What is ERP? ERP Meaning / Definition

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ERP is a common term in the business world, particularly among manufacturing and engineering brands. The term ERP stands for Enterprise Resource Planning, and it’s a process used by companies to help manage and integrate various crucial parts of running a business. Many ERP software solutions are important to modern companies because they help with implementing resource planning by integrating all the processes required for an organization to thrive.

Most companies manage Enterprise Resource Planning using specially made software designed to help them keep track of all their resource information. A software system can look at everything from planning, to purchasing inventory, financial tracking, marketing, sales, and even human resources.

Today, we’re going to take a closer look at the meaning of ERP, and what it involves, while helping you to make the decision of whether ERP software is necessary for you.

ERP Definition: Understanding Enterprise Resource Planning

Enterprise Resource Planning is a process used in the modern business landscape to bind multiple different computer systems together for a large organization. With an effective ERP application, companies can avoid having to track multiple systems responsible for different tasks, like tracking inventory or dealing with sales.

ERP applications aim to streamline and unify the business landscape by giving teams access to all the information they need in one convenient location. ERP applications can also assist multiple departments in a business in communicating and sharing information with the rest of the organization. The technology conveniently collects information about the activities happening in a business, and the state of different divisions in the business, making the information available to other professionals.

ERP software tends to help companies become more aware, by offering visibility into everything that happens in the organization. The technology can link information about the production, distribution, and finance of various elements of the company. Because ERP connects a range of different technologies used by different parts of a business, it’s great at eliminating costly and incompatible technology too, reducing overall cost of ownership.

Over the years, the software systems available for ERP have evolved drastically. Today’s solutions can be extremely intelligent, with AI systems that can track information and make suggestions based on patterns and trends. Many of the modern enterprise resource planning tools in the world today use cloud-based software to simplify connections between remote teams too.

The Purpose of ERP Technology

Enterprise Resource Planning software is a critical part of running a successful business in today’s modern world. The right technology can significantly improve the productivity and efficiency of a business. To understand what ERP does, you’ll need to take a step back and think about all the various processes involved in running your business. This could include accessing inventory and order management, accounting, customer relationship management, and human resources. At a basic level, ERP software integrates various functions into a comprehensive system to process information for the entire business environment.

Usually, the central feature of any ERP software is a shared database supporting multiple functions used by different businesses. This means employees in various divisions, like sales and accounting, can track the same information for their business decisions.

ERP technology can also assist with things like synchronized automation and reporting. Rather than requiring employees from different segments of the business to maintain separate spreadsheets and databases that need to be merged regularly to generate reports, many ERP solutions will allow staff to pull reports easily from a single system. For instance, if sales orders from different departments all come to the same final resting place, it’s much easier to track the overall cash flow and budget of the company.

Where Did ERP Technology Come From?

Although the term ERP has only been around since 1990, thanks to Gartner, the roots of the technology date back a lot further. In the 1960s, the concept of ERP solutions applied to inventory management usually in the manufacturing sector. Many software engineers would create programs that could report on status information, monitor inventory and reconcile balances at the same time.

In the 1970s, the software created by these engineers had evolved into Material Requirements Planning tools, designed for scheduling production and processes in the industry. In the 19870s, the MRP technology transformed again, pulling in more processes from the manufacturing plant, which led more people to refer to it as manufacturing resource planning. In 1990, the systems expanded further, beyond inventory control and other processes, to include more back-office functionality.

Though the “E” in the Enterprise Resource Planning technology today stands for the Enterprise, companies don’t necessarily have to be classed as enterprises to use the tech. Many mid-sized companies with high levels of agility and growth are also using this technology. It’s becoming particularly popular as cloud computing and software as a service makes technology more affordable, scalable, and accessible.

Notably, while manufacturing and engineering companies also continue to use the ERP software available today, the solutions are also helpful for a range of other businesses too, in virtually all industries where information needs to be tracked consistently.

