ERP (enterprise resource planning)

This definition is part of our Essential Guide: Oracle ERP software implementation tips and trends
Contributor(s): Paul Brislen, K. R. Krishnakumar and Jim O'Donnell

Enterprise resource planning (ERP) is an industry term for the broad set of activities that help an organization manage its business.

An important goal of ERP software is to facilitate the flow of information so business decisions can be data-driven. ERP software suites are built to collect and organize data from various levels of an organization to provide management with insight into key performance indicators in real time.

Key ERP modules

ERP modules can help an organization's administrators monitor and manage supply chain, procurement, inventory, finance, product lifecycle, projects, human resources, customer relationship management, business intelligence and other mission-critical components of a business through a series of interconnected executive dashboards.

In order for an ERP software deployment to be useful, however, it needs to integrate with other software systems the organization uses. For this reason, deployment of a new ERP system in-house can involve considerable business process re-engineering, employee retraining and back-end information technology support for database integration, data analytics and ad hoc reporting.

Types of ERP software: On premises and cloud

Legacy ERP systems tend to be architected as large, complex, homogeneous systems which do not lend themselves easily to a software as a service ERP delivery model. As such, most ERP systems, particularly those from large legacy vendors, are run on premises.

As more companies begin to store data in the cloud, however, ERP vendors are responding with cloud-based services to perform some functions of ERP -- particularly those relied upon by mobile users. Companies may also want to reduce the cost and complexity of running ERP by moving to cloud-based ERP. In some cases, companies are using mixed environments in which part of the ERP runs on premises and part runs in the cloud.

There is no one-size-fits-all model for running ERP in the cloud, and companies have a variety of deployment options. Some companies are reluctant to put mission-critical systems and applications in the cloud for a variety of reasons, including perceived security risks or loss of data control. Other companies in highly regulated industries or government agencies may be restricted by where systems and data can be located geographically.

Multi-tiered ERP systems

The most common ERP deployment, either on-premises or cloud-based, is a standard monolithic system from one vendor, generally a large legacy vendor. However, many organizations now run multiple ERP systems under one environment, commonly known as two-tier (or multi-tier) ERP. Reasons for this include geographic differences in the organization, different divisions running different systems or company mergers for which various systems have been brought into one environment.

These deployments often have one large, "Tier 1" ERP that runs across the organization and includes functions that are critical to the organization as a whole, and one or more other ERPs, called Tier 2, that run less critical functions, or ones that are specific to departments.

ERP vendors

There are many ERP vendors with a wide variety of functions and on-premises or cloud deployment options.

The most widely deployed legacy platforms are SAP, Oracle and Microsoft Dynamics, all of which have multifunction ERP systems and on-premises and cloud deployment options. Their customers range from large enterprises to small and medium-sized businesses.

Other leading vendors have multifunction systems, including Epicor Software Corp., Infor, IFS World, Sage Software Inc., SYSPRO USA, IQMS and QAD Inc. Leading ERP cloud vendors include NetSuite Inc., Kenandy Inc., Acumatica Inc. and Plex.

Many of the smaller ERP vendors have specialized capabilities for business processes, such as supply chain, financials, engineering, research and development and HR, as well as functions that focus on specific industries like manufacturing, retail, healthcare or public sector.

ERP support

ERP vendors have a variety of support models for ERP systems, depending on licensing contracts with customers.

Support services usually have multiple levels -- from phone support to consulting -- and associated costs, and include services like bug fixes, incident resolution, patches, and updates and upgrade assistance.

Support services are generally handled by the ERP vendors, although there are independent firms that offer third-party support for some vendors' ERP systems.

This was last updated in December 2016

Next Steps

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In what ways does your organization use ERP software to manage business processes?
You can use an ERP for your financial operation (accountancy), HR and inventory management



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