What is ERP? Why is enterprise resource planning important?
Enterprise resource planning (ERP) is a term that refers to the concept or strategy of integrating and managing various core business activities within an organization. ERP as a concept encompasses the methodologies, principles, and practices that aim to streamline processes and unify data across departments, like finance, HR, and supply chain, to improve efficiency and decision-making. ERP is important because it establishes a foundation for operational efficiency, strategic alignment, and data-driven decision-making across an organization. ERP is the broader business strategy for process integration and efficiency, while an ERP system is the software solution that enables an organization to implement ERP practices.
The history of ERP
ERP began in the 1960s with basic inventory management and control systems. In the 1970s and 1980s, material requirements planning (MRP) software evolved to manage manufacturing processes, expanded by MRP to include more business functions. By the 1990s, ERP emerged, integrating core processes like finance, HR, and supply chain, into unified systems. Cloud ERP gained popularity in the 2000s, offering flexibility and remote access, and ERP systems have since advanced with AI and data analytics to support real-time decision-making.
Types of ERP deployment
ERP deployment types include options like on-premise, cloud-based, hybrid, etc., each offering different levels of control, flexibility, and cost.
On-premise ERP
Cloud ERP
Hybrid ERP
Two-tier ERP
On-premise ERP
Cloud ERP
Cloud ERP is an enterprise resource planning system hosted on a vendor’s cloud platform rather than on the company’s local servers. This type of ERP is accessed via the internet, which enables users to connect to the system from anywhere with an internet connection. In cloud ERP, the vendor handles system maintenance, security, upgrades, and data storage, reducing the need for in-house IT resources. Cloud ERP typically operates on a subscription model, offering flexibility, scalability, and lower upfront costs compared to on-premise ERP systems. This makes it particularly beneficial for businesses looking for quick deployment, remote access, and scalability as they grow.
Hybrid ERP
Two-tier ERP
This approach is commonly used by large enterprises with complex structures, allowing them to maintain centralized control at the headquarters, while offering customizable, cost-effective solutions at the subsidiary level. Two-tier ERP supports faster implementation, greater flexibility, and reduced costs for divisions that might not need the full functionality of a Tier 1 ERP. It’s especially beneficial for organizations with multiple business units that have varying operational requirements or those expanding into new markets.
What is the difference between PLM and ERP?
Product lifecycle management (PLM) manages a product's lifecycle from concept through design and development, focusing on product data, BOM management, and collaboration for all functions that have a stake in the launch, delivery, and continued success of a product, like engineering, quality, manufacturing, and service. Enterprise resource planning (ERP) handles core business operations like finance, procurement, HR, and supply chain, aiming to optimize resources and streamline day-to-day transactional operations. While PLM supports the evolution of the digital product definition, ERP ensures efficient transactions against that definition. Together, they provide end-to-end visibility across product and business processes.