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What Are ERP Systems- In a world where complex systems must work with increasing efficiency, many companies have opted for building out more integrated approaches as employees work remotely.
One of the most common solutions dates back decades, but nonetheless seems to be making a comeback in the pandemic era: enterprise resource planning. ERP systems are a type of broader infrastructure tool that works across company departments. Often, ERP is mentioned in close proximity to SAP, a major technology provider known for its ERP solutions.
What is an ERP system and how does it relate to SAP? Let’s break down the details.
What Is an ERP System?
An ERP system is an integrated solution that manages a number of main business processes. As Inc. explains, the concept became a common one throughout the mid-1990s as companies began to computerize their operations. Often, these tools are integrated through large databases and managed by a company’s IT department.
Mickey North Rizza, the program vice president for IDC’s Enterprise Applications and Digital Commerce research practice, says that ERP systems basically help manage the many business functions of organizations. This includes procurement, order management and inventory management, all with an eye on financial services.
“The financial side is really critical,” she says, adding that it manages things like accounts payable, accounts receivable, revenue management, taxes and billing. “It runs your operations.”
A term often used to describe ERP systems is “monolithic,” meaning that they incorporate all processes rather than having operations segmented. This allows for close integration.
“Monolithic systems, they’ve really been the original systems. We call them legacy systems,” North Rizza said.
What Are the Benefits of an ERP System?
ERP systems can often be challenging to implement, as embedding them within a company’s existing legacy operations can be a major — and costly — undertaking. Still, doing so can give enterprises something that is increasingly difficult: a comprehensive system that is perfectly tailored to the company’s needs.
While the interest in these tools is often related to legacy systems, a big shift to the cloud in recent years has added a new dimension in ERP systems. Top-level elements of ERP systems have followed other tools into the cloud, mostly in the services field, like professional services and media.