What is ERP? An in-depth guide on how ERP systems work

Companies of every size struggle with managing multiple business functions—finance, operations, supply chain, and more—all while trying to stay competitive. Enterprise resource planning (ERP) systems were designed to bring order to this complexity, helping you integrate your core business processes into a single platform.

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But understanding how ERPs work and figuring out which system best fits your business can be tough. This guide offers a straightforward look at what ERP systems are, how they function, and the value they can bring to businesses like yours.

What is enterprise resource planning (ERP)?

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Instead of relying on disconnected tools or outdated spreadsheets, an ERP brings together all your business processes into a single source of truth, providing a comprehensive and up-to-date view of your data and operations. This reduces redundancies, minimizes errors, and empowers your team to make smarter decisions.

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Beyond day-to-day operational improvements, ERPs offer scalability and flexibility. They help you adapt to new opportunities or market demands without overhauling your entire system, making ERPs a practical solution for businesses looking to operate more efficiently.

3 ERP fundamentals every business should know

Understanding the benefits of ERP systems is essential to getting maximum value out of the platform you choose. By focusing on the core elements that drive efficiency and scalability, businesses can ensure their investment in ERP delivers measurable results.

1. Centralized data

One of the biggest strengths of an ERP system is its ability to centralize data. Instead of multiple spreadsheets and siloed tools, all critical business information is stored in one place, ensuring consistency and accuracy across departments. This eliminates confusion, reduces errors, and allows teams to make more informed decisions.

2. Integrated processes

ERP systems connect workflows across your organization. For example, when a sales order is created, it automatically updates inventory, triggers shipping notifications, and generates an invoice—all without manual intervention. This seamless integration eliminates bottlenecks, improves efficiency, and ensures every team stays aligned.

3. Real-time insights

Modern ERPs provide real-time analytics and dashboards that give leaders a clear view of performance. With immediate access to trends and financial metrics, businesses can quickly address challenges and make data-driven decisions to stay competitive.

Other benefits

On top of these core fundamentals, ERP systems offer automation for routine tasks, improved collaboration across teams, standardized processes for consistency, and tools to meet compliance and security requirements. While these features may not seem central at first, they play a huge role in maximizing efficiency and ensuring long-term scalability.

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By focusing on these fundamentals and recognizing the broader benefits, you can confidently leverage ERP systems to improve your business operations and drive growth.

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Why enterprise resource planning is important

Enterprise resource planning systems are essential for businesses looking to improve their operational efficiency. Here are some reasons why ERPs matter:

• Scalability for growth: As your business grows, ERPs adapt, accommodating new users, locations, and processes without disrupting operations
• Improved efficiency and cost control: By standardizing workflows and automating tasks, ERPs minimize redundancies and boost operational efficiency, often delivering measurable cost savings
• Enhanced compliance and security: ERPs automate compliance processes and provide robust security features, like role-based access control, to protect sensitive data and meet regulatory requirements
• Improved customer experience: By integrating customer data with your operational workflows, ERPs help you deliver faster, more personalized service, strengthening customer relationships

The 4 main types of ERP deployments

Choosing the right ERP deployment type is an important decision that depends on your unique needs, resources, and goals. Each type of ERP deployment offers distinct advantages and trade-offs, so it’s essential to understand how each one works and when they’re most beneficial.

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Here’s a quick breakdown of the four main types of ERP deployments:

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On-premise ERP

On-premise ERP systems are installed directly on a company’s servers and are managed by the internal IT team. These systems offer complete control over data, security, and customization but require significant upfront investment in hardware, software, and ongoing maintenance. This is ideal for businesses in industries with strict data security or regulatory requirements.

Cloud ERP

A cloud-based ERP is hosted on remote servers and accessed over the web. These systems are managed and maintained by the ERP vendor and typically operate on a subscription model. This eliminates the need for specialized IT resources and makes them more accessible for smaller businesses or those with limited budgets.

Two-tier ERP

Two-tier ERP systems combine a primary ERP for the corporate headquarters with separate ERP systems for individual branches, subsidiaries, or divisions. This setup allows businesses to standardize operations at the top level while providing specialized systems that cater to regional or functional differences, making it ideal for multinational or decentralized companies.

Hybrid ERP

A hybrid ERP combines on-premise and cloud solutions, offering the benefits of both worlds. Businesses can keep certain sensitive operations on-prem while leveraging the flexibility and scalability of the cloud for other functions. Hybrid ERPs work well for businesses in a transitional phase where they still need certain on-prem controls, such as for legacy systems or compliance.

Main components of an ERP system

ERP systems typically consist of several core components that work together to manage key business functions. While the exact number of components can vary based on both the software and your business needs, most ERP systems include 6–8 modules.

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This modular approach allows you to select and prioritize the features you need. Each component addresses a specific business area, ensuring comprehensive coverage and seamless operations—without unnecessary complexity.

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Some of the main components of ERPs are:

1. Financial management: This component handles accounting, budgeting, and financial reporting. It provides businesses with a clear view of their financial health, ensuring accurate bookkeeping and compliance with regulations.
2. Human resources (HR): The HR module allows you to manage employee records, payroll, recruitment, and performance tracking. It simplifies workforce management and helps ensure compliance with labor laws.
3. Inventory management: This component tracks inventory levels, stock movements, and warehouse management. It ensures businesses maintain optimal inventory levels, reducing costs associated with overstocking or shortages.
4. Supply chain management (SCM): SCM oversees the flow of goods and materials, from procurement to delivery. It helps businesses optimize their supply chain, improve vendor relationships, and reduce lead times.
5. Customer relationship management (CRM): The CRM module manages customer data, sales pipelines, and marketing campaigns. It enhances customer engagement and provides insights for improving customer satisfaction and loyalty.
6. Production and project management: This component manages schedules, workflows, and quality control. For manufacturing businesses especially, it’s essential to operate efficiently and minimize downtime.

