Enterprise resource planning (ERP) is an integrated computer-based system used to manage internal and external resources including tangible assets, financial resources, materials, and human resources. It is a software architecture whose purpose is to facilitate the flow of information between all business functions inside the boundaries of the organization and manage the connections to outside stakeholders. Built on a centralized database and normally utilizing a common computing platform, ERP systems consolidate all business operations into a uniform and enterprise wide system environment.
An ERP system can either reside on a centralized server or be distributed across modular hardware and software units that provide "services" and communicate on a local area network. The distributed design allows a business to assemble modules from different vendors without the need for the placement of multiple copies of complex, expensive computer systems in areas which will not use their full capacity
In the absence of an ERP system, a large manufacturer may find itself with many software applications that cannot communicate or interface effectively with one another. Tasks that need to interface with one another may involve:
* ERP systems connect the necessary software in order for accurate forecasting to be done. This allows inventory levels to be kept at maximum efficiency and the company to be more profitable.
* Integration among different functional areas to ensure proper communication, productivity and efficiency
* Design engineering (how to best make the product)
* Order tracking, from acceptance through fulfillment
* The revenue cycle, from invoice through cash receipt
* Managing inter-dependencies of complex processes bill of materials
* Tracking the three-way match between purchase orders (what was ordered), inventory receipts (what arrived), and costing (what the vendor invoiced)
* The accounting for all of these tasks: tracking the revenue, cost and profit at a granular level.