Enterprise Resource Planning ERP Department of Computer Information

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 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 Product development MARKETING R&D needs analysiscompone nt design research market test product release PRODUCTION process design equipmen t design productio n 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 & 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 Origination of pre-loan document qualification generation credit reporting application processing credit analysis & underwriting approval & closing Servicing of loan payment processing escrow management customer service collections & foreclosures Follow-up processing valuation & transfer to risk analysis 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 – People. Soft – SAP Healthcare Internet Database HRM originally German, pioneer of ERP 20

ERP Market (META Group, 2003) § $15 B 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 best-of -breed vendors (e. g. , Siebel for CRM, i 2 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. 5 B revenue in 2004, More than 32, 000 employees in over 50 countries 24

Partial SAP Client List Spacenet

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FI SD Financial Accounting Sales & Distribution MM PP CO Materials Mgmt. Controlling SM Service Management AM R/3 Production Planning Fixed Assets Mgmt. EC Enterprise Controlling Integrated Solution Logical Architecture QM Quality Management PS Project System PM WF Plant Maintenance HR Human Resources Workflow IS 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 Demand Purchase Requisition 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 - 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 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 54

Human Resources (HR) Management Module 55

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 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 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 • my. SAP. com - open, collaborative system for SAP & non-SAP software • SAP APO - forecasting, scheduling, other logistics activities • People. Soft - enterprise performance management • JDEdwards - planning & execution • Oracle’s 11 i - Planning & Scheduling 68

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Questions/Answers or email me at schung 1@emich. edu 70