Skip to navigation Skip to content

Tech Insights 15 min read

What is ERP and how does it work ?

We have to say it, in technology, it’s easy to understand the theory without really knowing the practical side. Even though many people know the definition of an ERP (Enterprise Ressource Planning), a vast majority wouldn’t know how a program works on a daily basis. And it’s too bad because I’ve always believed that if companies knew what an ERP system could do for them, there wouldn’t be as many companies that work without them in Canada or around the world.

Yes, ERP features can be impressive. So to help you get familiar with the practical side of an enterprise resource planning software (ERP), I have decided to prepare a little overview of all the modules and each ERP functionality. You’ll see that an ERP software can find its way through every sphere of your company to help you increase your productivity and stay competitive.

But First, What's an ERP Software?

An ERP can be defined as an enterprise resource planning software. Which means that it is a unique solution that integrates numerous applications, functionalities and modules to give you a complete vision of your business, but also optimize every business process. Normally, you would have access to each of the following ERP module:

And you can even find other applications like a CRM module for sales management and marketing, business intelligence and analysis, human resource, or even wholesale distribution and quality management.

While a CRM focuses more on the customer relationship management and everything that surrounds it, you can expect to see a broader spectrum of functionalities. Why? Because in order to provide a more comprehensive and efficient ERP solution, the software is looking to help you in EVERY department of your business: from business operation to supply chain, and even marketing. So you should choose your ERP application depending on your needs and take a look at some industry specific ERP if they're necessary for your business operation.

ERP Software Functionalities

ERP Software Functionalities: Financial Management

When it comes to understanding and supporting a business across all its departments, finance is probably the most central one. It’s where the client’s account meets the supplier’s invoice and a lot of decisions are made.

ERP Financial Managements Functionalities - General

So in general, in an ERP, you can find a basic module that includes all the common functionalities to help you set up a company and, amongst other things, post to the general ledger, chart of accounts, general journals, VAT facilities, recurring journals, and source codes.

  • Accounts Schedules: Powerful financial reporting tool that can help accountants and financial analysts to extract the most essential business data from the chart of accounts, budgets, cash flow accounts and cost types into financial reports, which can be used to efficiently monitor the health of the business and provide valuable input for the business decision makers.
  • Basic General Ledger: This module includes all the basic functionality necessary for setting up a company and posting to the general ledger, chart of accounts, general journals, VAT facilities, recurring journals, and source codes.
  • Allocations: Allocate general ledger entries to combinations of accounts, departments, and projects using allocation keys based on amount, percentage, or quantity.
  • Basic XBRL: Export documents from Microsoft Dynamics NAV in XBRL  format and import XBRL taxonomies into Microsoft Dynamics NAV from the Internet, email, or other systems.
  • Consolidation: Consolidate companies in your ERP. The companies can come from one or from several different ERP databases or other files, and you can import and export financial information in this module.
  • Deferrals: Set up deferral templates that automate the process of deferring revenues and expenses over a pre-defined schedule.
  • Budgets: Work with budgets in general ledger accounts. After you have created a budget, you can print a balance that shows variances to the budget by percentage.
  • Change Log: You can log all direct modifications a user makes to the data in the database, except for changes to “working documents” such as journals, sales orders, and purchase orders.
  • Intercompany Posting: Manage accounting for more than one company in the same posting process.
  • Responsibility Centers: Set up profit centers and/or cost centers. A company can sell items with specific prices and that are related to a responsibility center.
  • Cost Accounting: Cost Accounting provides an efficient way to control the company’s costs by providing visibility and insight into budgeted and actual costs of operations, departments, products, and projects.
  • Basic Fixed Assets: Keep track of fixed assets such as buildings, machinery, and equipment
  • Cash Flow Forecast: Cash Flow Forecast provides a prediction of how a company’s liquidity—cash and other treasure positions—will evolve over time.
  • Fixed Assets Allocations: Allocate different percentages of fixed asset transactions, such as acquisition cost and depreciation, to different departments or projects by using allocation keys.

So in general, in the functionalities of an ERP, you will be able to find a basic module which includes all the functionalities which help you to establish a company, and, among other things, send information to the general ledger, to the charter of accounts, general journal, VAT lines, recurring journals and source codes.

  • Insurance: Keep track of insurance coverage and annual insurance premiums for your fixed assets and easily determine whether your assets are under-insured or over-insured.
  • Maintenance: Record maintenance and service expenses for each fixed asset
  • Reclassification: Reclassify a fixed asset or part of a fixed asset—for example, from one department to another. You can split one fixed asset into several fixed assets, or combine several fixed assets into one fixed asset.

Account schedules, allocations to general ledger, exportation in XBRL, cash flow forecast, and many other functions await you in your ERP whether it’s for your fixed assets or your general needs in finance management.

