ERP system: Modules, How it Works, Top 5 & Best Practices

What is an ERP system

An ERP system is an integrated software used by different teams to automate core business processes.

Modules

Module	User	Purpose
CRM	Sales team	Manage customers and pipelines
Sales	Sales team	Manage quotations and sales orders
POS	Stores	Automate sales transactions and payments
MRP	Production team	Production and raw materials planning
MES	Production team	Manage bills of materials and manufacturing orders
Inventory	Warehouse	Planning and manage receiving and delivery orders
WMS	Warehouse	Manage inventory receipts, picking, and packing
Purchase	Purchasing	Manage purchase requisition, purchase orders, tender process
Accounting	Accounting	Automate journal entries and produce real-time reports

Common add-ons:

Module	User	Purpose
Website builder	Marketing team	Create and manage online stores
MRP	Production team	Production and raw materials planning
MES	Production team	Manage bills of materials and manufacturing orders
Project	Project team	Manage projects, budgets, and tasks
Omnichannel	Sales team	Consistent customer experience across different channels
HR	All employees	Automate HR administrative works

How ERP system works

ERP works by automating the following core business processes:

• Order to cash  
• Procure to pay 
• Inventory management
• Production process

Order to cash

Order to cash refers to all the steps involved in processing customer orders from the moment a customer places the order to when the payment is received.

1. Sales order: When a customer makes and order, sales order and delivery order are created
2. Delivery order: Warehouse team gets notified of the delivery order and prepare goods
3. Order fulfillment: Warehouse team picks, do quality control, packs, and hand them over to the logistics team for shipment
4. Receipt: When a customer receives the order, the customer signs a receipt.
5. Invoicing: Accounting team gets notified of the receipt and sends an invoice.
6. Payment: When the customer makes payment, the accounting team records them 

Procure to pay

Procure to pay refers to all the steps involved in procurement from the moment the procurement team places the order to when the bill is paid.

1. Purchase requisition: Sales or warehouse team makes a request for procurement team to purchase goods
2. Request for quotation: Procurement team contacts several suppliers and make requests for quotations
3. Purchase order: Suppliers send quotations, procurement team chooses the one with the most favorable terms, and sends purchase order to the supplier
4. Receiving order: When a purchase order is created, an inventory receiving order is created, and the warehouse team gets notified
5. Billing: The supplier sends goods, warehouse team verifies the goods with the receiving order, signs a receipt, and the supplier sends an bill
6. Payment: Accounting team receives the bill, verifies with the purchase order and the receipt, make payment, and make the accounting record

Inventory management

Inventory management refers to all the steps involved in inventory planning, inventory receipt, inventory transfer, and product delivery.

1. Inventory planning: Inventory forecasting, inventory requirements calculations, identify insufficient inventory (compared with inventory on hand), inventory transfer (if other warehouse has enough), purchase order
2. Inventory receipt: Scan barcode, putaway
3. Product delivery: Receive delivery order, picking, packing

Production process

Production process refers to all the steps involved in the production process from demand forecasting to when production is completed. It often overlaps with inventory planning and procurement process.

1. MRP: Demand forecasting, setting production targets and schedules, calculate the required raw materials and labor
2. Inventory: Ensure the required raw materials are available in the right warehouse
3. Purchase: Ensure unavailable required raw materials have been ordered ahead of time
4. MES: The process of executing manufacturing orders according to bill of materials
5. Quality control: The inspection of produced goods to identify defects 
6. Machinery maintenance: The process of keeping track of machinery performances, and ensuring regular service, repair, and replacement of worn parts

Types of ERP systems

Based on readiness

• Ready-to-use: Basic features are available out-of-the-box, limited customizability
• Customizable: Highly customizable, limited basic features
• Hybrid: Basic features are available, but customizable

Based on server location

• Cloud-based: Server is located in the cloud with no purchase of hardware and server necessary
• On-premise: Server is located in-office (requires server, server room, IT staffs)
• Hybrid: Certain data and processes are processed on-premise, while others are in the cloud (for security, speed, and mobility reasons)

Based on modules

• Generalist:
  • Modules are generally accounting, inventory management, procurement, sales, and manufacturing order management
  • Standard business processes (sales to cash: quotation → sales order → delivery order → invoice, procure to pay: request for quotation → quotation → purchase order → receiving order → bill payment)
  • Great for distribution, retail, and simple manufacturing companies
• Industry-specific:
  • Modules are built specifically for certain industries with specific requirements
  • Some industry examples include oil and gas, mining, and financial services

Based on company size

• Small: Usually generalist modules, cloud-based, limited customizability, and affordable price (under Rp 100 million). 
• Medium: Usually generalist modules, may be cloud-based or on-premise, customizable, but price range from Rp 100 million – 1 billion depending on customization requirements. 
• Enterprise: Usually function-specific or industry-specific, may be cloud-based or on premise, highly customizable, but prices are usually north of Rp 1 billion. 

