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What Is an Enterprise Resource Planning System?

October 27, 2022 - minute read

An enterprise resource planning system (ERP) is a software platform that allows companies to manage multiple aspects of their business from one centralized hub. ERPs connect essential work processes, departments and data under a single, integrated system.  

Developed for the manufacturing industry in the 1960s, ERPs were originally designed to help factories manage, track and control inventory from purchasing raw materials to selling finished products. 

Today, manufacturers continue to be the top user of ERP systems, accounting for 47% of the market. However, nowadays employers in various industries use ERPs to track expenses, goods and revenue, and more are jumping on the bandwagon. 

Currently the global ERP software market is valued at almost $49.3 billion—a number that is expected to grow to $90.6 billion by 2029.

Glossary-1

The Benefits of ERPs 

ERPs offer a data-driven approach to improving and consolidating diverse business activities, which yields a number of important benefits:  

  • Increased efficiency, through streamlined workflows and the reduction of duplicated work 
  • Increased accuracy of data 
  • Improved transparency and collaboration between departments 
  • Enhanced data collection and reporting capabilities

In addition, some ERP providers have refined their platforms to maximize data security, improve compliance and better integrate with other software systems.

Because ERPs help companies plan, budget and operate more strategically and effectively, they can help boost profitability. 

The Primary Components of ERPs

ERPs are composed of various software modules that perform different business functions. While these vary by industry and business, core applications include: 

  • Purchasing and supply chain management  
  • Inventory management   
  • Operations and production management 
  • Accounting and financial management
  • Customer relationship management  
  • Sales and order management
  • Business intelligence  
  • Human resources 

Which ones matter most? In one survey, 89% of participating companies identified accounting as their ERP’s most important function followed by inventory and distribution, customer relationship management, sales and technology. 

Notably absent from the list: human resources software. But there’s a good reason for that. 

The Benefits of a Separate, Integrated HCM System 

Not all ERP systems offer an HR module. Typically, those that do offer very basic software with limited functionality.  

For many employers, that’s a problem. After all, people are an employer’s top asset and deserve close attention. As a result, many employers prefer a separate HCM system, one with well-developed modules that include:

While stand-alone HCM platforms can do much more than an ERP’s basic HR module, it’s important that employers choose one that integrates quickly and completely with their ERPs. As a result, some HCM providers have developed automated integrated tools that save time, money and headaches—and that are compatible with all ERP platforms. 

From HCMs to ERPs, organizations have more software choices than ever. And that’s a good thing—provided employers evaluate their options carefully, ensuring that the platform they choose is the best match for their business

 

Filed Under: Human Capital Management Workforce Management glossary