Concepts in Enterprise

Resource Planning
(The Development of ERP)

Prof. Ramesh Behl

 Pre-Cap?
• What is an ERP?
• How it is different from Information Systems?
• At what level of IS the ERP works?
• Why an organization should implement ERP system?
• Why an Organization should implement and ERP if they
already have functional systems?
• What are some of the benefits that organizations derive by
implementing ERP?
• What do you understand by legacy systems?
• What do you understand by Best Practice Methodology?
• What do you mean by a business process?
• IS BPR necessary for ERP implementation?
Prof. Ramesh Behl 2
 Discussion Points?

• How ERP different from MRP & MRP-II

• What do you understand by EDI?
• How mySAP different from SAP-R/3?
• What is the current version of SAP?
• What are the different benefits the organization
gets by implementing SAP based ERP?
• What do you understand by C/S architecture?
• What are the key challenges of implementing
ERP?
• How cost of ERP is divided among H/W, S/W and
Implementation?
© Prof. Ramesh Behl 3
 Evolution of Information
Systems
• Using integrated software to manage all functional
areas of a business seems obvious today, but it
was not technically feasible until the 1990s
• Three factors contributed to the development of
ERP systems:
– Advancement of computer hardware and software
• Computing power, memory and communications
– Development of a vision of integrated information
systems
– Reengineering of companies to shift from a functional
focus to a managerial focus
4
 Computer Hardware and
Software
• Sharing and managing important corporate data became an
even more important issue as PCs became more common
• Client-server systems were developed to manage data
sharing. A central computer (server) managed the storage
and sharing of common data
• Client-server systems provided scalability. The capacity of
the network could be increased inexpensively by adding a
new server computer to the existing network
• Mainframe systems were generally not scalable. Increasing
capacity meant buying a new system
• Client-server systems are much more cost effective over the
long run

5
 Computer Hardware and
Software
• A common database is a key component of an
ERP system
• Relational database systems were introduced in
the 1970s
– These systems allowed for more efficient storage and
retrieval of data
– To support ERP systems, relational databases needed to
be able to find specific data quickly from a large,
complex database
• By the 1990s, the hardware, networks and
database software were in place to make large
scale ERP systems feasible 6
 Evolution of ERP
• 1960s: software packages with inventory
control
• 1970s: MRP systems
– Production schedule with materials management
• 1980s: MRPII systems
– Adds financial accounting system
• 1990s: MRPII
– Integrated systems for manufacturing execution
• Late 1990s: ERP
– Integrated manufacturing with supply chain
• 2000s: ERP-II
7
 Functional Business Model

• Alfred P. Sloan developed the functional

organizational model in the 1930s as chairman of
General Motors
• The functional model was very successful for
decades, but foreign competition in the 1980s
highlighted problems with the model:
– Flexibility and rapid decision-making were not possible
– Organizations had become overstaffed and top-heavy
– Ability to respond to change was limited

8
 Information Flow
Marketing
Title

Information Flow
Sales

Information Flow
Manufacturing
Top Management

Material & Product Flow

Information Flow
Logistics

Information Flow
Information and material flows in a functional business model

Finance & Accounting

9
 Business Process Model

• In a process-oriented company, the flow of

information and management activity are
“horizontal”—across functions
• The “horizontal” flow promotes flexibility and rapid
decision-making
• Michael Hammer’s Reengineering the Corporation
encouraged managers to take a “horizontal”
business process view of their companies

10
 Top Management

Accounts Finance & Accounts

Payable Accounting Receivable

Marketing & Sales

Customers
Procurement Manufacturing Logistics
Suppliers

Information Flow
Supplies Conversion Storage & Shipping
Material & Product Flow

Information and material flows in a process business model

11
 Reengineering Defined
• “(T)he fundamental rethinking and radical redesign of
business processes to achieve dramatic improvements in
critical, contemporary measures of performance, such as
cost, quality, service, and speed”
– Hammer and Champy, Reengineering the Corporation,
1993
 Forms of Reengineering
• Systems Reengineering
• Software Reengineering
• Infrastructure Reengineering
• Business Processes Reengineering (BPR)
Enterprise Systems Evolution

