What is Enterprise Resource Planning (ERP)?
Enterprise Resource Planning, commonly referred to as ERP, is a type of business management software. It is typically a suite of integrated applications that a company can use to collect, store, manage, and interpret data from various business activities. ERP provides an integrated and continuously updated view of core business processes using common databases maintained by a database management system.
Uses of ERP
ERP systems track business resources—cash, raw materials, production capacity—and the status of business commitments: orders, purchase orders, and payroll. The applications that make up the system share data across various departments (manufacturing, purchasing, sales, accounting, etc.) that provide the data.
Key Functions of ERP
ERP systems typically include the following characteristics:
- They operate in real time with no periodic batch updates.
- ERP systems are typically deployed over a variety of hardware and network configurations, typically using a database as an information repository.
- The applications access a single database to prevent data duplication.
How Does ERP Work?
An ERP system works by providing simultaneous access to a common database. By doing so, departments can collaborate and communicate more effectively. The ERP system integrates varied organizational systems and facilitates error-free transactions and production, thereby enhancing the organization’s efficiency.
Components of an ERP System
While the specific features of an ERP system can vary depending on the specific application, most ERP systems include the following components:
- Human Resources
- Customer Relationship Management
- Business Intelligence
- Inventory Management
- Supply Chain Management
Benefits of ERP
Implementing an ERP system can provide several benefits to an organization. These include:
- Improved business insight from real-time information generated by reports
- Lower operational costs through streamlined business processes and best practices
- Improved collaboration from users sharing data in contracts, requisitions, and purchase orders
- Improved efficiency through a common user experience across many business functions and managed business processes
- Reduced risk through improved data integrity and financial controls
Overall, an ERP system can help a company become more self-aware by linking information about the 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 duplicate and incompatible technology.