Difference Between ERP I and ERP II: Evolution, Systems, And Future Scope

ERP I Vs ERP II In Terms Of Business Scope And Connectivity

Here's the simplest way to understand it:

ERP 1 = Internal focus

ERP 2 = Internal + External connections

With ERP I, optimisation happens only inside the company. Data is created, used, and stored internally. Departments work better together, but external partners remain disconnected.

ERP II changes this approach. Data is shared securely with suppliers, customers, and partners. Forecasts, orders, inventory levels, and delivery schedules move across systems without manual intervention.

This real-time collaboration changes workflows completely. Instead of reacting late to issues, businesses can plan better, respond faster, and coordinate decisions across the supply chain.That connectivity is the real difference between ERP I and ERP II.

What Is ERP II And How Does It Differ From Traditional ERP Systems

ERP II or ERP 2 is the evolved version of traditional ERP. Think of it as an ERP that no longer works only inside the company, but also connects outside stakeholders

The traditional ERP, as we know, is limited to internal operations like finance, inventory,production, and HR.

ERP II goes a step further. It manages suppliers, customers, distributors, and partners into the same digital flow. That is multiple stakeholders connected all together for better collaboration.And this collaboration, in turn, helps businesses respond faster and reduce delays across the supply chain.

Besides, the data in ERP 2 is shared, published, and subscribed both inside and outside the organisation.

For example, when demand changes:

Suppliers see updated requirements

Logistics partners adjust schedules

Sales teams get real-time availability

This constant data flow is what makes ERP II more flexible and business-driven, not just system-driven. Below is a quick glance of difference between ERP 1 and ERP 2:

Aspect	ERP	ERP II
Focus	Internal operations	nternal + external collaboration
Data usage	Generated and consumed internally	Shared internally and externally
Connectivity	Closed and department-focused	Open, web-based, and connected
Scope	Manufacturing and distribution	All industries and business segments
Business role	Operational efficiency	Business collaboration and value creation

How Did ERP Evolve From ERP I To ERP II Over Time

ERP I worked great for a while. Companies got organized internally. Finance, HR, manufacturing, and sales all ran on one system. Life was good.

But then businesses hit a wall.

The problem? ERP I only talked to itself. It didn't care about what was happening outside the company. And in the real world, business doesn't happen in isolation.

Here were the limitations of ERP 1:

Suppliers were blind. You check inventory in the warehouse to know if you need more raw materials. Now, your supplier doesn't know about it. So, someone had to call, send an email, or fax (yes, fax) an order. By the time the supplier processed it, you were already behind schedule.

Customers were frustrated. They placed an order and then... silence. No tracking. No updates. They had to call customer service just to ask, "Where's my order?”

Partners couldn't collaborate. If you worked with distributors or retail partners, they had no visibility into your inventory. They would over-order (tying up cash) or under-order (running out of stock). Everyone was guessing

Then,globalization happened. Companies weren't just working with local suppliers. They were sourcing from China, selling to Europe, and partnering with distributors across three continents.Managing all that through emails and phone calls? Impossible.

That’s when ERP II emerged because businesses needed to break down the walls.

How Are ERP I ERP II And ERP III Compared Across Generations

Here's the evolution in one simple table:

Generation	Focus	Who Uses It?	How It Works	Example
ERP I	Internal efficiency	Your employees only	Automates tasks inside your company	Order triggers invoice,inventory update,production schedule—all internal
ERP II	External collaboration	Your employees + suppliers + customers + partners	Connects everyone in real-time	Supplier sees low inventory and ships automatically; customer tracks order live
ERP III	Intelligent automation	System + humans (AI assists decisions)	Learns patterns,predicts trends,recommends actions	System predicts demand spike, adjusts orders, suggests pricing—before you ask

What Is The Difference Between ERP 2 And Extended ERP Concepts

Here's where people get confused. Extended ERP and ERP 2 sound similar, but they are not the same thing.

Extended ERP means you are adding capabilities your traditional ERP didn't have, like:

Customer Relationship Management (CRM)

E-commerce platform

Advanced analytics and business intelligence

Product Lifecycle Management (PLM)

You are expanding what the system does.

Use Cases For Extended ERP

1. Retail Company Adding E-Commerce

A store using ERP for e-commerce inventory management adds Shopify. Now they sell online, but suppliers still call to check stock levels. That's Extended ERP, not ERP 2.

2. Manufacturer Adding CRM

A factory tracks production with ERP, then adds Salesforce to manage customer relationships. This adds new functionality , but the data still stays within the company. That’s extended ERP at work.

3. Distributor Adding Analytics

A distributor uses ERP for logistics, then adds Power BI for data insights. Better decisions, same closed system.

ERP 2 means you are changing who can access and share data with the system—suppliers, customers, and partners. You are expanding who connects to it. Let’s understand this with an example.

Suppose a clothing brand uses basic ERP for inventory and finance. Then, over time they add:

A CRM system to track customer preferences

An e-commerce platform for online sales

Analytics software to predict fashion trends

This shows they have extended their ERP with new functions. But it's still mostly internal.That same clothing brand now connects:

Fabric suppliers who see real-time demand and adjust shipments

Retail partners who access inventory levels directly

Customers who track orders and returns through a portal

Now they have moved to ERP 2 for external collaboration. Here is a quick comparison between the extended ERP system and ERP 2:

Aspect	Extended ERP	ERP 2
What changes?	You add more features	You open the system to outsiders
Focus	Functional expansion (CRM, analytics,etc.)	Connectivity and collaboration
Who benefits?	Your internal teams get better tools	Your partners and customers get access
Architecture	Modular add-ons	Web-based, collaborative platform

In simple words, Extended ERP can be seen as a functional expansion. Meanwhile, ERP II is an architectural and connectivity evolution of the current functions.

What Does ERP EntERPrise Resource Planning Mean As A Base Concept

ERP (enterprise resource planning) software, in simple terms, is the digital backbone of business. It connects all the functions of business together. Before ERP, companies ran different software for different departments. Accounting used one system, HR used another, Warehouse managers used spreadsheets, and sales reps tracked all orders manually.

But with ERP, we now have the core modules for finance, HR & payroll documentation,manufacturing and sales , supply chain, CRM, and more.

For example, a furniture company gets an order for 50 chairs. Earlier, it was done by labour. Now, the ERP system instantly checks inventory, alerts the warehouse if stock is low, schedule production, updates accounting, and notifies shipping. Even an automated email for confirmation of the order is sent to the client. No human intervention is needed as such.

That's the base concept. Every ERP evolution - right from ERP 1, ERP 2, and Extended ERP is built on this foundation.