Graduate Program in
Business Information Systems
BIS 581
Business Process Management
Lectures 9-10
Aslı Sencer
Department of Management Information Systems
Business Process Management – 9-10
Integration with ERP Systems
Outline
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•
•
•
•
•
Types of Enterprises Systems
Types of Data in ES
SAP Overview
Procurement Process
Key Concepts and Assumptions
Conceptual Framework
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–
–
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Physical Flow
Document and Data Flow
Information Flow
Financial Impact
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Enterprise Systems
• Three stages of evolution
– Stage 1: Stand-alone Mainframe Systems
– Stage 2: Client-Server Architecture
– Stage 3: Service-Oriented Architecture (SOA)
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The New Stack – Process Is the Next Platform
Client
Punch Card or
Terminal
(10’sCustom
of users)
PC or Internet
Any Device
(1000’s of users)
(Millions of users)
Composites
Application
Data
Management
Application
Application
Application
OS
OS
OS
Composites
Application
OS and
Database
Mainframe
DB
OS
Client
Server
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OS
OSApplications
OS
OS
DB
OS DB
OS DB
OS
OS
OS
OSApplications
OS
OS
DB
OS DB
OS DB
OS
OS
SOA
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Stand Alone Mainframe Systems
Hardware
Expensive mainframe systems
Software
Specialized operating system software needed to execute the
operations from the applications on the hardware
Custom applications for specific tasks like filling a customer order
Database
Early databases were too complex and difficult to manage.
Large companies could afford it.
Users used primitive terminals to interact with the database. They
used punchcards instead of monitor or mouse.
In 1960’s to 1980’s IBM was the only company that could provide
mainframes, operating systems and databases.
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Drawbacks of Mainframe Systems
Scalability: # users or the volume of operations (transcations) that a given
hardware and software can manage.
Ex: Your computer gets slower when a certain application is running. In
this case you upgrade your computer by adding more memory and
improved video processing card.
Mainframe ES’s are designed to handle maximum amount of users or
operations since custom application, OS and database are entirely
contained in a single piece of hardware and upgrade is extremely
expensive.
Companies had to limit both capability and # users! Hence In mainframe
environment, scalability is very low.
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Drawbacks of Mainframe Systems
Custom designed to address the specific needs of the organization.
They could not easily be used by other companies.
Small and medium sized companies could not afford it.
In 1970’s packaged applications emerged.
Proprietary applications that are designed specifically for one firm vs.
packaged applications which are generic softwares that can be used
by many companies.
SAP emerged in 1972 and generated significant cost savings, ES
became widespread, initially in large companies.
Hardware is still costly! IBM mainframe hardware, operating system and
database were still costly, thus ES were limited to large firms only.
8
Technological Advances During
1980’s 1990’s
• Hardware and software became more and more efficient, capable and less
costly!
• More advanced operating systems like UNIX made it easier to manage
complex hardware
• Relational databases like INFORMIX made storing and accessing data
much simpler
• Advances in networking technologies like remote control ability allowed
the companies to connect to the ES network remotely rather than physically
installing it.
• Emergence of 3-tier client server architecture led to the explosive growth
in the use of ES
9
Client-Server Architecture
Desktop applications (like MS office) includes three components:
Presentation layer: How you interact with the application,
ex: menus, typing, selecting, etc.
Application layer: What the application allows you to do,
ex: create formulas, charts, compose an essay, etc.
Data layer: Where the application stores your work,
ex: harddrive, flash disk
In the early desktop applications all layers are contained in one system.
The 3-tier architecture seperates these into 3 seperate components.
The 2-tier architecture seperates presentation layer from the other two.
Much of the work done on internet uses a 2-tier or 3-tier architecture.
Your browser is the presentation layer
Web sites include application and data layers and provide capabilities like
emailing and information sharing. They may be 2 or 3-tier.
Ex: For instant messaging, you install a software to your PCpresentation layer - client component
The messaging system (stores login info, contacts, etc)application layer - server component
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3-tier Client-Server Architecture
Tier 1:
presentation
client
Tier 2: application
server
Tier 3: data
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Benefits of Client-Server Architecture
More practical:
Only install the presentation layer, i.e., client system to your PC to add
a user.
Can access the application from any computer connected to the
internet, since your login info is stored on the server-application layer.
Larger scalability and flexibility:
Different layers can run simultaneously on different computers.
ES can run on cheaper components rather than expensive mainframes
Ex: Sun Microsystems provide a variety of smaller server computers
instead of an expensive mainframe.
