1. ISTANBUL KÜLTÜR UNIVERSITY Faculty Of Engineering and Architecture
                                     
ISTANBUL KÜLTÜR UNIVERSITY
Faculty Of Engineering and Architecture
Industrial Engineering Department
Lecture Notes
ENTERPRISE RESOURCE PLANNING

2. Contents Section 1 : ERP - Business with ERP
Section 2 : Marketing and Sales
Section 3 : Production and Materials Management
Section 4 : Accounting and Finance
Section 5 : Introduction to SAP R/3 (the ERP software)
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3. SECTION 1 Enterprise Resource Planning - Business with ERP
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4. Business in the Digital Age
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5. The Business Application Architecture
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6. Companies in e-Competition
A New Business Model
Information Age
Industrial Age
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7. Business with ERP Businesses exist to make a profit
Businesses strive to provide goods and services faster and cheaper than competition
More efficient ways of accessing and sharing information will increase customer service and therefore profits
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8. What is ERP offering? ERP is business process infrastructure
ERP is a software mirror image of the major business processes of a firm, such as customer order fulfillment and manufacturing.
ERP software automates and integrates the basic processes of a firm, from finance to the shop floor, and eliminate complex, expensive links between computer systems that were never meant to talk to each other.
provide interorganizational & intraorganizational collaboration & information sharing
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9. ERP Business Technology architecture
Business Process Workflow Management
Functional Information Management
Marketing, Operations, HRM, etc.
Decision Support Models and Tools
Data Management
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10. ERP Functional Architecture
Information Systems Modules
Human Resources Management
Manufacturing Management
Financial Management
Accounting
Marketing Management
Workflow Management
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11. Motivation for Implementing ERP
Achieving and maintaining competitive advantage requires better information management:
Information Quality
Information Reliability
Information Access
Information Sharing
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12. Firms View ERP As a System:
to provide better information management
to transform the competitive space
to transform relationships between
their customers
their suppliers
their competitors
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13. Several factors led to development of ERP:
speed and power of hardware increased, cost and size decreased
client/server architecture
sophisticated software development
growth of business size, complexity, and competition
Manage company-wide business operations
Uses a common database and shared management reporting tools
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14. Business Processes Managers now think in terms of business process
Take the customer’s perspective
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15. Logistics in business, the organized movement of materials and, sometimes, people. The term was first associated with the military but gradually spread to cover business activities. Separate activities or functions, all of which fall under a business firm's logistics “umbrella,” include customer service, demand forecasting, documentation flow, interplant movements, inventory management, order processing, packaging, parts and service support, plant and warehouse site selection, production scheduling, purchasing, returned products, salvage…
Logistics in military science, all the activities of armed-force units in roles supporting combat units, including transport, supply, signal communication, medical aid, and the like.
Components of Logistics It is useful to distinguish four basic elements or functions of logistics: supply, transportation, facilities, and services. (A fifth, management or administration, is common to all organized human activity.) All involve the provision of needed commodities or assistance to enable armed forces to live, move, communicate, and fight.
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16. For this, company needs to
Make sure functional areas are integrated
Ensure information on customer configuration is up-to-date
Ensure manufacturing has configuration info. from sales
Ensure that, if financing is required, information from sales is available in accounting
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17. Functional areas of operation
Marketing and Sales
Production and Materials Management
Accounting and Finance
Human Resources
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18. Functional Area Information Systems
Potential inputs and outputs for each functional area
Different kinds of data and usage of data
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19. Marketing and Sales Determine pricing Take customer orders
Create sales forecast
Do market research
Promote products and/or services
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20. Production and Materials Management
Production Planning
Product Information
Need accurate forecasts from Marketing and Sales
Compare costs with Accounting
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21. Accounting and Finance
Record transactions
Summarize data
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22. Human Resources
Recruit
Train
Evaluate
Compensate
Retain
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23. The Manufacturing Roots of ERP
Materials Requirements Planning (MRP)
Electronic Data Interchange (EDI)
MRP - II
Downsizing and reorganization drove the impetus for ERP
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24. ERP and SAP’s R/3
Software to allow all business areas to be integrated
Interactive and real-time processing
Users interact with computer screen, not printed data
Initially introduced R/2
Open architecture
Access common database
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27. ERP Significance Global integration
Eliminates updating and repairing separate computer systems
Allows managers to manage, not just monitor
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28. Cost of ERP Large company $50-500 Million $30 million in software
$200 million in consulting
$ millions for hardware
Implementation: 4-6 years
Medium sized companies
$10-20 million
2 year implementation
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29. Questions about ERP Is it for every company?
Is the software inflexible?
How much profit should you expect?
Why do some have more success?
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30. SECTION 2 Marketing and Sales
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31. Marketing Personnel make decision on :
What products should we produce?
How much of each product should we produce?
How are our products best promoted and advertised?
How should our products be distributed?
What price should we charge?
