What Is ERP? Understanding Enterprise Resource Planning

Enterprise resource planning (ERP) is software that helps businesses manage day-to-day operations, such as inventory management or accounting. ERP can be beneficial for your organization because it acts as a centralized, common database that cross-functional teams can access for their specific needs.

While big companies have long used ERP to manage their processes, more and more small businesses are also adopting ERP to boost efficiency and sustainable growth. Learn more about what ERP is exactly, its benefits, how it works, and what industries use it today.

What is ERP?

Enterprise resource planning (ERP) refers to software, tools, and technology you can use to manage daily business operations and automate processes, such as accounting, supply chain, manufacturing, managing projects, and more. ERP systems have different modules that perform these functions.

ERP streamlines and integrates all of a company’s data into one database system that acts as the single source of truth, enabling you to save and access data in one place. These software systems automate tedious and time-consuming manual processes to save companies time and money.

For a more in-depth look at enterprise resource planning, watch this video:

Origins of ERP

As early as the 1960s, businesses started using computers for their accounting and finance solutions [1]. When the manufacturing industry started booming in the 1980s, new software emerged to integrate all of these processes in one place. In the 1990s, ERP was introduced, combining accounting, finance, sales, manufacturing, inventory, human resources, and project management.

Cloud ERP software emerged in the early 2000s, and today, machine learning and other supplemental technologies are helping companies run even more efficiently to measure up against the competition.

ERP system examples 

Popular examples of ERP include Systems Analysis and Program Development (more commonly known as SAP), Oracle ERP, and Microsoft Dynamics 365.

Businesses use these systems to centralize data and leverage the data analytics inherent within them to equip their teams with actionable insights. For example, a business might use an ERP system like Microsoft Dynamics 365 for customer relationship management by centralizing customer lead data for both the sales and marketing departments. Using the implemented ERP, consequently, the team will be able to close sales faster, employ targeted digital marketing efforts, and reduce costly inefficiencies. 

Benefits of enterprise software

Overall, enterprise resource planning software helps organizations save time and money. The main advantages of ERP are:

• Save time and money: ERP software tools help businesses plan, forecast, and operate faster, so that they can expand and gain profitability.

• Automate processes: Automating an organization’s processes gets rid of redundant and inefficient workflows, which improves productivity and creates space for growth and innovation.

• Centralized system: With management systems (modules) for all departments in one place, teams can easily access real-time data across the organization. It streamlines reporting, making it accessible to all.

• Secure, accurate data: Not only is data secure on the database system and much more accurate than if it was input manually, but it's also available in real-time. You can track and monitor data, such as procurement or sales, and generate reports immediately, which is useful for planning, forecasting, budgeting, and communicating insights to shareholders and teams.

• Cloud-based accessibility: Most ERP systems are now cloud-based, or at least have the option of being accessible on a cloud so that teams can access them anytime, anywhere.

• Collaboration and knowledge sharing: ERP helps integrate all teams, which enables collaboration and sharing of knowledge across the organization. Companies can grant organization-wide access, and this visibility contributes to workplace cohesion and harmony.

How does an enterprise resource planning system work?

If companies need to use seven different systems to automate their workflow and production, then employees need to learn (and toggle between) multiple software tools just to get a simple task done. 

ERP provides a central database system that streamlines all that data and planning in one place. Modules might include:

• Supply chain management

• Inventory management

• Project management

• Human resources

• Warehouse management

• Finance and accounting

• Risk management

• Sales orders and planning

• Business intelligence

• Data analytics

• Research and development

What’s an ERP system in accounting?

You may hear people refer to ERP as shorthand for their company’s financial and accounting data, but the two types of software are different. You can use ERP to manage and plan your finances, but this is only one subset of enterprise resource planning. You can also use ERP for inventory, procurement, maintenance, logistics, risk management, and more. 

Types of ERP

Businesses can choose from three types of ERP: on-site systems, cloud-based systems, and hybrid systems. Each type of ERP has its own advantages and disadvantages and is best suited to different use cases. Explore what you need to know about each one:

On-site ERP

The most traditional kinds of ERP are those housed on-site at a business’ physical data center. For an ERP housed at a business’s premises, the business must maintain and implement the system itself, rather than relying on online solutions. ERP of this kind are some of the earliest systems, which rose to prominence in the 1990s when the internet was just beginning to develop.

Cloud-based ERP

Today, many ERP systems are housed online in “the cloud” rather than directly within a business’ physical data center. The benefits of cloud-based ERPs are that they can centralize all of a business’ relevant data online and make it available to employees around the world. Systems are also routinely updated by service providers and are often equipped with artificial intelligence and advanced analytics capabilities, such as predictive modeling. 

Hybrid ERP 

Hybrid ERPs pair on-site ERP systems with cloud-based ones. Businesses that have invested significantly in their on-site system or house sensitive data on-site may pair such systems with those in the cloud to maintain the benefits of updated cloud systems without having to sacrifice what they already have in place.

Types of industries

ERP software can benefit most industries because a majority of organizations require the use of systems to help manage their operations. The following are examples of industries that have many moving parts and especially benefit from ERP:

• Manufacturing 

• Health care

• E-commerce businesses

• Construction

• Transport and logistics

• Food and beverage

• Hospitality

• Telecommunications

• Media and entertainment

• Non-profit organizations

• Government

Careers that use ERP

Several career paths utilize ERP software as part of their role. Learn more about four of them.

Data architect: A data architect often takes charge of implementing data and information architecture in an ERP. These individuals are adept at systems engineering and architecture and applying these to data strategy operations. A cloud architect is similar but uses cloud-based ERP systems.

Business analyst: A business analyst is responsible for solving internal problems, so they will implement strategies to improve business operations, including the use of ERP systems and tools. If a company is already using ERP, it may hire an ERP operations analyst to advise staff on developing new workflows to optimize operational capacity. 

Database administrator: A database administrator focused on ERP will help a particular team with technical support and maintenance for their ERP system. This role might focus on the ERP system as a whole or a specific module supporting the procurement team, for example. Using SQL, the database administrator might optimize procedures, objects, and functions within the system.

Project manager: A project manager (or technical project manager) who focuses on ERP helps teams or organizations manage the implementation or enhancement of using ERP systems. They understand deeply the various applications of ERP software and help coach employees toward their goals by boosting productivity and organization. 

Learn ERP with Coursera

Enterprise resource planning software can help you optimize your business processes into one central process, saving your company time and money. Are you ready to dive into enterprise resource planning? Get to know tools and software that can help you land a fulfilling career in cloud-based operations and strategy.

The highly-rated Information​ ​Systems Specialization from the University of Minnesota offers the opportunity to learn the frameworks needed to implement and integrate ERP into business strategy. You’ll be able to evaluate the need for ERP and how to develop the appropriate IT infrastructure that will allow the ERP (and business) to thrive.