First, let's go through the ERP basics. An Enterprise Resource Planning system is a software bundle that is used to carry out business processes. It can be altered as per the needs of the business and can take up even more minor and major functions. There are many approaches that businesses adopt while implementing ERP. Small businesses usually use the Big Bang approach. In this approach, the ERP software is installed in more than one plant. The advantage of this approach is that the implementation cost is less and it consumes less time. But the disadvantage is that it has a risk of failure. The second approach is known as the Rollout approach. In this approach, all the modules of the ERP software are implemented in just one plant. The ERP modules list is a big one. There are financial modules of ERP, manufacturing module of ERP, supply chain modules, human resources module, production management modules, sales and distribution modules, quality management modules, customer relationship management modules, purchasing modules, materials management modules, etc.Let's study them one by one.
This module is generally considered to be the most important out of all the ERP business modules. It's because keeping accounts, monitoring transactions, and control costs are basic functions that need to be carried out by both — small and large firms. Also, different countries follow diverse accounting principles. A multinational company that has offices in multiple countries needs to adhere to the laws of the country that it's operating in. The financial accounting module keeps a tab on the business framework set up by the government of the respective country. It carries out functions — such as accounts receivables, accounts payables, general ledger, tax, etc. This module of ERP consists of the following sub-modules.
This sub-module allows for systematic management of liquidity, portfolio, and risk. It generates reports and analysis paths that help control costs in both — short and long run. It also has a treasury component that manages cash and funds and also analyzes market risk.
This sub-module assists through all the stages in the investment process — from planning to settlement. It takes care of investments happening across all projects and orders. It also distributes budgets that are used during the capital spending process and monitor it to avoid budget overruns.
This sub-module consists of systems — such as business planning and budgeting, executive information system, and profit accounting. It helps meet pre-decided objectives for growth and investment and increases shareholder value.
ERP software manages sales and distribution (S&D) effectively. It does this by increasing customer response time, improving service level, reducing lead time, decreasing shipping cost, and by developing good vendor and distributor relationships. A good S&D strategy ensures that your business remains competitive and profitable. You can configure the ERP system and allocate how many functions will be automated and how many of them will be done manually. As far as delivery and billing are concerned, the S&D module interacts with other modules — such as warehouse management, billing, sales, master data management, pricing, order management, foreign trade, shipment, vendor management, etc. — simultaneously.
Production activities vary from industry to industry. It entails varying production methods, different types of raw materials, distinct quality-checking methods, and diverse packaging styles. For example, if you look at chemical industries, you will find that it involves the mixing of chemicals, heating and cooling of solutions, use of reagents to speed up the process, and preservatives to slow down the decay. If you look at the manufacturing industry, then it involves the use of machines for performing functions—such as rolling, welding, pressing, forging, extrusion, casting, etc. Similarly, the oil industry comprises of processes such as the extraction and refining of crude oil, etc. The production management module of the enterprise resource planning software takes care of all these activities and manages them conveniently. It adopts either of the three production styles — continuous, job, or batch basis. It assigns jobs to machines, schedules their turn, prioritizes customer order, and performs division of labor. The ERP system contains various sub-modules for the production package including shop floor control, engineering data management, lot control, capacity management, tooling, configuration management, Just In Time (JIT), cost management, engineering change control, etc.
Human resources are the pillars of any organization. They are the ones who execute tasks, build plans, brainstorm future strategies, and develop business processes. Without them, an organization cannot even think of functioning, lest reaching its optimum potential. ERP system contains a Human Resource Management module that takes care of the following operations: Tracking employee records, updating employee information, conducting performance reviews, tracking time & attendance, creating job descriptions, calculating reimbursements and travel expenses, etc. The two most important tasks carried out by the HRM module is managing employee salaries and generating payment reports. The HRM module can be easily adapted according to your business requirements that include parameters like currency, language, legal requirements, and accounting systems that differ from one country to another.
The quality management system of an ERP enables the quality team to frame rules and specifications of the manufacturing process. It also ensures that the finished products adhere to the set standards. If they don't, it automatically rejects such products and stops them from passing to the next stage. Since the QMS monitors the functioning of every process — such as procuring raw materials from the vendor, assessing the quality of materials in the inventory and storage, recalibration and tool setting, an inspection of finished products, etc. — it needs to be seamlessly integrated with the ERP system. This allows employees working in different departments to share and assess important documents. The QMS helps the quality inspector to take corrective actions by providing reliable graphs and charts — including p chart, np chart, and X bar chart. Some other features of QMS module are as follows: a. Review of each control unit b. Designation of attribute values for each review plan c. Suggestion of change in raw materials based on quality clearance feedback d. Determination of standard operating procedures e. Can override the status of sample results f. Conformance of certificates g. Generation of audit trails h. Monitoring business activities i. Ensuring user security j. Corrective action requests (CARs) that help meet customer requirements k. Facilitates continuous improvement in quality based on collected data.
