Enterprise resource planning (ERP) refers to a type of software used by organizations to manage day-to-day business activities, such as accounting, project management, risk management and compliance, and supply chain operations. Often, complete ERP suites include enterprise performance management software to assist planning, budgeting, predictions, and reporting on an organization's financial results.
ERP systems are used by small businesses and large multinational corporations, across various industries. Most ERP software can be customized and configured based on the specific industry needs, with some industries having specialized ERP solutions developed with those industry needs in mind. The most common industries utilizing ERP include the following:
- Retail
- Manufacturing
- Pharmaceutical
- Distribution
- Technology
- Hospitality
- Construction
- Aerospace and Defense
ERP systems are designed around a single, defined data structure (also known as a schema) that will typically have a common database. This unified data structure works to ensure that the information used across an organization is normalized and data is represented by common definitions and user experiences. Further, this allows information from one department to be available to authorized users across an organization in near-real time to keep all departments and users apprised of relevant information.
These core constructs are interconnected with business processes across departments. This allows different departments to communicate and share information throughout the company and can facilitate the collection of information about the activity and the state of different divisions. In turn, ERP software can help organizations become more self-aware by linking information about production, finance, distribution, and human resources. It is capable of integrating accounts payable, stock control systems, order-monitoring systems, and customer databases into a single system.
Organizations can use ERPs for expanding business operations, reducing costs, and improving operations. Each company's use of an ERP depends on the size of the organization and can be industry specific. Some businesses can benefit from enhanced reporting of real-time data from a single-source system, whereby reporting can help companies adequately plan, budget, forecast, and communicate the state of operations to the organization and interested parties. ERPs can also be used to automate and support administrative and operational business processes, including the customer-facing, administrative and asset management aspects of an enterprise.
The features of a specific ERP system are one of its main selling points. Most ERP systems offer a variety of features, and the various modules interacting with each other are where ERP systems can generate insights and streamline business operations. Some of the key features of ERP systems are the enterprise-wide integration offered by using a single system to integrate businesses processes from end-to-end and across departments and business units. As well, they offer real-time operations information so problems can be identified sooner than without similar integration. Through the use of a common database, ERP systems offer data to be defined once for an organization, with every department through the organization using the same definition to reduce redundancies and miscommunication. And ERPs that offer a consistent look and feel through the interface often see reduced training costs while appearing more professional to the end user.
Besides many of these "out of the box" features, many ERP providers offer add-ons and modules that can be implemented based on user needs. The more commonly requested and configurable modules tend to include accounting, human resources, manufacturing, customer relationship management, and inventory management.
Common modules
ERP systems or solutions can be categorized in tiers, based on the size and complexity of the enterprises serviced. And ERP vendors have continued to create new systems designed for the cloud and with cloud versions of their software available.
ERP Solutions
The coining of the term "enterprise resource planning" has been attributed to the Gartner Group in the 1990s. This was to differentiate new systems that had grown from earlier material requirements planning solutions to incorporate business intelligence functions, as well as sales force automation, marketing automation, and e-commerce.
Previous to the development of these early ERP solutions, material requirements planning (MRP) solution had been developed in 1964 by Black and Decker. This combined the Economic Order Quantity (EOQ) model, a paper-based manufacturing system for production scheduling developed by engineer Ford Whitman Harris in 1913, with a mainframe computer. With wider adoption of the MRP solutions and the evolution of computer technologies, software began to grow to handle business activities outside of manufacturing—which had been the industry EOQ and MRP grew out of—to include finance, human resources data, and customer relationship management.
The original MRP was replaced by MRP II in 1983, which had been developed to integrate manufacturing tasks into a common shared-data system while offering more modules. This, in part, built on some of the software automation and real-time data processing SAP developed in 1972. This gave way to the ERP solutions, which focused on divesting the software automation of MRP II to industries outside of the manufacturing, while still offering modules catered to the needs of the manufacturing industry. This included an expansion of modules beyond the basic inventory control and manufacturing processes of previous iterations to include those other departments and functions, such as accounting, finance, and sales.
In the first part of the 2000s, these early ERP solutions grew to include cloud computing and "internet enabled" products, to provide organizations an alternative to traditional, on-premise, client-server models. These cloud-based and internet-enabled systems have continued to expand and offer more features or services as computing power has increased. These features include advanced reporting, business intelligence, marketing automation, customer relationship management, and project management functionalities.
