Enterprise Resource Planning (ERP): Meaning and Components

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Enterprise Resource Planning (ERP): Meaning and Components

Enterprise resource planning (ERP) improves the connection between business areas by integrating all the processes needed to run a company. It is impossible to ignore the rise of ERP systems in today’s commercial environment. 

If your company wants to install ERP systems to streamline the workflow, you must understand an ERP software system and its components.

What is ERP Software?

ERP software is an application that companies use to manage their daily activities like procurement, accounting, risk management, supply data chain operations, and project management.  

The ERP, meaning software, clarifies your complete business process by tracking every aspect of financials, logistics, and production. 

For example, consider a construction industry that procures parts and buildings from various suppliers. Suppose when you choose  https://firstbit.ae/contracting/, you can control everything with FirstBit’s construction ERP. Designed in Dubai, UAE, it helps you comply with local laws and even generate VAT-compliant reports in a click. 

When ERP is deployed at a construction company, a component, for example, “steel rods,” is identified along with size, source, lot number, cost, serial number, part name, and specification, along with many other descriptive and data-driven items.

Your team can now have a clear idea of products by tracking the requisition and sale of the goods. Also, you can ensure that each part across the procure-to-pay process uses clean data connected to business processes, reporting, and analytics with ERP management software. 

What are the Types of ERP Deployment Models?

The ERP deployment models are of three types:

  1. On-premises ERP
  2. Cloud-based ERP
  3. Hybrid ERP
On-Premises ERP

On-premises ERP is a software application that runs on in-house servers at locations under your company’s control. You cannot use on-premises ERP outside a physical workspace but on different handheld and mobile devices.

With on-premises ERP, the cost must be paid for upfront with licensed software for a specific number of users. 

On-premises ERP takes a long time to install as the application is slow, and the project can go on for years. Besides, upgrading the on-premise software to a new version is also slow. 

But, on-premises ERP has two crucial benefits:

  1. You can customize on-premises ERP to meet a specific business need.
  2. You can integrate an on-premises ERP with other on-premise systems essential to your business, like warehouse systems or factory automation. 
Cloud-Based ERP

Cloud-based ERP is a software application that runs on a service provider’s cloud platform and allows companies to get access over the internet. 

In addition, Cloud-based ERP requires fewer upfront costs because it is paid monthly. There’s a type of cloud-based ERP, multi-tenant SaaS, where various customers share the exact software to provide economies of scale that allow providers to pass some savings along. Besides, SaaS ERP is more streamlined and easy to use. 

Some essential benefits of cloud-based ERP are:

  1. Cloud-based ERP can access business information in real-time and ensure that the entire company is working with the same data. It helps firms make rapid business decisions.
  2. Cloud-based ERP makes scaling businesses easier. Companies don’t have to face challenges in adding more servers for various users, subsidiaries, or locations.
Hybrid ERP

Hybrid ERP is a blend of on-premises and cloud-based ERP solutions. Many companies need a hybrid ERP platform to fulfill their business needs. 

Two-tier ERP is the most common hybrid ERP deployment. It consists of an on-premise ERP system for corporate functions and extra cloud ERP software to support specific business units or regions.

Some crucial benefits of hybrid ERP systems are:

  1. Companies can bring down the upfront costs by implementing a hybrid ERP solution.
  2. Hybrid ERP systems are flexible and user-friendly. 

What are the Standard Components of ERP?

There are various components of enterprise resource planning. The most common ones are:

1. Customer Relationship Management

Lead and customer management are vital facets of the ERP components. Without these two factors, business survival isn’t possible. 

And to streamline such processes, the customer relationship management module is crucial. A CRM tool tracks and stores user-generated customer and lead data to develop sales and marketing efficiency insights. 

Tracking customer buying habits is a primary use of CRM. With such detail, companies can see which product has the best time frame for upselling and which lacks sales. Besides, your company can use the module to track the conversation history with leads to know who spoke to the clients and what they discussed. The software reduces customer irritation and data redundancy and improves client satisfaction. 

2. Human Resources 

Employee management is the top priority and a primary component of ERP. Without employees, there’s no company. So, the HR ERP component in your software must handle employee management tasks like onboarding, offboarding, benefits management, and timekeeping. 

Payroll software is another essential feature in core ERP components. Submitting payroll and issuing direct deposits is time-consuming and expensive. With an HR module, you can automate payments, even tax deductions. 

