What is Enterprise Resource Planning System (ERP)?


| Published Date: November 19, 2019 | Updated on: December 2, 2020

Often, you must have heard people talk about ‘ERP’ in events, session or you might have seen while you were browsing. No matter where you have heard this, it is important to understand the ERP basics.

ERP is the most common word in the space of technology. With the evolution of business, ERP systems are widely used by business right from small to large. Apart from managing the business operations, ERP system provides invaluable information for decision making. ERP systems have become an integral part of the business which is simply inseparable.

Let’s understand all about ERP and its functions. 

What is ERP?

ERP refers to ‘Enterprise Resource Planning’ software which integrates various functions of a business into a single unified system. A business, irrespective of size, has to deal with various function like purchase managementsales management, material management, payroll etc. Having a separate system to manage each of these functions is a nightmare. Here is why Enterprise Resource Planning (ERP) software helps the business.

Enterprise Resources Planning (ERP) systems bind various functions of the business into a single database. The following are some of the important business functions you can manage using ERP software.

Functions of ERP systems

[caption id="" align="aligncenter" width="550"]Functions of ERP system Functions of ERP system[/caption]


Among the above functions, below is the list of important functions of ERP systems.

  • Production Management Module: ERP systems helps in planning and optimizing manufacturing processes such as manufacturing capacity, parts, components, and material resources etc. using the past consumption pattern and the demand.
  • Purchasing Management Module: Here, ERP systems streamline the procurements process of stock and other supplies.
  • Inventory Management Module: Key role of ERP system in inventory management is to maintain optimum inventory levels.
  • Sales Management Module: Increasing the process efficiency by streamlining the order management system right from order-to-Invoice-to-cash.
  • Finance Management Module: Major role of ERP in finance management is making available all the financial statements for on-time confident decisions.
  • Human Resource Management Module: Managing people process and payouts related to employees.

History of ERP software

In the 1960s, several businesses designed, developed and implemented centralized computing systems, mostly to automate their inventory requirements. In 1970s Material Requirement Planning system was developed for planning material requirements according to the production requirements.

Between 1980-90, several systems were developed to synchronize the manufacturing processes with various other processes such as HR, Finance, Inventory etc. and was most commonly referred to as Manufacturing Resource Planning (MRP). The technological foundation of MRP paved the way to a new software system called Enterprise Resource Planning (ERP) in the beginning of the 1990s. From then onwards, many modules were added to the core module of ERP and extensions were made available to meet the business-specific requirements.

How does the Enterprise Resource Planning (ERP) system work?

Enterprise Resource Planning (ERP) software is designed to have a single unified database to manage various functions of the business. This means writing (a record) or reading (report) by all the users will be from a single database making it more powerful to render the consolidated information of various functions. Since all the functions are integrated and managed in a single database, making it possible to give a complete picture of your business.

What are the benefits of ERP software systems?

By integrating various facets of the business, it optimizes the efficiency at which you manage your business and immensely contributes to profitability. The following are some of the benefits of ERP software.

  • You only need one system to manage all your business functions. This will save a lot of money which you would potentially invest in buying multiple software systems, tools, applications etc.
  • Since it is designed to have a single database, it allows all the users operating at different functions to work faster. Thereby, the efficiency of each function increase.
  • By automating the various process, it saves a lot of time and efforts involved in managing the business process and computing it.
  • All the reports and statements are system generated
  • Gives a complete view of the business and insights for confident business decisions.

Read More on ERP

ERP Software for Small & Medium Business, ERP Software for Manufacturing Industry, ERP Software for Distributors & Wholesalers, Types of ERP Software System, ERP Implementation Process, Features of ERP Software, ERP Software Advantages, Custom ERP Solutions


Inspired by the way you work, Tally is designed to delight you.