Enterprise Resource Planning (ERP)

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Enterprise Resource Planning(ERP)

• ? ? ?
• Department of Computer Information
  Systems College of Business Eastern Michigan
  University

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Agenda

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

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ERP

• A collection of software systems that help to
  manage business processes for an entire
  organization
• Designed to integrate all information processing
  support for an entire organization

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Organization

• A group of people engaged in purposeful activity
  over extended time
• A tool used to coordinate in order to obtain
  Value for organizational goals

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How an Organization Creates Value
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Business Process

• Work activities across time and place, with a
  beginning, an end, and clearly identified inputs
  and outputs (Davenport, 1993)
• Has sequence, purpose, interaction

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Example ERP HR Module
HR processes
BENEFITS
RECRUITING
TRAINING
payroll programs, personnel files, health plan
documents, recruiting, Servers networks,
etc.
IT resources
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Theme of ERP

• Reflects assumptions about the way companies
  operate
• Provides the integration of all the information
  flowing through a company
• i.e.,
• Financial/accounting information
• HR information
• Customer information

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An Organization with ERP

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

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Differences between Function Process
Function Process
Focus on What Focus on How
Vertical Horizontal
Static Dynamic
Task-centered Customer-oriented
Individual/Specialist Team/Generalist
Parochial Holistic
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Cross-functional Processes i.e., Product
Development
MARKETING
PRODUCTION
R D
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ERP for Organizational Value Chain
Support
Infrastructure, HR, RD, Procurement
Primary
Inbound logistics
Operations
Outbound logistics
Marketing Sales
Service

• Stream of activities
• Applies to both products and services

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Business Process Reengineering (BPR)

• An organization fundamentally and radically
• redesigns its business process to achieve
• dramatic improvement
• From the restructuring of an organization
• To the redesigning of individual processes

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BPR Example - Loan processingDesk-to-desk
approach
credit reporting
Origination of loan
pre- qualification
document generation
application processing
credit analysis underwriting
approval closing
Servicing of loan
payment processing
escrow management
customer service
collections foreclosures
Follow-up processing
valuation risk analysis
transfer to secondary mkt
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BPR example - Loan processingTeam approach
Loan origination team
Regional production center
Field rep laptop
Loan servicing team
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ERP Strategic Issues

• Compelling reasons - efficiencies
• Organization change - better than current
• Strategic advantage - gaining an advantage

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ERP Tactical Issues

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

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Operational Issues ERP Implementation

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

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ERP Benefits Eli Lilly SAP R/3 Implementation

• Process Improvements
• Eliminate redundant transactions
• More efficient staff and succession planning
• IT
• Reduced support costs
• Reduced infrastructure costs
• Strategic Direction
• Improved resource allocation
• More flexible organization
• Better future decision making

• Highlights
• 45 global sites
• Implementation by 2002 delayed to 2004
• Single client, servers in Indianapolis
• Approx. 70 person implementation now over
  100 involved

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ERP Vendors

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

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ERP Market (META Group, 2003)

• 15B globally in 2002 and growing at 12-15
  annually
• Satisfied at least 75 of the overall business
  application requirements
• Mission-critical functionality
• ERP regarded as core IT investments

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Key Findings about ERP Market

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

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• SAP R/3 Overview

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About SAP AG from www.sap.com

• Founded in W. Germany in 1972
• World's largest enterprise software and
  third-largest software supplier
• SAP R/3 - Collaborative business solutions for
  all types of industries
• 12 million users, 88,700 installations, and over
  1,500 partners
• 7.5B revenue in 2004, More than 32,000 employees
  in over 50 countries

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Partial SAP Client List
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Client

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

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Organizational Elements

• Structures that represent the and/or
  organizational views of an enterprise
• Company structure based on business processes
• A framework that supports all business activities

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Master Data

• Centrally and available to all applications and
  all authorized users
• In the database over an extended period of time

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Transactions

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

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Financial Accounting (FI) Controlling
(CO)Modules
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FI and CO Comparison
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FI/CO Organizational Structures

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

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Company

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

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Chart of Accounts

• The chart of accounts contains
• A complete listing of G/L accounts in FI
• Cost and revenue elements in CO
• Each company code is assigned to one chart of
  accounts

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General Ledger Accounts

• Every account to be posted in FI must be defined
  as a G/L account master record
• Each G/L account master record contains
  information that specifies the function of that
  account
• e.g., balance sheet vs. PL account

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Materials Management (MM) Module
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Procurement Process
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Organizational Elements for the Procurement
Process

• Client
• Company Code
• Plant
• Storage Location
• Purchasing Organization
• Purchasing Group

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Company Code

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

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Plant

• A plant is an organizational unit within a
  company to produces goods, renders services, or
  distributes goods
• A plant can be one of the following types of
  locations
• Manufacturing facility
• Warehouse distribution center
• Regional sales office
• Corporate headquarters

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Storage Location

• An organizational unit for the differentiation
• of material stocks within a plant

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Purchasing Organization and Groups

• Groups can be a further division of purchasing
  responsibility and/or structure
• Centralized or Decentralized
• Hybrid - multiple organizations buy for multiple
  plants

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Vendor Master

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

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Production Planning Execution (PP)Module
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Material Requirements Planning (MRP)

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

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

• Forward scheduling
• Starts when the order is received
• Results in completion before the due date
• Backward scheduling
• The last operation on the routing is scheduled
  first
• Previous operations are scheduled back from the
  last one

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Sales and Distribution (SD)Module
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Organizational Unit
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SD Master Data

• Customer - Sale organization
• Various relationship
• Customer account (i.e, credit, invoice payment)
• Material - Plant
• Sales status, Material type, etc.
• Pricing
• A technique for prices to be executed in the order

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SD Processes
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Human Resources (HR) ManagementModule
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SAP HR Processes
Course Credit
Recruitment
Hiring
Cost Planning Reporting
Training and Personnel Development
Employee Self-Service
Managing Work Time
Travel Planning
Payroll Administration
Compensation Benefits
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Identifying Qualified Candidates
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The Hiring Action Creating Infotypes
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Travel Requesting and Planning
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Travel Expense Accounting
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Benefits Plans Infotypes
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Administering Compensation Awards
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Running Payroll
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HR Integration
Logistics
Financial Accounting
Controlling
SAP HR
Sales and Distribution
Workflow
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ERP Trends

• Further integration of suppliers customers
• Focus on ERP system flexibility
• Mass customization
• Standard interfaces across chain

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Extended ERP
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ERP Motivations

• Original ERP Design - Internal
• Supply chain relationships requirements
• Improved interactions communications
• Opportunities with suppliers customers
• Manufacturers surveyed had supply chain
  extensions to ERP
• More planned to have extensions
• Open systems for supply chains

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ERP Vendor Response

• mySAP.com - open, collaborative system for SAP
  non-SAP software
• SAP APO - forecasting, scheduling, other
  logistics activities
• PeopleSoft - enterprise performance management
• JDEdwards - planning execution
• Oracles 11i - Planning Scheduling

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• Questions/Answers
• or
• email me at schung1_at_emich.edu