Author name: Shrestha Dash

ERP contracts are not as straightforward. Depending upon the engagement structure (and different parties involved), the arrangements could vary, with serious implications on the outcome. These agreements include various elements, such as relationships and obligations of different parties involved, including licensing, pricing, implementation, support, and maintenance. They set the tone for your ERP initiatives.

Misunderstandings start with the misalignment in expectations. Even if different parties claim to be aligned, they might still arise because of the language used. The same keyword could mean different things in different contexts. For example, customers might expect ERP vendors to do the heavy lifting. However, vendors might expect their role to be just advisory due to the limited budget. Even if contracts might include detailed RACI charts, there might still be layers that might cause confusion and disagreements.

Moreover, customers struggle with ERP contracts due to their myopic focus on hourly rates, pricing, and discounts, and because of this, they lose sight of details. The problems with contracts are very similar to any complex project, especially with scheduling. Because customers underestimate the complexity and expertise required to read between the lines. This article will explore the top five types of ERP contracts, discussing their nuances, benefits, and potential drawbacks.

1. Software License, Implementation,  and Support on OEM Papers

In this ERP contract arrangement, you enter into multiple contracts directly with the software OEMs. In the ERP industry, the OEM would be software publishers such as SAP, Oracle, or Microsoft. The software OEMs would not only provide the software and product support, but they would also use their professional services to help with implementation. These contracts are usually segregated into software, service, and support agreements, each serving a distinct purpose and carrying different legal obligations.

The software agreement encompasses an End User Licensing Agreement (EULA), which defines the terms and conditions for utilizing the ERP software and the accompanying IP rights. On the other hand, the services agreement focuses on the services related to implementing the ERP software. This typically includes information about the skills required, the methodology for implementing the software, project timelines, and the roles and responsibilities of both parties involved.

The support agreement specifies the support services provided for the ERP system. It often categorizes support into different tiers based on the severity of issues, sets timelines for issue resolution, and may define billing rates for additional services not covered by the initial support agreement. This agreement may also contain provisions related to warranties.

Key points to remember: OEMs are generally cautious in their consulting and support recommendations. The caution arises because any help or recommendations they provide in areas not explicitly defined in the contract may affect their obligations under the software agreement. By assuming too much risk in these areas, the software company may potentially jeopardize its software contract so they may be conservative in their approach.

2. Software Licenses on OEM Papers; Engagement with a Reseller

In this arrangement, the software contract is still with an OEM, but your primary engagement will likely be with a reseller. These resellers typically have access to the OEM’s quoting software and can provide a quote on official OEM documents.

In this arrangement, the OEM works in the background. They may not actively engage with the customer unless specific issues arise that may require their involvement, particularly if the customer’s relationship with the reseller becomes problematic. In such cases, the OEMs generally take over the reseller and might suggest switching to another reseller. In this arrangement, there are potential issues to consider:

• Discounts and Costs: The discounts and costs associated with the ERP software may change based on new resellers’ tier status. 
• Reseller Commissions: Switching to a different reseller might affect the commission structure, potentially leading to a loss of existing discounts or benefits.
• Support Costs: If the company decides to switch back to the OEM for support, this may be more expensive than receiving support from the reseller.

Key points to remember: The support for the ERP software in this arrangement can vary. Sometimes, the software OEM may still provide support directly, or the reseller might handle the first level of support. The reseller will collaborate with the OEM if more advanced support is required. Implementation contracts with resellers are usually easier to switch unless the reseller has used proprietary intellectual property (IP) in the implementation. In such cases, changing resellers can be more challenging, as the new reseller or the OEM may not possess the specific industry-specific IP needed for the system to be useful for the customer.

3. Software Licenses on Reseller’s Papers 

In this arrangement, the software vendor (OEM) transfers the legal responsibility for the software to the reseller. This means that the reseller becomes primarily accountable for the software sales, support, and any legal issues that may arise. The relationship between the OEM and the reseller remains transactional, meaning the OEM would still transact with the reseller for each transaction rather than buying in bulk. The reseller earns a commission for each sale it makes. 

However, the OEM does not control (at least not directly) the final selling price the reseller offers to customers. The OEM provides the software to resellers at a wholesale price. This wholesale price is typically lower than what end customers pay. In this arrangement, the reseller can determine the final selling price to customers. 

Key points to remember: The legal responsibility for the software product is entirely shifted to the reseller. In other words, if any legal issues or disputes arise related to the software, the reseller is held accountable. The reseller is also responsible for providing customer support for the software. Customers may contact the reseller for assistance, and the reseller is expected to resolve any issues. Additionally, the reseller may be able to customize the software to meet industry-specific needs.  It’s common for resellers in this arrangement, especially those dealing with horizontal software platforms such as SAP, Oracle, NetSuite, or Microsoft, to have their own Intellectual Property (IP) that enhances the core software. This IP may provide industry-specific functionalities that cater to the unique needs of specific business sectors or verticals.

4. Software Licenses Sold in an OEM Relationship by Software OEMs

This is a special arrangement with resellers and might be reserved only for certain territories/geographies or for very large resellers. In this arrangement, the resellers acquire licenses from their software publishers (or software OEMs) in an OEM arrangement. This agreement might be based on a volume purchase, which means the reseller commits to buying a large number of software licenses. 

In this scenario, the reseller could substantially change the software’s code, including selling under a completely new brand in a white-label arrangement. This can include customizing the software to meet specific needs, adding new features, or altering the software’s appearance. 

Key points to remember: In this situation, the reseller OEM primarily acts as the software platform provider. They focus on creating and maintaining the core software product. You might have limited or no direct interaction with the software OEM as a customer. Instead, your dealings would be mainly with the reseller OEM. Since you’re primarily dealing with the reseller OEM, you may not have access to the software OEM’s support and resources. If you encounter issues or need assistance, you typically contact the reseller OEM. If the reseller chooses to white-label the software, they may establish support and implementation services. This means they’ll provide customer support and help with the software’s deployment independently of the software OEM. They might have their dedicated support team and resources to assist you.

5. Software Licenses Sold in a Master Distributor Relationship

In this arrangement, the software OEMs may have several layers of master distributors with their respective channels to distribute the licenses. This arrangement is similar to the reseller OEM relationship in #4, where the software OEM will likely be least involved with the licensing and support. And for the most part, you are likely to deal with a master distributor. 

Key points to remember: This arrangement is especially common with companies selling hardware, but software vendors like Microsoft will likely have similar relationships even for their ERP channel. Due to the nesting of relationships and contractual dependencies, this is perhaps the most convoluted arrangement where understanding the roles and responsibilities of each party might be harder, even for ERP experts.

Conclusion

Understanding the legal obligations of each party involved is essential for the project’s success. Otherwise, get ready to face the financial and legal surprises. These relationships and arrangements can challenge even the professionals tracking the space daily. So, don’t underestimate the expertise required to understand these contracts. Hire the advisors at least for negotiation before creating a million-dollar disaster by not fully understanding what you are signing up for.

FAQs

The list of ERP business processes is endless and can seem overwhelming. However, not all these processes hold equal importance and can vary significantly depending on their interaction with the ERP system. While core processes tend to be consistent across most solutions, non-core ERP business processes vary considerably.

Various factors influence whether a business process qualifies as core or non-core. Typically, core processes are hosted within the ERP system, while non-core ERP business processes may often reside in external systems. For instance, the order-to-cash process is a classic example of a core ERP cross-function business process commonly integrated into the ERP system. Other processes like Dispatch-to-deliver and Issue-to-resolution demonstrate high levels of integration with ERP systems but may vary based on business models.

Cross-functional business processes can also undergo significant transformations depending on the industry they serve. For instance, the order-to-cash process for a manufacturing company can differ substantially from that of a transportation company, with the latter possibly residing in a Transportation Management System (TMS) rather than the ERP. Understanding these non-core ERP business processes is essential for making informed decisions about system selection and architecture, as the line between integrating them into the ERP or opting for a best-of-breed solution can be quite thin.

