Enterprise Resource Planning

(ERP)

1
Agenda
• What is ERP?
• Why ERP?
• ERP Vendors
• SAP R/3 & Modules
• ERP Trends
• Questions/Answers

2
ERP
• A collection of software systems that help
to manage business processes for an
entire organization

• Designed to integrate all information

processing support for an entire
organization

3
Organization
• A group of people engaged in
purposeful activity over extended
time

• A tool used to coordinate in order to

obtain Value for organizational goals

4
How an Organization Creates Value

INPUTS PROCESS

ENVIRONMENT OUTPUTS

5
Business Process
• Work activities across time and
place, with a beginning, an end, and
clearly identified inputs and outputs
(Davenport, 1993)

• Has sequence, purpose, interaction

6
 Example – ERP HR Module
HR processes
PAYROLL
BENEFITS

RECRUITING
TRAINING

payroll programs, personnel

IT resources files, health plan documents,
recruiting, Servers &
networks, etc.

7
Theme of ERP
• Reflects assumptions about the way
companies operate

• Provides the integration of all the

information flowing through a company
i.e.,
– Financial/accounting information
– HR information
– Customer information

8
An Organization with ERP

• A process-oriented organization
• Data at the core of the enterprise
• ERP as a major part of the
enterprise architecture

9
Differences between Function & Process

Function Process
Focus on “What” Focus on “How”
Vertical Horizontal
Static Dynamic
Task-centered Customer-oriented
Individual/Specialist Team/Generalist
Parochial Holistic

10
 Cross-functional Processes
i.e., Product Development
competitor analysis

MARKETING R&D PRODUCTION

market research

new product
prototype
Product development

needs analysis component process

research design design
market test product test equipment
product design
release production
start

11
ERP for Organizational Value Chain

Support:

Profit Margin
Infrastructure, HR, R&D, Procurement

Primary:
Inbound Outbound Marketing
Operations Service
logistics logistics & Sales

− Stream of activities
− Applies to both products and services
12
Business Process Reengineering (BPR)

An organization fundamentally and radically

redesigns its business process to achieve
dramatic improvement
− From the restructuring of an organization
− To the redesigning of individual processes

13
BPR Example - Loan processing
Desk-to-desk approach credit
reporting

Origination of loan
pre- document application credit analysis approval
qualification generation processing & underwriting & closing

Servicing of loan
payment escrow customer collections
processing management service & foreclosures

Follow-up processing
valuation & transfer to
risk analysis secondary mkt
14
BPR example - Loan processing
Team approach

Loan
origination
team
Regional
Field rep production
laptop
center

Loan
servicing
team

15
ERP Strategic Issues

• Compelling reasons - efficiencies

• Organization change - better than
current
• Strategic advantage - gaining an
advantage

16
ERP Tactical Issues

• Functional /Cross-functional
integration
• Supply chain integration
• Decision support

17
Operational Issues – ERP Implementation

• Configuration – Methodology &

Processes
• Plan vanilla to start
• Populating the data with integrity
• Modifications made
• Cut over or Phased rollout
• Add-ons

18
ERP Benefits – Eli Lilly SAP R/3
Implementation
 Process Improvements
− Eliminate redundant
transactions
− More efficient staff and
succession planning
 IT
− Reduced support costs Highlights:
− Reduced infrastructure costs • 45 global sites
• Implementation by 2002 –
 Strategic Direction delayed to 2004
− Improved resource allocation • Single client, servers in
− More flexible organization Indianapolis
− Better future decision making • Approx. 70 person
implementation – now
over 100 involved

19
ERP Vendors
 Over 100 vendors globally
 5 major vendors
– Lawson Healthcare
– JDEdwards Internet
– Oracle Database
– PeopleSoft HRM originally
– SAP German, pioneer of ERP

20
ERP Market (META Group, 2003)

 $15B globally in 2002 and growing at

12%-15% annually
 Satisfied at least 75% of the overall
business application requirements
 Mission-critical functionality
 ERP regarded as core IT investments

21
Key Findings about ERP Market
 Mature and concentrated
 The five vendors - more than 80% of the
investment
 ERP purchases - 10+ year commitments
 Vendor size does not guarantee high
performance, and the smaller ones perform
to the leaders for specific criteria
 Vendors must be compared to that of best-
of-breed vendors (e.g., Siebel for CRM, i2
for SCM)

22
SAP R/3 Overview

23
About SAP AG from www.sap.com

 Founded in W. Germany in 1972

 World's largest enterprise software and
third-largest software supplier
 SAP R/3 - Collaborative business solutions
for all types of industries
 12 million users, 88,700 installations, and
over 1,500 partners
 $7.5B revenue in 2004, More than 32,000
employees in over 50 countries
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Partial SAP Client List

Spacenet
What is an R/3 System?

