Concepts in Enterprise Resource Planning PDF

About the Presentations The presentations cover the objectives found in the opening of each chapter. All chapter objectives are listed in the beginning of each presentation. You may customize the presentations to fit your class needs. Some figures from the chapters are included. A co...

About the Presentations The presentations cover the objectives found in the opening of each chapter. All chapter objectives are listed in the beginning of each presentation. You may customize the presentations to fit your class needs. Some figures from the chapters are included. A complete set of images from the book can be found on the Instructor Resources disc. 1  Concepts in Enterprise Resource Planning Fourth Edition Chapter One Business Functions and Business Processes  Objectives After completing this chapter, you will be able to: Name the main functional areas of operation used in business Differentiate between a business process and a business function Identify the kinds of data each main functional area produces Identify the kinds of data each main functional area needs Define integrated information systems, and explain why they are essential in today’s globally competitive business environment Concepts in Enterprise Resource Planning, Fourth Edition 3  Introduction Enterprise Resource Planning (ERP) programs: Core software used by companies to coordinate information in every area of business – Help manage companywide business processes – Use common database and shared management reporting tools Business process: Collection of activities that takes some input and creates an output that is of value to the customer example Concepts in Enterprise Resource Planning, Fourth Edition 4  Functional Areas and Business Processes To understand ERP, you must understand how a business works – Functional areas of operation – Business processes Concepts in Enterprise Resource Planning, Fourth Edition 5  Functional Areas of Operation Marketing and Sales (M/S) Supply Chain Management (SCM) Accounting and Finance (A/F) Human Resources (HR) Business functions: Activities specific to a functional area of operation Concepts in Enterprise Resource Planning, Fourth Edition 6  Functional Areas of Operation (cont’d.) Figure 1-1 Examples of functional areas of operation and their business functions Concepts in Enterprise Resource Planning, Fourth Edition 7 Functional Areas of Operation (cont’d.) Functional areas are interdependent – Each requires data from the others Better integration of functional areas leads to improvements in communication, workflow, and success of company Information system (IS): Computers, people, procedures, and software that store, organize, and deliver information Concepts in Enterprise Resource Planning, Fourth Edition 8  Business Processes Collection of activities that takes one or more kinds of input and creates an output that is of value to customer – Customer can be traditional external customer or internal customer Thinking in terms of business processes helps managers to look at their organization from the customer’s perspective Concepts in Enterprise Resource Planning, Fourth Edition 9  Business Processes (cont’d.) Input Functional operation Process Output Request to purchase Marketing Sales Sales Order Order is generated smartphone Financal help to Accounng and Finance Arranging financing Customer finance purchase inhouse through smart phone company Fulfillment of order SCM Shipping and Delivery Customer recieves smart phone Technical Support HR 24 hr help desk Customers tech query resolved Figure 1-2 Sample business processes related to the sale of a personal smartphone Concepts in Enterprise Resource Planning, Fourth Edition 10  Business Processes (cont’d.) Businesses must always consider customer’s viewpoint in any transaction Successful customer interaction – Customer (either internal or external) is not required to interact with each business function involved in the process Successful business managers view business operations from the perspective of a satisfied customer Concepts in Enterprise Resource Planning, Fourth Edition 11  Business Processes (cont’d.) Sharing data effectively and efficiently between and within functional areas leads to more efficient business processes Integrated information systems: Systems in which functional areas share data Concepts in Enterprise Resource Planning, Fourth Edition 12  Business Processes (cont’d.) Figure 1-3 A process view of business Concepts in Enterprise Resource Planning, Fourth Edition 13  Business Processes (cont’d.) Businesses take inputs (resources) and transform these inputs into goods and services for customers – Inputs: Material, people, equipment Managing inputs and business processes effectively requires accurate and up-to-date information Concepts in Enterprise Resource Planning, Fourth Edition 14  Functional Areas and Business Processes of a Very Small Business Example: A fictitious coffee shop – Examine business processes of the coffee shop – See why coordination of functional areas helps achieve efficient and effective business processes – Look at how integration of the information system improves the business Concepts in Enterprise Resource Planning, Fourth Edition 15  Marketing and Sales Functions of Marketing and Sales – Developing products – Determining pricing – Promoting products to customers – Taking customers’ orders – Helping create a sales forecast Concepts in Enterprise Resource Planning, Fourth Edition 16  Marketing and Sales (cont’d.) Marketing and Sales tasks for the coffee shop – Formal recordkeeping not required – Need to keep track of customers – Product development can be done informally – Good repeat customers allowed to charge purchases—up to a point Records must show how much each customer owes and his or her available credit Concepts in Enterprise Resource Planning, Fourth Edition 17  Supply Chain Management Functions within Supply Chain Management – Making the coffee (manufacturing/production) – Buying raw materials (purchasing) Production planning requires sales forecasts from M/S functional area – Sales forecasts: Analyses that attempt to predict the future sales of a product Concepts in Enterprise Resource Planning, Fourth Edition 18  Supply Chain Management (cont’d.) Production plans used to develop requirements for raw materials and packaging – Raw materials: Bottled spring water, fresh lemons, artificial sweetener, raw sugar – Packaging: Cups, straws, napkins SCM and M/S must choose a recipe for each coffee product sold Concepts in Enterprise Resource Planning, Fourth Edition 19  Accounting and Finance Functions within Accounting and Finance – Recording raw data about transactions (including sales), raw material purchases, payroll, and receipt of cash from customers Raw data: Numbers collected from sales, manufacturing and other operations, without any manipulation, calculation, or arrangement for presentation Concepts in Enterprise Resource Planning, Fourth Edition 20  Accounting and Finance (cont’d.) Data from Accounting and Finance used by Marketing and Sales and Supply Chain Management – Sales records are important component of sales forecast – Sales forecast is used in making staffing decisions and in production planning – Records from accounts receivable used to monitor the overall credit-granting policy of the coffee shop Concepts in Enterprise Resource Planning, Fourth Edition 21  Human Resources Functions of Human Resources – Recruit, train, evaluate, and compensate employees HR uses sales forecasts developed by the individual departments to plan personnel needs Systems integrated using ERP software provide the data sharing necessary between functional areas Concepts in Enterprise Resource Planning, Fourth Edition 22  Functional Area Information Systems Potential inputs and outputs for each functional area described next Note the kinds of data needed by each area and how people use the data Information systems maintain relationships between all functional areas and processes Concepts in Enterprise Resource Planning, Fourth Edition 23  Marketing and Sales Needs information from all other functional areas Customers communicate orders to M/S in person or by telephone, e-mail, fax, the Web, etc. M/S has a role in determining product prices – Pricing might be determined based on a product’s unit cost, plus some percentage markup – Requires information from Accounting and Finance, and Supply Chain Management data Concepts in Enterprise Resource Planning, Fourth Edition 24  Marketing and Sales (cont’d.) Figure 1-4 The Marketing and Sales functional area exchanges data with customers and with the Human Resources, Accounting and Finance, and Supply Chain Management functional areas Concepts in Enterprise Resource Planning, Fourth Edition 25  Marketing and Sales (cont’d.) M/S needs to interact with Human Resources to exchange information on hiring needs, legal requirements, etc. Inputs for M/S – Customer data – Order data – Sales trend data – Per-unit cost – Company travel expense policy Concepts in Enterprise Resource Planning, Fourth Edition 26  Marketing and Sales (cont’d.) Outputs for M/S – Sales strategies – Product pricing – Employment needs Concepts in Enterprise Resource Planning, Fourth Edition 27  Supply Chain Management Needs information from various functional areas Production plans based on information about product sales (actual and projected) that comes from Marketing and Sales With accurate data about required production levels: – Raw material and packaging can be ordered as needed – Inventory levels can be kept low, saving money Concepts in Enterprise Resource Planning, Fourth Edition 28  Supply Chain Management (cont’d.) Supply Chain Management data and records can: – Provide data needed by Accounting and Finance to determine how much of each resource was used – Support the M/S function by providing information about what has been produced and shipped Supply Chain Management interacts in some ways with Human Resources Concepts in Enterprise Resource Planning, Fourth Edition 29  Supply Chain Management (cont’d.) Figure 1-5 The Supply Chain Management functional area exchanges data with suppliers and with the Human Resources, Marketing and Sales, and Accounting and Finance functional areas Concepts in Enterprise Resource Planning, Fourth Edition 30  Supply Chain Management (cont’d.) Inputs for SCM – Product sales data – Production plans – Inventory levels – Layoff and recall company policy Concepts in Enterprise Resource Planning, Fourth Edition 31  Supply Chain Management (cont’d.) Outputs for SCM – Raw material orders – Packaging orders – Resource expenditure data – Production and inventory reports – Hiring information Concepts in Enterprise Resource Planning, Fourth Edition 32  Accounting and Finance Needs information from all other functional areas A/F personnel: – Record company’s