Companies that want to cut costs, increase profits and run as efficiently as possible are continuing to find the solution in the multibillion-dollar enterprise resource planning (ERP) software market. To be sure, vendors are paying close attention, and ERP options abound that, by their nature, centralize and analyze real-time data, automate time-intensive tasks, improve companywide collaboration and much more. But which ERP is right for a company will depend on a variety of factors, including its size, industry served, desired functionality and deployment preference. This article examines each one, as well as 10 points to consider during the ERP selection process.
What Are the Types of ERP?
ERP systems unify traditionally siloed business functions, such as financial management, accounting, inventory management, customer relationship management, sales and human resources. But not all businesses have the same requirements. A small business with a single location, for example, will be looking at a different category of ERP than a large enterprise with global operations. A healthcare company, manufacturer and professional services firm will desire industry-specific features that would otherwise require extensive customization of a more general system. And while a cloud-based ERP deployment promises low initial costs, 24/7 accessibility, rapid scalability and plenty of other benefits, many companies still prefer their software to reside entirely on premises or in both worlds. Yet, all businesses must evaluate their needs and grasp the pros and cons of different types of ERP systems before deciding among their choices.
Key Takeaways
- ERP systems come in various forms, each tailored to fit the needs of individual companies’ size, functionality, deployment preference and industry focus.
- ERP systems all provide a core set of functions, but many go beyond that.
- ERP software can be deployed on premises, in the cloud, as a hybrid of the two or across multiple clouds.
- Businesses with many industry-specific business requirements and workflows can benefit from a specialized ERP system.
- Scalability, affordability and plans for growth are three important factors to consider when selecting an ERP solution.
Types of ERP Explained
Amid a volume of compelling ERP statistics, nearly 75% of companies ready to invest in ERP software don’t want the decision-making process to extend beyond six months. That is precisely why narrowing down the ERP landscape on the basis of pertinent criteria, such as business size, features offered, deployment model and industry specifications, is so crucial: It reduces the pool of candidates to a manageable list of possibilities — one of which will prove to be the right ERP fit.
Types of ERP: Size-Based
A simple construct for ERP classification is based on a hierarchy of tiers that align with the needs and budgets of small, midsize and large businesses. Tiers aren’t standardized, so overlap may exist, but they are helpful for a first pass at initial classification.
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Tier I ERP
Tier I ERP systems are aimed at the largest global enterprises, typically those with annual revenues in the $500 million or above range. These systems handle intricate business processes, provide a robust set of features and are highly scalable and customizable. As a result, Tier I ERP systems tend to have the longest lead times, due to the complexity of their implementations.
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Upper Tier II ERP
Upper Tier II ERP systems are well suited for rapidly growing midsize to large firms. They support deep, cross-functional and multinational support, though not to the extent required by their Tier I brethren — which brings down costs and shortens implementation time.
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Lower Tier II ERP
Lower Tier II ERP systems target small and midsize businesses that want to manage their business processes but need more basic multinational support and customizations than an Upper Tier II ERP system provides. This reduced complexity, relative to Upper Tier II ERP, lowers costs and results in faster implementation time.
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Tier III ERP
Tier III ERP systems are usually a good fit for small businesses with basic accounting, billing and payroll needs or that cater to a specific industry or geography. These systems are the most affordable and simplest to implement of all the ERP tiers, but they may need to be replaced as a business grows.
Types of ERP: Functionality-Based
ERP systems streamline day-to-day business processes and provide real-time, companywide visibility into financial and operational performance. The types of functions and processes they support offer another way to classify these solutions. Certain core functions are common to most ERP systems. Other systems extend functionality to more external-facing processes. Yet a third category focuses on industry-specific needs. As with the ERP tiers, expect overlap and variation among solutions. Equally noteworthy, modular ERP systems can grow in functionality with the purchase of additional components designed for specific functions and processes.
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Core ERP
Most ERP systems manage a set of internal core business functions that typically include finance, accounting, human resources and production. These systems integrate real-time financial, operational and business data that can be easily shared, analyzed and used to inform strategic business decisions. Automation is another key feature, placing time-consuming, repeatable tasks, such as payroll processing, invoicing and account reconciliation, in the hands of the ERP software so that staff can focus on higher value work.