Distribution of application workload across several smaller application
servers leads to infinite scalability!
Each application server handles a set of simultaneous users. If more
users are needed, company adds an additional application server.
However database has to be shared in a common database server!
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Service Oriented Architecture (SOA)
In 2000’s companies began to web-enable their 3-tier applications so that
users access the system through web browsers.
New technologies emerged to link and integrate many different client server
systems more efficiently called Service Oriented Architecture (SOA).
By using web services, companies integrate several client – server systems
and create an enterprise mashup or composite applications.
Web services send and receive data between ES’s.
The users have no idea which systems are used to present that output.
Ex: A company may see the map locations of its customers by creating a
SOA between its ES that contains the customer data and Google Maps.
Ex: During e-purchasing a customer might select among the shipping
companies. ES sends shipment info to several shipment companies,
collect prices from each, delivers to the customer and assigns the order
shipment to the selected one electronically.
SOA enables companies to build composite applications on top of their 3-tier
client server applications without changing the existing applications.
Higher flexibility at an extremely low cost!
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Types of Enterprise Systems
• The ES Application Suite
– Enterprise Resource Planning (ERP)
– Supply Chain Management (SCM)
– Supplier Relationship Management (SRM)
– Product Lifecycle Management (PLM)
• Other classifications
– Best of breed vs. Niche applications
– Software as a service (SaaS)
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ERP Systems
• Evolved in 1990’s in parallel to advances in BPR and
globalization.
• ERP’s are the world’s largest and most complex ES’s.
• Focus on internal operations of an organization, integrate
functional and cross functional (intracompany) business
processes.
• Typical ERP systems include
–
–
–
–
–
Operations (production)
Human resources
Finance and Accounting
Sales and Distribution
Procurement
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Management of intercompany
processes: SCM and SRM
• SCM connects the companies that supply the materials it
needs to make its products.
• SCM help companies plan for their production demand
requirements and optimize complex transportation and
logistics for materials.
• SRM systems manage the overal relationships with the
material suppliers.
• SRM systems contain functonality to manage the quotation
and contracts processes.
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CRM and PLM
• CRM systems connect a company’s ERP system to those of its
customers.
• CRM systems provide companies with capabilities to manage
marketing, sales and service for its customers.
• PLM systems help companies administer the process of
research, design and product management.
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The application suite
Example: SAP, Oracle
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SAP ERP Solution Map
End-User Service Delivery
Analytics
Financials
Product Development
and Manufacturing
Sales and Service
Corporate Services
Treasury
Talent Management
Financial Accounting
Workforce Analytics
Management
Accounting
Workforce Process Management
Corporate
Governance
Workforce Deployment
Procurement
Inventory and Warehouse
Management
Inbound and Outbound
Logistics
Transportation
Management
Production Planning
Manufacturing Execution
Product Development
Life-Cycle Data
Management
Sales Order Management
Real Estate
Management
Enterprise
Asset
Management
Aftermarket Sales and Service
Professional-Service Delivery
Project and
Environment, Health,
Travel
Quality
Global Trade
Portfolio
and Safety
Management
Management Services
Management
Compliance Mgmt.
