ERP system explained

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ERP system: this article describes the ERP system or Enterprise Resource Planning in a practical way. After reading you will understand the definition and basics of this powerful information and management system.

What is ERP / a ERP system?

Enterprise Resource Planning, ERP in short, is business software used to support business processes. The purpose of ERP software is to maximise the productivity of organisations. It also saves money, and businesses that choose ERP software solutions are better able to meet customer demands.

The power of ERP comes from the fact that it brings together the logistical, administrative, and financial business processes in one information and management system. This makes it an integrated automation solution that can be widely used throughout the organisation, regardless of whether it involves a small or a big business.

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Modular Build ERP

Every organisation that is ready for digitisation should invest in an ERP system. This system is constructed from different modules, each supporting a specific process. Think for instance of financial activities, inventory management, customer data, or goods administration.

Every module is included by default, making them suitable for any kind of business. Additionally, the ERP modules are designed based on the specific needs of a market segment. This makes multiple applications possible, each with their own task within the overall system.

An ERP system ensures that all different types of information are stored in a single database where they can quickly be connected to each other. This makes such a system both efficient and cost effective. After all, separate applications, each with their own software, are far more expensive and complicated.


The main benefit of an ERP system is that it allows one to work more efficiently, which means faster turnaround and less chance of making mistakes. Essentially, when all relevant business information on processes, products, people, and resources are brought together in a single software system, this saves a lot of time.

Different actions become comprehensible and easier, so the same activities can be carried out in a shorter timeframe. This digital system also reduces human error. Ultimately, this means processes are faster, culminating in better results.

Thanks to the comprehensible ERP system, all employees gain oversight and access to the important information at any time. This means they are able to react more quickly and respond to questions, uncover the cause of problems, and solve them more easily.


Because an ERP system uses a database that functions as an information source, all information can be clustered in order to create a logical cohesion. This means data only have to be entered once, while they can be used for multiple purposes. The database offers clear insight into the cohesion of all different business processes.

This benefits the cooperation and communication between different departments. Communication runs more smoothly when all departments they have access to the same information. All information on, amongst others, products, customer questions, turnover, delivery periods is made available, making it easier for just in time manufacturing and delivery.

With one press on the button each employee has access to, for instance, quotes, orders, purchase data, and product capacity as well as the other relationships between all data. This provides them with the ability to make quick and correct decisions.

Advantages of a ERP system

The use of an ERP system has many advantages for businesses. In addition to the fact all relevant information is stored in a single system, employees can understand business processes and perceive bottlenecks much faster and better.

Ultimately, this benefits the relationship with the customer, as a result of which both customer satisfaction and one’s competitive position will improve. Because data about, for example, production, purchase, sale, logistics, and financial administration are linked to each other, it is possible to respond quickly and correctly.

ERP software automatically and precisely keeps track of all changes and adjustments. This provides clarity and insights and up-to-date information on the status of the company. Activities in business processes are automatically processed.

Think for example of a received order via a webshop, which is immediately processed into a purchase order and a planning for delivery to the customer. The chance of errors is visibly reduced.

Low Stock Costs

The more stock a business has on the shelf, the more it costs. An ERP system ensures that the manufacturing organisations know exactly what they need to make and supply in a specific period. This provides clear insight into their stock management; both the raw materials and semi-finished goods necessary for that manufacturing as well as the finished final product are delivered just in time and therefore no longer stay on the shelf.

An ERP system ensures the ideal balance between not too much, but also not too little stock. After all, when a final product is not in stock, it causes a decreased revenue. By automating the entire purchase process, businesses have up-to-date information on aspects including raw materials, products, turnover, and delivery periods.

Current Changes

Via the ERP system, every employee has access to the information important to him in the blink of an eye. As a result, businesses are better able to respond and react to market changes, they have current information on laws and regulations, and are immediately able to respond to the customers’ wishes.

The same current data are accessible for everyone and every department in a business, so it is possible to quickly anticipate possible changes. An ERP system ensures that all departments work with the same up-to-date data source and can use the most current information to carry out their work and activities correctly.

An ERP system as an investment

An ERP system has many advantages. However, one disadvantage is the investment businesses must make to purchase a good ERP system. In addition to the software itself, it’s also important that a reputable IT business implements the ERP system.

If this is done incorrectly, the system doesn’t work which leads to unnecessary costs. To prevent one’s investment from going up into smoke, businesses would do well to first develop their business processes and indicate what they think is important in the connecting of data and information.

Based on these data, it’s possible to determine which modules may be applicable. Both management and employees should be aware that an ERP system brings with it a different way of working and therefore creates a change in important business practices.

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It’s Your Turn

What do you think? Do you recognize the practical explanation about Enterprise Resource Planning (ERP) or do you have more additions? Does your company work with a ERP system? What are your personal experiences with this?

Share your experience and knowledge in the comments box below.

More information

  1. Hitt, L. M., Wu, D. J., & Zhou, X. (2002). Investment in enterprise resource planning: Business impact and productivity measures. Journal of management information systems, 19(1), 71-98.
  2. Shehab, E. M., Sharp, M. W., Supramaniam, L., & Spedding, T. A. (2004). Enterprise resource planning: An integrative review. Business process management journal, 10(4), 359-386.
  3. Umble, E. J., Haft, R. R., & Umble, M. M. (2003). Enterprise resource planning: Implementation procedures and critical success factors. European journal of operational research, 146(2), 241-257.

How to cite this article:
Mulder, P. (2019). ERP system. Retrieved [insert date] from Toolshero:

Original publication date: 04/16/2019 | Last update: 07/05/2023

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Patty Mulder
Article by:

Patty Mulder

Patty Mulder is an Dutch expert on Management Skills, Personal Effectiveness and Business Communication. She is also a Content writer, Business Coach and Company Trainer and lives in the Netherlands (Europe).
Note: all her articles are written in Dutch and we translated her articles to English!


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