Concepts in Enterprise Resource Planning: Chapter Three Marketing Information Systems and The Sales Order Process

Concepts in Enterprise
Resource Planning
Fourth Edition
Chapter Three
Marketing Information Systems and the
Sales Order Process
Objectives
After completing this chapter, you will be able to:

• Describe the unintegrated sales processes of the
fictitious Fitter Snacker company
• Explain why unintegrated Marketing and Sales
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, Fourth Edition 2

Objectives (cont’d.)
• Describe how SAP ERP processes a standard

sales order
• Describe the benefits of customer relationship
management (CRM) software

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

Overview of Fitter Snacker
• Manufactures and sells two types of nutritious

snack bars:
– NRG-A: “advanced energy”
– NRG-B: “body building proteins”
• Has organized its sales force into two groups,
known as divisions:
– Wholesale Division
– Direct Sales Division

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

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

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
– Information stored in the three systems is not
available in real time

Process (cont’d.)
Figure 3-1 The sales process

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
Sales Quotations and Orders (cont’d.)
• Giving a customer a price quotation and then

taking the customer’s order at FS (cont’d.)
– Quotation form has an 800 number that the
customer can call to place an order
• 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

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
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

Accounting and Invoicing
• Invoicing the customer is problematic

• 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
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

Payment and Returns (cont’d.)
• FS’s returns processing is flawed

– Many customers do not call for the 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

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, RMA numbers, and
payments) involved in the sales order

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

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

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 collected from the customer to support
the quotation 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
Sales Order Processing (cont’d.)
• Users can define various pricing alternatives in the

SAP ERP system
• 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

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

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
• Once the system has created documents for
picking, packing, and shipping, documents are
transferred to Materials Management module

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

Payment
• When the customer sends in a payment, it is

automatically processed by the SAP ERP system
– Debits cash and credits (reduces) customer’s
account
• Timely recording of this transaction has an effect
on the timeliness and accuracy of any subsequent
credit checks for the customer

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

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

Taking an Order in SAP ERP (cont’d.)
Figure 3-2 SAP ERP order entry screen

Figure 3-3 Data entry fields in the order entry screen

Figure 3-4 Some of the sales order document types predefined in SAP ERP
Figure 3-5 Search screen for customers

Figure 3-6 Result of customer search

Figure 3-7 Order screen with complete date

Figure 3-8 Order proposals

• Customer master data

• Master data: data that remain fairly stable
– Maintained in the central database and available to
all SAP ERP modules
• Material master data
• Organizational structures
– SAP ERP system allows the user to define various
ways to group customers and salespeople
– Distribution Channel

• When a sales order is saved, SAP ERP system

assigns a document number to the sales order
transaction
• 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

Figure 3-9 The Document Flow tool, which links sales order documents

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
• As a safeguard, system can enforce limits on the
size of discounts
• Condition technique
– Control mechanism developed by SAP to
accommodate various ways that companies offer
price discounts

Discount Pricing in SAP ERP (cont’d.)
Figure 3-10 Pricing conditions for sales order

Integration of Sales and Accounting
(cont’d.)
Figure 3-11 West Hills Athletic Club price Discount

• ERP systems integrate Accounting with all

business processes
• When a sales order is recorded, related accounting
data are updated automatically

(cont’d.)
Figure 3-12 Accounting detail for the West Hills sales order

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

Core CRM Activities
• One-to-one marketing
• Sales force automation (SFA)
• Sales campaign management
• Marketing encyclopedias
• Call center automation

SAP’s CRM Software
• Examples of tools that provide CRM functionality

within the SAP ERP system
– Contact management tool
• To make sure that information about sales contacts is
available throughout the organization
– Sales activity manager
• Supports a strategic and organized approach to sales
activity planning and can help make sure that follow-
up activities are accomplished
• Employing a separate CRM system that
communicates with the ERP system
Figure 3-13 SAP ERP contact manager

Figure 3-14 SAP ERP sales activity manager

SAP’s CRM Software (cont’d.)
• SAP ERP system processes business transactions

and provides much of the raw data for CRM
• SAP’s Business Warehouse: system for reporting
and analysis of transactional data
• Advanced Planner and Optimizer (APO): system
that supports efficient planning of the supply chain
• SAP’s view of CRM is to provide a set of tools to
manage the three basic task areas, or jobs:
– Marketing, sales, and service

Figure 3-15 SAP CRM system landscape

• Four phases of the cultivation of customer

relationship:
– Prospecting
– Acquiring
– Servicing
– Retaining
• Contact Channels
• Marketing and Campaign Management
• Campaign Execution Activity Management
• Campaign Analysis tool
Figure 3-16 Marketing and campaign planning

The Benefits of CRM
• Lower costs
• Higher revenue
• Improved strategy and performance measurement

Summary
• Fitter Snacker’s unintegrated information systems

are at the root of an inefficient and costly sales
order process
• An ERP system such as SAP ERP treats a sale as
a sequence of related functions
– Including: taking orders, setting prices, checking
product availability, checking the customer’s credit
line, arranging for delivery, billing the customer, and
collecting payment
– In SAP ERP, all these transactions, or documents,
are electronically linked
Summary (cont’d.)
• Installing an ERP system means making various

configuration decisions
– Configuration decisions reflect management’s view
of how transactions should be recorded and later
used for decision making
• ERP system’s central database contains:
– Tables of master data: relatively permanent data
about customers, suppliers, material, and inventory
– Transaction data tables: store relatively temporary
data such as sales orders and invoices

Summary (cont’d.)
• Customer relationship management (CRM)

systems
– Build on the organizational value that ERP provides
– Specifically increase the flexibility of the company’s
common database regarding customer service
– Various kinds of CRM software are available
– Can be installed in-house or on-demand

Concepts in Enterprise
Resource Planning
Fourth Edition
Chapter Four
Production and Supply Chain
Management Information Systems
Objectives
After completing this chapter, you will be able to:
• Describe the steps in the production planning process
of a high-volume manufacturer such as Fitter Snacker
• Describe Fitter Snacker’s production and materials
management problems
• Describe how a structured process for Supply Chain
Management planning enhances efficiency and
decision making
• Describe how production planning data in an ERP
system can be shared with suppliers to increase supply
chain efficiency

Introduction
• Supply Chain Management (SCM) in an ERP

system
• Fitter Snacker is part of a supply chain
• FS’s SCM problems and how ERP can help fix
them

Production Overview
• To meet customer demand efficiently, Fitter

Snacker must:
– Develop a forecast of customer demand
– Develop a production schedule to meet the
estimated demand
• ERP system is a good tool for developing and
executing production plans
• Goal of production planning is to schedule
production economically

Production Overview (cont’d.)
• Three general approaches to production

– Make-to-stock items: made for inventory (the “stock”)
in anticipation of sales orders
– Make-to-order items: produced to fill specific
customer orders
– Assemble-to-order items: produced using a
combination of make-to-stock and make-to-order
processes

Fitter Snacker’s Manufacturing
Process
• Fitter Snacker uses make-to-stock production
Figure 4-1 Fitter Snacker’s manufacturing process

Fitter Snacker’s Manufacturing
Process (cont’d.)
• Snack bar line can produce 200 bars a minute, or
12,000 bars per hour
• Each bar weighs four ounces
• Product 48,000 ounces/hour, or 3,000 lbs/hour
• Entire production line operates on one shift a day
• Fitter Snacker’s production sequence
– Capacity: number of bars that can be produced

Fitter Snacker’s Production Problems
• Fitter Snacker has problems deciding how many

bars to make and when to make them
• Communication problems
– FS’s Marketing and Sales personnel do not share
information with Production personnel
– Production personnel find it hard to deal with sudden
increases in demand
• Might cause shortages or stockout

Fitter Snacker’s Production Problems
(cont’d.)
• Inventory problems
– Production manager lacks systematic method for:
• Meeting anticipated sales demand
• Adjusting production to reflect actual sales
• Accounting and purchasing problems
– Standard costs: normal costs of manufacturing a
product
– Production and Accounting must periodically
compare standard costs with actual costs and then
adjust the accounts for the inevitable differences

The Production Planning Process
• Three important principles for production planning:

