BUSINESS FUNCTIONS AND

BUSINESS PROCESSES
Learning objectives
By the end of the session you will be able to
 Name the main functional areas of operation used in business
 Differentiate between a business process and a business function
 Identify the kinds of data each main functional area produces
 Identify the kinds of data each main functional area needs
 Define integrated information systems, and explain why they are
essential in today’s globally competitive business environment
Introduction
• Enterprise Resource Planning (ERP) systems are core software
programs used by companies to integrate and coordinate information
in every area of the business.

• ERP programs help organizations manage company-wide business

processes, using a common database and shared management
reporting tools.

• A business process is a collection of activities that takes one or more

kinds of input and creates an output, such as a report or forecast, that
is of value to the customer.

• ERP software supports the efficient operation of business processes by

integrating tasks related to sales, marketing, manufacturing, logistics,
accounting, and staffing—throughout a
business.
• In addition to this cross-functional integration, which is at the heart
of an ERP system, companies connect their ERP systems, using
various methods, to coordinate business processes with their
customers and suppliers.
FUNCTIONAL AREAS AND BUSINESS PROCESSES
 Business Processes
• a collection of activities that takes one or more kinds of input and creates an
output that is of value to the customer.

• For example, what is sold through Marketing and Sales is linked to what is
procured and produced by Supply Chain Management.
Financial Accounting:
ERP Functional Areas
• Ledger, Fixed asset, Payables, Cash management, etc.

Management Accounting:
• Budgeting, Costing, Cost Management, etc.

Human Resources:
• Recruiting, Training, Payroll, Retirement, Separation, etc.

Manufacturing:
• Engineering, Work orders, Scheduling, Workflow Management,
Product Life Cycle Management, etc.
Supply Chain Management:
• Supply chain planning, Supplier scheduling, Purchasing, Claim
processing, etc.
Project Management:
ERP Functional Areas
• Project Planning, Resource Planning, Project Costing, Work Break
Down Structure, Billing, Time and Expense, Performance Units,
Activity Management
Customer Relationship Management:
• Sales & Marketing, Commissions, Service, Customer Contact, etc.

Data Services:
• Self–service interfaces for customers, suppliers and/or employees

Access Control:
• Management of user privileges for various processes
 FUNCTIONAL AREA INFORMATION SYSTEMS

Marketing and Sales

 To summarize, inputs for Marketing and Sales could include the
following:
• Customer data
• Order data
• Sales trend data
• Per-unit cost
• Company travel expense policy
 Outputs for Marketing and Sales could include the following:
• Sales strategies
• Product pricing
• Employment needs
Supply Chain Management
 To summarize, inputs for Supply Chain Management could include
the following:
• Product sales data
• Production plans
• Inventory levels
• Layoff and recall company policy
 Outputs for Supply Chain Management could include the following:
• Raw material orders
• Packaging orders
• Resource expenditure data
• Production and inventory reports
• Hiring information
Accounting and Finance
 To summarize, inputs for Accounting and Finance could include the
following:
• Payments from customers
• Accounts receivable data
• Accounts payable data
• Sales data
• Production and inventory data
• Payroll and expense data
 Outputs for Accounting and Finance could include the following:
• Payments to suppliers
• Financial reports
• Customer credit data
Human Resources
 To summarize, inputs for Human Resources could include the
following:
• Personnel forecasts
• Skills data
 Outputs for Human Resources could include the following:
• Regulation compliance
• Employee training and certification
• Skills database
• Employee evaluation and compensation
Exercises

Go to the Amazon Web site (http://www.amazon.com), and step through

the process of buying an item without actually purchasing the item. Based
on this experience, describe the flows of information between Marketing
and Sales, Accounting and Finance, and Supply Chain Management at
Amazon. How easy is it to buy that item?
SAP Begins Developing Software Modules
• Before leaving IBM, Plattner and Hopp had worked on an order-
processing system for the German chemical company ICI.

• order-processing system was so successful that ICI managers also

wanted a materials and logistics management system

—a system for handling the purchase, receiving, and storage of

materials—that could be integrated into the new order-processing
system.

