ERP stands for enterprise resource planning, but what does ERP mean? The simplest way to define ERP is to think about all the core processes needed to run a company: finance, manufacturing, HR, supply chain, services, procurement, and others. At its most basic level, ERP integrates these processes into a single system.

Yet modern ERP systems are anything but basic. They use the latest technologies – such as machine learning and artificial intelligence (AI) – to provide intelligence, visibility, and efficiency across every aspect of a business.

What is ERP
Components of an enterprise resource planning system

ERP definition: ERP is a kind of software system that helps you run your entire business, including processes in finance, manufacturing, supply chain, services, procurement, and more.

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, a breakthrough that has expanded both the reach and the functionality of ERP solutions.

Today – in the era of digital transformation – businesses are increasingly relying on artificial intelligence and other innovations to automate their business processes and stay competitive.

History of ERP

How do ERP systems work?

An ERP system – also called an ERP suite – is made up of different enterprise resource planning applications that talk to each other and share a database.

See how today’s ERP uses digital assistants to help you focus on what matters: AI and machine learning to automate processes and predictive analytics to support real-time decision-making.

Each application (or ERP module) typically focuses on one business area. You can combine different modules to meet your needs. Finance, sales, human resources, and logistics are popular starting points. There are also modules specific to industries, from manufacturing to retail. Each module is usually licensed separately, so companies can pick and choose the functionality they want and can add on and scale as needed.

ERP software
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.

What are the core features of an ERP system?

Any modern ERP system will have a long list of software features based on the industry they serve and the modules they offer. However, all enterprise resource management systems should have these top 10 characteristics:

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Six key benefits of ERP

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

Types of ERP deployment

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.

ERP deployment options
Types of ERP deployment

Cloud ERP

In cloud ERP, the software runs on a provider’s cloud computing platform. The maintenance of the system is handled by the provider. There is also a choice of utilizing a public or private cloud, which is gaining acceptance because of the low upfront costs.

On-Premise ERP

This is the traditional model for deploying software where you control everything. The ERP software is 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.

Hybrid ERP

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

Five signs you’re ready for an ERP system

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

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.

ERP at any size: What are my options?

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.

ERP for supply chain
ERP for supply chain can help you reduce uncertainty, lower costs, and improve service to your customers.

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 35 different business processes – financials, HR, supply chain management, and more. Midsize ERP tools help growing businesses scale and compete without the complexity and cost.

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 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.

Explore ERP software

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

More FAQs

An ERP software system is a set of applications for managing a company’s core business processes – including finance and accounting, supply chain, HR, procurement, sales, inventory management, and more. ERP applications are integrated into one complete system and share a database to streamline processes and information across the enterprise. Each application is typically licensed separately, so businesses choose the functionality they need, adding on as they grow.

ERP cloud software 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 ERP cloud software is developed specifically for cloud deployment and takes full advantage of the cloud environment. By contrast, some legacy applications are ported to the cloud and modified to look like cloud apps but are unable to fully exploit the cloud environment (this approach is called false cloud or cloud wrapping). Learn more about cloud ERP and ERP deployment options.

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.