transactions in the books of account – Record accounts payable when raw materials are purchased and cash outflows when they pay for materials – Summarize transaction data to prepare reports about company’s financial position and profitability Concepts in Enterprise Resource Planning, Fourth Edition 33  Accounting and Finance (cont’d.) People in other functional areas provide data to A/F – M/S provides sales data – SCM provides production and inventory data – HR provides payroll and benefit expense data M/S personnel require data from A/F to evaluate customer credit Concepts in Enterprise Resource Planning, Fourth Edition 34  Accounting and Finance (cont’d.) Figure 1-6 The Accounting and Finance functional area exchanges data with customers and with the Human Resources, Marketing and Sales, and Supply Chain Management functional areas Concepts in Enterprise Resource Planning, Fourth Edition 35  Accounting and Finance (cont’d.) Inputs for A/F – Payments from customers – Accounts receivable data – Accounts payable data – Sales data – Production and inventory data – Payroll and expense data Concepts in Enterprise Resource Planning, Fourth Edition 36  Accounting and Finance (cont’d.) Outputs for A/F – Payments to suppliers – Financial reports – Customer credit data Concepts in Enterprise Resource Planning, Fourth Edition 37  Human Resources HR needs information from the other departments Tasks related to employee hiring, benefits, training, and government compliance are all responsibilities of HR HR needs accurate forecasts of personnel needs from all functional units HR needs to know what skills are needed to perform a particular job and how much the company can afford to pay employees Concepts in Enterprise Resource Planning, Fourth Edition 38  Human Resources (cont’d.) Figure 1-7 The Human Resources functional area exchanges data with the Accounting and Finance, Marketing and Sales, and Supply Chain Management functional areas Concepts in Enterprise Resource Planning, Fourth Edition 39  Human Resources (cont’d.) Observing governmental regulations in recruiting, training, compensating, promoting, and terminating employees Inputs for HR – Personnel forecasts – Skills data Concepts in Enterprise Resource Planning, Fourth Edition 40  Human Resources (cont’d.) Outputs for HR – Regulation compliance – Employee training and certification – Skills database – Employee evaluation and compensation Concepts in Enterprise Resource Planning, Fourth Edition 41  Human Resources (cont’d.) Significant amount of data is maintained by and shared among the functional areas Timeliness and accuracy of these data critical to each area’s success and to company’s ability to make a profit and generate future growth ERP software allows all functional areas to share a common database – Allows accurate, real-time information to be available Concepts in Enterprise Resource Planning, Fourth Edition 42  Summary Basic functional areas: Marketing and Sales, Supply Chain Management, Accounting and Finance, and Human Resources Marketing and Sales: Sets product prices, promotes products through advertising and marketing, takes customer orders, supports customers, and creates sales forecasts Supply Chain Management: Develops production plans, orders raw materials from suppliers, receives raw material, manufactures products, maintains facilities, and ships products to customers Concepts in Enterprise Resource Planning, Fourth Edition 43  Summary (cont’d.) Accounting and Finance: Financial accounting to provide summaries of operational data in managerial reports, controlling accounts, planning and budgeting, and cash-flow management Human Resources: Recruits, hires, trains, and compensates employees, ensures compliance with government regulations, and oversees the evaluation of employees Information systems capture, process, and store data to provide information needed for decision making Concepts in Enterprise Resource Planning, Fourth Edition 44  Summary (cont’d.) Employees working in one functional area need data from employees in other functional areas – Functional area information systems should be integrated, so shared data are accurate and timely Managers think in terms of business processes that integrate the functional areas – Need to share information between functions and functional areas – ERP software provides this capability by means of a single common database Concepts in Enterprise Resource Planning, Fourth Edition 45 Concepts in Enterprise Resource Planning 4th Edition Chapter Two The Development of Enterprise Resource Planning Systems Concepts in Enterprise Resource 1 Planning, 4th Edition  Objectives After completing this chapter, you will be able to: Identify the factors that led to the development of Enterprise Resource Planning (ERP) systems Describe the distinguishing modular characteristics of ERP software Discuss the pros and cons of implementing an ERP system Summarize ongoing developments in ERP Concepts in Enterprise Resource Planning, 4th Edition 2  Introduction Efficient, integrated information systems are very important for companies to be competitive An Enterprise Resource Planning (ERP) system can help integrate a company’s operations – Acts as a company-wide computing environment – Includes a database that is shared by all functional areas – Can deliver consistent data across all business functions in real time Concepts in Enterprise Resource Planning, 4th Edition 3 The Evolution of Information Systems Silos – Companies had unintegrated information systems that supported only the activities of individual business functional areas Current ERP systems evolved as a result of: – Advancement of hardware and software technology (computing power, memory, and communications) – Development of a vision of integrated information systems – Reengineering of companies to shift from a functional focus to a business process focus Concepts in Enterprise Resource Planning, 4th Edition 4  Computer Hardware and Software Development Computer hardware and software developed rapidly in the 1960s and 1970s First practical business computers were the mainframe computers of the 1960s not powerful enough to provide integrated Over time, computers got faster, smaller, and cheaper – Moore’s Law Number of transistors that could be built into a computer chip doubled every 24 months Concepts in Enterprise Resource Planning, 4th Edition 5  Computer Hardware and Software Development (cont’d.) Advancements in computer software – 1970s: relational database software developed Provide businesses the ability to store, retrieve, and analyze large volumes of data – 1980s: spreadsheet software became popular Managers can easily perform complex business analyses Concepts in Enterprise Resource Planning, 4th Edition 6  Early Attempts to Share Resources By the mid-1980s, telecommunications developments allowed users to share data and peripherals on local networks – Client-server architecture Scalability is a characteristic of client-server networks Scalability means that the capacity of a piece of equipment can be increased by adding new hardware By the end of the 1980s, the hardware and software needed to support development of ERP systems was in place fast computers, networked access, and advanced database technology Database management system (DBMS) required to manage development of complex ERP software existed Concepts in Enterprise Resource Planning, 4th Edition 7  The Manufacturing Roots of ERP Manufacturing software developed during the 1960s and 1970s – Evolved from simple inventory-tracking systems to material requirements planning (MRP) software – Is a production-scheduling methodology that determines the timing and quantity of production runs and purchase-order releases to meet a master production schedule – The basic functions of MRP could be handled using : Electronic data interchange (EDI) (Direct computer-to-computer exchange of standard business documents)  Allowed companies to handle the purchasing process electronically Concepts in Enterprise Resource Planning, 4th Edition 8  Management’s Impetus to Adopt ERP Hard economic times of the late 1980s and early 1990s caused many companies to downsize and reorganize – Stimulus to ERP development Inefficiencies caused by the functional model of business organization – Silos of information Limits the exchange of information between the lower operating levels the exchange of information between operating groups is handled by top management Concepts in Enterprise Resource Planning, 4th Edition 9  Management’s Impetus to Adopt ERP (cont’d.) Figure 2-2 Information and material flows in a functional business model Concepts in Enterprise Resource Planning, 4th Edition 10  Management’s Impetus to Adopt ERP (cont’d.) Functional model led to top-heavy and overstaffed organizations incapable of reacting quickly to change Process business model – Information flows between the operating levels without top management’s involvement Further impetus for adopting ERP systems has come from compliance with the Sarbanes-Oxley Act of 2002 Requires companies to substantiate internal controls on all information – a federal law passed in response to the accounting fraud discovered at large companies Concepts in Enterprise Resource Planning, 4th Edition 11  Management’s Impetus to Adopt ERP (cont’d.) Figure 2-3 Information and material flows in a process business model Concepts in Enterprise Resource Planning, 4th Edition 12  ERP Software Emerges: SAP and R/3 1972: five former IBM systems analysts in Mannheim, Germany formed Systems Analysis and Program Development (SAP) – Later the acronym was changed to (Systems, Applications and Products in Data Processing) SAP’s goals: – Develop a standard software product that could be configured to meet the needs of each company – Data available in real time – Users working on computer screens, rather than with voluminous printed output Concepts in Enterprise Resource Planning, 4th Edition 13  SAP Begins Developing Software Modules During their work for German chemical company ICI, Plattner and Hopp had developed the idea of modular software development Software modules: individual programs that can be purchased, installed, and run separately, but that all extract data from the common database 1982: SAP released its R/2 mainframe ERP software package Concepts in Enterprise Resource Planning, 4th Edition 14 Concepts in Enterprise Resource Planning, 4th Edition 15  SAP Begins Developing Software Modules (cont’d.) 1980s: sales grew rapidly; SAP extended its software’s capabilities and expanded into international markets – because the software had to be able to accommodate different languages, currencies, accounting practices, and tax laws By 1988, SAP had established subsidiaries in numerous foreign countries – launched a joint venture with consulting company Arthur Andersen, and sold its 1,000th system Concepts in Enterprise