What is Enterprise Resource Planning?
Enterprise Resource Planning (ERP) is business management software that enables organizations to use one system to manage business processes.
Read time: 3.5 min.
Enterprise Resource Planning software has become the leading solution of choice for growing businesses that want to maintain and improve their competitive edge. If you’re new to ERP, below we explain what it is, and why it matters.
ERP is accounting and operations oriented, and features one database as a master source of enterprise information. An ERP system is used to identify and plan the resource needs of an enterprise.
Enterprise Resource Planning software has evolved from its background in manufacturing to its modern role as the main source of truth for many businesses. Organizations that implement ERP software range from small businesses to large corporations, and across a variety of industries including manufacturing, distribution, professional services, architecture, engineering and construction, and more.
A Brief History of ERP
The concept of ERP dates back as far as the early 1900s, when the first systems were introduced to organize manufacturing processes. As prominent assembly line and mass production businesses, such as Ford, began taking over the manufacturing industry, the need for organization became much more significant.
As a result, Economic Order Quantity (EOQ), a formula for ordering inventory, was created in 1913 by a production engineer named Ford Whitman. This was the same year that the Ford assembly line was introduced, and EOQ is thought to be one of the first concepts related to Enterprise Resource Planning. Demand for war materials and other manufactured goods throughout the early 20th century reinforced the need for these concepts. Companies continued to increase production by planning and allocating their resources.
100+ Years Since the Ford Assembly Line Was Introduced
Advances in ERP Technology – from MRP to ERP
Later, as software and computer technology developed, so did the concepts related to Enterprise Resource Planning. Technology to record inventory and demand levels became available, especially as inventions like the word processor and public internet were introduced. New technologies and industry competition fueled the demand for better manufacturing planning. As a result, tools such as MRP (Material Requirements Planning) and MRP (Manufacturing Resource Planning) II were developed in 1964 and 1983, respectively. MRP allowed businesses to utilize the latest technology to complete master scheduling, capacity requirements planning and more.
ERP software developed initially as a related concept to MRP, but with more modern features and added functionality.
Capabilities – What Does ERP do for Your Organization?
An ERP system streamlines multiple processes. It supports multiple functions used by different business areas, operates in real time, has a consistent look and feel across modules and includes installation of the system with elaborate application and data integration by the IT department.
What does ERP do for your organization?The tool enables: easier access to important company data, improved financial compliance with regulatory standards, risk reduction, automation of core business operations (such as lead-to-cash, order-to-fulfillment and procure-to-pay processes) better customer service and more.
ERP software solutions have modules to address needs in the following areas and beyond:
- Order processing
- Customer relationship management
- Project management
- Service work
- Budgeting and forecasting
- Quality control
One Source of Truth
One source of truth means one business system that provides the framework for all important business data. Finding one source of truth for your business can
- Eliminate confusion and provide clarity
- Enhance the strategic direction of your organization
- Improve overall company performance
- Increase customer satisfaction
Modern ERP software, implemented correctly, provides the reporting tools business leaders need to define key performance indicators, measure performance, and plan for growth.
ERP systems can significantly increase efficiency through better:
- Business processes
- Visibility into workflows
- Tools for financial planning
- Data security
- Communication tools for collaboration
- Ways to track resources
- Customer relationship management
- Flows of information throughout the enterprise
ERP Software Today
Throughout the past 10 years we’ve seen a shift in ERP systems – with more and more offerings in the cloud. A cloud service is delivered through an off-site model, as opposed to on-premise or co-located hardware and software. SaaS cloud technology is present in more than 77% of all organizations today.
Despite the shift to the cloud by ERP vendors, many businesses today run on-premise (versus cloud ERP) systems. Since there are multiple factors that go into the decision between maintaining an on-premise solution or switching to a cloud solution, in many cases, a hybrid of the two is the right move for an organization. Some factors include whether the on-premise solution is upgradeable, security concerns, and if the company is still seeing a good return on investment from the on-premise solution.