can customize their ERP solution by choosing only the modules that match their goals, size, or industry.
Here are some of the most common ERP modules and how teams use them in day-to-day work:
Financial management: Finance teams use this module to track income and expenses, manage budgets, process payments, and create financial reports. It also helps the company stay compliant with tax and accounting regulations.
Human resources (HR): The HR module manages employee records, runs payroll, handles benefits like time off and insurance, and supports hiring and performance tracking. It also helps companies follow labor laws.
Supply chain management: This module helps coordinate the flow of goods from suppliers to customers. It tracks inventory, manages shipping and logistics, and helps teams work closely with vendors to avoid delays or shortages.
Customer relationship management (CRM): Sales and customer service teams rely on CRM tools to store customer information, track orders, and manage communication. These tools help them respond to issues quickly and improve the overall customer experience.
Manufacturing: Production teams use this module to plan schedules, manage raw materials, monitor product quality, and coordinate with suppliers. It ensures products are made efficiently and meet company standards.
Inventory management: This module helps businesses track stock levels quickly, avoid overstock or shortages, and reduce storage costs. It’s especially useful for companies with fast-moving products or limited storage space.
Procurement: Procurement tools manage purchasing and supplier communication. They help teams place orders at the right time and in the right quantities, ensuring materials or goods arrive when needed without overbuying.
Types of ERP Deployment
Businesses can set up ERP systems in different ways based on their size, goals, budget, and technical needs. This process is called deployment. Some companies want full control over their systems, while others choose simpler setups that are easier to manage and update.
Here are the most common ERP deployment types:
On-Premise ERP
Companies that use on-premise ERP install the software on their own servers and manage it with their internal IT teams. This setup gives them complete control over their data and systems, which can be important for meeting security or industry regulations. However, businesses that choose this option often need to invest more time, money, and staff.
Cloud ERP
Businesses that choose cloud-based ERP use software hosted on the internet by an outside vendor. Many cloud systems follow a model called Software as a Service (SaaS), where companies pay a monthly or yearly fee to access the tools. Cloud ERP allows employees to work from anywhere, and vendors handle updates automatically. This option works well for growing businesses that want flexibility without a large IT team.
Two-Tier ERP
In a two-tier setup, a company runs one ERP system at its main headquarters and another at smaller offices or divisions. This lets each location meet its unique needs while still sharing important data across the company. Businesses often use this approach when different branches have different requirements but still need to stay connected.
Hybrid ERP
A hybrid ERP combines on-premise and cloud-based systems. This gives businesses the flexibility to keep sensitive data on-site while still enjoying the benefits of the cloud for other functions. Companies might choose this approach if they have specific security needs or are transitioning slowly from an older system to a newer one.
Key Benefits of ERP
No matter how a business deploys ERP, the goal is to help teams work more efficiently by bringing everything together in one system. Here are some of the main benefits:
Better insights: ERP shows real-time data from across the business, helping leaders make faster, more informed decisions.
Lower costs: Automating tasks like invoicing or tracking inventory saves time and reduces errors and waste.
Stronger teams: Departments share the same system, making it easier to coordinate and communicate.
Faster workflows: ERP streamlines daily tasks. What used to take hours can now be done in minutes.
More reliable data: Storing information in one place reduces mistakes. Many systems also include tools to help protect that data.
Room to grow: Companies can add new users, tools, or features as their business expands.
Remote access: Cloud-based ERP systems let teams work from anywhere with an internet connection.
Long-term support: With proper training and setup, ERP becomes a tool that supports long-term business growth.
Talk to an EDI Expert
Thinking about implementing ERP? A conversation with an expert can help you find the right platform and simplify EDI integration, whether a cloud-based enterprise resource planning platform, an on-premise enterprise resource management system, or another type of ERP.
Connect with an expert to explore enterprise resource planning tool options and find an ERP-EDI approach that fits your business.
ERP FAQs
What’s the Difference Between MRP and ERP?
MRP (material requirements planning) is designed for manufacturing. It helps businesses manage production by tracking materials, scheduling work, and maintaining inventory levels to meet demand. MRP focuses specifically on the supply side of production.
ERP (Enterprise Resource Planning) takes a broader approach. It includes MRP features but also connects other areas of the business — like finance, HR, procurement, and customer service — into a single system. ERP gives companies a unified view of operations across departments.
In short, MRP is a subset of ERP that focuses on production planning, while ERP manages the entire business, including MRP functions.
How Does EDI Work with ERP Systems?
Electronic Data Interchange (EDI) and enterprise resource planning (ERP) systems work together to automate business transactions and improve efficiency. EDI lets businesses share documents — purchase orders, invoices, and shipping notices — electronically in a standardized format, eliminating manual data entry.
When connected to an ERP system, EDI automatically updates key areas like inventory, procurement, and finance, ensuring data is always accurate and operations run smoothly.
For example, when a supplier sends an electronic invoice via EDI, the ERP system can instantly process it, update financial records, and initiate payment — without human intervention. This integration reduces errors, speeds up transactions, and strengthens supply chain coordination.
What Challenges Do Businesses Face When Adopting ERP and EDI Systems?
Common challenges with ERP and EDI implementation include resistance to change, high initial costs, data migration difficulties, and the need for employee training. Proper planning, clear communication, and choosing the right vendor can help overcome these obstacles. Success also depends on a company-wide shift in mindset, where both leadership and staff understand the long-term value of automation and integrated systems.