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32. Fitter Snacker’s Sales Process
Quote
Sales
Order
Pick,
Pack and
Ship
Invoice
Payment
Returns
Warehouse
Accounting
Receiving
Fitter Snacker’s
Sales Process
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33. Problems with Fitter Snacker’s Sales process:
Sources:
Three unintegrated systems
Sales Order System
Warehouse System
Accounting System
Manual handling of transactions
Information not available in “real time”
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34. Sales and Distribution with ERP
SAP Sales and Distribution Process
Pre-Sales Activities
Sales Order Processing
Delivery
Billing
Inventory Sourcing
Payment
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35. Inquiry or Quote (binding)(araştır & fiyat ver) Marketing Activities
Pre-Sales Activities
Inquiry or Quote (binding)(araştır & fiyat ver)
Marketing Activities
Tracking Contacts
Sales Calls
Visits
Mailings
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36. Sales Order Processing
Activities required to record a sales order
Incorporate data from inquiry or quote
Automated Pricing and Discounting
Automate Credit Check
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37. Inventory Sourcing
Check of inventory, orders and production to see if order can be delivered when customer desires
Includes shipping and considers weekends/holidays
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38. Delivery
Releasing documents to warehouse to initiate pick, pack and ship
Sequenced and grouped for warehouse operation efficiency
Materials Management module carries out picking, packing and shipping
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39. Billing Sales order data copied to invoice
Can be printed and mailed, faxed or transmitted electronically
Accounting records updated
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40. Payment Payment may be physical check or electronic
Cash debited and customer account credited
Quick processing avoids credit check problems
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41. Sales Order Entry in SAP R/3
Sold-to party
P.O. Number
Required Delivery Date
Material
Order Quantity
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42. Master Data
Master data is stored in a central database that is accessed by all modules
Customer Master Data and Material Master Data are primary data sources for Sales Order Processing
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43. Document Flow in SAP R/3 All documents related to original sales order
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44. Document Flow Sales order process creates numerous documents
Sales Order - Invoice
- Delivery - Payment
- Goods Issue - RMA
Document Flow links all documents related to a sales order
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45. Customer Relationship Management (CRM)
ERP provides means to manage all data relating to a customer to improve the quality of the interaction
CRM Activities include:
One-to-One Marketing
Sales Force Automation
Sales Campaign Management
Marketing Encyclopedias
Call Center Automation
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46. CRM Benefits
Lower Costs due to better use of sales and marketing resources
Higher Revenue by improving the effectiveness of marketing efforts
Improved strategy and performance measurement by changing management and staff focus
CRM software builds on ERP data to improve marketing effectiveness
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47. Production and Materials Management at Fitter Snacker
Must answer the following questions:
How much of each bar should be produced?
What quantities of raw materials should be ordered?
When should raw materials be ordered
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48. General Approaches to Production
Make-to-stock: Items produced in anticipation of orders
Make-to-order: Items produced to meet specific customer orders
Assemble to order: Final product assembled from make-to-stock items
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49. Fitter Snacker Manufacturing Process
Raw Material Warehouse
Mixer
Form
Bake
Pack
Finished Goods Warehouse
Snack Bar Line
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50. Fitter Snacker Production Problems
Communications
Marketing does not share data with production (sales promotions and large, unexpected orders)
Inventory
True inventory status not known
No real-time data on actual sales
Accounting and Purchasing
Difficulty forecasting raw material and labor costs
Adjusting accounts for actual vs. standard costs time consuming and done infrequently
MRP allows plant manager to plan production and raw materials for many periods. It works backwards from a sales forecast to create a production schedule. From there, given supplier lead times and finished product recipes, MRP works backwards to schedule raw material purchases. This is impossible to figure w/o a computer.
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51. SECTION 3 Production and Materials Management
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52. Production Planning Process
toplu
Work from sales forecast to create aggregate production plan
Break down aggregate plan into more specific plans
Use production plan to determine raw material requirements
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53. SAP R/3 Approach to Production Planning
Sales and Operations Planning
Demand Management
MRP
Detailed
Scheduling
Sales Forecasting
Purchasing
Production
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54. Sales Forecasting
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55. Sales and Operations Planning
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56. Demand Management
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57. Material Requirement Planning - MRP
Bill of Material (BOM)
MRP Record
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58. ERP in Supply Chain Management$ $ $ $ $
Goods
Goods
Goods
Goods
Goods
Raw Materials
Customer
Supplier
Manufacturer
Wholesaler
Retailer
Information
Information
Information
Information
Information
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59. Supply Chain Management and ERP
ERP not required for Supply Chain Management (SCM)
ERP can facilitate sharing information in real time
Use of internet can reduce communication costs
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60. Providing Production Data to Accounting
Production data does not get entered into an ERP system directly
Many methods of gathering shop floor data are available
ERP allows shop floor data to be collected once for production and accounting purposes, and data is consistent in both areas
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61. SECTION 4 Accounting and Finance
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62. Accounting and Finance
Accounting system data is used:
By decision-makers throughout a company to plan and manage day-to-day activities
By managers to make long-range operating forecasts
By accountants to generate a company’s financial statements and other reports
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63. Basic Financial Statement
Balance Sheet: shows company’s financial health at a point in time
Income Statement: shows a company’s sales, cost of sales and profit or loss for a period.
