Enterprise Resource Planning (ERP) is a methodology and form of software designed to help organizations manage their business processes, workflows, and operations more efficiently. ERP merges a variety of business functions including finance, accounting, human resources, inventory management, sales, marketing, customer relationship management (CRM), and supply chain management (to name but a few) into a single application or platform. ERP software works to streamline business processes, increase visibility, aid the decision-making process, and reduce costs.
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There are several types of ERP software and tools on the market, each of which are categorized based on their function, how they are deployed, and target user.
The major types of ERP software are:
- On-Premises ERP; also known as On-site
- Cloud-based ERP
- Open-Source ERP
- Vertical ERP
- Horizontal ERP
- Tier 1 ERP Software
- Tier 2 ERP Systems
We will discuss each of these different types of Enterprise resource planning software types in greater detail below.
Example of Vault ERP
What is On-premise ERP Software?
On-Premises ERP software is installed on servers and hardware that are owned and maintained by the company using them. This form of ERP software can require a medium to significant amount of resources and knowledge to configure, install, manage, and maintain.
Benefits of On-premise ERP software and tools include:
- Better control of the ERP system and sensitive customer data
- Lower cost of ownership over time, though it requires a higher initial investment
- Less reliance on third-party vendors, as you manage the solution on-site yourself
- More options for customizations, as you are not limited by a vendor’s options
What is Cloud-based ERP Software?
Cloud-based ERP software and tools are hosted on the cloud, versus locally or on-site. In this type of ERP solution, users and project managers access the system via an Internet connection, which means you will need reliable service for your team to function. Cloud-based ERP software has become more popular with the rise in remote work, in part due to their flexibility, scalability, and lower upfront investment.
Benefits of cloud-based ERP software include:
- Lower upfront costs, as you do not need to own physical systems or architecture
- Improved functionality and security, as ERP cloud vendors tend to continuously update systems to the newest version, increasing functionality, performance, and security
- Big data reporting and real-time analytics are a frequent feature of cloud ERP systems, as these features are typically built in to the architecture
- Cloud ERP solutions tend to be highly scalable, and business owners can increase computing power and storage capacity as needed
Open-source ERP Software
Open-source ERP software are free to use and modify to fit your company’s needs. Open-source tools, in general, are community-driven and resources for troubleshooting, configuring, and customizing Open-source ERP are readily available and (mostly) free of charge, though your team will need to implement things themselves.
Benefits of Open-source ERP software include:
- Open-source ERP software tends to be cheaper than other ERP solutions or closed source ERP tools
- Code is freely available and customizable, offering teams a high-degree of flexibility in terms of customizations and creating their own modules
- Open-source ERP software is highly scalable and free to scale – the only investment to increase resources will depend on the architecture and employee costs
- Open-source ERP software is adaptable at a faster rate, as you are in control of the source code and can make changes to your system to adapt to market changes without needing to consult outside teams
Vertical ERP Software
Vertical ERP software is custom tailored for use in specific industries, such as manufacturing, software development, retail, construction, healthcare, and hospitality. As such, this type of ERP tool tends to come with industry-specific functions and features.
Benefits of vertical ERP software includes:
- Vertical ERP tools benefit from industry knowledge, meaning the features will come from experts in the field versus developers who add functionality without industry experience
- Vertical ERP software is usually cheaper in the long term, as you will not need to customize the application with industry specific features or workflows
- Vertical ERP software often keeps industry standards, best practices, and compliance in mind, making it easier to incorporate those elements into your business workflows
Horizontal ERP Systems
Horizontal ERP software, unlike its vertical counterpart, is designed for organizations that operate across different industries, such as sales and marketing. This type of ERP tool offers a wide range of functionalities and features that often require customization to meet the needs of the business using it.
Benefits of Horizontal ERP software includes:
- Horizontal ERP software tends to be easy to use and configure
- Often cheaper than Vertical ERP tools, because it does not require as many customizations
- An abundance of features suited to multiple industries, such as CRM, BI, and others
- Built-in business processes and workflows for many industries, meaning you won’t have to add those features
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Tier 1 ERP Software
Tier 1 ERP tools and software are used by large enterprises that require complicated business processes, workflows, and operations. Tier 1 ERP systems tend to come with a wide range of features and functions built-in, but like other ERP solutions, can also be customized to meet the specific needs of your company and team.
Benefits of Tier 1 ERP software includes:
- A robust feature-set capable of supporting most organization’s needs without needing customization
- Most Tier 1 ERP tools have been well researched and supported, making them highly reliant and secure
- Tier 1 ERP systems are used by Enterprise-level businesses, and, as such, most are well known in the industry and, as such, are more trustworthy
Tier 2 ERP Software
Tier 2 ERP tools are used by mid-sized companies that have simpler business processes, workflows, and operations than Tier 1 ERP users. They are, by and large, cheaper when compared to Tier 1 ERP platforms.
Tier 2 ERP software includes the following benefits:
- Quicker implementation than Tier 1 solutions
- Cheaper than Tier 1 ERP implementations
- Simpler features than Tier 1 ERP, making it easier to use, learn, and maintain
Benefits of ERP Software
In general, ERP software and tools offer the following benefits to businesses of all shapes and sizes, including:
- Increased Efficiency: ERP software helps make business processes and workflows more efficient. Generally reduces redundancy and increases productivity
- Enhanced Reporting and Visibility: ERP software provides high-level reporting and analytics that provide better visibility into business processes and outcomes
- Increased Collaboration: Teams using ERP tools tend to enjoy better collaboration between team members and departments, especially for remote workers
- Reduced Costs: Reduced costs are achieved via reduction of duplicate tasks, better inventory control, and resource allocation, not to mention increased productivity and efficiency.
That being said, ERP software also comes with several disadvantages as well, including:
- Upfront investment and initial higher costs
- Can make projects more complex, as you add layers of processes and more tools to your business processes and workflows
- Customizing ERP software can be time-consuming and an additional investment in terms of employee training, coding, and additional monetary costs, depending on the type of ERP involved
Final Thoughts
In this project management tutorial, we discussed what ERP software is, the different types of ERP tools and systems, and the benefits of each type of ERP solution. Additionally, we learned the overall benefits of ERP software, which included helping businesses streamline processes and workflows, increased productivity, efficiency, and collaboration, and a reduction in operating tasks over time.
We also discussed the downsides of incorporating ERP software, which included higher initial costs, difficulties in setting up customized features, and making project more complicated. To help make the implementation of an ERP system go more smoothly, we suggest checking out our tutorial showcasing Tips for Enterprise Resource Planning to learn more Enterprise resource planning strategies.
We also have a terrific guide to the Best ERP Software and Tools to help you choose an ERP solution that is right for your team.