Enterprise resource planning (ERP) systems provide a unified platform for organizations to handle financial reporting, supply chains, and production. Although ERP systems are typically associated with large enterprises, smaller businesses increasingly use affordable cloud ERPs to manage inventory, purchasing, finances, and staff from one dashboard.
Read on to learn how ERP solutions work, with examples of how businesses use ERP systems to improve their operations.
What is an ERP system?
Modern ERP systems bring an organization’s core business processes—financial management, procurement, inventory, manufacturing, order management, and human resources—onto a single platform running on a centralized data repository. Sharing information between separate systems breaks down data silos, avoids duplication, and reduces the time needed to reconcile and update records, giving businesses a single source of truth for tasks such as forecasting or reporting.
An ERP solution can combine elements of accounting software, customer relationship management (CRM) apps, warehouse management systems, and human resources systems, providing the operational backbone that supports ecommerce platforms such as Shopify.
For example, when customers purchase products from a Shopify store, that order data can be passed on from the ecommerce platform to an integrated ERP for invoicing and financial reporting.
An ERP system may replace some of the software a small or midsize business already uses, such as accounting or inventory management, while integrating with others, such as a CRM or HR system. For example, a business may migrate from QuickBooks to an ERP accounting module made by NetSuite or Microsoft Dynamics, but continue to use Salesforce or HubSpot for customer management and marketing.
How does an ERP system work?
ERP platforms work by unifying an organization’s business functions into ERP modules that all read from and write to a single shared database, so that changes made in one module can flow to other relevant modules.
ERP systems are based on three fundamental concepts:
Modules
ERP platforms contain a set of interconnected modules, each dedicated to a particular aspect of the business. Because different businesses may need different modules—a business that sells finished goods might need finance and inventory, but not manufacturing—ERP systems are flexible and can adapt as needed.
Centralized database
Every ERP module reads from the same database, so updates to one module are reflected in every other relevant module. For example, when a customer orders a product, that purchase is automatically recorded in the warehouse management module (reducing the available stock), the finance module (adding to the day’s revenue total), and the CRM (updating the customer’s purchase history).
Automation
With all the core modules working from the same data, the ERP system can trigger downstream actions automatically and reduce manual hand-offs between departments. For instance, when inventory for a popular product drops below a specified threshold, ERP software can automatically generate a purchase order and send it to the supplier.
What are the most common ERP modules?
- Finance and accounting
- Inventory management
- Supply chain management
- Manufacturing and production
- Order management
- Human resources
- Customer relationship management
- Business intelligence
A typical ERP platform contains a set of core ERP modules, each covering a distinct business function, plus optional add-ons such as service management or field operations that run on the same database. Here are the most common modules:
Finance and accounting
This is usually the anchor module of an ERP system, because nearly every activity in other modules eventually rolls up into a financial record. This module controls the general ledger, accounts payable and accounts receivable, expense management, financial reporting, and tax compliance. These are financial processes that your business would otherwise run across several different tools.
Inventory management
The inventory module tells you, at any given moment, exactly how much of a given product you have available to sell. The inventory management tools in this module track stock levels, locations, and movement across one or more warehouses in real time.
Supply chain management
The supply chain management module is responsible for making sure the right inputs arrive at the right time to keep production or fulfillment running. It coordinates procurement, monitors vendor relationships, issues purchase orders, and tracks logistics from raw materials through to delivery.
Manufacturing and production
ERP systems typically have industry-specific solutions for manufacturing and production because these workflows vary significantly between, say, food processing and industrial equipment manufacturing. Manufacturing and production modules handle bills of materials, production scheduling, and shop floor management for businesses that make (rather than simply resell) products. Some vendors also have product life cycle management tools that follow a given product from design through discontinuation.
