Enterprise resource planning (ERP) is a software and database package that is used to integrate virtually all company processes. The areas that may be integrated with an ERP system include the following:
- Human Resources
- Materials Management
With an ERP system in place, it is much easier for a firm to coordinate its activities with a minimum of waste. Further, information is accessible from all parts of the business, which is useful for monitoring the operational and financial condition of the entity. In addition, since a single system is being used, duplicate systems can be stripped out, thereby avoiding the need to enter information into the system more than once. Finally, an ERP system can be maintained from one location, so there is no need for duplicative IT staff who might otherwise be maintaining separate systems throughout a business.
ERP systems are both expensive and difficult to install, so they are most commonly found in larger and wealthier organizations. A smaller organization typically uses a more fragmented system that does not fully integrate every part of the organization.
A significant failing of ERP systems is that many installations fail, due to their extreme complexity. Another concern is that some organizations try to alter the ERP system to work with their outmoded processes, which can result in a less efficient use of the system. Ideally, users should alter their processes to match the ERP configuration, since the ERP system is optimized to deliver the best possible results to the user.