How does the SAP ERP System Work?
The SAP ERP system comprises multiple modules that are integrated into the function. Each of these SAP modules focuses on a particular business function such as:
- Finance & Accounting
- Human Resource Management
- Customer Relationship Management (CRM)
- Materials Procurement
Thanks to SAP modules, organizations can choose to purchase selected modules that they need for their business operations. Additionally, the SAP ERP system works in an integrated environment where data from each module is accessible from other modules. This is because all ERP data is stored in a centralized database. Effectively, information can seamlessly flow between ERP modules without any manual or redundant data entries.
Also Read: Understanding ERP Modules and Their Business Benefits
Here are some examples of how ERP data flows between business functions:
- A sales executive can check the availability of a product from the SAP system.
- The product production team can be immediately notified if a product is out of stock.
- The production team procures raw materials from the procurement module.
- Once the final product is available, the sales team is intimated of its availability.
What is SAP ERP used for? Let’s discuss this in the following section.
What is SAP ERP used for?
The usage of the SAP ERP tool is varied across business functions and industry domains. Here are some of the use cases of the SAP software:
1. Finance & Accounting
Regarded as the “backbone” of most ERP tools, SAP ERP is used to manage the financial ledger and automate various tasks. This module enables organizations to:
- Track their Accounts Payables (AP) and Accounts Receivables (AR).
- Close their accounting books at the end of the financial year.
- Generate real-time accounting reports.
- Comply with financial regulations and standards.
2. HR Management
In the HR business function, SAP ERP helps in capturing employee attendance and payroll management. With its human capital management (HCM) module, SAP customers can manage their entire hire-to-retire employee cycle. This can elevate the HR function with workforce analytics and better employee experience.
Used mainly in the manufacturing and supply chain industry domain, organizations can easily procure the raw materials and services that they need to produce any finished product. Some of its main functionalities include:
- Automated and centralized purchases
- Requests for quotations from registered vendors
- Contract creation and approvals
In the Sales function, the SAP ERP tool enables organizations to communicate with existing and prospective customers. Data-driven insights help sales executives target sales leads with the right promotion and upselling opportunities. SAP also includes order-to-cash functionality with order management, customer contracts, and billing.
Next, let us look at some of the main SAP ERP features and capabilities.
SAP ERP Features and Capabilities
The SAP Business suite is at the core of the SAP ERP offering and comprises the following capabilities:
- SAP ECC or ERP Central Component is the on-premises ERP tool with the collection of various ERP modules.
- SAP S/4 HANA is the in-memory ERP platform optimized for the future-ready SAP HANA database. This is set to replace SAP ECC in the coming years.
- SAP S/4 HANA Cloud is the cloud or SaaS version of SAP S/4 HANA that provides HANA capabilities on a subscription-based model.
- SAP Business One or SAP B1 is a business management tool that is designed for small-to-medium businesses. This tool can operate both on the cloud and on-premises.
Next, let us look at some of the benefits or advantages of SAP ERP systems.
Advantages of SAP ERP
SAP ERP offers its customers the benefit of a centralized system of data and information—where business data can be stored at a single location and shared with other business functions. This eliminates data duplication and redundancy.