14
Flexible Business Processes

15
Source: SAP
Operational Excellence to Business
Agility

Source: SAP 16
Composite Application Environment
Deliver Variety of User Experience

Compose Processes Develop User Interfaces

Enterprise Service Repository

SAP ERP
Expose Best Practice Process Elements As Enterprise Services

17
SAP Overview
•Systems Applications & Products
 SAP

• Systemanalyse und Programmentwicklung (SAP)

was formed in Mannheim, Germany, in 1972 by five
former IBM systems analysts
• Systems, Applications, and Products in Data
Processing (SAP)
• Name of the software
– SAP R/2 – Mainframe version
– SAP R/3 – Client/Server version

© SAP AG - University Alliances. All rights reserved. 19

 Who is SAP?

• SAP AG
– Founded in Walldorf, Germany in 1972
– World’s Largest Business Software Company
– World’s Third-largest Independent Software Provider
• Company Statistics
– Over 65,000 employees in more then 75 countries
– 232,000+ customers in more then 180 countries
– 200,000+ installations
– 2,500+ Business Partners

Source: SAP AG website

 SAP Portfolio Strength
• World-wide usage
• Designed to satisfy the information needs for all
business sizes (small local to large all international)
– Multi-lingual
– Multi-currency
– Multi-balance (parallel G/L Accounting)
• Designed to satisfy the information needs for all
industries, e.g.
– Automotive
– Banking
– Retail
– Public Sector
– Higher Education and Research etc.
 SAP Enterprise Resource Planning
(SAP ERP)
• Enables a company to support and optimize its
business processes
• Ties together disparate business functions
(integrated business solution) such as
– Finance (Financial Accounting, Managerial Accounting,
Treasury, …)
– Logistics (Sales, Procurement, Production, Fulfillment,
…)
– Human Resources etc.
• Helps the organization run smoothly
• Real-time environment
• Scalable and flexible
 SAP Architecture

• Client/Server Environment
– Client – hardware/software environment that can make a
request for services for a central repository of resources
– Server – hardware/software combination that can
provide services to a group of clients in a controlled
environment

• Three – Tier Structure

– User Interface
• Graphical User Interface or Web Interface
– Application Server
• One or more, help distribute work load
– Database Server
• One single data repository
 SAP R/3 : 3 Tier Architecture
The Presentation Layer
Those SAP R/3 software components that
specialize in interacting with end-users
form the Presentation Layer.

The Application Layer

Those SAP R/3 software components that
specialize in processing business
applications form the Application Layer.

The Database Layer

Those SAP R/3 software components that

specialize in the management , storage and
retrieval of data form the Database Layer

© SAP AG - University Alliances. All rights reserved. 24

12/28/2023
 SAP R/3 : 3 Tier Architecture

Application Layer Database Layer

Presentation Layer
components components components

reside in: reside in: reside in:

Presentation servers: Application servers: Database servers:

Systems capable of Specialized systems Specialized systems
providing a graphical multiple CPUs and with fast and large
interface. vast amounts of RAM. hard drives.
© SAP AG - University Alliances. All rights reserved.
25 12/28/2023
 SAP ECC 6
 SAP for Aerospace & DefenseSAP for <Industry>
 SAP for Automotive
mySAP ERP is a
 Service Management for SAP Packaged solution located in
<Industry> Solutions mySAP Business Suite
 Financial Insights for <Industry>

SAP xApps mySAP Business Suite SAP Smart

Business Solutions
 SAP xApp Resource mySAP PLM
& Program Mgmt mySAP SAP


 SAP xApp Product mySAP ERP All-in-One Business
mySAP Analytics mySAP One
Definition Financials
SRM Human Resources CRM
 SAP xApp Mergers &
Corporate Services
Acquisition Operations
 ...
mySAP SCM

SAP NetWeaver SAP


 SAP Enterprise Portal  SAP Business Intelligence  --- Business
One
 SAP Master Data Mgmt  SAP Exchange Infrastructure  ... Server