– Work from sales forecast and current inventory
levels to create an “aggregate” (“combined”)
production plan for all products
– Break down aggregate plan into more specific
production plans for individual products and smaller
time intervals
– Use production plan to determine raw material
requirements

The SAP ERP Approach to Production
Planning
Figure 4-2 The production planning process

Sales Forecasting
• SAP’s ERP system takes an integrated approach

– Whenever a sale is recorded in Sales and
Distribution (SD) module, quantity sold is recorded
as a consumption value for that material
• Simple forecasting technique
– Use a prior period’s sales and then adjust those
figures for current conditions
• To make a forecast for Fitter Snacker:
– Use previous year’s sales data in combination with
marketing initiatives to increase sales

Sales Forecasting (cont’d.)
Figure 4-3 Fitter Snacker’s sales forecast for January through June

Sales and Operations Planning
• Sales and operations planning (SOP)

– Input: sales forecast provided by Marketing
– Output: production plan designed to balance market
demand with production capacity
• Production plan is the input to the next step, demand
management

(cont’d.)
Figure 4-5 Fitter Snacker’s sales and operations plan for January through June

(cont’d.)
• In SAP ERP, sales forecast can be made using:
– Historical sales data from the Sales and Distribution
(SD) module
– Input from plans developed in Controlling (CO)
module
• CO module
– Profit goals for company can be set
– Sales levels needed to meet the profit goals can be
estimated

(cont’d.)
• Rough-cut planning: common term in
manufacturing for aggregate planning
– Disaggregated to generate detailed production
schedules
• Once SAP ERP system generates a forecast, the
planner can view the results graphically
• Rough-cut capacity planning applies simple
capacity-estimating techniques to the production
plan to see if the techniques are feasible

(cont’d.)
Figure 4-6 Sales and operations planning screen in SAP ERP

Figure 4-7 Historical sales figures in SAP

(cont’d.)
• Historical sales screen allow planner to correct
sales values
• Do not account for external factors, such as
unusual weather
• Sales figures forecasting represent best estimate of
demand

Figure 4-8 Forecasting model options in SAP ERP
(cont’d.)
Figure 4-9 Forecasting results presented graphically in SAP ERP

Figure 4.10 Sales and operation plan with rough-cut capacity
calculation in SAP ERP

(cont’d.)
• Disaggregating the sales and operations plan
– Companies typically develop sales and operations
plans for product groups
– SAP ERP system allows any number of products to
be assigned to a product group
– Sales and operation plan disaggregated
• Production plan quantities specified for the group are
transferred to the individual products that make up the
group

(cont’d.)
Figure 4-11 Product group structure in SAP ERP

(cont’d.)
Figure 4-12 Stock/Requirements List for NRG-A bars after disaggregation

Demand Management
• Links the sales and operations planning process

with detailed scheduling and materials
requirements planning processes
• Output: master production schedule (MPS)
– Production plan for all finished goods
• For Fitter Snacker, MPS is an input to detailed
scheduling, which determines what bars to make
and when to make them

Demand Management (cont’d.)
Figure 4-14 Fitter Snacker’s production plan for January: The first five weeks
of production are followed by a day-by-day disaggregation of week 1
Materials Requirements Planning
(MRP)
• Determines required quantity and timing of the
production or purchase of subassemblies and raw
materials needed to support MPS
• Bill of material (BOM): list of the materials
(including quantities) needed to make a product

Figure 4-15 Fitter’s factory calendar for August

(MRP) (cont’d.)
Figure 4-16 The bill of material (BOM) for Fitter Snacker’s NRG bars

(MRP) (cont’d.)
• Lead times and lot sizing
– Lead time: cumulative time required for the supplier
to receive and process the order, take the material
out of stock, package it, load it on a truck, and
deliver it to the manufacturer
– Lot sizing: determining production quantities and
order quantities
• MRP record: standard way of viewing the MRP
process on paper

(MRP) (cont’d.)
Figure 4-17 The MRP record for oats in NRG bars, weeks 1 through 5

Materials Requirements Planning in
SAP ERP
• MRP list shows results of MRP calculations
• MRP process creates planned orders to meet
dependent requirements
• Stock/Requirements List shows:
– Planned orders
– Purchase requisitions (PurRqs)
– Purchase orders (POitem)
• Planner can convert a planned order to a purchase
order from Stock/Requirements List by double-
clicking the planned order line
SAP ERP (cont’d.)
Figure 4-18 The MRP list in SAP ERP

SAP ERP (cont’d.)
Figure 4-19 The Stock/Requirements List in SAP ERP

Figure 4-20 Conversion of a planned order to a requisition

SAP ERP (cont’d.)
• Integrated information system allows Purchasing to
make the best decision on a vendor based on
relevant, up-to-date information
• Once Purchasing employee decides which vendor
to use, the purchase order is transmitted to vendor
– System can be configured to fax order to vendor,
transmit it electronically through EDI (electronic data
interchange), or send it over the Internet

Figure 4-21 Source Overview screen for supplier selection

Detailed Scheduling
• Detailed plan of what is to be produced,

considering machine capacity and available labor
• One key decision in detailed production scheduling
– How long to make the production runs for each
product
– Production run length requires a balance between
setup costs and holding costs to minimize total costs
to the company

Detailed Scheduling (cont’d.)
• Fitter Snacker uses repetitive manufacturing

• Repetitive manufacturing environments usually
involve production lines that are switched from one
product to another similar product
– Production lines are scheduled for a period of time,
rather than for a specific number of items

Figure 4-22 Repetitive manufacturing planning table in SAP ERP

• Production runs should be decided by evaluating

the cost of equipment setup and holding inventory
• Integrated information system simplifies this
analysis
– Automatically collects accounting information that
allows managers to better evaluate schedule trade-
offs in terms of costs to company

Providing Production Data to
Accounting
• In the manufacturing plant, ERP packages do not
directly connect with production machines
• Data can be entered into SAP ERP through a PC
on the shop floor, scanned by a barcode reader or
radio frequency identification (RFID) technology, or
a mobile device
• In an integrated ERP system, the accounting
impact of a material transaction can be recorded
automatically

Accounting (cont’d.)
Figure 4-23 Goods receipt screen in SAP ERP

Accounting (cont’d.)
• Once FS accepts shipment, Receiving must notify
SAP ERP system of the arrival and acceptance of
the material
– Goods receipt transaction
• Receiving department must match goods receipt
with purchase order that initiated it
• When receipt is successfully recorded, SAP ERP
system immediately records the increase in
inventory levels for the material

ERP and Suppliers
• Fitter Snacker is part of a supply chain

– Starts with farmers growing oats and wheat
– Ends with a customer buying an NRG bar from a
retail store
• ERP systems can play a key role in collaborative
planning

ERP and Suppliers (cont’d.)
• Working with suppliers in a collaborative fashion

requires trust among all parties
– Company opens its records to its suppliers
– Suppliers can read company’s data because of
common data formats
• Advantages
– Reductions in paperwork
– Savings in time
– Other efficiency improvements

The Traditional Supply Chain
• Supply chain: all activities that occur between the

growing or mining of raw materials and the
appearance of finished products on the store shelf
• Traditional supply chain
– Information is passed through the supply chain
reactively as participants increase their product
orders
– Inherent time lags cause problems

The Traditional Supply Chain (cont’d.)
Figure 4-24 Supply chain management (SCM) from raw materials to

consumer

The Traditional Supply Chain (cont’d.)
• EDI and ERP

– Before ERP systems were available, companies
could be linked with customers and suppliers
through electronic data interchange (EDI) systems
– Well-developed ERP system can facilitate SCM
• Needed production planning and purchasing systems
already in place
– With ERP system, sharing production plans along
the supply chain can occur in real time

The Measures of Success
• Performance measurements
– Metrics
– Show the effects of better supply chain management
• Cash-to-cash cycle time
– Time between paying for raw materials and
collecting cash from customer
• SCM costs
– Include cost of buying and handling inventory,
processing orders, and information systems support

The Measures of Success (cont’d.)
• Initial fill rate

– Percentage of the order that the supplier provided in
the first shipment
• Initial order lead time
– Time needed for the supplier to fill the order
• On-time performance
– If supplier agreed to requested delivery dates, tracks
how often supplier actually met those dates

