What are the main components of an ERP system?

Let’s start with the basics: what is ERP?

Enterprise resource planning systems are applications designed to automate and streamline core business processes while also providing insights, internal controls, and workflow assistance. Effectively, your ERP is a large, central database and the tools that allow you to view and perform operations with the data stores.

The logic of an ERP system is quite simple - your organization’s work and administration will usually require input from multiple people and stakeholders with varying functional roles, responsibilities, and expertise. Doing this becomes tedious at best and counterproductive at worst when your organization’s key data is spread across multiple different systems and locked away in dozens of different Excel spreadsheets. ERP’s job is to eliminate the redundancies inherent in your systems by centralizing data in a single repository (and hopefully eliminating reduplications and errors that might occur across different versions of the data stored on those systems in the process.)

It’s your ERP system’s job to stop your organization from being strangled by its own processes as it grows and evolves while helping you to see the full range of inputs, causes, and effects of various actions and processes on every part of your overall organization ecosystem. By compiling your information into a central database that acts as a single source of truth, your ERP system grants leaders, managers, and individual contributors visibility of all processes and workflows across departments and helps you to analyze scenarios, discover potential improvements, and create huge gains in both efficiency and productivity.

All this said, ERP can be a confusing concept because it doesn’t describe a standalone software tool or application. An ERP platform usually comprises a number of different models, which each perform a specific set of functions. Each of these modules accesses the central database to find, add, change, or delete information as needed.

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How do ERP systems work?

ERP systems, as the name suggests, are designed to help organizations manage and plan their resource allocation by automating and streamlining routine back-office workflows.

An ERP configured to the needs of a service-focused organization must, at the very least, incorporate the following ERP system components:

• A financial planning and accounting module for administering organizational finances across the other vital components of the system. In an ideal world, this forms the hub for all financial data and decision-making (although in many organizations, outdated legacy systems lack the necessary integration to do this.)

The financial module is generally considered the most important module because it provides the basis for the entire organization’s financial control - helping understand their current financial situation and their outlook. Key features of this module include accounts payable and receivable functions, general ledger management, and stores for crucial documents like balance sheets, receipts, and tax statements. It also forms the store for data related to financial planning and analysis (FP&A) functions and is thus vital to profit and loss reporting, overall financial reporting, and scenario planning.

This module can also be used to automate tasks related to all aspects of your business’s financial cycle, including billing, payments to vendors and suppliers, cash management, and account reconciliation.

• A human resources module for tracking the onboarding, offboarding, performance, and pay and benefits allocation. Most solutions now include modules to perform routine HR tasks like payroll administration.

Since this module forms the central repository for information on your people - and can even track hours worked - it can form a vital resource in managing the utilization and allocation of billable time in service based organizations. With the right tools and capabilities for tracking your people’s skills, career aspirations, and engagement, it can also become one of your most valuable assets in terms of assigning the right people to the right projects, ensuring they feel rewarded for the work they do and that your projects remain profitable and correctly staffed.

• A supply chain management module used to monitor all inputs into an organization’s production process to ensure maximum profitability and efficiency.

Your supply chain management solution tracks each stage in the movement of supplies and goods through the supply chain, including sub-suppliers. It can include a wide range of capabilities from procurement to order management, contract management, or even the whole source-to-contract (S2C) lifecycle. Although it can also be a separate module, your supply chain management module might also have inventory management capabilities, used in conjunction with supply chain management to manage inventory but also to assess the performance and profitability of manufacturing processes and distribution centers.

Beyond these main components of an ERP system, you might expect to see marketing automation, ecommerce, workforce management, project management, and other modules added depending on a business’s product offering.

In a people-centric organization, these essential components will still be necessary. But the way they perform will be significantly different from their functions in a production/manufacturing focused environment. Moreover, different specialist modules or integrations will become necessary - including professional services automation (PSA) tools. 

The function of ERP in a service-based business

ERP modules and functions are brought to bear in different ways for service-based and people-centric organizations. Although the uses of ERP in these organizations will be broadly analogous to those in more traditional manufacturing concerns, your needs and requirements will be different. Specifically, you’ll require:

• A greater degree of flexibility when it comes to how your organization and its people use and interact with each module of the system. People-centric organizations have significantly more fluid processes, and especially in the age of hybrid working your people will need to connect to and interact with your ERP system from a variety of different apps and devices.
• Specialized functional modules or extensions may be necessary to complement your system’s basic capabilities. For professional services organizations, professional service automation (PSA) tools are a good example. These solutions create a unified platform for collaboration across an organization, automating many functions and providing a greater level of insight into the status of projects, people, and capital resources.

How can Unit4 help you?

Unit4 has over 40 years' experience designing ERP software for service and people-centric organizations. As such, our solutions are tailored to your specific needs, and integrate with our FP&A, HCM, and PSA solutions to create an end-to-end system for managing your back office in a way that reduces the burden of administration on your teams and allows them to invest more time in processes and activities that add value for you and your customers. To learn more about what our solutions can provide for you and your people, check out our dedicated product pages here or click here to book a demo.