Based on license

• Subscription: Monthly fee based on number of users depending on license type
• Perpetual: One-time payment for the right to use forever (calculated per user)
• Open-source: Created by community with publicly accessible source code, allowing users to view, modify, and distribute the software freely (depending on open source type). Read also why many companies failed implementing an open-source ERP.

License fees are paid to the company who owns the ERP, not the implementer. Usually there are server and maintenance fees to the implementer in addition to license fees.

ERP system implementation

Implementation process

1. Discovery: Obtaining understanding of current workflows and issues, as well as identifying process inefficiencies
2. Planning: Defining system requirements, performing gap analysis, setting up a project team, laying out project plan and target dates
3. Design: Designing new and more efficient workflows, and preparing the necessary documentations 
4. Development: Configuring and customizing (if necessary) the software to support the redesigned processes, including integrations with other software/hardware/platforms and installations of hardware (for on-premise). Preparing user training materials is also done in conjunction.
5. Testing: Testing of configured and customized system on a dummy database by implementer as well as the company installing the ERP system (user acceptance testing)
6. Training: User training to get all teams (accounting, warehouse, sales, procurement) get used to all the standard processes 
7. Go-live: This includes preparing a server and database, ERP system installation, data migration, and going live. This is usually done on Friday nights or weekends so that companies can start using the new system effectively on Monday.
8. Support: Support team helps users 1-6 months after go-live where there may be errors caused by users’ incorrect inputs (happens a lot), bugs, unconsidered scenarios, etc. 

Implementation failures

50-75% of ERP implementation projects fail to meet their objectives.

There are many reasons for ERP implementation failures, however the top 3 are:

1. Lack of clarity in business goals (42%)
2. Lack of a detailed project plan (26%)
3. Lack of top management involvement (45%)

1. Lack of clarity in business goals

Most companies in Indonesia just want to replace their ineffective systems (accounting, POS, or custom-made systems) without a clear goal on what they are trying to achieve. They end up either asking for unnecessary customizations, or they just get whoever gives them the best price.

ERP systems exists to automate operations, so you have to fix (in order of priority):

1. Processes
2. System
3. Data
4. People

We strongly suggest business owners to seriously consider transforming your businesses before buying an ERP system and do the following:

1. Identify your business pain points
2. Discuss and agree on the solutions with your team
3. Create standard operating procedures
4. Create business process flowcharts
5. Create system requirements

2. Lack of a detailed project plan

Around 26% of ERP implementations fail due to a lack of a detailed project plan. A detailed project plan is the responsibility of the ERP implementer (assuming the information needed is fully provided by the company). Therefore, choosing the right ERP vendor who has industry knowledge, understands business processes, best practices, and accounting (since every transaction will have an impact to accounting), and not just IT knowledge, is so crucial.

3. Lack of top management involvement

The goal of an ERP system is to automate and integrate the different processes and teams for efficiency purposes. For companies who implement an ERP system for the first time, it involves a huge change to the company. 

It requires identifying all the different pain points of all the teams that cause inefficiencies, discussing with the team to find practical solutions to those inefficiencies, and basically changing the way they work. The change of one team will affect other teams since the processes are interrelated. 

Therefore, companies need to be ready to make major changes since this requires heavy commitment (time, effort, and money). For example, companies may have to restructure their organization, removing unnecessary positions, changing employee job descriptions, changing warehouse layout, changing supplier selection process, and changing employee goals, KPI, and appraisals. 

This is a digital transformation process which definitely requires top management involvement to resolve employees’ resistance to change (especially the not so open minded ones who have been around for a long time). Most companies are already comfortable with the way they work and they look for an ERP system to make their companies slightly more efficient without changing anything major. 

Small businesses implementation failures

For small businesses, the top 3 are:

1. Accounting data quality
2. Business process optimization
3. Adaptation by employees post-implementation

1. Accounting data quality

Most small businesses have questionable accounting data. Therefore, even if the ERP system works to automate operations, small businesses can’t reliably analyze the data (inventory turnover, profit margins, price vs volume analysis, etc.). Sadly, most ERP implementers in Indonesia don’t have the accounting expertise to fix this problem.

2. Business process optimization

Small businesses in Indonesia are generally price sensitive. It makes sense since their profit margins are generally very thin (their customers are also price sensitive). However, ERP systems are especially useful in Indonesia to automate operations, reduce operational expenses, and increase profit margins. Therefore, small business owners should care about business process optimization because they should know best what works and what doesn’t work for their employees (each company hires differently). However, most small businesses in Indonesia just leave it to the ERP implementer to decide for them. Again, most ERP implementers in Indonesia don’t have the change management expertise.

