Enterprise Resource Planning
& SAP
SAP University Alliances
Version
2.01
Sumantra Sarkar, MBA, PMP, CISA
Robinson College of Business
28th Feb, 2013
Agenda
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Business Challenges
Planning
MRP – MRP II – ERP - SCM
Vendor Landscape
Functional Modules – Generic
SAP
Sales Order-to-Cash – Revenue Cycle
Challenges – Senior Managment
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How much Accounts Receivable is more than 180 days?
Today’s Sales Orders & Collections in North America?
Dip in Sales orders from my biggest customer?
How much Finished Goods do I forecast production for
this month to achieve Sales numbers for this quarter?
Is there sufficient Raw materials in stock for production?
How much did we Purchase this year from “X” globally?
Holding cost - “Inventory Turnaround Time” for class A
items?
Can my Cash-On-Hand last me for 15 days w/out
overdraft?
How much is today’s “Production Batch cost”?
Challenges – Senior Managment
• Can my Business Processes and Systems enable me
with answers immediately ?
• Can I see inventory and cash across all of my planning
horizon?
• Do I have sufficient resources?
What are a firm’s strategic resources?
• From Classical Economics
• Land
• Labor
• Capital
• Material
• Money
• Machinery
(Samuelson & Nordhaus, ’04)
• Characteristics
• Limited availability
• Potential for depletion / consumption
• Utility
• Resource-based view - firms possess resources, a subset
of which enables them to achieve competitive
advantage, and a further subset which leads to superior
long-term performance (Barney ’91; Grant ’91; Penrose ’59; Wernerfelt
’84).
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Resource Planning tool
• Plan for optimized use of resources
• Possible only if there transparent flow of information
between all functions inside the boundaries of the
organization (e.g. Production should know how much to
manufacture and when?)
• Should enable the enterprise to operate as an
integrated, enterprise-wide, process oriented,
information-driven (not guess work), and real-time
enterprise
• To achieve the above…..let’s look at the components of
planning…..what are they?
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Bill of Materials (BOM)
• List of components that make up a product or assembly
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Frame
Pedal
Break Kit
Front Wheel
• Front Rim
• Front Tire
• Front Tube
• Rear Wheel
• Rear Rim
• Rear Tire
• Rear Tube
• Gear System
• Saddle
• Post
• Seat
• Clip
• Handle Bar Assembly
• Bell
• Clasp
• Handle
MRP
• Material Requirement Planning – (Orlicky ’69)
• Production planning and Inventory control system used
in the manufacturing process
• Answers – What items are required? How many are
required? When are they required?
• 3 objectives
• Ensure availability of
• raw materials(RM) for production in time
• finished goods (FG) for customers when in demand
• Maintain the lowest possible RM and FG (why??)
• Plan purchasing, delivery & manufacturing schedules
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BOM - Car
A single car has about 30,000 parts,
counting every part down to the smallest screws
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MRP – MRP II - ERP
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MRP – MRP II - ERP
DEC - PDP-1 in 1960,
world's first small,
interactive computer.
Sold at $120,000,
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MRP – MRP II - ERP
Digital Equipment Corporation
(DEC – PDP12)
12 bit machine @ $ 27, 900
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MRP – MRP II - ERP
"IBM PC," in ’81 - model 5150 .
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What is ERP…then….?
• Hence……
• framework for organizing, defining, and standardizing
the business processes necessary to effectively plan and
control an organization so the organization can use its
internal knowledge to seek external advantage
[APICS Dictionary (American Production/Inventory Control Society)– 11th Edition]
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Supply Chain Management
• a set of three or more entities (organizations or
individuals) directly involved in the upstream and
downstream flows of products, services, finances.
and/or information from a source to a customer
• Transaction flows from Supplier to Customers and vice
versa
• Capture GL transactions
underneath
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So is MRP Relevant today?
http://www.orlickysmrp.com/mrp.html
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Now…let’s look at something else….
• Process view of the firm….……
• an ability to see beyond the tasks and hierarchy and to
visualize the processes in one’s organization.
[Bassellier, Reich & Benbasat JMIS’01]
• So what are the processes in an organization??
• Only line managers are close enough to their business segments
to see the most effective ways to utilize this resource. Only they
possess the clout to embed IT into their strategies and to commit
the necessary financial resources. Unless IT is included in line
managers’ strategy and tactics, and unless line managers can
effectively understand and implement a process view of the
world, the best IT organizations are almost powerless
[Rockart, J. F., M. J. Earl, et al. (1996). "Eight Imperatives for the New IT Organization."
Sloan Management Review 38(1): 43-55.]
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SALES TO CASH
OR
REVENUE CYCLE
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Functionality
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Sales
Shipping and Transportation
Billing
Credit Management
Sales Support
Foreign Trade
Integrates internal and external information across an
entire organization - finance/accounting, manufacturing,
planning, sales and service, etc.
