Enterprise resource planning, or ERP, is a suite of business management software applications, or modules, that automate business processes by drawing on real-time data compiled in a common database. The software pulls data from various departments within a company, including finance, project management, supply chain management, and [customer relationship management](https://www.masterclass.com/articles/crm-databases) (CRM) databases. 

By implementing enterprise resource planning software, businesses can determine the efficiency of core business processes, streamline workflows, and provide insight into strategies for business growth. ERP systems can also improve internal <a href='https://masterclass.com/articles/robin-robertss-tips-for-effective-communication' target='_blank' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://masterclass.com/articles/robin-robertss-tips-for-effective-communication","linkCopy":"communication","category":"automated-link"}' automatic='true'>communication</a> between all business functions and the flow of external information to [stakeholders](https://www.masterclass.com/articles/stakeholder-explained).

The term “enterprise resource planning” was first used in 1990 by the Gartner Group, a research and advisory company, as an umbrella term for all planning tools for manufacturing companies. These tools included material requirements planning (MRP), manufacturing resource planning (MRP II), and computer-integrated manufacturing (CIM), which were developed in the 1950s and 1960s. 

SAP, a business management software company, was the first to create ERP automation by producing ERP solutions with real-time data processing. Soon, businesses outside of the manufacturing field wanted an ERP software system for their own specific needs. ERP vendors responded through customization, integrating back-office components into their ERP modules, including human resources and accounting software, as well as e-business systems like [e-commerce](https://www.masterclass.com/articles/ecommerce-explained). 

There are several different types of ERP systems, based on a company’s business requirements, including:

1. __Cloud ERP__: Cloud ERP is a modern ERP system that operates on a cloud computing platform managed by a third party; they can be single-tenant, meaning that they are used by just one company, or multi-tenant, with several companies sharing cloud space. Cloud-based systems typically allow users greater safety and functionality, including easier access to information and greater flexibility in updating applications. However, it is a more expensive option than other types since most companies regard an external system as an [operating expense](https://www.masterclass.com/articles/how-to-calculate-operating-cost). 
2. __Hybrid ERP__: As the name suggests, hybrid ERP combines cloud and on-premise ERP in a single system. Companies using a hybrid system can keep their on-premise ERP at their main location while using cloud ERP for satellite offices or use the cloud for specific business functions while retaining on-premise for others. The cloud and ERP systems must be linked, though data migration between the two can be challenging.
3. __On-premise ERP__: At one time, an on-premise ERP, which is housed at the company, was the vanguard for ERP systems. On-premise ERP operates on a company-owned system, and the trained in-house staff handles security and maintenance. Its popularity has declined in recent years due to the relative ease of cloud ERP.
4. __SAAS ERP__: A subcategory of cloud ERP, software-as-a-service (SAAS) ERP is a multi-tenant system in which several users share cloud software. ERP implementation is easier than the on-premise model, as is integrating other systems, especially if they are cloud-based and from the same software manufacturer. 

Enterprise resource planning systems work via a centralized relational database. Most ERP software typically features dashboards that offer users the ability to review real-time data collected from all business functions in a single source. Business leaders comb the data to look for opportunities to improve productivity and profitability. 

By automating data retrieval, companies can share information from all business units, engage in decision-making based on business performance, and reduce the time and manual labor drain required by physically retrieving data from respective departments.

Many industries can use enterprise resource planning, including:

- __Finance__: A finance module can be found in nearly every ERP system, and companies can use it to oversee the general ledger, track accounts payable and [accounts receivable](https://www.masterclass.com/articles/accounts-receivable-explained) transactions, and monitor cash management and financial consolidation.
- __Marketing__: Companies can use ERP to follow and streamline marketing on multiple platforms, including digital and social media. Automated marketing modules can track leads and unify campaign messaging.
- __Project management__: ERP project management modules may include a professional services automation module, which tracks time and resources used for projects and production planning and costs.
- __Supply chain management__: ERP applications can observe nearly all aspects of inventory management, order management, and warehouse management. It can track inventory levels and related metrics, prioritize customer orders, and direct packing, shipping, and receiving activities.
There are several advantages to enterprise resource planning for large and small businesses alike, including:

1. __Business intelligence__: Among the benefits of ERP systems are their ability to draw on data from all business functions across a company. Providing a wide and detailed picture of company trends and practices can lead to insights and improved [decision-making](https://www.masterclass.com/articles/how-to-make-decisions) by company leaders.
2. __Cost__: By automating basic tasks, ERP software can cut down on unnecessary expenditure for companies. Its data retrieval can also point out flaws in efficiency or production that can add up to high costs over time.
3. __Customization__: A small business often does not need the same degree of ERP software as a corporation. Companies can add or write code to integrate more specific features to meet their individual business requirements. However, most ERPs offer a diverse array of modules that will support most business functions.
4. __Security__: As cyberattacks continue to pose a growing problem for businesses, cloud-based ERP offers state-of-the-art security procedures that can protect valuable information from the threat of system shutdowns and ransomware.

Get the [MasterClass Annual Membership](https://www.masterclass.com) for exclusive access to video lessons taught by business luminaries, including Howard Schultz, Chris Voss, Robin Roberts, Sara Blakely, Daniel Pink, Bob Iger, Anna Wintour, and more.
Enterprise resource planning software offers companies a detailed picture of their trends and practice, which allows them to improve inefficiencies and streamline workflows.

Enterprise resource planning software offers companies a detailed picture of their trends and practice, which allows them to improve inefficiencies and streamline workflows. 

Guide to Enterprise Resource Planning (ERP) in Business

Enterprise resource planning, or ERP, is a suite of business management software applications, or modules, that automate business processes by drawing on real-time data compiled in a common database. The software pulls data from various departments within a company, including finance, project management, supply chain management, and <a href='https://www.masterclass.com/articles/crm-databases' target='_blank' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/crm-databases","linkCopy":"customer relationship management","category":null}'>customer relationship management</a> (CRM) databases. By implementing enterprise resource planning software, businesses can determine the efficiency of core business processes, streamline workflows, and provide insight into strategies for business growth. ERP systems can also improve internal <a href='https://masterclass.com/articles/robin-robertss-tips-for-effective-communication' target='_blank' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://masterclass.com/articles/robin-robertss-tips-for-effective-communication","linkCopy":"communication","category":"automated-link"}' automatic='true'>communication</a> between all business functions and the flow of external information to <a href='https://www.masterclass.com/articles/stakeholder-explained' target='_blank' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/stakeholder-explained","linkCopy":"stakeholders","category":null}'>stakeholders</a>.

What Is Enterprise Resource Planning?

The term “enterprise resource planning” was first used in 1990 by the Gartner Group, a research and advisory company, as an umbrella term for all planning tools for manufacturing companies. These tools included material requirements planning (MRP), manufacturing resource planning (MRP II), and computer-integrated manufacturing (CIM), which were developed in the 1950s and 1960s. SAP, a business management software company, was the first to create ERP automation by producing ERP solutions with real-time data processing. Soon, businesses outside of the manufacturing field wanted an ERP software system for their own specific needs. ERP vendors responded through customization, integrating back-office components into their ERP modules, including human resources and accounting software, as well as e-business systems like <a href='https://www.masterclass.com/articles/ecommerce-explained' target='_blank' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/ecommerce-explained","linkCopy":"e-commerce","category":null}'>e-commerce</a>.

What Are the Origins of Enterprise Resource Planning?

