Feb 04 2021

What Are ERP Systems, and How Do They Relate to SAP?

Enterprise resource planning systems date back decades but maintain modern relevance for organizations focused on efficiency.

In a world where complex systems must work with increasing efficiency, many companies have opted for building out more integrated approaches as employees work remotely.

One of the most common solutions dates back decades, but nonetheless seems to be making a comeback in the pandemic era: enterprise resource planning. ERP systems are a type of broader infrastructure tool that works across company departments. Often, ERP is mentioned in close proximity to SAP, a major technology provider known for its ERP solutions.

What is an ERP system and how does it relate to SAP? Let’s break down the details.

What Is an ERP System?

An ERP system is an integrated solution that manages a number of main business processes. As Inc. explains, the concept became a common one throughout the mid-1990s as companies began to computerize their operations. Often, these tools are integrated through large databases and managed by a company’s IT department.

Mickey North Rizza, the program vice president for IDC’s Enterprise Applications and Digital Commerce research practice, says that ERP systems basically help manage the many business functions of organizations. This includes procurement, order management and inventory management, all with an eye on financial services.

“The financial side is really critical,” she says, adding that it manages things like accounts payable, accounts receivable, revenue management, taxes and billing. “It runs your operations.”

A term often used to describe ERP systems is “monolithic,” meaning that they incorporate all processes rather than having operations segmented. This allows for close integration.

“Monolithic systems, they’ve really been the original systems. We call them legacy systems,” North Rizza said.

Despite the monolithic nature of ERP systems, they often integrate closely with external tools, such as IBM’s InfoSphere.

What Are the Benefits of an ERP System?

ERP systems can often be challenging to implement, as embedding them within a company’s existing legacy operations can be a major — and costly — undertaking. Still, doing so can give enterprises something that is increasingly difficult: a comprehensive system that is perfectly tailored to the company’s needs.

While the interest in these tools is often related to legacy systems, a big shift to the cloud in recent years has added a new dimension in ERP systems. Top-level elements of ERP systems have followed other tools into the cloud, mostly in the services field, like professional services and media.

MORE ON BIZTECH: How enterprises can get the biggest return on their artificial intelligence.

North Rizza says that these systems, rooted in services, have become more attractive in recent years in industries such as manufacturing because of the greater need for efficiency, as underlined by the COVID-19 pandemic.

“We look really good because the whole world’s gone to the services world. Any manufacturing already has these deep-seated systems,” she said. “Now they’re figured out, with COVID-19 as a tipping point, that they need to get to more anytime anywhere access — which means they need to get to the cloud.”

What Does SAP Stand For?

SAP, which stands for Systems, Applications and Products, is a German technology conglomerate most closely associated with ERP software.

Founded in 1972, the firm is well known for its management of infrastructures for large corporations and is the largest non-American software company by revenue.

While best known for ERP systems, SAP builds a variety of applications designed to manage business operations, covering areas such as supply chain management, human resources and business technology. According to the company, 77 percent of all global transaction revenue “touches an SAP system.”

SAP is not alone in the ERP field. Its largest competitor is the database company Oracle, which acquired a third player in the ERP space, PeopleSoft, in 2005.

“Between the two of them, they’ve got almost 50 percent of the market share,” North Rizza says.

Companies such as IBM and its subsidiary Red Hat support SAP solutions including the older SAP ERP Central Component software while helping customers transition to the more recent SAP S/4HANA software suite.

What Are the Types of SAP Modules?

SAP modules represent the many different parts of an SAP ERP system, covering a number of key elements of a business infrastructure on a hub-and-spoke model. The modules represent smaller elements that plug into a larger ERP infrastructure.

A few common examples of SAP modules include:

  • SAP Controlling (CO)
  • SAP Financial Accounting (FI)
  • SAP Human Capital Management (HCM)
  • SAP Materials Management (MM)
  • SAP Production Planning (PP)
  • SAP Quality Management (QM)
  • SAP Sales and Distribution (SD)

What Is an SAP Certification?

Workers in ERP settings can receive a common type of training to show their knowledge of SAP’s ERP offerings. This type of certification, officially sanctioned by SAP, highlights how common SAP-based ERP offerings are in the corporate world.

Such certifications carry value in a corporate environment as well. The employment site Dice notes that SAP certifications are comparable to those offered by other companies with large enterprise infrastructures. While they are not strictly necessary for getting hired, they often offer a leg up for applicants.

“While many jobs don’t ask for SAP certifications, it’s undeniable that SAP skills can prove valuable, especially if you’re a technologist interested in any kind of enterprise position,” contributor Nick Kolakowski writes.

The SAP ecosystem is broad, but so too is its range of support, making it a strong potential choice for many companies.

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