Course Objectives

• Introduce you to ERP systems and Identify key

components
• Understand business process issues and
implementation concerns related to ERP
systems
• Develop a strategy for introducing ERP into the
organization
 Understand basic components of an integrated
ERP system including types of products,
functionality,
Why ERP?

A good organization is characterized by

• Operational Efficiency
• Quick Response to changing customer needs

The above can only be achieved through tight

• integration of organizational information
• Coordination between various processes
• Use of real time information for effective decision making

An ERP system can achieve the above requirements

Introduction to ERP Systems

• Business Organisation and Function

• The Evolution of Information Systems (ERP)
• Definition and Description of ERP (Types)
• Benefits of ERP Systems
Business Organisation and Function
Business Functions

MARKETING AND SALES

PRODUCTION AND MATERIALS
MANAGEMENT

ACCOUNTING AND FINANCE

HUMAN RESOURCES
Business Function – Accounting & Finance

• Vendor payments
• Receipting of cash from customers
• Accounts receivable function
• Recording of raw materials purchases
• Recording of Sales
• Generating financials statements
• Asset register maintenance
Business Function – Human Resource

• Organisation Development
– Performance Management
– Training
• HR Information Systems
– Payroll
– Personnel Administration
– Employee Self Service
• HR Communication
• Labour Relations
• Employee Assistance Programmes
Business Function – Prod & Materials Mgmt

• Making the product

• Purchasing raw materials for making the product
• Production planning used to develop orders for raw
materials
• Raw material orders are based on the production
plans, so that sufficient raw materials are available to
support the production plan, but excessive inventory
that might spoil is not carried
• Inventory management
Business Function – Marketing and Sales

• Developing products
• Determining pricing
• Promoting products to customers
• Taking customer orders
• Create sales forecasts
• Market research in relation to products
The Evolution of Information Systems
(ERP)
ERP

Enterprise Resource Planning

ERP Evolution

70s Materials Requirement Planning (MRP)

80s Manufacturing Resource Planning (MRP II)

90s Enterprise Resource Planning (ERP)

00s Enterprise Resource Planning II (ERP II)

ERP Systems

• Early 1990s first fully integrated software system

• Current ERP systems evolved as a result of development of
hardware and software technology needed to support
systems
• Developments of vision of integrated systems
• Release of personal productivity software (word-processing)
• 1979 Introduction of first spreadsheet software (complex
business analysis without programming) hence need to
connect individual users’ PCs
• Telecommunications allowed sharing of data (server to
client)
• ERP began on a factory floor (inventory tracking system –
Materials Requirements Planning)
Definition

Enterprise Resource Planning covers the techniques

and concepts employed for the integrated management
of business as a whole from the view point of effective
use of resources and to improve the efficiency of an
enterprise.
ERP Systems

• An ERP system is defined by Markus et al. (2000: 245) as a

software package which makes possible the sharing of business
information stored on a common database among targeted business
units in the entire organisation.
• Enterprise Resource Planning is a way of making internal processes
in an organisation to work in harmony. In an ERP software all
components of an organisation functions are supported therefore
data or information is shared across the entire organisation.
• The purpose served by an ERP system is of organising, codifying
and standardisation of the business processes and information or
data. Furthermore ERP systems provide an enterprise with a
common language and a common pool of data (Norris et al. 2000:
12-13; Adam and O’Doherty, 2000: 306)
ERP Overview

Strategic Planning Finance

Manufacturing Human Resource

ERP
Materials System Logistics

Quality Maintenance0

Sales & Distribution

Overview of major ERP systems

THE PUBLIC SECTOR

UTILITIES

TELECOMMUNICATION
FMCG
FINANCIAL SERVICES
NGOs
MANUFACTURING

ORACLE SAP PEOPLESOFT

JD EDWARD BAAN
Rationale for ERP Systems

• Process centric
• Cross Functional
• Real Time
• Workflow automation
• MIS integration
• Consolidation
ERP Architecture Planning

• An improperly planned ERP is more dangerous than not

having one
• The ERP functionality must match Organization’s needs

• The architecture should cover all business processes

• The staff should be trained to use ERP effectively

Architecture of Integrated Information System

ARIS framework involves understanding

• Data view

• Functional view

• Process control view

• Organizational view
Data View

Product Order

Numb
Name Code Date
er
Function View

Production Sales

Planning Offer

Control Order

Commit

Deliver
Organizational View

Strategic

Tactical

Managerial

Operational
Process Control View

Business
Problem

Define Needs
Define Needs Define

Design Specs Design Specs

Design Specs

Implement Implement
Implement

Data View Control View Functional View

Implementation

Phases of Implementation
• “As is” process study

• “To be” process design

• Simulation

• Implementation
Make or Buy

ERP
• is mammoth
• is complex
• is standardized
• comes with best practices
• needs trained users

Never ever make ERP!

Selecting a Vendor

?
Planning for ERP
• Assess Feasibility & Business Needs
• Set up Planning Team
• Perform Requirement Analysis
• Select Package
• Perform Gap Analysis
• Reengineer
• Estimate Implementation Costs
– Customization
– H/W
– Cutover
– Training
• Test
• Implement
• Control
Implementation Issues

• Cultural change - Mindsets

• Top Management Commitment
• Managing Business Process Change
• Communicating the Change
• Implementation Project Leadership
• Cross Functional Balanced Team
What Does “SAP” Stand For?