Summary
• ERP system can improve the efficiency of

production and purchasing processes
– Efficiency begins with Marketing sharing a sales
forecast
– Production plan is created based on sales forecast
and shared with Purchasing so raw materials can be
ordered properly

Summary (cont’d.)
• Companies can do production planning without an

ERP system, but an ERP system increases
company’s efficiency
– ERP system that contains materials requirements
planning allows Production to be linked to
Purchasing and Accounting
– This data sharing increases a company’s overall
efficiency

Summary (cont’d.)
• Companies are building on their ERP systems and

integrated systems philosophy to practice supply
chain management (SCM)
– SCM: company looks at itself as part of a larger
process that includes customers and suppliers
– Using information more efficiently along the entire
chain can result in significant cost savings
– Complexity of the global supply chain
• Developing a planning system that effectively
coordinates information technology and people is a
considerable challenge

Chapter 3: Marketing Information Systems and the Sales Order Process
TRUE/FALSE
1. In SAP R/3, relatively permanent data about customers is kept in the Customer Master Data
table.
ANS: T PTS: 1 REF: 61
2. In SAP R/3, relatively permanent data about inventory is kept in the Material Master Data
table.
3. In SAP R/3, relatively permanent data in the Material Master Data table is available to only
one module, the Materials Management module.
ANS: F PTS: 1 REF: 61
4. In SAP R/3, relatively permanent data about customers in the Customer Master Data table is
available to only the Sales and Distribution module.
5. SAP R/3’s system allows one to group customers, which is commonly known as an
"organizational structure".
6. In SAP R/3, the linked set of document numbers is called the "document flow".
7. In SAP R/3 the electronic evidence of a transaction is called a document.
8. The first step in the SAP ERP sales and distribution process is the Sales Order Processing
step.
9. Pricing cannot be set or configured in the SAP ERP system.
10. Pricing can be set using condition techniques.

11. CRM software stands for Custom Resource Management. This is a specialized type of ERP.
12. Global ATP allows for searching of a particular product at multiple plants worldwide.
13. Returned products to a company are processed more efficiently if the customer first calls for a
RMA.
14. An inquiry in the SAP ERP system occurs in the Delivery step of the Sales and Distribution
cycle.
15. In the SAP ERP system, delivery means releasing the documents that the warehouse uses to
pick, pack, and ship orders, rather than the traditional definition of transferring goods.
16. The PO Number is a number assigned by a company to track orders in the SAP ERP system.
17. With on-demand CRM, the software and computer equipment reside with the CRM provider;
it is not installed in-house.
MULTIPLE CHOICE
1. In SAP ERP the electronic evidence of a transaction is called a(n) ____.

a. trail d. audit number
b. marker e. document
c. tag
ANS: E PTS: 1 REF: 56
2. A customer calls up to find out how much 1000 units of a product would cost. This is an
example of ____ in the sales and distribution process.
a. presales activities d. delivery and billing
b. sales order processing e. payment
c. inventory sourcing
ANS: A PTS: 1 REF: 56
3. A customer is granted a 10% price discount in a large order. This is an example of an activity
in ____ in the sales and distribution process.
ANS: B PTS: 1 REF: 56
4. A customer's order is checked to see if it can be produced and delivered by the requested date.
This is an example of ____ in the sales and distribution process.
ANS: C PTS: 1 REF: 57
5. A customer's documents are released to the warehouse so that the goods can be gathered,
packed and boxed. This is an example of ____ in the sales and distribution process.
ANS: D PTS: 1 REF: 57
6. A customer's remittance causes Cash to be debited and Accounts Receivable to be credited.

This is an example of ____ in the sales and distribution process.
ANS: E PTS: 1 REF: 57
7. In SAP ERP, the history of a transaction (such as a sales order) can be researched by looking
at its ____.
a. trail mix d. material master data
b. transaction index e. sales master data
c. document flow
8. What kind of software can give top management an overview of a company's complete
relationship with a customer?
a. One to One Marketing Software
b. Open Relationship Software
c. Denouement Software
d. Customer Relationship Management Software
e. Supply Chain Management Software
9. In the sales order process, there is a number used in the SAP ERP sales order that in a paper
process would be pre-printed on the sales document, usually in sequential number order. It’s
assigned by the customer to the sales order. What is this number?
a. Customer ID c. Material Number
b. Purchase Order Number d. Billing Code
10. Setting prices for customers can be very complex. SAP helps by offering a control
mechanism, called ____, to determine how much to charge a given customer for a given
product.
a. pricing variance c. condition technique
b. price fixing d. fluctuation
11. The ____ system communicates with SAP ERP, BW, and APO systems in developing and
executing its plans.
a. PPO c. CRM
b. SSA d. GUp
12. What software can automatically route customers who contact the company to a sales
representative? Companies can use this software to forecast customer needs.
a. Marketing encyclopedias c. One-to-one marketing
b. Sales campaign management d. Sales force automation
13. The SAP ERP system allows users to define various ways to group customers and
salespeople. These groups are called ____.
a. organizational structures c. document flows
b. master data d. audit trails
14. In ____ CRM, the software and equipment reside with the CRM provider; it is not installed
in-house.
a. walk-up c. Internet
b. on-demand d. ERP
15. Which of the following are benefits to CRM?

a. Lower costs
b. Higher revenue
c. Improved strategy and performance measurement
d. All of the above
COMPLETION
1. The goal of ____________________ software is to provide a “single face to the customer.”
ANS:
customer relationship management
CRM
customer relationship management (CRM)
CRM (customer relationship management)
PTS: 1 REF: 67
2. With global____________________, the R/3 system automatically checks all facilities and
determines the most cost-efficient facility to use to meet the customer’s request in terms of
ordering and delivering goods.
ANS:
ATP
Available-To-Promise
available to promise
PTS: 1 REF: 71
SHORT ANSWER
1. Briefly describe four kinds of decisions made by Marketing managers.
ANS:
What products should we produce?
How much of each product should we produce?
How are our products best promoted and advertised?
How should our products be distributed for maximum customer satisfaction?
What price should we charge for our products?
PTS: 1 REF: 50
2. In SAP ERP a sales order is entered only once, by the sales people. It need not be entered a
second time, in Accounting, to keep the books. Briefly explain why that second entry is not
needed in SAP R/3.
ANS:
By contrast, ERP systems integrate Accounting with all business processes, so that when a
sales order is recorded, the related accounting data is updated automatically.
PTS: 1 REF: 65
3. Briefly describe two CRM activities.

ANS:
One-to-one marketing: Once a customer is categorized, the company can tailor products,
promotions, and pricing accordingly.
Sales force automation: Occurrences of customer contacts are logged in the company’s
database.
Sales campaign management: This software lets a company organize a marketing campaign
and compile its results.
Marketing Encyclopedias: This software serves as a database of promotional literature about
products.
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.
PTS: 1 REF: 67-68
4. What does the term Delivery mean in the SAP R/3 system?
ANS:
In the SAP R/3 system, the word delivery means releasing the documents that the warehouse
uses to pick, pack, and ship orders, rather than the traditional use of the term to describe the
transferal of goods.
PTS: 1 REF: 57
5. What are the three benefits of CRM?
ANS:
Lower costs
Higher revenue
Improved strategy and performance measurement
PTS: 1 REF: 72
Figure 3-1 The sales process at Fitter Snacker
6. Describe the problems with the Fitter Snacker sales orders and quotations, as illustrated in the
accompanying figure.
ANS:
Salesperson might make arithmetic error in quote.
Fax to home office may arrive be illegible
Fax to home office might not arrive before customer has called in order
Therefore, in-office clerk has no knowledge of order, terms of order.
PTS: 1 REF: 52
7. Describe the problems with the Fitter Snacker Credit Check, as illustrated in the
accompanying figure.
ANS:
Because the credit report is sent infrequently to the sales department, the credit report might
be very out-of-date. This would then result in either granting credit to a customer who has
exceeded their credit limit, or denying credit to a customer who is below their credit limit.
PTS: 1 REF: 52
8. In the Fitter Snacker sales system, as illustrated in the accompanying figure, ideally, how
should returns be handled?
ANS:
Returns should be marked with an RMA - return material authorization, before being shipped
back to Fitter Snacker. This is to ensure proper credit on the customer’s account and order.
PTS: 1 REF: 52
9. In the accompanying diagram, “Taking an Order in SAP ERP,” what is A?
ANS:
Sold-to party: where the customer’s identification number is entered.
PTS: 1 REF: 58
10. In the accompanying diagram, “Taking an Order in SAP ERP,” what is B?
ANS:
PO Number: The number assigned by the customer to this sales order.
PTS: 1 REF: 58
11. In the accompanying diagram, “Taking an Order in SAP ERP,” what is C?
ANS:
Required Delivery Date: The date when the customer would like to receive the order.
PTS: 1 REF: 58
12. In the accompanying diagram, “Taking an Order in SAP ERP,” what is D?
ANS:
Material and Order quantity: What the customer is ordering.
PTS: 1 REF: 58
13. What is one-to-one marketing?

