ERP definition
Enterprise resource planning (ERP) is business software that integrates a company's core processes, such as finance, procurement, inventory, manufacturing, sales, HR and supply chain, in one system with a shared database. ERP gives every department the same up-to-date data, automates transactions between them and provides a single source of truth for reporting and planning.
How does an ERP system work?
ERP modules share one database and one set of master data, such as customers, suppliers, products and the chart of accounts. Transactions in one module automatically update the others. Without ERP, these steps are often re-entered by hand in separate systems and spreadsheets, causing delays, errors and conflicting reports between departments. It also gives auditors and managers one consistent version of the numbers.
Consider the order-to-cash process. A sales order reserves stock in inventory, creates a picking task in the warehouse, generates a delivery note and an invoice, and posts revenue and receivables in finance, all without re-keying. Procure-to-pay works the same way for purchases: a requisition becomes a purchase order, goods receipt updates stock, and the supplier invoice is matched and paid.
Core ERP modules
Most companies start with finance, inventory and sales, then add modules as processes mature. Choosing a system with the modules you will need later avoids a second migration, but implementing everything at once raises risk, so phasing usually works best.
- Finance and accounting: general ledger, payables, receivables, tax and reporting.
- Procurement: requisitions, purchase orders and supplier management.
- Inventory and warehouse management.
- Sales and order management, including pricing and invoicing.
- Manufacturing: bills of materials, production planning and shop floor control.
- Supply chain planning and demand forecasting.
- Human resources and payroll, sometimes through a connected HRMS.
- Project accounting and service management.
- Asset management and maintenance scheduling.
- Quality management with inspections and traceability.
Popular ERP systems
Large enterprises commonly use SAP S/4HANA, Oracle Fusion Cloud ERP or Microsoft Dynamics 365 Finance and Supply Chain. Mid-sized companies often choose Oracle NetSuite, Dynamics 365 Business Central, Infor, Epicor or Sage. Odoo and ERPNext are open-source options that are popular with growing businesses, and in India TallyPrime is widely used for accounting and inventory by small and medium enterprises. Industry-specific ERPs exist for sectors such as construction, apparel and process manufacturing.
Cloud vs on-premise ERP and customization
Cloud ERP is delivered as a subscription, with the vendor handling infrastructure and regular updates, which lowers upfront cost and keeps systems current. On-premise ERP gives more control over infrastructure and timing of upgrades but requires in-house operations. Most new implementations are cloud-based.
Heavy customization of the ERP core makes upgrades painful and expensive. The modern approach, which SAP calls keeping a clean core, is to adopt standard processes where they fit and build differentiating features as extensions connected through APIs, so the core can be upgraded safely.
How to implement ERP successfully
ERP projects are business change projects. Define the processes you want before configuring software, clean and migrate master data carefully, involve key users from each department in design and testing, plan integrations with ecommerce, CRM and banking systems, and invest heavily in training. Phased rollouts by module or site reduce risk compared with a big-bang go-live. Nexzem implements and customizes Odoo and Microsoft Dynamics 365 and builds integrations and extensions around existing ERPs.