• Software modules are individual programs that can be

purchased, installed, and run separately, but all of the modules
extract data from a common database.
• Plattner and Hopp began to consider the idea of leaving IBM
to form their own company so they would be free to pursue
their own approach to software development.
• They also asked Claus Wellenreuther, an expert in financial
accounting who had just left IBM, to join them, and on April
1, 1972, SAP was founded.
• Their first contract, with ICI, to develop the follow-on
materials and logistics management system, included access
to ICI’s mainframe computer at night—a practice they
repeated with other clients until they acquired their first
computer in 1980.
• At ICI, the SAP founders developed their first software
package, variously called System R, System RF (for real-time
financial accounting), and R/1.
• in 1978 SAP began developing a more integrated version
of its software products, called the R/2 system.
• In 1982, after four years of development, SAP released its
R/2 mainframe ERP software package.
• 1988, SAP had established subsidiaries in numerous
foreign countries, launched a joint venture with
consulting company Arthur Andersen, and sold its
1,000th system.
 SAP R/3

• In 1988, SAP realized the potential of client-server

hardware architecture and began
• development of its R/3 system to take advantage of client-
server technology.
• The first version of SAP R/3 was released in 1992.
• Each subsequent release of the SAP R/3 software
contained new features and capabilities.
• The client-server architecture used by SAP allowed R/3 to
run on a variety of computer platforms, including UNIX
and Windows NT.
• The SAP R/3 system was also designed using an open
architecture approach.
• In open architecture, third-party software companies are
encouraged to develop add-on software products that can
be integrated with existing software.
• The open architecture also makes it easy for companies to
integrate their hardware products, such as bar-code
scanners, personal digital assistants (PDAs), cell phones,
and global information systems with the SAP system.
 New Directions in ERP
• In the late 1990s, the year 2000, or Y2K, problem motivated
many companies to move to ERP systems.
• The Y2K problem originated from programming shortcuts made
by programmers in the preceding decades.
• With memory and storage space a small fraction of what it is
today, early programmers developed software that used as few
computer resources as possible.
• To save memory, programmers in the 1970s and 1980s typically
wrote programs that only
• used two digits to identify a year. For example, if an invoice was
posted on October 29, 1975, the programmer could just store the
date as 10/29/75, rather than 10/29/1975.
• While this may not seem like a big storage savings, for companies
with millions of transactions that needed to be stored and
manipulated, it added up.
• These programmers never imagined that software written in the
1970s would still be running major companies and financial
institutions in 1999.
• These old systems were known as legacy systems.
• Many companies were faced with a choice: pay programmers
millions of dollars to correct the Y2K problem in their old, already
outdated software—or invest in an ERP system that would not
only solve the Y2K problem, but potentially provide better
management of their business processes as well.
• Thus, the Y2K problem led to a dramatic increase in business for
ERP vendors in the late 1990s
• SAP also had competition in the ERP market, namely from
Oracle and PeopleSoft.
PeopleSoft

• founded by David Duffield, a former IBM employee

• PeopleSoft started out offering software for human resources
and payroll accounting, and it achieved considerable success,
even with companies that already were using SAP for
accounting and production.
• In fact, PeopleSoft’s success caused SAP to make significant
modifications to its Human Resources module.
• in late 2004, Oracle succeeded in its bid to take over PeopleSoft.
• Today, PeopleSoft, under Oracle, is a popular software choice
for managing human resources and financial activities at
universities.
• Currently Oracle offers PeopleSoft’s ERP solution under the PeopleSoft
Enterprise Applications name; it offers JD Edwards ERP solutions as JD
Edwards EnterpriseOne and JD Edwards World.
Oracle
• Oracle began in 1977 as Software Development Laboratories (SDL). Its
founders, Larry Ellison, Bob Miner, and Ed Oates.

• Oracle’s recent growth in ERP applications has been through acquisition.

In addition to PeopleSoft and JD Edwards, in 2005 Oracle acquired Siebel,
a major customer relationship management (CRM) software company.

• In 2010, in an effort to consolidate its customer base on a single software

platform, Oracle released Fusion Applications, which is a software suite
designed to give its PeopleSoft, JD Edwards, and Siebel customers a
modular and flexible upgrade path to a single Oracle ERP solution.
 SAP ERP
• SAP ERP software (previous versions were known as R/3, and later, mySAP
ERP) has changed over the years, owing to product evolution—and for
marketing purposes.
• The latest versions of ERP systems by SAP and other companies allow all
business areas to access the same database, eliminating redundant data and
communications lags.
• An ERP system allows data to be entered once, and then used throughout
the organization.
• In information systems, errors most frequently occur where human beings
interact with the system.
• ERP systems ensure that data are entered only once, where they are most
likely to be accurate.