Copyright SAP AG
2008
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SAP NetWeaver
Procurement and
Logistics Execution
Financial Supply
Chain Management
Operations Analytics
Shared Service Delivery
Human Capital
Management
Financial Analytics
SAP Supply Chain Management
Demand & Supply
Planning
Procurement
Manufacturing
Warehousing
Transportation
Real World Awareness
Supply Chain Visibility
Supply Network
Collaboration
Supply Chain
Management with Duet
Copyright SAP AG
2008
Supply Network
Planning
Distribution Planning Service Parts Planning
Strategic Sourcing
Purchase Order Processing
Invoicing
Production Planning & Detailed
Scheduling
Manufacturing Visibility & Execution
& Collaboration
MRP based Detailed Scheduling
Inbound Processing &
Outbound Processing
Receipt Confirmation
Sales Order Processing
Billing
Planning &
Dispatching
Freight Management
Supplier Collaboration
Physical Inventory
Service Parts Order Fulfillment
Rating & Billing &
Settlement
Supply Chain Event Management
Strategic Supply Chain
Design
Warehousing &
Storage
Cross Docking
Driver & Asset
Management
Network Collaboration
Auto ID / RFID and Sensor Integration
Supply Chain Analytics
Supply Chain Risk
Management
Customer Collaboration
Sales & Operations Planning
Outsourced Manufacturing
Demand Planning in MS Excel
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SAP NetWeaver
Order Fulfillment
Demand Planning &
Safety Stock Planning
Forecasting
SAP Supplier Relationship Management
Purchasing Governance
Global Spend Analysis
Category Management
Compliance Management
Sourcing
Central Sourcing Hub
RFx / Auctioning
Bid Evaluation & Awarding
Collaborative
Procurement
Supplier Collaboration
Supply Base
Management
Legal Contract
Repository
Contract Authoring
Self-Service Procurement
Contract Negotiation
Services Procurement
Contract Execution
Direct / Plan-Driven
Procurement
Contract Monitoring
Catalog Content
Management
Web-based Supplier Interaction
Direct Document Exchange
Supplier Network
Supplier Identification & Onboarding
Supplier Development & Performance
Management
Supplier Portfolio Management
Copyright SAP AG
2008
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SAP NetWeaver
Contract Management
SAP Product Lifecycle Management
Product Strategy and
Planning
Product Development
and Collaboration
Engineering, R&D
Collaboration
Product Data
Management
Service and
Product Master and
Specification and
Maintenance Structure
Structure Management Recipe Management
Management
PLM Foundation
Product
Compliance
Product Portfolio
Management
Supplier
Collaboration
Product
Intelligence
Innovation
Management
Manufacturing
Collaboration
Product Costing
Requirements
Management
Service and
Maintenance
Collaboration
Product Quality
Management
Visualization and
Publications
Tool and
Workgroup
Integration
Project and
Resource
Management
Market Launch
Management
Product Change
Management
Configuration
Management
Document
Management
Copyright SAP AG
2008
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SAP NetWeaver
Product Management
SAP Customer Relationship
Management
Segmentation & List
Management
Campaign Management
Real-Time Offer
Management
Sales
Sales
Quotation &
Territory
Accounts & Opportunity
Planning & Performance
Order
Management Contacts
Management
Forecasting Management
Management
Service
Service Order
Complaints &
Contract
Management
Returns
Management
In-House
Repair
Pricing &
Contracts
Lead Management
Incentive &
Commission
Management
Case
Installed Base Warranty
Management Management Management
Time &
Travel
Resource
Planning
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2008
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Business Communication
Management
Marketing Resource
Management
Trade Promotion Management
Interaction Center
Service
Web Channel
Sales
Partner Channel Management
Marketing
Other classifications of ERP systems
Today’s global comanies typically have an ES lanscape that includes custom and
packaged applications from several vendors
• Best of Breed Applications: Isolated to one process or part of a process that
evolves from departmental applications
Ex: i2 is a popular SCM system. Ariba is a popular procurement system.
• Niche applications: Small and independent software vendors offer highly
specialized niche app’s.
Ex: Vendova is a small ISV that produces a pricing management tool to assist
retailers in maximizing profit for retail sales. It pulls product and price info
from several ES’s.
• Other classifications:
– Size of enterprise: SAP and Oracle for companies with more than 1000 employees
– Method of delivery: Install the hardware and software in the facility (three-tier or
SOA configurations) versus salesforce.com and Netsuite deliver ES entirely from
web.
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Types of Data in ES
• Organizational Data
• Master Data
• Transaction Data
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Organizational Data
• Define the organizational structure of the enterprise
• Includes definitions of:
–
–
–
–
–
–
Companies (subsidiaries, etc.)
Divisions based on, product or geographical hierarchy
Sales organizations
Purchasing organizations
Physical facilities: plants, warehouses, distribution centers
HR organization: Functional areas, reporting relationships
• Data rarely changes
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Master Data
• Define key entities in an organization
• Customers
– Basic information: name, address, contact information
– Financial information: payment terms, methods
– Sales information: delivery terms
• Vendors / suppliers
– Similar information as customer
• Products
–
–
–
–
Basic data: description, weight, color
Purchasing data
Sales data
Manufacturing data
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Master Data
• Employees
– Basic data
– Personal data: dependents
– Payroll data
– Tax data
• Data changes occasionally
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Transaction Data
• Data that is the consequence of day-to-day transaction
– Who, what, when, where, how, how much
• Sales
– Customer, products, quantities, dates and times, location
(shipping, delivery), sales person
• Purchase
– Vendor, products, quantities, dates and times, location
(delivery), sales person, requester
• Production
– Materials, quantities, facilities, resources (machine,
people), dates and times, locations (storage, production)
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Super Skateboard Builders, Inc.
