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what is erp and how does it work

What Is ERP, and How Does It Work with CPQ?

As a business leader, you know that keeping track of your data is critical to running your business smoothly and reaching your strategic goals. However, if you’re like most, you’re trying to juggle multiple spreadsheets and documents from different departments with varying data collection, update, and storage processes. 

While doing things this way may work for smaller businesses, it rarely remains viable for growing enterprises. What’s the fix for this often frustrating way of doing things? It may be time to look into an ERP system. 

What does ERP stand for in business? It’s an acronym for Enterprise Resource Planning System. Far from simple business management software, this solution integrates all parts of your business and helps everyone work together toward the same goal using the same critical information. 

If you’re interested in learning more about what an ERP is and the benefits and challenges associated with using one, this guide is for you.

What is ERP and How Does it Work?

Simply put, ERP is business software that combines every aspect of an organization to make data and insights available for widespread usage. While the idea of an enterprise resource management solution may sound grand, it is a complex system comprising many moving parts. 

Read on to discover more about what an ERP is, the components that make it work, and the deployment models that allow businesses to take full advantage of its features.

Enterprise Resource Planning, Explained

In a typical enterprise, data is usually created in silos. Different departments maintain their systems and processes for creating, storing, and analyzing data. Some use spreadsheets, while others use business management software, but no one can freely access anyone else’s data. 

That eventually becomes a problem as everyone works with and makes decisions based on different information. Stakeholders waste time hunting down the correct data, bringing collaboration and productivity to a grinding halt. Trust also becomes hard to come by, as governance and leadership teams have yet to learn how the data they receive is generated or manipulated.

An Enterprise Resource Planning System seeks to solve this problem through automation. ERPs create a central source of truth through a database that pulls information from accounting, manufacturing, supply chain management, sales, marketing, human resources, and more. 

The result is that every department has visibility into the data they need with no conflicting information holding up decision-making. It also allows you to analyze that data to discover insights and opportunities for cost-savings and better productivity.

ERP Modules

You may wonder, “What is ERP, and how does it work?” Knowing that an ERP system does not integrate different applications is essential. Instead, it is one application that offers 13 different modules. These modules all pertain to and are customized for various departments or business functions, including the following: 

  • Finance: Manages all financial data and processes, including the general ledger, AR/AP transactions, reconciliation, and financial reporting
  • Procurement: Manages all purchasing tasks to minimize over and underbuy
  • Manufacturing: Monitors and coordinates the process, linking it to consumer demand
  • Inventory Management: Displays and updates inventory levels in real-time, measuring metrics and helping to keep the right amount of stock on hand 
  • Order Management: Tracks and prioritizes customer orders 
  • Warehouse Management: Directs receiving, picking, packing, and shipping, identifying inefficiencies within each
  • Supply Chain Management: Helps with the planning and coordination of sourcing and manufacturing based on customer demand data
  • Customer Relationship Management (CRM): Stores and tracks information about customer service and lead management
  • Project Management / Project Service Resource Management: Usually used in services businesses to track projects and the resources used on each of them
  • Workforce Management: Tracks attendance, hours worked, and payroll down to the individual employee level
  • Human Resources Management: Creates and stores employee records and provides workforce trend data
  • E-Commerce: Updates product pages and manages front and backends of the online business
  • Marketing Automation: Manages email, web, and social media marketing to personalize messaging and optimize all promotional material

In most configurations, business leaders can choose which modules benefit them most and customize each to meet specific needs.

Types of ERP Deployment Methods

ERP solutions, just like any other type of modern software, can be deployed in various ways depending on the needs of your enterprise. 


Perfect for businesses with their own IT staff, this model requires the company to host the application and all necessary infrastructure on campus. The business is responsible for all server maintenance, security, and application updates.

Hosted Cloud

With a hosted cloud solution, a company purchases a license to use the software but hosts it on remote third-party servers rented from a hosting company. Data is stored in a private cloud on single-tenant servers. That gives clients maximum control but is more challenging to manage than a proper cloud solution.

True Cloud

How do ERP systems work when deployed exclusively in the cloud? Like a SaaS model, businesses pay a fee to use the software while the vendor manages everything else. Consequently, this arrangement doesn’t require assistance from an in-house IT team. Unlike hosted cloud deployments, cloud configurations are usually multi-tenant.


Hybrid deployment is a mix of on-premises and cloud solutions. Some companies deploy their hybrid solution with an on-premises model at the corporate headquarters and use the cloud for subsidiaries worldwide. Others use on-premises for specific functions while using the cloud for others. With this model, companies must find a way to link the on-premises and cloud solutions so that information doesn’t get lost.

Open Source

Open source deployments allow companies to use ERP software free of cost, only paying for cloud hosting when needed. The trade-off is that support is minimal, and installation, configuration, and customization are entirely up to business leaders. Working with open-source software often requires IT staff with software development expertise to ensure it operates properly.