ANS:
Once a customer is categorized, the company can tailor products, promotions, and pricing
accordingly. Customers can be offered products related to what they are now buying (cross-
selling) or higher-margin products in the same line (up-selling).
PTS: 1 REF: 67
ESSAY
1. Describe the problems with Fitter Snacker’s sales quotations and orders.
ANS:
Giving a customer a price quotation and then taking the customer’s order should be a
straightforward process, but at Fitter it is not. For a new customer, the sales process begins
with a sales call, which might be over the telephone or in person. At the end of the sales call,
the salesperson prepares a handwritten quotation on a form that generates two copies. The
original quotation goes to the customer, and the middle copy is first faxed and then mailed to
the sales office; the salesperson keeps the bottom copy for his or her records. On the quotation
form is a toll-free number that the customer can call to place an order.
A number of problems can occur with this process, including the following:
• The salesperson might make an error in the sales quotation. For example, a salesperson
in the Direct Sales Division might offer both a quantity discount and a discretionary
discount. If the salesperson is not careful, the two discounts combined might be so
deep that the company makes little or no profit on the order.
• Salespeople fax a copy of their sales quotations to the sales office, but sometimes a
customer calls to place an order before the fax is transmitted. In such cases, the sales
clerk has no knowledge of the terms of the sale (which are outlined on the quotation)
and must ask the customer to repeat the information. On the other hand, even if the
quotation has been faxed, the data might not have been entered into the customer
database, so the customer might still need to repeat the order information. This
situation can also lead to a duplicate order.
• The fax received by the sales office is a copy of a handwritten form, and might not be
legible.
When customers place an order, they usually inquire about the delivery date. To get a
shipping date, the sales clerk must contact the warehouse supervisor and ask whether the
customer’s order can be immediately shipped from inventory, or whether shipping will be
delayed until a future production run is delivered to the warehouse. However, because the
warehouse supervisor is generally too busy to get an updated inventory count, total all the
orders waiting to be filled, and find out how many other orders are in process in the sales
office, she can only estimate the shipping date.
Once the sales clerk has the warehouse supervisor’s estimated shipping date, she determines
the shipping method and how long delivery will take. Next, the clerk checks the customer’s
credit status. For new customers, the clerk fills out a paper credit-check form that includes
basic customer data and the amount of the order. The form goes to Accounting, where
accountants perform the credit check and then return the credit-check form showing the
customer’s credit limit. If the order is from an existing customer, the clerk checks a paper
report from Accounting that shows the customer’s current balance, credit limit, and available
balance. However, because the report is generated weekly, it might not reflect a customer’s
most recent payments or orders. If a customer’s available credit is less than the amount of the
current order, assuming there are no other orders outstanding, the clerk calls the customer to
determine what action the customer wants to take (reduce the amount of the order, prepay, or
dispute the amount of credit granted).
Once the order details have been finalized, the sales clerk enters the order into the order-entry
system. The computer program performs four important tasks. First, it stores the customer’s
order data, which are used later to analyze sales performance at the division level. Second, it
prints out a packing list and shipping labels for the warehouse to use to pick, pack, and ship
the customer’s order. Third, it produces a data file of all current transactions for the
Accounting Department to use for preparing invoices (this file is also used for financial, tax,
and managerial accounting, which is discussed in Chapter 5). And fourth, the data file is
copied to a USB key each evening for uploading into the company’s PC-based accounting
system.
PTS: 1 REF: 53
2. Describe the problems with Fitter Snacker’s order filling.
ANS:
Fitter’s process for filling an order is no more efficient than its sales order process. Packing
lists and shipping labels are printed in the sales department twice a day—at noon and at the
end of the day. These are carried by hand to the warehouse, where they are manually sorted
into small orders and large orders.
The Production Department produces and wraps the snack bars and packs them in display
boxes, 24 bars to a box. The display boxes have promotional printing and are designed to
serve as a display case. Fitter packs 12 display boxes together to form a standard shipping
case. The warehouse stores both individual display boxes and shipping cases, organized by
label type (Fitter brand and store brand), so depending on the inventory levels Marketing
Information Systems and the Sales Order Process in the warehouse, Production personnel
might transfer individual display boxes directly to the warehouse, or they might first pack the
display boxes into shipping cases.
For small orders (less than a full shipping case), the order picker goes to the warehouse with a
handcart and pulls the number of display boxes listed on the packing list. If there are not
enough individual display boxes in the warehouse to fill the order, the picker might break
open a shipping case to get the required number of display boxes. If he does this, he is
supposed to advise the warehouse supervisor so she can update the inventory records—but
sometimes this step is overlooked.
The picker then brings the display boxes back to the small-order packing area, where they are
packed into a labeled box—with the packing list enclosed—and prepared for shipping by a
small package shipper.
For large orders (one or more shipping cases), the picker uses a forklift to move the
appropriate number of shipping cases to the large-order packing area. Workers label them for
shipping, load them on a pallet, and attach them to the pallet with shrink-wrap plastic for
protection. These pallets are shipped either by one of Fitter’s two delivery trucks or by a less-
than-truckload (LTL) common carrier.
Fitter uses a PC database program to manage inventory levels in the warehouse. The program
adjusts inventory level figures on a daily basis, using data from production records (showing
what has been added to the warehouse), packing lists (showing what has been shipped from
the warehouse), and any additional sources of data (such as shipping cases that have been
opened to pull display boxes). Each month the warehouse staff conducts a physical inventory
count to compare the actual inventory on hand with what the inventory records in the database
show. Fitter’s monthly inventory counts show that inventory records are more than 95 percent
accurate. Although 95 percent accuracy may not sound too bad, having 5 percent errors means
that Fitter regularly has problems filling orders.
Because snack bars are somewhat perishable, Fitter keeps inventory levels fairly low.
Inventory levels change rapidly during the day, and Fitter’s current system does not provide a
good method for checking inventory availability. As a result, a picker might go to the shelves
to pick an order and discover that there are not enough snack bars to fill the order. In this case,
there are several possible outcomes:
• There might be more of that type of bar in the production area—ready to be transferred
to the warehouse—in which case the picker could wait until the inventory is received
into the warehouse to finish picking the order.
• For an important customer that purchases store-branded snack bars, production might
change the wrappers and display box labels currently on the production line to the
customer’s brand to produce enough bars to complete the order.
• In other situations, the customer may be willing to take a partial shipment consisting of
whatever is on hand, with the rest shipped when it becomes available—which is
known as a backorder.
• Or, the customer might prefer to take the goods on hand, cancel the balance of the
order, and place a new order later.
• If the customer’s company has enough inventory on hand, the customer may prefer to
wait until the whole order can be shipped, thus saving on delivery charges.
To determine what to do in this situation, the order picker might have conversations with the
warehouse supervisor, production supervisor, and sales clerks. Whatever the final decision,
the warehouse supervisor has to contact the sales clerk so she can notify the customer (which
does not always happen when things are busy) and the Accounting Department so they can
change the invoice.
PTS: 1 REF: 53-54
3. Describe the problems with Fitter Snacker’s accounting and invoicing.
ANS:
Invoicing the customer is problematic as well. First, the data from the current order-entry
