James Thew - Fotolia
CIOs planning to implement an ERP system, such as the SAP ERP system, almost always find themselves asking two...
questions: What is the SAP ERP system and what are its core components?
Answers to these two questions enable CIOs to understand how SAP ERP works -- also known as SAP ERP Central Component (ECC). The answers also help CIOs understand which core components they will need to implement to meet the company's growth goals or to address its business pains.
The SAP ERP system is the foundation of Business Suite, and it's the software that is implemented first in an on-premises SAP journey.
Note that ECC's components are often interchangeably referred to as modules, although, technically, modules is the proper term associated with R/3; components is the proper term for ECC.
Here's the list of the SAP ERP system's core components that come with the purchase of the ERP system, as well as the business processes they cover.
The Financial Accounting component handles receivables from sales, payables for procurement of products or services, cash management, as well as bank payment and reconciliation processes.
The Controlling component manages cost center accounting, profit center accounting, internal orders to manage small to midsize projects and product costing.
The product costing feature offers the greatest business value to the manufacturing organization, as it first simulates the cost of manufacturing a product and then compares it with the actual cost incurred in manufacturing it.
Sales and Distribution
Sales and Distribution (SD) manages a company's sales and distribution business processes, including selling products or services in national and international markets through direct sale to customers or selling through a distribution network.
Customer returns and credits and returnable packaging are also handled in SD.
The Materials Management (MM) component manages the procurement of materials or services and inventory management. Procurement can be from local vendors or international suppliers.
In inventory management, MM manages all goods issuance, goods receipts and transfers of materials from one plant or storage location to another.
Counting and reconciling materials' physical inventory is also managed in MM.
All inbound and outbound logistics and supply chain management of the company are managed in the Logistics Execution (LE) component.
Further, LE also offers the Warehouse Management subcomponent that companies can implement to manage complex warehouse operations at the rack and bin levels (which MM does not offer).
The Production Planning component can be used for discrete, process or repetitive manufacturing, or a combination of more than one manufacturing type.
The Quality Management component extensively integrates with procurement, production, sales and equipment maintenance processes.
Advanced features such as Audit Management, Stability Study, or Failure Mode and Effects Analysis ensure ongoing quality improvements to a company's business processes.
The Plant Maintenance component helps keep all the equipment and functional locations of a company in optimum working condition, thereby preventing machine failure that may lead to production disruption. Business processes, such as preventive maintenance, corrective maintenance and refurbishment maintenance, are all covered.
Just as the PM component handles a company's in-house equipment and functional locations, the Customer Services (CS) component caters to the business processes when a company offers equipment and functional locations' maintenance services to external customers.
The option to bill customers for the maintenance services delivered is also part of the CS component.
Managing large, complex projects, such as setting up a new manufacturing plant or a plant's maintenance turnaround, is possible with SAP Project System (PS). The options to set up work breakdown structure elements and networks and connect them both through predecessor-successor relationships ensure complete project tracking and monitoring.
All project-specific procurement or production through PS ensures that this component is able to allocate a project's costs correctly, while remaining within the defined project's budget.
Human Capital Management
The Human Capital Management (HCM) component manages payroll; time management activities, such as attendance and leave; training needs management; and travel management. Apart from learning management, SAP HCM also offers the Environment, Health and Safety subcomponent, which focuses on employee and industrial operations safety.
While the above are functional components of the SAP ERP system, the ABAP component in the SAP ERP system supports all types of custom development unique to a company. In addition, the SAP NetWeaver component ensures effective system administration of the SAP ERP system. Both ABAP and SAP NetWeaver are technical components of the SAP ERP system.
Just say no to ERP implementation failure
Oracle goes up against SAP -- who wins?
Why S/4HANA ERP options are growing
Dig Deeper on SAP ERP software and modules
Related Q&A from Jawad Akhtar
Replenishment strategies, lot sizes, safety stock, reorder point planning and replenishment lead time are five factors in ERP that can ensure ... Continue Reading
S/4HANA public cloud provides a less disruptive route to digital transformation than some options -- including the on-premises S/4 -- and smoother ... Continue Reading
These nine key components of SAP MDG help ensure regulatory, legal, environmental and financial compliance of your master data and improve ... Continue Reading