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Enterprise Resource Planning (ERP): Meaning, Components, and Examples

enterprise resource planning definition in business

What Is Enterprise Resource Planning (ERP)?

Enterprise resource planning (ERP) is a platform companies use to manage and integrate the essential parts of their businesses. Many ERP software applications are critical to companies because they help them implement resource planning by integrating all the processes needed to run their companies with a single system.

An ERP software system can also integrate planning, purchasing inventory, sales, marketing, finance, human resources, and more.

Key Takeaways

  • ERP software can integrate all of the processes needed to run a company.
  • ERP solutions have evolved over the years, and many are now typically web-based applications that users can access remotely.
  • Some benefits of ERP include the free flow of communication between business areas, a single source of information, and accurate, real-time data reporting.
  • There are hundreds of ERP applications a company can choose from, and most can be customized.
  • An ERP system can be ineffective if a company doesn't implement it carefully.

Investopedia / Joules Garcia

Understanding Enterprise Resource Planning (ERP)

You can think of an enterprise resource planning system as the glue that binds together the different computer systems for a large organization. Without an ERP application, each department would have its system optimized for its specific tasks. With ERP software, each department still has its system, but all of the systems can be accessed through one application with one interface.

What Does ERP Do?

ERP applications also allow the different departments to communicate and share information more easily with the rest of the company. It collects information about the activity and state of different divisions, making this information available to other parts, where it can be used productively.

ERP applications can help a corporation become more self-aware by linking information about production, finance, distribution, and human resources together. Because it connects different technologies used by each part of a business, an ERP application can eliminate costly duplicates and incompatible technology. The process often integrates accounts payable, stock control systems, order-monitoring systems, and customer databases into one system.

How Does It Work?

ERP has evolved over the years from traditional software models that made use of physical client servers and manual entry systems to cloud-based software with remote, web-based access. The platform is generally maintained by the company that created it, with client companies renting services provided by the platform.

Businesses select the applications they want to use. Then, the hosting company loads the applications onto the server the client is renting, and both parties begin working to integrate the client's processes and data into the platform.

Once all departments are tied into the system, all data is collected on the server and becomes instantly available to those with permission to use it. Reports can be generated with metrics, graphs, or other visuals and aids a client might need to determine how the business and its departments are performing.

A company could experience cost overruns if its ERP system is not implemented carefully.

Benefits of Enterprise Resource Planning

Businesses employ enterprise resource planning (ERP) for various reasons, such as expanding, reducing costs, and improving operations. The benefits sought and realized between companies may differ; however, some are worth noting.

Improves Accuracy and Productivity

Integrating and automating business processes eliminates redundancies and improves accuracy and productivity. In addition, departments with interconnected processes can synchronize work to achieve faster and better outcomes.

Improves Reporting

Some businesses benefit from enhanced real-time data reporting from a single source system. Accurate and complete reporting help companies adequately plan, budget, forecast, and communicate the state of operations to the organization and interested parties, such as shareholders.

Increases Efficiency

ERPs allow businesses to quickly access needed information for clients, vendors, and business partners. This contributes to improved customer and employee satisfaction, quicker response rates, and increased accuracy rates. In addition, associated costs often decrease as the company operates more efficiently.

ERP software also provides total visibility, allowing management to access real-time data for decision-making .

Increases Collaboration

Departments are better able to collaborate and share knowledge; a newly synergized workforce can improve productivity and employee satisfaction as employees are better able to see how each functional group contributes to the mission and vision of the company. Also, menial and manual tasks are eliminated, allowing employees to allocate their time to more meaningful work.

ERP Weaknesses

An ERP system doesn't always eliminate inefficiencies within a business or improve everything. The company might need to rethink how it's organized or risk ending up with incompatible technology.

ERP systems usually fail to achieve the objectives that influenced their installation because of a company's reluctance to abandon old working processes. Some companies may also be reluctant to let go of old software that worked well in the past. The key is to prevent ERP projects from being split into smaller projects, which can result in cost overruns.

Employing change management principles throughout the ERP life cycle can prevent or reduce failures that compromise full implementation.

Some familiar names are leaders in ERP software. Oracle Corp. ( ORCL ) originally supplied a relational database that integrated with ERP software developed by SAP ( SAP ) before entering the broader enterprise market in a big way in the early 2000s. Microsoft ( MSFT ) has long been an industry leader, with many customers using multiple software applications from the company.

As cloud-based solutions have grown in popularity in recent years, the traditional ERP industry leaders have seen challenges from upstarts such as Bizowie and Workwise.

ERP Examples

Fulton & roark.

Men's grooming product maker Fulton & Roark successfully implemented enterprise resource planning to better track inventory and financial data. Like many other businesses, the North Carolina company used spreadsheets to track inventory and accounting software to record financial data.

As the company grew, its processes lagged. Their antiquated inventory tracking system did not account for changing costs, and the accounting software could not record the metrics needed for key financial statements. These breakdowns created manual processes, which further compromised time and resources.

To eliminate unnecessary processes and centralize work, they chose the Oracle NetSuite ERP system. Immediately, Fulton & Rourk was better able to identify accounting errors related to inventory, eliminate costs from employing third parties to evaluate their financial records, and better report financial positions.

Cadbury, a global confectioner and maker of the popular chocolate Cadbury egg, also successfully implemented an ERP system. The company had thousands of systems but could not keep pace with its rapid growth and used ineffective warehouse management systems.

It implemented a system that integrated its thousands of applications, standardized processes, and restructured warehouse management systems—breaking down silos for seamless, integrated coordination of work.

What Is the Importance of Enterprise Resource Planning?

Enterprise resource planning software offers single-system solutions that integrate processes across the business. These applications allow users to interact within a single interface, share information, and enable cross-functional collaboration. They increase productivity, collaboration, and efficiency.

What Are the 5 Components of ERP?

The components of an ERP system depend on the organization's needs. However, there are key features that each ERP should include. Generally, packages include finance, human resource, logistics and manufacturing, supply chain management, and customer relationship management.

What Are the Types of ERP?

Generally there are three deployment options for ERP systems; Cloud-based, on-premise, and a hybrid of the two. Within these options, a business can choose from hundreds of types such as finance, supply chain management, and human resource management.

What Are the 2 Main ERP Applications?

Which ones are the main applications depends on the business and the industry it operates in. Most companies can benefit from supply chain management, logistics, and financial applications to help them streamline their operations and expenses.

Enterprise resource planning (ERP) manages and integrates business processes through a single system. With a better line of sight, companies can better plan and allocate resources. Without ERP, companies tend to operate in silos, with each department using its own disconnected system.

ERP systems promote the free flow of communication and sharing of knowledge across an organization, the integration of systems for improved productivity and efficiencies, and increased synergies across teams and departments. However, moving to an ERP system will be counterproductive if the company's culture does not adjust to the change and the company does not review how the structure of its organization can support it.

Oracle. “ Oracle for SAP Technology Update ,” Page 42.

Microsoft. “ Annual Report 2021 .”

Workwise. “ About Us .”

Bizowie. “ A Different Kind of Enterprise Software Company .”

Oracle NetSuite. “ Fulton & Roark .”

Oracle NetSuite. “ 3 Successful ERP Implementation Case Studies .”

Microsoft. “ Mondelēz International Moves to Microsoft Azure for Great SAP Performance and AI Innovation .”

SAP. “ How Does Support From a Dedicated Engagement Team Accelerate Digital Transformation? ,” Page 3.

enterprise resource planning definition in business

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enterprise resource planning definition in business

Enterprise resource planning—Overview

Definition of enterprise resource planning (erp), what is an erp system, what’s the difference between erp and financials, erp fundamentals, the business value of erp, a brief history of erp, erp deployment models: from on-premises to the cloud, cloud erp—a new erp delivery model, 7 reasons to move to an erp cloud solution.

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Enterprise resource planning (ERP) refers to a type of software that organizations use to manage day-to-day business activities such as accounting , procurement , project management , risk management and compliance , and supply chain operations . A complete ERP suite also includes enterprise performance management , software that helps plan, budget, predict, and report on an organization’s financial results.

ERP systems tie together a multitude of business processes and enable the flow of data between them. By collecting an organization’s shared transactional data from multiple sources, ERP systems eliminate data duplication and provide data integrity with a single source of truth.

Today, ERP systems are critical for managing thousands of businesses of all sizes and in all industries. To these companies, ERP is as indispensable as the electricity that keeps the lights on.

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How can these solutions manage organizations day-to-day business activities, such as accounting, finance, procurement, project management, supply chain, and manufacturing.

Enterprise resource planning systems are complete, integrated platforms, either on-premises or in the cloud, managing all aspects of a production-based or distribution business. Furthermore, ERP systems support all aspects of financial management, human resources, supply chain management, and manufacturing with your core accounting function.

ERP systems will also provide transparency into your complete business process by tracking all aspects of production, logistics, and financials. These integrated systems act as a business's central hub for end-to-end workflow and data, allowing a variety of departments to access.

ERP Systems and software support multiple functions across the enterprise, mid-sized, or small businesses, including customizations for your industry.

Although the term “financials” is often used when describing ERP software, financials and ERP are not the same thing. Financials refers to a subset of modules within ERP .

Financials are the business functions relating to the finance department of an organization and includes modules for financial accounting, subledger accounting, accounting hub, payables and receivables, revenue management, billing, grants, expense management, project management, asset management, joint venture accounting, and collections.

Financials software uses reporting and analytical capabilities to comply with the reporting requirements of governing bodies, such as the International Financial Reporting Standards Foundation ( IFRS ), Financial Accounting Standards Board (FASB) for Generally Accepted Accounting Principles in the United States (GAAP), as well as for other countries (HGB in Germany and PCG in France, for example).

For public organizations, financials software has to be able to produce periodic financial statements for governing regulators, such as the US Securities and Exchange Commission ( SEC ) (with reports such as quarterly 10-Q and annual 10-K), European Securities and Markets Authority ( ESMA ), and others. For these types of financial reports, a narrative reporting tool is used. The person who is ultimately responsible for financials is the CFO.

While financials handles one area of the business, ERP encompasses a wide range of business processes—including financials. ERP software can include capabilities for procurement , supply chain management , inventory, manufacturing, maintenance, order management, project management, logistics, product lifecycle management, risk management , enterprise performance management (EPM), human resources/human capital management .

ERP also integrates with front-office applications to build holistic views of customers, including customer relationship management ( CRM ) solutions. Additionally, cloud-based ERP applications are often embedded with next-generation technologies, such as the internet of things (IoT), blockchain, AI, machine learning, and digital assistants. These advanced technologies deliver data and capabilities that not only enhance many traditional ERP functions; they create new opportunities for increased efficiencies, new services, and deeper insight across an enterprise. Since ERP systems are comprehensive across an enterprise, their management often involves a partnership with the CFO as well as the CIO, COO, and other key executive leaders.

Cloud-based ERP applications are often embedded with next-generation technologies, such as the internet of things ( IoT ), blockchain , AI, machine learning, and digital assistants.

ERP systems are designed around a single, defined data structure (schema) that typically has a common database. This helps ensure that the information used across the enterprise is normalized and based on common definitions and user experiences. These core constructs are then interconnected with business processes driven by workflows across business departments (e.g. finance, human resources, engineering, marketing, and operations), connecting systems and the people who use them. Simply put, ERP is the vehicle for integrating people, processes, and technologies across a modern enterprise.

See how industry analysts compare Oracle Cloud ERP against other financial management software providers.

For example: consider a company that builds cars by procuring parts and components from multiple suppliers. It could use an ERP system to track the requisition and purchase of these goods and ensure that each component across the entire procure-to-pay process uses uniform and clean data connected to enterprise workflows, business processes, reporting, and analytics.

When ERP is properly deployed at this automotive manufacturing company, a component, for example, “front brake pads,” is uniformly identified by part name, size, material, source, lot number, supplier part number, serial number, cost, and specification, along with a plethora of other descriptive and data-driven items.

