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

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

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

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

How an Organization Creates Value

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

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

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

An Organization with ERP A process-oriented organization Data at the core of the enterprise ERP as a major part of the enterprise architecture

Differences between Function & Process Focus on “What” Focus on “How” Vertical Horizontal Static Dynamic Task-centered Customer-oriented Individual/Specialist Team/Generalist Parochial Holistic

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

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

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

BPR Example - Loan processing Desk-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

BPR example - Loan processing Team approach origination team Regional production center Field rep laptop Loan servicing team

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

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

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

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

ERP Vendors Over 100 vendors globally 5 major vendors Lawson Healthcare JDEdwards Internet Oracle Database PeopleSoft HRM originally SAP German, pioneer of ERP

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

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)

01/26/98 SAP R/3 Overview 1 1 1 1 1

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 employees in over 50 countries

Partial SAP Client List Spacenet

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

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

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 2

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

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

Financial Accounting (FI) & Controlling (CO) Modules 1 1

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

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

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

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

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

Materials Management (MM) Module 1 1

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

Organizational Elements for the Procurement Process Client Company Code Plant Storage Location Purchasing Organization Purchasing Group 3

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 4

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 5

Storage Location An organizational unit for the differentiation of material stocks within a plant 6

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 7

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 9

Production Planning & Execution (PP) Module

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

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

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

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

Sales and Distribution (SD) Module 1 1

Organizational Unit

SD Master Data Customer - Sale organization Material - Plant 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

SD Processes

Human Resources (HR) Management Module

SAP HR Processes Employee Self-Service Course Credit Recruitment Hiring Cost Planning & Reporting Training and Personnel Development Employee Self-Service Travel Planning Managing Work Time Payroll Administration Compensation & Benefits The SAP Human Resources Processes include: Recruitment Hiring Training and Personnel Development Managing Work Time Compensation and Benefits Payroll Administration Travel Planning Personnel cost planning and Reporting Employee Self-Services Instructor Notes: Discuss that the SAP HR system manages all of the HR business processes noted.

Identifying Qualified Candidates The Recruitment functionality can be used to find applicants with specific qualifications, or skill sets. Additionally, you can specify the exact proficiencies required for each qualification, and define criteria to restrict the search to fewer objects. The system outputs a list of people who fulfill the selection criteria specified. You may then, examine individuals’ data records in detail, in helping to decide which applicants would be suitable candidates for the vacancy. Instructor Notes: Demo – Select all applicants who have the qualifications: HR Management Skills, and Verbal, written communication skills. Menu Path: Human Resources\Personnel Management\Recruitment\Selection Procedure\Applicant Pool\Via Qualifications\All Applicants Select Qualification from Find by field – upper left. Enter ‘ HR’ in With Name field, and select Find (green check). Double-click on HR Management Skills from Selection box - lower left. Repeat preceding steps to also select Verbal, written communication skills qualification. Execute (clock button). Double-click on employee Moira Hunt, to view her qualifications profile. Discuss

The Hiring Action – Creating Infotypes

Travel Requesting and Planning

Travel Expense Accounting Travel Expenses: Henry Miller, Trip 578145 Travel General trip data Expense receipts 1001 Henry Miller 08/08/1999 Atlanta 01/06/1998Heilbro 01/04/1998 Munic 01/01/1998 Boston Date Time Trip beginning Trip end Trip destination Trip country 00:00 DE Region Germany Reason for trip Itinerary Trip advance Alternative cost assignment for entire trip, if other than master CA Mileage and per diem reimbursement on Exp. receipts 001 Amount Currency of the unified Uni Input tax Additional info Remarks Expense receipt cost assignment, alternative to master data Add to table Comments Travel Expense Accounting

Benefits Plans Infotypes

Administering Compensation Awards On Compensation Administration overview screen, employees can be selected and individual compensation adjustments can be made, or an adjustment can be effected for the entire organizational unit. Adjustments can be percentage increases, or finite amounts. Compensation administrators and managers have information at their fingertips that help them to make decisions for individuals, such as; organizational assignment, salary data and history, salary survey data and job evaluation results, and appraisal results. Proposed adjustments go through an approval process. When the adjustments are activated, the system updates the employees' master data records, creating new compensation infotypes. Instructor Notes: Demonstration of the Compensation Administration Process: Menu Path: Human Resources\Personnel Management\Compensation Management\Administration\Adjustments\Change Select Find By User View (upper left). Accept Line Manager by selecting Find. This function will allow the system to determine what department you – the user – manage. The names of those reporting to the user (you) will appear in the selection box (lower left). Double-click on an employee to select them for processing in the review screen on the right. From here you may chose from a Performance Review or Bonus Plan from the Type box – top and center. Choose Performance review, and play, by entering amounts in the Amount or percentage increase boxes below. Hit the Enter key to update the page. Select the Employee data button top to the left (looks like a jig-saw piece) to view information pertinent to awarding comp to the people in your department (E.g. Performance Appraisal). You may repeat this process for another employee in the list. Exit this process without saving.

Running Payroll During the payroll run, no master data or time data affecting the payroll past or payroll present can be changed. The remuneration elements for an employee are formed from individual wage and salary types that are used during a payroll period. Both the remuneration elements and the statutory and voluntary deductions consist of individual payments and deductions, which are calculated for an employee during a payroll period. These payments and deductions are included in the payment calculation by means of different wage types. The employee is usually paid by bank transfer and the payment amount is printed in a form for the employee. If Employee Self Services is implemented, employees may view their remuneration statements (pay stubs) online, and print them out if they choose.

HR Integration SAP HR Logistics Financial Accounting Controlling Sales and Distribution Workflow Human Resources Management supports nearly every application area. Logistics (PP, PM) - for time management and shift planning Sales and Distribution (SD) - for sales personnel commission-related data Financial Accounting and Controlling (FI, CO) - for payroll and cost accounting, time reporting and travel expenses Workflow (WF) - as a process enabler for routing tasks and information to the proper staff

ERP Trends Further integration of suppliers & customers Focus on ERP system flexibility Mass customization Standard interfaces across chain

Extended ERP

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

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

email me at schung1@emich.edu Questions/Answers or email me at schung1@emich.edu