What Is ERP? Definition and Introduction

Introduction—What Is ERP?

If you’ve been a registered TEC user for any length of time, or even if you’ve done some reading about business software, you’ve likely come across the acronym “ERP” many times.

Just what is ERP? You may already know that we and others define ERP as enterprise resource planning, and that it refers to a category of software. But that still leaves a lot of room for interpretation. This blog post will go beyond explaining what the letters ERP stand for, which doesn’t fully explain the meaning behind the term enterprise resource planning. The post will serve as a brief primer to help you make sense of what ERP software entails.

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Beyond its basic meaning, enterprise resource planning, ERP software exists to provide integrated management of core processes, which are necessary to most businesses and organizations. One difficulty in providing a single, simple definition is that the ERP system used by different industries takes different forms. For example, an ERP software solution used by a manufacturer is likely to be a little different than an ERP system that is used by a retail chain, or one used by a healthcare facility such as a hospital or network of medical practices and clinics.  

What Does ERP Software Include?

ERP solutions are much broader than software designed to say, process a business’s payroll or provide Voice over Internet Protocol (VoIP) phone communications. We should more properly refer to ERP as an “ERP system” rather than “ERP software.” Rather than being a single piece of software, such as a spreadsheet program, ERP systems tend to be made up of a suite of integrated applications. So, for example, a particular ERP system may have an accounting application, another one for processing sales orders, still another for managing supply ordering and inventory, and so on. In other words, ERPs are software suites.

At a basic level, most ERP systems operate on a variety of computer hardware and various types of network configurations. These software suites usually operate using a database as a repository for information they generate about all the transactions the ERP performs.

These systems help integrate management, staff, and equipment into a single system to facilitate every part of a business’s operations. For a manufacturer, that can mean that sales data filters through to the production line, and production output in turn sends orders to suppliers to restock original equipment manufacturer (OEM) parts and raw materials. To a retail chain, it can mean that customer sales triggers orders to the distribution center and other suppliers to restock merchandise. It can also mean that the system identifies and tracks trends, so that buyers can be informed about the types of goods that are selling particularly well and the ones that are not moving off the shelves and might need to be discounted.

An ERP system typically covers several major functional areas, which vary depending on the type of business the ERP is meant to serve.

For example, for an ERP for discrete manufacturing companies, the following functional areas would be included in the ERP system:

• Financials
• Human Resources
• Manufacturing Management
• Inventory Management
• Purchasing Management
• Quality Management
• Sales Management

And for an ERP for distribution industries, the functional areas would be as follows:

• Financials
• Human Resources
• Supply Chain Management
• Distribution Process Management
• Retail and Commerce
• Product Technology

Within each functional area, there can be dozens or sometimes even hundreds of distinct features. For example, the Financials function will likely include features covering general ledger accounting, accounts payable and accounts receivable, and cash management, among others.
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Some functional areas, notably supply chain management (SCM), can comprise entire enterprise software solutions unto themselves. For some organizations, having an SCM software in addition to an ERP (as opposed to some SCM functionality as part of their ERP) may make sense. For others, it may be overkill, and introduce many features that will likely never be used. Many different areas, such as customer relationship management (CRM) and business intelligence (BI), can complement the basic functions of any type of ERP system.  

Addressing Specific Industry Needs  

More and more software vendors are launching modular ERPs that can readily integrate various modules to provide a more precise fit for a given organization’s needs. All types of applications—from an accounting suite to the software used by the sales department, to the e-commerce system that informs the warehouse which products to ship and where—can integrate with a company’s ERP system to provide the required functionality.

In addition, a great many current ERP solutions are not intended for general business use. To provide industry-specific functionality, these systems are instead designed from the ground up to suit the needs of a specific industry or type of company. These ERPs can be for the following industries/types of companies:

• Discrete manufacturers
• Process manufacturers
• Engineer-to-order manufacturers
• Wholesale and distribution companies
• Service organizations (such as financial services or healthcare providers)
• Small businesses
• Specialized industries (such as fashion, oil and gas, utilities providers, aerospace and defense, etc.)  

Don’t Be Spoiled by Choice

The market hosts many competing vendors of ERP software, with literally hundreds of offerings in many different combinations. This may make the range of choices seem to border on overwhelming.

It is true that selecting enterprise software, especially an ERP solution, can be tricky. But it needs be neither an intimidating process, nor one that’s left mostly to chance, when a proper methodology is followed. Technology Evaluation Centers (TEC) has many tools and services that are specifically designed to help organizations find the right ERP software to run their business.

So now we’ve examined the answers to “What is ERP?” The next step may be for you to take a look at the extensive research library on our website, which contains lots of information about ERP systems—their components, how ERPs can help your business, etc.
 
You can also check out the TEC Store section of the website, which contains request-for-proposal (RFP) templates for ERP systems for different industries. There you will find the basic features of several types of ERP systems. There you can also find software comparison reports, which compare the features of ERP solutions from different vendors that fall within a category of ERP or ERP system for a particular industry.

TEC can also provide you with more hands-on assistance, so your company chooses the right ERP software for its needs. Go online or call us +1-514-954-3665, ext. 404 to find out more. TEC’s software selection experts will be happy to answer any questions you may have about the software selection process in general, and can also provide more information about the tools and services that are available to assist you with your specific project.    

Related Reading

TEC ERP Pricing Guide
What’s Next in Product Development Software: IIoT, 3D Printing, Digital Twins, and More
The Industrial Internet of Things (IIoT): Four Things to Watch Before 2020