What Is ERP (Enterprise Resource Planning)?

Enterprise Resource Planning (ERP) is a software that brings all key business processes together in one unified platform. Instead of juggling different tools or spreadsheets, ERP gives you real-time visibility to help you make smarter decisions and more time to focus on what really matters.

What Is an ERP System?

An ERP system is software that helps companies manage their core finance, manufacturing, inventory, human resources, supply chain, sales, and marketing processes from one unified platform.

ERP systems centralise data and automate workflows to reduce errors caused by manual data reconciliation. With fewer operational bottlenecks, employees can collaborate more effectively and focus on higher-value work.

For most businesses today, ERP is the foundation that keeps their operations running smoothly to support their long-term growth. And it’s not just for large businesses anymore. Cloud-based systems have made ERP more accessible to small and midsize companies, giving them the visibility, control, and flexibility they need to scale with confidence.

Video: What Is ERP?

ERP System Explained

Growth can bring system complexity, especially when businesses stack new systems onto old ones. What starts with a standalone accounting software for managing financial transactions soon requires an inventory management system to track stock levels and prevent overstocking or shortages. As operations expand further, a supply chain management system becomes necessary to optimise procurement and ensure timely order fulfilment. A CRM software is then introduced to manage interactions, track leads, and personalise customer engagement.

Over time, this patchwork of disconnected systems makes it harder for teams in different parts of the company to access data, collaborate effectively, and respond quickly to market changes.

An ERP system not only helps automate core business functions, but it also gives key people across a company access to real-time data to inform key decisions, while reducing it connects and facilitates data between multiple business redundant tasks and costly errors.

What Are the Core Components of an ERP System?

An ERP system integrates the management of business processes into a single platform. It consists of components or modules that can be added based on your needs. Here are six core components and subcomponents or features:

1. Finance and Accounting

   Finance and accounting provides a complete view of the organisation’s cash flow and performance to help ensure accurate budgeting, forecasting, and decision-making while helping to maintain compliance with financial laws and regulations.

   Key sub-components of finance and accounting include:

   • General Ledger. Keeps all financial records and maintains account balances.
   • Cash Management. Automates income and expense tracking to help optimise liquidity and ensure accurate forecasts.
   • Accounts Payable. Automates the process of invoicing vendors and tracking payments to vendors to help ensure payments are on time.
   • Accounts Receivable. Automates invoice delivery and payment collection to reduce outstanding balances and increase liquidity.
   • Accounts Reconciliation. Helps ensure financial accuracy by matching transactions across bank statements, ledgers, and financial records.
   • Tax Management. Automates tax calculations and filing for compliance with regulations.
   • Close Management. Accelerates the financial close process by automating reconciliations and consolidating financial data.
   • Fixed Assets Management. Helps manage asset acquisitions and tracks the valuation, depreciation schedules, and disposal of assets.
   • Payment Management. Enables payment processing and facilitates approval workflows to track and reduce the average collection period.

2. Human Resources Management (HRM)

   Human resources management modules automate processes throughout the entire employee lifecycle, from recruitment to onboarding, talent management, payroll management, and workforce planning.

   Key sub-components of HRM include:

   • Payroll Management. Automates salary calculations, taxes, and benefits deduction in order to schedule and issue payments and help forecast payroll budgets and finances.
   • Talent Management. Helps businesses attract, retain, and develop employees and plan for succession.
   • Performance Management. Aligns overall business objectives with employee performance by tracking and evaluating employee goals, feedback, and appraisals.
   • Workforce Planning. Analyses current and future workforce needs, optimises staff levels, shifts schedules, and allocates resources.
   • Time and Attendance. Tracks and helps ensure an accurate record of employee work hours, late arrivals, breaks, and time off.

3. Supply Chain Management (SCM)

   Supply chain management modules help optimise procurement and logistics and facilitate processes from planning to returns. These applications help businesses manage their supply chains more effectively to reduce lead times and improve operations.

   Key sub-components of SCM include:

   • Procurement Management. Helps track and manage supplier purchasing, contracts, and invoices, as well as oversee supplier performance.
   • Inventory Management. Tracks stock levels to prevent shortages, and optimises inventory replenishment, cycle counts, and demand forecasts.
   • Logistics Management. Manages the movement, storage, and delivery of goods either from a buyer or a seller.
   • Vendor Management. Monitors supplier relationships and performance by tracking defect rate, delivery times, and costs through vendor scorecards.
   • Demand Planning. Forecasts customer demand to predict inventory needs based in part on historical markets and previous sales.
   • Supply Planning. Manages demand plan requirements, helps balance supply and demand, and optimises sourcing.
   • Order Management. Speeds up fulfilment and delivery times by automating order processing from initiation to delivery.
   • Warehouse Management System (WMS). Manages the storage, picking, packing, and shipping of goods to reduce costs and improve order accuracy.
   • Transportation Management System (TMS) Optimises freight, routing, and carrier selection to save on costs.
   • Product Lifecycle Management (PLM). Oversees the entire product journey, from development to growth, maturity, and decline.

