ERP systems form the information management backbone for companies of all sizes and in all industries. ERP software covers the gamut of operations from basic inventory control, customer orders and purchasing to advanced planning and scheduling, distribution management, international financials and more.
The most powerful aspect of ERP systems is that they are fully integrated around a single database to enable cooperation and collaboration across the enterprise. This means that ERP systems help to break down the walls between departments and empower users to share information and tie their everyday activities more closely to company goals and customer service.
If you are looking for a concise ERP system definition, consider this one from the APICS dictionary: Enterprise Resource Planning (ERP) is a “Framework for organizing, defining, and standardizing the business processes necessary to effectively plan and control an organization so the organization can use its internal knowledge to seek external advantage.” ERP is essentially a computer model of your business processes that can be used to get a clear view of the entire organization, its activities and requirements; enforce procedures and best practices; and support management decision-making with reporting, analysis, and decision support tools. The last phrase of the definition is particularly important. ERP helps a company use its internal knowledge for external advantage.
Major ERP system components include the central database that stores and manages the definition of your business (bills of materials, process definitions, capacities, customers and suppliers, etc.) and activities and status (inventory, schedules, forecasts, orders); software ‘modules’ that address specific business areas like inventory, production scheduling, customer orders, general ledger and forecasts; and management tools like an executive information system (dashboard), report generator, and analytical tools.
There are a variety of types of ERP systems. Examples include traditional on-premise systems where the user company licenses the software and installs and maintains it on their own computer hardware, and a growing community of cloud-based Software-as-a-Service (SaaS) offerings from traditional vendors as well as some newer vendors that only operate in the SaaS world. SaaS is seen as a particularly attractive alternative ERP system for small business because there is a much lower up-front expense, and less need for in-house technical support resources.
The ERP system market is dominated by two large vendors, SAP and Oracle, that cater to big companies. A few vendors (such as Infor) serve medium and large companies with a large pool of products accumulated through acquisitions over the last decade. A number of vendors focus on the mid-range and several are dedicated to small business users. Some vendors have multiple products that are positioned to specific industries and/or different sized companies. There are even a few open source ERP systems providers that give their software away for free but may charge for support.