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 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 opportunities for growth.
  • 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 make sure they understand the capabilities, implementation models, integration requirements and total cost of ownership of a short list of software providers before picking a winner.

Enterprise Resource Planning (ERP)

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.

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.

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.

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