3. ERP system adoption by employees post-implementation

The most common ones we found are:

1. The older management are not tech savvy enough (and don’t want to learn) and prefer the old way of doing things
2. The younger less-educated ones are not tech savvy enough and keep making human errors

It takes time for employees to adjust to the new system. Make sure standard operating procedures and enough training are done so everybody knows how to adapt fast. Print how-tos and post it on their walls and near their laptops/computers/tablets.

Top 5 ERP systems in Indonesia

Our recommendations are based on the following criteria:

1. Features (each ERP has its own strengths and weaknesses)
2. Experience of Indonesian implementation team (implementation is the main reason why ERP fails to achieve its objective)
3. Value (price in comparison with features)
4. Ease of use (this is very important for your operational team to use the ERP system correctly)

We recommend the following 4 ERP systems:

1. Impact
2. Odoo Enterprise
3. SAP Business One
4. Microsoft Dynamics
5. Netsuite OneWorld

	Impact	Odoo Enterprise	SAP Business One	Microsoft Dynamics	Netsuite OneWorld
Starting price	Rp 200k/ user/month	Rp 170k/ user/month	$108 /user/month	$70 /user/month	$999/co/mo + $99/user/mo
Multi-company	v	v	v	v	Add-on
AIPS	v	v	v	v	v
Manuf order	v	v	v	v	Limited
Shop floor control	v	v	v	v	x
Quality control	v	v	v	x	x
CRM	v	v	v	v	v
HR core	v	v	v	v	v
Payroll	v	v	x	x	x
Mobile app	v	v	v	v	v

Contact us to get a more detailed version of the feature comparisons with more ERP systems in Indonesia.

Impact

Impact is an ERP built specifically for small to medium-sized Indonesian manufacturers. It is available as cloud-based or on premise, and is ready-to-use yet customizable. Impact’s key features include:

Team	Sales & marketing	Manufacturing	Inventory & procurement	Accounting
Key features	Website builder CRM Sales POS	Production planning MRP MES	Automated PO for low stock WMS Barcode & RFID Stock take Tender management	Invoicing Billing eFaktur eBupot Easy reconciliations
Key reports	Leads analytics Conversion analytics Sales performance reports	Batch reports Landed cost  COGM Variance analysis	Stock card  Expiring stocks Slow-moving stocks Stocktake Vendor performance	Financial statements Budgeting Analytics

Starting price: Rp 200,000/user/month

In an effort to grow Indonesia’s economy, Impact has a 20% discount for small businesses. Visit them to learn more.

Pros & cons

Pros	Cons
Indonesian features	Can be slow when generating reports
Flexible: cloud, on-premise, customizable	Limited implementation partners
Mobile app for business owners, warehouse team, sales team

Odoo Enterprise

Odoo Enterprise is great for small businesses trying to implement ERP for the first time since it is affordable. It has many modules all for one price. 

Although it has the open source version (Odoo Community), we do not recommend it for most companies since Odoo Community does not have an Accounting module (unless you don’t need an accounting module).

However, when choosing an Odoo implementer, make sure you choose an official partner who understands accounting, industry best practices, and Odoo limitations. 

We are an official Odoo partner. Click here to learn more about our services.

Starting price: Rp 170,000/user/month

Pros & Cons

Pros	Cons
Many modules all for one affordable price	Choosing a reliable partner can be tricky
Modular and customizable	Much customizations may be required for medium-sized manufacturers
Many implementation partners to choose from

SAP Business One

SAP Business One is SAP’s most popular ERP since it is SAP’s least expensive product. It is a reliable system rich in features, especially for mid-sized manufacturing companies. Although lacking in certain features (POS, HRIS), some implementation partners have built add-ons (at an additional price) to complete their systems.

Starting price: $108 per user per month (professional license)

Pros and cons

Pros	Cons
Manufacturing features	No POS, CRM, and HRIS
Reliable partners	High learning curve
Cloud or on-premise available	Expensive

Microsoft Dynamics 365

Microsoft Dynamics 365 Business Central is a reasonably-priced ERP system best for companies within the Microsoft ecosystem. 

It has the option to link the system to Microsoft Office tools, such as Outlook and Excel, to improve experiences for customers and employees. 

With 49 official partners in Indonesia, implementation costs are reasonable and getting customer support should not be an issue. 

Starting price: $70/user/month

Pros and cons

Pros	Cons
Link to Microsoft Office tools	Requires a learning curve
Reasonable price	Reports may be difficult to understand
Simple design	Can be slow sometimes

Netsuite OneWorld

Netsuite is known to have a strong cloud infrastructure, allowing them to have a faster loading speed and faster real-time updates, especially on its mobile app. We also think Netsuite has the best UI design.