system is only loaded into the accounting system at the end of each day, so the Accounting
Department does not have information on new sales orders until the following day. In
addition, clerks must manually make adjustments in both the order-entry system and the
accounting system for partial shipments and for any other changes that have occurred during
the order-fulfillment process. Many times these corrections are not made in both systems,
causing discrepancies that must be corrected at the end of the month, at which point it is more
difficult for the parties involved to remember what happened. Delayed order corrections also
sometimes result in late or inaccurate invoices. If the completed invoice is waiting to be
mailed when the warehouse notifies Accounting of a partial shipment, then a new invoice
must be prepared. In any case, an invoice is eventually sent to the customer, separate from the
shipment.
PTS: 1 REF: 54
4. Describe the problems with Fitter Snacker’s payment and returns.
ANS:
Fitter’s procedure for processing payments often yields frustrating results for customers.
Almost all customers pay the invoice within 10 days to receive the 2 percent discount. If any
errors have occurred in the sales or order-fulfillment process—from the original quotation to
entering the order into the sales order program to filling the order in the warehouse—the
customer will receive an incorrect invoice. Even though Fitter provides customers with two
invoice copies, many customers do not return a copy of the invoice with their payment, as
instructed. Errors sometimes result in the incorrect customer’s account being credited.
Fitter’s returns processing is also flawed. Because Fitter’s snack bars contain no preservatives,
they have a relatively short shelf life. Thus, the company has a policy of crediting customer
accounts for returned snack bars that have exceeded their “sell by” date (this is a generous
policy, because it is impossible to know who—Fitter or the customer—is responsible for the
bars not selling before they expire). Fitter also gives credit for damaged or defective cases
returned by customers. Customers are supposed to call Fitter to get a returned material
authorization (RMA) number to simplify the crediting process. When cases are returned to
Fitter, the Receiving Department completes a handwritten returned material sheet, listing the
returning customer’s name, the materials returned, and the RMA number. However, many
customers do not call for the RMA number, or fail to include it with their returned material,
which makes it more difficult for the Accounting Department to credit the appropriate
account. Poor penmanship on the returned material sheet also creates problems for
Accounting.
When an account becomes past due, Fitter sends a dunning letter, which is the term for a letter
notifying a customer that their account is past due and requesting payment if payment has not
already been sent. As the account gets more delinquent, the dunning letters usually get more
direct and threatening. If a customer’s account has not been properly credited, however, the
customer may receive a dunning letter in error, or may receive a call about exceeding their
credit limit after placing a new order. Such situations damage goodwill with both new and
repeat customers.
PTS: 1 REF: 55
Chapter 4: Production and Supply Chain Management Information Systems
TRUE/FALSE
1. An ERP system is a good tool for developing and executing production plans because it
integrates the functions of production planning, purchasing, materials
management/warehousing, quality management, sales, and accounting.
ANS: T
This is an accurate description of an ERP system.
PTS: 1 REF: 78
2. Production planners aggregate products into product groups to make forecasts and plans more
accurate.
ANS: F
Aggregate production plans help to simplify the planning process
PTS: 1 REF: 82
3. The Sales and Operations Planning process is used to combine the sales forecast with capacity
information to determine a production plan for finished goods.
ANS: T
Sales and operations planning (SOP) is the next step in the production planning process. The
input to this step is the sales forecast provided by Marketing and Sales. The output is a
production plan designed to balance demand with production capacity.
PTS: 1 REF: 85
4. Demand Management is the process where sales forecasts are adjusted to incorporate the
impact of marketing initiatives.
ANS: F
In the Demand Management step, the production plan is broken down into smaller time units,
such as weekly or even daily production figures, to meet demand for individual products.
PTS: 1 REF: 84
5. The MRP process determines the schedule of finished goods production.
ANS: F
The Materials Requirements Planning (MRP) process determines the amount and timing of
raw material orders.
PTS: 1 REF: 84
6. The term supply chain describes all the activities required to move raw material from
inventory to manufacturing for the purpose of producing a product.
ANS: F
The term supply chain describes all the activities that occur between the growing or mining of
raw materials and the appearance of finished products on the store shelf.
PTS: 1 REF: 109
7. In a traditional supply chain, demand information is transmitted rapidly to all members of the
supply chain.
ANS: F
In a traditional supply chain, information is passed through the supply chain reactively, as
participants change their product orders.
Because of the time lags, it might take weeks or even months for information about increased
needs for raw materials to reach suppliers. Raw material suppliers might require time to
increase their production to meet larger orders, resulting in temporary shortages for the
supplier.
PTS: 1 REF: 109
8. ERP systems are necessary to implement good supply chain management.
ANS: F
The development of supply chain strategies does not necessarily require an ERP system.
Before ERP systems were available, companies could be linked with customers and suppliers
through electronic data interchange (EDI) systems.
PTS: 1 REF: 110
9. The percentage of the order that the supplier provides in the first shipment is known as the
first-rate.
ANS: F
Initial fill rate is the percentage of an order that the supplier provided in the first shipment.
PTS: 1 REF: 112
10. Make to order items are produced to fill customer’s requests.
ANS: T
Make to order items are produced to fill specific customer orders.
PTS: 1 REF: 78
11. The cost it normally takes to manufacture a product, which is usually derived from historical
data and any changes that have occurred since then, is known as a structured cost.
ANS: F
Standard costs are the normal costs of manufacturing a product; standard costs are calculated
from historical data, factoring in any changes in manufacturing that have occurred since the
collection of the historical data.
PTS: 1 REF: 81
12. Rough-cut planning is a common term in manufacturing for aggregate planning.
13. The production plan for all finished goods is known as the MPS, or the master production
schedule.
ANS: T
The output of the demand management process is the master production schedule (MPS),
which is the production plan for all finished goods.
PTS: 1 REF: 95
14. Another term for the list of ingredients required to make a product is the bill of materials.
ANS: T
The bill of material (BOM) is a list of the materials (including quantities) needed to make a
product.
PTS: 1 REF: 97
15. Lead times and lot sizing help a company determine the transfer of goods to the customer.
ANS: F
The lead time is the cumulative time required for the supplier to receive and process the order,
take the material out of stock, package it, load it on a truck, and deliver it to the manufacturer.
Lot sizing refers to the process of determining production quantities (for raw materials
produced in-house) and order quantities (for purchased items).
PTS: 1 REF: 98
16. Because Fitter Snacker uses large quantities of oats, the most cost-effective way to purchase
oats is to buy a farm and grown them.
ANS: F
Because Fitter uses large quantities of oats, the most cost-effective way to purchase oats is in
bulk hopper-truck quantities, which means that the material must be ordered in 44,000-pound
quantities.
PTS: 1 REF: 98
17. After material requirements are entered into the system, the program automatically turns the
planned orders into purchase orders without further input from planners.
ANS: F
Planning factors such as lead times are just estimates, so planners must evaluate the planned
orders suggested by the materials requirements planning calculation before allowing the
program to automatically turn them into purchase orders.
PTS: 1 REF: 100
18. The percentage of the order that the supplier provided in the first shipment is known as the
initial order lead time.
ANS: F
Initial fill rate is the percentage of an order that the supplier provided in the first shipment.
Another metric is initial order lead time, which is the time needed for the supplier to fill the
order.
PTS: 1 REF: 112
19. The initial fill rate measures the time needed for the supplier to fill the order.
ANS: F
The initial order lead time is the time needed for the supplier to fill the order.
PTS: 1 REF: 112
MULTIPLE CHOICE
1. A make-to-stock production system is where:

