Enterprise resource planning (ERP) is a system of integrated software applications that standardizes, streamlines, and integrates business processes across finance, human resources, procurement, distribution, and other departments. Typically, ERP systems operate on an integrated software platform using standard data definitions working on a single database.
ERP systems improve enterprise efficiency and effectiveness in several ways. By integrating financial information in a single system, ERP systems unify an organization’s financial reporting. They also incorporate order management, making order taking, manufacturing, inventory, accounting, and distribution a much simpler and less error-prone process.
Properly operating ERP systems enable enterprises to reduce the time required to complete virtually every business process. They also promote collaboration through shared data organized around standard data definitions, resulting in better decision-making. The standardization and simplification that ERP systems offer result in fewer rigid structures, thereby creating a more agile enterprise that can adapt quickly while increasing the potential for collaboration. An ERP systems centralized database, while being a bigger target, is more accessible to secure than data scattered across hundreds of systems.
Four key features of ERP systems
The scale, scope, and functionality of ERP systems vary widely. However, most ERP software features the following characteristics:
- Enterprise-wide integration. Business processes are integrated end to end across departments and business units. For example, a new order automatically initiates a credit check, queries product availability, and updates the distribution schedule. Once the order is shipped, the invoice is sent.
- Real-time (or near real-time) operations. Since the processes in the example above occur within a few seconds of order receipt, problems are identified quickly, giving the seller more time to correct the situation.
- A shared database. A common database enables data to be defined once for the enterprise with every department using the same definition. Some ERP systems split the physical database to improve performance.
- Consistent look and feel. Early ERP vendors realized that software with a consistent user interface reduces training costs and appears more professional. When an ERP vendor acquires other software, familiar look and feel are sometimes abandoned in favor of speed to market. As new releases enter the market, most ERP vendors restore the consistent user interface.