Enterprise Resource Planning (ERP)

1. Enterprise Resource Planning(ERP) 정 석 화 Department of Computer Information Systems College of Business Eastern Michigan University

2. Agenda • What is ERP? • Why ERP? • ERP Vendors • SAP R/3 & Modules • ERP Trends • Questions/Answers

3. 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

4. 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

5. How an Organization Creates Value

6. 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

7. PAYROLL Example –ERP HR Module HR processes BENEFITS RECRUITING TRAINING payroll programs, personnel files, health plan documents, recruiting, Servers & networks, etc. IT resources

8. 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

9. AnOrganization withERP • A process-oriented organization • Data at the core of the enterprise • ERP as a major part of the enterprise architecture

10. Differences between Function & Process

11. Product development competitor analysis market research new product prototype needs analysis research market test component design product test product release process design equipment design production start Cross-functional Processes i.e., Product Development MARKETING R & D PRODUCTION

12. Profit Margin ERP for Organizational Value Chain Support: • Stream of activities • Applies to both products and services Infrastructure, HR, R&D, Procurement Primary: Inbound logistics Operations Outbound logistics Marketing & Sales Service

13. Business Process Reengineering (BPR) An organizationfundamentally and radically redesigns its businessprocess to achieve dramaticimprovement • From the restructuring of an organization • To the redesigning of individual processes

14. BPR Example - Loan processingDesk-to-desk approach credit reporting Origination of loan pre- qualification 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

15. BPR example - Loan processingTeam approach Loan origination team Regional production center Field rep laptop Loan servicing team

16. ERP Strategic Issues • Compelling reasons - efficiencies • Organization change - better than current • Strategic advantage - gaining an advantage

17. ERP Tactical Issues • Functional /Cross-functional integration • Supply chain integration • Decision support

18. 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

19. 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

20. ERP Vendors • Over 100 vendors globally • 5 major vendors • LawsonHealthcare • JDEdwards Internet • Oracle Database • PeopleSoft HRM originally • SAP German, pioneer of ERP

21. 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

22. 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)

23. SAP R/3 Overview

24. 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 employeesin over 50 countries

25. Spacenet Partial SAP Client List

27. FI Financial Accounting SD Sales & Distribution MM Materials Mgmt. CO Controlling PP Production Planning AM Fixed Assets Mgmt. R/3 SM Service Manage- ment EC Enterprise Controlling Integrated Solution Logical Architecture QM Quality Management PS Project System PM Plant Maintenance WF Workflow HR Human Resources IS Industry Solutions

28. Client • Highest hierarchical level in an SAP system • A complete database with all the tables necessary for an integrated system • Master records per client

29. 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

30. Master Data • Centrally and available to all applications and all authorized users • In the database over an extended period of time

31. 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

32. Financial Accounting (FI) & Controlling (CO)Modules

33. FI CO Internal management reporting Reports by cost centers and cost elements Cost Center Reports Legal or external reporting Reports by accounts Balance Sheet Income Statement FI and CO Comparison

34. FI/CO Organizational Structures • Client • Company • Chart of Accounts • Company Code • Business Area

35. 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

36. 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

37. 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

38. Materials Management (MM) Module

39. Purchase Order Purchase Requisition Demand Vendor Accounts Payable Goods Receipt & Inventory Mgmt. Procurement Process

40. Organizational Elements for the Procurement Process • Client • Company Code • Plant • Storage Location • Purchasing Organization • Purchasing Group

41. 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

42. Plant • A plant is an organizational unit within a company to producesgoods, 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

43. Storage Location An organizational unit for the differentiation of materialstocks within a plant

44. 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

45. 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

46. Production Planning & Execution (PP)Module

47. 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

48. uniform pants hat emblem - 2 cover box shirt Master Data - BOM BOMs are created as relationships between one parent material and one or more sub-component materials. i.e.,

49. Schedule/Release Shop Floor Goods Issue Order Settlement Goods Receipt Production Process

50. 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