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Enterprise Resource Planning(ERP)

정 석 화

Department of Computer Information SystemsCollege of Business

Eastern Michigan University

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Agenda

• What is ERP?

• Why ERP?

• ERP Vendors

• SAP R/3 & Modules

• ERP Trends

• Questions/Answers

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ERP

• A collection of software systems that help to manage business processes for an entire organization

• Designed to integrate all information processing support for an entire organization

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Organization

• A group of people engaged in purposeful activity over extended time

• A tool used to coordinate in order to obtain Value for organizational goals

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How an Organization Creates Value

OUTPUTS

PROCESSINPUTS

ENVIRONMENT

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Business Process

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

• Has sequence, purpose, interaction

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TRAINING

BENEFITSPAYROLL

RECRUITING

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

Example – ERP HR Module

IT resources

HR processes

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Theme of ERP

• Reflects assumptions about the way companies operate

• Provides the integration of all the information flowing through a companyi.e., – Financial/accounting information– HR information– Customer information

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• A process-oriented organization

• Data at the core of the enterprise

• ERP as a major part of the enterprise architecture

An Organization with ERP

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Differences between Function & Process

Function Process

Focus on “What” Focus on “How”

Vertical Horizontal

Static Dynamic

Task-centered Customer-oriented

Individual/Specialist Team/Generalist

Parochial Holistic

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Cross-functional Processes i.e., Product Development

MARKETING PRODUCTIONR & D

Product development

com

petit

or a

naly

sis

mar

ket r

esea

rch

new

pro

duct

prot

otyp

e

needs analysisresearchmarket test

component designproduct testproduct release

process designequipment designproduction start

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ERP for Organizational Value Chain

− Stream of activities

− Applies to both products and services

Pro

fit

Mar

gin

Support:

Primary:

Infrastructure, HR, R&D, Procurement

Inboundlogistics

OperationsOutboundlogistics

Marketing& Sales

Service

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Business Process Reengineering (BPR)

An organization fundamentally and radically

redesigns its business process to achieve

dramatic improvement

− From the restructuring of an organization

− To the redesigning of individual processes

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Follow-up processing

pre- qualification

documentgeneration

applicationprocessing

credit analysis& underwriting

approval& closing

paymentprocessing

escrowmanagement

customerservice

collections& foreclosures

valuation &risk analysis

transfer tosecondary mkt

BPR Example - Loan processingDesk-to-desk approach credit

reporting

Servicing of loan

Origination of loan

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BPR example - Loan processingTeam approach

Field replaptop

Regionalproduction

center

Loanorigination

team

Loanservicing

team

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ERP Strategic Issues

• Compelling reasons - efficiencies

• Organization change - better than current

• Strategic advantage - gaining an advantage

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ERP Tactical Issues

• Functional /Cross-functional integration

• Supply chain integration

• Decision support

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Operational Issues – ERP Implementation

• Configuration – Methodology & Processes

• Plan vanilla to start

• Populating the data with integrity

• Modifications made

• Cut over or Phased rollout

• Add-ons

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ERP Benefits – Eli Lilly SAP R/3 Implementation

Process Improvements− Eliminate redundant

transactions− More efficient staff and

succession planning

IT− Reduced support costs− Reduced infrastructure costs

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

Highlights:• 45 global sites• Implementation by 2002 –

delayed to 2004• Single client, servers in Indianapolis• Approx. 70 person implementation – now over 100 involved

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ERP Vendors

Over 100 vendors globally 5 major vendors

– Lawson Healthcare

– JDEdwardsInternet

– Oracle Database

– PeopleSoft HRM originally

– SAP German, pioneer of ERP

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ERP Market (META Group, 2003)

$15B globally in 2002 and growing at 12%-15% annually

Satisfied at least 75% of the overall business application requirements

Mission-critical functionality ERP regarded as core IT investments

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Key Findings about ERP Market

Mature and concentrated The five vendors - more than 80% of the

investment ERP purchases - 10+ year commitments Vendor size does not guarantee high

performance, and the smaller ones perform to the leaders for specific criteria

Vendors must be compared to that of best-of-breed vendors (e.g., Siebel for CRM, i2 for SCM)

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SAP R/3 OverviewSAP 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

Partial SAP Client List

Spacenet

26 SAP AG

R

What is an R/3 System?

DatabaseServer

ApplicationServer

PresentationServer

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R/R/33

FIFIFinancialFinancial

AccountingAccounting

COCOControllingControlling

PSPSProjectProjectSystemSystem

WFWFWorkflowWorkflow

ISISIndustryIndustry

SolutionsSolutions

MMMMMaterialsMaterials

Mgmt.Mgmt.

HRHRHumanHuman

ResourcesResources

SDSDSales &Sales &

DistributionDistribution

PPPPProductionProductionPlanningPlanning

QMQMQualityQuality

ManagementManagement

PMPMPlant MaintenancePlant Maintenance

SMSMServiceServiceManage-Manage-

mentmentIntegrated Solution

Logical Architecture

ECECEnterpriseEnterpriseControllingControlling

AMAMFixed AssetsFixed Assets

Mgmt.Mgmt.

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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

COFI

Legal or external reportingReports by accounts Balance Sheet Income Statement

Internal managementreporting

Reports by cost centers andcost 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

Demand

Purchase Requisition

Vendor

Purchase Order

Goods Receipt& Inventory Mgmt.

AccountsPayable

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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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BOMs are created as relationships between one parent material and one or more sub-component materials. i.e.,

Master Data - BOM

shirtpants emblem - 2

uniform

hat boxcover

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Production Process

Goods IssueShop Floor

Goods ReceiptOrder Settlement

Schedule/Release

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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

Scheduling Techniques

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Sales and Distribution (SD)Module

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Organizational Unit

Sales Area:

Sales

Organization

DistributionChannel

Division

Plant

30003000

USUS

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Resales

0202

MotorcyclesMotorcycles

9090

AccessoriesAccessories

40001000

CanadaGermany

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Resale

Sales Area:

Sales

Organization

DistributionChannel

Division

Plant

Company Company

0202

MotorcyclesMotorcycles

9090

AccessoriesAccessories

40001000MSIMSI

CanadaGermanyy

30003000MSIMSIUSUS

30003000

New YorkNew York

34003400

SeattleSeattle

40001000

MontrealHamburg

41001400

TorontoStuttgart

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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

SAP AG

R

Pre-Sales ActivitiesPre-Sales Activities

Sales Order ProcessingSales Order Processing

Inventory SourcingInventory Sourcing

DeliveryDelivery

BillingBilling

PaymentPayment

Invoice

Order Management: Business Processes inCOM Cycle

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Human Resources (HR) Management

Module

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CourseCreditRecruitment

Hiring

Training and

Personnel Development

Payroll Administration

Managing Work Time

Compensation & Benefits

SAP HR Processes

Travel Planning

Employee Self-Service

CostPlanning

&Reporting

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HR Integration

Logistics

Sales and Distribution

Financial Accounting

Controlling

WorkflowSAP HR

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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

ERP

Upward Integration (i.e., EIS)

Forward Integration(i.e, CRM)

Backward Integration(i.e., SCM)

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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• Oracle’s 11i - Planning & Scheduling

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Questions/Answers

or

email me at schung1@emich.edu