Systems
Applications and
Products in Data
Processing
SAP

• Founded in 1972
• Based in Walldorf, Germany
• World´s largest inter-enterprise software company
• Largest independent software supplier
• Employs a workforce of over 40,000 (June ‘05)
• Offices in more than 70 countries
Modules and Organisational
Structures
Introduction to SAP R/3
- the System
Introduction to SAP R/3 - the System

BW
Business
Warehouse

• The R/3 System SD FI

Sales & Financial
– Over 1000 predefined MM
Distribution Accounting
CO
Materials
transactions Mgmt.
Controlling
AA

R/3
PP
Production Asset
Accounting
– Possibility of 30 SM
Planning
EC
Service Integrated Solution Enterprise
different languages Mgmt.
QM Client / Server PS
Controlling

Quality Project
– 14 different modules Mgmt. PM
Plant
Open Systems WF System

Maintenance Workflow
HR IS
Human Industry
Resources Solutions
 FI

R/3 Financial Applications Financial

Accounting
CO
Controlling
AA
Asset
Accounting
• General ledger EC

FI • Accounts Receivable/ PS
Enterprise
Controlling

Payable Project
System

• Special Ledgers
EC
• Executive Information
• Fixed Asset Accounting System
• Profit Center Accounting
CO •• Overhead Management
Activity Based Costing
• Product Cost Accounting • Work Breakdown Structure
• Profitability Analysis PS • Costs and budgeting
• Time scheduling
AM • Investment Planning/
Budgeting/Controlling
• Orders in the project

• Depreciation Forecast/
Simulation/Calculation
R/3 Logistics Applications (1/2) SD
Sales &
Distribution

MM
Materials
• Sales Promotion/Sales Mgmt.

SD Activities
• Inquiries/Quotations/Order
PP
Production
Planning

• Contracts and scheduling

agreements
• Shipping/Transportation/ Foreign
trade
• Sales/Production planning
• Billing
PP • Material requirements
• Materials requirements planning planning
• Purchasing • Forecasting
• Capacity planning
MM •
•
Goods movement
Invoice verification • Shop Floor Information
• Inventory management System
Simulation/Calculation
R/3 Logistics Applications (2/2)
SM
Service
Mgmt.
QM
Quality
Mgmt. PM
Plant
Maintenance
HR
Human
Resources

• Service planning
SM • Processing service orders
• Service Information PM
System
• Quality planning
QM • Quality inspection
• Maintenance planning
• Processing maintenance
orders
• Maintenance Information
System

HR
• Quality Management
Information System
• Recruitment management
• Personnel Capacity and Shift
Planning
• Payroll accounting
Benefits and Constraints of SAP R/3

• Benefits
– Commonality
– Integration
– Flexibility
– World wide usage
– Real-time processing
• Constraints
– Quality of Master Data drives integrity of transactional data
SAP Strengths

• Tightly integrated software architecture

• Multi-national and multi-site support
• Ease of use and product functionality
• Real-time information
SAP Overview
Why ERP

• Integration

• Best business practices

• Standardization
Why not ERP?

• Complexity

• Cost

• Inflexibility
Basis System: Three-Tier Computer Hierarchy
Central Database
(Storage of all data)

Access to Database:
(Read / Write data)

Database

Input / Output
of data to users

Processing of data
Application using application logic

Presentation of the
processed data to
Presentation the user
What is a Client?

“A client is an autonomous unit in the R/3 System with

regard to commercial law, organization, and data.”

Client

 SAP AG
Common Client Roles

CUST Development & Configuring of client settings and

Customizing creation of new functionality

QTST
Quality Assurance Functionality testing and
verification of configuration

Production Productive activities and business

PROD
data
Additional Client Roles

SAND
Sandbox Sampling of customizing
transactions and settings

TEST
Test Testing of configuration settings
with data

TRNG Training End-user customer training

environment

PPRD Pre-production Configured environment for the

load of legacy data prior to the
start of productive activities
Sample SAP System Landscape

Development Testing Production

Database
Servers

Application
Servers

Presentation
Servers
Object Migration

Corrections and Transport

Development QA Testing Production

Program A Program A Program A

Table A Table A Table A

Screen A Screen A Screen A

Procurement Process
Outline
Agreement

Purchase Scheduling
Requisition Vendor Agreement
Demand

Accounts Purchase
Payable Goods Receipt Order
Invoice
Verification & Inventory Mgmt.
Production Process

Schedule/Release

Goods Issue Shop Floor

Order Settlement Goods Receipt

Sales Process — Trading Goods

Customer Order Picking Packing

Accounts Receivable Billing Goods Issue

Sales Process Finished Goods

Availability
Check
Goods Issue
Customer Order

Final Payment Partial Payment Billing

Sales Process Finished Goods

Availability Check
- Insufficient -
Independent
Customer Order
Demand

Dependent MRP Run

Demand
Production
Scheduling
Purchasing
Process Flow

Goods Issue Goods

Production Receipt
to Shop Floor

Accounts Receivable Billing Goods Issue

Client

• This is a numeric field.

• This number defines a whole business entity.
User

• Every SAP user has a user name.

• Users of SAP system are client-specific, which means

that having a user identification on one client will only
allow access to that particular client.
Language

• SAP supports multi-national character sets and

languages on the same system, at the same time.

• Default languages are English and German.

Field Types

• There are three types of Entry Fields

– Required
– Default entry
– Optional entry field
Sessions

• An SAP session is a window in which the user may

perform a particular task.

• A User may have up to Six sessions open at one

time.
Reporting

• Three basic steps to running a report

– Access the report

– Enter selection criteria
– Execute the report
System Messages

 E - Error
– An invalid entry has been made.
– The cursor moves to the field where the
error has occurred.
 W - Warning
– A possible error has been made.
–The user can continue without changing.
I – Information
– Feedback from the system.
Customizing - Modeling the Business

– Organizational Structures in each module

– Master Data - Customers, Materials, …
– Rules - required entries, tolerances, …
Mapping

– Assignment of organizational structures to reflect

the enterprise model

– Establishes integration among modules