ERP is short for enterprise resource planning. Enterprise resource planning (ERP) is business process management software that allows an organization to use a system of integrated applications to manage the business and automate many back office functions related to technology, services and human resources. ERP software integrates all facets of an operation — including product planning, development, manufacturing, sales and marketing — in a single database, application and user interface.
ERP software is considered an enterprise application as it is designed to be used by larger businesses and often requires dedicated teams to customize and analyze the data and to handle upgrades and deployment. In contrast, Small business ERP applications are lightweight business management software solutions, often customized for the business industry you work in.
Most companies will identify inventory reduction as one of the biggest benefits of an ERP system. Many companies actually achieve the savings that they anticipate, but it is the implementation effort and the focus on procedures and discipline that generate inventory reduction (without increasing shortages), not the software itself. Nevertheless, the software implementation is the mechanism for the improvements so it’s not unfair to give the ERP system the credit.
Many companies also achieve significant cost savings through increased productivity, better control of material acquisition, improved quality and reduced lead time. These are all direct and measurable improvements that are often sufficient to fulfill most companies’ capital expense guidelines. But there are even greater benefits available from ERP that are less easy to measure and therefore are often overlooked.