Resource Planning, 4th Edition 16  SAP R/3 1988: SAP began development of its R/3 system to take advantage of client-server technology 1992: first version of SAP R/3 released – run on a variety of computer platforms, including UNIX and Windows NT – SAP R/3 system was designed using an open architecture approach – Open architecture: third-party software companies encouraged to develop add-on software products that can be integrated with existing software – add-on Refers to a product designed to complement another product makes it easy for companies to integrate their hardware products, such as bar-code scanners, (PDAs), cell phones. Concepts in Enterprise Resource Planning, 4th Edition 17  New Directions in ERP Late 1990s: Year 2000 problem (Y2K) motivated many companies to move to ERP systems By 2000, SAP AG (is a German multinational software corporation that makes enterprise software to manage business operations and customer relations) had 22,000 employees in 50 countries and 10 million users at 30,000 installations around the world By 2000, SAP’s competition in the ERP market: – Oracle – PeopleSoft Late 2004: Oracle succeeded in its bid to take over PeopleSoft Concepts in Enterprise Resource Planning, 4th Edition 18  Companies Concepts in Enterprise Resource Planning, 4th Edition 19  New Directions in ERP (cont’d.) PeopleSoft – Founded by David Duffield, a former IBM employee – Today, PeopleSoft, under Oracle, is a popular software choice for managing human resources and financial activities at universities Oracle- ORACLE ERP – SAP’s biggest competitor – Began in 1977 as Software Development Laboratories (SDL) – Founders: Larry Ellison, Bob Miner, and Ed Oates won a contract from the Central Intelligence Agency (CIA) to develop a system(Oracle), to manage large volumes of data and extract information quickly Concepts in Enterprise Resource Planning, 4th Edition 20  New Directions in ERP (cont’d.) SAP ERP – Latest versions of ERP systems by SAP and other companies allow: All business areas to access the same database Elimination of redundant data and communications lags Data to be entered once and then used throughout the organization Concepts in Enterprise Resource Planning, 4th Edition 21  New Directions in ERP (cont’d.) Figure 2-4 Data flow within an integrated information system Concepts in Enterprise Resource Planning, 4th Edition 22  New Directions in ERP (cont’d.) Current SAP ERP system: SAP ECC 6.0 (Enterprise Central Component 6.0) – Sales and Distribution (SD) module records sales orders and scheduled deliveries – Materials Management (MM) module manages the acquisition of raw materials from suppliers – Production Planning (PP) module maintains production information (planned, scheduled, and actual) – Quality Management (QM) module such as product inspections and material certifications – Plant Maintenance (PM) module manages maintenance resources and planning for preventive maintenance Concepts in Enterprise Resource Planning, 4th Edition 23  New Directions in ERP (cont’d.) Current SAP ERP system: SAP ECC 6.0 (Enterprise Central Component 6.0) (cont’d.) – Asset Management (AM) module manage fixed-asset purchases (plant and machinery) – Human Resources (HR) module facilitates employee recruiting, hiring,training,payroll and benefits – Project System (PS) module facilitates the planning for and control over new research and development (R&D), construction, and marketing projects – Financial Accounting (FI) module records transactions in the general ledger accounts Concepts in Enterprise Resource Planning, 4th Edition 24  – Controlling (CO) module serves internal management purposes – Workflow (WF) module not automates a specific business function a set of tools that can be used to automate any of the activities in SAP ERP works well for business processes that occur frequently such as preparing customer invoices. Concepts in Enterprise Resource Planning, 4th Edition 25  New Directions in ERP (cont’d.) Figure 2-5 Modules within the SAP ERP integrated information systems environment (Courtesy of SAP AG) Concepts in Enterprise Resource Planning, 4th Edition 26  SAP ERP Software Implementation Not all companies that use SAP use all of the SAP ERP modules Company’s level of data integration is highest when it uses one vendor to supply all of its modules Additional Software needed when the company uses modules from different vendors. Configuration options allow the company to customize the modules it has chosen to fit the company’s needs Example: companies with out factories. Concepts in Enterprise Resource Planning, 4th Edition 27  SAP ERP Software Implementation (cont’d.) Tolerance groups – Specific ranges that define transaction limits – SAP has defined the tolerance group methodology as its method for placing limits on an employee – Configuration allows the company to further tailor tolerance group methodology Example Concepts in Enterprise Resource Planning, 4th Edition 28  SAP ERP Software Implementation (cont’d.) Figure 2-6 A customization example: tolerance groups to set transaction limits Concepts in Enterprise Resource Planning, 4th Edition 29  SAP ERP Software Implementation (cont’d.) Features of SAP ERP – First software that could deliver real-time ERP integration – Usability by large companies – High cost New hardware, newer version of ERP software – Automation of data updates When data are entered into the system, data in all related files in the central database are automatically updated. – Applicability of best practices Best practices: SAP’s software designers choose the best, most efficient ways in which business processes should be handled Concepts in Enterprise Resource Planning, 4th Edition 30  ERP for Midsized Companies By 1998 – Most of the Fortune 500 companies had already installed ERP systems – ERP vendors refocused their marketing efforts on midsized companies SAP All-in-One – Single package containing specific, preconfigured bundles of SAP ERP tailored for particular industries – Can be installed more quickly than the standard ERP product Concepts in Enterprise Resource Planning, 4th Edition 31  Responses of the Software to the Changing Market In mid-1990s, many companies complained about the difficulty of implementing SAP R/3 system SAP responded by developing Accelerated SAP (ASAP) implementation methodology – Eases the implementation process SAP continues to extend capabilities of SAP ERP with additional, separate products that run on separate hardware and extract data from the SAP ERP system Concepts in Enterprise Resource Planning, 4th Edition 32  Choosing Consultants and Vendors One person cannot fully understand a single ERP system or compare various systems. Because ERP software packages are so large and complex Before choosing a software vendor, most companies: – Study their needs – Hire an external team of software consultants to help choose the right software vendor(s) and the best approach to implementing ERP Concepts in Enterprise Resource Planning, 4th Edition 33 Concepts in Enterprise Resource Planning, 4th Edition 34  The Significance and Benefits of ERP Software and Systems The integrated information systems more efficient business processes that cost less than those in unintegrated systems Easier global integration – Barriers of currency exchange rates , language, and culture can be bridged automatically Integrates people and data while eliminating the need to update and repair many separate computer systems – EX: Boeing Allows management to manage operations, not just monitor them Can dramatically reduce costs and improve operational efficiency – EX: EZ-FLO International, Inc improve its inventory management processes and has eliminated its annual inventory count Concepts in Enterprise Resource Planning, 4th Edition 35  Questions About ERP How much does an ERP system cost? Should every business buy an ERP package? Is ERP software inflexible? What return can a company expect from its ERP investment? How long does it take to see a return on an ERP investment? Why do some companies have more success with ERP than others? Concepts in Enterprise Resource Planning, 4th Edition 36  How Much Does an ERP System Cost? Size of the ERP software – Corresponds to the size of the company it serves Need for new hardware that is capable of running complex ERP software Consultants’ and analysts’ fees Time for implementation – Causes disruption of business Training – Costs both time and money Concepts in Enterprise Resource Planning, 4th Edition 37  Should Every Business Buy an ERP Package? Some of a business’s operations, and some segments of its operations, might not be a good match with the constraints of ERP Ex: U.S. retailer Walmart Sometimes, a company is not ready for ERP ERP implementation difficulties result when management does not fully understand its current business processes and cannot make implementation decisions in a timely manner Concepts in Enterprise Resource Planning, 4th Edition 38  What Return Can a Company Expect from Its ERP Investment? ERP eliminates redundant efforts and duplicated data; – can generate savings in operations expense ERP system can help produce goods and services more quickly; – more sales can be generated every month. Company that doesn’t implement an ERP system might be forced out of business by competitors that have an ERP system Smoothly running ERP system can save a company’s personnel, suppliers, distributors, and customers much frustration Concepts in Enterprise Resource Planning, 4th Edition 39  What Return Can a Company Expect from Its ERP Investment? (cont’d.) Cost savings and increased revenues occur over many years – Difficult to put an exact dollar figure to the amount accrued from the original ERP investment ERP implementations take time – Other business factors may be affecting the company’s costs and profitability Difficult to isolate the impact of the ERP system alone ERP systems provide real-time data – Improve external customer communications improve customer relationships and increase sales Concepts in Enterprise Resource Planning, 4th Edition 40  How Long Does It Take to See a Return on an ERP Investment? Return on investment (ROI): assessment of an investment project’s value – Calculated by dividing the value of the project’s benefits by the project’s cost ERP system’s ROI can be difficult to calculate Peerstone Research study – 63 percent of companies that performed the calculation reported a positive ROI for ERP – Most companies felt that nonfinancial goals were the reason behind their ERP installations Concepts in Enterprise Resource Planning, 4th Edition 41  Is ERP Software Inflexible? Many people claim that ERP systems, especially the SAP ERP system, are rigid SAP ERP does offer numerous configuration options – that help businesses customize the software to fit their unique needs – Programmers can write specific routines using Advanced Business Application Programming (ABAP) Once an ERP system is in place, trying to reconfigure it while retaining data integrity is expensive and time- consuming – It is much easier to customize an ERP program during system configuration , before any data have been stored Concepts in Enterprise Resource Planning, 4th Edition 42 Why Do Some Companies Have More Success with ERP Than Others? Usually, a bumpy rollout and low ROI are caused by people problems and misguided expectations, not computer malfunctions – Executives blindly hoping that new software will cure fundamental business problems that are not curable by any software – Executives and IT managers not taking enough time for a proper analysis during planning and implementation phase – Executives and IT managers skimping on employee education and training Concepts in Enterprise Resource Planning, 4th Edition 43 Why Do Some Companies Have More Success with ERP Than Others? (cont’d.) – Companies not placing ownership or accountability for the implementation project on the personnel who will operate the system – Unless a large project such as an ERP installation is promoted from the top down, it is doomed to fail – ERP implementation brings a tremendous amount of change for users. Managers need to effectively manage that change in order to ensure a smooth implementation. Concepts in Enterprise Resource Planning, 4th Edition 44  The Continuing Evolution of ERP Understanding the social and business implications of new technologies is not easy – Ex:Microsoft founder Bill Gates did not appreciate the importance of the Internet until 1995, by which time Netscape controlled the bulk of the Internet browser market ERP systems have been in common use only since the mid-1990s – ERP vendors are working to solve adaptability problems that plague customers Concepts in Enterprise Resource Planning, 4th Edition 45  Summary Several developments in business and technology allowed ERP systems to : – Speed and power of computing hardware increased exponentially, while cost and size decreased – Early client-server architecture provided the conceptual framework for multiple users sharing common data – Increasingly sophisticated software facilitated integration, especially in two areas: A/F and manufacturing resource planning Concepts in Enterprise Resource Planning, 4th Edition 46  Summary (cont’d.) Growth of business size, complexity, and competition made business managers demand more efficient and competitive information systems SAP AG produced a complex, modular ERP program called R/3 – Could integrate a company’s entire business by using a common database that linked all operations SAP R/3, now called SAP ERP, is modular software offering modules for Sales and Distribution, Materials Management, Production Planning, Quality Management, and other areas Concepts in Enterprise Resource Planning, 4th Edition 47  Summary (cont’d.) ERP software is expensive to purchase and time- consuming to implement, and it requires significant employee training—but the payoffs can be spectacular – For some companies, ROI may not be immediate or even calculable Experts anticipate that ERP’s future focus will be on applications for mobile devices and providing instant access to large volumes of data. Concepts in Enterprise Resource Planning, 4th Edition 48  Enterprise Resource Planning (ERP) systems are core software programs used by companies to integrate and coordinate information in every area of the business using a common database and shared management reporting tools.  A business process is a collection of activities that takes one or more input and creates an output, such as a report/forecast, that is of value to the customer.  Enterprise ERP software integrates the tasks related to sales, marketing, manufacturing, logistics, accounting, and staffing— throughout a business.  ERP helps to coordinate the customers and suppliers and improve the work that is done within a company and between companies . Functional Areas of Operation  Most companies have 4 main functional areas of operation: 1. Marketing and Sales (M/S), 2. Supply Chain Management (SCM), 3. Accounting and Finance (A/F), and 4. Human Resources (HR).  Each functional area consists of many business functions, which are activities specific to that functional area of operation.  Examples of business functions of each area are shown in Figure below.  Note that the functional areas are interdependent, each requiring data from the others.  The customer for a business process may be a traditional external customer (person who buys finished product), or it may be an internal customer (a colleague in another department).  For example, what is sold through Marketing and Sales is linked to what is procured and produced by Supply Chain Management and also with Accounting.  This concept is illustrated in Figure below:  Consider the example illustrated in Figure above of a customer who wants to purchase a new smartphone.  The customer wants information about the company’s products so she can select a smartphone and high-tech accessories for the phone.  He wants to place his order quickly and easily, and even arrange for financing through the company.  He expects quick delivery of correct model smartphone, and wants 24-hour customer support for any problems.  The customer is not concerned about how the smartphone was marketed, how its components were purchased, how it was built, or how the delivery truck will find the best route to his house.  The customer wants latest mobile phone at a reasonable price.  Businesses must consider customer’s viewpoint in any transaction. What is the difference between a business function and a business process from the customer’s point of view?  Suppose customer’s mobile phone is damaged during shipment.  Because only one functional area is involved in accepting the return of the damaged item, receipt of the return is a business function and it is part of the customer relationship management function of Marketing and Sales.  Because several functional areas are involved in the repair and return of the mobile phone back to the customer, handling of the repair is a business process. What is the difference between a business function and a business process from the customer’s point of view?  A successful customer interaction is one in which the customer (internal or external) is not required to interact separately with each business function involved in the process.  For the mobile phone company to satisfy its customers, it must make sure its functional areas of operation are integrated.  Mobile phone technology changes rapidly, and the devices the phone company sells change frequently.  To provide customers with accurate information, people performing the sales function must have up-to-date information about the latest mobile phones available for sale; otherwise, a customer might order a smartphone that the company’s manufacturing plant no longer produces.  People performing the manufacturing function need to receive the details of a customer’s smartphone order quickly and accurately from the employee performing the sales function, so the right phone can be packaged and shipped on time to the customer.  If the customer is financing the smartphone, employees performing sales order function must gather information about customer and process it quickly, so financing can be approved in time to support shipping the phone.  Information systems designed such that functional areas share data are called integrated information systems and they can help managers better control their organizations.  With information flow, communication between parts of company improves, productivity increases, costs decrease.  Figure below shows process view of business operations.  Businesses take inputs (resources) in the form of material, people, and equipment, and transform these inputs into goods and services for customers.  Effectively managing these inputs and business processes requires accurate and up-to-date information.  For e.g, sales staff takes a customer’s order, and production employees schedule the manufacturing of the product.  Logistics employees schedule and carry out delivery of goods  If raw materials are needed to make the product, purchasing staff has to arrange for their purchase and delivery.  Logistics will receive raw material, verify its receipt to accounting so vendor can be paid so that they can deliver goods to the production  Throughout, accounting keeps transaction records. Many financial institutions do not have integrated information systems. Why?  Banks were the first to adopt information systems, many of their systems are legacy (old) systems that would be difficult and expensive to update.  Many banks have gone through multiple phases of acquisition, which results in duplicate information systems.  Government regulations have brought additional systems. Many financial institutions do not have integrated information systems. Why?  And many financial organizations write their own proprietary systems for market trading to meet their competition.  In addition, financial tracking is performed on spreadsheets, which may not be connected to any integrated system.  Most systems written are for rapid trading, not for regulation or for tracking anomalies that could lead to problems.  Let us see the business processes of a coffee shop and see why coordination of the functional areas helps to achieve efficient and effective business processes.  Marketing and Sales (M/S) functions include developing products, determining pricing, promoting products to customers, and taking customers’ orders.  Marketing and Sales helps to create a sales forecast to ensure the successful operation of the coffee shop.  This is a cash business, but we still need to keep track of our customers so we can send flyers or occasional thank-you notes to repeat customers.  Thus, our records must not only show the amount of sales, but also identify repeat customers.  For product development, we need to gather information about who buys which kind of coffee and note what customers say about each product.  We should analyze historical sales records to spot trends that are not obvious.  To determine whether the new product could be profitably produced and sold, we could analyze data from Supply Chain Management, including production information (cost of purchasing an extra coffee machine to make the decaffeinated brew) and materials management data (cost of decaffeinated coffee beans and chai tea).  Our records must show how much each customer owes as well as his available credit.  Since Accounting and Finance records must be accessed as a part of the selling process, accounting function has a critical role to play in the sales process.  The functions within Supply Chain Management (SCM) include developing production plans, ordering raw materials from suppliers, receiving the raw material into the facility, manufacturing products, maintaining facilities, and shipping products to customers.  