1. Dispatch-to-deliver

The dispatch-to-deliver business process initiates when a shipment is ready to dispatch from the facility. It involves several steps, like planning and coordinating various stages in the supply chain. It is to ultimately deliver goods to the customer and obtain their signature as proof of receipt. This business process primarily falls under the responsibility of the supply chain execution function. 

Typically, ERP systems do not include the dispatch-to-deliver process as an integral part of their functionalities. Instead, specialized systems like WMS(Warehouse Management System) or TMS(Transportation Management System) generally facilitate this process.

However, some systems available in the market offer an embedded experience for the entire dispatch-to-deliver process. Therefore, when deciding how to manage the dispatch-to-deliver process within your organization, you should consider transaction volume and architectural requirements. Depending on your specific needs, you can incorporate this process within your ERP system or introduce a dedicated WMS or TMS system into your architecture.

2. Hire-to-retire

The HR department primarily manages the hire-to-retire process. It begins with the recruitment of candidates, their onboarding, training, and monitoring of their job performance, and concludes with the necessary procedures when the company either terminates them or they leave voluntarily. 

In most cases, an HCM system facilitates this process. Generally, ERP systems do not have the functionality to host this process. However, there are instances when the hire-to-retire process interacts with ERP systems in industries where specific skills and certifications are integral to the operational processes. 

In such cases, ERP systems tailored for these industries may incorporate certain elements of the hire-to-retire process. This integration ensures that HR-related data, like employee skills and certifications, is seamlessly integrated into the broader ERP system, enabling better workforce management within the company’s overall operations.

3. Issue-to-resolution

The issue-to-resolution process is a fundamental customer service procedure that companies follow to address customer concerns and ensure the smooth functioning of their products or services. It typically commences when customers reach out with specific issues related to their equipment or services. Upon receiving the customer’s call or inquiry, service teams assess whether the equipment or service is still under warranty coverage as the first step. This can significantly impact the resolution process.

If the warranty covers the equipment or service, the service team provides the necessary services to rectify the issue. In cases where the warranty has expired or does not apply, the service team may initiate the process of issuing a purchase order for any required replacement parts or services. This process may sometimes involve physical visits to the customer’s location, especially if there is a need for on-site repairs or inspections.

Managing this process is essential for customer satisfaction and operational effectiveness for companies. They often host this process inside CRM or a best-of-breed field service system. Depending on their specific needs and preferences, some companies integrate this process with their ERP systems, initiating the flow with a service order or a GL entry. 

4. Lead-to-quote

The lead-to-quote process is integral to pre-sales and marketing automation workflows, primarily hosted within CRM systems. It commences by creating leads, which are potential customers, through various channels such as physical marketing campaigns or digital initiatives. 

These leads then move through the funnel using a series of interactions, which involves estimating the required services, if necessary, engaging in engineering activities to tailor offerings to the customer’s needs, and, finally, releasing the quote. 

It’s important to note that in most cases, this process remains within the confines of the CRM system and does not typically involve an ERP system. However, exceptions exist, particularly when engineering processes require access to product data or when configuring complex product quotations (CPQ), necessitating a connection to the ERP system.

5. Campaign-to-lead

The campaign-to-lead process is a fundamental aspect of marketing and sales operations within a business. It is a crucial precursor to the lead-to-quote process or can function as a subset. 

This process begins with the initial design of marketing campaigns, which can be either physical, such as print advertisements or billboards, or digital, including online ads and social media promotions. After campaign planning, the next step involves executing these marketing initiatives. Subsequently, it necessitates the measurement of campaign results to gauge their effectiveness.

A key component of the campaign-to-lead process is capturing potential customers’ interest and guiding them through the sales funnel until they convert into leads. It’s important to note that, in most cases, this process operates independently of the company’s ERP system. ERP systems typically come into play much later in the customer journey, mainly when leads are qualified and have the potential to translate into financial opportunities for the company.

6. Contract-to-enroll

Companies involved in multiple enrollment campaigns commonly use the contact-to-enroll business process, particularly for subscription-based services like educational courses or paid events. This process guides potential participants from initial contact to successful enrollment.

It begins with identifying specific programs or offerings the organization wants to promote. Once they identify the programs, the next step involves crafting targeted marketing campaigns to generate interest among potential participants. The process also involves nurturing these prospects through a sales or enrollment funnel. This may include various stages, such as providing information, addressing queries, and guiding them to the enrollment step. 

These programs may be paid or unpaid depending on the organization’s objectives. It’s important to note that unless there is a specific requirement for integrating financial aspects into the organization’s ERP system, this contact-to-enroll process typically operates independently from the ERP, focusing solely on the enrollment journey of potential participants.

7. Expense-to-pay

Expense-to-pay is a crucial component within an organization’s time and expense workflow. In this process, an employee initiates the workflow by reporting expenses incurred during client visits, projects, or events. These expenses may include a wide range of items, such as travel costs, accommodation, meals, and other related expenditures. 

The primary goal is to accurately document, validate, and eventually pay or bill these expenses, depending on the specific circumstances. Depending on company policies, some expenses may need to be billed to clients for reimbursement, while others may be eligible for direct reimbursement to the employee. Additionally, organizations often need to oversee and control budgets associated with employee expenses, ensuring that expenditures remain within predefined limits. 

Employees who have received company credit cards to facilitate expense transactions manage these cards, including monitoring transactions and ensuring timely payments. Companies may host this complex process within a specialized T&E software or utilize the T&E module within their ERP system.

8. Recruit-to-hire

Recruit-to-hire is a fundamental process that lays the foundation for an organization’s workforce. It is a precursor to the hire-to-retire process. First, it all starts with creating job descriptions that outline the roles and responsibilities expected from potential candidates. Once these descriptions are in place, the process shifts towards identifying the most suitable channels for sourcing potential candidates. This could involve posting job listings on websites, utilizing recruitment agencies, or leveraging social networks.

Following candidate sourcing, a critical aspect of recruit-to-hire is conducting evaluations and interviews. This entails assessing candidates’ qualifications, skills, and cultural fit within the organization. Organizations often perform background checks to ensure the correctness of a candidate’s claims and protect the company’s interests.

Finally, once a candidate is selected, the recruit-to-hire process culminates with signing offer letters, solidifying the employment agreement. While it rarely touches ERP, companies often use various systems like Applicant Tracking Systems (ATS) or Human Capital Management (HCM) software to streamline and manage these tasks efficiently.

9. Return-to-refund

The return-to-refund process is an integral component of the overall return procedure within a company. This process typically begins with the initiation of a return request by the customer. Once initiated, the company handles various steps, including processing the return, providing appropriate packaging and labels, and receiving the returned inventory. 

They perform a crucial quality check at this stage to ensure the returned items meet the necessary standards. Subsequently, the respective vendors might receive the inventory back, and they may manage the warranty process if applicable. Finally, the company issues the refund to the customer, thus concluding the transaction. 

To host the return-to-refund process, companies commonly integrate software systems, such as eCommerce platforms, POS systems, or ERP software. Moreover, the return process frequently interfaces with other essential systems, including WMS, OMS, and CRM tools. Within an ERP workflow, the process can start by directly capturing the return request within the ERP system or by interacting with it to process the necessary General Ledger (GL) entries.

10. Market-to-order

Market-to-order is a comprehensive business process that serves as a superset of lead-to-quote and the precursor of order-to-cash. The process begins with formulating and maintaining a well-thought-out marketing plan, which includes strategies and tactics to reach the target audience effectively. Once the plan is in place, the next step is the design and execution of marketing campaigns, aligning them with the established budget.

Throughout the marketing campaigns, monitoring their performance and effectiveness is crucial, ensuring that they yield the desired results. As part of this process, leads are generated and captured. Managing these leads involves guiding them through the sales funnel, where they are nurtured and engaged until they reach the point of conversion into actual orders. This conversion marks a critical transition from marketing to the subsequent stages of the business cycle.