© SAP AG - University Alliances. All rights reserved. 26

mySAP Business Suite
mySAP Business Suite

mySAP PLM
Life-Cycle-Data, Project-,
Quality- and Asset Management

mySAP ERP
Purchase Order
Requisitioning

Internet Sales
mySAP mySAP

Sales Order
Analytics
Financials
Human Resources
SRM Corporate Services
Operations
CRM
Inventory & Warehouse Mgmt.
Manufacturing & Transportation

mySAP SCM

SAP NetWeaver

© SAP AG - University Alliances. All rights reserved. 27

 How mySAP ERP differs from SAP R/3 Enterprise?
Strategic E-Learning and Manager and Financial Supply
Enterprise E-Recruiting Employee Self Chain Management
Analytics
Management Services

Self Services

Strategic Enterprise
Analytics Financial Analytics Operations Analytics Workforce Analytics
Management

Financial Supply Chain

Financials Corporate Governance Financial Accounting Management Accounting
Management

Human Capital Employee Relationship Employee Lifecycle Employee Transaction

Workforce Deployment
Management Management Management Management

Operations: Inventory Sales Order Service Order

Purchasing Manufacturing Distribution
Value Generation Management Management Management

Operations: Product Structure

Project Management Quality Management Asset Management
Support Management

Incentive and Commission Real Estate

Corporate Services Travel Management Environment, Health & Safety
Management Management

Solution and Integration

People Integration Information Integration Process Integration Application Platform
Platform

Internet Sales
Exchange
SAP NetWeaver Enterprise Business Infrastructure
Portal Warehouse

Mobile Business Self-Service Procurement People-Centric ERP

© SAP AG - University Alliances. All rights reserved. 28

 Integrated Business Solutions
Software Vendors

• SAP
• Oracle (Peoplesoft and J.D. Edwards)
• Microsoft – Great Plains, Axapta, Solomon
• IBM
• BAAN

© SAP AG - University Alliances. All rights reserved. 29

 Relational Database

• Tables: Defines and links thousands of tables of

information (25,000+)
• Advantages
– Consistent and accurate data
– Common definitions for terms
– Shared, but restricted usage (e.g., profiles)
– Eliminates data redundancy

© SAP AG - University Alliances. All rights reserved. 30

 Example of How SAP Work

• Step 1 : Brazilian retailer orders, via the Internet,

1,000 shoes from International Shoe Co. A sales
rep takes the order, routes it to SAP’s ordering
module, SAP checks the retailer credit, price, etc.
The order is approved.
• Step 2 : Simultaneously SAP’s inventory module
checks the stocks and notifies the rep that half
the order can be filled immediately from stock.
The other half will be manufactured and
delivered in 5 days directly from the factory in
Taiwan.
© SAP AG - University Alliances. All rights reserved. 31
 Example of How SAP Work
• Step 3 : SAP’s manufacturing module schedules
the production in Taiwan and instructs the
warehouse (in China) to ship the shoes to Brazil
and print up an invoice (in Portuguese).
• Step 4 : SAP’s human resources module calculates
labor requirements. Due to a shortage, the
personnel manager in Taiwan is instructed to get
temporary workers.
• Step 5 : SAP’s material planning module notifies the
purchasing manager about a shortage of purple
dye. A purchase order is automatically issued.
© SAP AG - University Alliances. All rights reserved. 32
 Example of How SAP Work

• Step 6 : The customer logs on via the

extranet to the company’s sneakers
division. He can see that 500 shoes were
shipped from the regional warehouse. This
is done with SAP tracing capabilities.
• Step 7 : Based on data from SAP’s
forecasting and financial modules, the CEO
can determine both demand and profitability
per product. The financial module also
converts all foreign money to $U.S.,
whenever needed
© SAP AG - University Alliances. All rights reserved. 33
mySAP ERP Modules

SD FI
Sales and Financial
Distribution Accounting
MM CO
Materials Controlling
PP Mgmt.
Production
SM Planning
ECC6 AM
Fixed Assets
Mgmt. EC
Service Enterprise
Mgmt.
QM Integrated Business PS
Controlling
Quality
Project
Mgmt.
PM Solution WF System
Plant Maintenance Workflow
HR IS
Human Industry
Resources Solutions

© SAP AG - University Alliances. All rights reserved. 34

 SAP Basics

• Instance – each install of the SAP software on

an individual application server

• Configurable – each instance can be

distinctively configured to fit the needs and
desires of the customer (within limits)