•
•
•
•
•
•
•
History
Product Line
Customers
Vendors
Plant Layout
Employees
Information Systems
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SSB, Inc. - Product List
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SSB, Inc. - Customer List
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SSB, Inc. - Vendor List
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SSB, Inc. - Plant Layout
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SSB, Inc. - Organizational Chart
John Z. Boeve
(President)
Maria Rivera
(Office Manager)
Catherine
VanderBos (Plant
Manager)
Patrick Stevens
(Sales Manager)
Shana Smith
(Accountant)
David Bloomberg
(Warehouse
Manager)
Charles Skivers
(Shop Floor)
Martha Seward
(Purchasing
Manager)
Tom Jones
(Warehouse)
Mark McKendry
(Shop Floor)
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SAP Overview
Copyright SAP AG
2008
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Physical Flow
•
•
•
•
•
What is the trigger?
What are the steps?
What is the purpose of each step?
Who is involved in each step?
How is communication and coordination
accomplished
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Procurement Process: Physical Flow
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Document flow
•
•
•
•
•
•
Purchase Requisition
Purchase Order
Packing List
Goods Receipt Document
Vendor Invoice and Payment
Key questions regarding documents
– What is the purpose?
– What are the key data?
• General: Who, when, what, where
• Process / step specific: varies
– How does data change across the process?
– Who is responsible for the data?
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Purchase Requisition
Filled later by
the purchasing
department,
based on the
purchase order
form.
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Purchase Order
Materials may be shipped via ground
shipment (trucs, etc.), air, train, sea.
Free-on-board (F.O.B ) point is the point at
which ownership of the shipped material
legally transfers from one company to the
other. F.O.B. Point is either the shipping
point or the destination.
Payment Terms define how the company
will pay the vendor.
Net nn: nn specifies the number of days
within which payment for the full amount of
the invoice is due.
x% mm/Net nn: x% discount is made if the
payment is made within mm days;
otherwise, full payment should be made
within nn days.
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Packing List
When the vendor sends the shipment, a
packing list or delivery document will
accompany it, showing the details about the
materials in the shipment.
It does not include pricing information.
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A Goods Receipt Document
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A Vendor Invoice
Once the shipment is sent, the vendor will
send an invoice, or bill for the material
shipped to the accounting department for
payment.
Three-way match: The corresponding
purchase order document, goods receipt
document and invoice are matched.
If the match is OK, the payment is made by
check or Electronic funds transfer (EFT)
Note of the Accounting Manager
after the payment is made:
Paid in full
Check # 25846
8/1/08
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Information Flow
• Instance-Level Information
– Status of a purchase requisition / order
– Has a requisition been acted on? Has a PO been created and sent
– Have goods been received for the requisition / order? When? Where
are the goods?
– If received, has an invoice been received? Paid?
– If not received, when can we expect the goods?
Ex: David wants to know the state of the purchase requisition he sent to
Martha
• Process-Level Information
–
–
–
–
How well is the process doing?
How much time does it take on average? Per material? Per vendor?
Which vendors are prompt? Who habitually delivers late?
What do we buy most often? From with vendor(s)?
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Financial Impact
• Impact on balance sheet and income
statement accounts
• Example: Procure $500 in materials.
Process step
B/S
I/S
Purchase requisition
Purchase order
Goods receipt
Vendor Invoice
receipt
Vendor payment
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Role of enterprise systems in the
procurement process
• Execute the Process
– Create Purchase Requisition
– Create Purchase Order
– Receive Shipment
– Receive Invoice and Send Payment
• Capture and Store Process Data
• Monitor the Process
– Instance-Level Information Flow
– Process-Level Information Flow
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Enterprise systems in Procurement
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Purchase Requisition in SAP
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Purchase Order in SAP
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Goods Receipt in SAP
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Invoice Receipt in SAP
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Vendor Payment in SAP – Initial Screen
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Vendor Payment in SAP – Processing
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Process monitoring (Information flow)
• Instance level – status information
– Status of a purchase requisition / order (PO
history)
• Process level – aggregate information
– How is the process doing?
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Purchase Requisition History
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Purchase Order History
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Process-Level Information
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Exercise Using Simulated SAP
• The exercises will require you to complete the
steps in the procurement process that have been
discussed in this chapter. In particular you will:
– Create a purchase requisition for a number of trading
goods
– Convert the requisition to a purchase order
– Enter a goods receipt into the system
– Enter a vendor invoice into the system
– Record a payment to the vendor
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