In most cases, Market-to-order operates independently of an ERP system. However, in some situations where quoting, estimation, and engineering processes are tightly integrated into the company’s operations, they might be hosted within the ERP system. Alternatively, if the quoting and estimation functions are part of the ERP, the integration may occur even earlier in the business cycle.

Conclusion

In conclusion, distinguishing between the core and non-core ERP business processes is necessary to navigate different business processes smoothly. The nuances of ERP systems and diverse industry requirements often complicate this task. While core processes are consistent and typically integrated within the ERP, non-core processes can exhibit a broader spectrum of possibilities, including integration with best-of-breed solutions or residing in external systems. Recognizing the distinctions and dependencies among these non-core processes is crucial for making informed decisions about system selection and architecture.

FAQs

ERP systems play an important role in streamlining the operations of a business. At the heart of these systems lie the core cross-functional business processes. Also, catering to the needs of different departments, these business processes are like building blocks for the organization to work smoothly. They include sequential activities across different departments to complete a financial or operational workflow. However, unlike ERP modules that you can choose individually, these core tightly integrated business processes rely on each other. In other words, implementing one process also entails addressing its underlying dependencies on other ERP business processes and modules.

Yet, the challenge many businesses face is understanding the significance of these core ERP processes. Without this essential knowledge, companies often encounter operational roadblocks and inefficiencies. Departments might function in isolation, lacking the interconnectedness needed for streamlined operations. This is why understanding these core cross-functional business processes is very important.

In this blog, we will talk about the top 10 core cross-functional business processes that bind different departments together.

1. Order-to-cash

The order-to-cash process is a complex business operation that includes various departments within an organization, such as sales, operations, and finance. From its initiation to the collection of payment, this process involves the entire lifecycle of a customer order. When a customer places an order, the process begins. Sales teams are responsible for capturing the order details, including product or service specifications, quantity, pricing, and customer information. 

Upon capturing an order and validating it, it moves to the operations department for processing. Operations personnel check inventory levels, product availability, and service delivery schedules if applicable. To fulfill the customer’s requirements, they also create picking lists, work orders, or service orders. This step in some industries, such as manufacturing or service-based businesses, ensures that the products or services meet the order specifications. After order fulfillment, the finance department generates an invoice based on the order details. Upon issuing the invoice, the finance team tracks and manages payments from the customer. 

Depending on the organization’s architectural boundaries, some companies host this process on one or multiple. Sometimes, the boundary of an ERP system may start from an invoice or GL. In other cases, the whole process happens within the ERP system. Therefore, when you choose an ERP system, define how much order-to-cash you would host inside the ERP. This will also help you find the right ERP system aligned with your business needs. 

2. Procure-to-pay

Managed within an ERP system, the procure-to-pay process is among significant cross-functional ERP business processes. Generally, this process encompasses several stages and involves different departments within an organization, including procurement, warehouse management, finance, and accounting. The process begins with the procurement department capturing a purchase order. 

Upon capturing the purchase order, the warehouse receives the inventory. After this, the finance department receives the vendor’s invoice, which includes the billing details for the delivered goods or services. Then, they would match an invoice against the corresponding purchase order and receipt information in the ERP system to ensure accuracy. The finance department initiates the payment process after the invoice is verified and approved. 

The degree of integration with the P2P process into a single ERP system can vary among organizations. Some may handle the entire process within the ERP, starting from the purchase order, while others might use additional specialized systems for certain steps, like procurement software for purchase order management.

3. Plan-to-produce/Plan-to-inventory

The plan-to-produce/plan-to-inventory business process is particularly relevant for industries that require accurate forecasting and planning of inventory before production. Commonly seen in consumer-centric and commoditized industries, the process begins with S&OP analyzing historical sales data, market trends, customer demand, and other relevant factors to forecast the demand for their products. 

After forecasting demand, the next step is supply planning. In this phase, companies determine how they will meet the anticipated demand. It involves assessing the available resources, production capacity, and procurement capabilities. Once the supply plan is in place, the procurement department comes into play. Their role is to source the necessary materials, components, and resources required for production. This might involve negotiating with suppliers, placing orders, and managing the procurement process efficiently to ensure that materials are available when needed for production. With the materials procured and the supply plan in hand, the production and manufacturing teams swing into action. To produce the goods in line with the forecasted demand, they use the production schedule generated during supply planning. 

Some companies might host the entire P2P process within their ERP system. In such cases, the ERP system handles everything from forecasting and planning to procurement and inventory management. However, others may use a separate S&OP system for initial demand forecasting and supply planning. In the latter case, the S&OP system feeds planned forecasts and supply plans into the ERP system to execute the production and inventory management processes.

4. Record-to-report

Primarily managed by the finance department within an organization, the record-to-report process is a critical business process. Its main purpose is to handle non-operational transactions accurately. In many organizations, ERP systems play a central role in managing financial data. However, ERPs may not offer automated recording of all financial transactions as some are non-operational and might require manual recording. The process begins with the finance department recording financial transactions. 

After recording transactions, finance professionals reconcile accounts. This step is crucial for ensuring that the recorded data is accurate and that there are no discrepancies or errors. Reconciliation involves comparing various financial records and ensuring they match. While the core of the record-to-report process resides within the finance department, it might require multiple systems to manage it. For example, they might use the ERP system to capture and initial transaction reconciliation. Still, they may transfer GL data to a separate FP&A software system. Before generating final financial reports, finance teams might sometimes consolidate data in the FP&A software. This step is essential for producing accurate reports, especially for larger organizations with multiple subsidiaries or divisions. 

The ultimate goal of the record-to-report process is to create financial reports. These reports provide a snapshot of an organization’s financial health and performance over a specific period, such as a month, quarter, or year. Before finalizing and distributing financial reports, finance professionals often analyze the data to identify trends, anomalies, and insights. The record-to-report process also plays a significant role in ensuring compliance with financial regulations and standards. Organizations may be subject to internal and external audits to verify the accuracy and legality of their financial statements.

5. Source-to-pay

The source-to-pay business process is one of the workflows within an ERP system that encompasses activities related to sourcing and procurement. Organizations follow a series of steps to effectively manage their procurement cycle, from identifying and building consensus on the need to identifying qualified vendors and finalizing payments. The process usually starts with identifying the organization’s need for certain goods or services.  

Post that, it often requires consensus-building within the organization among various stakeholders. This step ensures the procurement aligns with the organization’s goals and budgets. After obtaining internal consensus, the next step is to identify potential vendors or suppliers who can fulfill the requirements. Upon identifying potential vendors, the organization conducts a thorough vetting process to assess their capabilities, financial stability, and adherence to legal and ethical standards. This step helps in ensuring that selected vendors are trustworthy and capable. After vetting the vendors, the organization awards a contract to the selected vendor(s). This contract outlines the terms and conditions of the procurement, including pricing, delivery schedules, and quality standards. This step formalizes the relationship between the organization and the vendor. 

With the contract in place, the process proceeds with all the steps of the P2P process. Depending on the complexity of the sourcing phase, there might be several systems, and the ERP flow might start with a purchase order. The other companies might host RFQ comparisons, etc., inside the ERP.

6. Idea-to-Offering

The idea-to-offering business process is essential to new product development within a company. This process involves multiple stages and activities, from marketing to operations, figuring out go-to-market fit before a product is ready for production. The process starts with extensive market research and analysis to understand the potential demand for the product. This includes studying customer needs, preferences, and market trends to refine the concept and make it more customer-centric. 

After gaining insights from customer research, the company begins the engineering phase. This involves designing and developing prototypes or mock-ups of the product to test its feasibility and functionality. In parallel with engineering, the company starts the procurement process. This involves sourcing the necessary materials, components, and resources for the product. Procurement also includes negotiations with suppliers for pricing and terms. The company works closely with its suppliers and partners during the design and sampling phase to ensure efficient manufacturing of products and meet quality standards. Simultaneously, the operations team strategizes the go-to-market plan. This involves deciding on pricing, distribution channels, marketing campaigns, and other factors essential for successfully launching the product. 

