Enterprise Resource Planning
(ERP)
정석화
Department of Computer Information Systems
College of Business
Eastern Michigan University
1
Agenda
•
•
•
•
•
•
What is ERP?
Why ERP?
ERP Vendors
SAP R/3 & Modules
ERP Trends
Questions/Answers
2
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
3
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
4
How an Organization Creates Value
INPUTS
PROCESS
ENVIRONMENT
OUTPUTS
5
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
6
Example – ERP HR Module
HR processes
PAYROLL
BENEFITS
RECRUITING
TRAINING
IT resources
payroll programs, personnel
files, health plan documents,
recruiting, Servers &
networks, etc.
7
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
8
An Organization with ERP
• A process-oriented organization
• Data at the core of the enterprise
• ERP as a major part of the
enterprise architecture
9
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
10
Cross-functional Processes
MARKETING
R&D
PRODUCTION
Product development
needs analysis component
design
research
product test
market test
product
release
process
design
equipment
design
production
start
new product
prototype
competitor analysis
market research
i.e., Product Development
11
Support:
Infrastructure, HR, R&D, Procurement
Primary:
Inbound
Outbound Marketing
Operations
Service
logistics
logistics & Sales
Profit Margin
ERP for Organizational Value Chain
− Stream of activities
− Applies to both products and services
12
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
13
BPR Example - Loan processing
Desk-to-desk approach
credit
reporting
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
14
BPR example - Loan processing
Team approach
Loan
origination
team
Field rep
laptop
Regional
production
center
Loan
servicing
team
15
ERP Strategic Issues
• Compelling reasons - efficiencies
• Organization change - better than
current
• Strategic advantage - gaining an
advantage
16
ERP Tactical Issues
• Functional /Cross-functional
integration
• Supply chain integration
• Decision support
17
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
18
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
19
ERP Vendors
 Over 100 vendors globally
 5 major vendors
– Lawson
– JDEdwards
– Oracle
– PeopleSoft
– SAP
Healthcare
Internet
Database
HRM originally
German, pioneer of ERP
20
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
21
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)
22
SAP R/3 Overview
23
About SAP AG
from www.sap.com
 Founded in W. Germany in 1972
 World's largest enterprise software and thirdlargest 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
24
Partial SAP Client List
Spacenet
What is an R/3 System?
Database
Server
Application
Server
Presentation
Server
R
 SAP AG
26
SD
FI
Sales &
Distribution
Financial
Accounting
MM
CO
Materials
Mgmt.
Controlling
PP
Production
Planning
R/3
SM
Service
Management
AM
Fixed Assets
Mgmt.
EC
Enterprise
Controlling
Integrated Solution
Logical Architecture
QM
Quality
Management
PS
Project
System
PM
WF
Plant Maintenance
Workflow
HR
IS
Human
Resources
Industry
Solutions
27
Client
 Highest hierarchical level in an SAP
system
 A complete database with all the
tables necessary for an integrated
system
 Master records per client
28
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
29
Master Data
 Centrally and available to all
applications and all authorized users
 In the database over an extended
period of time
30
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
31
Financial Accounting (FI) &
Controlling (CO)
Modules
32
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
33
FI/CO Organizational Structures
 Client
 Company
 Chart of Accounts
 Company Code
 Business Area
34
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
35
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
36
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
37
Materials Management (MM)
Module
38
Procurement Process
Purchase
Order
Purchase
Requisition
Demand
Vendor
Accounts
Payable
Goods Receipt
& Inventory Mgmt.
39
Organizational Elements for the
Procurement Process
•
•
•
•
•
•
Client
Company Code
Plant
Storage Location
Purchasing Organization
Purchasing Group
40
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
41
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
42
Storage Location
An organizational unit for the differentiation
of material stocks within a plant
43
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
44
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
45
Production Planning &
Execution (PP)
Module
46
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
47
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
48
Production Process
Schedule/Release
Goods Issue
Order Settlement
Shop Floor
Goods Receipt
49
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
50
Sales and Distribution (SD)
Module
51
Organizational Unit
3000
MSI
US
Company
Sales Area:
Sales
Organization
1000
4000
MSI
German
Canada
yy
Sales Area:
Sales
Organization
3000
US
12
Distribution
Channel
Division
Plant
1000
4000
Germany
Canada
12
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
52
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
53
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
SSaale
less O
Ord
rdeerr PPro
rocceessssin
ingg
In
Invveennto
tory
ry SSoouurc
rcin
ingg
PPre
re-S
-Saale
less AAcctiv
tivitie
itiess
In v o ic e
DDeeliv
liveery
ry
PPaayym
meenntt
BBillin
illingg
R
 SAP AG
54
Human Resources (HR)
Management
Module
55
SAP HR Processes
Recruitment
Cost
Planning
&
Reporting
Hiring
Employee Self-Service
Travel Planning
Payroll
Administration
Compensation
& Benefits
Course
Credit
Training
and
Personnel
Development
Managing
Work Time
56
HR Integration
Logistics
Financial
Accounting
Controlling
Sales and
Distribution
SAP HR
Workflow
64
ERP Trends
1. Further integration of suppliers
& customers
2. Focus on ERP system flexibility
3. Mass customization
•
Standard interfaces across chain
65
Extended ERP
Upward Integration (i.e., EIS)
Backward Integration
(i.e., SCM)
ERP
Forward Integration
(i.e, CRM)
66
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
67
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
68
69
Questions/Answers
or
email me at schung1@emich.edu
70