In our coffee shop example, Supply Chain Management functions involve making the coffee (manufacturing /production) and buying raw materials (purchasing).  Production is planned so that coffee is available when needed, without excess that must be disposed of.  This planning requires sales forecasts from the Marketing and Sales functional area.  Sales forecasts are estimates of future product demand, which is amount of a product customers will want to buy.  A forecast’s accuracy will be improved if it is based on historical sales figures (factors such as cold weather or local social events would impact forecast for a given time period).  Production plans are also used to develop requirements for raw materials (coffee beans, tea bags, sugar, cream, and milk) and packaging (cups, stirrers, straws, plates, and napkins).  We must generate raw material and packaging orders from these requirements.  If the forecasts are accurate, we will not lose sales because of material shortages, nor will we have excessive inventory that might spoil.  Supply Chain Management and Marketing and Sales must choose a recipe for each product sold, such as the quantity of coffee beans used to brew each cup of coffee.  The standard recipe is a key input for deciding how much to order of each raw material, which is a purchasing function.  Managers can then compare how much it actually costs to make a cup of coffee, versus how much the recipe should have cost.  Accounting and Finance (A/F) performs financial accounting to provide summaries of operational data in reports, and it is also responsible for tasks such as controlling accounts, planning and budgeting, and cash- flow management.  Accounting and Finance functions include recording raw data about sales transactions, raw material purchases, payroll, and receipt of cash from customers.  Raw data are numbers collected from sales, manufacturing, and other operations—without any manipulation, calculation, or arrangement for presentation.  Those data are then summarized in meaningful ways to determine the profitability of the coffee shop and to support decision making.  Note that data from Accounting and Finance are used by Marketing and Sales as well as by Supply Chain Management.  The sales records are an important component of sales forecast, which is used in making staffing decisions and in production planning.  We need to be sure we have enough cash on hand to purchase raw materials, as well as to finance the purchase of new equipment, such as an additional coffee machine for decaffeinated coffee. Human Resources  Business needs employees to support Marketing and Sales and Supply Chain Management functional areas, which means the business must recruit, train, evaluate, compensate employees.  At the coffee shop, number of employees needed and the timing of hiring depend on the coffee and tea sales.  HR uses sales forecasts to plan personnel needs. Human Resources  A part-time helper might be needed at forecasted peak hours or days, but how much should a part-time helper be paid?  That depends on job market conditions and state laws, and it is Human Resources’ job to monitor those conditions.  Would increased sales justify hiring a part-time worker at the prevailing wage? or, should we think about acquiring more automated ways of making coffee.  Resolving these questions requires input from Marketing and Sales, Supply Chain Management, Accounting and Finance.  Here we consider potential inputs and outputs for each functional area of a business.  Note the kinds of data needed by each area and how people use the data.  Note that information systems maintain relationships between all functional areas and processes. Marketing and Sales  As shown in Figure below, Marketing and Sales (M/S) area needs information from all other functional areas to complete business activities.  Customers communicate their orders to sales staff in person or by telephone, email, fax, Web, and so on.  In Web-based systems, customer and order data are stored automatically in the information system; otherwise, data must be entered manually, by typing data into a computer or point-of-sale system, or by using a bar-code reader.  Sales orders must be passed to SCM for planning purposes and to Accounting and Finance for billing.  Sales order data are valuable for analyzing sales trends for business decision making.  Marketing and Sales management use the trend of a product’s sales to evaluate marketing efforts and to determine strategies for the sales team.  Marketing and Sales has a role in determining product prices, which requires an understanding of market competition and the costs of manufacturing the product.  Pricing might be determined based on a product’s unit cost, plus some percentage of margin.  If a product costs Rs.50 per unit to make, and management wants a 40% margin, selling price must be Rs.70 per unit.  Determining the cost of manufacturing a product requires information from Accounting and Finance, which, in turn, relies on Supply Chain Management data.  People are a valuable asset to the firm, and Marketing and Sales needs to interact with HR to exchange information on hiring needs, legal requirements, and other matters.  For e.g, when Marketing and Sales has an opening for a junior salesperson, HR do advertise for the job vacancy.  HR might communicate information about expense reimbursement policies to salespeople who travel. Inputs for Marketing and Sales include following:  Customer data  Order data  Sales trend data  Per-unit cost  Company travel expense policy Outputs for Marketing and Sales include following:  Sales strategies  Product pricing  Employment needs Supply Chain Management  Manufacturing firms develop production plans of short-range, medium- range, and long-range plans.  Plans are developed for expanding manufacturing capacity (based on sales forecasts), hiring new workers, paying extra overtime for existing workers.  Production plans are based on info about product sales (actual and projected), which comes from M/S.  The purchasing function bases its orders of raw materials on production plans, expected shipments, delivery lead times, and existing inventory levels.  With accurate data about required production levels, raw material and packaging can be ordered as needed, and inventory levels can be kept low to save money.  If data are inaccurate, manufacturing may run out of raw material or packaging; such a shortfall is called a stockout.  Shortages of this type can shut down production and cause the company to miss delivery dates.  To avoid stockouts, management might choose to carry extra raw material and packaging, known as safety stock, which can result in an overinvestment in inventory.  If certain time-sensitive goods are held long, they can spoil and will have to be destroyed rather than sold for profit.  Accurate forecasting and production planning can reduce the need for extra inventory and manufacturing capacity.  SCM can share its planning info with company’s suppliers so they can plan their operations efficiently, which should allow suppliers to reduce the price of items they supply.  SCM records can provide data needed by Accounting and Finance to determine how much of each resource (materials, labor, supplies, and overhead) was used to make completed products in inventory.  SCM data can support M/S function by providing information about what has been produced and shipped.  For e.g, Amazon provide detailed information on customer orders through their Web sites, and some send automated emails to notify customers when their orders have shipped.  Shipping companies, such as UPS and FedEx, provide online shipment- tracking info. By entering a tracking number, the customer can see each step of the shipping process.  Domino’s Pizza allows customers who order through their Web site to track the progress of their pizza order— from preparation to baking to delivery.  Accurate production info can increase customer satisfaction.  SCM passes hiring information to HR, and HR informs SCM about the company’s layoff and recall policy, which might be related to workers in the plant. Inputs for Supply Chain Management include following:  Product sales data  Production plans  Inventory levels  Layoff and recall company policy Outputs for SCM include the following:  Raw material orders  Packaging orders  Resource expenditure data  Production and inventory reports  Hiring information Accounting and Finance  Accounting and Finance personnel record the company’s transactions in the books of account (computerized records).  For example, they record accounts receivable when sales are made and cash receipts when customers send in payments.  They record accounts payable when raw materials are purchased and cash outflows when they pay for materials.  Finally, Accounting and Finance personnel summarize the transaction data to prepare reports about the company’s financial position and profitability.  Employees in other functional areas provide data to Accounting and Finance:  Marketing and Sales provides sales data, Supply Chain Management provides production and inventory data, and Human Resources provides payroll and benefit expense data.  M/S personnel require data from Accounting and Finance to evaluate customer credit.  If an order will cause a customer to exceed his or her credit limit, M/S should see that the customer’s accounts receivable balance (the amount owed to the company) is too high and hold new orders until the customer’s balance is lowered.  If Accounting and Finance is slow to record sales, the accounts receivable balances will be inaccurate, and Marketing and Sales might approve credit for customers who have already exceeded their credit limits and who might never pay off their accounts.  If Accounting and Finance does not record customers’ payments promptly, the company could deny credit to customers who actually owe less than their credit limit, potentially damaging the company’s relationship with those customers. Inputs for Accounting and Finance include following:  Payments from customers  Accounts receivable data  Accounts payable data  Sales data  Production and inventory data  Payroll and expense data Outputs for Accounting and Finance include the following:  Payments to suppliers  Financial reports  Customer credit data Human Resource  Tasks related to employee hiring, benefits, training and government compliance are responsibilities of HR division.  HR staff need accurate forecasts of personnel needs from all functional units. HR needs to know what skills are required to perform a particular job and how much the company can afford to pay employees (also come from all functional units)  State and central laws require companies to follow many governmental regulations in recruiting, training, compensating, promoting, and terminating employees.  