“Closing the books” means checking to see that financial statements are accurate and up to date. Usually done quarterly or monthly.
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64. Using ERP for Accounting and Finance
Unintegrated systems usually require research effort by accountants to assemble required data
ERP systems capture accounting data in real time as business transactions occur
Transfer of finished goods from assembly line to warehouse results in changes to Accounting records as well as Materials Management records.
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65. SAP R/3 Modules and Accounting
Sales and Distribution (SD)
Production Planning (PP)
Materials Management (MM)
Financial Accounting (FI)
Controlling (CO)
Human Resources (HR)
Asset Management (AM)
MRP allows plant manager to plan production and raw materials for many periods. It works backwards from a sales forecast to create a production schedule. From there, given supplier lead times and finished product recipes, MRP works backwards to schedule raw material purchases. This is impossible to figure w/o a computer.
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66. Credit Management Companies routinely sell to customers on credit
Sellers must manage credit to avoid default by customers
Sellers manage customer credit using credit limits
Accurate and timely data required to manage credit
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67. Product Profitability Analysis
Accurate data required to properly determine the profitability of a company’s products
Inaccurate data can result from:
Inconsistent record keeping
Inaccurate inventory-costing systems
Problems consolidating data from subsidiaries
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68. Inconsistent Record Keeping
Companies may have divisions that keep records in different systems or with different structures
Summarizing the data to provide management summaries may require additional processing by middleware systems (e.g. spreadsheets)
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69. Inventory Costing
A manufactured items costs consist of three elements:
Cost of raw materials
Cost of direct labor
Cost of overhead (utilities, general factory labor, supplies, manager’s salaries, storage and insurance costs)
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70. Inventory Costing
Direct costs (material and direct labor) can be associated with products or batches of materials relatively easily
Indirect costs (overhead) are difficult to assign to particular products or batches, but are a significant portion of a product’s cost
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71. Distribution of Indirect Costs
Indirect costs are frequently allocated based on machine hours or labor hours used to make a product
Standard costs are used to adjust accounting records for changes due to production and sale of products
Cost variances must be recorded to reconcile actual and standard costs
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72. ERP and Inventory Cost Accounting
Adjusting accounting records for cost variances can be difficult with unintegrated information systems
ERP systems are configured with methods for computing variances so that the process is automated
Real time data in ERP systems means that accurate cost data will be available
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73. Activity-Based Costing (ABC) and ERP
In ABC, “activities” associated with overhead-cost generation are used to allocate costs more precisely
Defining “activities” to relate overhead costs to products can be difficult
ABC requires more record keeping, which can be simplified using an ERP system
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74. Problems in Closing Books
Currency Translation – Daily fluctuation of exchange rates more easily handled by ERP systems
Intercompany Transactions – Companies cannot make profits by selling products to themselves, so profits can’t be recorded from intercompany sales
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75. Management Reporting with ERP
Document Flow allows for better management of the numerous transactions that are related to a customer order
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76. Management Reporting and Analysis
Storing accounting records in a database allows for easier analysis
Data warehousing provides separate, summarized data for reporting to avoid disruption of transaction processing
SAP R/3 provides specialized information systems for analysis (LIS, SIS)
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77. SECTION 5 ERP Software : Introduction to SAP R/3
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78. SAP – an ERP Software SAP AG produced an ERP program called R/3
Purchasing ERP software is expensive, with spectacular payoffs and challenging implementation
The future of ERP will focus on:
managing customer relationships
improving planning and decision making
linking operations to the Internet
focusing on smaller companies
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80. ERP Industry 70% of Fortune 500 have implemented
includes MSFT, IBM, and APPLE
30-40%+ annual revenue growth for last 5 years
partly attributable to Y2K re-engineering
Major players
SAP ---33% of market
PeopleSoft
JDEdwards, Baan, Oracle, SCT, SGAI
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81. ERP Market Figures
1996 worldwide revenues (only license sales): $4.8 Billion
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90. SAP R/3 Basis System Hardware Operating Systems Databases Dialog
UNIX Systems
Data General
HP (Intel)
IBM (Intel)
Hardware
AT&T
Bull/Zenith
Compaq
Sequent
SNI
. . .
Bull
Digital HP
IBM
SNI
SUN
IBM
AS/400
Operating
Systems
AIX
Digital UNIX
HP-UX
SINIX
SOLARS
Windows NT
OS/400
DB2/400
ADABAS D
DB2 for AIX
INFORMIX-OnLine 7
ORACLE 7
ADABAS D
MS SQL Server 6.0
ORACLE 7
Databases
Dialog
SAP-GUI
Windows 3.11, Windows 95, Windows NT,
OS/2-Warp
Basis System
Application Architecture
With the SAP R/3 Basis System, applications can run on different hardware and system platforms with higher performance, and can be adapted to users’ specific requirements.
Windows 3.11, Windows 95, Windows NT, OSF/Motif,
OS/2-Warp, Macintosh
Languages
ABAP/4, C, C+ +
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