erp components

ERP Components 101: The Building Blocks of a Successful Management System

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

Since every business has its own unique processes and requirements, ERP systems can be customized accordingly. However, irrespective of the industry, there are some ERP components that are common across organizations. These are the basic components of ERP.

Basic Functional Modules

All ERP systems have certain common features related to the core business processes of an organization.

These business modules are basic functional modules that help with employee management, customer relationship management, supply chain management, inventory management, accounting, and report generation.

These modules are also known as the basic ERP components.

  • basic and advanced functional modules of erp
    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.

  • erp components
    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.

  • erp management system
    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.

  • types of erps
    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.

  • characteristics of erp
    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.

  • what are business modules in erp
    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.

Advanced Functional Modules

Apart from these basic functional modules, businesses may want additional features or modules in accordance with their processes and requirements.

These secondary ERP components may be related to sales, manufacturing, marketing, event management, delivery, etc. Unlike the basic ERP components, these modules are not available in all ERP solutions, so it is important to have clarity on what basic and advanced functional modules you want before you start looking for ERP solutions.

With an understanding of the basic and advanced functional modules of ERP, you are ready to start considering which type of ERP solution would best suit your needs.

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:

Generic ERP vs. Industry-Specific ERP

Generic ERP systems are ERP solutions with a broad range of functionalities. It is a one-size-fits-all solution, and includes a wide range of commonly required features.

It includes all the basic functional modules, and some generic ERPs may also include advanced functional modules such as the manufacturing and/or sales modules.

However, unlike industry-specific ERP solutions, they do not have the specific functionalities that are unique to specific industries. Generic ERP systems are cheaper than industry-specific ERP systems, but if you have industry-specific requirements, a generic ERP system will not give you the full benefits of having an ERP system in your organization.

On the other hand, you can ask for custom features to be added to your solution, but may end up paying as much or more than you would pay for an industry-specific solution.

Industry-specific ERP systems are ERP solutions that cater to specific industries. These solutions have all of the basic functional modules of an ERP solution with customized features that are designed according to the specific needs of the industry.

For example, a pharmacy retail solution will have customizations that help track expiry dates, record doctor referrals, and process health insurance. On the other hand, a fashion retail solution will have customizations that help specify variations in the size and/or color of products, and track sales performance accordingly.

Similarly a chemical manufacturing solution would have unique features that differ greatly from those in an automobile manufacturing solution.

Cloud/On-Premise/Hybrid ERP

Cloud ERP solutions are ERP systems that are hosted on the vendor’s server and accessed using a web browser. It is ideal for smaller businesses as it is cheaper, easier to implement, and doesn’t require the use of expensive hardware. Cloud ERP solutions follow a subscription-payment model, either on a monthly or annual basis.

On-premise ERP solutions are ERP systems that are hosted on the company premises. It involves a one-time payment upfront, which usually depends on the size of the organization and the number of users. Continued support, training and upgrades usually cost extra.

Larger organizations prefer on-premise ERP solutions as they get complete control over the system and can make modifications as required. However, this can only be done by a skilled IT professional.

Hybrid ERP solutions use an on-premise system combined with cloud-based solutions. This is done to have the best of both worlds - the ownership and control offered by the on-premise system combined with the accessibility, the ease of updation and the lower costs afforded by cloud-based solutions.

For example, an organization may use an on-premise ERP system in their corporate office which communicates with other cloud ERP solutions implemented in their smaller


No matter what kind of business you run, you can improve efficiency, optimize resources, automate tasks and improve your bottom line with the right ERP solution. The ERP market has evolved to provide a wide range of solutions so that no matter what your size, industry, or working model is, you can find a solution that’s perfect for you. Just identify the ERP components that would benefit your business and the type of solution you want and you’re all set to start shopping for the ERP solution you need!

What are the main components of an ERP system?

The main components of an ERP system include financial management, human resources management, supply chain management, customer relationship management, and manufacturing operations management.

How does the financial management component of ERP work?

The financial management component of ERP helps organizations manage their financial transactions, budgeting, and reporting. It also provides real-time financial data, and financial forecasting, and enables compliance with financial regulations.

What is the role of human resources management in ERP?

The human resources management component of ERP helps organizations manage their human resources, including employee data, payroll, benefits, and performance management. It also helps track employee attendance and leave and automate recruitment processes.

How does the supply chain management component of ERP work?

The supply chain management component of ERP helps organizations manage their logistics, inventory, and purchasing processes. It also provides real-time visibility into the entire supply chain, from suppliers to customers, enabling organizations to make informed inventory levels and purchasing decisions.

What is the role of customer relationship management in ERP?

The customer relationship management component of ERP helps organizations manage their customer interactions, including sales, marketing, and customer service. It also helps in tracking customer interactions, managing customer data, and analyzing customer behavior.

What is the difference between an ERP system and a standalone software?

An ERP system is a complete, integrated system that combines all the different components of an organization's operations, including financial management, human resources management, supply chain management, and customer relationship management. On the other hand, standalone software focuses on a single aspect of an organization's operations.

Is it necessary to have an ERP system for a small business?

While an ERP system is designed for large organizations, it can also benefit small businesses. An ERP system can help small businesses to streamline their operations, improve efficiency and increase visibility into their business.

What are the benefits of implementing an ERP system?

The benefits of implementing an ERP system include improved efficiency, better decision-making, reduced costs, better customer service, and increased revenue.

What are the best ERP systems available in the market?

Some of the best ERP systems available in the market include Oracle, SAP, and Microsoft Dynamics. These ERP systems are widely used and have been proven to be effective in different industries.
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