There are several different types of ERP systems, based on a company’s business requirements, including:<ol class="mc-m-4"><li class="mc-my-4"> 1. Cloud ERP: Cloud ERP is a modern ERP system that operates on a cloud computing platform managed by a third party; they can be single-tenant, meaning that they are used by just one company, or multi-tenant, with several companies sharing cloud space. Cloud-based systems typically allow users greater safety and functionality, including easier access to information and greater flexibility in updating applications. However, it is a more expensive option than other types since most companies regard an external system as an <a href='https://www.masterclass.com/articles/how-to-calculate-operating-cost' target='_blank' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/how-to-calculate-operating-cost","linkCopy":"operating expense","category":null}'>operating expense</a>. </li><li class="mc-my-4"> 2. Hybrid ERP: As the name suggests, hybrid ERP combines cloud and on-premise ERP in a single system. Companies using a hybrid system can keep their on-premise ERP at their main location while using cloud ERP for satellite offices or use the cloud for specific business functions while retaining on-premise for others. The cloud and ERP systems must be linked, though data migration between the two can be challenging. </li><li class="mc-my-4"> 3. On-premise ERP: At one time, an on-premise ERP, which is housed at the company, was the vanguard for ERP systems. On-premise ERP operates on a company-owned system, and the trained in-house staff handles security and maintenance. Its popularity has declined in recent years due to the relative ease of cloud ERP. </li><li class="mc-my-4"> 4. SAAS ERP: A subcategory of cloud ERP, software-as-a-service (SAAS) ERP is a multi-tenant system in which several users share cloud software. ERP implementation is easier than the on-premise model, as is integrating other systems, especially if they are cloud-based and from the same software manufacturer. </li></ol>

4 Types of ERP Systems 

Enterprise resource planning systems work via a centralized relational database. Most ERP software typically features dashboards that offer users the ability to review real-time data collected from all business functions in a single source. Business leaders comb the data to look for opportunities to improve productivity and profitability. By automating data retrieval, companies can share information from all business units, engage in decision-making based on business performance, and reduce the time and manual labor drain required by physically retrieving data from respective departments.

How Does Enterprise Resource Planning Work?

Many industries can use enterprise resource planning, including:<ul class="mc-m-4 list-styled"><li class="">Finance: A finance module can be found in nearly every ERP system, and companies can use it to oversee the general ledger, track accounts payable and <a href='https://www.masterclass.com/articles/accounts-receivable-explained' target='_blank' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/accounts-receivable-explained","linkCopy":"accounts receivable","category":null}'>accounts receivable</a> transactions, and monitor cash management and financial consolidation. </li><li class="">Marketing: Companies can use ERP to follow and streamline marketing on multiple platforms, including digital and social media. Automated marketing modules can track leads and unify campaign messaging. </li><li class="">Project management: ERP project management modules may include a professional services automation module, which tracks time and resources used for projects and production planning and costs. </li><li class="">Supply chain management: ERP applications can observe nearly all aspects of inventory management, order management, and warehouse management. It can track inventory levels and related metrics, prioritize customer orders, and direct packing, shipping, and receiving activities. </li></ul>

What Industries Can Use Enterprise Resource Planning?

There are several advantages to enterprise resource planning for large and small businesses alike, including:<ol class="mc-m-4"><li class="mc-my-4"> 1. Business intelligence: Among the benefits of ERP systems are their ability to draw on data from all business functions across a company. Providing a wide and detailed picture of company trends and practices can lead to insights and improved <a href='https://www.masterclass.com/articles/how-to-make-decisions' target='_blank' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/how-to-make-decisions","linkCopy":"decision-making","category":null}'>decision-making</a> by company leaders. </li><li class="mc-my-4"> 2. Cost: By automating basic tasks, ERP software can cut down on unnecessary expenditure for companies. Its data retrieval can also point out flaws in efficiency or production that can add up to high costs over time. </li><li class="mc-my-4"> 3. Customization: A small business often does not need the same degree of ERP software as a corporation. Companies can add or write code to integrate more specific features to meet their individual business requirements. However, most ERPs offer a diverse array of modules that will support most business functions. </li><li class="mc-my-4"> 4. Security: As cyberattacks continue to pose a growing problem for businesses, cloud-based ERP offers state-of-the-art security procedures that can protect valuable information from the threat of system shutdowns and ransomware. </li></ol>

4 Advantages to Enterprise Resource Planning

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Enterprise resource planning software offers companies a detailed picture of their trends and practice, which allows them to improve inefficiencies and streamline workflows.

Enterprise resource planning software offers companies a detailed picture of their trends and practice, which allows them to improve inefficiencies and streamline workflows. 


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Guide to Enterprise Resource Planning (ERP) in Business