HR need to ensure that employees receive training in a timely manner and they get certified (or recertified) in key skills, such as materials handling and equipment operation.  ERP software allows all functional areas to share a common database so that accurate, real-time information is available.  HR must disburse wages, salaries, increments, and bonuses.  HR should maintain a database of skills required to do particular jobs and the prevailing pay rate for each position.  When the company evaluates employees’ performance and compensation, analysis of these data can help to prevent the loss of valued employees because of low pay. Inputs for Human Resource include following:  Personnel forecasts  Skills data Outputs for Human Resource include the following:  Regulation compliance  Employee training and certification  Skills database  Employee evaluation and compensation Development of ERP Systems  In today’s competitive business environment, companies try to provide customers with goods and services faster and less expensively than their competition.  Key to do it is an efficient, integrated information system.  Increasing the efficiency of information systems results in more efficient management of business processes.  An Enterprise Resource Planning (ERP) system can help a company integrate its operations by serving as a company-wide computing environment that includes a shared database—delivering consistent data across all business functions in real time. THE EVOLUTION OF INFORMATION SYSTEMS  Until recently, a company would have a marketing information system, a production information system, and so on—each with its own hardware, software, and methods of processing data and information known as silos (un-integrated information system)  For example, suppose two functional areas have separate, unintegrated information systems.  To share data, a clerk in one functional area needs to print out data from another area and then enter the data into her area’s information system.  Not only does this data input take twice the time, it also significantly increases the chance for data entry errors.  Alternatively, this process might be automated by having one information system write data to a file to be read by another information system.  This would reduce the probability of errors, but it could only be done periodically (usually overnight or on a weekend) to minimize the disruption to normal business transactions.  Because of the time lag in updating the system, the transferred data would rarely be up to date.  In addition, data can be defined differently in different data systems; for e.g, products might be referred to by different part numbers in different systems.  This variance can create further problems in timely and accurate information sharing between functional areas. Computer Hardware and Software Development  The first practical business computers were the mainframe computers of the 1960s. But they were not able to provide integrated, real-time data for business decision making.  Computers got faster, smaller, and cheaper—leading to today’s PCs / Laptops and mobile devices.  Gordon Moore observed that number of transistors that could be built into a computer chip doubled every 24 months and it is observed as shown below.  During this time, software was advancing to take advantage of capabilities of computer hardware.  In the 1970s, relational database was developed, to store, retrieve, and analyze large volumes of data.  Spreadsheet software, became popular in the 1980s.  With spreadsheets, managers could perform many business analyses without having to rely on a computer programmer to develop custom programs.  Computer hardware and software developments of the 1960s - 1980s paved the way for the development of ERP systems. Early Attempts to Share Resources  In the PCs of 1980s, users were to share peripheral equipment (printers and hard disks, which were expensive in early 1980s) and, more importantly, data.  Important business information was stored on PCs, but there was no easy way to share info electronically.  By mid-1980s, telecommunications developments allowed users to share data and peripherals on local networks. These networks were groups of computers connected to one another within a single physical location.  This meant that workers could download data from a central computer to their desktop PCs and work with the data at their desks.  This central computer–local computer arrangement is called a client-server architecture.  Servers (central computers) became powerful and less expensive and provided scalability.  The ability to add servers makes the network scalable, extending the life of hardware investment. The Manufacturing Roots of ERP  Integrated information system took shape on the factory floor.  Manufacturing software advanced during 1970s, evolving from inventory-tracking systems to material requirements planning (MRP) software.  The plant manager first looked at Marketing and Sales’ forecast of customer demand, then looked at the production schedule needed to meet that demand, calculated the raw materials needed to meet the required production levels, and finally, projected the cost of those raw materials.  For a company with many products, raw materials, and shared production resources, this kind of projection was impossible without a computer to keep track of various inputs.  Basic functions of MRP was simplified with the advent of electronic data interchange (EDI) that allowed companies to handle the purchasing process electronically, avoiding the cost and delays resulting from paper purchase order and invoice systems.  Supply Chain Management (SCM) began with the sharing of long-range production schedules between manufacturers and their suppliers.  In a process-oriented company, the flow of information and management activity is “horizontal” across functions, in line with the flow of materials and products.  The horizontal flow promotes flexibility and rapid decision making ERP Software : SAP and R/3  Acronym of SAP is Systems, Applications and Products in Data Processing.  In mainframe computer environment, SAP founders recognized that all companies developing computer software faced the same basic business problems, and each developed unique, but similar, solutions for their needs in payroll processing, accounting, materials management, and other functional areas of business.  SAP’s goal was to develop a standard software product that could be configured to meet the needs of each company.  Plattner and Hopp had developed software modules.  Software modules are individual programs that can be purchased, installed, and run separately, but all of the modules extract data from a common database.  SAP developed their first software package, called System R, System RF (for real- time financial accounting) & R/1.  In 1982, SAP released its R/2 mainframe ERP software package.  Here software had to be able to accommodate different languages, currencies, accounting practices, and tax laws.  In 1988, released its R/3 system to take advantage of client-server technology and it allowed one to run on a variety of computer platforms, including UNIX and Windows NT.  R/3 system was designed using an open architecture approach.  In open architecture, third-party software companies are encouraged to develop add-on software products that can be integrated with existing software.  The open architecture makes it easy for companies to integrate their hardware products, such as bar-code scanners, personal digital assistants (PDAs), cell phones, and global information systems with the SAP system.  Y2K problem led to a dramatic increase in business for ERP vendors in the late 1990s.  By 2000, SAP had competition in ERP market, namely from Oracle and PeopleSoft. Peoplesoft  PeopleSoft started out offering software for human resources and payroll accounting.  PeopleSoft’s success caused SAP to make significant modifications to its Human Resources module.  In 2003, PeopleSoft strengthened its offerings in the supply chain area with its acquisition of ERP software vendor JD Edwards.  In 2004, Oracle succeeded to take over PeopleSoft.  Currently Oracle offers PeopleSoft’s ERP solution under the PeopleSoft Enterprise Applications name; Oracle  Larry Ellison, Bob Miner, and Ed Oates, got orders from Central Intelligence Agency (CIA) to develop a system, called Oracle, to manage large volumes of data and extract information quickly.  In 1979, SDL became Relational Software, Inc.  The company changed its name again, to Oracle, and in 1986 released the client-server Oracle relational database.  In 1988 released Oracle Financials, a set of financial applications. Oracle  The financial applications suite of modules included Oracle Financials, Oracle Supply Chain Management, Oracle Manufacturing, Oracle Project Systems, Oracle Human Resources, and Oracle Market Management.  Oracle Financials was foundation for Oracle’s ERP product.  In 2005 Oracle acquired Siebel, a major customer relationship management (CRM) software company. Oracle  In 2010, Oracle acquired Sun Microsystems, a major manufacturer of computer hardware and software that developed the Java software development platform.  In 2010, to consolidate its customer base on a single software platform, Oracle released Fusion Applications, which is a software suite designed to give its PeopleSoft, JD Edwards, and Siebel customers a modular and flexible upgrade path to a single Oracle ERP solution.  An ERP system allows data to be entered once, and then used throughout the organization. In information systems, errors most frequently occur where human beings interact with the system. ERP systems ensure that data are entered only once, where they are most likely to be accurate.  For example, with access to real-time stock data, a salesperson taking an order can confirm the availability of the desired material.  When the salesperson enters the sales order into the system, the order data are immediately available to Supply Chain Management, so Manufacturing can update production plans, and Materials Management can plan the delivery of the order.  If the sales order data are entered correctly by the salesperson, then Supply Chain Management personnel are working with the same, correct data. The same sales data are also available to Accounting for invoice preparation.  Figure below shows major functional modules in the SAP ERP system, also known as SAP ECC 6.0 Basic functions of each of the modules are as follows:  The Sales and Distribution (SD) module records sales orders and scheduled deliveries. Information about the customer (pricing, address and shipping instructions, billing details, and so on) is maintained and accessed from this module.  