At this point, some companies may host this process in different systems. For instance, They might use a PLM system for program and idea management, CAD/PDM tools for engineering, and P2P systems for vendor collaboration. When all preparations are in place, the ERP system takes over. With the product now in the ERP system, production can begin. Some companies may host the entire idea-to-offering process within their ERP system, consolidating all stages and data into a single integrated platform for more streamlined management and control. 

7. Count-to-reconcile

The count-to-reconcile among ERP business processes is an integral part of managing inventory within an ERP system if it is the main source of truth for inventory. It’s a systematic procedure that usually begins with the planning phase for inventory reconciliation. This involves deciding how often inventory counts will occur (e.g., daily, weekly, monthly) and which inventory items, warehouses, or locations will be included in the counting process. To prioritize inventory counting efforts, items are often categorized into different classes based on their value, criticality, or other relevant factors. The ABC classification system typically consists of: A-Class: High-value or critical items, B-Class: Moderately valuable items, and C-Class: Low-value or less critical items. 

Once the items are categorized, specific items, warehouses, or locations are identified for counting based on the inventory reconciliation plan. A pick list is generated to guide the counting process. Depending on the organization’s technology and preferences, the counting can be done using handheld devices. Discrepancies between the physical count and the ERP records are inevitable. If found, adjustments are made. Once all items have been counted, adjustments are posted. It reconciles any discrepancies identified during the counting process. 

Depending on the organization’s technology landscape, inventory and location information might be stored in various systems like WMS, eCommerce platforms, or OMS. In many cases, the ERP system is the central source of truth for inventory management. This means that all inventory-related information and adjustments are primarily handled within the ERP. Therefore, the Count-to-Reconcile process plays a critical role in maintaining the accuracy of inventory data within the ERP system.

8. Forecast-to-monitor

The forecast-to-monitor business process plays a significant role in the budgeting and financial management of an organization. It involves a series of steps designed to ensure that an organization effectively plans, tracks, and manages the budget of each account and department. The process begins with planning various financial scenarios. 

Once done, historical trends for each account are analyzed to create accurate budgets. This involves looking at past financial data, such as revenue growth, cost patterns, and other relevant financial metrics. The key aspect of this business process is collaboration. Teams from various departments within the organization need to work together to develop a comprehensive budget. Each department will have its budgetary requirements and contributions to the overall budget. Collaboration ensures that all stakeholders’ input is considered in the budgeting process. After considering different scenarios, analyzing historical trends, and collaborating with teams, the organization sets its budget for the upcoming year. Once the budget is set, it’s crucial to monitor and manage it throughout the year continuously. 

Depending on the complexity of the budgeting process and the data requirements, organizations may choose to manage this process within their FP&A department or directly inside their ERP system. If they opt to use the ERP, it typically involves entering budgeted numbers into the ERP system to track yearly performance.

9. Inspect-to-comply

The inspect-to-comply business process is part of the quality management process. The workflow usually begins with the creation of a detailed test plan. This plan outlines the specific quality criteria and standards that need to be met for the product or material being tested. It specifies what aspects will be inspected, which tests will be conducted, and the testing methods to be used. 

Once the plan is in place, the next step is to identify the test cases. Test cases are specific scenarios or conditions that are designed to evaluate the quality of the product or material. These test cases are based on the requirements outlined in the test plan. After identifying the test cases, the next step involves identifying and selecting inventory items that need to go through the quality inspection process. Once the inventory items are identified, the next step is to execute the test steps according to the predefined test cases. During the execution of test steps, all relevant data and test results are recorded and documented. In some cases, materials may not meet the quality standards initially. When this happens, a material review process is initiated. 

Finally, the process involves preparing all necessary documentation to ensure compliance with quality standards and regulations. This documentation may include test reports, certificates of compliance, and other records that demonstrate that the items have met the required quality criteria. Depending on the organization’s setup, the quality management processes can be integrated into their ERP system, typically in a dedicated quality module. Alternatively, some organizations may use external quality management software that works in conjunction with their ERP system to handle these ERP business processes efficiently.

10. Cradle-to-grave/Acquire-to-retire

The cradle-to-grave/acquire-to-retire process is a significant approach to managing an organization’s entire lifecycle of assets. This process includes several stages, from the initial acquisition of assets to their eventual retirement. It usually begins with the acquisition of new assets within an organization. During acquisition, the organization typically creates purchase orders, negotiates contracts, and records the financial transactions related to the asset procurement. 

After acquisition, the assets are integrated into the organization’s financial system, often within an ERP system. The financial process among ERP business processes includes recording the asset’s value, computing the depreciation lifecycle, and accounting for related expenses such as maintenance, insurance, or licensing fees. This often leads to the steps of generating reports and retirement of assets. Reporting is crucial to monitor asset performance, maintenance costs, and compliance with accounting standards. As assets reach the end of their useful life or become obsolete, they are retired from active use. 

Depending on the organization’s industry and the complexity of asset management, the entire process may be handled within a single ERP system. Alternatively, some companies may use a combination of systems, with the ERP managing financial aspects and Enterprise Asset Management (EAM) or Manufacturing Execution Systems (MES) handling maintenance and operational aspects.

Conclusion

To summarize, the top 10 core cross-functional ERP business processes are essential components that help organizations operate efficiently. These processes connect different departments of a company and are vital for various tasks, from managing customer orders to handling procurement, forecasting demand, maintaining financial records, sourcing, and developing new products.

Understanding and improving these ERP business processes is not optional; it’s perhaps the first step for organizational integration and finding synergies across departments. These processes align departments in how they will be processing transactions and what will be their roles and responsibilities in facilitating that. Whether fully integrated into ERP systems or supported by other software, these processes are fundamental to improving efficiency and effectiveness in diverse industries.

FAQs

One misunderstanding that is prevalent among business owners is a simplified view of business transformation: choose a technology and implement it. How hard could it be? Well, as long as you know which technology will produce tangible business results. Most importantly, how to get there. But let’s not get too far, as most companies struggle to agree on the definition of ERP. They might not appreciate the value of organizational readiness for ERP implementation.

Let’s look at it from another perspective. Most people talk about ERP implementation failure, but they rarely have a good handle on the root cause. It’s most certainly not what they think it is, as projects fail before they even start. They fail because of the misalignment in the expectations. The misalignment could stem right inside executives’ heads. They might have different expectations from the system, completely off from the ground reality. They might struggle to articulate their thoughts to the extent that they might feel overwhelmed and confused. This is where a well-defined roadmap and blueprint could streamline the thought process and build consensus among teams.

Yet another perspective is related to everyone’s estimation of their own capabilities. Let’s face it. Most of us like to overclaim our capabilities because we have a tendency to figure things out given enough time. Unfortunately, this tendency leads to a snowball effect with the consequences as severe as the ERP project not even being recoverable. Going through the formal processes aligns expectations and removes these barriers, helping them understand why they need to think through their decisions. Organizational readiness is very similar to therapy sessions for the entire team and comprises the following six fundamental components:

1. Strategic and Executive Alignment

The problem starts at the top. Most business transformation initiatives, such as ERP implementation, require business model changes. Unfortunately, these business model changes are not as simple as moving a warehouse from one location to another. Instead, they are like performing heart surgery for the business. The issues are especially challenging as the business model changes would be nearly impossible with the amount of disruption they may cause. For this reason, most executives end up choosing the path of solving them technically just because they can’t visualize the technical implications as well as they do the consequences with physical processes.

Getting everyone on the same page about how the transformation initiative will change the business is significant. It should start with your leadership crafting a goal statement that may include the business value of the transformation initiative and forecasting potential changes required to make the initiative successful. You might want to ask questions such as:

• Does your organization have clear expectations on the outcome of business transformation?
• What objections are you likely to get in making business process and model changes?
• Does the executive team have the necessary skills and experience to be able to foresee financial and technical risks because of these initiatives?
• How is your current compensation structure, and how might that influence political forces among different functions and business units?

