Comprehensive Guide to ERP System Components and Modules
ERP management systems are invaluable for running a healthy, growing business; however, many business owners hesitate to invest in an ERP system. Small and medium business owners often think that ERP solutions are only meant for large corporations. They think ERP systems are complex and difficult to introduce within their working model. Most importantly, they aren’t familiar with ERP components and how they can help the organization achieve the results they want.
If that sounds like you, keep reading. We’re going to get up close and personal with ERP solutions, understanding what ERP systems are, the components of ERP systems, their benefits as well as the different types of ERP solutions available in the market.
Understanding the Basics: What is an ERP Management System?
ERP stands for Enterprise Resource Planning, and an ERP management system is a software solution that helps organizations simplify and streamline their day-to-day operations and optimize their resources. It functions as a single system that integrates all the different functions within an organization, such as accounting, procurement, inventory management, customer management, employee management, and sales.
With an ERP system, managers and executives can get real-time information about the workings of any department, access historical data about the various departments and generate reports for deeper insights or to share with stakeholders. Additionally, it can be used to automate recurring processes, provide notifications or alerts based on predetermined criteria, and secure financial information to avoid embezzlement.
Key Components of an ERP System
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Human resources
Every organization has employees and keeping these employees happy and productive is essential for the success of the organization.
This ERP component helps organizations do just that, simplifying and managing processes such as leave applications, attendance, performance appraisals, and payroll processing.
Executives can use reports from this module to get insights into employee performance, salaries, and attendance. -
Customer relationship management
Organizations exist because of their customers, and managing customer relationships is very important for improving the profitability of the organization.
Happy customers bring in business, either by returning for additional purchases or by referring more customers. Depending on the industry, organizations come up with various processes for ensuring customer satisfaction and loyalty.
Accordingly, this component of an ERP system helps organizations implement those processes. The customer relationship management module helps store customer data such as demographic information and purchase history, which can be used to understand the customer base and engage in cross-selling/upselling.
The module also helps implement loyalty programs and offer customized offers and promotions to improve customer experience and sales. -
Business Intelligence
This component of ERP systems dramatically transforms the way organizations understand their performance and plan for the future. In the past, organizations kept an entire IT department to collect and manage data and then generate reports.
It would take a significant amount of time to generate these reports and missing or incorrect data would often compromise the accuracy of these reports.
With a business intelligence module, managers can generate accurate reports with the click of a button. What’s more, these reports are often presented with data visualization tools such as graphs and charts, making the data much easier to comprehend.
Executives can easily find irregularities in performance and identify areas of improvement. They can also make use of historical data to predict future performance and make plans accordingly. -
Supply Chain Management
The supply chain component of an ERP system helps organizations simplify the whole supply chain system. It assists with tasks such as purchase order generation and vendor management and automates the approval chain.
Through integration with the inventory management module, it is also possible to automate PO generation by setting a reorder level:
- When the inventory drops below the reorder level, your ERP system can automatically generate a PO for the item and keep it ready for your approval.
The goods-receiving functionality helps track when goods are delivered and ensures a quality check is performed before the goods are converted to inventory. -
Inventory Management System
This component of an ERP system helps organizations manage their inventory. It helps locate inventory within a warehouse and gives real-time information about the availability of a given item.
It helps automate tasks such as reordering, saving time and effort, and ensuring that the organization never faces a stock-out situation. Inventory reports give organizations a good understanding of inventory movement and help eliminate inventory waste.
Depending on the industry, it may include additional features such as expiry date tracking and alerts. -
Financial Management
The goal of any organization is to make money, and this business module helps organizations track and improve their profitability. It integrates with all the other modules to track the spending and receiving of money.
It also provides visibility into accounts payables and accounts receivables, providing a comprehensive view of a company’s financials.
The module helps record financial data, provides visibility into the financials of an organization, and secures financial data. It helps identify areas of high spending and low profitability so that executives can identify and fix problems to improve cash flow. It also simplifies tax and regulatory compliances.
Types of ERP Systems: Understanding the Differences
ERP systems are constantly evolving to suit business needs and keep up with technological advancements. As such, there are many different types of ERP systems, and multiple ways to categorize them. Here, we cover two categorizations: