Chapter 2 – Enterprise Systems Accounting Information Systems 7e Ulric J. Gelinas and Richard Dull Copyright © 2008 Thomson Southwestern, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license.

Learning Objectives Describe enterprise systems Describe enterprise resources planning (ERP) systems Explain the organization value chain Describe the relationship of the organization value chain and an enterprise system Illustrate the value of systems integration Describe how an enterprise system supports major business event processes Enumerate the pros and cons of implementing enterprise systems

ERP Systems Vendors

SAP Modules

Third-Party Modules Customer Relationship Management (CRM)—builds and maintains customer related data Customer Self-Service (CSS)—allows customers to complete tasks without assistance Sales Force Automation (SFA)—automates sales tasks such as order processing and tracking

Third-Party Modules, Cont’d. Supply Chain Management (SCM)—plans and executes demand planning, inventory acquisition, manufacturing, distributing and selling Product Lifecycle Management (PLM)—manages product data from design through disposal of product Supplier Relationship Management (SRM) —manages the interactions with the organizations that supply the goods and services to an enterprise. Includes procurement and contract management.

Enterprise Systems Value Chain Enterprise systems facilitate value chain management The value chain is the system of activities that transform inputs into outputs valued by the customer The goal of an organization is to add the greatest value with the lowest costs thereby increasing competitive advantage

Value Chain and System

The Value of Systems Integration One of the values provided by an enterprise system is the coordination of value activities in the value chain. The system performs this coordination by sharing data across business processes. In the following slides we describe what life would be like without integrated systems and then how enterprise systems solve some of those problems.

Inefficient Customer Service 1. Check if the customer exists in the system and has good credit.

Inefficient Customer Service 2. Find out if good can be promised from warehouse stock or if it has to be scheduled for manufacturing. Tell the customer when they would receive the item. The date is known as “available to promise” or ATP.

Inefficient Customer Service 3. If item is not on the shelf, when will it be released from manufacturing? Sally could review production schedules and add the time required to pick, pack, and ship the item. This would not, however, tell her if the item had already been allocated to another customer.

Inefficient Customer Service 4. In the event that the item must be manufactured, when could it be scheduled, and how long will the manufacturing process take?

Inefficient Customer Service 5. How long will it take vendors to supply raw materials so that manufacturing can take place?

Inefficient Customer Service 6. What price will be charged to this customer for this order? The price to charge must be obtained from marketing.

Inefficient Customer Service 7. Needs to check AR balance to determine if customer has sufficient credit. Without direct access to the open AR data, Sally will have to call accounting to approve this order.

Inefficient Customer Service 8. If credit is insufficient, must check with credit department for change in credit line.

Inefficient Customer Service Do you think that Sally wants to keep the customer on the phone throughout this process? Would you consider this to be good customer service?

Solution to Inefficient Customer Service Enterprise system establishes available to promise (ATP) by checking warehouses and scheduled manufacturing Price and creditworthiness automatically determined from database

Enterprise Systems Store Data in Tables

Processing Orders Requires Multiple Tables

Stored Data Used for Decisions

Major ERP Modules Sales and Distribution Records customer orders Shipping Billing Connections to Materials management module Financial accounting module Controlling module Based on SAP (best selling ERP)

Major ERP Modules, Cont’d. Materials Management Acquisition and management of goods from vendors Purchase order preparation Receiving Recording invoice Interacts with Sales and distribution module Financial accounting module Controlling module

Major ERP Modules, Cont’d. Financial Accounting Plays a central role in an ERP system and incorporates data from other modules into general ledger accounts and financial statements Business events from other modules, such as SD and MM, are incorporated by the FI module into the general ledger accounts and included in the external account statements, the balance sheet, profit and loss statement, and statement of cash flows. The FI module also includes accounts receivable and accounts payable functions to record and manage that data directly and to complete events begun in the SD and MM modules.

Major ERP Modules, Cont’d. Controlling and Profitability Analysis Handles internal accounting including: Cost center accounting Profitability analysis for sales Activity-based accounting Budgeting

Major ERP Modules, Cont’d. Human Resources Recruiting, management and administration of personnel Payroll processing Training and travel Benefits Reports

Order-to-Cash 1. Respond to customer inquiries and requests for quotes (RFQs). Some companies add on separate CRM modules

Order-to-Cash 2. Record customer order including: check customer credit; check inventory pricing; and check where and when inventory will be available to send to the customer. Triggers picking of goods or purchase of goods from another vendor.

Order-to-Cash 3. Pick goods from warehouse and pack for shipment.

Order-to-Cash 4. Ship goods to the customer. ERP system would choose the appropriate routing and carrier, record the cost of goods sold and inventory reduction in the general ledger. Some ERP systems trigger the billing process when a shipment takes place.

Order-to-Cash 5. Billing the customer and recording the sale in AR. ERP system ensures correct quantities, prices, terms, addresses, etc. ERP system can be used to analyze sales profitability by comparing product costs to selling price.

Order-to-Cash 6. Receive and record payment. Includes: recording cash receipts and updating cash and accounts receivable. ERP data can then be used to manage customer credit and invest available cash.

Purchase-to-Pay 1. Determine requirements, complete purchase requisition. ERP system may automatically generate the purchase requisition based on quantity on- hand, quantity-on-order, and expected demand.

Purchase-to-Pay 2. Prepare and record purchase order. An ERP system assists the buyer in identifying sources of supply for the requested item, preparing RFQs to vendors, analyzing vendor quotes, comparing vendor prices, terms, and past performance

Purchase-to-Pay 3. Receive and record goods. Compare quantity ordered to quantity received. The ERP routes goods to the function that requested them or directs them the warehouse for immediate sale. It also records vendor performance data.

Purchase-to-Pay 4. Receive vendor invoice, match with PO and receiving report; record payable. If the three-way match fails, the enterprise system notifies the proper personnel to ensure timely reconciliation of differences.

Purchase-to-Pay 5. Prepare and record cash disbursement and update accounts. An ERP system uses vendor and AP data to schedule payments in accordance with vendor terms and to receive discounts.