4. Customer Relationship Management (CRM)

   Customer relationship management modules centralise customer data and automate task management to help improve sales, marketing, and customer service. These applications help businesses build stronger customer relationships and deliver personalised experiences by consolidating data on historical interactions and customer preferences onto a single platform.

   Key sub-components of CRM include:

   • Sales Force Automation. Tracks leads and prospects throughout the sales pipeline. It improves the productivity of sales managers by automating workflows and follow-ups to close deals faster.
   • Customer Service Management. Enables faster responses to customer queries and complaints through an automated case management system.
   • Marketing Automation. Helps segment audiences, track campaign performance, and improve ROI by automating functions such as email campaigns, social media outreach, and ad platform tracking.

5. Professional Services Automation (PSA)

   Professional services automation modules help services-based businesses manage projects, allocate resources, track employee timesheets, and process financials.

   Key sub-components of PSA include:

   • Resource Management. Tracks employee availability and skills to help ensure that the right people are assigned to the right tasks.
   • Project Management. Helps organisations manage projects efficiently to improve resource allocation, budgeting, and progress tracking. These applications enhance productivity by integrating task management, workflow automation, and performance analytics.
   • Timesheet Management. Enables employees to log billable and non-billable hours for accurate billing and project tracking.
   • Expense Management. Helps track and process project-related expenses and automates the approval workflow to ensure alignment with company policies.

6. Ecommerce

   Ecommerce modules ensure that data flows between online stores and back end operations. These applications automate online order management, connect with social commerce platforms, update stock levels in real time, and synchronise sales, invoices, and revenue for reporting.

   Key sub-components of ecommerce include:

   • B2C Ecommerce. Helps make the online shopping experience for individual consumers easy and enjoyable, whether they’re browsing products, checking out, or getting customer support. The whole process is designed to feel effortless, while keeping things connected behind the scenes with inventory and logistics.
   • B2B Ecommerce. Supports business buyers who purchase in bulk. It allows buyers to manage quotes and orders, pay invoices, and operate under company accounts.
   • Point of Sale (PoS). Brings the in-store and online worlds together by managing physical retail transactions and syncing them with ecommerce inventory. It connects customer and inventory data from various sales channels, providing a unified view of operations.

Industries That Rely on ERP Systems

ERP’s feature-rich solutions adapt to the diverse organisational needs and requirements of every industry.

Industries whose businesses count on ERP include:

Benefits and Advantages of ERP Systems

ERP systems provide many benefits for businesses. Here are nine of the biggest ones

1. Unified processes. ERP helps ensure that your people in different functions—are working with the same, standardised data, helping them make informed decisions across those functions.
2. Real-time data visibility. Employees can view up-to-date data across all departments in real-time to help make informed decisions.
3. Regulatory compliance. Having up-to-date data on financials, reporting requirements, and industry-specific standards reduces the risk of non-compliance with local and international laws and regulations. This is especially critical for highly regulated industries.
4. Data security. Data stored in multiple, disparate business systems increases the likelihood of a breach. Unified, cloud-based ERP systems offer role-based controls and data encryption.
5. Business intelligence (BI). ERP systems integrate analytics, reporting, and dashboard tools to help your leaders analyse trends, forecast demand, and identify new growth opportunities.
6. Scalability. With cloud-based ERP systems, businesses can add capabilities and user seats as their businesses grow. The system can grow with the business without forcing a full system overhaul.
7. Cost savings. By automating a variety of processes and reducing human errors, ERP systems can improve operational efficiency, leading to time, and cost savings. Cloud-based ERP systems can help further reduce costs by eliminating the need to manage an expensive on-premises infrastructure with dedicated support and maintenance personnel.
8. Better customer service. ERP systems can help your business improve customer service by providing service reps with accurate and up-to-date data on customer order histories, inventory availability, and delivery times.
9. Improved collaboration. ERP systems help connect your teams across departments by unifying data across those departments. For example, the sales team can check inventory levels before committing to delivery dates for a customer. An ERP system can automatically trigger a restock request to the procurement team or alert production urgency to manufacturing.

