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

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

credit
reporting

Desk-to-desk approach
Origination of loan
prequalification

document
generation

application
processing

credit analysis
& underwriting

approval
& closing

Servicing of loan
payment
processing

escrow
management

customer
service

collections
& foreclosures

Follow-up processing
valuation &
risk analysis

transfer to
secondary mkt
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BPR example - Loan 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

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
JDEdwards
Oracle
PeopleSoft
SAP

Healthcare
Internet
Database
HRM originally
German, pioneer of ERP

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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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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

28

FI and CO Comparison
FI

CO

Legal or external reporting

Reports by accounts
Balance Sheet
Income Statement

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

34

Procurement Process
Purchase
Order

Demand

Purchase
Requisition
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

42

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

Order Settlement

Shop Floor

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

47

Organizational Unit
3000
MSI
US

Company

Sales Area:
Sales
Organization

Plant

Sales Area:
Sales
Organization

3000
US
12

Distribution
Channel
Division

1000
4000
MSI
German
Canada
yy
1000
4000
Germany
Canada
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Distribution
Channel

Resale
s
02

90

Motorcycles

Accessories

3000

3400

New York

Seattle

Division

Plant

Company

Resale
02

90

Motorcycles

Accessories

1000
4000

1400
4100

Hamburg
Montreal

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
Order Management: Business Processes in
COM Cycle

Sales
Sales Order
Order Processing
Processing
Inventory
Inventory Sourcing
Sourcing
Pre-Sales
Pre-Sales Activities
Activities

Invoice

Delivery
Delivery

Payment
Payment
Billing
Billing

SAP AG

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Human Resources (HR)

Management
Module

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SAP HR Processes

Cost
Planning
&
Reporting

Recruitment

Hiring

Employee Self-Service

Travel Planning
Payroll
Administration

Compensation
& Benefits

Course
Credit

Training
and
Personnel
Development
Managing
Work Time

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HR Integration
Logistics

Financial
Accounting

Controlling

Sales and
Distribution

SAP HR

Workflow

60

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

Standard interfaces across chain

61

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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