Benefits of ERP Management Systems

ERP applications seek to provide businesses with the data management and analysis tools needed to drive improvements in every area of the enterprise. Here’s how the robust features of these types of applications can benefit a business and its stakeholders.

Improve Company Insight

An ERP management system can pull all types of data from across the organization. Because the system acts as a central source of truth, governance and leadership teams can always rest assured that the information they have in hand has been updated in real time. 

Not only does this provide unmatched visibility into the level of productivity and performance in each department, but it also allows company leaders to aggregate, slice, and analyze data in various ways to uncover trends, opportunities, and areas needing improvement. In this way, accessing all necessary data through a central source of truth that ERP systems provide leads to better decision-making throughout the enterprise.

Lowers Operational Cost

Simply put, manual processes are expensive. Not only do they cost the company time by cutting into employee efficiency, but doing things this way also costs money as the business has to hire more people to achieve an acceptable productivity level. Fortunately, ERP systems make these high operational costs a thing of the past.

An ERP application automates processes so employees do less repetitive tasks and focus more on the meaningful work that moves them closer to their goals. These applications also make it easier to spot and eliminate inefficiencies and errors that could drive up costs for the company.

Encourages Collaboration

Research shows that effective collaboration in the workplace can increase innovation and sales by nearly 30%. Employees across the organization are more effective when they can work together and share information. 

What is an ERP if not a means to encourage and facilitate collaboration between departments? These solutions get the job done by busting data silos and giving teams appropriate access to the information they need to make sound decisions. 

For example, a product development team can access information about customer complaints to help them decide what features to add or alter. HR managers can access performance review data to make workforce planning decisions.

Improves Inefficiency

When different teams operate independently, it creates redundancies and inefficient processes that waste precious resources. Locating and asking for spreadsheets and other documents and cross-referencing data to find the correct and most up-to-date information is time-consuming and contributes to an inefficient workflow.

An ERP system can help the business correct these inefficiencies by giving authorized parties self-service access to a central source of truth. It eliminates the need to track down or reconcile records, leaving more time for teams to focus on the tasks that drive business growth.

Provides Infrastructure

Your digital infrastructure is the foundation of your business. It is what connects internal and external stakeholders, automates systems and processes, and provides your business with the resources to grow and thrive. It supports and powers every part of your business.

ERP systems play a significant role in your digital infrastructure, facilitating the accurate and efficient movement of data throughout your organization. It allows leadership teams to detect business needs and respond quickly. These systems seamlessly integrate all parts of the business, ensuring employees have the information and documentation necessary to do their jobs correctly.

Improves User Adoption Rates

When your organization’s leadership teams decide to adopt an ERP system, everyone from the executive team to the customer service representatives must be on board with the change. Without widespread adoption, stakeholders will not be able to have a consistently updated central source of truth for business data.

ERP systems improve user adoption rates because most teams recognize the benefits these applications bring to the organization. Because you can tailor modules to each department, employees generally find them easy to use and integrate within existing workflows, increasing the likelihood of immediate adoption.

Reduces Risk

Many business leaders don’t realize that working with outdated and inaccurate data is risky. If you are making decisions for the business based on the wrong information, you risk wasting resources and missing out on growth opportunities. 

In some cases, having the wrong information can lead to compliance issues. Not only does this open your organization to fines and penalties, but it can also result in business shutdowns and loss of customer trust. An ERP system that keeps information up-to-date and reduces errors by automating processes helps eliminate these compliance risks and ensures the business stays clear with regulatory agencies.

Challenges of ERP Solutions

Now that you know “what is an ERP and how does it work,” it’s time to disclose some operational setbacks. As beneficial as the software may be, ERP business processes come with their fair share of challenges. From figuring out costs and customization needs to working out the details of data migration and security compliances, there are many issues your team will likely have to overcome when adopting a new ERP for your organization. 

Read on to discover common problems and how your teams can work together to overcome them.

Cost of implementation

The software was extremely expensive to purchase and update early in the development of ERP systems. That often meant that only large corporations could use and benefit from these platforms. 

However, technological advancements and the adoption of cloud options have made pricing much more accessible to companies of all sizes. Those who want to save are far better off choosing cloud deployment and allowing a third-party vendor to take care of maintenance, updates, and security.

It’s also essential for leadership teams to think about the cost savings they’ll enjoy simply by using an ERP system in their business. Achieving greater efficiency and productivity and eliminating data errors will likely save your enterprise a significant amount of money, further driving down the cost of the software.

Data Migration and Integration

Many ERPs use data formats that are compatible with the specific platform. That makes it highly likely that some of your data will have to be converted into a version your chosen ERP platform can use. If you’re already using other business management platforms, each team will need to migrate their data to the new ERP platform and integrate it so that the central database can access it. 

With any data migration project comes the risk of data loss, corruption, duplication, and inconsistencies. If you don’t correctly handle the files, it can be devastating. If your chosen software vendor offers data migration assistance, allow them to at least participate in the process to minimize the chances of issues occurring.

