A definition of the term “ERP”

“ERP” is an acronym of “Enterprise Resource Planning. However, I choose to define the term “ERP-system” through the following statement:

“An ERP-system is an out-of-the-box database application that uses a common database to support the core business processes of an enterprise”

The common database is a key here. This means that all users of the system have access to the same, updated, real-time information with no need to move data between the different parts of the application.

For instance, if a new sales order is added to the system, the information regarding this sale is available for all other parts of the organization that uses the same ERP-application. This means that e.g. the correct items can immediately be reserved, picking, sent from the warehouse to the customer without any need for transfer of data between systems and other unnecessary data processing. Simultaneously, the finance department can for example track the change in the sales revenue in their financial reports in real-time and trace this down to the particular sales order since they are all working towards the same data through the same ERP-system.

Another feature about the ERP-system is that is an “out-of-the-box” application that is pre-built by a software vendor.

This means that if you have developed a database-system from scratch for use in your own company with identical functionality of an ERP-system, you do not technically have an ERP-system.

This may seem strange, but a large part of what an ERP-system is relates to its properties as a pre-built application, such as how it is implemented and updated throughout its lifespan.

With the “core business processes of an enterprise” in the definition, I mean that the ERP system supports the basic repeatable tasks that are performed in many areas of an enterprise. Like adding purchase order, posting financial

Larger ERP-packages can hold a great number of functions and modules as listed in this post. The functionality each ERP-package holds and how many of these functions a company may choose to make use of do vary from installation to installation.

To be named as an ERP-system, the ERP application must at least hold functionality for supporting financial accounting and software package target industries core operational processes.

For instance, an ERP-system for at trading company should at minimum hold functionality for:

  • Financial accounting
  • Inventory management
  • Sales
  • Purchasing

While an ERP system specialized in financial and professional services, and do not handle physical items as the core business, they do only at minimum need to consist of functions for:

  • Financial Accounting
  • Project Accounting

However, most installations of ERP-systems include much larger parts of the system than the modules mentioned above. An ERP-system can support many different companies through the same installation of the software as well, but the smaller packages do only support a single company for each installation.

Please see this post on a brief overview of ERP systems.

You can also see my and Erlend´s book if you are interested in knowing more about how ERP-system is used in manufacturing- and supply chain environments.