Sales Order Process
Pre-sales
Activities
No financial
impact (FI)
Sales Order
Entry
Check
Availability
Pick
Materials
Amount
Materials
Amount
owed
Management
by
owed
customer
is (MM)
is
and
assigned
received
Financial
andand
Accounting
transferred
Account(FI)
to
Receipt of
Customer
Receivables
via automatic
account
is account
reduced
receivable
Customer Payment
assignment
Bank XXXX
A/R XXXX
A/R
Invoice
Customer
XXXX
Sales XXXX
Pack
Materials
Post Goods
Issue
COGS
XXXX
Inventory-FG XXXX
*Good Sent
GL Transactions Tracking
Post Goods Issue
COGS
XXXX
INV-FG
XXXXX
Invoice Customer
A/R
XXXX
SALES
XXXXX
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GL Transactions Tracking
Payment Received
BANK
XXXX
A/R
XXXXX
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Audit trail - Logistics
• Each business transaction impacting FI creates unique
numbered electronic document.
• Once written to the SAP database, a financial document can
not be deleted from the database.
Audit trail - Logistics
• Audit Trail - contains critical and necessary information as:
• Responsible person
• Date and time of the transaction
• Commercial content
• provides a solid and important framework for a strong
internal control system – a requirement of law for SOX and
other regulatory needs
Audit trail – GL Transactions Tracking
S_ALR_87012291 Line item journal from Accounting  General
Ledger  Information system  Document  Line item journal.
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Audit trail – User input tracking
Transction:VA01
System  Status
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Process Integration…distribution only
Purchase
Requisition
Purchase
Order
Run MRP
Sales Order
Entry
Pre-Sales
Activity
Procurement
Process
Check
Availability
Sales Process
Receipt of
Payment
Invoice
Customer
Goods
Receipt
Invoice
Receipt
Pick
Materials
Post Goods
Issue
Payment
to Vendor
Process Integration ..all modules..
Purchase
Order
Purchase
Requisition
Goods
Receipt
Convert Production
Proposal
Schedule
Procurement
and Release
Process
Run MPS
Goods
w/MRP
Issue
Check
Availability
Sales Order
Entry
Sales
Process
Receipt of
Payment
Pick
Materials
Production
Process
Quality
Inspection
Completion
Confirmation
Order
Settlement
Invoice
Customer
Invoice
Receipt
Post Goods
Issue
Payment
to Vendor
Goods
Receipt
Production Process with SAP
Video
SAP
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Introduction to SAP ERP
SAP Components
Logistics
& Manufacturing
SD
Finance
FI
MM
AM
SAP R/3
PM
SAP PLM
CO
PP
QM
Financial Accounting (“Track”)
Managerial Accounting
Asset Management
Treasury
Client/Server
ABAP
Basis
HR
SAP
SRM
SAP ERP
SAP
CRM
PS
WF
IS
SAP SCM
SAP NetWeaver
Sales & Distribution (“Sell”)
Materials Management (“Buy”)
Production Planning (“Make”)
Plant Maintenance
Quality Management
HR - Personnel Management, Payroll
Project Systems
WorkFlow
Information Systems
SAP : Business Process Platform
& SOA
Enterprise SOA de SAP est l’équivalent du WEB 2.0 pour les
logiciels d’entreprise
SAP ERP Business Modules
• Collections of logically related transactions within
identifiable business functions
• MM (“Buy”)
• FI and CO (“Track”)
PP (“Make”)
SD (“Sell”)
HCM
Magal and Word
© 2011
SAP ERP Core Applications
• Logistics
• Sales & Distribution
• Materials
Management
• Production Planning
• Plant Maintenance
• Quality
Management
• Accounting & Finance
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Financial Accounting
Managerial Accounting
Asset Management
Treasury
• Human Resources
• Personnel Management
• Benefits
• Payroll
ERP - Functional Modules (generic names)
Vendors Function:
Customers Function:
• Vendor Masters
• Vendor/Material Analysis
• Vendor Quality
• Vendor Rating
• Vendor Payments
• Vendor Credit Status
• Vendor Reports
• Vendor Ledger
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Customer Masters
Sales Order Processing
Order Deliveries
Sales Invoices
Customer Receipts
Dealers Commission
Sales Forecasting
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Functional Modules Contd.
Accounting Function
Materials Function:
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General Ledger
Fixed Assets
Financial Statements
Cash Flow Statements
Product Costs
Profitability Analysis
Management Information
System
• Balance Sheet Analysis
• Yearly Financial Statements
Material Masters
Purchase Requisitions
Purchase Orders
Non-Stock Items
Pricing
Quality Control
Purchase Ledger
Inventory Control
Tools and Gauges
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SAP Main Menu
SAP ERP Reference Models
• use Reference models
- provide predefined,
adaptable content
that you can tailor
according to the
requirements of your
company.