ERP Financial Managements Functionalities - Cash Management

Without a doubt, the best ERP offers functionalities that are specifically made to help you with cash management: bank accounts, electronic payments, direct debit, check writing, and even bank accounts, purchases, and sales bank transaction reconciliation.

  • Bank Account Management: Create, operate and manage multiple bank accounts for catering to your diverse business needs and across different currencies
  • Electronic Payments and Direct Debits: Create payment proposals based on vendor documents and generate bank payment files in ISO20022/SEPA format or use the Bank Data Conversion Service for generating the appropriate electronic payment file for your bank.
  • Reconciliation of Incoming and Outgoing Bank Transactions: Import bank statement data from electronic files sent from you bank in ISO20022/SEPA format—or use the Bank Data Conversion Service for other file types.
  • Bank Account Reconciliation: Reconcile your bank statement data automatically to open bank account ledger entries and keep track of all bank statements.
  • Check Writing: Generate Computer printed checks with a unique number series for each bank account.

Obviously, finance management is an important part of any ERP. So it’s essential to have a complete solution to get the support needed to manage your company.

ERP Software Functionalities: Supply chain management (SCM)

Whether it’s for service oriented business or for retail companies, and especially manufacturing organizations, the supply chain management is an essential module to improve performance and efficiency for your enterprise.

Sales and Receivables

The supply chain management handles everything from sales (invoice, discounts, price, order management, and shipping) to inventory for a global vision of your manufacturing. By trusting your ERP with these tasks, it’s far easier to make your manufacturing factory run with the certainty that you’ll always have what you need to fill your orders and perform efficient delivery.

  • Alternative Ship -To: Set up multiple ship-to addresses to accommodate customers that in addition to a main business address have more than one site to which order can be shipped.
  • Basic Receivables: Set up and maintain the customer table. Post sales transactions in journals and manage receivables; register customers and manage receivables using general journals.
  • Calendars: Set up calendars with working and non-working days. Assign a base calendar to customers, vendors, locations, companies, shipping agent services, and the service management setup— and make changes to each as necessary.
  • Campaign Pricing: Work with sales prices and sales line discounts connected with specific campaigns.
  • Order Promising: Promise accurate order shipment and delivery dates to customers based on an item’s current and future availability.
  • Sales Line Discounting: Manage flexible item price discount structures that differentiate between special agreements with individual customers and customer groups, and are conditioned by such parameters as minimum quantity, unit of measure, currency, item variant and time period.
  • Sales Line Pricing: Manage flexible item price structures that differentiate between special agreements with individual customers and customer groups, and are conditioned by such parameters as minimum quantity, unit of measure, currency, item variant and time period.
  • Sales Invoicing: Set up, post, and print customer invoices and sales credit memos.
  • Sales Invoice Discounts: Calculate invoice discounts automatically. Set up any number of invoice discount terms, including a certain minimum amount, discount percentage, and/or a service charge.
  • Sales Order Management: Manage sales quotes, blanket sales orders, and sales order processes.
  • Sales Return Order Management: Enables you to create a sales return order, so you can compensate a customer for wrong or damaged items. Items can be received against the sales return order
  • Shipping Agents: Set up multiple shipping agents (for example, UPS, DHL, external carriers, or your own carrier) and relate their services (express, overnight, standard) with shipping time.
  • Sales Taxes: Calculate Sales Tax and set up individual tax areas for each customer and vendor.

Purchase and Payables

  • Alternative Order Addresses: Set up multiple addresses to manage orders from vendors that in addition to a main business address have more than one site from which they ship orders.
  • Basic Payable: Set up and maintain a vendor table, post purchase transactions in journals, and manage payables.
  • Drop Shipments: Handle order shipments directly from the vendor to the customer without having to physically stock items in your inventory while still keeping track of order costs and profit.
  • Purchase Invoicing: Set up, post, and print purchase invoices and purchase credit memos.
  • Purchase Line Discounting: Manage multiple item purchase price discounts that you have negotiated with individual vendors as based on such parameters as minimum quantity, unit of measure, currency, item variant and time period.
  • Purchase Invoice Discounts: Calculate invoice discounts automatically. The discount can differ from vendor to vendor with different minimum amounts (also in different currencies) and different rates, depending on the size of the invoice.
  • Purchase Line Pricing: Manage multiple item purchase prices that you have negotiated with individual vendors as based on such parameters as minimum quantity, unit of measure, currency, item variant and time period.
  • Purchase Order Management: Manage purchase quotes, blanket orders, and purchase order processes.
  • Purchase Return Order Management: Create a purchase return order in order to compensate your own company for wrong or damaged items. Items can then be picked from the purchase return order.
  • Requisition Management: Automate the supply planning process by using the Requisition Worksheet. Generate optimal suggestions for replenishing inventory through purchases and transfers based on the item’s current and future demand and availability, as well as a variety of planning parameters, such as minimum and maximum quantities and reorder quantities.