• For example, with access to real-time stock data, a salesperson taking an

order can confirm the availability of the desired material. When the
salesperson enters the sales order into the system, the order data are
immediately available to Supply Chain Management, so Manufacturing can
update production plans, and Materials Management can plan the delivery
of the order. If the sales order data are entered correctly by the salesperson,
then Supply Chain Management personnel are working with the
same,correct data. The same sales data are also available to Accounting for
invoice preparation.
The basic functions of each of the modules are as follows:

• The Sales and Distribution (SD) module records sales orders and scheduled
deliveries. Information about the customer (pricing, address and shipping
instructions, billing details, and so on) is maintained and accessed from this
module.

• The Materials Management (MM) module manages the acquisition of raw

materials from suppliers (purchasing) and the subsequent handling of raw
materials inventory, from storage to work-in-progress goods to shipping of
finished goods to the customer.

• The Production Planning (PP) module maintains production information.

Here production is planned and scheduled, and actual production activities are
recorded.
• The Quality Management (QM)
module plans and records quality
control activities, such as product
inspections and material certifications.

• The Plant Maintenance (PM) module

manages maintenance resources and
planning for preventive maintenance
of plant machinery in order to
minimize equipment breakdowns.

• The Asset Management (AM)

module helps the company manage
fixed-asset purchases (plant and
machinery) and related depreciation.
• The Human Resources (HR) module facilitates employee recruiting, hiring,
and training. This module also includes payroll and benefits.
• The Project System (PS) module facilitates the planning for and control over
new research and development (R&D), construction, and marketing projects.

 The Workflow (WF) module is not a module that automates a specific

business function. Rather, it is a set of tools that can be used to automate any
of the activities in SAP ERP.
 It can perform task-flow analysis and prompt employees (by email) if they
need to take action.
 The Workflow module works well for business processes that are not daily
activities but that occur frequently enough to be worth the effort to
implement the workflow module—such as preparing customer invoices.
 ERP FOR MIDSIZED AND SMALLER
COMPANIES
• To address the needs of smaller companies, such as those with less than
500 employees, SAP purchased the ERP system of Israeli-based
TopManage Financial Systems in 2002, and renamed this package SAP
Business One.
• The capabilities of SAP Business One have increased over the years
through both internal development at SAP and the acquisition of other
software companies such as iLytix Systems AS, which added new
reporting capabilities to SAP Business One.
• In July 2011, SAP announced that SAP Business One would be available in
a new subscription-based, hosted offering through SAP partners.
• In addition, SAP has developed its BusinessByDesign product, which is
an ERP product hosted by SAP and accessed through a Web browser.
• It is an example of the software-as-a-service (SaaS) approach that
eliminates the need for a company to buy and maintain the software and
hardware to run an ERP application.
 CHOOSING CONSULTANTS AND
VENDORS
• Because ERP software packages are so large and complex, one person cannot fully
understand a single ERP system; it is also impossible for an individual to
adequately compare various systems.

• So, before choosing a software vendor, most companies study their needs and then
hire an external team of software consultants to help choose the right software
vendor(s) and the best approach to implementing ERP.

• Working as a team with the customer, the consultants apply their expertise to
selecting an ERP vendor (or vendors) that will best meet their customer’s needs.

• After recommending a vendor, the consultants will typically recommend the

software modules best suited to the company’s operations, along with the
configurations within those modules that are most appropriate.

• This preplanning should involve not only the consultants and a company’s IT
department, but the management of all functional business areas as well.
 BENEFITS OF ERP
ERP systems offer the following benefits:
• ERP allows easier global integration. Barriers of currency exchange rates,
language, and culture can be bridged automatically, so data can be integrated
across international borders.
• ERP integrates people and data while eliminating the need to update and
repair many separate computer systems. For example, at one point, Boeing
had 450 data systems that fed data into its production process; the company
now has a single system for recording production data.
• ERP allows management to actually manage operations, not just monitor
them.