a. items are made for inventory in anticipation of sales orders.
b. items are produced to fill specific customer orders.
c. items are assembled for a specific customer order from an inventory of
components
d. both a and c
ANS: A
Make-to-stock items are made for inventory in anticipation of sales orders: most consumer
products are made this way.
PTS: 1 REF: 78
2. An unexpected increase in product demand can lead to:

a. a depletion of finished goods inventories
b. a depletion of raw materials inventories
c. increased overtime and transportation expenses
d. all of the above
e. both a and b
ANS: D
When Production must meet an unexpected increase in demand, several things happen. First,
warehouse inventories are depleted. To compensate, Production must schedule overtime labor,
which results in higher production costs for products. Second, because some materials (such
as ingredients, wrappers, and display boxes) are custom products purchased from a single
vendor, a sudden increase in sales demand can cause shortages or even a stockout of these
materials.
PTS: 1 REF: 80
The Fitter Snacker company sold 6,435 cases of snack bars in June of the previous year. They
are expecting sales to increase by 3% this year. In addition, they are launching a promotional
campaign in May, which they expect will increase sales in June by an additional 500 cases.
3. What is the sales forecast for June of this year that Fitter Snacker should use?
a. 6,628 c. 6,935
b. 7,128 d. 7,143
ANS: B
6,435 x 1.03 + 500 = 7,128
PTS: 1 REF: 85
Fitter Snacker can produce 333.3 cases of snack bars per day during the standard 8-hour work
week. They can work 2 hours of overtime per weekday, plus 4 hours on Saturday. They are
developing an SOP for a month with 23 weekdays and 4 Saturdays.
4. What is the maximum number of cases that Fitter Snacker can produce in the month if they
schedule workers for overtime on weekdays only?
a. 7,666 c. 9,582
b. 9,199 d. 10,249
ANS: C
On weekday overtime, they can produce 1.25 times the normal output, or (1.25)(333.3) =
416.6. In 23 days, they can produce (416.6)(23) = 9,581.8 cases, which rounds to 9,582.
Adding in Saturdays is equivalent to two additional days of regular production, or (2)(333.3)
= 666.6. The total time available is 9,582 + 666 = 10,248.6, which rounds to 10,249.
PTS: 1 REF: 96
5. What is the maximum number of cases they can product in the month if they schedule
workers for overtime on weekdays and Saturdays?
a. 7,666 c. 9,582
b. 9,199 d. 10,249
ANS: D
On weekday overtime, they can produce 1.25 times the normal output, or (1.25)(333.3) =
416.6. In 23 days, they can produce (416.6)(23) = 9,581.8 cases, which rounds to 9,582.
Adding in Saturdays is equivalent to two additional days of regular production, or (2)(333.3)
= 666.6. The total time available is 9,582 + 666 = 10,248.6, which rounds to 10,249.
PTS: 1 REF: 96
6. The production plan at Fitter Snacker calls for 4,134 cases of snack bars in January. If there
are 22 days in the month, how many cases of snack bars should be produced in a 4-day week?
a. 188 c. 940
b. 752 d. 1034
ANS: B
To calculate the weekly quantity, we take (4,134 / 22) (4) = 751.63, which rounds to 752.
PTS: 1 REF: 96
Fitter Snacker orders oats in 44,000 lb. batches. Given the following (incomplete) MRP
record:
Oats Lead Time = 2 Week 1 Week 2 Week 3 Week 4 Week 5

weeks
Gross Requirements (lb) 18,000 24,323 24,872 18,464 17,938
Scheduled 44,000
Receipts
Planned Receipts
On Hand 23,635 5,635 25,312 440
Planned Orders
7. What Planned Orders will the MRP logic create?

a. An order for 44,000 units in week 2
b. An order for 44,000 units in week 3
c. An order for 44,000 units for weeks 2 and 3
d. An order for 88,000 units for week 3
ANS: A
The completed MRP record is:

weeks
Scheduled 44,000
Receipts
Planned Receipts 44,000
On Hand 23,635 5,635 25,312 440 25,976 8,038
Planned Orders 44,000
PTS: 1 REF: 99
8. What will the On Hand inventory be in week 5 after the system calculated planned orders?
a. 0 c. 8,038
b. 440 d. 14,038
ANS: C
The completed MRP record is:

weeks
Scheduled 44,000
Receipts
Planned Receipts 44,000
On Hand 23,635 5,635 25,312 440 25,976 8,038
Planned Orders 44,000
PTS: 1 REF: 99
9. Immediately after MRP is run in SAP ERP:

a. the stock/requirements list and MRP list are both updated and show the same
information.
b. the MRP list is updated but the stock/requirements list is unaffected.
c. the stock/requirements list is updated but the MRP list is unaffected.
d. none of the above.
ANS: A
The MRP list shows the results of the MRP calculations, while the Stock/Requirements List
shows those results plus any changes that have occurred since the MRP list was generated
(planned orders converted to purchase orders or production orders, material receipts, and so
on).
PTS: 1 REF: 101
10. In detailed scheduling, longer production runs of a particular product:

a. increases the available capacity by reducing the frequency of setups.
b. increases finished goods inventory levels.
c. reduces finished goods inventory levels.
d. both a and b
e. both a and c
ANS: D
Longer production runs mean that fewer machine setups are required, reducing production
costs and increasing the effective capacity of the equipment. On the other hand, shorter
production runs can be used to lower the inventory levels for finished products.
PTS: 1 REF: 105
11. The order of the steps in the SAP R/3 production planning process are:
a. Sales Forecasting, Demand Management, Purchasing, Sales and Operations
Planning, MRP, Detailed scheduling, Production
b. Sales Forecasting, Demand Planning, Detailed scheduling, Purchasing, Demand
Management, MRP, Production
c. Sales and Operations Planning, Sales Forecasting, MRP, Purchasing, Demand
Management, Detailed scheduling, Production
d. Sales Forecasting, Sales and Operations Planning, Demand Management, MRP,
Purchasing, Detailed scheduling, Production
ANS: D
The order is Sales Forecasting, Sales and Operations Planning, Demand Management, MRP
Purchasing, Detailed scheduling, Production.
PTS: 1 REF: 83
12. The production plan for Fitter Snacker calls for 7000 cases of the snack bar product group in
June. If the snack bar product group consists of NRG-A and NRG-B bars with the proportion
70% NRG-A bars and 30% NRG-B bars, how many NRG-A bars should be produced in
June?
a. 500 c. 4900
b. 2100 d. 7000
ANS: C
7000 * .7 = 4900 NRG-A
7000 * .3 = 2100 NRG-B
PTS: 1 REF: 85
13. The costs normally required to manufacture a product, which are calculated from historical
costs and any changes from that, are known as ____.
a. standard costs c. known costs
b. abbreviated costs d. estimated costs
ANS: A
Standard costs are the normal costs of manufacturing a product; standard costs are calculated
from historical data, factoring in any changes in manufacturing that have occurred since the
collection of the historical data.
PTS: 1 REF: 81
14. ____ are disaggregated to generate detailed production schedules.

a. Bills of materials c. Internet sales orders
b. Production runs d. Rough-cut plans
15. What is the production plan for all finished goods?

a. MPS - master production schedule c. PPR - production planning run
b. QQR - quality query run d. RUN - run
ANS: A
The output of the demand management process is the master production schedule (MPS),
which is the production plan for all finished goods.
PTS: 1 REF: 95
16. What process answers the question “What do we need to order to produce the product, and
when do we need to order these raw materials?”
a. SF - sales forecasting c. MRP - materials requirements
planning
b. SOP - sales and operations planning d. DS - detailed scheduling
ANS: C
The raw materials requirements planning process answers the questions, “What quantities of
raw materials should we order so that we can meet that level of production?” and “When
should these materials be ordered?”
PTS: 1 REF: 97
17. What metric tracks the number of times a supplier meets the agreed upon delivery date?
a. initial fill rate c. on-time performance
b. initial order lead time d. cash-to-cash cycle time
Figure 4-2 The SAP ERP production planning process
18. In the accompanying figure, which shows the SAP ERP production planning process, what is
A?
a. MRP c. Starting Inventory
b. Sales Forecasting d. Detailed Scheduling
B?
a. Starting Inventory c. Sales Forecasting
b. Detailed Scheduling d. MRP
C?
a. Starting Inventory c. MRP
b. Sales Forecasting d. Detailed Scheduling
D?
a. Starting Inventory c. Sales Forecasting
b. Detailed Scheduling d. MRP
22. What stage of the production planning process splits Fitter Snacker’s monthly production
planning values into finer time periods?
a. Sales Forecasting c. MRP
b. BOM d. Demand Management
ANS: D
In the Demand Management step, the production plan is broken down into smaller time units,
such as weekly or even daily production figures, to meet demand for individual products.
PTS: 1 REF: 84
COMPLETION
1. The ____________________, shown in the accompanying figure for Fitter Snacker, is a list of
the materials needed to make NRG-A and NRG-B bars.
ANS:
Bill of Materials
BOM
Bill of Materials (BOM)
BOM (Bill of Materials
PTS: 1 REF: 97-98
2. ____________________ refers to the process of determining production quantities (for raw

materials produced in-house) and order quantities (for purchased items).
ANS: Lot sizing
PTS: 1 REF: 98
MATCHING
Match the letters in the accompanying figure with a statement below.
Figure 4-2 The SAP ERP production planning process
a. MRP e. Detailed Scheduling

b. Demand Management f. Starting Inventory
c. Purchasing g. Production
d. Sales Forecasting h. Sales and Operations Planning
1. What is A?
2. What is B?
3. What is C?
4. What is D?
5. What is E?
6. What is F?
7. What is G?
8. What is H?
1. ANS: D PTS: 1 REF: 83

