Your Guide to Software Selection

What are the 6 Main ERP Components?

As anyone who’s shopped for a new car knows, you can’t leave the lot without being asked about add-ons and extras. While these features are convenient (and tempting), a savvy shopper knows to first focus on things like gas mileage, cost of ownership and safety ratings. It’s important to consider a car’s core qualities first before you go broke on custom mud flaps.

ERP software (Enterprise Resource Planning) is much the same. Many ERP systems are jam-packed with innovative and intuitive features, but if the one you’re interested in doesn’t have the main components, it’s simply not worth it. So while you’re evaluating ERP vendors, make sure that they have each of the six main ERP components. And if they don’t, look elsewhere.

Get our ERP Requirements Template.

So… What are those six main ERP components? Well, we’re glad you asked:

1. Human Resources

Managing your employees should always be priority number one. Without them, you don’t have a company. Your HR ERP component should be able to handle the full spectrum of employee management and take care of processes like onboarding, offboarding, benefits administration and timekeeping.

The biggest feature you need from an HR component is payroll software. Manually submitting payroll and issuing direct deposits is incredibly time-consuming and isn’t very cost-effective either. Instead, an HR component automates payments, including tax and benefits deductions. With an integrated timekeeping feature, payments to your hourly workers can also be automated, so you don’t need to manually input their timesheets.

2. Customer Relationship Management

Managing your customers and leads needs to be your second highest priority. Without them, your business can’t survive, let alone grow. A customer relationship management (CRM) ERP component allows you to keep track of all of your customer and lead data within your ERP solution. The insights you can gain from a CRM help optimize your marketing and sales efforts.

One of the main uses of a CRM is tracking your customers’ buying habits. With this data available, you’re able to see which products you may want to upsell and the best times to do it. In addition, you can use a CRM to track conversation history with leads. This way you know which sales personnel has talked to a customer, when they talked and what they talked about. Using this information, you can reduce redundancy in the sales process, minimize customer irritation and ensure a successful sale.

3. Business Intelligence

Business intelligence (BI) has quickly become a standard in ERP systems and it’s easy to see why. The BI component of your ERP software collects and analyzes data, providing you with actionable insights related to your business processes. And as businesses start to lean more heavily on decisions backed by data, BI becomes indispensable.

The best BI ERP components deliver those insights in reports. A good reporting feature is very important in BI and enables you to make sense of the data analyzed. Some reports come in the form of numbers and tables. However, many prefer visual reports because they allow you to spot trends at a glance. Whichever you decide is best for your company, make sure that it’s available in your ERP’s reporting capabilities.

4. Supply Chain Management

Creating an effective supply chain is never easy, especially when you don’t have the best tools to oversee your operation. Ensuring that your ERP has a Supply Chain Management (SCM) component is crucial to staying competitive in this arena. Your SCM should optimize both manufacturing and distribution processes and create an overall more efficient supply chain. This starts by collecting real-time data.

Real-time data allows you to find and fix issues as they happen, rather than waiting a day or more after the fact. It also makes predictive analytics possible to help with demand planning. Real-time data can help you create an accurate and up-to-the-minute production plan so that you meet demand, but don’t exceed it.

5. Inventory Management System

An inventory management component is one of the most collaborative ERP components. Inventory management works in tandem with the SCM component but also dips its toes in other processes, such as sales and warehousing. The main purposes of these components are to manage order fulfillment and the stocking functions in a warehouse.

The best inventory management components come with tracking features that all but eliminate manual inventory control. These features include multi-level serial number tracking, revision level tracking and multiple units of measure per product ID or SKU.

6. Financial Management

Last but not least, we come to the financial management component. Since every business process involves the flow of money, whether it’s paying your employees or paying to ship goods, this component works with all of the other parts of your ERP system.

A financial management system stores and analyzes all of your financial data. This includes accounts payable, accounts receivable, costs and budgets. Analysis of your data can reveal trends in your spending, helping you better understand how your profit is calculated and where to reduce costs. You can also receive financial forecasts with data analysis, allowing you to increase profit in the future.

Get our ERP Requirements Template

Do Your Research

Long before you reach the ERP implementation stage, you need to research what components and features are available in an ERP system. Although you may need other ERP components, at the minimum, your system should have these six. And just as importantly, make sure that the components they offer have all of the features your business needs. Without doing the proper research, you’ll end up searching for a new ERP much sooner than you’d like.

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