The ERP automates daily workflow and reduces human error and the time to complete such tasks. Integrating an ERP with HR and accounting systems allows you to send automatic payments to employee bank accounts and manage compensation forms. 

3. Inventory Management

Regulating inventory is crucial in the ERP components because it is collaborative. The main features of inventory management include maintaining warehouse stocking functions and managing order fulfillment. 

The best inventory management is crucial to the core ERP components, including the tracking feature that can reduce inventory control. 

The elements can also own multi-level serial number tracking, revision level tracking, and various units of measure per product SKU or ID. 

The inventory management component is essential to companies and operators with distribution centers as it helps in the usage and profitability of inventory processes. With an integrated system, your company’s website can update its stock quantities.

4. Business Intelligence 

Business intelligence has become an integral part of ERP systems. The component gathers data and performs analysis to provide insights about business processes. Businesses rely on data-based decisions, so independent BI software becomes crucial. 

With a good reporting feature in BI, you can make sense of the analyzed data. The reports come in the form of tables and numbers. 

When your company uses an integrated solution, the actionable insights help to make business decisions across various processes and departments. 

5. Financial/Accounting Management

Every business includes money flow. So managing accounts is a crucial component of ERP. The accounting tools track and analyze financial data, including accounts payable, accounts receivable, costs and budgets. 

The financial data analysis reveals spending patterns and helps your company understand the calculated profits. You can also discover where to reduce costs and get predictions to project future revenue. 

6. Supply Chain Management (SCM)

Creating an efficient supply chain takes time and effort. First, you must ensure that your ERP modules have SCM approaches. Then, the SCM applications must optimize the manufacturing and distribution process to create an effective supply chain through real-time data collection. 

With real-time data, you can find and fix issues. Besides, real-time data makes predictive analysis possible with demand planning. You can also create accurate and updated production plans to meet and exceed demand. 

The supply chain management component can also assist in enhancing profitability by measuring certain factors. For example, if you fuse SCM with CRM, you can update your end users on their purchase status within the distribution process and estimate a delivery date. 

What are the Secondary Components of ERP?

Some ERPs have add-ons and features that target specific business needs. Some secondary components that your company might consider adding to your customized ERP system include:

Sales Order Management

Sales order management can help your company manage sales orders throughout its life cycle. For example, sales order management can help you generate sales orders and ensure that your billing/invoicing is automatically done. 

Risk Management

With the risk management component, you can predict and reduce business risks. The risk management tool also suggests business connection ideas for unplanned situations and emergencies.

Event Management 

The event management component allows users to run hospitality programs and events from the beginning to the end. It can streamline the business workflow and maximize staff performance.

Marketing Resource Management

Marketing resource management compiles processes, technology, and people to enhance and support marketing efforts. Also, it supports strategy and workflow optimization within companies.

Advanced Planning System 

The advanced planning system tool uses data to track production costs for manufacturing goods. It also optimizes the allotment of raw materials and capacity to balance consumer demand with the available warehouse space. 

What are the Basic Benefits of Integrating an ERP?

There are countless benefits of ERP depending on the specific modules and tools. But, there are some primary benefits that you can achieve after implementing ERP in your system.

Time-Saving

With automation, employees spend less time on routine tasks. For example, employees don’t have to input data or receipts for expense information. 

Improves Workflow 

With ERP, employees can centralize all systems and processes across a business. Also, data centralization makes it efficient for employees of different departments to collaborate. 

Enhances Reporting

ERP systems lead to accurate and complete reporting enabling companies to address budgets, plan, forecast, and communicate the state of operations to interested business partners and groups. 

Improves Efficiency 

With ERP software, businesses can access the necessary information from clients, business partners, and service providers. As a result, it improves response rates, accuracy rates, and employee and customer satisfaction levels. 

Boosts Productivity

Automating and integrating business processes improves productivity and efficiency by removing redundancies. Also, departments can function better with interconnected processes. 

Final Words 

ERP systems today are every organization’s need. Making a profit is a driving force of any business. And ERP software solutions maximize revenue by centralizing systems and improving productivity. 

ERP software provides a seamless flow of communication and knowledge sharing across a system to increase efficiency across teams and departments. Get in touch with the best service provider to install an ERP system for your organization.

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