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Extended ERP
Extended ERP provides additional support for external business operations and relationships with vendors, customers, clients, logistics providers and others along the supply chain. Extended ERP systems incorporate functionality for business intelligence and analytics, customer relationship management (CRM), ecommerce, e-procurement, logistics and supply chain management.
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Vertical ERP
Vertical ERP solutions are designed to meet the needs of a specific industry, such as manufacturing or retail, that would otherwise require a great deal of software customization — and longer lead times — to adapt to its unique workflows and processes. These systems can be tailored to different types of industry roles and regulatory requirements.
Types of ERP: Deployment-Based
Another way to classify ERP systems is by where the software resides. Companies have four main deployment approaches to consider: on premises, in the cloud, as a hybrid of both or across multiple clouds. Budgets, IT resources, time to deploy and need for customization and scalability all factor into the purchasing process.
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On-Premises ERP
Companies have traditionally deployed their ERP systems locally, that is, on their own servers. Responsibility for hardware and software procurement, licensing, configuration, installation, management, maintenance, upgrades and security falls to their IT staffs and may necessitate additional specialists. Scaling on-premises ERP to bring on new users, increase storage capacity or add functionality is also an in-house job that often involves the purchase of additional hardware. However, many businesses prefer on-premises ERP to maintain total control of their resources and not be dependent on any outside vendor.
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Cloud ERP
With cloud ERP, all of the extensive ERP responsibilities mentioned above are handled by the ERP vendor, which hosts the system on its own servers and makes it accessible over the internet via a web browser or mobile application. Bolstered by an increasingly remote workforce, cloud ERP is a trend that experts say is here to stay. To wit, nearly two-thirds of organizations are selecting cloud-based ERP, according to Panorama Consulting Group’s 2023 ERP Report. Companies pay only for the services they use, without the hefty up-front investments associated with on-premises ERP, making it affordable — and leveling the playing field — for small businesses.
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Hybrid ERP
Hybrid ERP solutions are aimed at organizations that want to continue using their already-paid-for on-premises systems in conjunction with a modern cloud ERP system. Reasons for doing so vary: Perhaps a company wants to test some newer applications that would be difficult and expensive to add to a legacy system. Or it might want to offload some heavier workloads to a cloud provider. A third reason might be to test the ERP waters before switching to the cloud entirely.
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Multicloud ERP
A multicloud environment spreads ERP functions and workloads across the clouds of two or more providers. Companies often choose this deployment option to take advantage of different vendors’ strengths, avoid “vendor lock-in” and improve overall system availability, among other reasons. Interoperability among clouds is paramount. Of note, a hybrid ERP can be part of a multicloud environment.
Types of ERP: Industry-Based
Customization is an important ERP capability, but the extent to which it is needed to support a business’s operations can sway software selection. While many ERP systems are useful to businesses across numerous verticals, others are designed specifically for particular industries with more tailored processes.
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Generic ERP
A generic ERP is a versatile solution that is suitable for a wide array of businesses and industries interested in a broad range of features and functionality. It also can be customized and take on additional ERP modules to meet evolving business needs. However, the extent to which a generic ERP would need to be adapted to fit the specific processes of certain industries can be costly.
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Industry-Specific ERP
Industry-specific ERP systems are designed with the needs of a single industry and its business processes in mind. Often developed by teams with industry experience, an industry ERP includes the same baseline functionality of generic ERP systems, with specialized, built-in features and workflows added. For instance, a healthcare ERP might include patient scheduling and medical billing capabilities, while a manufacturing ERP could offer detailed production planning and quality-control options.
Types of ERP: Company-Based
It stands to reason that a business’s goals, budget and in-house resources will depend on its size, in terms of annual revenue and number of employees. Understanding the different ERP options available for small, midsize and large companies can aid in the selection of a system that not only fits a business’s current operations but also supports its growth and ability to adapt to market changes.
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Small Business
ERPs for small businesses serve the basic needs of smaller operations, without the cost or complexity of larger-scale solutions. These systems typically focus on core processes, such as finance and inventory management, in a simplified format. Cloud-based options are popular among small businesses due to their affordability, scalability and minimal IT requirements, enabling these businesses to experience benefits of ERP that had once been accessible only to larger organizations.
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Midsize Business
As a company grows, so do its requirements, thus exceeding what is possible with ERP software aimed at small businesses. An ERP system for midsize businesses provides more advanced features and analytics, greater integration options and more automation, yet does so while remaining within a reasonable budget and IT scope. In other words, a midsize ERP seeks to support the business’s growing complexity without overwhelming its resources.
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Enterprise
Large enterprises require scalable ERP systems capable of handling complicated, global operations. These systems must support a wide range of business processes, adhere to various international regulations, promote real-time information-sharing and collaboration across different locations and departments, and offer extensive customization options that align with the enterprise’s intrinsic requirements.
10 Key Factors to Consider in Choosing an ERP Type
An ERP system provides the foundation for business success, unifying companywide data and integrating and automating essential functions. With the right ERP system, businesses of all sizes can not only streamline their processes but also become more agile in the face of ever-changing circumstances. The question is, which is the right ERP for your business? The following list highlights 10 important considerations.
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Business Needs and Objectives
A business should have a thorough understanding of what it wants to accomplish before choosing an ERP system. Stakeholders from across the organization should participate to help pinpoint the specific processes and workflows the ERP will improve or modernize. For example, a company that wants to streamline its supply chain might look for an ERP with strong logistics features, while a local retailer would prioritize an ERP with strong robust inventory management to prevent it from purchasing more stock than it needs, which would tie up its cash. This needs analysis should map out the desired outcomes, define success metrics and align with the business’s strategic vision.
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Budgetary Constraints
Budget is always a concern with any system implementation. ERP systems involve different up-front and ongoing costs, depending on the vendor and type of deployment selected. A cloud ERP deployment, for example, will cost a business less up front because it doesn’t need to purchase its own hardware or software. A comprehensive cost-benefit analysis that accounts for both direct and indirect costs will help determine an ERP’s total cost of ownership (TCO) and lead to an informed purchasing decision.
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Scalability and Flexibility
As businesses grow — in transaction and data volumes, new processes, number of users and locations and more — their ERP systems should be able to grow along with them, versus needing a complete, and costly, system overhaul. For instance, a small business might start with basic financial management and, over time, require advanced features, such as ecommerce and CRM, as it expands. Modular ERP systems, with their ability to add or expand capabilities through individual components tailored to specific business functions, let businesses adapt to their evolving requirements without interruption or significant new investment.
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Industry-Specific Requirements
Generic ERP systems provide extensive functionality, but companies in specialized fields often benefit from solutions that are preconfigured with features that address their specific industry demands. For example, a manufacturer typically requires strong production planning and quality control modules, while a healthcare provider needs patient management and compliance tracking capabilities. Such baked-in customization that closely aligns with the business’s day-to-day operations can lead to better user adoption rates.
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Technological Infrastructure
Anytime a business wants to introduce a new system, it must evaluate its current hardware, software and network capabilities to make sure the software can be supported. Any piece of that environment that needs to be upgraded, customized or built to accommodate unique conditions means additional costs. For businesses with limited IT infrastructure and staff, cloud-based ERP solutions are an attractive option since the cloud vendor hosts all of the IT infrastructure. The vendor also maintains the equipment, updates the software and secures the data.
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Integration Capabilities
A new ERP system should be able to communicate with any existing systems it doesn’t replace to prevent data silos, while streamlining processing and enhancing collaboration. Data migration and sharing are other important integration considerations — application programming interfaces, web services, middleware and common data formats all facilitate the integration of the ERP with existing applications, ensuring a seamless flow of data and maintaining operational continuity.
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Data Security and Compliance
ERP systems manage an abundance of sensitive data. With cyber threats on the rise, data security and compliance must be a high priority when selecting an ERP system. A solution that adheres to industry standards and regulations, such as the General Data Protection Regulation for data protection or the Sarbanes–Oxley Act for financial reporting, is paramount, especially for auditing purposes. The ERP should also offer strong security features, such as data encryption, role-based access controls, multifactor authentication and regular security updates, to safeguard sensitive information and maintain stakeholder trust.
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Vendor Reputation and Support
With readily available access to analysts’ reports, software-ratings websites and customer reviews, businesses can easily research ERP vendors and their track records. A vendor with a solid reputation for quality products, responsiveness, customer support and training is more likely to provide a reliable, long-term solution. Additionally, a vendor’s commitment to innovation and its road map for future features can be a strong indicator of its value as a business partner.