Communicating these strategies is a big part of aligning with the organization’s business model. Just like therapy, you need to have different strategies depending upon the needs of each stakeholder, with several tools and workshops tailored to their needs until they internalize the process and feel mentally conditioned to go through such a rigorous routine.

2. Operational Readiness

Mental conditioning is just the start. Operational readiness is like a physical sketch of your entire journey, where you are today and where you are headed. The process starts with getting the mental models on a piece of paper. So they can see where everyone’s heads are. It also requires developing a common language for every term that is likely to throw off the model. It’s almost like developing a language, or their mental state is likely to be far off from the ground reality. 

Once you have the common language built, it’s much easier for everyone to visualize the to-be state and why the changes requested are pivotal for the success of the program. The concept of operational readiness revolves around preparing specific functions and business processes for the change. It aims to answer questions that pinpoint the practical aspects of readiness. You might ask questions such as:

• Does your team understand the current processes? Do they understand it well enough to draw them on a piece of paper?
• Do your stakeholders have different versions of the same process in their heads?
• Which business processes would require re-engineering that would streamline the technical implementation? 
• Can business processes be re-engineered without causing major disruptions to the core operations? 
• How would the changed business processes be rolled out? 

The physical sketches substantiate the mental models and help build consensus on the operational state both today as well as in the future. Bringing technology earlier in the conversations generally leads to biased conversations about technology and stakeholders jumping to conclusions without fully understanding the consequences.

3. Data Readiness

One factor among organizational readiness components often overlooked is data readiness. In general, the role of data in the context of systems is to take a piece of connected information from one step to the next. However, not many people realize how data and ERP work together. The absence of data readiness can drive process over-engineering and, in turn, can lead to system bloatedness. 

There are several reasons why companies delay this step to the point where it’s too late. First, while most business consultants might understand process state, data issues require deep implementation experience. Also, during the selection and strategy phase, it’s much harder to visualize the data hierarchy without access to a system to be able to see and feel the changes. So, the data issues tend to get postponed to the implementation phase. But once the contract is signed and if the data model is too off, it can throw off the entire implementation. The questions you should ask related to data re-engineering are as follows:

• How is your current master data modeled? Have you done any customizations to your processes because of data issues?
• Have you had multiple disconnected instances of master data records in the system?
• Do you have data governance issues where the model does not seem to follow any logical structure?

An information model is very similar to a mental model, with the only exception that this state lives in your system’s head. If you overcomplicate the way you register information or don’t simplify, your system might not only experience “brain farts, ” but it might overcomplicate everything else that touches it.

4. People Readiness

Wherever there are people, there will be problems. Several factors drive people-related issues. It could be behaviors influenced by your current compensation structure or power struggle. These behaviors lead to “passive-aggressive” responses to issues without being explicit about them. People readiness among organizational readiness components requires a deep understanding of current behaviors and how that may impact their willingness to change business models or business processes critical for the success of business transformation initiatives. This can be even more challenging if the teams don’t have the right skills. Even small data and process changes might require corporate alignment and intervention from influential stakeholders. 

The biggest challenge with these initiatives is that they are harder to visualize, with the implications challenging to internalize unless you’ve been through these cycles multiple times before. Most people find it easier to trust complex concepts that they’ve seen work firsthand. The questions around people readiness you should be asking are as follows:

• Are you currently experiencing a power struggle in the organization, and if so, do you deeply understand what may be influencing that?
• What does decision-making feel like for cross-functional issues? Do you feel tension with conversations and that people are not willing to open up for underlying issues?
• Do you feel that specific executives have a need for control and that other executives might not open up as easily when they might be around?

People issues are very similar to a board of a company. And unless you have a team that works together really well and trusts others around them to be able to share their feelings, you might require help with people readiness before you undertake your business transformation initiatives. 

5. Technical Readiness

While businesses overemphasize the importance of business and process re-engineering, technical readiness is just as important. It’s an alignment of business users’ and technical teams’ mental models. Both of these teams care for different things, and their heads are wired differently. So, this alignment is even more critical. The technical teams must understand the business vision and must be involved in making critical implementation and change decisions. With them running in trenches, they can see potential financial and technical risks that businesses might ignore. They might code and configure things not aligned with the business vision. 

Most companies take exactly the opposite approach with technical teams. They don’t involve them during the decision-making process, and then when things go south, they are the first ones to get blamed. Technical issues will always require business model changes, and if their voices are not incorporated in the decision-making, there will always be issues, especially if the business teams have a limited technical background. Also, even business executives who might claim to be technical experts rely on technical teams to make decisions for them. Here are the questions you should ask related to technical readiness:

• How are your technical teams? Do they seem to overstate their capabilities? 
• Do they seem to always solve problems through programming?
• Do you have any proprietary systems? How about documented architecture along with process and information models?
• Do you have access to enterprise-wide master data governance and reconciliation flows?

To guide this process, having a detailed technical plan is very helpful. This plan helps the technical teams code and configure things aligned with the business vision. 

6. Project Governance and Planning

After you have the state of your initiatives defined from all perspectives, the next step is to plan how to execute them. System integrators and OEMs generally expect their clients to do 90% of the heavy lifting. There are several factors that drive this behavior. First, the client has unreasonable expectations but limited budgets. So, they leave vendors with no choice but to commit only to a fraction of the work. Second, their software might get blamed because of their involvement or recommendations with data or processes. Finally, the OEMs mandate prescriptive methodologies to their clients and resellers. Equally challenging is managing schedules with ERP projects because of the unavailability of key resources, especially part-time ones.

Project planning involves more than just digital processes. It also means figuring out how physical processes will change and how you’ll communicate these changes to everyone inside and outside your organization. This plan should include a roll-out strategy for introducing these changes in a way that makes sense technically and financially. It should also have KPIs that can help you stay on track. 

It’s not just about making schedules; it’s about organizing resources, communicating well, and ensuring your plan matches what’s happening. As you get ready for this big change, remember that careful planning and smart management are the keys to making your ERP system work well for you.

Conclusion

Each of these perspectives is equally critical. They’re like puzzle pieces that fit together to create a complete picture. Giving too much importance to the technology part and ignoring the people and process parts can cause problems. The technology might not work well with how your team works, making it hard for them to use it properly.

On the other hand, if you don’t pay enough attention to the technical side, you might face technical issues, and the system might not work as it should. Neglecting the organizational readiness and cultural side can result in resistance to changes and difficulty managing the transition.

Success comes from finding the right balance between these different viewpoints. Remember that all six components are important when assessing organizational readiness for ERP implementation. By understanding and considering each part properly, you’ll be on the right track to making your ERP project successful.

FAQs

The list of ERP modules is endless. To an extent that they might come across as overwhelming. But not each module is as critical. Also, each ERP, depending on its positioning, might have different modules. While core modules are likely to be the same across the majority of the ERP solutions, the non-core modules differ substantially. However, there are some non-core ERP modules that are more important than others.

Also, several factors drive whether a module will be a core module or not. One factor is the dataset’s nature and confidentiality. The factors also include: Can an operation be managed in a siloed fashion? Or would it require collaboration with other departments? Let’s compare payroll and recruiting modules. The recruiting module may not have as much dependency on the financial datasets as payroll. So, the recruiting module may not belong to an ERP, but payroll might, despite not being a core module.

The other factors, equally influential, would be the unique functionality required for certain industries. Let’s talk about the subscription-based business model. Not every business or industry is likely to have this business model. But when prevalent, it’s likely to have significant dependency on financial datasets. This model may require periodic billing and may be dependent upon other master data elements that generally reside in an ERP. Unlike core ERP modules, the non-core might be even more confusing as there is a very thin line between hosting them inside an ERP or within a best-of-breed solution. Understanding these non-core modules will help you find the right modules and their appropriate places in the architecture.

1. Human Resources Module 

The only reason why HR functionality exists in the ERP is to allocate labor costs. Allocated for the jobs or maybe to capture the expenses to be able to bill them to the clients. The other HR-specific datasets and workflows, like recruitment, training, program management, new employees onboarding, certifications management, and payroll handling, are generally not part of the ERP. They are not included unless the HR processes need to be part of the operational workflows. 