The Materials Management (MM) module manages the acquisition of raw materials from suppliers (purchasing) and the subsequent handling of raw materials inventory, from storage to work-in-progress goods to shipping of finished goods to the customer. Basic functions of each of the modules are as follows:  The Production Planning (PP) module maintains production information. Here production is planned and scheduled, and actual production activities are recorded.  The Quality Management (QM) module plans and records quality control activities, such as product inspections and material certifications.  The Plant Maintenance (PM) module manages maintenance resources and planning for preventive maintenance of plant machinery in order to minimize equipment breakdowns. Basic functions of each of the modules are as follows:  The Asset Management (AM) module helps the company manage fixed-asset purchases (plant and machinery) and related depreciation.  The Human Resources (HR) module facilitates employee recruiting, hiring, and training. This module also includes payroll and benefits.  The Project System (PS) module facilitates the planning for and control over new research and development (R&D), construction, and marketing projects.  PS manages build to order items, which are low-volume, highly complex products such as ships and aircrafts. Basic functions of each of the modules are as follows:  Two financial modules, Financial Accounting (FI) and Controlling (CO), are described below,  The Financial Accounting (FI) module records transactions in the general ledger accounts. This module generates financial statements for external reporting purposes.  The Controlling (CO) module serves internal management purposes, assigning manufacturing costs to products and to cost centers so the profitability of the company’s activities can be analyzed.  The CO module supports managerial decision making Basic functions of each of the modules are as follows:  The Workflow (WF) module is a set of tools that can be used to automate any of the activities in SAP ERP.  It can perform task-flow analysis and prompt employees (by email) if they need to take action.  The Workflow module works well for business processes that are not daily activities but that occur frequently enough to be worth the effort to implement the workflow module—such as preparing customer invoices. SAP ERP Software Implementation  Not all use all of SAP ERP modules. Say, a company without factories wouldn’t select manufacturing related modules.  Another company might believe that its internally developed production and logistics software gives it a competitive advantage.  Generally, a company’s level of data integration is highest when the company uses one vendor to supply all its ERP modules.  When a company uses modules from different vendors, additional software must be created to get the modules to work together.   Frequently, companies integrate different systems using batch data transfer processes that are performed periodically.  Software upgrades of nonintegrated systems are problematic as we have to get software from different vendors to interact. SAP ERP Software Implementation  SAP’s NetWeaver development platform eases the integration of SAP ERP with other software products.  These configuration options allow the company to customize the modules it has chosen to fit its needs.  For e.g, in the Financial Accounting (FI) module, a business might need to define limits on the amount of money transactions that certain employees can process to minimize the risk of fraud and abuse.  In configuring the SAP system, a company can define tolerance groups, which are specific ranges that define transaction limits. ERP FOR MIDSIZED AND SMALLER COMPANIES  By 1998, many Fortune 500 companies had installed ERP systems, so ERP vendors refocused their efforts on midsized companies (those with fewer than 1,000 employees).  SAP developed SAP Business All-in-One, a single package containing specific, preconfigured bundles of SAP ERP tailored for particular industries, such as automotive, banking, chemicals, and oil and gas and can be installed more quickly than the standard ERP product.  To address the needs of smaller companies - less than 500 employees, SAP introduced SAP Business One with added reporting capabilities.  SAP has developed its BusinessByDesign product, which can be accessed through a Web browser.  It is an e.g of the software-as-a-service (SaaS) approach that eliminates the need for a company to buy and maintain the software and hardware to run an ERP application. How Much Does an ERP System Cost?  Scale of ERP corresponds to the size of company it serves  Need for new hardware for running complex ERP software  Consultants’ and analysts’ fees  Time required for implementation (disruption of business)  Training (which costs both time and money)  A large company, with well over 1,000 employees, will likely spend $100 million to $500 million for an ERP system with operations involving multiple countries, currencies, languages, and tax laws.  It might cost $30 million in software license fees, $200 million in consulting fees, millions to purchase new hardware, and millions to train employees—and full implementation of the new system could take four to six years. How Much Does an ERP System Cost?  A midsized company (< 1,000 employees) might spend $10 million to $20 million in total implementation costs and have its ERP system up and running in about two years.  A smaller company, with less than $50 million in annual revenue, is expected to pay $300,000 for an ERP implementation, and one with revenue of $100–250 million could spend around $1.4 million.  For smaller companies, implementations take about 10 months.  ERP systems also help companies track their energy consumption.  7-Eleven reduced its cooling energy usage by 12%  Dannon cut its fuel costs by 22% with better management of its transportation system  Kendall-Jackson wine makers cut their lighting bill by 40% using information from their ERP system THANK YOU  Module 2 Marketing Information Systems and the Sales Order Process Concepts in Enterprise Resource 1 Planning, 4th Edition  Objectives After completing this chapter, you will be able to: Describe the unintegrated sales processes of the fictitious Fitter Snacker company. Explain why unintegrated Sales and Marketing information systems lead to company-wide inefficiency, higher costs, lost profits, and customer dissatisfaction. Discuss sales and distribution in the SAP ERP system, and explain how integrated data sharing increases company-wide efficiency. Concepts in Enterprise Resource Planning, Third 4th Edition Edition 2  Objectives (cont’d.) Describe how SAP ERP processes a standard sales order Describe the benefits of customer relationship management software, a useful extension of ERP software Concepts in Enterprise Resource Planning, Third 4th Edition Edition 3  Introduction Fitter Snacker (FS) – Fictitious company that makes healthy snack bars – Does not have an integrated information system. Marketing and Sales (M/S) is the focal point of many of FS’s activities. FS’s M/S information systems are not well integrated with company’s other information systems – Company-wide use of transaction data is inefficient Concepts in Enterprise Resource Planning, 4th Edition 4  Overview of Fitter Snacker Manufactures and sells two types of nutritious snack bars: – NRG-A: “advanced energy” – NRG-B: “body building proteins” NRG-A contains carob chips and raisins, and NRG-B contains hazelnuts and dates. – Each bar contains the following ingredients Vitamins and minerals : important nutrients Dry base mixture : oats, wheat germ, protein powder and spices Wet base mixture : honey and canola oil Concepts in Enterprise Resource Planning, 4th Edition 5  Overview of Fitter Snacker Has organized its sales force into two groups, known as divisions: – Wholesale Division – Direct Sales Division Concepts in Enterprise Resource Planning, 4th Edition 6  Overview of Fitter Snacker (cont’d.) The two sales divisions differ in terms of quantities of orders and pricing terms Sells snack bars under the Fitter Snacker brand name Packages the bars in store-brand wrappers for some chain stores Concepts in Enterprise Resource Planning, 4th Edition 7  Problems with Fitter Snacker’s Sales Process Many of Fitter Snacker’s sales orders have problems, such as: – Incorrect pricing – Excessive calls to the customer for information – Delays in processing orders – Missed delivery dates Concepts in Enterprise Resource Planning, 4th Edition 8  Problems with Fitter Snacker’s Sales Process (cont’d.) Reasons for problems: – FS has separate information systems throughout the company for three functional areas: Sales order system Warehouse system Accounting system – High number of transactions that are handled manually (creates opportunity for error) – Information stored in the three systems is not available in real time (results in incorrect prices and credit information) Concepts in Enterprise Resource Planning, 4th Edition 9  Problems with Fitter Snacker’s Sales Process (cont’d.) Figure 3-1 The sales process Concepts in Enterprise Resource Planning, Third 4th Edition Edition 10  Sales Quotations and Orders Giving a customer a price quotation and then taking the customer’s order at FS – Sales call: salesperson either telephones the customer or visits in person – At the end of sales call, salesperson prepares a handwritten quotation on a form that generates two copies Original sheet goes to the customer Middle copy is first faxed and then mailed to the sales office Salesperson keeps the bottom copy for his or her records Concepts in Enterprise Resource Planning, 4th Edition 11  Sales Quotations and Orders (cont’d.) Giving a customer a price quotation and then taking the customer’s order at FS (cont’d.) Problems can occur with this process Inefficiencies in the rest of the ordering process – Determining the delivery date – Checking customer’s credit status – Entering customer’s order into the current order entry system Concepts in Enterprise Resource Planning, 4th Edition 12  Order Filling Packing lists and shipping labels – Printed twice a day – Hand-carried to the warehouse – At warehouse, hand-sorted into small orders and large orders Warehouse – Small-order packing area – Large-order packing area FS uses a PC database program to manage inventory levels in the warehouse Concepts in Enterprise Resource Planning, 4th Edition 13  Order Filling (cont’d.) FS keeps inventory levels fairly low, and inventory levels change rapidly during the day – Picker might go to the shelves to pick an order and discover that there are not enough of the desired type of snack bars to fill the order – To determine what to do in this situation, order picker might have conversations with warehouse supervisor, production supervisor, and sales clerks Concepts in Enterprise Resource Planning, 4th Edition 14  Accounting and Invoicing Invoicing the customer is