What Is ERP?
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, HR, manufacturing, 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.
How a modern ERP system works
Six key benefits of ERP
- 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.
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.
Each application (aka ERP module) typically focuses on one business area. You can combine different modules to meet your needs. Finance, human resources, sales, and logistics are popular starting points. There are also modules specific to industries, from manufacturing to retail.
Types of ERP: deliver ERP your way
Modern ERP systems can be deployed in any 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 implementation option that makes the most sense for your business.
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.
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.
For companies that want a mixture of both to meet their business requirements, there is the hybrid 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.
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.
- 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.
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.
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.
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.
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.
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 (or module) is usually licensed separately, so companies can pick and choose the functionality they want and can add on and scale as needed.
ERP cloud software is the deployment of ERP on 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).
In accounting, 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.