What is an ERP? What does it do?

What is an ERP and what does it do?

The term ERP means “Enterprise Resource Planning” system. Basically, it’s an enterprise-wide software that manages the business process of a company (in whole or in part).

The system can be developed by a vendor, developed in-house or a mix of both.

What is an ERP system – the Modules

If we take a manufacturing company as an example, their ERP would cover everything from sales to accounting. In that case, the ERP could cover the following process, each department having its own module and seeing only the information they need. All the modules will interact together to make one and only system.

For example, a classic manufacturing ERP would have these modules:

Sales > Clients POs > Estimation > Project management > Suppliers POs > Manufacturing process > Shipping and receiving > Invoicing > Accounting

Does it really have to cover everything to be an ERP?

No!

Most often than not, an ERP does not cover everything.

Why? Sometimes it’s a question of cost: it would cost too much to adapt the whole system. Sometimes it a question of efficiency: the ERP is very good in manufacturing but bad in sales. So choosing a different software for the sales department makes more sense.

What is an ERP system – Best of breed vs best of suite

Normally when people speak of an ERP system, they mean a single software supplied by one company that will manage everything the company needs (in reality, if your business needs are fulfilled at 80%, it is good). This is called the best of suite approach, which means you look at the market and chose the ERP that best suits your needs.

There is another way of building an Enterprise Resource Planning and it is to use a best of breed approach. Instead of having a single software to manage everything, a company would choose the best software for each of its department. For example, the company could choose a CRM to manage its sales process, an estimation software specifically designed for its industry a manufacturing and accounting software from two other companies.

Characteristics of each

The advantage of the best of breed approach is that each department is getting the most out of its system while, in the best of suite, approach the whole company is getting the best overall system for their needs.

Best of suite

(one system that drives all of the company’s processes)

  • It’s easier to implement since only one vendor is involved
  • Only one vendor to make business with (but your are committed to this sole vendor)
  • Easier maintenance

Best of breed

(many systems that drives each departments)

  • Each department gets a better adapted system for their needs
  • It’s often more flexible
  • Further developments may be less costly

The best of breed approach is mostly intended for specific cases where there is no ERP on the market that will fulfilled the business needs at an acceptable level. Or it can also be used if a department have specific needs. This way, a specific software may be bought for a department (for example, sales) and integrated with the rest of the ERP system. In this case, the module in the ERP would be dropped and the second system would be integrated to the company’s ERP.

What is an ERP system – Summary

An ERP system is basically a software that manages the whole business process of a company. Each module is talking to the others and information is passed in a meaningful, centralized way.

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