problematic as well Sales clerks send the Accounting department the sales order data for customer invoices Accounting department loads the data into PC- based accounting program Clerks manually make adjustments for partial shipments and any other changes Sometimes, order corrections are delayed and don’t catch up to the invoicing process – Results in late or inaccurate invoices Concepts in Enterprise Resource Planning, 4th Edition 15  Payment and Returns Problems with procedure for processing payments – If any errors have occurred in the sales process, customer will receive an incorrect invoice – Many customers don’t return a copy of the invoice with their payment; errors can result Concepts in Enterprise Resource Planning, 4th Edition 16  Payment and Returns (cont’d.) FS’s returns processing is flawed – Many customers do not call for the Return material authorization (RMA) number, or fail to include it with their returned material Makes it more difficult for Accounting department to credit the appropriate account – Poor penmanship on the returned material sheet can create problems for Accounting If a customer’s account has not been properly credited, customer may receive a dunning letter in error Concepts in Enterprise Resource Planning, 4th Edition 17  Sales and Distribution in ERP ERP systems can minimize data entry errors and provide accurate information in real time to all users ERP systems can track all transactions (such as invoices, packing lists, Return material authorization (RMA) numbers, and payments) involved in the sales order Concepts in Enterprise Resource Planning, 4th Edition 18 Sales and Distribution in ERP (cont’d.) SAP ERP Sales and Distribution module treats the sales order process as a cycle of events: – Pre-sales activities – Sales order processing – Inventory sourcing – Delivery – Billing – Payment Concepts in Enterprise Resource Planning, 4th Edition 19  *Pre-Sales Activities Customers can get pricing information about the company’s products: – Through an inquiry or a price quotation Marketing activities such as tracking customer contacts, including sales calls, visits, and mailings Company can maintain data about customers and generate mailing lists based on specific customer characteristics Concepts in Enterprise Resource Planning, 4th Edition 20  Sales Order Processing Sales order processing: series of activities that must take place to record a sales order Sales order can start from a quotation or inquiry generated in the pre-sales step Information that collected from the customer to support the quotation (contact name, address, phone number) is immediately included in sales order Critical steps in sales order processing: – Recording the items to be purchased – Determining the selling price – Recording the order quantities Concepts in Enterprise Resource Planning, 4th Edition 21  Sales Order Processing (cont’d.) Users can define various pricing alternatives in the SAP ERP system – For example, a company can use product-specific pricing, such as establishing quantity discounts for a particular item, or it can define discounts that depend on both the product and a particular customer. SAP ERP system checks the Accounts Receivable tables in the SAP ERP database to confirm the customer’s available credit If customer has sufficient credit available – Order is completed If customer does not have sufficient credit available – SAP ERP system prompts sales personnel to take one of the possible appropriate actions Concepts in Enterprise Resource Planning, 4th Edition 22  Inventory Sourcing Available-to-Promise (ATP) check – SAP ERP system checks company’s inventory records and production planning records to see whether: Requested material is available Requested material can be delivered on the date the customer desires – Includes expected shipping time System can recommend an increase in planned production if a shortfall is expected System keeps a record of all open orders, so even if product for a particular order is still in the warehouse, the system will not allow it to be sold to another customer. Concepts in Enterprise Resource Planning, 4th Edition 23  Delivery Delivery in SAP ERP system – Releasing the documents that the warehouse uses to pick, pack, and ship orders Delivery process allows deliveries to be created so that the warehouse and shipping activities are carried out efficiently – for example, combining similar orders for picking, or grouping orders based on shipping method and destination Once the system has created documents for picking, packing, and shipping, documents are transferred to Materials Management module Concepts in Enterprise Resource Planning, 4th Edition 24  Billing SAP ERP system creates an invoice by copying sales order data into the invoice document Accounting can print this document and mail it, fax it, or transmit it electronically to the customer Accounting records are updated at this point SAP ERP debits (increases) accounts receivable and credits sales Concepts in Enterprise Resource Planning, 4th Edition 25  Payment When the customer sends in a payment, it is automatically processed by the SAP ERP system – Debits cash (increases) and credits (reduces) customer’s account If the customer sends a check, a clerk must manually enter the payment information, at which point the system updates all information related to the sale Timely recording of this transaction has an effect on the timeliness and accuracy of any subsequent credit checks for the customer Concepts in Enterprise Resource Planning, 4th Edition 26  A Standard Order in SAP ERP How Fitter Snacker’s sales order process would work with an SAP ERP system in place How the ERP system would make FS’s sales order process more accurate and efficient ERP allows business processes to cut across functional area lines Concepts in Enterprise Resource Planning, 4th Edition 27  Taking an Order in SAP ERP Order entry screen in SAP ERP’s 4.7 Enterprise system A unique number is assigned by the company to each customer in the database For most data entry fields, SAP ERP system determines whether an entry is valid Search screen for customers Concepts in Enterprise Resource Planning, 4th Edition 28  Taking an Order in SAP ERP (cont’d.) Figure 3-2 SAP ERP order entry screen Concepts in Enterprise Resource Planning, 4th Edition 29  Taking an Order in SAP ERP (cont’d.) Figure 3-3 Data entry fields in the order entry screen Concepts in Enterprise Resource Planning, 4th Edition 30  Taking an Order in SAP ERP (cont’d.) Figure 3-5 Search screen for customers Concepts in Enterprise Resource Planning, 4th Edition 31  Taking an Order in SAP ERP (cont’d.) Customer master data Master data: data that remain fairly stable such as customer name and address – Maintained in the central database and available to all SAP ERP modules Material master data – used by the Materials Management , Production Planning modules and Sales and Distribution module. Organizational structures – SAP ERP system allows the user to define various ways to group customers and salespeople – Distribution Channel – allows the user to define different ways for materials to be sold and distributed to the customer Concepts in Enterprise Resource Planning, 4th Edition 32  Taking an Order in SAP ERP (cont’d.) When a sales order is saved, SAP ERP system assigns a document number to the sales order transaction – When the sales order is ready to be processed by the warehouse, a delivery document will be created – Finally, when the bill (invoice) is prepared for the customer, the invoice number will be created SAP ERP system keeps track of the document numbers for the sales order – Employees can track status of an order while it is in process or research it after shipping Document flow in SAP ERP: linked set of document numbers related to an order Concepts in Enterprise Resource Planning, 4th Edition 33  Taking an Order in SAP ERP (cont’d.) Figure 3-9 The Document Flow tool, which links sales order documents Concepts in Enterprise Resource Planning, 4th Edition 34  Discount Pricing in SAP ERP When a company installs an ERP system, it can configure it for a number of pricing strategies Various kinds of discounts can be allowed – based on item number or for all items, based on unit price or total order value As a safeguard, system can enforce limits on the size of discounts – To keep salespeople from offering unprofitable or unapproved discounts. Condition technique – Control mechanism developed by SAP to accommodate various ways that companies offer price discounts Concepts in Enterprise Resource Planning, 4th Edition 35 *Discount Pricing in SAP ERP (cont’d.) Figure 3-10 Pricing conditions for sales order Concepts in Enterprise Resource Planning, 4th Edition 36  Integration of Sales and Accounting ERP systems integrate Accounting with all business processes When a sales order is recorded, related accounting data are updated automatically Concepts in Enterprise Resource Planning, 4th Edition 37  Integration of Sales and Accounting (cont’d.) Figure 3-12 Accounting detail for the West Hills sales order Concepts in Enterprise Resource Planning, 4th Edition 38  Customer Relationship Management Companies without a good connection between their workers and their customers run the risk of losing business Customer relationship management (CRM) software can help companies streamline their interactions with customers On-demand CRM: software and computer equipment reside with CRM provider Concepts in Enterprise Resource Planning, 4th Edition 39  Core CRM Activities One-to-one marketing – Once a customer is categorized, the company can tailor products, promotions, and pricing accordingly cross-selling, up-selling Sales force automation (SFA) – can automatically route certain customers who contact the company to a particular sales representative – forecast customer needs, based on the customer’s history and transactions Sales campaign management – organize a marketing campaign Concepts in Enterprise Resource Planning, 4th Edition 40  Core CRM Activities (Con’d.) Marketing encyclopedias – is an application with an online interface to a database of information that a sales person might want to help a customer make a purchase decision. – Information in the database might include brochures, product details,… Call center automation – When customers call a company to get assistance with a company’s products, representatives can query a knowledge – management database containing information about the product Concepts in Enterprise Resource Planning, 4th Edition 41  SAP’s CRM Software Examples of tools that provide CRM functionality within the SAP ERP system – Contact management tool A contact manager is a software program that enables users to easily store and find contact information, such as names, addresses and telephone numbers To make sure that information about sales contacts is available throughout the organization ?