This module deals with the maintenance of the plant and other allied functions — such as preventive maintenance and breakdown maintenance. Apart from playing a vital role in managing issues related to production and cost control, it also reduces the setup time. The following are the features of the plant maintenance management sub-module: a. Equipment tracking: Every equipment in the production process is defined by a different serial number and model. Since it's imperative to store such information, it's stored in datasheets that churn useful data for transportation control and maintenance. b. Preventive maintenance: This feature helps program, strategize, and handle equipment and control facilities. It keeps the maintenance cost to a bare minimum. This sub-module also takes care of component replacement, uptime, downtime, equipment lubrication, and machine breakage. c. Component tracking: Many components that are used in machines are too sensitive. They require regular maintenance because if they fail, it's expensive to replace them. So it's imperative to monitor and protect them safely. This includes tracking the component service life and component exchange history.
The supply chain module of the ERP system handles the incoming of raw materials from the vendor and the outgoing of finished products through the distributor. If due to any reason there is a break in the supply chain and it's cut off, your company will suffer heavy losses. Also, your customers will be unable to find your products in departmental stores which will allow your competitors to leap forward. The SCM module connects all the stakeholders — customers, suppliers, business partners, manufacturers, and retailers — together to manage the supply chain effectively. It creates smart contracts for both the supply side and supplier side and checks whether they are being complied with. It collects and analyzes customer data and forecasts what kind of customer campaigns would create the strongest impact. It constantly updates the stocks available in your warehouse and automatically makes an order to your vendor if it falls below the set threshold. MRP (Master Production Schedule) and MPS (Material Requirements Planning) are two of the most important bundles of SCM that help an ERP system to meet increased demands. The basic difference between the two is that MPS deals with the production of items that have independent demand whereas MRP deals with the production of items that have dependent demand. For example, a pen is an MPS item because it has market demand. But items such as the barrel, spring, cap, and refill that are required to produce a pen do not have any individual market demand. So, these four items are MRP items. The following are the functions carried out by MRP and MPS:
It decreases inventory carrying costs and monitors the production process by analyzing when to buy, what to buy, and how much to buy. It determines the quantity and cost of inventory required for manufacturing purposes by examining data. It monitors whether the production schedule is going as intended. Whenever there is a shortage of supply, it automatically places orders. It identifies bottlenecks and revamps the production line accordingly.
It determines the expected yield and estimates the time taken to produce products. It enables managers to gauge the labor time and cost associated with it, and products manufactured per hour. It also sends automatic alerts to the manager about the unavailability of important equipment or material.
An ERP system coupled with MRP/MPS can gather, store, interpret, and present a huge amount of data. It does this by converting inventory data into comprehensible invoices and receipts.
The manufacturing modules in an ERP system play an important role in a business. First, it makes the business processes cost-effective by ensuring quality management and reducing the number of discarded products. Second, it makes use of the most in-demand skills such as analytics, machine learning, and artificial intelligence to gain real-time business visibility and provide timely insights. Third, it streamlines the manufacturing processes and allows employees working in different departments to gain a 360-degree view of the entire process. Also, the manufacturing module makes operations completely transparent. It allows for tracking the entire inventory in real-time and enables shop floor supervisors to check the quantity of each product. Moreover, this ERP module can be tweaked to provide access to information to all the stakeholders — customers, employees, vendors, suppliers, and distributors. It makes the system more agile by generating market performance reports and customer purchase trends.
Owing to the growing influence of customers in business affairs, the customer relationship module has become one of the most important ERP modules. Although a stand-alone CRM system has more functions, the ERP software provides basic functionalities. It gathers useful customer information — such as name, email id, past purchase behavior, previous buying history, wishlists, gender, income, age, religious beliefs, demographic, and geographic details — and analyzes them to make custom reports. These reports throw light on what people want and would spend their money on. Managers focus on such reports and plan strategies. These reports indicate what products/services have the highest selling potential. Furthermore, the CRM module also allows companies to collect customer feedback and send personalized messages to them. It also sends automated updates regarding new product launches and allows customers to get in touch with service agents instantly.