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

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

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

How an Organization Creates Value

INPUTS PROCESS

ENVIRONMENT

OUTPUTS

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

Example ERP HR Module

HR processes
PAYROLL BENEFITS RECRUITING TRAINING

IT resources

payroll programs, personnel files, health plan documents, recruiting, Servers & networks, etc.
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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

Differences between Function & Process

Function
Focus on What Vertical Static Task-centered

Process
Focus on How Horizontal Dynamic Customer-oriented

Individual/Specialist
Parochial

Team/Generalist
Holistic
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Cross-functional Processes
i.e., Product Development

competitor analysis market research

Product development
needs analysis component design research product test market test product release process design equipment design production start

new product prototype

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MARKETING

R&D

PRODUCTION

ERP for Organizational Value Chain

Profit Margin
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Support: Infrastructure, HR, R&D, Procurement

Primary:
Inbound Outbound Marketing Operations Service logistics logistics & Sales

Stream of activities Applies to both products and services

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 processing

Desk-to-desk approach
Origination of loan
prequalification document generation application processing credit analysis & underwriting approval & closing credit reporting

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 processing

Team approach
Loan origination team Field rep laptop

Regional production center

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

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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Strategic Direction
Improved resource allocation More flexible organization Better future decision making

ERP Vendors
Over 100 vendors globally 5 major vendors
Lawson JDEdwards Oracle PeopleSoft SAP Healthcare Internet Database HRM originally 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 bestof-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

Spacenet

What is an R/3 System?

Database Server

Application Server

Presentation Server
R

SAP AG

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SD
Sales & Distribution

FI
Financial Accounting

MM
Materials Mgmt.

CO
Controlling

PP
Production Planning

SM
Service Management

R/3
Integrated Solution Logical Architecture
PM WF

AM
Fixed Assets Mgmt.

EC
Enterprise Controlling

QM

Quality Management

PS
Project System Workflow

Plant Maintenance

HR
Human Resources

IS
Industry Solutions

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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
FI
Legal or external reporting Reports by accounts Balance Sheet Income Statement

CO
Internal management reporting Reports by cost centers and cost elements Cost Center Reports

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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. P&L account

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Materials Management (MM) Module

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Procurement Process
Purchase Order Purchase Requisition Demand Vendor

Accounts Payable

Goods Receipt & Inventory Mgmt.

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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.,
uniform

pants

shirt

hat

emblem - 2

cover

box

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Production Process

Schedule/Release

Goods Issue

Shop Floor

Order Settlement

Goods Receipt
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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

Company

3000 MSI US
Sales Area: Sales Organization Distribution Channel
90 Accessories

1000 4000 MSI German Canada yy

3000 US 12 1000 4000 Germany Canada 12 Resale 02

Company

Sales Area: Sales Organization Distribution Channel

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Resale s Motorcycles

90 Accessories

Division

Division

Motorcycles

3000

3400 Seattle

Plant

New York

Plant

1000 4000 Hamburg Montreal

1400 4100 Stuttgart Toronto

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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
O rd e r M a n a g e m e n t: B u s in e s s P ro c e s s e s in C O M C y c le

S a le s O rd e rr P ro c e s s in g S a le s O rd e P ro c e s s in g In v e n to ry S o u rc in g In v e n to ry S o u rc in g P re -S a le s A c tiv itie s P re -S a le s A c tiv itie s

In v o ic e

P a y m e n tt P aym en B illin g B illin g

D e liv e ry D e liv e ry

SAP AG

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Human Resources (HR) Management Module

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SAP HR Processes
Course Credit

Recruitment Cost Planning & Reporting

Hiring

Employee Self-Service

Training and Personnel Development Managing Work Time

Travel Planning Payroll Administration

Compensation & Benefits

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HR Integration
Financial Accounting Logistics

Controlling

Sales and Distribution

SAP HR

Workflow

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ERP Trends
1. Further integration of suppliers & customers 2. Focus on ERP system flexibility 3. Mass customization
Standard interfaces across chain

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Extended ERP

Upward Integration (i.e., EIS)

Backward Integration (i.e., SCM)

ERP

Forward Integration (i.e, CRM)

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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@emich.edu

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