Database
Server

Application
Server

Presentation
Server
R

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 SAP AG
 SD FI
Sales & Financial
Distribution Accounting

MM CO
Materials Controlling
Mgmt.
PP AM
Production

SM
Service
Planning
R/3 Fixed Assets
Mgmt.
EC
Enterprise
Manage- Controlling
ment
QM Integrated Solution PS
Quality
Management Logical Architecture Project
System
PM WF
Plant Maintenance Workflow

HR IS
Human Industry
Resources Solutions

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Client
 Highest hierarchical level in an SAP
system
 A complete database with all the
tables necessary for an integrated
system
 Master records per client

28
Organizational Elements

• Structures that represent the and/or

organizational views of an enterprise
• Company structure based on
business processes
• A framework that supports all
business activities

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Master Data

 Centrally and available to all

applications and all authorized users

 In the database over an extended

period of time

30
Transactions
• Application programs that execute
business processes
• Whenever a transaction is executed, a
document is created
• The document contains all of the
relevant information from the master
data and organizational elements

31
Financial Accounting (FI) &
Controlling (CO)
Modules

32
FI and CO Comparison

FI CO

Legal or external reporting Internal management

Reports by accounts reporting
Balance Sheet Reports by cost centers and
Income Statement cost elements
Cost Center Reports

33
FI/CO Organizational Structures

 Client
 Company
 Chart of Accounts
 Company Code
 Business Area

34
Company
 Consolidated financial statements are
created at the company level
 A company can include one or more
company codes
 All company codes must use the
same chart of accounts and fiscal
year

35
Chart of Accounts
 The chart of accounts contains:
− A complete listing of G/L accounts in FI
− Cost and revenue elements in CO

 Each company code is assigned to one

chart of accounts

36
 General Ledger Accounts
• Every account to be posted in FI must
be defined as a G/L account master
record

• Each G/L account master record

contains information that specifies the
function of that account
− e.g., balance sheet vs. P&L account

37
Materials Management (MM)
Module

38
 Procurement Process
Purchase
Order

Purchase
Requisition
Demand
Vendor

Accounts Goods Receipt

Payable & Inventory Mgmt.
39
Organizational Elements for the
Procurement Process
• Client
• Company Code
• Plant
• Storage Location
• Purchasing Organization
• Purchasing Group

40
Company Code

 A company code represents an

independent accounting unit
 Balance sheets and Profit/Loss
statements, required by law, are
created at the company code level

41
Plant
 A plant is an organizational unit
within a company to produces goods,
renders services, or distributes goods
 A plant can be one of the following
types of locations:
− Manufacturing facility
− Warehouse distribution center
− Regional sales office
− Corporate headquarters
42
Storage Location

An organizational unit for the differentiation

of material stocks within a plant

43
Purchasing Organization and Groups

• Groups can be a further division of

purchasing responsibility and/or structure

• Centralized or Decentralized

• Hybrid - multiple organizations buy for

multiple plants

44
Vendor Master
• For processing business transactions and
corresponding with vendors
• Shared between the accounting and
purchasing departments
• Data is grouped into three categories:
− General data
− Accounting data
− Purchasing data

45
Production Planning &
Execution (PP)
Module

46
Material Requirements Planning (MRP)
 A set of techniques utilizing
– Bills of materials (BOM)
– Inventory data
– Master production schedule for material
requirements
 A time-phased planning tool for quantity
and capacity by a given
– Day
– Week
– Month

47
 Master Data - BOM
BOMs are created as relationships between one
parent material and one or more sub-component
materials. i.e.,

uniform

pants shirt hat emblem - 2 cover box

48
Production Process

Schedule/Release

Goods Issue
Shop Floor

Order Settlement
Goods Receipt

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Scheduling Techniques
 Forward scheduling
− Starts when the order is received
− Results in completion before the due date

 Backward scheduling
− The last operation on the routing is scheduled
first
− Previous operations are scheduled back from the
last one

50
Sales and Distribution (SD)
Module

51
 Organizational Unit

3000 1000
4000 Company
Company
MSI MSI
US German
Canada
yy
Sales Area: Sales Area:
Sales 3000 Sales 1000
4000
Organization US Organization Germany
Canada

12 12
Distribution Distribution
Resale Channel Resale
Channel s
02 90 02 90
Division Division Motorcycles Accessories
Motorcycles Accessories

3000 3400 1000

4000 1400
4100
Plant Plant
New York Seattle Hamburg
Montreal Stuttgart
Toronto
52
SD Master Data
• Customer - Sale organization
− Various relationship
− Customer account (i.e, credit, invoice payment)
• Material - Plant
− Sales status, Material type, etc.
• Pricing
− A technique for prices to be executed in the
order

53
SD Processes

O rd e r M a n a g e m e n t: B u s in e s s P ro c e s s e s in
C O M C y c le

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 SAP AG

54
Human Resources (HR)
Management
Module

55
 SAP HR Processes

Course
Recruitment Credit
Cost Hiring
Planning
&
Reporting
Training
and
Employee Self-Service Personnel
Development

Travel Planning Managing

Payroll Work Time
Administration Compensation
& Benefits

56
 HR Integration
Financial Logistics
Accounting

Controlling

Sales and SAP HR Workflow

Distribution

64
ERP Trends

1. Further integration of suppliers

& customers
2. Focus on ERP system flexibility
3. Mass customization
• Standard interfaces across chain

65
 Extended ERP

Upward Integration (i.e., EIS)

Backward Integration Forward Integration

(i.e., SCM) ERP (i.e, CRM)
66
ERP Motivations
• Original ERP Design - Internal
• Supply chain relationships requirements
− Improved interactions & communications
− Opportunities with suppliers & customers
• Manufacturers surveyed had supply chain
extensions to ERP
• More planned to have extensions
• Open systems for supply chains

67
ERP Vendor Response
• mySAP.com - open, collaborative system for
SAP & non-SAP software
• SAP APO - forecasting, scheduling, other
logistics activities
• PeopleSoft - enterprise performance
management
• JDEdwards - planning & execution
• Oracle’s 11i - Planning & Scheduling

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69
Thanks

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