Disadvantages of and Common Concerns with ERP Systems

Businesses should consider the following five challenges when building a business case for an ERP implementation.

1. High initial cost. Conventional on-premises ERP systems required a substantial initial investment in software licenses, supporting IT infrastructure, implementation consulting, and time, as well as in ongoing maintenance. However, with modern subscription-based SaaS ERP systems, customers pay a recurring, often monthly fee to access enterprise-grade software instead of paying a lot up front.
2. Complex implementation. Implementations of on-premises ERP systems can take months, even years depending on the size and needs of your organisation. Some providers of cloud-based ERP offer pre-configured and ready-to-use solutions that greatly reduce setup times, while giving customers the flexibility to roll out additional features in the future when they need them.
3. Updates and maintenance. ERP systems require regular feature, performance, and security updates to help ensure they’re working properly, remain aligned with business goals, and protect sensitive data. SaaS solutions relieve companies from much of this burden since providers manage the updates.
4. Resistance to adoption. Because new ERP implementations disrupt established workflows and processes, employees tend to resist them. Clearly communicating the long-term benefits, creating training programs, and involving key employees in the decision process can help encourage employee buy-in. As ERP systems continue to improve and become more sophisticated, they also become more intuitive and get easier to use. The resistance to change can fade away as employees experience how the new system makes processes and workflow simpler and more effective.
5. Data migration issues. Data in a legacy ERP system is typically stored in a format that’s incompatible with the new system. While the data migration process is time-consuming and resource-intensive, it’s critical. IT teams should identify potential compatibility issues before transferring large amounts of historical data. In some cases, you may need to hire external consultants, which can add to the complexity and cost of the project.

ERP Deployment Models

Businesses can deploy ERP systems in different ways based on their cost, level of control, scalability, and other requirements.

Here’s how each of the four main models works and key differences among them.

• On-premises ERP. For many years this was the only option available. With an on premises ERP system, businesses need to install and manage their own servers and manage system security, support, customisation, updates, and maintenance.
• Cloud-based ERP. Under this model, the ERP system runs on servers hosted, managed, and secured by a cloud provider and is accessed via the internet. Its upfront costs are lower than those for on-premises ERP systems thanks to its subscription-based pricing. Software-as-a-Service (SaaS) where you pay only the features you use on a subscription basis. Cloud ERP is also faster and less expensive because there’s no need to install underlying hardware and other IT infrastructure.
• Hybrid ERP. Hybrid ERP systems combine elements of on-premises systems with cloud deployments. One common hybrid ERP approach is for a business to maintain its legacy ERP system while adding newer cloud solutions to quickly add features or support other business units or regional groups. This setup can be ideal for businesses with diverse operational needs.
• Open-source ERP. Open-source ERP offers an alternative for companies that need a flexible and relatively inexpensive solution. However, open source ERP vendors tend to be less financially stable than vendors of proprietary ERP applications, and the software generally comes with less support and is more difficult to use.

Choosing the Right ERP for Your Business Size

Here’s a guide on why the ERP solution a business chooses will depend on the company’s size and the complexity of its operations:

1. ERP for Small and Medium Enterprises (SMEs)

   Cloud ERP is often the preferred ERP choice for SMEs due to its faster deployment, minimal upfront costs, and scalability.

2. ERP for Large Enterprises

   Large enterprises need an ERP solution that can process vast amounts of data, handle complex processes, and support multiple business units, often across borders. They’re often using an on-premises or hybrid setup because they adopted their system before cloud ERP became widely available and popular. While migrating an extensive ERP system to the cloud demands a significant amount of time and resources, a growing number of global corporations are making the shift.

When Should You Adopt an ERP System?

If a business is growing rapidly but is being held back by the inadequacies of managing key processes with siloed spreadsheets or other rudimentary systems, then it might be time to consider an ERP system. Here are seven signs.

1. Reliance on manual processes. The spreadsheets may have been reliable at some point, but as it grows and its processes become more complex, its manual processes need to be automated to improve efficiency and reduce human errors.
2. Disconnected systems. Spreadsheets and other legacy systems used to manage processes are typically disconnected, creating data silos.
3. No real-time insights. Relying on disconnected systems, outdated reports, or gut feel can hold back your business. If reports from finance, sales, or inventory are available only after manual updates, decision-makers are forced to react to issues after they happen instead of getting ahead of them.
4. Inventory and order issues. You struggle to maintain optimal stock levels, experiencing delays in orders, wasting stock, or losing sales.
5. High operational costs. Your business spends heavily on software maintenance fees and manual tasks to consolidate data.
6. Compliance and security risks. Your business uses legacy systems that don't control user access, data isn’t encrypted, and the data isn’t monitored by a compliance tool.
7. Hindered growth. When outdated or inadequate systems introduce inefficiencies, muddy the data waters, or can’t support the changes the business wants to make, it’s time to look for a new solution.