ERP examples by business size and industry

ERP systems are built to adapt to your business’s unique needs, regardless of size or industry. While the core functionality remains consistent, the way different companies use ERPs can vary widely depending on their scale and operational focus.

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Here’s how ERP use varies by business size and industry:

ERP use cases by business size

• Small businesses: Simplify core functions like accounting and inventory to support growth. Ideal for startups expanding into ecommerce or new markets.
• Medium-sized businesses: Integrate workflows like supply chain and CRM. Perfect for regional manufacturers or service providers scaling up operations.
• Large enterprises: Standardize global operations and ensure compliance. Suited for corporations managing subsidiaries across multiple regions.

ERP use cases by industry

• Manufacturing: ERP systems are vital for managing production schedules, inventory, supply chains, and quality control in manufacturing. Without an ERP, manufacturers could face production delays or procurement challenges.
• Retail and ecommerce: Retailers and ecommerce companies use ERPs to manage inventory, track sales, and handle supply chain logistics. By centralizing inventory data, ERPs help match supply with demand across stores and online platforms.
• Healthcare: In healthcare, ERPs manage patient data, billing, supply procurement, and regulatory compliance. They streamline processes like tracking medical supplies and ensuring accurate billing, improving both operational efficiency and patient care.
• Construction: Construction firms adopt ERPs to manage project timelines, budgets, equipment, and labor. Centralized project data helps prevent miscommunication and cost overruns, ensuring teams stay on schedule and within budget.
• Food and beverage: The food and beverage industry relies on ERPs for supply chain management, production tracking, and compliance with food safety standards to help avoid spoilage and meet delivery deadlines

How do you know if you should switch to an ERP system?

Deciding whether to switch to an ERP system is a critical choice. While the transition comes with challenges—not least of which are the time and resources required for implementation—the benefits usually outweigh the upfront cost.

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If your business is struggling with inefficiency, scalability, or disconnected systems, an ERP might be your solution. Here are five signs it’s time to make the switch:

1. Disconnected systems are slowing you down

Managing multiple tools that don’t integrate can lead to inefficiencies and errors. If your teams are constantly duplicating work or struggling to find accurate, up-to-date information, an ERP system can centralize your data and streamline your workflows.

2. Data errors are becoming costly

When you base critical decisions on outdated or conflicting information, the consequences can be expensive. An ERP ensures all departments access fresh, accurate data, reducing costly errors and improving decision-making.

3. Your processes can’t keep up with growth

As your business grows, your operations often become more complex. If your current systems are struggling to handle increasing demand or new locations, an ERP provides the flexibility and scalability to support long-term growth.

4. Reporting and insights are limited

If it takes a long time to run reports or you lack visibility into key metrics, it’s a sign your current tools are falling short. An ERP delivers real-time reporting and analytics, giving you actionable insights to make better decisions.

5. Compliance and security are becoming risks

Keeping up with regulatory requirements and safeguarding sensitive data can be difficult without the right tools. ERP systems help automate compliance processes and offer robust security measures to protect your business.

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How Ramp integrates with ERPs

Ramp is a finance automation platform that simplifies expense management and accounts payable (AP) for businesses of all sizes. With user-friendly tools and seamless integrations, Ramp helps teams improve visibility and save time and money.

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One of Ramp’s key strengths is its extensive ERP integrations. These integrations streamline financial workflows by automating processes, centralizing data, and providing real-time insights without adding unnecessary complexity to your systems.

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Here’s an example of how Ramp’s ERP integrations make financial management easier:

How Ramp sped up REVA Air Ambulance’s AP processes by over 80%

REVA Air Ambulance, a leader in medical air transportation, faced manual AP and expense management processes that caused delays and lacked visibility. Month-end reconciliations were time-consuming, and reimbursements often took up to six weeks.

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When REVA transitioned its ERP to Sage Intacct, it took the opportunity to search for a new expense management solution. By integrating Sage with Ramp, REVA enabled real-time syncing that provided instant visibility into transactions, while virtual cards simplified purchases and reduced the time spent chasing receipts and reconciling bank statements.

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Integrating with Ramp resulted in:

• 6 weeks saved on reimbursements, with real-time receipt matching
• 80%+ faster AP processes, reducing invoice handling time from 15–20 minutes to under 3 minutes
• 2 weeks faster month-end close process, now completed by the fifth of the month

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“We were able to mold Ramp to our company to set it up as needed within departments. But the biggest selling feature to us was the automatic, real-time integration with Sage,” said Seth Miller, Controller at REVA. “That was a no-brainer. Setting up and using the software is as simple as saying the alphabet—if not easier.”

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Ramp integrates seamlessly with multiple ERPs, not just Sage Intacct, eliminating the complexity of manual processes and enabling your business to operate more efficiently. This real-time connectivity ensures your team can focus on insights and growth instead of repetitive admin tasks.

How Ramp helps boost your ERP implementation

Ramp’s modern finance operations platform offers thousands of integrations with popular business tools and other apps to help you create a more streamlined financial workflow. Pairing Ramp with your ERP software helps you automate busywork and close your books faster:

• Effortless automation: Eliminate manual AP tasks with automated invoice processing, approval workflows, and vendor payments, saving hours every week
• Unmatched visibility: Access real-time insights into expenses and cash flow to make data-driven decisions without delays or guesswork
• Real-time data flow: Ramp imports all your transactions to your ERP in real time for 24/7 syncing of financial data, reducing errors and keeping your systems aligned

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Learn more about how Ramp’s ERP integrations help your finance team move faster, save money, and make better business decisions.