Customization Complexity

Today’s robust ERP applications offer hundreds of customizations to ensure your enterprise can integrate the solution into your everyday workflows. However, you must realize that these custom features add to the complexity of the software. While modern systems are far easier to use than their legacy counterparts, recognize that new and complex systems can still be challenging for employees to navigate.

To combat this issue, limit customizations to only what your employees need to maximize productivity and efficiency. Furthermore, give each employee access to only the modules, dashboards, and information required so you can keep confusion to a minimum. Finally, include adequate training in your ERP rollout plans to ease employees’ concerns about using the software.

Vendor Lock-In

Vendor lock-in happens when you depend on one ERP vendor for all your business management software needs. You must keep paying for the product because switching to another vendor would be too cumbersome. That isn’t good for any business because it limits your ability to obtain better pricing or features elsewhere.

The best way to avoid this issue is to thoroughly evaluate your options and choose a vendor that offers maximum flexibility. The software should integrate with other applications, and the vendor should provide a clear exit strategy for those who decide to leave. If you lose functionality when you customize your software or migrate data elsewhere, look for a different solution.

Scalability Issues

Some ERP systems face performance issues when you attempt to increase the number of users or the amount of data within the system. On-premises deployments can be especially vulnerable to these scalability problems, especially if your existing infrastructure cannot handle the increased workload.

Before you implement an ERP solution, make sure that you meet with your IT manager to discuss both current and future software needs so you can adequately plan for scaling needs. Consider a hybrid or true cloud deployment, as they often make scaling much easier and quicker. 

Security Concerns

You must ensure your ERP security is airtight if you handle sensitive customer data. Otherwise, you may face fines and penalties due to a lack of compliance and run the risk of a data breach. 

To combat common security issues, your IT team must have data access controls and a data governance plan for your ERP application. Try to limit customizations and integrations that may result in additional vulnerabilities. Train your employees on password hygiene best practices and multi-factor authentication, and monitor your system using cybersecurity software. 

It may seem cumbersome now, but doing these things will provide better protection.

Training and User Adoption

You must find a way to provide your employees with extensive training on the new ERP platform. Often, cloud-based software companies can do this for you. If not, your in-house IT manager or team must handle it. 

The better your training and the more modern your software, the easier it will be to get employees and teams on board with using it. Ensure you provide ongoing support to employees as they adopt the new system to reduce frustration and increase the likelihood of total buy-in.

Maintenance Updates

Regular ERP application maintenance and updates are vital. Not only does this ensure the continuity of security features as new patches are released, but it’s critical for maximum performance and access to new software features. 

If you choose an on-premises deployment, application maintenance and updates will be your responsibility. If you don’t have an in-house IT team who can dedicate time to maintaining your ERP system, opt for a cloud solution so you can offload this task to a third-party vendor. With this solution, your maintenance costs are usually baked into your monthly or yearly subscription fee, so there’s no need to worry about paying extra.

Performance Bottlenecks

ERPs are powerful tools, but the sheer scope of the software can sometimes mean that it runs slow or faces performance issues. If you use a cloud-based ERP solution, the product vendor will need to help you solve performance issues, as they control nearly every aspect of the infrastructure required to run the application. 

If you are using an on-premises setup, your IT team must take on the responsibility of identifying the source of the problem and figuring out whether it’s a hardware, software, network, data, or user behavior issue. Your team will then have to decide on and implement an appropriate solution, evaluate results, and optimize the system so the problem doesn’t happen again.

Optimize quotes in CPQ with data from ERP

ERP and supply chain management systems holds data about stock levels, delivery times and currency factors. These data can be important when building an optimal deal for a customer in CPQ, for instance avoiding parts with long lead times. With Tacton CPQ’s API for Product Modeling any business-critical parameter from your ERP or SCM can be pulled into your product model in Tacton CPQ, driving the selection of products variants based on customer’s purchasing drivers. By connecting supply chain with CPQ, your order fulfillment organization is better positioned to deliver on the promises in the quote.

Simplify Manufacturing Challenges with Tacton

Making the best use of Enterprise Resource Planning applications is about automating and simplifying processes so that every stakeholder in the organization has access to the necessary resources to make good decisions that move the company forward. That is the goal behind Tacton’s Configure-Price-Quote (CPQ) software.

Tacton’s revolutionary solution breaks internal silos and secures profitability by considering all aspects of the product journey upfront during the quote process, including customer needs, sales channels, compliance, fulfillment, and serviceability. That allows Tacton’s CPQ software to provide product configurations that yield accurate quotes for each product variant without involving another team.

Best of all, Tacton’s CPQ software integrates seamlessly with your existing ERP solution, ensuring sales, order fulfillment, and every other team in your organization can make decisions based on up-to-the-minute data. You can ease internal frustration, reduce manufacturing errors, and elevate the customer experience by connecting your customer service, sales, and engineering divisions for better data governance.

With these features, it’s no wonder that Tacton Systems CPQ solution is the top choice to help solve complications and issues facing global manufacturers today.



Author: Michael Brassea