6 Core Components of the ERP System

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ERP system is a business package suite that integrates all the functions and departments in your company. It has a wide variety of features and add-ons that will help you to scale your business. But before looking at its elements, you should understand what an ERP system is.

What is an ERP system?

ERP system is a software tool that takes care of all the activities and processes inside your company. From procuring raw materials to manufacturing finished products to vendor management, it provides a helping hand in conducting the business. Its various modules simplify and streamline processes, monitor activities, and alert concerned teams if there is any discrepancy. It also destroys information silos by facilitating the free movement of data between different departments.

Lately, ERP systems are also venturing into customer relationship management that helps companies find new customers and establish a long-lasting relationship with their customer base. Also, as reliance on data increases, business intelligence has become an integral part of ERP systems. This article delves deep into the six core components that make up an ideal ERP system.

1. Supply chain management

Supply change management (SCM) starts from procuring raw materials from vendors. It entails comparing vendors against various parameters — including the price and quantity of raw materials, bulk discounts, the time taken to receive the raw materials, and vendor communication. The ERP system refines its search based on the set parameters and continually updates the list of vendors. The long list of secondary vendors helps when the primary vendor is demanding more than the market price or isn’t available.

It acquires real-time data and fixes issues as and when they happen. It also makes use of predictive analytics to prepare up-to-the-minute production plans and help with demand planning.

The ERP software’s SCM component arranges the warehouse floor by analyzing which products are purchased together. When coupled with CRM, it keeps customers updated about their products’ status and provides them shipment details.

Another essential feature of the SCM component is that it orders critical raw materials before the stock goes below the set threshold level. Suppose, if you manufacture car tires and your rubber supplies are fast depleting. Then, the SCM will automatically order an adequate quantity of rubber from your vendor, which will ensure that your production facility never runs out of it.


Also Read: The 4-Step Approach to Better Supply Chain Management


2. Financial management

Every business does financial transactions daily, including paying salaries to employees, receiving money from customers, freight payments, fulfilling supplier or distributor or vendor commitments, and paying taxes. All of this requires recording, tracking, and analysis of financial data.

The ERP system’s financial management module takes note of business-critical transactions such as accounts payable, accounts receivable, fixed and variable costs, and budgets. It also analyzes the trends in your spending that help you reduce costs, increase profits, and explore untapped opportunities. When coupled with the power of data, it conducts a financial forecast and helps determine your future trajectory.

This module not only integrates the financial transactions happening across departments but also frees up the time of your workforce by automating trivial tasks. Thus, your employees get more time to perform functions that require critical thinking skills and creativity.

3. Inventory Management system

The inventory management system of the Enterprise Resource Planning (ERP) software is a boon for companies. It works along with the supply chain management component and takes care of sales and warehousing as well. It automates inventory management by reducing manual inventory control and by introducing other inventory tracking features — including revision level tracking, multi-level serial number tracking, and SKU (stock-keeping unit). These features are crucial for companies with distribution centers as they optimize the delivery process.

Another critical function of the inventory management system is that it automatically updates out-of-stock materials on your website so that your customers don’t place orders for products that you don’t have in your warehouse.

4. Business intelligence

“Data is the new oil” is the hottest proverb in the market. It’s because businesses across all industries are either partially or entirely dependent upon data. You cannot think of competing in your industry without knowing what your customers want and would like to pay for. Business Intelligence (BI) forms the foundational pillar of the ERP system. It collects data, performs rigorous analysis, and provides actionable insights. It provides data in the form of numbers, tables, and visual reports that display trends effectively.

The BI component of the ERP system integrates data from various departments and presents a complete picture of your business. Thus, it helps destroy information silos.

5. Human Resource Management

Employees are the bedrock of any company. You cannot function without an efficient workforce. But assigning trivial tasks to your employees undermines their potential and reduces the company’s ability to achieve better targets.

The Human Resource Management (HRM) module of the ERP system manages critical functions such as recruitment, onboarding, defining salary structure, timekeeping, offboarding, and monitoring tax and benefits deductions. It also acts as payroll software by automating direct deposits, which, if done manually, consumes much time.

It monitors the performance of employees and sends periodic reports to their managers. If it senses some deviation in an employee’s performance, it alerts the manager by sending visual reports in the form of graphs and charts. It suggests employee training programs and also charts their future trajectory. It also reduces a lot of paperwork and monotonous data entry.

6. Customer relationship management

A company cannot ensure its survival without having a sound customer base. It is the customers that provide money in exchange for a company’s products. The customer relationship management (CRM) module of the ERP system collects essential customer data — including name, address, email ID, age, geographic details, demographic details, behavioral details, gender, and religious and cultural adherence.

The most important feature of a CRM module is that it tracks customer buying habits, previous purchases, and wish lists. This data helps know what customers are looking for and the best way to make them aware of your products. It also suggests products that you can upsell and cross-sell and also tells the best time to do so. It tracks conversation history so that if a particular customer is assigned a new sales personnel, the latter knows what to communicate and how to forward it. Besides, it also stores the payment information so that customers can purchase your products at the click of a button, which streamlines the buying process and improves customer experience.


Also Read: Top Challenges in CRM Implementation


ERP systems form the backbone of a business. They automate business processes, perform trivial functions, and assist employees in doing their work efficiently. Do you have an ERP system in your company or are planning to buy one

We can help you. At Sage, we are home to world-class ERP and CRM software that will provide practical solutions to your specific business challenges. To know more about it, SMS SAGE to 56767. You can also write to us at sales@sagesoftware.co.in.

Disclaimer: All the information, views and opinions expressed in this blog are those of the authors and their respective web sources and in no way reflect the principles, views or objectives of Sage Software Solutions (P) Ltd.

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