Order management
For merchants selling across channels outside of Shopify’s connected channels, this module can reconcile all of a business’s orders into a single queue. Shopify’s online sales channels already unify orders from Shopify-connected channels like Shop, Google, social channels, and online marketplaces into one queue. Merchants who also sell through separate systems, such as a wholesale portal, can use an ERP to consolidate those orders alongside Shopify’s, route them to the appropriate fulfillment process, and track their status.
Human resources
Although this module isn’t directly tied to business operations, it shares the same database so that labor and staff costs are factored into broader financial reporting. The human resources module handles employee records, payroll, benefits administration, and resource management such as scheduling.
Customer relationship management
CRM functionality may be built into an ERP or connected as a separate system. The CRM module tracks the sales pipeline, customer records, and support interactions.
Business intelligence
Because it sits on top of the shared database, the business intelligence module is what turns data into insights that a manager or business owner can act on. It provides the dashboards and analytics that draw on data from every other module.
How are ERP systems deployed?
Businesses can use one of three basic ERP deployment models. The right choice largely depends on your budget, your technical resources, and how much you need to customize the ERP platform or control the data it relies on.
Cloud ERP
In this system the ERP platform is hosted by a software-as-a-service (SaaS) provider and is accessible via your browser. Cloud-based ERP systems typically mean lower upfront costs, faster deployment, and minimal maintenance for users. This is an increasingly popular deployment model for new ERP implementations, particularly among small and midsized businesses.
On premises ERP
Here the business hosts the ERP software on its in-house servers, managing infrastructure, updates, and security. This involves higher upfront costs and more IT overhead, including ongoing maintenance and security patching, but it also affords more control over customization, data residency, and integration with legacy systems.
An on-premises ERP system tends to suit enterprises that already have significant infrastructure in place, or where regulatory compliance requires strict control over where data lives and who has access.
Hybrid ERP
In a hybrid scheme, the business hosts some modules or data on premise and keeps the rest in the cloud. For example, if you’re a midsize manufacturer that sells your own products directly to consumers, you might keep legacy shop-floor management systems on premise, while your inventory, finance, and order management reside in the cloud. Businesses in the process of migrating to the cloud may also maintain some systems in house as they make the transition.
How do ERP systems integrate with Shopify?
Shopify is an ecommerce operating system, not an ERP platform. But it can connect to leading third-party ERP vendors that can unify a storefront’s business to business (B2B), retail, and back office data. Businesses can integrate with other popular ERP systems using connectors available in the Shopify App Store, custom APIs that help disparate systems communicate, or third-party integration platform as a service (iPaaS) providers.
Shopify has the following three types of ERP connections:
Certified partners
For sellers using major enterprise ERP solutions, Shopify has a Global ERP Program—a curated set of certified integration apps built with ERP partners, including Acumatica, Microsoft Dynamics 365 Business Central, and NetSuite. Because these integrations are built and maintained in partnership with the ERP vendors, they tend to offer Shopify stores more reliable, better-supported data management than a generic integration.
B2B-specific integrations
Sellers running wholesale or B2B operations on Shopify can choose from a dedicated set of integrations purpose-built to sync company and customer records, order data, inventory, product catalogs, and pricing. This matters because B2B commerce often involves negotiated pricing, customized purchase orders, and company-level accounts that a standard direct-to-consumer (D2C) integration isn’t built to handle.
Enterprise and modular deployment
Through Shopify for enterprise, large operations can use all or part of Shopify’s platform—picking components like checkout or storefronts individually and integrating them into an existing technology stack, including ERP. Many enterprise businesses pair Shopify Plus with whichever ERP software they’ve already adopted. Though ERP solutions are available to all Shopify storefronts, merchants using Shopify Plus can take greater advantage of ERP functionality, with access to higher volumes of API calls and the ability to build logic into checkout and other business processes.
ERP system examples
Shopify businesses have deployed ERPs to solve a range of business problems, from consolidating their data and managing inventory to automating basic business processes so they can serve customers better. Here are a few examples.
Eliminating data silos
Before Death Wish Coffee Co. integrated Shopify Plus with their existing ERP platform, the company’s sales and inventory data were spread across a host of channels and locations. Now that it has a single source of truth, the company can track inventory across multiple locations and provide one automated report on how the business is doing in real time. That has allowed Death Wish to respond quickly to sudden spikes in demand, and to make faster decisions, says Founder Mike Brown. Death Wish has since reported 200% year-over-year top line growth.
“The data we have is scattered in 20 different places but with the integration all of the data is automatically consolidated and right there at my fingertips,” Mike says.
Real-time analysis
When the silk clothing brand SilkSilky looked to expand internationally, they decided to integrate Shopify Plus with its own custom ERP. SilkSilky used its ERP to get real-time data for sales forecasts, production schedules, inventory estimates, and stock levels, letting the business get a better handle on costs and production cycles. The ability to analyze real-time ERP data helped SilkSilky cut procurement costs by about 20% in the first year and a further 30% in the second, savings that the business passed on to its customers. After integrating Shopify Plus with its ERP, SilkSilky boosted sales by 680% over a span of just two years.
ERP data helps the brand minimize waste and reduce costs, allowing SilkSilky to pass savings on to consumers.
Live inventory tracking
For 50 years, Busy Bee Tools has sold high-quality hardware to customers in Canada. But as the company expanded, managing both its physical locations and burgeoning online presence became more complex. Relying on a legacy ERP for its brick-and-mortar business and BigCommerce for online sales led to operational silos and a disconnected customer experience.
Transitioning from BigCommerce to Shopify Plus and Microsoft Dynamics 365 Business Central transformed Busy Bee’s operational efficiency. That consolidated data helped the company build a warehouse management system that tracks inventory in real time across its nine retail stores. Now online customers can see exactly how much of any tool is currently available at any Busy Bee location. Orders that used to take 24 to 36 hours to fulfill now ship in as few as four hours, and in-store pickups are ready within two.
“Company culture has vastly improved,” says Busy Bee President Hanif Balolia. "Our stores love how much faster they can fulfill orders for customers."
Seamless automation
After Boll & Branch integrated the NetSuite ERP into their ethical-bedding-supply business, the retailer was able to connect multiple tools to automate time-consuming manual processes. For example, when customers purchase a mattress from Boll & Branch’s online shop, the system automatically routes the order to the factory closest to the delivery address, minimizing shipping costs.
Because Boll & Branch sells to third-party retailers as well as direct to consumers, they used their ERP platform to create a virtual warehouse system that allocates inventory separately to wholesale partners and direct customers. This helps ensure the company can always meet commitments to its partners while offering consumers real-time information on product availability. Its ERP system is one part of a replatforming onto Shopify, which has helped boost Boll & Branch’s annual revenue by 430%, to more than $100 million a year.
“Automation handles 99% of processes, but we recognize that human intervention is sometimes necessary,” says David Reid, Boll & Branch’s chief operating officer and chief financial officer. “The platform makes these exceptions easy to manage without disrupting the overall workflow.”
ERP system examples FAQ
What are ERP systems?
ERP (enterprise resource planning) systems are business management software platforms that centralize an organization’s core business functions—finance, inventory, procurement, manufacturing, HR—into one integrated solution running on a shared database. This lets different departments work from the same real-time data instead of maintaining separate, unconnected records.
How do ERP systems work?
Because ERP software unifies business operations using a single database, one ERP module can trigger actions by other ERP modules. For example, when a customer places an order, an ERP platform can automatically update inventory counts, record the revenue in the finance module, and log the purchase in the customer’s CRM record.
What are the leading ERP systems?
Shopify’s ERP software comparison includes SAP, Oracle NetSuite, Microsoft Dynamics 365, Infor, and Epicor.
Is Excel ERP software?
No. Excel is a spreadsheet tool you can use to track data manually, but it lacks the core traits of an ERP—a shared real-time database, interconnected modules, and automated cross-functional updates—so businesses typically outgrow it once they need multiple people or departments working from consistent, live data.