In some industries where the skillet or training may be a factor in job or resource scheduling, the HR module of ERP might have more advanced capabilities embedded with the operational workflows. It’s also very common in human resources-heavy organizations such as public sector or non-profit. Automotive might be another outlier among manufacturing industries where skill-based processes play a much greater role in resource scheduling. And because of this, they also require human resources to be tightly integrated with the ERP.

Also, in general, there is a huge misunderstanding about HR capabilities assumed to be part of an ERP system. For these reasons, human resources management is generally not the core module of the ERP. If you are new to ERP, don’t focus too much on the HR module, as if you do so, you are likely to miss other features and modules that are likely to break your implementation.

2. Payroll Module

Just like the HR module, ERP systems don’t generally include payroll capabilities. However, there are instances where they might include them, particularly when payroll is a part of their core operations. They might also include them when there’s a need for union reporting that involves data collected from those core operations. This is also a noticeable trend in service-oriented sectors like nonprofits, where grant reporting needs to be correlated and embedded with HR data. Sometimes, they might need payroll data for minority-owned or women-owned certifications. A reporting mandated by their donors and funders. 

Some ERP systems might claim to have payroll capabilities but are generally limited to a few geographic locations. Expecting to acquire as many capabilities as possible for your investment, you might buy an ERP system with payroll capabilities. Only to be disappointed later and switch to another payroll solution if the included module is too clunky or falls short of your needs.

There might also be cases where the payroll capabilities included as part of an ERP might be a white-labeled solution. The vendor might not reveal that you are buying someone else’s offering as they don’t need to be expressive about them. Your decision is likely to be skewed without gaining much with a white-labeled solution. That’s why payroll is not a core module offered with an ERP. So, don’t focus too much on the payroll capabilities with your ERP unless the payroll capabilities are absolutely essential and must be embedded for grant or union reporting.

3. Time and Expense Module

The Time and Expense (T&E) module focuses on managing employee expenses and ensuring their accurate reimbursement. It might also allow you to bill these expenses to the client or clock into a job. Unlike HR and payroll data, T&E expenses are part of the operations, and for this reason, most ERP systems generally incorporate this module. As the number of employees increases, the T&E operations may drive substantial admin costs. So, including a T&E module is generally a wise choice with an ERP.

Within the T&E module, you might discover additional handy features. For instance, it could provide an employee self-service portal or a mobile interface. These tools make it easy for employees to submit their expenses and assign appropriate codes automatically. This streamlined process can save time and reduce errors. 

However, consider a specialized T&E software like Concur if your needs go beyond the basics. This kind of software steps up the game with more advanced capabilities. It can also manage credit cards, ensuring expenses are properly allocated to the right accounts. It can even automate budget management for each credit card issued per department and employee, including managing the credit card reconciliation process. While important, it’s not the end of the world if you can’t use a T&E module as part of the ERP, as generally, it can remain siloed without disrupting operational processes. 

4. Enterprise Asset Management Module

The purpose of Enterprise Asset Management (EAM) is to effectively manage assets throughout their lifecycle. Covering tasks like upkeep, scheduling, preventive maintenance, and financial management. It’s especially critical for asset-heavy industries. These assets could range from machinery and equipment to facilities and vehicles. 

The nature of the assets, whether managed internally or on behalf of clients, determines the specific requirements for asset management. For instance, a company operating a fleet of vehicles might need to keep track of maintenance schedules and repairs to ensure optimal performance and safety. Different industries might have varying needs when it comes to EAM. An ERP system tailored for manufacturing might offer features that help track machine maintenance and production line efficiency. In contrast, an ERP system for real estate might focus on managing property maintenance and lease agreements. 

Certain features of EAM could overlap with other software systems, such as Manufacturing Execution Systems (MES) or field service software. For instance, features related to tracking asset performance and maintenance schedules might also be covered by MES, especially in manufacturing industries where machinery uptime is crucial. Include the EAM module with your ERP if you are an asset-heavy organization. 

5. Lease/Rental Management Module

For businesses engaged in leasing or incorporating leases into their operations, having effective lease management within an ERP system becomes crucial. Lease or rental management functionalities encompass a range of tasks essential for handling leased equipment or assets seamlessly. This workflow entails contract management, dispatch coordination, scheduling arrangements, inspections, repairs, and overseeing financial aspects from both the perspective of the lessor and lessee. 

By integrating lease management into their ERP, companies can maintain a centralized hub for all lease-related activities, streamlining processes, reducing manual errors, and ensuring lease terms and obligations compliance. 

From the initial contract setup to monitoring ongoing operations, this module allows businesses to keep track of lease terms, monitor the condition of leased items, and effectively plan maintenance or repairs. Moreover, financial management capabilities enable accurate tracking of payments, revenue recognition, and expense allocations associated with leases. Include a leasing module with your ERP if your business model includes leases.

6. Subscription Management Module

The subscription management module is critical for businesses that might have subscription-centric offerings as part of their business model. Without this module, these offerings would drive substantial admin overhead for companies as their operational workflows are not as easy to automate with vanilla ERP offerings. This can encompass a range of tasks, such as contract management for subscription services, overseeing different subscription plans on offer, keeping track of how customers use these services, and taking care of the billing process. 

Administration of these subscription offerings would be other capabilities that are generally included as part of this package. This could involve handling different tiers of subscription plans, managing upgrades or downgrades, and handling any changes or modifications requested by the customers. Billing is another critical component of subscription management.

An ERP with subscription management capabilities can automate billing, ensuring accurate and timely invoicing. This level of automation reduces manual errors, speeds up the billing cycle, and ensures that customers are billed correctly based on their subscription usage. However, not all ERP systems designed for subscription-based business models might cover every aspect of subscription management. There could be industries where companies offer subscription-based services but also provide physical hardware or software equipment as part of the subscription package. Specialized capabilities like integration with data center equipment or IoT devices might be necessary in such cases. While not critical for every industry, include a subscription management module if your business model includes subscription-based offerings as of today or plans to launch in the future.

7. Environment, Health, and Safety Module

This module focuses on managing EHS capabilities such as incident reporting, EHS workflow management, and compliance reporting. However, the exact features and scope of the EHS module can vary depending on the specific ERP system’s design and size. Compliance-centric industries, like those dealing with hazardous materials or intricate safety protocols, find this module especially useful. 

On the other hand, businesses where EHS is not as central to their operations might opt for a separate EHS software rather than having this module in their ERP system. Because of the limited operational embeddedness required, siloed EHS software isn’t as bad. Include the EHS module of the ERP, but don’t select an ERP solely because it contains an EHS module.

8. The Governance, Risk, and Compliance (GRC) Module

The Governance, Risk, and Compliance (GRC) module is a crucial part of ERP systems. It covers important areas like audit and risk management and compliance workflows like Sarbanes-Oxley. However, the specific features of the GRC module can vary based on the design of the ERP solution. ERP solutions tailored for regulated industries like banking or finance often have more comprehensive risk management features. 

On the other hand, solutions targeting industries where compliance, certification, or audit are vital might emphasize deeper compliance capabilities. Moreover, the extent of GRC functionalities could differ based on whether the ERP system is meant for public or private companies. Include a GRC module with your ERP if your business model requires GRC workflows.

9. Budgeting and Financial Reporting Module

The Budgeting and Financial Reporting module of an ERP system might include capabilities such as maintaining budget templates, preparing budgets, managing budget workflows, facilitating budgetary and planning cycles, and what-if scenarios. ERP capabilities are generally not as friendly for the budget processes because of the rigidness of the data model and the impact on the operational disruptions due to the inclusion of budgetary dimension. 

However, there are some ERP systems that include FP&A as a separate datastore as part of their bundle, along with the budgeting capabilities embedded with the ERP product. These companies acquired the FP&A solution and integrated it as part of the suite. So, they provide similar capabilities as an external FP&A solution would – with the benefit of it being pre-integrated with the ERP suite. 