ERP Implementation Strategies

For a project as big as an ERP implementation, ensuring that you choose the right implementation strategy can reduce the chance of scope creep. Here are several possible strategies to consider.

• Big Bang. A big bang approach deploys the entire ERP system at once across all departments and processes. This approach requires extensive pre-implementation planning, testing, and training, which could overwhelm employees. However, the main advantage here is that your business can realise the full benefits of the new ERP system faster.
• Phased Rollout. A phased rollout implements the ERP system gradually over an extended period of time. With this approach, your business can either start deploying a specific module first before moving on to another. Or it could deploy by location or business function. This strategy lowers the risk of implementation failure because each phase is tested before moving onto the next phase. However, a phased approach takes longer and could be more expensive than a big bang approach.
• Parallel adoption. With this approach, your business can run its legacy system together with the new ERP until the new system is fully functional. It provides a fallback if issues arise, which lowers the risk. However, this type of approach could be more expensive and time-consuming because it requires running two systems at the same time.

ERP Implementation Best Practices

It would be misleading to label any ERP implementation as simple or easy. These are projects that will require considerable time and effort, even if some go much more smoothly than others. That’s where these implementation best practices come in—adhering to these as you begin your project can make it a better experience with fewer issues.

1. Set clear goals: Define clear business objectives and work with stakeholders to define key performance indicators (KPIs) to monitor during the implementation.
2. Secure leadership buy-in: Engage top leadership from different departments for support. It’s important to position the ERP project as a business transformation effort, not just an IT project.
3. Drive employee collaboration: Involve employees from different departments early in the decision-making. Address employee concerns early and communicate progress and challenges regularly throughout all phases of the implementation.
4. Set achievable timelines: Establish clear and realistic timelines that align with the KPIs and objectives set at the start of the project.
5. Develop a training program: Create training programs to guide employees through the transition. Consider different roles in each department to support company-wide adoption.
6. Help ensure a clean data migration: Implement strong data governance policies at the start of the project focused on data integrity. A standard approach to data migration can prevent inconsistencies and reduce errors.
7. Continuous support: Monitor performance and user feedback to refine workflows. Treat the ERP implementation as an ongoing initiative, not a one-time project.

ERP Trends

ERP vendors are adding AI, IoT, and other technical capabilities to their systems, as well as ESG (environmental, social, and governance reporting) and AI capabilities. Below we discuss these and other ERP trends in a bit more detail:

• Internet of Things (IoT)

  One of the biggest applications of IoT in ERP systems is for real-time asset tracking and predictive maintenance. Sensors, scanners, and cameras on everything from factory equipment to railroad tracks and oil rigs, whose data flows into ERP systems, can help businesses detect potential failures before they even happen, reducing downtime and lowering maintenance costs.

• Artificial Intelligence (AI) and Machine Learning (ML)

  ERP systems are evolving with the integration of AI and ML to analyse large data sets to help businesses improve forecasting, uncover patterns and market opportunities, optimise their supply chains, and personalise their customers’ experiences. These advanced technologies can also help companies automate routine tasks and create chart summaries of key financial, supplier, customer, and other data, so that employees can save time and focus on higher-value tasks.

• ESG Regulatory Compliance

  There’s a growing emphasis on incorporating sustainability metrics into ERP systems to help businesses comply with regulations and standards in this area. ERP and related enterprise performance management (EPM) systems can collect, analyse, and report relevant data from utility bills, water and electric metres, energy management software, SCM applications, and other sources, providing audit trails. Cloud ERP systems can reduce the risk of companies “greenwashing,” a term used when they mislead their investors and the public about the environmental impact of their products and services. While greenwashing isn’t always a result of companies deliberately misleading the public, it can be a result of inaccurate data from fragmented systems.

• Two-Tier ERP

  For companies growing either by acquisition or expansion, a two-tier ERP system can be a smart way to balance control and flexibility without slowing down operations. With this model, a growing business maintains its main legacy ERP system while deploying a more agile, scalable, and updateable cloud-based ERP system in regional offices, subsidiaries, or newly acquired entities. Modern cloud ERP solutions make it easier to connect to a legacy ERP through APIs and pre-built integrations.