However, Netsuite is not available on-premise. In addition, you will be charged $999 per company per month in addition to the monthly user fee (unless you opt for the Starter Edition which will also cost you $999 per month). You will also have to be ready to pay for add-ons.

Netsuite has 8 known implementation partners in Indonesia. Although this may bring concerns regarding implementation and support, we’ve heard that Netsuite’s partner success managers are quite hands-on in helping partners with project planning and implementation, so we feel that this should not be an issue.

Starting price: $999/company/month + $99/user/month

ERP best practices

When is the right time to implement an ERP system?

The short answer is: when it can increase net profit and when company leaders can commit (because there may be other more urgent things that can increase net profit that leaders can focus on).

Things to do before you try to find an ERP system

1. Identify pain points: Speak with your teams and find out their difficulties in achieving their team goals. Come up with practical solutions, categorize them into either technology, data, process, or people. 
2. Create impact-effort matrix: Identify solutions that bring the most impact with the least amount of effort. Remember that impact is calculated based on company goals, not based on team goals. Oftentimes, companies find out that they have been wasting time on activities that don’t align with company goals, and what they need is to cut down on those.
3. Quantify benefits: Identify inefficient processes that can be automated. Decide if automation through an ERP system is really necessary to optimize those processes.
4. Perform break-even analysis: Calculate financial benefits (additional revenue and cost savings) if those processes are optimized. If you don’t know the additional revenue that it will bring, just focus on the cost savings. The easiest way to do this is to estimate the monthly salary of the team multiplied by the percentage of efficiency the ERP system will bring.
5. Set a budget: Once you know how much your net profit will increase by implementing an ERP system, decide on a break even point. In how many months or years do you want your increase in net profit to fully recoup the cost of the ERP system. By multiplying the increase in net profit by the number of months, you get your budget.

How to choose an ERP system

1. You are buying a solution to your business pain points, not features. ERP is quite different from other business software because it’s the automation and integration that you are looking for. If you think team integration and process automation is not necessary for you, don’t get an ERP system. Just get accounting, CRM, or HR software separately. They are much cheaper.
2. The quality of your ERP consultant is more important than the ERP system itself. The majority of ERP implementation failures are not due to the ERP system, but the lack of planning and top management involvement. Don’t choose an ERP system based on brand or hearsay. When you hear someone with bad experience badmouthing a certain ERP system, it is most probably because they chose the wrong implementer (most often with freelancers or IT consultants who don’t understand accounting and business processes).
3. Start with an affordable ERP system. Most often, the actual cost of implementing an ERP system ends up more than the initial assessment, so it’s better to start from ERP systems that cost half of your actual budget. Starting with Odoo vendors or a local ERP vendor is a good start. Go with the more expensive ERP software only when you know the affordable ones are not a good fit for you (only if you know you need certain features and the cost to customize those features are more than getting another more expensive ERP software.
4. Don’t customize too early. If you are getting an ERP system for the first time, we always recommend businesses to implement the system without any customization in advance. This is because during your implementation process, companies often realize they have to change their business processes. When this happens, oftentimes their earlier concerns are already solved so there is no need to customize, or they realize there are more important features to customize.

How to choose an ERP vendor

We’ve heard a lot of stories where companies try to cut costs by hiring internal software developers or freelancers because they think those are cheaper. 

Majority of them ended up in failures (freelancers disappear with bugs unfixed, internal software developers are unclear of what to build while companies blame them thinking it’s their jobs, etc.) and they ended up starting all over again with professional ERP implementers. It took them years longer and a lot of money going down the drain.

This is how we recommend you to filter your ERP vendors:

1. Contact 3-5 ERP vendors. Start with the most affordable ERP system like Odoo or Impact. Find out who they are (visit their websites) and contact them to learn more about their ERP software. They may already have the customizations you are looking for without you paying for it. 
2. Assess their understanding. Assess if they understand your pain points and are able to convince you that they can solve your pain points. A good ERP implementer can tell you exactly how from the point of view of software, business process, and accounting. You should avoid those who tell you that their ERP can do whatever you need without explaining how. Most often, they themselves don’t really understand what you are talking about.
3. Ask them for similar past clients. Although this is not a bad way to do an initial assessment, it does not guarantee future success, either. Similar past clients can have different pain points, and you don’t really know if their implementation is a success or a failure. But there is no harm in asking.
4. Look at their employees on LinkedIn. Understanding how consulting companies hire their employees can oftentimes tell you about how much they value their customers’ success.

Trust your instincts. It is much better to choose the more expensive ERP vendor that is more likely to bring you ERP implementation success, than to choose the cheaper option but they end up in a mess and you end up paying 2-3 times the price.