Since data is the lifeblood of every modern company, ERP makes it easier to collect, organize, analyze, and distribute this information to every individual and system that needs it to best fulfill their role and responsibility.

ERP also ensures that these data fields and attributes roll up to the correct account in the company’s general ledger so that all costs are properly tracked and represented. If the front brake pads were called “front brakes” in one software system (or maybe a set of spreadsheets), “brake pads” in another, and “front pads” in a third, it would be tough for the automotive manufacturing company to figure out how much is spent annually on front brake pads, and whether it should switch suppliers or negotiate for better pricing.

A key ERP principle is the central collection of data for wide distribution. Instead of several standalone databases with an endless inventory of disconnected spreadsheets, ERP systems bring order to chaos so that all users—from the CEO to accounts payable clerks—can create, store, and use the same data derived through common processes. With a secure and centralized data repository, everyone in the organization can be confident that data is correct, up-to-date, and complete. Data integrity is assured for every task performed throughout the organization, from a quarterly financial statement to a single outstanding receivables report, without relying on error-prone spreadsheets.

Trending in modern finance

The ERP landscape has shifted with the rapid evolution of software as a service (SaaS) cloud applications. Because of the mobile platforms and decentralized workforce–work anywhere and anytime–ERP systems can no longer be tied to yesterday’s on-premises back-office applications. The next-generation, cloud-based, and modern ERP solutions support the new industry dynamics while providing the ability to reduce support time to enable organizations to respond quickly to volatile markets and industry trends.

It’s impossible to ignore the impact of ERP in today’s business world. As enterprise data and processes are corralled into ERP systems, businesses can align separate departments and improve workflows, resulting in significant bottom-line savings. Examples of specific business benefits include:

  • Improved business insight from real-time information generated by reports
  • Lower operational costs through streamlined business processes and best practices
  • Enhanced collaboration from users sharing data in contracts, requisitions, and purchase orders
  • Improved efficiency through a common user experience across many business functions and well-defined business processes
  • Consistent infrastructure from the back office to the front office, with all business activities having the same look and feel
  • Higher user-adoption rates from a common user experience and design
  • Reduced risk through improved data integrity and financial controls
  • Lower management and operational costs through uniform and integrated systems

From paper cards to mobile devices The history of ERP goes back more than 100 years. In 1913, engineer Ford Whitman Harris developed what became known as the economic order quantity (EOQ) model, a paper-based manufacturing system for production scheduling. For decades, EOQ was the standard for manufacturing. Toolmaker Black and Decker changed the game in 1964 when it became the first company to adopt a material requirements planning (MRP) solution that combined EOQ concepts with a mainframe computer.

MRP remained the manufacturing standard until manufacturing resource planning (called MRP II) was developed in 1983. MRP II featured “modules” as a key software architectural component, and integrated core manufacturing components including purchasing, bills of materials, scheduling, and contract management. For the first time, different manufacturing tasks were integrated into a common system. MRP II also provided a compelling vision of how organizations could leverage software to share and integrate enterprise data and boost operational efficiency with better production planning, reduced inventory, and less waste (scrap). As computer technology evolved through the 1970s and 1980s, concepts similar to MRP II were developed to handle business activities beyond manufacturing, incorporating finance, customer relationship management, and human resources data. By 1990, technology analysts had a name for this new category of business management software—enterprise resource planning.

ERP's past: 1990s to the new millennium From the 1990s until the beginning of the twenty-first century, ERP adoption grew rapidly . At the same time, the costs of implementing an ERP system began to climb. The hardware required to run the software was typically on company premises, with big machines in a server room. Both the hardware and the software licenses required capital investments and depreciated over 5 to 10 years. In addition, organizations nearly always wanted to customize their ERP systems to fit their specific needs, entailing an additional expense of software consultants and training.

Meanwhile, ERP technology was evolving to embrace the internet, with new features and functionality such as embedded analytics. As time went on, many organizations discovered that their on-premises ERP systems couldn’t keep up with modern security demands or emerging technologies such as smartphones.

Software-as-a-service (SaaS) Enter the cloud—specifically, the software-as-a-service (SaaS) delivery model for ERP. When ERP software is delivered as a service in the cloud, it runs on a network of remote servers instead of inside a company’s server room. The cloud provider patches, manages, and updates the software several times a year—rather than an expensive upgrade every 5 to 10 years with an on-premises system. The cloud can reduce both operational expenses (OpEx) and capital expenses (CapEx) because it eliminates the need for companies to purchase software and hardware, or hire additional IT staff. These resources can instead be invested in new business opportunities, and the organization is always up-to-date on the most recent ERP software. Employees can shift their focus from managing IT to more value-added tasks such as innovation and growth.

For businesses of all sizes, including enterprise and small to midsize , retiring on-premises systems and moving entirely to the cloud all at once isn’t possible. Or, at the very least, it’s not something they’re comfortable doing within a short development window. Meanwhile, staying the course with an on-premises ERP, ignoring all the advantages of enterprise resource planning as a cloud solution, is no longer an ideal path, either. Why should you consider using cloud applications to replace or augment your on-premises system?

1. Readily adopt new and evolving SaaS technologies

Next-generation technologies, like artificial intelligence (AI), help cloud-based systems rapidly improve their capabilities with no need for periodic updates, unlike your legacy system. Now, with no additional or new input from the end-user, ERP systems continually become significantly easier to manage and use.

2. Extend the value of your existing ERP System

Augmenting and integrating legacy software with cloud applications can complement, enhance, and supplement important tasks. This approach can breathe new life into legacy ERP systems, giving businesses a great opportunity to start adopting cloud capabilities.

3. Access new technologies

Finding cloud applications that complement your legacy ERP software modules lets you immediately take advantage of rapidly advancing new technologies and improving user paradigms. These provide complimentary systems that deliver immediate business capabilities and value without a fundamental change in your operations.

4. Reduce third-party dependencies

Reporting and analytics for legacy systems typically require involvement from a third-party vendor to generate operational business intelligence. Using cloud applications from your legacy ERP vendor often produces the same or better intelligence without needing an additional vendor relationship.

5. Evolve your financial systems

Legacy systems were never meant to be modern reporting engines. Cloud-based technology was born in the last decade and developed, as a core principle, with an entirely different mindset and understanding of not only what was possible but what was needed to be successful for ERP platforms.

6. More robust security resources

Cloud solution service providers have large, full-time teams that are exclusively dedicated to proactively monitoring and staying current with cloud security issues and threats, 24 hours a day.

7. Attract in-demand talent

The next generation of young workers have grown up with seamless technology that is mobile, easy to use, and always-on. No company that continues to rely purely with on-premises technology will be able to recruit top talent, regardless of age.

Get started with Oracle ERP

Organizations have always struggled to balance traditional ERP’s high costs and complexity against the need for customized features and flexibility, all while meeting the demands of the business. Watch and learn how Oracle ERP Cloud delivers connected teams, unified data, and real-time insights to help you and your finance team ensure that the best business decisions are made. With ERP delivered as a service in the cloud, your organization can be future-ready and outpace change.

enterprise resource planning definition in business

One of the benefits of the SaaS model is that the software is kept up-to-date with the latest features, functions, and best practices. Cloud ERP providers roll out updates regularly (as often as monthly, in Oracle’s case). This means that the latest new and revolutionary emerging technologies—such as AI, digital assistants, machine learning, blockchain, augmented reality, and the Internet of Things (IoT)—become available to subscribers on a regular cadence.

With access to these new technologies, organizations can quickly improve their business best practices as the ERP software evolves. They can automate processes that used to require heavy manual intervention, such as reconciling financial accounts. In addition, users gain a comprehensive, real-time understanding of enterprise business activities not only in the front office, but also in warehouses, on factory floors, and everywhere else across the enterprise. This knowledge is then readily available to every appropriate employee on their mobile devices, including smartphones and tablets.

Built for the digital age, today’s ERP cloud embraces mobile, social, analytics, and the latest emerging technologies. Anything less won’t move an organization forward.

What is ERP in simple terms? ERP stands for enterprise resource planning. It’s a software system that includes all the tools and processes required to run a successful company, including HR, manufacturing, supply chain, finance, accounting, and more.

What are the 3 common types of ERP? The three most common types of ERP are on-premises, cloud-based, and hybrid ERP. An on-premises ERP system is run on-location on a company’s servers, while cloud-based ERP operates on a third-party, remote server. Hybrid ERP is a mix of both, often with an on-premises ERP at headquarters and cloud-based ERP systems at subsidiaries.

What is an example of ERP? One example of ERP is industry-specific ERP systems that meet the specific requirements for those business types and offer industry-specific capabilities like materials planning and specialized manufacturing records management. Because these systems offer such tailored features, businesses don’t have to do too much customization or integrate with many other external tools.

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  • Enterprise Resource Planning (ERP)

What is ERP?

  • What is cloud ERP?
  • Benefits of ERP
  • Replacing legacy ERP
  • Evaluating ERP software
  • ERP implementation best practices

Enterprise resource planning (ERP) is a software system that helps you run your entire business, supporting automation and processes in finance, human resources, manufacturing, supply chain, services, procurement, and more.

  • ERP definition in detail

ERP stands for enterprise resource planning, but what does ERP mean? The simplest way to define ERP is to think about all the core business processes needed to run a company: finance, HR, manufacturing, supply chain, services, procurement, and others. At its most basic level, ERP helps to efficiently manage all these processes in an integrated system. It is often referred to as the system of record of the organization.

Yet today’s ERP systems are anything but basic and have little resemblance to the ERP of decades ago. They are now delivered via the cloud and use the latest technologies – such as artificial intelligence (AI) and machine learning – to provide intelligent automation, greater efficiency, and instant insight across the business. Modern cloud ERP software also connects internal operations with business partners and networks around the world, giving companies the collaboration , agility, and speed they need to be competitive today.

Table of Contents

Why is ERP important?

Erp examples in different industries, how do erp systems work, common erp modules.

Types of ERP deployment

ERP integration

The total cost of erp.

  • History  and the  future of ERP

10 things to look for in an ERP system

Erp at any size: what are my options.

Sometimes described as “the central nervous system of an enterprise,” an ERP software system provides the automation, integration, and intelligence that is essential to efficiently run all day-to-day business operations. Most or all of an organization’s data should reside in the ERP system to provide a single source of truth across the business.

Finance requires an ERP to quickly close the books. Sales needs ERP to manage all customer orders. Logistics relies on well-running ERP software to deliver the right products and services to customers on time. Accounts payable needs ERP to pay suppliers correctly and on time. Management needs instant visibility into the company’s performance to make timely decisions. And banks and shareholders require accurate financial records, so they count on reliable data and analysis made possible by the ERP system.

The importance of ERP software to businesses is illustrated by the growing adoption rate. According to  G2 , “The global ERP software market is projected to reach US$78.40 billion by 2026, growing at a CAGR of 10.2% from 2019 to 2026.”

Discover why an ERP system is so important.

Six key benefits of ERP

A good ERP system offers many advantages — which can vary depending on how the system is deployed. The  benefits of cloud ERP , for example, are different than on premise. That said, there are six major benefits that apply to all modern ERP solutions:

  • Higher productivity: Streamline and automate your core business processes to help everyone in your organization do more with fewer resources.
  • Deeper insights: Eliminate information silos, gain a single source of truth, and get fast answers to mission-critical business questions.
  • Accelerated reporting: Fast-track business and financial reporting and easily share results. Act on insights and improve performance in real time.
  • Lower risk: Maximize business visibility and control, ensure compliance with regulatory requirements, and predict and prevent risk.
  • Simpler IT: By using integrated ERP applications that share a database, you can simplify IT and give everyone an easier way to work.
  • Improved agility: With efficient operations and ready access to real-time data, you can quickly identify and react to new opportunities.

Businesses in every industry – from automotive to wholesale distribution – need accurate, real-time information and effective business processes to compete and thrive. Different industries rely on their ERP software for quite different reasons, however. Here are just a few examples:

  • Utilities need to constantly review their capital assets, not only to meet demand for future services but also for the replacement of aging assets. Without ERP, the effort to prioritize these major asset investments would be difficult and error prone. ERP also helps solve another critical utility company issue: forecasting of spare parts. Not having the right parts during an outage can create a significant customer service issue. On the other hand, having too many spare parts means excessive costs and out-of-date stock.
  • For wholesalers , importers, direct store delivery, and 3PL/4PL firms, on-time delivery is key. All of these organizations want to reduce distribution costs, increase inventory turns, and shorten order-to-cash time. To achieve these goals, they need integration of inventory management, purchasing, and logistics functionality, as well as automated processes that are customized to their needs.
  • Discrete, batch, and continuous process manufacturers all rely on ERP and supply chain systems to meet product quality goals, manage asset utilization, control overtime costs, handle customer returns and more. Manufacturers can also gain end-to-end inventory control by monitoring stock movements, pinpointing top and underperforming products, and managing procurement more efficiently.
  • Service companies – including accounting, tax, engineering, IT, legal, and other professional services firms – require powerful, real-time mobile ERP technology to balance service delivery commitments with financial health. Key to professional service success is the ability to stay on schedule while managing project profitability, resource utilization, revenue recognition, recurring revenue objectives, and growth opportunities.
  • Retail has undergone a significant transformation now that e-commerce has merged with other sales channels as well as brick-and-mortar operations. The ability to provide self-service options for identifying, configuring, purchasing, and shipping products is dependent on integrated data. A modern ERP also helps retailers reduce cart abandonments, improve Web site conversions, boost average order value, and increase customer lifetime value.

An  ERP system  – also called an ERP suite – is made up of integrated modules or business applications that talk to each other and share common a database.

Each ERP module typically focuses on one business area, but they work together using the same data to meet the company’s needs. Finance , accounting, human resources , sales, procurement , logistics , and supply chain are popular starting points. Companies can pick and choose the module they want and can add on and scale as needed.

ERP systems also support industry-specific requirements, either as part of the system’s core functionality or through application extensions that seamlessly integrate with the suite.

ERP software can be bought using a cloud subscription model (software-as-a-service) or a licensing model (on premise).

The ERP software system shown here illustrates enterprise resource planning use cases for sourcing and procurement, as well as sales. Typical ERP modules also address finance, manufacturing, and supply chain, among other applications.

Enterprise resource planning systems include a variety of different modules. Each ERP module supports specific business processes – like finance, procurement, or manufacturing – and provides employees in that department with the transactions and insight they need do their jobs. Every module connects to the ERP system, which delivers a single source of truth and accurate, shared data across departments.

Components of an enterprise resource planning system

The most widely used ERP modules include:

  • Finance:  The finance and accounting module is the backbone of most ERP systems. In addition to managing the general ledger and automating key financial tasks, it helps businesses track accounts payable (AP) and receivable (AR), close the books efficiently, generate financial reports, comply with revenue recognition standards, mitigate financial risk, and more.
  • Human resources management:  Most ERP systems include an HR module that provides core capabilities such as time and attendance and payroll. Add-ons, or even entire human capital management (HCM) suites, can connect to the ERP and deliver more robust HR functionality – everything from workforce analytics to employee experience management.
  • Sourcing and procurement:  The sourcing and procurement module helps businesses procure the materials and services they need to manufacture their goods – or the items they want to resell. The module centralizes and automates purchasing, including requests for quotes, contract creation, and approvals. It can minimize underbuying and overbuying, improve supplier negotiations with AI-powered analytics, and even seamlessly connect with buyer networks.
  • Sales:  The sales module keeps track of communications with prospects and customers – and helps reps use data-driven insights to increase sales and target leads with the right promotions and upsell opportunities. It includes functionality for the order-to-cash process, including order management, contracts, billing, sales performance management, and sales force support.
  • Manufacturing:  The manufacturing module is a key planning and execution component of ERP software. It helps companies simplify complex manufacturing processes and ensure production is in line with demand. This module typically includes functionality for material requirements planning (MRP), production scheduling, manufacturing execution, quality management, and more.
  • Logistics and supply chain management:  Another key component of ERP systems, the supply chain module tracks the movement of goods and supplies throughout an organization’s supply chain. The module provides tools for real-time inventory management, warehousing operations, transportation, and logistics – and can help increase supply chain visibility and resilience.
  • Service:  In an ERP, the service module helps companies deliver the reliable, personalized service customers have come to expect. The module can include tools for in-house repairs, spare parts, field service management, and service-based revenue streams. It also provides analytics to help service reps and technicians rapidly solve customer issues and improve loyalty.
  • R&D and engineering:  Feature-rich ERP systems include an R&D and engineering module . This module provides tools for product design and development, product lifecycle management (PLM), product compliance, and more – so companies can quickly and cost-effectively create new innovations.
  • Enterprise asset management: Robust ERP systems can include an EAM module – which helps asset-intensive businesses minimize downtime and keep their machines and equipment running at peak efficiency. This module includes functionality for predictive maintenance, scheduling, asset operations and planning, environment, health and safety (EHS), and more.

Modern ERP systems can be deployed in a number of ways: in a public or private cloud, on premise, or in various hybrid scenarios that combine environments. Here are some of the high-level benefits of each to help you identify the  ERP deployment option  that makes the most sense for your business.

With  cloud ERP , the software is hosted in the cloud and delivered over the Internet as a service that you subscribe to. The software provider generally takes care of regular maintenance, updates, and security on your behalf. Today, cloud ERP is the most popular deployment method for many reasons – including lower upfront costs, greater scalability and agility, easier integration, and much more.

On-Premise ERP

This is the traditional model for deploying software where you control everything. The ERP software is typically installed in your data center at the locations of your choice. The installation and maintenance of the hardware and software is your staff’s responsibility.

Many companies are modernizing and upgrading their on-premise ERP systems to cloud deployments. This requires careful planning of your  ERP upgrade  as well as a thoughtful process of  evaluating ERP software  and  deployment options .

For companies that want a mixture of both to meet their business requirements, there is the  hybrid cloud ERP  model. This is where some of your ERP applications and data will be in the cloud and some on premise. Sometimes this is referred to as  two-tier ERP .

ERP for finance can help you manage your daily accounting and financial close processes securely, regardless of your deployment approach.

Today’s ERP systems provide an enormous range of business functionality, but they still need to connect to and synchronize with other applications and data sources – such as CRM and HCM software, e-commerce platforms, industry-specific solutions, and even other ERPs. With ERP integration , companies can gain a unified view of information from different systems, increase business process efficiency, improve customer experiences, and facilitate collaboration across teams and business partners.

Modern ERP systems are open and flexible – and can easily integrate with a wide range of software products using connectors or customized adaptors, such as application programming interfaces (APIs). Other methods for ERP integration include ESB (enterprise service bus) and iPaaS (integration platform-as-a-service). iPaaS, which offers a cloud-based approach, is a very popular option for modern businesses.  iPaaS platforms  can rapidly sync on-premise or cloud-based ERP with SaaS applications from the same vendor or third-parties. They typically require little-to-no coding, they’re flexible and relatively inexpensive, and they offer a whole host of other uses – such as automatic API generation, machine learning data integration, Internet of Things (IoT) network integration, prebuilt content, and more.

The cost of ERP depends on the software vendor, the modules selected, and the deployment method. Generally speaking, cloud-based ERP has lower costs than on-premise ERP because there is no hardware that needs to be purchased – and no expensive in-house IT experts that need to be hired. The vendor handles the maintenance and charges the customer an annual or monthly subscription fee, usually based on the number of users.

When  calculating the return on investment (ROI) and total cost of ownership (TCO)  of a new ERP implementation, the initial and ongoing workforce costs are just as important as the software selection and deployment costs. With cloud and hybrid options, new factors must be evaluated. For example, software maintenance, facility, computer capacity, downtime, recovery, security, privacy, and IT staff costs are all important considerations. As mentioned, cloud options significantly reduce both capital and operating costs – improving both ROI and TCO.

ERP history: The rapid evolution of ERP

Computerized business applications were born in the accounting and finance world in the 1960’s using mainframe computers. These pioneering applications were faster and more accurate than manual processes – but were expensive, limited in functionality, and still slow. Before long, these applications spawned the development of dedicated, standalone solutions such as sales order processing and manufacturing requirements planning ( MRP ).

In the mid 1980’s, competition in the manufacturing sector was exploding and new tools were required. New MRP II software integrated accounting and finance, sales, purchasing, inventory, and manufacturing planning and scheduling – providing the manufacturer with an integrated system.

Near the end of the 1990’s, ERP was introduced. ERP transformed the technology sector by serving a broader range of industries and by combining MRP II, human resources, project accounting, and end-user reporting.

In the short span of the 21st century, faster Internet speeds and new development tools have again revolutionized ERP suites. The introduction of browser-based software paved the way for  cloud ERP software , a breakthrough that has expanded both the reach and the functionality of ERP solutions.

Today – in the era of digital transformation – modern ERP systems are increasingly taking advantage of new intelligent technologies such as AI, machine learning, robotic process automation (RPA), the IoT, natural language processing (NLP), and in-memory databases. They provide businesses with the ability to run even more efficient processes, leverage up-to-the-minute insights from both transactional and unstructured data, and ultimately remain competitive in a time of unprecedented change.

The future of ERP

Digital transformation is speeding up – and ERP is at the core. As enterprises adopt digital technologies in every part of the business, they are fundamentally changing the way they operate.

According to  Gartner , one of the core digital business accelerators is to “banish drags” – in other words, eliminate any negative force that slows the business down, including outdated processes and systems. So, it’s not surprising that companies are already demanding more robust ERP systems.

Following are three major trends that build on the momentum we see today:

  • Cloud, cloud, cloud:  Preference for cloud ERP will continue to intensify as more and more companies discover the benefits – including “anywhere” access, reduced cost of hardware and technical support, greater security, and integration with other systems, to name just a few. According to Panorama Research in their  2020 ERP Report , “More than half of organizations are selecting cloud software (63%) instead of on-premises software (37%).” As the speed of business continues to accelerate, cloud becomes even more essential.
  • Vertical integration:  The tug of war between best-of-breed solutions and integrated ERP is officially over. Going forward, we believe that companies will demand the best of both worlds – a fully integrated ERP system with vertical extensions. This allows companies to get the specific functionality they need, without painful integration issues or data locked in information silos. We also see the shift toward ever greater flexibility, as business processes are tailored to individual company needs.
  • User personalization:  Staff, customers, and suppliers all want content and functionality that matches their specific needs or interests and makes them more productive. The changing demographics of the workforce, particularly in industries such as manufacturing, are also driving interest in low-code, no-code platforms. These platforms allow users to get the experience they want, rather than having to adapt to the software. Users can also expect customized dashboards, AI-driven search, personalized chat, and personalized workflows across devices.

Explore more  ERP technology trends  – and learn how to systematically evaluate your options, avoid pitfalls, and get started with the right innovations for your business.

Any modern ERP system will have a long list of capabilities based on the industry they serve and the modules they offer. However, there are 10 fundamental features that all enterprise resource management systems should have:

  • A common database:  Centralized information and single version of the truth – providing consistent, shared data and a cross-functional view of the company.
  • Embedded analytics:  Built-in analytics, self-service BI, reporting, and compliance tools that can deliver intelligent insight for any area of the business.
  • Data visualization:  Visual presentation of key information with dashboards, KPIs, and point-and-click analytics to assist in quick and informed decision-making.
  • Automation.  Automation of repetitive tasks as well as advanced RPA powered by  AI  and  machine learning .
  • Consistent UI/UX:  The same look and feel across modules – as well as easy-to-use configuration and personalization tools for processes, users (including customers and suppliers), business units, locations, and product lines, for example.
  • Integration:  Seamless integration of business processes and workflows – as well as open and easy integration with other software solutions and data sources, including from third parties.
  • New technologies:  Support for AI and machine learning, digital assistants, the  IoT , RPA , security and privacy, and mobile.
  • Technology platform:  A fast, proven, and stable  technology stack  for this long-term investment – including a  low-code/no-code platform , iPaaS, data management, and more.
  • Multinational support:  Including for languages, currencies, and local business practices and regulations – as well as technical support for cloud services, training, help desk, and implementation.
  • Choice of deployment:  Cloud, on-premise, or hybrid.

