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What is ERP software?

The short answer
ERP software runs a business’s core operations — stock, purchasing, sales, accounting, people — in one system with one shared set of records. Most ERP today is cloud ERP: it runs on the vendor’s servers and is used through a browser or app, so everyone works on the same live numbers from anywhere.

The problem ERP software exists to solve

Most businesses do not start with software. They start with a book, then a spreadsheet, then a billing package, then a second spreadsheet for stock because the billing package does not do stock properly. By the time there are twenty people, the same information lives in five places and none of them agree.

The cost of that is not the software licences. It is the hours spent making numbers agree, the orders that get typed twice, and the argument at month-end about which figure is right. ERP software is the idea that those separate records should be one record, shared by everyone who needs it.

What ERP software contains

ERP products are sold as modules, and the list varies by vendor. These are the ones almost every product has, and what each is for.

Common ERP modules and what they do.
ModuleWhat it handles
Inventory / stockItems, batches, warehouses or godowns, stock movements, reorder levels, physical counts
SalesQuotation, sales order, invoice, delivery, credit notes — and in India, GST and e-invoicing
PurchaseMaterial requisitions, RFQs, purchase orders, goods receipt, vendor bills
AccountingLedgers, journals, receivables, payables, trial balance, statutory returns
ManufacturingBills of material, production orders, operations and routing, job work
HR and payrollAttendance, leave, salary processing, statutory deductions
CRMLeads, opportunities, customer history, field visits
ProjectsTasks, timesheets, billing rates, project profitability

What makes it an ERP rather than several apps

In a genuine ERP, raising a document in one module changes the others automatically and immediately. A goods receipt increases stock and creates a payable. An invoice reduces stock, posts revenue and creates a GST liability. A production order consumes components and produces finished goods. Nobody re-enters anything, and there is no nightly sync that can fail quietly.

A suite of well-integrated separate apps can get close to this, and for many businesses close is enough. But the failure mode is different: separate apps disagree, and somebody has to notice.

Cloud, desktop or on-premise: where the software runs

Every ERP has to run on a computer somewhere. The difference between cloud ERP, desktop software and on-premise ERP is whose computer that is, and who looks after it. With cloud ERP the vendor runs the servers and your team opens the software in a browser or an app, so the owner, the accountant and the godown all see the same live records from anywhere.

Desktop, on-premise and cloud ERP compared.
DesktopOn-premiseCloud
Where it runsOne PC in your officeYour own serverThe vendor’s servers
How people use itOn that PC, or through itOn your network, or over a VPNBrowser or app, from anywhere with internet
Who does backups and upgradesYouYou, or your IT partnerThe vendor
How you payUsually a one-time licence plus renewalsLicence plus server and IT costUsually a subscription, per user or per plan
Works without internetYesYes, inside your networkNo

The honest downsides of cloud ERP

For Indian businesses the internet is already part of billing: e-invoices are registered on the government’s Invoice Registration Portal and e-way bills are generated online, so even desktop software needs a connection for those steps.

  • No internet, no ERP. If the connection drops, billing stops until it returns, so a counter or dispatch desk needs a backup connection such as a mobile hotspot.
  • You rent rather than own. A subscription costs money every year, where a desktop licence may be a one-time purchase.
  • You depend on the vendor. Their uptime, security and support become yours, so check them before you sign.
  • Leaving takes planning. Make sure you can export all your data in a usable format.

When a business actually needs one

Not every business does, and a good vendor will tell you so. The honest signals that it is time are operational rather than financial.

  • The same information is typed into more than one place, routinely.
  • Stock on the system and stock on the shelf disagree often enough that people have stopped trusting the system.
  • Month-end close takes longer than a week because figures have to be reconciled before they can be reported.
  • Somebody has to be asked a question because the answer is not visible to the person who needs it.
  • You are turning down work, or hiring, because nobody can see capacity or availability.

What to ask an ERP vendor

  • Where is my data hosted, how often is it backed up, and how quickly can it be restored?
  • How do I export all of my data if I leave, and in what format?
  • Can I limit a user to one branch or one set of actions, and is every change recorded in an audit trail?
  • Does it handle GST e-invoicing, e-way bills and Indian payroll in the product itself?
  • Who supports us after go-live, in which language and time zone?

What ERP software will not fix

It will not fix a process nobody follows. If the storekeeper does not record issues today, buying software does not make them record issues — it makes the gap visible, which is useful but is not the same thing.

It will not fix bad data. Opening stock that was wrong in your old system is wrong in the new one on day one. And an honest implementation for a small business is weeks, not days; most of that time is yours, spent deciding item codes, approval rules and opening balances.

In short

  • ERP software means one shared set of records across operations, not a particular feature list.
  • The test of an ERP is whether a document raised in one module changes the others without anyone re-typing.
  • Cloud ERP runs on the vendor’s servers and is used through a browser or app; the trade-offs are a subscription and a dependence on internet.
  • You need one when information is being entered twice, or when nobody trusts the stock figure.
Questions

Related questions

No. Cloud pricing has taken the entry cost from lakhs to a few thousand rupees a month, and a fifteen-person manufacturer with batch traceability requirements has a stronger case for ERP than a two-hundred-person services firm. Complexity matters more than size.
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Prefer to read first? The comparisons with Tally, Odoo, ERPNext and Zoho are written to be checked, not believed.