• Most of the infrastructure decisions, including

configuration decisions, occur during project
implementation

© SAP AG - University Alliances. All rights reserved. 35

 Configuration

• The process of tailoring SAP software by

selecting specific functionality from a list of those
supported by the software, very much like
setting defaults (e.g., Word, Access)

• DOES NOT involve changes to the underlying

software code

© SAP AG - University Alliances. All rights reserved. 36

 Programming Code Modifications

• Changes to the delivered code

• ABAP/4 – Advanced Business Application

Programming (ABAP)

• This should be done sparingly and carefully as it

can make migration to new versions of the
software much more difficult

© SAP AG - University Alliances. All rights reserved. 37

 SAP Document Principle

• Each business transaction that writes data to the

database creates a uniquely numbered
electronic document
• Each document contains information such as
– Responsible person
– Date and time of the transaction
– Commercial content
• Once created, a document can not be deleted
from the database

© SAP AG - University Alliances. All rights reserved. 38

 ERP Implementation

• Primary task in implementation is setting

configuration options in the ERP software
– With SAP, it has been estimated that there are about
8,000 configuration settings possible
• Configuration settings customize the software so
that it fits the company’s needs
• Example: Tolerance groups in Financial Accounting
– To minimize the risk from unauthorized transactions,
tolerance groups can be established to limit the dollar
value of transactions that can be posted by different
employee groups
39
© SAP AG - University Alliances. All rights reserved.
 ERP Solution Components

Infrastructure
20%

Implementation ERP Software

60% 20%

© SAP AG - University Alliances. All rights reserved. 40

 Best Practices
• Before ERP, IS people designed software to reflect a
company’s business practices
• With ERP software, the software developers have used
their experience with a number of companies to develop
“best practices”
• Best Practices represent the way an ERP company
feels a particular business transaction should be carried
out to maximize efficiency
• While customers can customize their ERP systems to
represent their own particular way of doing business,
straying too far from “best practices” might mean that
they will not get the benefits the ERP integration
promises © SAP AG - University Alliances. All rights reserved. 41
Business Process Integration

SAP Configuration
 SAP Enterprise System

SD FI
Sales and Financial
Distribution Accounting
MM CO
Materials Controlling
PP Mgmt.
Production
SM Planning
ECC6 AM
Fixed Assets
Mgmt. EC
Service Client / Server Enterprise
Mgmt.
QM Integrated Business PS
Controlling
Quality
Project
Mgmt.
PM Solution WF System
Plant Maintenance Workflow
HR IS
Human Industry
Resources Solutions

© SAP AG - University Alliances. All rights reserved. 43

 SAP ERP Business Modules

• Collections of logically related transactions within

identifiable business functions
– MM (“Buy”)
– PP (“Make”)
– SD (“Sell”)
– FI and CO (“Track”)
– HCM (“People”)
– WM (“Store”)
– EAM (“Maintain”)
– CS (“Service”)
 SAP ERP Core Applications
• Logistics
 Human Capital Management
- Personnel Management
- Benefits
– Sales & Distribution - Payroll
– Materials
Management
– Production Planning
– Plant Maintenance
– Quality Management
• Finance
– Financial Accounting
– Managerial
Accounting
– Asset Management
–
 SAP Basics
• Instance – each install of the SAP software
on an individual application server
• Configurable – each instance can be
distinctively configured to fit the needs and
desires of the customer (within limits)
• Most of the infrastructure decisions,
including configuration decisions, occur
during project implementation
• Each Instance is a Client
• Each Client is an Enterprise

© SAP AG - University Alliances. All rights reserved. 46

 Configuration

• The process of tailoring SAP software by selecting

specific functionality from a list of those supported
by the software, very much like setting defaults
(e.g., Word, Access)
• DOES NOT involve changes to the underlying
software code
• Configuration will allow you to configure your Co. to
a Client
• Do not try to customize the SAP to suit your
requirement rather map your process to SAP

© SAP AG - University Alliances. All rights reserved. 47

 Configuration

• Configuration is a critical exercise, which leads to

success or failure
• 30,000 Menu Items
• 9 Parallel Sessions
• F1 & F4 for online Help

© SAP AG - University Alliances. All rights reserved. 48