ERP isn’t just for global enterprises. ERP solutions are designed for businesses of all sizes – small, midsize, and large. You can also get industry- and company-specific functionality to meet unique business needs. Regardless of your business sector and size, you’ll want to plan your  ERP implementation  project carefully, following best practices.

Small business ERP

ERP software for small businesses  can help you move beyond spreadsheets and efficiently manage every aspect of your growing company – from sales and customer relationships to financials and operations. Small business ERP tools are typically in the cloud, quick to install, and designed to grow with you.

Mid-Market ERP

Today, ERP software designed for mid-market companies and subsidiaries benefit from built-in analytics, rapid deployment, and best practices for dozens of different business processes – financials, HR, supply chain management, and more.  Midsize ERP tools  help growing businesses scale and compete, even with limited resources. Modular,  cloud-based enterprise ERP systems  are also a popular choice for midmarket companies with complex processes or plans for rapid growth.

Enterprise ERP

Large companies with global or subsidiary operations need a robust,  market-leading ERP system  with embedded AI, machine learning, and analytics – and intelligent automation to transform business models and processes. ERP systems can be deployed on premise, in the cloud, or in a hybrid scenario depending on business need. They can integrate with existing databases or, ideally, run on newer, powerful  in-memory databases .

Many companies are modernizing and upgrading their on-premise ERP systems to cloud deployments. This requires careful planning of your  ERP upgrade , as well as an  ERP evaluation  and review of your  deployment options .

What is an ERP software system?

An  ERP software system  is a set of integrated applications or modules for managing a company’s core business processes – including finance and accounting , supply chain , HR , procurement , sales, inventory management, and more. ERP modules are integrated into one complete system and share a common database to streamline processes and information across the enterprise. Businesses can expand the scope of their ERP as they grow.

What is ERP cloud software?

Cloud ERP is the deployment of ERP in the cloud rather than on premise. The cloud provides an ideal environment for ERP as it is an accessible, reliable, secure, and highly scalable platform for mission-critical software. True cloud ERP software is developed specifically for cloud deployment and takes full advantage of the cloud environment. Learn more about  cloud ERP  and  ERP deployment options .

What is ERP in accounting?

In accounting, the acronym ERP stands for enterprise resource planning – which is a type of business management software.  ERP finance modules  offer many of the same features as accounting software, such as tools for accounts receivable and payable, general ledger, expense management, reporting and analysis, and more. In addition to finance, ERP includes modules for different lines of business, such as supply chain and HR, and integrates everything together in a single system.

How do I know I'm ready for an ERP system?

Most businesses start out using a variety of simple, standalone tools to manage different business processes – such as QuickBooks or Excel spreadsheets. Here are five signs you’ve outgrown them and need a modern  ERP system .

  • You’re spending more time on daily activities.  If it’s taking longer to manage key activities, like closing the books, too many disparate applications may be to blame. ERP software integrates solutions and data into one system with a common interface, making it easier for business units to communicate and do their jobs effectively.
  • You have many unanswered business questions.  Can you easily answer important questions about your business, such as revenue per product line or number of returns? If not, segregated systems and a lack of access to metrics and KPIs may be holding you back. Enterprise resource planning software is designed to address these challenges.
  • You have runaway business processes.  Are there areas where your processes are getting away from you? Maybe it’s harder for you to manage inventory, satisfy customers, or keep costs in check. If so, your business processes may need to be restructured to accommodate growth or changing priorities – a natural fit for ERP software.
  • You have manual processes with multiple data sets.  Are most of your departments using their own applications and processes to get things done? If so, chances are you’re spending too much time on duplicate data entry. When information can’t flow between systems, reporting takes longer, errors happen often, and decision-making is hampered.
  • You’re missing out on fast-moving opportunities.  Are you spending so much time running your business that you can’t pursue exciting new opportunities? Newer ERP systems include advanced, intelligent capabilities, like machine learning and predictive analytics, that make it easier to identify and capitalize on profitable new ventures.

Explore ERP software

No matter what your size, SAP has an ERP solution for your business needs.

Essential ERP for growing companies

Explore trends, user guides, and expert advice in this 3-part ERP miniseries.

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What is ERP? A Comprehensive Guide

Ian McCue

Growing companies eventually reach a point where spreadsheets no longer cut it. That’s where enterprise resource planning software comes in: ERP systems collect and organize key business information and help organizations run lean, efficient operations, even as they expand. Most business professionals have heard the term “ERP,” but they may not know exactly what enterprise resource planning systems can do for their teams.

What Is Enterprise Resource Planning (ERP)?

ERP is a category of business software that automates business processes and provides insights and internal controls, drawing on a central database that collects inputs from departments including accounting, manufacturing, supply chain management, sales, marketing and human resources (HR).

Every business has multiple stakeholders collaborating to make things work. However, it becomes challenging when critical information is scattered across disconnected systems. For example, the accounting and FP&A teams could each have different spreadsheets with different figures for expense tracking.

ERP systems centralize data, provide cross-departmental visibility, enable efficient analysis, resolve data conflicts, and drive process improvements. That translates to cost savings and better productivity as people spend less time digging for needed data.

Video: What Is ERP?

Key Takeaways

  • ERP is critical business software that collects information from various departments in a common database, enabling leaders to monitor the pulse of a company using a single vision of reality.
  • ERP systems unify critical business functions like finance, manufacturing, inventory and order management, customer communication, sales and marketing, project management and human resources. One major feature is detailed analytics and reporting on each department.
  • ERP can generate major time and financial savings by providing organization-wide visibility that spotlights inefficient manual processes and reveals growth opportunities.
  • There are several deployment models for ERP software, including on-premises, cloud and hybrid. While cloud ERP has become extremely popular in recent years, the best approach for any given company depends on its needs.
  • Businesses should ensure they understand the capabilities, implementation models, integration requirements and total cost of ownership of a short list of software providers before picking a winner.

ERP Explained

Enterprise resource planning — a moniker coined by Gartner in 1990 — can be confusing because ERP is not a standalone application. ERP is a category of business software, and ERP systems comprise various modules, each addressing a specific business requirement.

For example, products-based companies typically have modules for accounting, inventory and order management, customer relationship management (CRM) and, if they produce or assemble products, manufacturing. Services businesses may turn to modules for accounting, project management, professional services automation, and CRM.

Why Is ERP Important for Businesses?

ERP systems have become table stakes for businesses looking to use resources wisely. They can help leaders reallocate human and financial capital or build more efficient core business processes that save money without sacrificing quality or performance.

An ERP is also an asset when it comes to planning and coordination. Employees can see current inventory and customer orders in detail, then compare supplier purchase orders and forecast future demand. If necessary, they can adjust to prevent problems. ERP software also improves communication and collaboration because workers can check on the status of other departments to guide their own decisions.

As a comprehensive data source, an ERP system also provides reports and analytics that can be difference-makers for the business. Turning a vast trove of information into charts and graphs that clearly illustrate trends and help model possible results is an ERP capability executives find invaluable.

13 Components of an ERP System

An ERP comprises several modules — bundles of features tailored for various aspects of the business, including back- and front-office roles. This goes beyond financials and fundamental functions like supply chain management and customer communication.

While most companies find that modern ERPs support their businesses “out of the box,” some firms need to add to the extensive built-in functionality. If you have a lot of specialized processes, look for an extensible system that allows your integrator or IT staff to write code that adds needed features or that can integrate with homegrown or legacy solutions.

However, before going the custom route, take a close look at your processes — the prebuilt functionality and configurations modern ERP solutions support are based on best practices gathered from thousands of companies. Aim to minimize customizations.

Core ERP Modules

Financial Management:  A  finance module , the foundation of every ERP system, manages the general ledger and all financial data. It tracks every transaction, including accounts payable (AP) and accounts receivable (AR), and handles reconciliations and financial reporting.

Human Resource Management (HRM):  A  human resources management (HRM)  or human capital management (HCM) module is like a workforce management module. It keeps employee records with detailed information, like available PTO and performance reviews, and can tease workforce trends in various departments or demographics.

Supply Chain Management:  Supply chain management modules  enable companies to oversee the flow of goods from suppliers through manufacturing and into customers' hands. Keep production running smoothly by ensuring all materials are available and in the correct locations and accurately schedule machinery and labor resources.

Customer Relationship Management (CRM):  CRM is a popular module for businesses in various industries. It tracks all client communications, assists with lead management, and can enhance customer service and boost sales.

Additional ERP Modules

Manufacturing: Manufacturing can be complicated, and this module helps companies coordinate all the steps to make products. The module can ensure production meets demand and monitor the number of in-progress and finished items.

Inventory Management: An  inventory management module shows current inventory levels down to the SKU level and updates those numbers in real time. It also measures key inventory-related metrics. Any products-based company needs this module to optimize stock on hand based on current and forecasted demand.

Project Management: Services businesses often utilize a  professional services automation (PSA) or project management module to plan and track projects, including the time and resources spent on them. It can simplify client billing and encourage collaboration among staff members working on a project.

Ecommerce: An  ecommerce module allows retailers and brands to manage their online stores' back and front ends. With this application, they can change the site's look and feel and add and update product pages.

Marketing Automation: This module manages marketing efforts across all digital channels — email, web, and social — and enables organizations to optimize and personalize their messaging. A  marketing automation tool can boost leads, sales, and customer loyalty.

Procurement: The  procurement module manages raw materials or finished goods purchasing. It can automate requests for quotes and purchase orders and minimize overbuying and underbuying when linked to demand planning.

Order Management: This application monitors and prioritizes customer orders from all channels as they come in and tracks their progress through delivery. An  order management module can speed up fulfillment and delivery times and improve the customer experience.

Warehouse Management: A  warehouse management module directs activities like receiving, picking, packing and shipping. It can save time and cost in the warehouse by identifying more efficient ways to execute these tasks.

Workforce Management: A  workforce management (WFM) module keeps track of attendance and hours worked; some can also manage payroll. This tool can record absenteeism and productivity by department, team, and individual employees.

A unified system can organize your operations and improve processes to reduce obstacles. Over-reliance on email and spreadsheets to collate and share critical information indicates that you need ERP. Spreadsheets require frequent, manual updates, meaning they are often outdated. Sharing sensitive data via email poses real security risks and can make it difficult to find what you need. A lack of integration among systems indicates you’re ready for ERP – and having all the modules in one place simplifies your business. The system can eliminate manual data transfers and fickle connections by pulling information from all key business functions into one place.

ERP Integration and Data Sharing

Virtually every organization considering an ERP implementation will have systems in place that  could  be replaced by modules of the ERP under consideration. As such, part of adopting an ERP system involves determining which existing systems will be replaced, which must be integrated, and which will be left to stand independently.

Remember, the more information fed into the ERP, the more value you get from your investment, so avoid leaving systems to stand apart from the ERP. Deciding when to integrate existing systems with your ERP and when to replace those systems with modules from your ERP vendor comes down to three considerations:

  • Is the existing system doing the job you need it to do? If not, then there’s a good case to be made for using the relevant module offered by your ERP vendor.
  • If the existing system is a keeper, is there a connector available from the ERP vendor, the existing system vendor or a third party to get data flowing between the ERP and your existing system? And if so, how good is it? Data migration is complex. These connectors can do a decent job of integrating systems from different vendors, but quality and commitment to updates can vary. Remember: Upgrades to the ERP or the standalone system can break connectors or require rework. In the worst case, the lack of a new connector could derail upgrade plans completely.
  • If a connector exists, does it operate in real-time and keep all necessary data flowing to and from each system? Some connectors operate in real time, and others sync up systems daily or weekly. Some move a limited data set between systems, and some work in only one direction — from an inventory management system into the ERP. If your team has done extensive custom configurations, the connector might not know some data types.