• ERP Personalisation

  Personalisation is becoming a major differentiator for companies in need of role-specific functionality and improved user experience. ERPs that support point and click customisation are becoming popular for companies who want to configure their user interface, automate recurring tasks, customise search, dashboards, and reports, or embed AI-driven insights without requiring additional developer resources.

• Cloud-Based ERP Adoption

  This trend is particularly prominent among small and medium-sized enterprises (SMEs), which want to take advantage of the benefits of ERP without having to make expensive upfront investments. A cloud ERP’s ability to provide real-time access to data and applications while facilitating remote work has shifted companies to move from on-premises systems in recent years. Cloud ERP systems also are more scalable and flexible than on premises systems, and they natively incorporate AI, IoT, and data analytics tools to enable automation and improve insights.

Why Choose a Cloud ERP System?

Cloud ERP systems offer a number of advantages compared with on-premises systems. Deployment costs are generally lower and implementation times shorter, given that they’re delivered as a cloud service and don’t require upfront investments in hardware and other supporting IT infrastructure. They’re more readily scalable, up and down, than on-premises systems. They can be accessed from anywhere with an internet connection, assuming the proper user authorisation. And it’s easier to update them with new features and security patches, delivered by the cloud provider.

NetSuite ERP is a fully integrated cloud-based system designed to help businesses manage their financials, inventory, HR, sales, marketing, ecommerce, and professional services processes on a single platform. The system’s AI capabilities help businesses derive comprehensive business insights from the data they collect in each area.

There’s a reason 41,000 small, midsize, and enterprise customers worldwide trust Netsuite to manage their most important business processes. For example, Australia’s Belgian Delights, a family-owned chocolatier, can now close its books in just three days and seamlessly prepare orders for its multiple distribution channels to speed up deliveries. Embrava, an Australia-born multinational office tech company, turned to NetSuite to gain a real-time, consolidated view of its multi-entity and -currency operations.

ERP FAQs

What does ERP stand for?

ERP stands for enterprise resource planning, a type of business software used to manage core financial, HR, inventory, sales, and other processes.

What is ERP in simple terms?

ERP is software that helps businesses run their daily operations efficiently through a unified platform. ERP systems store data across departments in a central repository.

How does ERP work?

An ERP system brings data from all of a business’s key functions—such as finance, inventory, sales, and HR—into a central database. Instead of each department working with its own data, everyone shares a single source of it, making it easier to stay aligned and work efficiently.

What is an ERP system?

ERP systems consist of modules that focus on certain business processes, such as accounting, HR, sales, and marketing. A complete ERP system will help companies budget, plan, and report financial results.

Why is ERP used?

Companies use ERP systems to bring all business functions and data together into one unified platform. Different departments then work with the same pool of information.

Is ERP just for finance and accounting?

While financial management and accounting are key functions of an ERP system, these systems can also include modules for purchasing, inventory, order management, manufacturing, project management, workforce management, sales, marketing, and more.

Why do companies use ERP?

Instead of juggling unconnected systems for finance, sales, inventory, and other processes, ERP systems bring each process under one unified system. This lets teams move faster and make smarter decisions.

What’s the difference between ERP and CRM?

ERP (enterprise resource planning) systems can help businesses manage processes and data across a multitude of departments, including finance, HR, supply chain, sales, marketing, and ecommerce. CRM (customer relationship management) systems, which can function as a component of an ERP system or a separate system, focus only on managing customer-focused processes such as sales, marketing, and customer service.

What is an example of an ERP system?

An example of an ERP system is NetSuite ERP, a fully integrated system designed to help businesses manage their financial, inventory, HR, professional services, sales, marketing, ecommerce, and professional services on a single platform.

What’s the difference between ERP and MRP?

MRP (material requirements planning) was a type of system used by manufacturers to manage processes such as inventory and procurement. ERP (enterprise resource planning) systems evolved from MRP ones and now cover a much broader range of business functions, including finance, HR, sales, and customer service.

What is a two-tier ERP system?

With two-tier ERP systems, a company maintains its legacy ERP at headquarters (Tier 1) while deploying a less-resource-intensive ERP—often a SaaS solution (Tier 2)— its subsidiaries, divisions, and/or regional offices

What are the advantages of cloud-based ERP?

Among the advantages of cloud-based ERP systems compared with on-premises ones: They’re easier to scale and update, require less or no investment in supporting infrastructure and personnel, and are easier to deploy.