The reason why FP&A and CPM processes require specialized software as they often need external and historical datasets, which are much easier to load in an external FP&A software than in an ERP because of the data rigidity of the ERP system. When considering this module, keep in mind that if your business requires detailed budgeting with lots of outside data, you might need to explore other solutions beyond what the ERP system offers.

10. Sales and Operations Planning Module

This module forecasts demand per SKU, product group, or location. It also looks after forecasting the capacity and supply required to meet those demands. However, the sales and operations planning (S &OP) feature offered by an ERP module might have limitations similar to the FP&A solution. That is, loading external and historical data critical to S&OP processes is not as friendly. It also involves collaboration with everyone involved in your supply chain, upstream or downstream.

If your business relies heavily on supply chain planning, you might find that the S&OP module in your ERP isn’t enough. You might require more advanced S&OP software. This would allow you to effectively overlay external data sources and historical information and facilitate better collaboration across your entire supply chain network.

With so many modules packaged with ERP systems, just covering non-core is perhaps not enough. There are some more modules, and while they could not make a cut in the top 10, they might be equally critical for certain companies. While they may have limited applications compared to the core ERP modules, their targeted capabilities can significantly enhance efficiency and effectiveness in the areas they are designed to address. Let’s quickly glimpse these lesser-known yet valuable ERP modules and consider how they might align with your specific business requirements.

1. E-commerce, POS, Customer, and Vendor Portals

Certain ERP systems provide vendor and customer portals that facilitate collaboration between vendors and customers. Some also include a module for handling cash sales through a Point of Sale (POS) system. Additionally, a few ERP systems market their customer portals as eCommerce portals. But for the most part, ERP systems’ eCommerce and POS capabilities are relatively limited. If a significant portion of your revenue is generated from online or retail sales, the eCommerce and POS features within an ERP module could be limited due to minimal payment integration choices and a lack of search engine-friendly technology.

2. Supplier Relationship Management

This module handles supplier interactions, sourcing, relationship management workflow, RFP and RFQ management, vendor scorecards, and contract lifecycle management. Its depth can vary based on ERP design and industry focus.

3. Cash and Treasury Management

This module centralizes cash management, including administration, cash forecasting, workflows of treasury professionals, and cash risk management. Larger ERP systems for public companies have advanced capabilities, while mid-market systems often offer basic functions.

4. Last Mile and Proof of Delivery Module

Smaller ERP systems in industries like food, pharma, and field service may include capabilities that are generally found in a TMS system, like the entire workflow for dispatch-to-deliver, including picking and packing workflows of the in-house fleet, scheduling of deliveries based on zip code, route accounting, and proof of delivery. Larger ERPs might need add-ons for these specific capabilities.

5. Engineering Management Module

Suited for engineering-focused organizations, this module includes new product development, engineering change control, product and program management, R&D, vendor collaboration, and CAD integration. Smaller ERPs may have comprehensive engineering features, while diverse systems might rely on PLM/PDM solutions.

6. Construction Management Module

Useful for construction-heavy organizations, this module assists in project management, submittals, stakeholder coordination, and specialized construction needs.

7. Non-profit Management Module

A specialized accounting module for non-profits, it handles fund-based reporting, program management, donations, campaigns, and volunteer management.

8. Enterprise Document Management Module

This module handles controlled access, storage, version control, and regulatory workflows for documents. Most ERPs include native or integrated documentation management.

9. iPaaS/EDI Integration Module

ERP systems include integration layers for automated communication with external systems, supporting EDI and non-EDI interfaces. Some might use third-party iPaaS tools for integration.

10. Business Process Management (BPM) Module

This no-code platform enables workflow creation, approval flows, master data governance flows, and building additional validations on top of the core ERP layer. ERP systems might use the same platform for customer customization.

Conclusion 

In conclusion, while core ERP modules lay the foundation for businesses, non-core ERP modules offer targeted functionalities that cater to specific industries and unique business processes. Though not as widely known, these modules hold immense value for organizations seeking to optimize their operations.

As you start the ERP journey, understanding how these non-core ERP modules differ is important while continuing the ERP selection process. While reviewing different ERP systems, these modules will likely appear very similar. But each of them is very different and requires careful consideration. Once you have a good grasp of the scope of these modules, the usage might differ based on your business model and requirements. 

Before deciding which modules you need, make sure you have a very deep understanding of their scope and capabilities. Hopefully, this list of the non-core ERP modules will help you provide a good foundation to start your ERP selection journey. 

FAQs

Searching for an ERP solution that suits your business model? If so, the first thing you would need is to understand the functional behavior of the system based on the processes you plan to host in the ERP system. As well as how it would affect your business. While each business might need a few specific modules, most would need these common ERP modules.

Not familiar with what a module is? They are a collection of transactions or functionality like AR, AP, or inventory management. Like puzzle pieces, each module does its part of the business. The most important thing to know is how these common ERP modules fit together. And which ones you would need to wire your business model.

Each ERP system might differ in functionality and contain different modules. Some ERP systems contain industry-specific capabilities, while others are likely to be slightly more generic. Some modules are also more common and often included with most ERP systems. So which are the top 10 common ERP modules with widespread application? But most importantly, would they be relevant for your business? Review the sections below to find these answers.

1. Financial Management

The financial management module is the foundation of any ERP system, and it’s essentially inseparable. In other words, if you plan to use an ERP system, you need to replace your current accounting system. Said another way, if a system doesn’t require you to replace your current accounting system, then it’s probably not an ERP. Generally, the finance module of an ERP helps with the following activities. Things like managing accounts receivable (AR), accounts payable (AP), general ledger (GL), fixed assets, taxes, and financial reports.

For some large organizations and certain business types, the financial management module might also help with financial risk management. As well as basic budgeting. However, suppose a company has more sophisticated budgeting needs such as planning, budgeting, forecasting, scenario modeling, and performance reporting. In that case, specialized financial planning & analytics (FP&A) or corporate performance management (CPM) would be a better fit.

While most ERP systems might appear alike, the key difference between large and smaller peers would be their multi-entity and globalization capabilities. If you have a global multi-entity structure with financial synergy among them, you might need a bigger ERP system. You would need a bigger system to support the localization needs of these countries. Regardless of whether you plan to utilize any other modules, you would use a finance module with an ERP.

2. Inventory Management

Primarily used with product-centric organizations, Inventory management is another core module included with ERP systems. But even service-centric organizations may require their product and services to be coded as inventory SKUs. They need this for costing and scheduling, regardless of whether they are stocked or not. Yet another example of inventory management that differs per industry would be manufacturing, which generally has one of the most complex inventory layers such as raw materials, work-in-progress (WIP), finished goods, MRO, quality control items, kanban, fixtures, or tooling. 

Maintaining inventory layers also require keeping their appropriate units depending upon their purposes, such as sales, purchase, or consumption. So if something is measured one way when it’s bought, consumed (or sold) another way – the module automatically translates that. Lastly, this module ensures that the accounting layers are in order by handling First-In-First-Out (FIFO), Last-In-First-Out (LIFO), or average costing. 

Also, if this is your first time using an ERP (and you were on an accounting system before), you may not have your inventory formalized. It’s because the accounting systems don’t require inventory to be SKUed and instead can manage with text-based line items. Without formal inventory, you might not have issues with financial reporting and taxes. But you are likely to struggle with other issues such as costing, scheduling, and inventory planning. This is why an ERP requires you to formalize your inventory, which means each inventory item needs to have an SKU and its layers. That said, the inventory module may not be relevant for your business if you plan to use ERP just for financial reporting. 

3. Project Management

The project management module in an ERP system is relevant for companies that offer professional services or engineer-to-order products. Companies use this module to manage projects for their clients or any internal project where they need integrated costing, resource management, and scheduling. 

Since there is a very thin line between a job management of an ERP and a project, some companies might struggle to understand when they might need a project management module. In general, a project is an overarching financial wrapper that can not only account for operational project management tasks but also incorporate engineering, manufacturing, or service installation. So a project may have multiple jobs. The overarching costs for the project would account for and schedule all jobs that might be part of the project.