These potential complications highlight the advantage of using modules from a single provider to manage different business functions. It’s a good idea to use one vendor to address your needs whenever possible. This avoids the entire issue of integrations as the provider builds these modules to work together. A unified ERP system not only prevents problems but can also encourage adoption by flattening the learning curve.

If you decide to keep best-of-breed systems and integrate them with your chosen ERP, realize that verifying the correct functioning of connectors will become part of every upgrade cycle and that extensive customizations can cause issues. If you aim to automate back-office functions with real-time updates, bidirectional operation is important. Ensure you have the expertise, either in-house or through a partner or supplier, to keep data flowing.

#1 Cloud ERP Software

12 Benefits of Implementing ERP Systems

Today’s ERP solutions  have rich feature sets  that bring countless benefits to businesses. This software has become universally adopted by almost all companies of a certain size because it drives real improvements. While what an individual firm sees as the greatest value of this technology will vary, here are key universal advantages ERP delivers:

1. Cost Savings

The biggest value proposition of ERP systems is that they can save your organization money in several ways. By automating many simple, repetitive tasks, you minimize errors and the need to add employees at the same rate as business growth. Cross-company visibility makes it easier to spot inefficiencies that drive up costs and leads to better deployment of all resources, from labor to inventory to equipment. And with cloud ERP, companies may quickly see incremental value from the software, over and above what they’re spending.

2. Workflow Visibility

With all workflows and information in one place, employees with access to the system can see the status of projects and the performance of different business functions relevant to their jobs. This visibility may be particularly valuable to managers and leaders, and it’s far faster and easier than searching for the right documents and constantly asking colleagues for updates.

3. Reporting and Analytics

Data is useful only if companies can analyze and understand it; an ERP helps with that. Leading solutions have impressive reporting and analytics tools that allow users to track KPIs and display any metrics or comparisons they can dream up. Since an ERP is all-encompassing, it can help a business understand how a change or problem with a process in one department affects the rest of the company.

4. Centralized Data

Because ERPs can access real-time data across the company, these systems can uncover impactful trends and provide extensive business insights. This leads to better decision-making by organizational leaders who now have easy access to all relevant data.

5. Regulatory Compliance

Financial reporting standards and governmental and industry-specific data security regulations change frequently, and an ERP can help your company stay safe and compliant. An ERP provides an audit trail by tracking the lifecycle of each transaction, including adherence to required approval workflows. Businesses may also reduce the chance of errors and related compliance snafus with automation. ERP software provides financial reports that comply with standards and regulations, and SaaS applications are well-equipped to help companies with PCI-DSS compliance.

6. Risk Management through Mobility

ERP technology reduces risk in a few ways. Granular access control and defined approval workflows can strengthen  financial controls  and reduce fraud. Additionally, more accurate data prevents mistakes that could lead to lost sales or fines. And finally, the ability to see the status of the entire operation enables employees to quickly handle risks posed by business disruptions.

7. Data Security

ERP providers understand that your system houses critical, sensitive data and take necessary steps to ensure it is secure. This diligence is more important than ever as the volume and scale of cyberattacks increase. Vendor-managed  cloud ERP software , particularly, uses cutting-edge security protocols to ensure your company doesn’t fall victim to a damaging attack.

8. Increased Productivity

Employees are most effective when they work together. ERP solutions make it easy to share information — like purchase orders, contracts, and customer-support records — among teams. It knocks down walls between departments by giving employees appropriate access to real-time data on related business functions.

9. Scalability

The right ERP system will be scalable and flexible enough to meet your company’s needs today and for the foreseeable future. Cloud systems adapt to minor and major operational changes even as the amount of data the organization captures and the demand for access increase.

10. Flexibility

While ERP software helps businesses follow best practices, it also offers the flexibility to support unique processes and objectives. The system allows administrators to build company-specific workflows and create automatic reports important to different departments and executives. An ERP enhances your organization’s innovation and creativity.

11. Customer Service and Partner Management

An ERP can strengthen a company’s partner and customer relationships. It can provide insights on suppliers, shipping carriers and service providers, with the cloud enabling even better, more convenient information exchange. Regarding customers, the solution can track survey responses, support tickets, returns and more so the organization can focus on customer satisfaction.

12. Forecasting

Finance and FP&A departments are pressured to develop accurate forecasts in response to evolving conditions. Such dynamic financial forecasting empowers organizations to quickly adjust plans based on real-time data and new insights. Seamless synchronization between your ERP and planning and budgeting systems empowers finance teams to easily seed actuals and information in daily planning and forecasts, eliminating the need for departments to coordinate and consolidate offline.

Regularly review your current technology and ask: Is our technology helping — or holding us back? When outdated or inadequate systems introduce inefficiencies, muddy the data waters or can’t support changes the business wants to make, it’s time to look for a new solution. Inaccurate data is another sign it’s time for your first or a new ERP system. If your data is unreliable, you can’t trust the reports and insights it produces — and that’s a big problem.

enterprise resource planning definition in business

Still don't know what modules you'll need? This guide will help you decide which ones to build into your implementation plan.

6 ERP Implementation Challenges

Despite all the value ERP brings, companies may encounter challenges in building the business case for a system or implementing it. It’s important to be aware of these potential roadblocks before you adopt a system so you can adequately prepare and temper doubts from stakeholders. At the same time, realize that many of these can be avoided by creating a detailed plan and selecting the right ERP vendor.

As you prepare for an ERP project, keep these concerns in mind:

1. Budget Considerations

Because they were expensive to purchase, implement and maintain, early ERP systems were accessible only to large companies. However, that hasn’t been the case for two-plus decades. While ERPs still require time and financial investment, the technology has become much more affordable thanks to both SaaS systems that charge a recurring fee and more solutions designed for small and midsize businesses entering the market. For instance, organizations can use tools to calculate estimated savings after one and three years to determine when returns will surpass costs.

2. Employee Training

Like any new tech, ERP has a learning curve. Anyone who will use the software — ideally, most or all of your employees — requires some training. Although there may be resistance at first, that should fade away as people realize how much the technology will help them. Newer systems that receive frequent updates are more intuitive and user-friendly, reducing training requirements and increasing adoption.

3. Data Conversion and Migration Challenges

When moving to a new ERP, you may need to convert some data into a format compatible with the new platform. This can lead to unexpected costs and delays, so review your databases, and work with your IT team or an integration partner to identify potential data compatibility issues early on. Then, you can factor conversion efforts into the  ERP implementation plan .

4. Resistance to Change

An ERP system is loaded with features that can be daunting to your workforce. However, the software available today is far easier to use than legacy systems because vendors have focused on improving the user experience. Additionally, employees need access to only the modules and dashboards required for their jobs, which can make them more approachable. Thorough training should temper concerns about complexity.

5. Dedicated IT Resources

In the past, maintenance was a large expense that deterred lower-revenue businesses from adopting ERP. Not only did a company need an IT staff to handle patches, security and  required system upgrades , it often had to pay the vendor or a third-party service provider for its expertise. This is less of a concern with a SaaS system because the provider takes care of all maintenance and regularly moves all customers to the latest version — and it’s all built into the subscription price. Companies concerned about maintenance should thoroughly vet a potential supplier to ensure it offers a true vendor-managed SaaS system.

6. Doesn’t Solve Process and Policy Issues

If you have error-prone or inefficient processes, an ERP won’t necessarily fix them, even though it may increase accuracy. It  can , however, uncover problems in your operations and help you brainstorm better ways to do business. The same goes for policies that hold the organization back — it’s up to you to adjust those and then configure the system to support better ways of doing business.

For business units, ERP software can automate many error-prone tasks, like account reconciliations,  customer billing  and order processing, and provide the information teams need to operate more efficiently.

But the real beauty of ERP is that it can give both a 10,000-foot view of the company’s health  and  detailed insights into a specific process or KPI by not only storing and organizing data, but identifying patterns and flagging anomalies that require investigation. Try that with a spreadsheet.

ERP Deployment Options

Various ERP deployment models address the needs of different organizations, and it’s important to understand the unique characteristics of each so you can identify the best option for your business. There is some nuance here, like multiple “cloud” deployment versions — it’s not just on-premises vs. cloud.

On-Premises ERP

With an on-premises system, the business runs the software on its servers and is responsible for security, maintenance, upgrades, and other fixes. Upkeep usually requires in-house IT staffers with the required expertise. For many years, on-premises ERP was the only option. Still, the popularity of this deployment model  has declined rapidly in recent years,  and market-watcher IDC predicts continued declines.

Cloud-Based ERP

Cloud-based ERP runs on remote servers managed by a third party. Users typically access a cloud ERP through a web browser, giving them greater flexibility — they can dig into information and reports from anywhere with an internet connection. There are multiple deployment options for cloud ERP, including hosted cloud and true cloud.

  • Hosted Cloud Solution: A company purchases a license but runs it on remote servers managed by a third party. The servers and other hardware are often rented from the hosting company. Your data is stored in a private cloud as a separate instance of the ERP used by just one company. Your infrastructure is not shared with other organizations, so this is sometimes called single tenant. This setup can give the client greater control over the software and allow for more customizations, but it also creates more work for the business. Think of it as a middle ground between on-premises and true cloud software.
  • True Cloud Solution: A true cloud deployment allows companies to pay a fee for access to servers and software they do not have to manage. SaaS ERP solutions are a popular version of a true cloud solution, as the vendor handles everything on the back end, including patches and upgrades. True cloud is also known as multi-tenant because multiple businesses use the same software instance and hardware. This reduces the need for an in-house IT team and ensures that the company always has the software's most up-to-date, secure version.

Hybrid ERP combines elements of on-premises and cloud deployments. One hybrid approach is two-tier ERP, where a corporation keeps its on-premises ERP in place at headquarters but employs cloud systems for subsidiaries or certain regional offices. These cloud solutions are then integrated with the on-premises system. Other companies may use cloud solutions for certain business needs while using their on-premises systems for other functions. Either way, the cloud systems must be linked to the on-premises platform to ensure a steady flow of information — often easier said than done.

Open-Source ERP

Like other open-source applications, open-source ERP is an inexpensive, sometimes free, alternative suitable for some companies. Many open-source ERP providers allow businesses to download their software for free and only charge a low annual fee if the customer wants cloud access. These solutions have improved, with more modern web-based interfaces and a growing number of modules, but companies need to understand what they’re taking on with an open-source ERP. Support from the provider will be minimal, and configurations and system improvements tend to fall on the client. That means you need technical staff with a deep knowledge of developing and configuring the software.

Cloud ERP has since taken off and fueled much of the innovation over the past two decades. This computing model has allowed companies to better collaborate among internal departments and with external partners, sparking new insights that save businesses time and money and push them forward.

The Future of ERP

Now that companies understand the tremendous benefits of an ERP, they’re looking for ways to up the game. Technology like artificial intelligence (AI), blockchain, augmented reality (AR), and the Internet of Things (IoT) are shaping today’s  ERP trends . Many of these technologies are already embedded within industry-leading ERP solutions.

Artificial Intelligence and Machine Learning in ERP

AI and machine learning, for example, can automate account reconciliations and flag transactions that call for a closer look. This saves the accounting team time and offloads a task most don’t look forward to. Machine-learning technology improves as it processes more transactions and can help develop more accurate forecasts.

Blockchain for Supply Chain Management

Blockchain packages data securely and can increase transparency among companies in a supply chain. Specifically, it can show the status of specific products in detail and create an in-depth audit trail of an item’s journey from raw material to finished goods. This also provides information from which the ERP can draw insights.

