Enterprise resource planning software, or ERP, doesn’t live up to its acronym. Forget about planning—it doesn’t do much of that—and forget about resource, a throwaway term. But remember the enterprise part. This is ERP’s true ambition. The software attempts to integrate all departments and functions across a company onto a single computer system that can serve all those departments’ particular needs.
Building a single software program that serves the needs of people in finance as well as it does the people in human resources and in the warehouse is a tall order. Each of those departments typically has its own computer system optimized for the particular ways that the department does its work. But ERP combines them all together into a single, integrated software program that runs off a single database so that the various departments can more easily share information and communicate with each other.
That integrated approach can have a tremendous payback if companies install the software correctly.
Take a customer order, for example. Typically, when a customer places an order, that order begins a mostly paper-based journey from inbox to inbox throughout the company, often being keyed and rekeyed into different departments’ computer systems along the way. All that lounging around in inbox causes delays and lost orders, and all the keying into different computer systems invites errors. Meanwhile, no one in the company truly knows what the status of the order is at any given point because there is no way for the finance department, for example, to get into the warehouse’s computer system to see whether the item has been shipped. "You’ll have to call the warehouse" is the familiar refrain heard by frustrated customers.
ERP vanquishes the old standalone computer systems in finance, HR, manufacturing and the warehouse, and replaces them with a single unified software program divided into software modules that roughly approximate the old standalone systems. Finance, manufacturing and the warehouse all still get their own software, except now the software is linked together so that someone in finance can look into the warehouse software to see if an order has been shipped. Back in the ‘90s ERP was developed as a tightly integrated monolith, but most vendors’ software has since become flexible enough that you can install some modules without buying the whole package. Many companies, for example, will install only an ERP finance or HR module and leave the rest of the functions for another day.