Supply management therefore tackles both sales (invoices, discounts, prices, management of orders and shipments) and inventory for an overall view of your production. By entrusting these tasks to your ERP, it is much easier to keep your production plant running while always ensuring a supply that meets your orders and efficient delivery.

ERP Software Functionalities: Inventory and Warehouse Management

  • Analysis Reports: Provide company decision-makers, especially those with overall responsibility for sales, purchases, and product portfolio management, with an efficient and flexible way to get meaningful information out of the system to inform day-to-day decisions
  • Alternative Vendors: Manage purchase of the same item from several different vendors. Set up alternative vendors for an item, specify typical lead times used by a specific vendor to deliver that item, and associate price and discount agreements for that item with each vendor.
  • Basic Inventory: Set up items that you carry in your stock and specify their unit of measures, costing method, inventory posting group, unit cost and price and other properties.
  • Bin: Organize your warehouse by assigning items to bins, the smallest unit in the warehouse logical structure.
  • Cycle Counting: Manage cycle counting, a basic method of verifying inventory record data used to maintain and increase inventory accuracy.
  • Item Budgets: Make sales and purchase budgets on the customer, vendor, and item levels, and in both amounts and quantities.
  • Item Charges: Manage item charges. Include the value of additional cost components such as freight or insurance into the unit cost or unit price of an item.
  • Item Cross References: Quickly and precisely identify the items a customer is ordering on the basis of item numbers other than your own.
  • Item Substitutions: Link items with the same or similar characteristics so that if a customer orders an item that is unavailable, you can offer substitute items and avoid losing the sale.
  • Item Tracking:  Manage and track serial and lot numbers. Assign serial or lot numbers manually or automatically, and receive and ship multiple quantities with serial/lot numbers from a single order line entry.
  • Item Categories: Use item categories to group items into a hierarchical structure and you can define your own custom categories, assigning attributes to each category.
  • Item Attributes: Use item attributes to add custom data, such as color, country of manufacture, size, or product dimensions, to applicable items, supplementing built-in global item fields.
  • Assembly Management: Specify a list of sellable items, raw materials, subassemblies and/ or resources as an Assembly Bill of Materials that comprises a finished item or a kit.
  • Location Transfers: Track inventory as it is moved from one location to another and account for the value of inventory in transit and at various locations.
  • Multiple Locations: Manage inventory in multiple locations that may represent a production plant, distribution centers, warehouses, show rooms, retail outlets and service cars.
  • Nonstock items: Offer items to customers that are not part of your regular inventory but that you can order from the vendor or manufacturer on a one-off basis.
  • Pick: Enable warehouse workers to create a pick from the released order.
  • Put Away: Enable warehouse workers to create a put away from the released order
  • Standard Cost Worksheet: The Standard Cost Worksheet provides a company’s controllers with a reliable and efficient way to maintain accurate and upto-date inventory costs.
  • Stock-Keeping Units: Manage stock-keeping units (SKUs). Identical items with the same item number can be stored in different locations and managed individually at each location.

In addition, all that is related to the orders to be paid to your suppliers or your shipments to your distributors, the ERP takes care of all the management of your supply from the beginning to the end of the chain. Thus, you will find in your ERP functionalities that take care of returns, basic invoices to be paid, product shipments, even the management of orders or discounts.

ERP Softwares Functionalities: Warehouse Management

Finally, a supply management system will never be complete without a warehouse management module that allows you to manage your orders both by item and by their crates. With such a tool, you should also be able to automate data entry in your warehouse and automate it more easily.

  • Warehouse Receipt: Allow warehouse workers to create a put-away from a receipt.
  • Warehouse Shipment: Allow warehouse workers to create a pick from a shipment.
  • Advanced Warehouse Management Systems: Manage items on a bin level. Receive and put away items in a bin; pick items from a bin according to a put-away template; and pick items based on the zone and bin ranking. Move items between bins using a report for optimizing the space usage and the picking process, or move items manually.
  • Automated Data Capture System (ADCS): Capture data automatically. Keep data accurate, even in a hectic environment.
  • Bin Setup: Easily set up and maintain your bins by defining both the layout of your warehouse and dimensions of your racks, columns, and shelves; set up and maintain your planning parameters by defining the limitations and characteristics of each bin.
  • Internal Picks and Put-Aways: Create pick and put-away orders for internal purposes, without using a source document (such as a purchase order or a sales order).