Augmented reality has gained a foothold in retail, allowing consumers to virtually place a rug or 3D image of a piece of furniture in their living rooms to get a sense of how it would look before purchasing. The ERP can store all the data points and images needed to make AR work.

Internet of Things (IoT) Integrations

Finally, more companies recognize the value of IoT devices, like sensors, scanners, and cameras, that can feed information back to the ERP. For instance, a sensor that monitors the performance of a piece of warehouse automation equipment could alert a manager when the machinery starts operating more slowly. That could be a sign the equipment needs repair, and the business can intervene before it breaks and disrupts operations. An IoT tracker on a delivery truck could show drivers taking inefficient routes and suggest they always use GPS.

Unified ERP System

Aside from these buzzy technologies, more businesses want to consolidate all their applications on a single platform. Recent research from Gartner reveals that 40% of services companies will unify core processes like financials, HR, order-to-cash, procurement, and operations in a single suite by 2026. As software providers expand their offerings and more businesses realize the value of a unified ERP system, this will become increasingly common.

How to Select the Right ERP System

NetSuite offers a unified, true cloud ERP system to help companies run their entire business in one place. Its offerings include applications for financials, inventory and order management, HR, professional services automation, omnichannel commerce and advanced analytics. All these applications are natively integrated, meaning there are no connections to manage, and users enjoy a common interface as they move between modules.

NetSuite was born on the cloud and has over 37,000 customers ranging from startups to multinational enterprises. It has robust reporting capabilities to deliver insights across your business and role-based permissions, so employees only have access to the necessary information.

1. Perform a Needs Assessment

The “right” ERP system for your company is the one that supports your needs now  and  is scalable enough to grow with your business, with modules and features that drive savings and help you capitalize on opportunities. This is a big decision, so take the time to evaluate all options thoroughly.

Purchasing and implementing an ERP platform used to be intimidating, even overwhelming. But the solutions available today allow companies to take it one step at a time and add what they need when they need it. Never has this software been within reach for more organizations, and leaders need to take advantage of that. An ERP has become table stakes for any company that wants the visibility and insights to compete and win.

2. Evaluate Vendors

An ERP is a critical business system that must mesh with how each company operates, so there is no one “best” platform. Required capabilities, preferred deployment model and company size will all affect your decision when  buying an ERP system . Look to established vendors with proven records of success working with companies in your vertical. Always ask for reference customers and check out success stories. Businesses should also consider the software provider’s roadmap for emerging technologies like IoT and blockchain.

3. Assess Customization and Scalability

Start with the modules foundational to your business and build from there. Companies often begin with a finance module to automate basic accounting tasks and allow leaders to easily view available cash and money flow into and out of the organization. Products-based companies typically want to digitize inventory and order management immediately because that can generate rapid and significant savings around procurement, storage, and shipping. An ecommerce application that plugs into the ERP is a priority for sellers that rely on this sales channel. On the other hand, service organizations may start with a PSA (professional services automation) application to simplify employee time, resource tracking, and project billing.

After that, a  CRM module is a prudent investment because it can improve customer communications, while supply chain management modules for manufacturing, procurement and/or warehouse management can better align purchasing and production with demand. A marketing automation solution integrated with the ERP to attract and retain customers through creative techniques may be another logical addition.

Businesses with many employees should add  human resources management (HRMS) /human capital management (HCM) systems sooner rather than later to improve the employee experience and earn a reputation as a great workplace.

4. Perform a Total Cost of Ownership (TCO) Analysis

The cost of an ERP project varies widely depending on vendor, modules, and deployment model. ERP systems are priced with the target audience's needs in mind, so those built for emerging and high-growth businesses will be more affordable than those used by Fortune 500 enterprises.

Cloud-based ERP, and specifically SaaS options, usually have lower upfront costs than on-premises software because there’s no hardware to purchase nor system experts to hire. With on-premises software, companies purchase a perpetual license that’s more expensive, but it’s a one-time expense. A hybrid model could be even more expensive, as it requires many resources to support on-premises ERP and the subscription fees for cloud applications.

The costs of ERP go beyond licensing. When calculating the  TCO of various ERP solutions , factor in implementation and operating expenses related to customization, maintenance, training, upgrades and support.

ERP Case Studies

Fulton & Roark used to manage their inventory manually with spreadsheets, and they relied on Sage Live for financial data. When sales doubled annually for the men's grooming product retailer, they quickly discovered their outdated processes were causing duplicate entries. They adopted NetSuite ERP, which allowed them to catch inventory-related bookkeeping errors, eliminate external accountants, boost sales, and gain better insights into margins and inventory.

Two friends found major process inefficiencies when they transitioned their candy wholesale business into Green Rabbit, a company specializing in perishable goods logistics. Relying on QuickBooks, Excel, and email led to disconnected databases and IT delays. Green Rabbit adopted NetSuite ERP and implemented it within three months. Now, they can swiftly ship products across the country without inventory errors, manage orders without delays, and easily scale their order volume without system impact.

While ERP software was initially designed for enterprises — as the name indicates — today’s cloud-based  software-as-a-service (SaaS) ERP  offerings have lowered barriers to entry and helped countless emerging and midsize companies increase their efficiency, visibility and, in turn, profitability. Although there are costs that come with purchasing and deploying ERP software, it often delivers a quick return on investment.

Gain Control of Your Business Resources with NetSuite ERP

NetSuite’s Enterprise Resource Planning (ERP) System  stands out as the perfect choice for companies seeking immediate performance enhancements and sustained growth. Unlike many traditional systems, NetSuite was meticulously designed to be cloud-native, offering unmatched flexibility and scalability. This adaptability empowers companies to seamlessly adjust to shifting conditions and support evolving business needs. With NetSuite's real-time data and role-specific dashboards, decision-making becomes quicker and more informed across all levels of the organization. It's a game-changer for businesses looking to stay agile and competitive in today's dynamic landscape.

enterprise resource planning definition in business

We cover 9 easy steps to choosing an ERP that's perfect for you, including what to ask vendors and how to build a business case.

What does ERP stand for?

ERP stands for enterprise resource planning, a term research firm Gartner coined in 1990 to refer to the business management platforms enterprises had begun using.

What is ERP in simple terms?

ERP is software that businesses rely on to run and monitor the business performance of their daily operations. It stores data from across the company, from finance to supply chain to human resources, in a central repository and can analyze and report on all that information.

How does ERP work?

An ERP is an application that makes use of a central database that receives information from various departments within a company. The ERP includes integrated modules dedicated to functions like accounting, inventory management and CRM. An ERP gives companies a single place to store, view, manage and interpret data.

What is an ERP system?

ERP systems are comprised of modules that focus on certain business processes, such as accounting, manufacturing and CRM. These modules function using a central database, allowing access to real-time data, and give visibility into business performance across these departments while minimizing data duplication. A complete ERP system will help companies budget, plan, and report on financial results.

Why is ERP used?

Companies use ERP systems to connect data from multiple business functions within a centralized system, using the same data to maintain a “single source of truth.” This allows different departments to operate with the same results. Companies also save time and money by automating manual processes and reducing opportunities for errors.

Is ERP just for finance and accounting?

While financial management and accounting are key ERP functions, the system’s capabilities stretch far beyond this department. It can automate and better manage tasks related to purchasing, inventory and order management, manufacturing, project management, workforce management, sales and marketing and more.

Why do companies use ERP?

ERP software has become an invaluable tool for companies because it generates major time and cost savings. Beyond automating tasks, an ERP provides company-wide visibility and reporting that tells executives and managers where teams should focus their time and attention, which may mean addressing pressing problems.

What’s the difference between ERP and MRP?

An MRP, or material resources planning, system was a precursor to ERP used by manufacturers to better prepare for production runs. The manufacturing-related tasks MRP systems handled, like procurement and inventory tracking, are just one component of today’s ERP systems.

What is two-tier ERP?

Two-tier ERP is an approach that has gained traction among larger companies with subsidiaries, distinct business units or regional offices. Instead of forcing these business units or offices to use the legacy ERP, they run on a less-resource-intensive ERP — often a SaaS solution — that’s integrated with the Tier 1 system.

What are the advantages of cloud-based ERP?

Many of the advantages of cloud ERP fall under lower costs and fewer headaches. A cloud solution is usually cheaper and faster to implement, and post-implementation expenses may be lower because the vendor takes care of all maintenance and upgrades. A cloud-based system can also seamlessly support your growth, as the vendor manages all hardware.

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12 Core ERP Features: Benefits and FAQ

Looking to make the finance team more efficient and improve business operations? Today's enterprise resource planning (ERP) systems integrate and automate essential financial and operational functions and provide a trove of data insights from sources including general ledger (GL), accounts payable…

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What is ERP? Enterprise resource planning systems explained

Enterprise resource planning (ERP) systems standardize, streamline, and integrate processes across a wide range of business functions. Here’s what to know about these critical IT systems.

ERP - Enterprise Resource Planning

ERP definition

Enterprise resource planning (ERP) is a system of integrated software applications that manages day-to-day business processes and operations across finance, human resources, procurement, distribution, supply chain, and other functions. ERP systems are critical applications for most organizations because they integrate all the processes necessary to run their business into a single system that also facilitates resource planning. ERP systems typically operate on an integrated software platform using common data definitions operating on a single database.

ERPs were originally designed for manufacturing companies but have since expanded to serve nearly every industry, each of which can have its own ERP peculiarities and offerings. For example, government ERP uses contract lifecycle management (CLM) rather than traditional purchasing and follows government accounting rules rather than GAAP.

Benefits of ERP

ERP systems improve enterprise operations in a number of ways. By integrating financial information in a single system, ERP systems unify an organization’s financial reporting. They also integrate order management, making order taking, manufacturing, inventory, accounting, and distribution a much simpler, less error-prone process. Most ERPs also include customer relationship management (CRM) tools to track customer interactions, thereby providing deeper insights about customer behavior and needs. They can also standardize and automate manufacturing and supporting processes, and unify procurement across an organization’s business units. ERP systems can also provide a standardized HR platform for time reporting, expense tracking, training, and skills matching, and greatly enhance an organization’s ability to file the necessary compliance reporting across finance, HR, and the supply chain.

Key features of ERP systems

The scale, scope, and functionality of ERP systems vary widely, but most ERP systems offer the following characteristics:

  • Enterprise-wide integration. Business processes are integrated end to end across departments and business units. For example, a new order automatically initiates a credit check, queries product availability, and updates the distribution schedule. Once the order is shipped, the invoice is sent.
  • Real-time (or near real-time) operations . Because the processes in the example above occur within a few seconds of order receipt, problems are identified quickly, giving the seller more time to correct the situation.
  • A common database. A common database enables data to be defined once for the enterprise with every department using the same definition. Some ERP systems split the physical database to improve performance.
  • Consistent look and feel. ERP systems provide a consistent user interface, thereby reducing training costs. When other software is acquired by an ERP vendor, common look and feel is sometimes abandoned in favor of speed to market. As new releases enter the market, most ERP vendors restore the consistent user interface.

Types of ERP solutions

ERP systems are categorized in tiers based on the size and complexity of enterprises served:

  • Tier I ERPs  support large global enterprises, handling all internationalization issues, including currency, language, alphabet, postal code, accounting rules, etc. Tier I vendors include Oracle, SAP, Microsoft, and Infor.
  • Tier I Government ERPs  support large, mostly federal, government agencies. Oracle, SAP, and CompuServe PRISM are considered Tier I with Infor and CGI Momentum close behind.
  • Tier II ERPs  support large enterprises that may operate in multiple countries but lack global reach.  Tier II customers can be standalone entities or business units of large global enterprises. Depending on how vendors are categorized there are 25 to 45 vendors in this tier.
  • Tier II Government ERPs  focus on state and local governments with some federal installations. Tyler Technologies and UNIT4 fall in this category.
  • Tier III ERPs  support midtier enterprises, handling a handful of languages and currencies but only a single alphabet. Depending on how ERPs are categorized, there are 75 to 100 Tier III ERP solutions.
  • Tier IV ERPs  are designed for small enterprises and often focus on accounting.