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User-Friendliness and Training
As complex as ERP systems can be under the hood, on the outside they must be intuitive and user-friendly. A system that is easy to navigate makes for a smooth employee transition, reducing resistance and related downtime. In addition, vendors that provide comprehensive training programs and responsive support help businesses maximize the return on their ERP investment. This is especially important for small to midsize businesses, where resources for training and customization may be more limited.
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Future-Proofing
Evaluating various ERP systems is a time- and resource-intensive process that no business wants to repeat as its needs grow. An ERP system that can adapt to future requirements and technological advancements — incorporating, for example, connected devices, artificial intelligence and machine learning — is imperative to protect the company’s investment and ensure that the system remains cutting-edge without the need for a complete overhaul.
Simplify Your Business With NetSuite ERP
NetSuite Enterprise Resource Planning (ERP) is an industry-leading, cloud-based solution that streamlines and automates business processes and workflows across companies of all sizes. Its hallmark is a centralized database that provides real-time insights into operations, finances and transactions, increasing organizationwide visibility for more informed decision-making, while boosting business productivity and operational efficiency. With its modular, scalable design, NetSuite ERP allows businesses to add advanced functionality and features quickly and easily, supporting both front- and back-office operations and adapting to the distinct needs of small, midsize and large enterprises, including those with multiple subsidiaries and business units across geographies.
ERP systems come in various forms, designed to fit the needs of companies based on size, needed functionality, deployment preference and industry focus. Understanding these classifications will help businesses select an ERP system that aligns with their current needs and growth plans. The selection process should also be guided by a host of factors, including budgetary constraints, scalability and vendor reputation, to be sure the business will be choosing the right system to meet its needs.
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Types of ERP FAQs
What are 3 common types of ERP?
Enterprise resource planning (ERP) systems can be categorized into three main tier levels:
- Tier I ERPs are designed for large, global enterprises with complex processes and a need for highly scalable, customizable systems.
- Tier II ERPs are split into upper and lower categories. The upper tier serves deep functionality to rapidly growing midsize to large firms, while the lower targets single small to midsize businesses with basic multinational support and simpler customizations.
- Tier III ERPs are best for small businesses whose needs are more fundamental, such as accounting, billing and payroll.
What are four types of ERP classification?
Enterprise resource planning (ERP) systems can be classified in a number of ways, but the most common are based on company size, functionality, deployment method and industry. These classifications help businesses identify which systems will best align with their specific needs, whether they’re looking for a comprehensive solution that scales with their growth, a specialized tool tailored to their sectors, or a flexible platform that supports a variety of deployment scenarios.
What are 4 types of ERP architecture?
Enterprise resource planning (ERP) systems can be implemented using various architectural approaches to meet the specific needs of an organization. Four common types of ERP architectures are:
- Tiered architecture: Often three-tiered, this approach separates the presentation layer (user interface), the application layer (business logic) and the data layer (database management) to distribute processing.
- Two-tier architecture: This simplifies the tiered model into a client tier, where the user interface and application logic reside, and a server tier, which manages the database and executes business logic.
- Component-based architecture: This modular approach divides the ERP system into independent, reusable components, allowing for flexibility in development, updates and scalability.
- Service-oriented architecture (SOA): ERP systems built on SOA consist of loosely coupled, interoperable services that enhance flexibility and ease integration with other systems.
What are the different ERP deployment models?
ERP systems can be organized by where they are deployed:
- On-premises ERP: Implemented on-site at an organization’s physical space and hosted on the company’s own servers for full control and ownership.
- Cloud-based ERP: Web-based subscription solution hosted by an outside vendor, which rents its hardware and software as a subscription service.
- Hybrid ERP: A combination of cloud-based and on-premises solutions, with the flexibility to migrate between delivery models.
- Multicloud ERP: Spreads workloads across multiple cloud solutions, leveraging the strengths of different vendors.
How is an ERP different from other systems?
ERP systems provide a comprehensive, integrated solution for managing a wide range of business processes within an organization. While standalone systems might focus on specific areas, such as accounting, human resources or inventory management, ERPs bring all of these functions together into one cohesive system that provides companywide visibility over operations. In addition, ERP systems often include advanced features, such as forecasting, analytics and reporting tools, which are not typically found in more basic business management software.
What are ERP examples?
Examples of ERP systems include NetSuite ERP, Oracle Fusion Cloud ERP, SAP Business One, Sage Intacct and Microsoft 365 Business Central.