What are the Benefits of ERP?

Enterprise Resource Planning is an extremely valuable tool for a lot of business leaders. ERP solutions are often adopted by companies to help with expansion, reducing costs, and even boosting productivity or efficiency in a lot of situations. The benefits include:

  • Consistency and transparency: Automating and integrating various business processes helps to eliminate redundancy, improve productivity, and enhance accuracy throughout the business. Companies with connected processes can more easily synchronize work to achieve better outcomes, reducing the risk of waste.
  • Useful insights and reporting: Businesses in many industries will often benefit from increased visibility in their ecosystem. Accurate and comprehensive reporting can help companies to plan, forecast, budget, and communicate information about their operations to the organization, and shareholders too.
  • Fast access to information: ERP technology is excellent for allowing businesses to access information for clients, vendors, business partners, and other interested parties. This can lead to better customer satisfaction, and even improve employee satisfaction by allowing teams to operate more seamlessly, and with access to the right information.
  • Improved collaboration: When departments can share the same knowledge, the risk of mistakes and overlap are minimized. A synergized workforce will benefit from better employee satisfaction and productivity.
  • Enhanced compliance: Being able to track information and the flow of business operations from one environment to the next is excellent for compliance purposes. Companies can ensure they have all the information they need for regulatory purposes, or to respond to audit requests when necessary.

Which Companies Benefit from ERP?

ERP solutions can cover many important functions within the standard business, making it an excellent investment for all kinds of companies. ERP systems, however, are most commonly used to automate and enhance parts of the supply chain in certain verticals. For instance, some of the most common companies benefitting from ERP implementation include:

  • Commerce: Retailers face a host of challenges when it comes to supporting their customers. ERP systems can deliver complete omnichannel solutions unifying in-store, back-office, and digital experiences. The customer gets a more seamless and personalized service, while retailers can improve employee productivity online and on-premises.
  • Finance: The modern ERP or cloud ERP environment can help with various business functions and decision-making processes in the finance world. Like in the e-commerce world, enterprise resource planning systems can make financial teams more productive. However, these tools are also useful for improving compliance, and tracking crucial information within the financial space.
  • Human resources: Modern solutions for ERP come with a range of metrics and workflows to assist with project management in the HR environment too. These solutions can streamline employee management tasks like hiring, payroll, and other duties. You’ll also be in a better position to retain, recruit, and empower employees by identifying problems before they happen.
  • Manufacturing: probably the most common avenue for ERP solutions. Businesses of all sizes in manufacturing benefit from having a common database for tracking processes and business needs. The ERP solution helps with managing resources and accessing real-time data. Companies can use the ERP suite to improve the productivity of the core business, and plan for production.
  • Supply chain: Even supply chain solutions use ERP modules for the better management of their business. Modern solutions come with a range of automation and AI solutions that can streamline the performance of the business and improve business intelligence. The result overall is usually better stock management.

Are There Any Negatives to ERP solutions?

Having a common environment where you can track the lifecycle of products and improve the performance of the business with real-time data sounds like a win-win situation for most companies. However, there are some companies that still don’t feel comfortable turning to ERP vendors.

Sometimes, the biggest concern for companies is they don’t know how to choose between types of ERP solution, and make sure they’re accessing the right tools. There’s a lot of different competitors out there, which can make it different to make the right choice. One option could be to try free demos and trials of products to see which SaaS solution has the features you need before investing.

Some companies are simply comfortable with the business management software they have now, and they don’t want to upgrade to an ERP. However, there are many software tools in the ERP environment that should be able to integrate with the tools companies are already using.

An Example of Enterprise Resource Planning

For an example of how your ERP system might benefit your business, let’s look at an example. Cadbury, one of the best-known confectionary companies in the world, implemented an ERP system when struggling to keep track of thousands of different systems creating chocolate from around the world. It’s existing solutions couldn’t keep up with its rapid growth, and it’s ineffective warehouse management systems made it difficult to track supplies.

