Business Functions and Processes

Business Functions

• Business functions are specific operational areas.
• Functional areas are isolated but dependent on each other for information, such as supply chain management needing sales data from various departments to determine order quantities.
• Lack of integration between functional areas can make information retrieval inefficient.
• Integrating functional areas may lead to workflow improvements.

Business Processes

• Activities taking one or more inputs to create valuable output for the customer.
• Business processes are customer-centric.
• Effective data sharing within functional areas results in efficient business processes.
• Integrated information systems enable data sharing among functional areas.
• A sales order process uses a customer's purchase request as input and generates a customer order as output through marketing and sales team processing.

Business Functions vs. Processes

• Business functions involve functional areas focusing on their steps and the big picture.
• Business processes improve functional areas to execute steps in a process.

Example Business Functions

• In a retail company, departments independently operate the Sales team which only focuses on selling, the Warehouse team which manages inventory without communicating with Sales, and the Customer Support team which handles complaints, without knowing much about the sales process.
• Isolated departments lead to inefficiencies like selling out-of-stock products or poor customer service.

Example Business Process

• In an order fulfillment process, multiple departments work together with: Sales team taking orders, the Warehouse checking stock and shipping products, Finance processes payments, and Customer Support tracks deliveries and handles issues
• This cross-functional approach improves efficiency, reduces errors, and enhances customer satisfaction

From Business Processes to Services

• Business processes can be used to produce a service.
• A service can be provided as software.
• Users access services via an app.
• Business models must adjust to accommodate changes in pricing, revenue streams, approach, and customer interaction.

ERP Systems History

Pre-1960s

• EOQ (Economic Order Quantities) was used.
• Mainframe computing was present.

1960s-1970s: Early Manufacturing Software

• Focus on inventory tracking and Material Requirements Planning (MRP).
• Mainframe computers managed production schedules.

1980s: Expansion & Database Management

• Introduction of MRP II (Manufacturing Resource Planning) improved production and scheduling.
• Relational databases efficiently stored and managed large business data.

1990s: Birth of ERP

• Businesses needed integration across departments.
• SAP, Oracle, and PeopleSoft became leading ERP vendors.
• ERP expanded beyond manufacturing to cover all business processes.

2000s-Present: Modern ERP & Cloud

• Cloud-based ERP adoption for flexibility and remote access.
• Automation, real-time reporting, and AI-driven analytics have improved over time.
• ERP integrates with e-commerce, IoT, and mobile applications.

Why ERP?

• Eliminates data silos
• Improves efficiency & decision-making
• Provides real-time data sharing
• Streamlines business processes across departments

ERP Systems Costs & Benefits

Costs of ERP Systems

• High purchase and implementation costs make it expensive to buy and set up.
• Time-consuming deployment can take months or years.
• Employee training requires significant time and money.
• Business disruptions can cause temporary productivity loss during implementation.

Benefits of ERP Systems

• Integrates all departments, eliminating silos.
• Streamlines operations, reducing costs by using efficient business processes.
• Ensures accurate, real-time information through centralized data and reporting.
• Improves decision-making through quick Management analysis.
• Scalability & Growth allows ERP to grow with the business.
• ERP increases long-term efficiency and cost savings, despite being complex and expensive

ERP System Illustration: Before vs. After

• Legacy systems (islands of automation) can connect via enterprise application integration (EAI) to simplify and automate business processes to the greatest extent possible, while at the same time avoiding having to make sweeping changes to the existing applications or data structures It is not as optimal as having an integrated system, common database, and common technical infrastructure

Value Chain

• Value chain encompasses every step a business takes, from raw materials to the end customer.
• The goal of value chain is to maximize value for the customer.
• Focus on increasing perceived value.
• A value chain enhances brand and product experience (e.g., Apple).

Supply Chain

• It produces and delivers goods through the flow of materials, information, and resources.
• Supply chain includes sourcing, production, distribution, and logistics.
• The goal is to deliver products efficiently based on demand.
• A supply chain ensures fast deliveries and inventory management (e.g., Amazon).

Key Differences

Value Chain

• Focus: Creating customer value
• Goal: Enhancing quality & branding
• Processes: Innovation, marketing, service
• Example: Apple's premium branding

Supply Chain

• Focus: Moving products efficiently
• Goal: Reducing costs & improving speed
• Processes: Procurement, manufacturing, logistics
• Example: Amazon's fast shipping network
• A strong value chain makes a desirable product.
• A well-optimized supply chain ensures timely and cost-effective delivery.
• Both must work together for business success.

Supply Chain Management

• SCM reduces costs, improves efficiency, enhances customer satisfaction, strengthens supplier relationships, and manages risks.
• Reduced costs cut inventory, production, and logistics expenses.
• Improved efficiency speeds up production and delivery.
• Enhanced customer satisfaction ensures on-time delivery and quality.
• Strengthened supplier relationships build trust and reliability.
• Managed risks prevent supply disruptions.

Five Basic SCM Processes:

• Plan: Develop strategies to meet demand.
• Source: Choose reliable suppliers.
• Make: Manufacture and assemble products.
• Deliver: Distribute products efficiently.
• Return: Handle returns and recycling.
• Strong SCM means lower costs, better service, and business success.

Supply Chain Analysis

• It examines the movement of materials, information, and money through supply chains.
• Identifies inefficiencies, reduces costs, and improves performance.
• Ensures products reach customers on time and at the lowest cost.

Key Components

• Upstream: Suppliers provide raw materials.
• Internal: Manufacturing, assembly, and inventory management.
• Downstream: Distribution and delivery to customers.

Illustration

• Upstream: Supplier to Factory
• Internal: Manufacturing to Warehouse
• Downstream: Distribution to Retailer to Customer
• Complete chain: T3 → T2 → T1 → Factory → Manufacturing → Warehouse → Distribution → Retailer → Customer