• enables you to access
and reuse existing
process knowledge,
and to realize projects
faster.
SAP ERP Reference Models
Going forward
SAP
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What is SAP?
“Systeme, Anwendungen und Produkte in der
Datenverarbeitung”
(English: “Systems, Applications, and Products in Data Processing”)
• SAP AG
• Founded in Walldorf, Germany in 1972
• World’s Largest Business Software Company
• World’s Third-largest Independent Software Provider
• World-wide usage
• Designed to satisfy the information needs for all
business sizes (small local to large all international)
• Multi-lingual
• Multi-currency
• Multi-balance (parallel G/L Accounting)
SAP
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Evolution of SAP
SAP R/3
Released
1992
ERP First
Mentioned
Strong ERP
Coverage
in the
trade press
SAP R/3
Released
in the USA
1995
1996
Davenport
megapackages
1997/1998
2000
ERP at IS
ERP in IS
conferences journals
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SAP Enterprise Resource Planning (SAP ERP)
• Enables a company to support and optimize its business
processes
• Ties together disparate business functions (integrated
business solution) such as
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Finance (Financial Accounting, Managerial Accounting, Treasury, …)
Logistics (Sales, Procurement, Production, Fulfillment, …)
Human Resources
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• Helps the organization run smoothly
• Real-time environment
• Scalable and flexible
SAP Industry Solutions
• Aerospace & Defense
• Media
• Automotive
• Mill Products
• Banking
• Mining
• Chemicals
• Oil & Gas
• Consumer Products
• Pharmaceuticals
• Defense & Security
• Postal Services
• Engineering, Const.
• Professional Services
• Healthcare
• Public Sector
• High Tech
• Railways
• Higher Education
• Retail
• Industrial Machinery
• Telecommunications
• Insurance
• Utilities
• Life Sciences
• Wholesale Distribution
• Logistics Service Prod.
Porte-feuilles sectoriels de SAP
SAP customer
Global 500 comp
93%
Discrete
n.b. the Public Sector is not covered by the Global 500.
Process
Source: Fortune Magazine, Global 500 2003; SAP Analysis
Telco
Serv.P
Ins
FSP
Bank
Pharma
Financial
Services
Media
63%
O&G
Mining
78%
81%
37%
100%
Mill
Chem
48%
100%
100%
HT
E&C
69%
Auto
A&D
Retail
Consumer
76%
86%
87%
CP
97%
87%
86%
54%
Services
Util
57%
Revenue Streams: Regions & Industry
VENDOR LANDSCAPE
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ERP Market - Revenues
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ERP - Vendor landscape
2012 Gartner Magic Quadrant
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ERP - Market share by Vendor
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ERP – Revenues shares by Vendor
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Cost
2010 Panorama Consulting Group LLC
In general, projects run
approximately $2 million
dollars over budget, with
2011 projects averaging
about $10.5
million dollars
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2012 Panorama Consulting Group LLC
Type of Benefits Realized !!!!????
2010 Panorama Consulting Group LLC
2012 Panorama Consulting Group LLC
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ERP – who is using it?
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ERP Failures (2010)
http://www.cio.com/article/647564/Biggest_ERP_Failures_of_2010
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New York's CityTime 'disaster' - CityTime, an effort by New York City to modernize its
payroll system, is more of an ERP "project failure of the decade" - originally budgeted
at around US$60 million, but has since ballooned to a colossal $700 million-plus
BSkyB (BSY) gets £318 million settlement from Hewlett-Packard/EDS (HPQ) - A court
found that HP's EDS division had lied about how long it would take to finish the
project, which was started in 2000 and originally budgeted at £48 million. BSkyB fired
EDS in 2002 and completed the job itself, but costs ultimately quintupled.
Marin County's "rip and replace" - Marin County sued system integrator Deloitte
Consulting in connection with the system earlier this year, saying Deloitte used the
project as "a trial-and-error training ground"
SAP settles with Waste Management - One of the ugliest ERP project legal battles in
memory came to an end in May, when SAP reached a settlement with trash hauler
Waste Management. Waste Management originally sued SAP for fraud in March 2008
over an allegedly failed implementation of its ERP software. The company claimed it
suffered significant damages, including more than US$100 million it spent on the
project, as well as more than $350 million for benefits it would have gained if the
software had worked as intended.
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Hershey Foods Corporation (1999)
• One of the largest known project failures linked to an
ERP system
• SAP was implemented in a short amount of time
• The big bang approach was elected as a cutover strategy
• Hershey lost large amounts of revenue during a high
season (Halloween) because they could not fulfill orders
in time, even though the inventory was available.
• Software was not the issue
• The processes were mapped in a poor manner
• A Project failure than an ERP failure
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Questions?