2. ANS: F PTS: 1 REF: 83
3. ANS: H PTS: 1 REF: 83
4. ANS: B PTS: 1 REF: 83
5. ANS: A PTS: 1 REF: 83
6. ANS: E PTS: 1 REF: 83
7. ANS: C PTS: 1 REF: 83
8. ANS: G PTS: 1 REF: 83
SHORT ANSWER
1. How can data be entered into the SAP ERP system on the shop floor?
ANS:
Data can be entered into SAP ERP through a PC on the shop floor, scanned using barcode or
RFID technology, or entered using a mobile device. SAP ERP is an open-architecture system,
meaning that it can work with automated data-collection tools marketed by third-party
hardware and software companies.
PTS: 1 REF: 107
2. When might the SAP ERP system block the entry of the receipt of goods in the receiving
department?
ANS:
Depending on the configuration settings, the SAP ERP system might block entry of the receipt
if the discrepancy is too large.
PTS: 1 REF: 108
ESSAY
1. What are the three general approaches to production?
ANS:
1. Make-to-stock items are made for inventory (the “stock”) in anticipation of sales orders.
Most consumer products (for example, cameras, canned corn, and books) are made this way.
2. Make-to-order items are produced to fill specific customer orders. This approach is usually
taken when producing items that are too expensive to keep in stock or items that are made or
configured to customer specifications. Examples of make-to-order items are airplanes and
large industrial equipment.
3. Assemble-to-order items are produced using a combination of make-to-stock and make-to-
order processes. The final product is assembled for a specific order from a selection of make-
to-stock components. Personal computers are a typical assemble-to-order product.
PTS: 1 REF: 78-79
2. What are the three principles that production planners follow?
ANS:
1. Work from a sales forecast and current inventory levels to create an “aggregate” production
plan for all products. Aggregate production plans help to simplify the planning process. The
plans are usually aggregated in two ways. First, plans are made for groups of related
production rather than for individual products. Second, the time increment used in planning is
frequently a month or a quarter rather than the daily or weekly production plans that will
actually be executed. Aggregate plans should consider the available capacity in the facility.
2. Break down the aggregate plan into more specific production plans for individual products
and smaller time intervals.
3. Use the production plan to determine raw material requirements.
PTS: 1 REF: 82
3. List and explain each step of the production planning process.
ANS:
§ Sales Forecasting is the process of developing a prediction of future demand for a
company’s products.
§ Sales and Operations Planning (SOP) is the process of determining what the company will
produce. The Sales Forecast and Starting Inventory levels are inputs to this process. At first
glance, it would seem that a company should just produce products to match the forecasted
sales, but developing the production plan can be complicated because capacity must be
considered. Many products have seasonal demand, and to meet demand during peak periods,
production planners must decide whether to build up inventory levels before the peak demand,
increase capacity during the peak period, subcontract production, or use some combination.
§ Demand Management is the process of breaking down the production plan into smaller time
units, such as weekly or even daily production figures, to meet demand for individual
products.
§ Materials Requirement Planning (MRP) process determines the amount and timing of raw
materials orders. This process answers the questions: “What raw materials should we be
ordering so we can meet a particular level of production?” and “When should we order these
materials?”
§ Purchasing takes the quantity and timing information from MRP and creates purchase orders
for raw materials, which it transmits to qualified suppliers.
§ Detailed Scheduling uses Demand Management’s production plans as an input for a
production schedule. Methods of detailed scheduling depend on the manufacturing
environment. For Fitter Snacker, the detailed production schedule will determine when to
switch between the production of NRG-A to NRG-B bars.
§ Production uses the detailed schedule to manage daily operations, answering the questions,
“What should we be producing?” and “What staffing do I need?”.
PTS: 1 REF: 83-84
4. SAP can provide sophisticated tools to support sales and operations planning. Is that all that
is necessary for a company to be successful? Support your answer by discussing the
departments of marketing and manufacturing.
ANS:
While an integrated ERP system like SAP can provide sophisticated tools to support sales and
operations planning, the plan will only be successful if the interested parties are committed to
the process. If Marketing and Manufacturing cannot agree on sales forecasts, promotions, and
production plans, then the company will find that it is overstocked in some items, running out
of others, and spending a lot of money on overtime production and expedited shipping.
Successful sales and operations planning depends on developing a culture of cooperation
between Marketing and Manufacturing, which usually requires continuous support,
encouragement, and enforcement from top management. Changing a company’s culture is
usually a much harder challenge than the technical challenge of installing new hardware and
software.
PTS: 1 REF: 92
5. What is repetitive manufacturing?
ANS:
Repetitive manufacturing environments typically have production lines that are switched from
one product to another similar product. Most packaged consumer goods are produced in
repetitive manufacturing environments. In repetitive manufacturing, production lines are
scheduled for a period of time, rather than for a specific number of items, although it is
possible to estimate the number of items that will be produced over a period of time.
PTS: 1 REF: 105
6. Describe the measurements of success with Supply Chain Management.
ANS:
Performance measurements (sometimes referred to as metrics) have been developed to
show the effects of better supply chain management. One measure is called the cash-to-cash
cycle time. This term refers to the time between paying for raw materials and collecting cash
from the customer. In one study, the cash-to-cash cycle time for companies with efficient
supply chain management processes was a month, whereas the cycle averaged 100 days for
those companies without effective supply chain management.
Another metric is total supply chain management costs. These costs include the cost of
buying and handling inventory, processing orders, and supporting a company’s information
systems. In one study, companies with efficient supply chain management processes incurred
costs equal to 5 percent of sales. By contrast, companies without supply chain management
incurred costs of up to 12 percent of sales.
Other metrics have been developed to measure what is happening between a company and
its suppliers. For example, Staples, the office-supply company, measures three facets of the
relationship. Initial fill rate is the percentage of an order that the supplier provided in the first
shipment. Another metric is initial order lead time, which is the time needed for the supplier
to fill the order. Finally, Staples measures on-time performance. This measurement tracks how
often the supplier met agreed-upon delivery dates.
Improvements in metrics such as these lead to improvements in overall supply chain cost
measurements.
PTS: 1 REF: 112
7. Explain Fitter Snacker’s manufacturing process as shown in the accompanying figure:
Figure 4-1 Fitter Snacker’s manufacturing process
ANS:
Raw materials are taken from the warehouse to one of four mixers. Each mixer mixes
dough in 500-pound batches. Mixing a batch of dough requires 15 minutes of mixing time,
plus another 15 minutes to unload, clean, and load the mixer for the next batch of dough;
therefore, each mixer can produce two 500-pound batches of dough per hour. That means the
four mixers can produce a total of 4,000 pounds of dough per hour—more than the production
line can process. Because only three mixers need to be operating at a time to produce 3,000
pounds of snack bars per hour, a mixer breakdown will not shut down the production line.
After mixing, the dough is dumped into a hopper (bin) at the beginning of the snack bar
production line. A forming mechanism molds the dough into bars, which will weigh 4 ounces
each. Next, an automated process takes the formed bars on a conveyor belt through an oven
that bakes the bars for 30 minutes. When the bars emerge from the oven, they are individually
packaged in a foil wrapper, and each group of 24 bars is packaged into a display box. At the
end of the snack bar line, display boxes are stacked on pallets (for larger orders the display
boxes are first packed into shipping boxes, which are then stacked on the pallets).
Switching the production line from one type of snack bar to the other takes 30 minutes—
for cleaning the equipment and changing the wrappers, display boxes, and shipping cases.
Each night, a second shift of employees cleans all the equipment thoroughly and sets it up for
the next day’s production. Thus, changing production from NRG-A on one day to NRG-B the
next day can be done at the end of the day without a loss of capacity. (Capacity is the
maximum amount of bars that can be produced.) On the other hand, producing two products
in one day results in a half-hour loss of capacity during the changeover.
PTS: 1 REF: 79
8. Describe Fitter Snacker’s communication problems with regard to the production process.
ANS:
Communication breakdowns are an inherent problem in most companies, and they are
magnified in a company with an unintegrated information system. For example, at Fitter,
Marketing and Sales personnel do a poor job of sharing information with Production
personnel. Marketing and Sales frequently excludes Production from meetings, neglects to
consult Production when planning sales promotions, and often fails to even alert Production of
planned promotions. Marketing and Sales also typically forgets to notify Production when it
takes an exceptionally large order.
When Production must meet an unexpected increase in demand, several things happen.
First, warehouse inventories are depleted. To compensate, Production must schedule overtime
labor, which results in higher production costs for products. Second, because some materials
(such as ingredients, wrappers, and display boxes) are custom products purchased from a
single vendor, a sudden increase in sales demand can cause shortages or even a stockout of
these materials. Getting these materials to Fitter’s plant might require expedited shipping,
further increasing the cost of production. Finally, unexpected spikes in demand result in high
levels of frustration for Production staff.
Production personnel are evaluated on their performance—how successful they are at
controlling costs, keeping manufacturing lines running, maintaining quality control, and
operating safely. If they cannot keep production costs down, Production staff receive poor
evaluations. Managers are especially frustrated when an instant need for overtime follows a
period of low demand. With advance notice of a product promotion by Marketing and Sales,
Production could use slack periods to build up inventory in anticipation of the increase in
sales.
PTS: 1 REF: 80
9. Describe Fitter Snacker’s inventory problems with regard to their production process.
ANS:
As noted earlier, Fitter’s week-to-week and day-to-day production planning is not linked in
a systematic way to expected sales levels. When deciding how much to produce, the
production manager applies rules developed through experience. Her primary indicator is the
difference between the normal amount of finished goods inventory that should be stocked and
the actual inventory levels of finished goods in the warehouse. Thus, if NRG-A or NRG-B
inventory levels seem low, the production manager schedules more bars for production.
However, she does not want too many bars in inventory because they have a limited shelf life.
Her judgment is also influenced by the information she hears informally from people in
Marketing and Sales about expected sales levels.
The production manager’s inventory data are maintained in an Access database. Data
records are not updated in real time and do not flag inventory that has been sold but not yet
shipped. (Such inventory is not available for sale, of course, but employees cannot determine
this by looking at the database; thus, workers do not know the level of inventory that is
available to ship at any given moment). This is problematic if the Wholesale Division
generates unusually large orders or high volumes of orders. For example, two large Wholesale
Division orders arriving at the same time can deplete the entire available inventory of NRG-A
bars. If Production is manufacturing NRG-B bars at that time, it must halt production of those
bars so it can fill the orders for NRG-A. This means delaying production of NRG-B bars and
losing production capacity due to the unplanned production changeover.
The production manager lacks a systematic method not only for meeting anticipated sales
demand, but also for adjusting production to reflect actual sales. Marketing and Sales does not
share actual sales data with the Production Department, partly because this information is hard
to gather on a timely basis and partly because of a lack of trust between the Sales and
Production departments (as a result of prior negative experiences). If Production had access to
sales forecasts and real-time sales order information, the manager could make timely
adjustments to production, if needed. These adjustments would allow inventory levels to come
much closer to what is actually needed.
PTS: 1 REF: 80-81
10. Describe Fitter Snacker’s accounting and purchasing problems with regard to its production
process.
ANS:
Production and Accounting do not have a good way to calculate the day-to-day costs of
Fitter’s production. Manufacturing costs are based on the number of bars produced each day,
a number that is measured at the end of the snack bar production line. For the purpose of
figuring manufacturing costs, Fitter uses standard costs, which are the normal costs of
manufacturing a product; standard costs are calculated from historical data, factoring in any
changes in manufacturing that have occurred since the collection of the historical data. For
each batch of bars it produces, Fitter can estimate direct costs (materials and labor) and
indirect costs (factory overhead). The number of batches produced is multiplied by the
standard cost of a batch, and the resulting amount is charged to manufacturing costs.
Most manufacturing companies use standard costs in some way, but the method requires
that standards be adjusted periodically to conform with actual costs. (These adjustments will
be discussed in Chapter 5.) Fitter’s actual raw material and labor costs often deviate from the
standard costs, in part, because Fitter is not good at controlling raw materials purchases. The
production manager cannot give the purchasing manager a good production forecast, so the
purchasing manager works on two tracks: First, she tries to keep raw materials inventories
high to avoid stockouts. Second, if she is offered good bulk quantity discounts on raw
materials such as oats, she will buy in bulk, especially for items that have long lead times for
delivery. These purchasing practices make it difficult both to forecast the volume of raw
materials that will be on hand and to calculate an average cost of the materials purchased for
profitability planning. Fitter also has trouble accurately forecasting the average cost of labor
for a batch of bars because of the frequent need for overtime labor.
Thus, Production and Accounting must periodically compare standard costs with actual
costs and then adjust the accounts for the inevitable differences, which is always a tedious and
unpleasant job. The comparison should be done at each monthly closing, but Fitter often puts
it off until the closing at the end of each quarter, when its financial backers require legitimate
financial statements. The necessary adjustments are often quite large, depending on
production volumes and costs during the quarter.
PTS: 1 REF: 81