A project generally has a different lifecycle than a job. It might have several milestones and a payment schedule. The project management functionality also incorporates change order functionality, the changes to the original expectations of the contract or scope. Any change orders generally lead to changes in milestones and the revenue recognition cycle. The larger ERP systems are likely to contain comprehensive project management functionality, including keeping track of all invoices generated per milestone and revenue recognition cycles. But most importantly, the project management module would help you with the micro-profitability analysis. As well as consolidated scheduling, combining the demand for resources from all projects. 

4. Cost Management

The cost management module in an ERP system helps track costs across all business processes regardless of the industry or business model. While pricing depends upon costing, and most people collate them together, the scope of the cost management module doesn’t include pricing. They generally have very different lifecycles and structures and are often part of different modules of ERP systems.

For product-centric businesses, this module allows capturing different materials, labor, and overhead costs across all cost categories, such as fixed, variable, or burden. The material costs may include any costs related to manufacturing or procurement depending upon the sourcing strategy of that material. The procurement costs would include accounting layers such as FIFO, LIFO, or average, given the accounting standards, and would account for all costs, including custom, brokerage, duties, or whatever you include as part of your procurement costs. Regardless of whether the costs are likely to be direct or through a sub-contract arrangement, the costing module would help compute the total costs of your offerings.

Even for service-centric businesses, this module is crucial. Their human resources costs are likely to be higher based on their skill sets. This module tracks this across all categories, such as salary, benefits, overhead, etc., for each process that consumes human resources. The cost management functionality of different ERPs might vary based on their size. Smaller ERP systems and ones for service-focused businesses might have fewer layers of costs they track. But the bigger ERP systems provide detailed information about all the operational costs. More layers generally lead to more granular traceability and detailed analysis that companies need to plan and manage their costs. 

5. Procurement Management

The procurement management module in an ERP system is helpful in managing the execution aspect of the procurement function, whether they offer services or products. When companies require advanced procurement capabilities such as Amazon-like catalog management, guided buying, or vendor network, they might not be part of this module and instead need an advanced system such as P2P.

For product-centric companies, the procurement process is generally intertwined with their production process, as the production function is dependent upon procurement and the timely availability of materials. This module handles the entire procure-to-pay process, including purchase order (PO) management, PO matching, RFP, and RFQ management. On the other hand, service-centric companies have their procurement processes embedded with their project workflows. 

6. Service Management

The service management module in an ERP system caters to various service-centric needs. This is important for businesses that provide services along with their products, post-sale service inquiries, or pure-play field service organizations.

Depending on the design and size of the ERP system, the features included in this module might differ. For companies that offer services along with their products, this module might consist of capabilities for processing service orders, service scheduling, service inventory management, technician scheduling, and field service management. For companies offering post-sale services, this module can also handle incidents, cases, after-market serial number management, etc. The customer service module might also include the workflow of a call center or customer support work.

As far as the functionality of this module goes, there is generally an overlap between an ERP and other systems, such as CRM, OMS, or eCommerce. But the overlap is likely to be limited to the customer service side of things and not to the operational and financial aspects of service management. Regardless of whether you host this process in one system or multiple systems, if you need to measure and track the costs and centrally manage your resources, you might require a service management module of an ERP.

7. Customer Relationship Management

The customer relationship management(CRM) among common ERP modules manages different parts of the customer journey. Inside this module, you can find capabilities such as sales funnel management, marketing spend management, territory management, commission management, quoting, estimation, etc.

However, suppose your business needs more advanced features for managing your pre-sales processes, such as social media management, marketing channel attribution analysis, content management, marketing automation, etc. In that case, you might need a specialized CRM designed just for that. The CRM module in an ERP system usually focuses on operational and financial business processes, the processes that generally touch the workflow of other departments. And not the siloed processes that don’t require operational and financial collaboration with other departments.

Regardless of whether you use a specialized CRM in your architecture or not, you might still need a CRM module of an ERP unless you don’t plan to host your customers inside your ERP and use it primarily for financial reporting. Also, generally, most ERP systems are designed for B2B customers because of their structure. And since they are not the most efficient for B2C customers, you might use a specialized system such as POS or an eCommerce depending upon the channel. Based on the architecture and business processes, the need for a CRM module might vary.

8. Manufacturing Management

The manufacturing management module inside an ERP system is helpful for manufacturing industries or industries that might have similar workflows as manufacturing. This module helps manage several things, such as bills of materials, manufacturing requirements planning (MRP), advanced planning and scheduling (APS), mixed-mode manufacturing processes management, and preventive maintenance of assets.

However, suppose your manufacturing needs are more advanced, like machine integration, statistical process control, operational data collection, or edge device communication. In that case, you might need specialized software focused on these tasks. This kind of operational technology software is called MES, which stands for Manufacturing Execution System.

The manufacturing module is perhaps the most misunderstood module. In some cases, companies feel that ERP systems are generally relevant for either manufacturing companies or manufacturing processes. In other cases, they just overgeneralize manufacturing and feel that everything can be a manufacturing process, including construction or software development. While the intent of the manufacturing module of an ERP is generally operational or financial in nature. Basically, anything and everything that is manufacturing-like operations, like event management, might use the manufacturing module of an ERP.

9. Warehouse and Logistics Management

The warehouse and logistics module in an ERP system helps companies manage their storage and moving of goods through processes such as pick, pack, and ship, warehouse, and location management. 

Advanced ERP systems have even richer capabilities. These capabilities can help manage wave and batch management, carts and tote handling, cycle counting, data collection using barcode scanners, paperless and direct picking, container loading and unloading, license plate and ASN management, and global trade management. But if your business needs more specialized capabilities, like ASRS or AGV integration, slotting, 3PL capabilities, supply chain control tower, etc., you might need a specialized WMS, TMS, or a supply chain suite.

Traditionally, the boundaries of ERP and WMS systems were separate, with ERPs being primarily responsible for keeping the inventory counts while WMS was for location management. Also, some industries that were primarily designed for distribution or retail always required a specialized WMS system, so the warehouse and logistics management module of these systems was leaner or virtually negligent. In some industries, the warehouse architecture might be so different that using a warehouse module included as part of the ERP might not make sense. The newer breed of ERP systems, especially the ones that target SMB companies, generally package some basic warehouse capabilities to allow companies to manage their warehouses and logistics functions without requiring expensive integration and IT capabilities. Depending upon whether you plan to use a specialized WMS or TMS system in your architecture or not, the usage and features required as part of your warehouse module might vary.

10. Quality Management

The quality management module in an ERP manages the execution workflows of quality teams. Most companies with similar operations as manufacturing will likely require quality processes embedded with any external touch points such as procurement, returns, or production. Inside this module, you can find capabilities for different aspects of quality control, such as supplier, in-process, and RMA quality management.

This module supports features such as material review boards, quality inspections, quality certifications, and corrective action workflows if something doesn’t meet the expected quality. It also manages non-conformances and tracks how they are resolved. The presence of quality management processes can vary in different ERP systems. Some ERP systems come with these quality processes built-in, while others might not have them at all. It all depends on how the ERP system is designed.

Companies that are quality-heavy are likely to require reporting capabilities with their quality module. While the quality management module might support features such as document management or version control, it might not support operational capabilities such as documentation templates, redlining of documents, or document collaboration. For these capabilities, a quality add-on is generally a better fit. The quality module is useful for companies where quality processes are likely to impact the financial and operational workflow and is tightly embedded with the operational processes. That’s why some companies might host their quality processes externally and might not use this module.

Final Words

As you are starting the ERP journey, understanding how these common ERP modules differ is the first step to start with your selection process. While reviewing different systems, these modules are likely to appear very similar. But they each are very different and require careful review.

Once you have a good grasp of their scope, their usage might differ based on your business model and needs. So before concluding which modules you need, make sure you have a good understanding of their scope and capabilities, and hopefully, this list could provide a good foundation to start your journey.

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