The company eventually implemented a system for enterprise resource planning that integrated thousands of applications within the ecosystem, standardized processes across a multitude of locations, and restructured common warehouse management systems, breaking down silos for an integrated and seamless coordination of the workplace.

Another example is Western Digital, a technology company with products in data systems, storage, and solutions. A merger of SanDisk, Western Digital and HGST proved a significant challenge for the company in 2019. Western Digital wanted to centralize ERP, so companies were able to work better together.

After making deliberations, the company went with Oracle’s ERP cloud, and accessed a range of Oracle products including performance management and analytics. The implementation led to better cost center management, human resource management, payment processing, workforce planning, and even improved customer relationship planning

Even companies like Cadbury, one of the most well-known companies in the world for confectionery, successfully implemented an ERP tool into its organization after discovering that disjointed procurement, CRM, and MRP II tools weren’t having the right impact on its results. The company had previously tried to implement an SAP system for ERP, and ended up with an overproduction of products instead. However, the company didn’t give up on Enterprise Resource Planning.

Eventually, Cadbury was able to implement a fantastic ERP system capable of standardizing processes in supply chain management, warehouse management, and performance across 16 locations. There are countless other case studies like this out there.

Enterprise Resource Planning FAQ:

What is ERP Software?

The term ERP is an acronym for Enterprise Resource Planning. Enterprise Resource Planning software is a selection of systems and technologies designed to help companies manage and integrate core processes in the business. Some ERP solutions are advanced with lots of customization options, artificial intelligence, and more.

Others are more simple systems, intended to help with streamlining things like product development and supply chain tracking. The right application will allow companies to interact within a single interface and share useful information. You can even use ERP software with IoT (or the Internet of Things) to track sensors on assets and help with asset management.

Is an ERP Necessary for All Businesses?

Many companies can improve their profitability and chances of success by implementing the right tool. If your company creates and ships physical products to customers, there’s a good chance you can benefit from an ERP.

The right technology will help you to track everything from accounts payable and invoices, to how much inventory you have, and how quickly your production strategies are proceeding. The benefits of an ERP solution range all the way from better efficiency to improved access to crucial information. Although it can be expensive to adopt an ERP at first, the right solution will improve your chances of saving money in the long-term.

What does an ERP System Need to Include?

ERP technology comes in a range of shapes and sizes to suit different companies. There are various tools out there with unique deployment options and advanced technology. The exact components you need within your technology will depend on a range of factors. One of the most common features to look for in a new ERP solution is automation. The more automation you have in your new technology the easier it will be to finish tasks quickly and reduce errors.

ERP software needs to be accessible from a range of different devices, so team members can access the technology on the move. There should also be plenty of customizable reports and graphs available, to help with forecasting, production planning and business decision-making.

When purchasing ERP software, many business leaders look for a scalable solution they can adapt according to their needs. Many SaaS solutions on the market today come with the option to add new modular features as your business evolves. You may also be able to add integrations and functionality to your ERP with APIs and developer access.

Embracing Enterprise Resource Planning

While enterprise resource planning may sound a little confusing at first, it’s actually one of the best ways to streamline and improve the output of your business. With the correct Enterprise resource planning tool customized to suit your company’s specific needs, you’ll be able to improve visibility into business operations for all members of staff.

The visibility and alignment an ERP system offers means companies can more effectively plan and allocate resources, without unnecessary waste. Without ERP technology, many manufacturing and engineering companies struggle to operate in a siloed environment. Silos often mean that each department works separately, and mistakes happen more frequently.

Aside from providing access to valuable information and analytics, an ERP system also supports the flow of communication and collaboration throughout an organization. With ERP technology, companies can integrate systems they rely on every day for improved productivity and performance. However, moving into an ERP system can be counterproductive if the company culture doesn’t adjust with the change and the company doesn’t review how the organizational structure can support the team.