ERP Softwares Functionalities: Manufacturing

When we talk about an ERP, we often discuss the functions linked to resource planning, the financial side, or the warehouse and inventory. But what about the manufacturing? For many enterprises, this is where the technology can truly help you realize big things.

You will find all the tools to help manufacture your product with the material invoice and orders of basic material. Sometimes, you will find an agile manufacturing module to lighten the process.

And since the ERP is a planning tool before all else, it’s totally natural to find tools that will help your basic supply planning, demand forecasting, and sales, and inventory anticipation.

  • Production Bill of Materials: Create bills of materials and calculate standard costs
  • Production Orders: Create and manage production orders, and post consumption and output to the production orders
  • Agile Manufacturing: This module enables you to run the Agile Manufacturing, Supply Planning, and Capacity Planning
  • Version Management: Create and manage different versions of the manufacturing bill of materials and routings
  • Basic Supply Planning: Plan material requirements based on demand with support for master production scheduling and materials requirements planning.
  • Demand Forecasting:  This data allows the system to plan and create production and purchase orders taking into consideration the demand forecast together with the level of available inventory and parameters of requirement planning.
  • Sales and Inventory Forecasting: You can use the Sales and Inventory Forecast extension to get deep insights about potential sales and a clear overview of expected stock-outs.
  • Basic Capacity Planning: Add capacities (work centers) to the manufacturing process. Set up routings and use these routings on production orders and in material requirements planning.
  • Finite Loading: Manage finite loading of capacity-constraint resources. Taking capacity constraints into account so that no more work is assigned to a work center than the capacities can be expected to execute during a given time period.
  • Machine Centers: Machine centers are designed to help you manage capacity of a single machine/producing resource.

Finally, always in terms of planning, the manufacturing model and its functions could also allow you to optimise your production capacity with a planning tool that covers your basic capacity. This last one will help you increase the manufacturing power or add machine centers that will allow you to manage resources and your factory’s capacity.

ERP Software Functionalities: Project Management

Since your ERP will help you achieve better productivity, it offers a project management features that will really support you through your daily project management. From the inventory management to the order manufacturing, it can be difficult to maintain a complete overview of the numerous projects that fill your days.

That way, the project management module will offer you the ability to truly plan the use of your stocks and human resources by following your basic resources. It’ll also help you manage your capacity to complete projects and even get a complete overview of your resource usage. Finally, in this moduel, you’ll find a tool for time sheet management, production cost, and different tasks to do to optimise your workforce efficiently so you can produce more and better.

  • Basic Resources: Keep track of resources and prices. Register and sell resources, combine related resources into one resource group, or track individual resources.
  • Capacity Management: Create your plan in a calendar system with the required level of detail and for the period of time that you need.
  • Multiple Costs: Manage alternative costs for resources and resource groups. The costs can be fixed or based on an additional percentage or an additional fixed charge.
  • Jobs: Create a plan for a job with multiple tasks and task groupings. Each task can have a budget and can be done for whatever period of time you need.
  • Time Sheet: Time Sheet is a simple and flexible solution for time registration with manager approval

ERP Software Functionalities: Project Management

Since you have equipped yourself with an ERP to achieve better productivity, your software generally offers features to help you with day-to-day project management. From managing inventory to producing orders to delivering them to the customer, it can be quite difficult to maintain a comprehensive look at the many projects that fill your days.

Thus, the project management module will offer you the possibility of truly planning the use of your human resources and your stocks by following your basic resources. It will also help you manage your ability to complete projects and even get a full overview of your resource usage. Finally, you should find in this module a tool for managing your employees' time sheets, production costs and the various tasks to be performed to really optimize your workforce to the maximum in order to produce better and faster.

  • Basic Resources: Keep an eye on your resources and prices. Register and sell resources, combine related resources into a group of resources, or track individual resources.
  • Capacity planning: Create your plan in a system calendar with your required level of detail and for the time period you need.
  • Multiple Costs: Manage alternate costs for resources and resource groups. Costs can be fixed or based on an additional percentage or a fixed additional amount.
  • Jobs: Create a plan for jobs with multiple tasks and task groupings. Each task can have a budget and can be done for the time period you need.
  • Timesheet: Timesheet is a flexible and simple solution to record time with manager approval.

ERP Software Functionalities: Sales and Marketing

While many people regularly confuse ERP with CRM, it is true that both software include a marketing and sales component. An ERP will normally work more in terms of managing campaigns and automating certain tasks aimed at finding potential customers and selling, while a CRM will support you more in your relationship with customers through customer

Liked what you just read? Sharing is caring.

June 14, 2022 by Frédéric Charest VP of Marketing

Data-driven Growth Marketer with a Passion for SEO - Driving Results through Analytics and Optimization