ERP vendors

The top ERP vendors today include:

Selecting an ERP solution

Choosing an ERP system is among the most challenging decisions IT leaders face. In addition to the above tier criteria, there is a wide range of features and capabilities to consider. With any industry, it is important to pick an ERP vendor with industry experience. Educating a vendor about the nuances of a new industry is very time consuming.

To help you get a sense of the kinds of decisions that go into choosing an ERP system, check out “ The best ERP systems: 10 enterprise resource planning tools compared ,” with evaluations and user reviews of Acumatica Cloud ERP, Deltek ERP, Epicor ERP, Infor ERP, Microsoft Dynamics ERP, NetSuite ERP, Oracle E-Business Suite, Oracle JD Edwards EnterpriseOne ERP,  Oracle Peoplesoft Financial Management and SAP ERP Solutions.

ERP implementation

Most successful ERP implementations are led by an executive sponsor who sponsors the business case, gets approval to proceed, monitors progress, chairs the steering committee, removes roadblocks, and captures the benefits. The CIO works closely with the executive sponsor to ensure adequate attention is paid to integration with existing systems, data migration, and infrastructure upgrades. The CIO also advises the executive sponsor on challenges and helps the executive sponsor select a firm specializing in ERP implementations.

The executive sponsor should also be advised by an organizational change management executive, as ERP implementations result in new business processes, roles, user interfaces, and job responsibilities. Reporting to the program’s executive team should be a business project manager and an IT project manager. If the enterprise has engaged an ERP integration firm, its project managers should be part of the core program management team.

Most ERP practitioners structure their ERP implementation as follows:

  • Gain approval: The executive sponsor oversees the creation of any documentation required for approval. This document, usually called a business case, typically includes a description of the program’s objectives and scope, implementation costs and schedule, development and operational risks, and projected benefits. The executive sponsor then presents the business case to the appropriate executives for formal approval.
  • Plan the program: The timeline is now refined into a work plan, which should include finalizing team members, selecting any external partners (implementation specialists, organizational change management specialists, technical specialists), finalizing contracts, planning infrastructure upgrades, and documenting tasks, dependencies, resources, and timing with as much specificity as possible.
  • Configure software: This largest, most difficult phase includes analyzing gaps in current business processes and supporting applications, configuring parameters in the ERP software to reflect new business processes, completing any necessary customization, migrating data using standardized data definitions, performing system tests, and providing all functional and technical documentation.
  • Deploy the system: Prior to the final cutover, multiple activities have to be completed, including training of staff on the system, planning support to answer questions and resolve problems after the ERP is operational, testing the system, making the “Go live” decision in conjunction with the executive sponsor.
  • Stabilize the system: Following deployment, most organizations experience a dip in business performance as staff learn new roles, tools, business processes, and metrics. In addition, poorly cleansed data and infrastructure bottlenecks will cause disruption. All impose a workload bubble on the ERP deployment and support team.

Hidden costs of ERP

Four factors are commonly underestimated during project planning:

  • Business process change.  Once teams see the results of their improvements, most feel empowered and seek additional improvements. Success breeds success often consuming more time than originally budgeted.
  • Organizational change management . Change creates uncertainty at all organization levels. With many executives unfamiliar with the nuances of organization change management, the effort is easily underestimated.
  • Data migration . Enterprises often have overlapping databases and weak editing rules. The tighter editing required with an ERP system increases data migration time. This required time is easy to underestimate, particularly if all data sources cannot be identified.
  • Custom code. Customization increases implementation cost significantly and should be avoided. It also voids the warranty, and problems reported to the vendor must be reproduced on unmodified software. It also makes upgrades difficult. Finally, most enterprises underestimate the cost of customizing their systems.

Why ERP projects fail

ERP projects fail for many of the same reasons that other projects fail, including ineffective executive sponsors , poorly defined program goals, weak project management, inadequate resources, and poor data cleanup. But there are several causes of failure that are closely tied to ERPs:

  • Inappropriate package selection. Many enterprises believe a Tier I ERP is by definition “best” for every enterprise. In reality, only very large, global enterprises will ever use more than a small percentage of their functionality. Enterprises that are not complex enough to justify Tier I may find implementation delayed by feature overload. Conversely, large global enterprises may find that Tier II or Tier III ERPs lack sufficient features for complex, global operations.
  • Internal resistance. While any new program can generate resistance, this is more common with ERPs. Remote business units frequently view the standardization imposed by an ERP as an effort by headquarters to increase control over the field. Even with an active change management campaign, it is not uncommon to find people in the field slowing implementation as much as possible. Even groups who support the ERP can become disenchanted if the implementation team provides poor support. Disenchanted supporters can become vicious critics when they feel they have been taken for granted and not offered appropriate support.

Over the past few years, ERP vendors have created new systems designed specifically for the cloud, while longtime ERP vendors have created cloud versions of their software. Cloud ERP There are a number of reasons to move to cloud ERP , which falls into two major types:

  • ERP as a service . With these ERPs, all customers operate on the same code base and have no access to the source code. Users can configure but not customize the code.
  • ERP in an IaaS cloud. Enterprises that rely on custom code in their ERP cannot use ERP as a service. If they wish to operate in the cloud, the only option is to move to an IaaS provider, which shifts their servers to a different location.

For most enterprises, ERP as a service offers three advantages: The initial cost is lower , upgrades to new releases are easier, and reluctant executives cannot pressure the organization to write custom code for their organization. Still, migrating to a cloud ERP can be tricky and requires a somewhat different approach than implementing on on-premises solution. See “ 13 secrets of a successful cloud ERP migration .”

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Enterprise Resource Planning: Definition, Benefits, and Challenges

Enterprise Resource Planning: Definition, Benefits, and Challenges

Struggling with managing your business operations efficiently? You’re not alone – about 25% of organizations implement Enterprise Resource Planning (ERP) to increase their efficiency.

This article will guide you through the myriad facets of ERP, its benefits, vulnerabilities, applications, ERP meaning, and much more. It will also show you how to define ERP and highlight the various uses of ERP. 

What is an ERP?

How do you define ERP software? An ERP, or enterprise resource planning, is a software or system businesses use to plan and manage their daily activities, such as supply chain management, manufacturing, and financials.

ERP Function

Enterprise Resource Planning (ERP) operates as the digital backbone of any business, seamlessly integrating multiple processes and systems into one efficient platform. Its core function revolves around optimizing business operations by consolidating critical functions such as finance, manufacturing, inventory management, sales, and customer communication into a unified system.

The ERP software successfully automates these complex processes with unparalleled accuracy, significantly reducing the chances of errors while enhancing productivity levels. Beyond just automation, an effective ERP solution analyzes and interprets data from various integrated services to ensure sound decision-making based on real-time insights.

It’s like having a customizable dashboard that offers a holistic view of all key areas in your enterprise for improved overall performance.

ERP Industry Role Models

Leading the way in the successful implementation and utilization of ERP systems, industry role models are pivotal in demonstrating the business-transforming potential of this technology.

Companies such as manufacturing giant Siemens , retail leader Walmart, and financial powerhouse Citigroup are just a few companies that have reaped substantial benefits from their well-executed, ERP integration strategies. They understand how to define an ERP system.

They showcase efficient management information about products, customers, suppliers, and employees, which is a hallmark of successful, enterprise resource planning systems.

These companies didn’t succeed overnight; carefully selecting suitable ERP software was essential to align with each organization’s specific needs and goals. SAP’s global reputation as an effective ERP system stems from its adoption by these leading businesses that utilized it to enhance productivity and streamline operations.

Their stories highlight how investing time in understanding your unique business functions can lead to identifying the right ERP solution capable of driving significant growth and improved efficiency across all departments.

ERP History and Evolution

The journey of Enterprise Resource Planning (ERP) systems as pivotal business tools started in the 1960s, with early models focused on inventory management and control in the manufacturing sector.

Systems known as Material Requirements Planning (MRP) first entered the scene, laying down foundational elements for what was to become ERP. By the late 1970s and into the 1980s, these systems had evolved into Manufacturing Resources Planning (MRP II), which included additional processes like shop floor and distribution management.

In a significant shift during the 1990s, tech consulting firm Gartner coined the term ‘ERP.’ This marked an expansion beyond just resource planning or manufacturing concerns; it paved the way for novel software designed to integrate all core business processes – from accounting to customer relationship management.

For domestic and global businesses alike, ERP systems became vital backbones of operation. Today’s cloud-based ERPs take this integration even further by offering real-time data analytics, enabling decision-making based on current trends rather than historical data.

As we contemplate its trajectory over decades, it is clear that ERP history is woven tightly with market forces and technological advancement – constantly adapting to serve evolving business needs better.

Benefits of ERP

erp

ERP systems improve productivity through accuracy, providing reporting advantages and creating efficiency and collaboration within an organization.

Systems Improve Productivity Through Accuracy

ERP systems are instrumental in improving productivity within organizations by enhancing accuracy. By automating time-consuming tasks and eliminating duplicate information, these systems streamline processes and ensure that data is consistently accurate.

This eliminates the need for manual data entry and reduces the risk of errors, leading to increased efficiency throughout the organization. With ERP software, employees can access real-time data, making informed decisions quickly and effectively.

The availability of accurate information also facilitates better coordination between different business areas, ensuring smooth operations and maximizing productivity across all departments.

ERP Software Provides Reporting Advantages

ERP software provides businesses with numerous reporting advantages. With real-time information and advanced reporting tools, companies can gain valuable insights into their operations.

These reports comprehensively view key performance indicators (KPIs) , business analytics, and other critical data points. By having access to accurate, up-to-date information, decision-makers can make informed choices that drive growth and efficiency.

Additionally, ERP systems provide a single source of truth with one integrated database for all business processes. This centralized approach streamlines data collection and eliminates the need for manual data entry or multiple spreadsheets, ensuring accuracy and consistency in reporting.

ERP Solutions Create Efficiency and Collaboration

ERP solutions are designed to streamline business processes and foster collaboration within organizations. By implementing an ERP system, businesses can achieve greater efficiency in their operations.

The software integrates different departments and functions onto a centralized platform, eliminating the need for manual data entry and redundant tasks. This automation reduces errors, saves time, and allows employees to focus on more value-added activities.

Additionally, ERP solutions facilitate collaboration by providing real-time access to information across teams and locations. This ensures everyone is working with accurate and up-to-date data, promoting effective communication and teamwork.

Enterprise Resource Planning Vulnerability

Today, with the increasing reliance on technology and interconnected systems, enterprise resource planning (ERP) systems have become more vulnerable to cyberattacks. These vulnerabilities arise from the fact that ERP systems are often connected to the Internet, providing potential entry points for hackers.

Businesses must be aware of these vulnerabilities and take measures to protect their ERP systems.

One common challenge is applying patches without customization. Customers find it difficult to update their ERP software due to extensive customizations, which can leave them exposed to known vulnerabilities.

Additionally, weak password policies and lockout mechanisms are among the common weaknesses found in ERP systems, making unauthorized access easier for attackers.

Organizations need vulnerability management processes to handle these disruptions and ensure data security in ERP systems. This involves regularly testing the system’s security measures and identifying any weak spots or vulnerabilities that may exist.

By implementing best practices for ERP security, such as strong password policies and regular updates of both software and hardware components, businesses can close gaps and better protect against potential attacks.

In conclusion, securing ERP systems is of utmost importance in today’s digital landscape. These vital platforms require robust protection against cyber threats to safeguard both sensitive data and overall business operations.

The Significance of ERP in Modern Industry

strategizing

What is the ERP business meaning? Well, ERP plays a significant role in modern industry, enabling centralized data management and integration, streamlined business processes and workflows, improved decision-making and strategic planning, enhanced collaboration, and communication, as well as scalability and flexibility in adapting to industry changes.