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Concepts in Enterprise

After completing this chapter, you will be able to:

Concepts in Enterprise Resource Planning, Fourth Edition 2

• Describe how SAP ERP processes a standard

Concepts in Enterprise Resource Planning, Fourth Edition 3

• Fitter Snacker (FS)

Concepts in Enterprise Resource Planning, Fourth Edition 4

• Manufactures and sells two types of nutritious

Concepts in Enterprise Resource Planning, Fourth Edition 5

• The two sales divisions differ in terms of quantities

Concepts in Enterprise Resource Planning, Fourth Edition 6

Concepts in Enterprise Resource Planning, Fourth Edition 7

Concepts in Enterprise Resource Planning, Fourth Edition 8

Figure 3-1 The sales process

Concepts in Enterprise Resource Planning, Fourth Edition 9

• Giving a customer a price quotation and then

Concepts in Enterprise Resource Planning, Fourth Edition 11

• Packing lists and shipping labels

• FS keeps inventory levels fairly low, and inventory

Concepts in Enterprise Resource Planning, Fourth Edition 13

• Invoicing the customer is problematic

• Problems with procedure for processing payments

Concepts in Enterprise Resource Planning, Fourth Edition 15

• FS’s returns processing is flawed

Concepts in Enterprise Resource Planning, Fourth Edition 16

• ERP systems can minimize data entry errors and

Concepts in Enterprise Resource Planning, Fourth Edition 17

• SAP ERP Sales and Distribution module treats the

Concepts in Enterprise Resource Planning, Fourth Edition 18

• Customers can get pricing information about the

Concepts in Enterprise Resource Planning, Fourth Edition 19

• Sales order processing: series of activities that

• Users can define various pricing alternatives in the

Concepts in Enterprise Resource Planning, Fourth Edition 21

• Available-to-Promise (ATP) check

Concepts in Enterprise Resource Planning, Fourth Edition 22

• Delivery in SAP ERP system

Concepts in Enterprise Resource Planning, Fourth Edition 23

• SAP ERP system creates an invoice by copying

Concepts in Enterprise Resource Planning, Fourth Edition 24

• When the customer sends in a payment, it is

Concepts in Enterprise Resource Planning, Fourth Edition 25

• How Fitter Snacker’s sales order process would

Concepts in Enterprise Resource Planning, Fourth Edition 26

• Order entry screen in SAP ERP’s 4.7 Enterprise

Concepts in Enterprise Resource Planning, Fourth Edition 27

Figure 3-2 SAP ERP order entry screen

Figure 3-3 Data entry fields in the order entry screen

Concepts in Enterprise Resource Planning, Fourth Edition 29

Figure 3-5 Search screen for customers

Figure 3-6 Result of customer search

Concepts in Enterprise Resource Planning, Fourth Edition 32

Figure 3-7 Order screen with complete date

Figure 3-8 Order proposals

• Customer master data

Concepts in Enterprise Resource Planning, Fourth Edition 35

• When a sales order is saved, SAP ERP system

Concepts in Enterprise Resource Planning, Fourth Edition 36

Concepts in Enterprise Resource Planning, Fourth Edition 37