Centralized data management and integration

Centralized data management is a critical component of enterprise resource planning (ERP) systems in today’s industry. With ERP, organizations can gather and store data from various departments and functions in one centralized database.

This enables seamless information flow and visibility across the entire enterprise, improving efficiency and decision-making. By integrating people, processes, and technologies within a single platform, ERP ensures that accurate and up-to-date data is readily available to support key business operations.

With centralized data management and integration at its core, ERP empowers businesses to streamline their operations and achieve cross-departmental visibility like never before.

Streamlined business processes and workflows

Streamlined business processes and workflows are essential for the success of any organization. With ERP software, companies can integrate various departments and functions into a unified system, eliminating redundancy and improving efficiency.

As an enterprise resource planner, ERP enables smoother operations and faster decision-making by automating manual tasks and providing real-time data visibility. This streamlining saves time and reduces errors, helping businesses achieve higher productivity levels.

With better collaboration across teams and improved communication channels, organizations can ensure that their workflows are optimized and aligned with their overall objectives. Companies can streamline their business processes by implementing ERP systems to drive growth and profitability.

Improved decision-making and strategic planning

One of the key benefits of implementing an ERP system is the improvement it brings to decision-making and strategic planning within an organization. With real-time access to accurate and updated data from various departments, managers can make informed decisions based on facts rather than assumptions.

This allows them to analyze trends, identify patterns, and forecast future outcomes more effectively. By having a comprehensive overview of their business operations, leaders can develop robust strategies that align with organizational goals and stay ahead of the competition.

ERP enables proactive decision-making by providing managers with timely information at their fingertips, empowering them to take decisive actions when needed. With better analytics capabilities offered by ERP systems, businesses can leverage data-driven insights for more successful strategic planning project management and execution.

Enhanced collaboration and communication

Enhanced collaboration and communication are key benefits of implementing an ERP system within an organization. By utilizing a centralized database and integrating various departments, ERP enables teams to share information easily and work together more seamlessly.

This promotes effective collaboration across departments, breaking down communication barriers often hindering productivity. With real-time data accessible to all stakeholders, decision-making becomes faster and more informed.

This fosters better teamwork and coordination among employees, allowing them to respond quickly to changing business needs. ERP systems also provide tools for efficient communication channels within the organization, facilitating effective collaboration even in large or geographically dispersed teams.

Scalability and flexibility in adapting to industry changes

Modern businesses must be prepared to adapt to the ever-changing landscape of their industry. One key aspect that sets enterprise resource planning (ERP) systems apart is their scalability and flexibility in adapting to these changes.

ERP software has a modular structure, allowing for easy adjustments and additions. Your ERP system can seamlessly accommodate these changes as your business grows, expands into new markets, or introduces new products and services.

With scalable ERP systems, you can streamline processes, automate tasks, and centralize operations while ensuring efficiency and integration across all departments. This flexibility empowers your organization to stay agile and responsive in an increasingly competitive business environment.

ERP Software Systems and Their Application

ERP software systems are widely applicable in various industries, including building commerce, finance, human resources, manufacturing, and supply chain management.

ERP and Building Commerce

ERP software system plays a crucial role in building and enhancing commerce for businesses. ERP software systems streamline operations and create efficiency by integrating various business processes, such as finance, supply chain management, and customer relationship management.

With its ability to centralize data management and integration, ERP ensures that information is readily available across departments, enabling better collaboration and communication.

This results in improved decision-making and strategic planning. ERP offers scalability and flexibility in adapting to industry changes, allowing businesses to stay competitive in the ever-evolving marketplace.

Financial Benefits of Using ERP Applications

Implementing ERP applications can bring significant financial benefits to organizations. One of the key advantages is improved cost management and reduced operational expenses. By streamlining business processes, eliminating redundant tasks, and automating manual activities, ERP software systems help reduce labor, paperwork, and error costs.

Additionally, these applications provide better control over financial operations, allowing for improved planning and forecasting. With real-time access to accurate financial data, decision-makers can make more informed choices regarding resource allocation and budgeting.

Furthermore, by increasing efficiency and productivity throughout the organization, ERP applications contribute to increased profitability and a higher return on investment. Overall, utilizing ERP software systems can lead to better financial transparency, cost management optimization, and enhanced risk mitigation.

Establishing ERP to Harness Human Resource Potential

ERP systems are not just limited to managing sales, inventory, and finance; they also play a crucial role in harnessing the potential of human resources. Businesses can effectively plan and manage their workforce by integrating HR activities into an ERP solution.

This includes retaining employment history, recording skills, tracking illness, and even automated performance tracking. With dedicated HR modules within ERP systems, companies can streamline processes and improve resource planning and utilization.

The efficient management of human resources is essential for any successful organization, and ERP software provides the tools necessary to achieve this goal.

In addition to managing employee data, ERP applications also enable businesses to support continuous improvement teams through social functionality. This means employees can collaborate more effectively toward achieving common goals while using the ERP system to communicate and share ideas.

ERP and Manufacturing

ERP systems play a crucial role in manufacturing by streamlining operations and optimizing efficiency. By integrating various aspects of the manufacturing process, such as inventory management, production planning, and quality control, ERP software helps businesses improve productivity and reduce costs.

With real-time data accessibility and automation capabilities, manufacturers can make informed decisions to optimize their supply chain, minimize wastage, and meet customer demands efficiently.

Furthermore, ERP systems enable seamless collaboration between different departments within a manufacturing organization, enhancing communication and fostering innovation. By harnessing the power of ERP technology in manufacturing processes, companies can achieve greater operational visibility and control to stay competitive in today’s dynamic market.

Supply Chain Models Using ERP

Effective supply chain management is crucial for businesses to streamline their operations and achieve optimal efficiency. By implementing supply chain models using ERP software systems, companies can seamlessly manage and integrate essential parts of their businesses, leading to better coordination and collaboration across the entire supply chain.

ERP software helps organizations track the movement of goods, connect various sources, optimize inventory levels, reduce lead times, and improve forecasting accuracy. With real-time data and analytics provided by ERP systems, businesses can make informed decisions to respond quickly to changes in demand, supply, and market conditions.

Implementing ERP in supply chain management has numerous benefits – improved operational efficiency, reduced costs, enhanced customer satisfaction, and overall business performance.

The Challenges of Implementing ERP

Implementing an Enterprise Resource Planning (ERP) system can be a complex endeavor with several challenges that organizations face. One of the main challenges is determining which processes should be integrated into the ERP system.

With so many different departments and functions within a company, it can be difficult to identify which areas will benefit most from using the ERP software.

Resistance to change is another common challenge encountered during ERP implementation. Employees may resist adopting new systems and processes due to fear or uncertainty about how their roles will be affected.

Overcoming this resistance requires effective communication and training programs to ensure everyone understands the new system’s benefits and how it will improve their work.

Flexibility is also a key consideration in implementing ERP systems. Organizations need to ensure that the chosen business management software can adapt and evolve as their business grows or changes over time.

Lack of flexibility in an ERP system can limit its effectiveness and hinder future scalability.

Additionally, the cost is often a significant challenge for organizations implementing ERPs. There are expenses associated with purchasing and customizing the software and costs related to training employees, data migration, and ongoing maintenance.

Addressing these challenges requires careful planning, strong leadership commitment, thorough employee training, and selecting an experienced vendor who understands your organization’s specific needs.

By addressing these challenges head-on, businesses can successfully implement an ERP system that streamlines operations, enhances productivity, improves decision-making capabilities, and ultimately drives growth.

Finding an ERP Business Partner and ERP Solutions Expert: Key Tips

  • Look for a partner with experience in implementing ERP systems, as they will have the knowledge and expertise to guide you through the process.
  • Consider the specific industry expertise of the business partner, as different industries may have unique requirements and challenges when it comes to ERP implementation.
  • Check for certifications and qualifications of the ERP solutions expert, such as being a certified consultant for a specific ERP software.
  • Seek recommendations and referrals from other businesses in your industry that have successfully implemented ERP systems.
  • Evaluate the level of support and training the business partner offers, as ongoing support is crucial for a smooth transition and effective use of the ERP system.
  • Take into account the scalability and flexibility of the ERP solution the business partner offers, ensuring that it can grow with your business and adapt to future needs.
  • Assess the cost-effectiveness of partnering with a specific provider, considering both upfront implementation costs and long-term maintenance expenses.
  • Prioritize communication skills and responsiveness when selecting an ERP business partner, as effective communication is vital throughout the implementation process.

Curious about Enterprise Resource Planning (ERP)? Discover the 5 components, benefits, and examples of ERP systems. What is the enterprise resource planning meaning? Get all your questions answered in our comprehensive FAQ section. 

What are the 5 components of ERP?

ERP software consists of five key components that work together to help organizations manage their operations effectively. The first component is Human Resources, which helps with employee data management, payroll, benefits, training, and performance evaluations.

The second component is Customer Relationship Management (CRM) , which enables organizations to manage customer data, sales, marketing, and customer service. Business Intelligence (BI) is another crucial component that allows organizations to analyze and visualize data for informed decision-making.

Supply Chain Management helps with procurement, inventory management, and logistics. Lastly, the Inventory Management System component assists in tracking and optimizing stock levels.

What is ERP, and how does it work?

A software system that enables organizations to coordinate and streamline their different business operations in a unified and effective way is called ERP, or an Enterprise Resource Planning system. It integrates essential functions such as finance, purchasing, inventory management, production, and personnel management into one single platform.

By collecting data from different departments and storing it in a common database, ERP gives leaders a holistic view of the organization’s operations. This allows for better coordination between departments and facilitates informed decision-making based on real-time information.

With features like standardizing processes and automating tasks, ERP streamlines workflows and reduces manual workloads. Overall, ERP improves productivity by eliminating redundant tasks and provides a comprehensive solution to meet the complex needs of modern businesses.

What are the 3 common types of ERP?

Three common types of ERP systems exist: on-premise, cloud, and hybrid ERP. Cloud ERP is a system hosted in the cloud, allowing users to access it through the Internet.

This offers flexibility and scalability as organizations can easily scale up or down based on their needs. On-premise ERP refers to a system that is implemented and maintained within the organization’s premises.

This gives organizations full control over their data but requires more resources for maintenance. Lastly, hybrid cloud based ERP also combines elements of both cloud and on-premise solutions, giving organizations the best of both worlds by allowing them to have a mix of cloud-based and on-site solutions depending on their specific requirements.

What is an ERP example?

An example of an ERP system is SAP, which stands for Systems, Applications, and Products in Data Processing. SAP is a widely used ERP software that helps businesses manage various operations, such as accounting, sales, inventory management, and human resources.

With SAP or other similar ERP systems, companies can streamline and integrate their business processes to improve efficiency and decision-making. These systems provide a centralized database where different departments can access real-time information, enabling better visibility into the organization’s overall operations.

Concluding Thoughts on ERP

In conclusion, enterprise resource planning software (ERP) is a powerful tool that can revolutionize the way businesses operate. ERP systems streamline processes and improve overall efficiency by integrating core functions like finance, HR, and supply chain management.

Not only do they offer benefits such as standardization and integration of business functions, but they also provide valuable insights through centralized data management. With ERP software, companies can make more informed decisions, enhance collaboration among teams, and easily adapt to industry changes.

Successful implementation of an ERP system requires careful planning and choosing the right business partner. Organizations need an expert who understands their unique needs and can provide reliable solutions.

Remember that ERP trends show a surge in digital transformation within organizations – embracing this technology can lead to improved productivity and growth.

Overall, ERP is not just a buzzword – it’s an essential tool for modern businesses. It can transform operations by streamlining processes, improving decision-making capabilities, and fostering collaboration across departments when implemented correctly.

So whether you’re a small start-up or a large corporation looking to stay competitive in today’s fast-paced market, consider adopting an ERP solution tailored to your specific needs – it could be the game-changer your business needs for success in the long run.

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