Supporting the Procurement Process with SAP

Supporting the Procurement Process with SAP
Chapter 7 Supporting the Procurement Process with SAP Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Administrivia Mid-term course status Project 3 Phase II Due via tonight Project 2 Due next week IN CLASS Posting on people’s walls 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Mid Term Course Notes (Positive)
Entertaining Lectures Structured Course Projects Are Engaging Open Ended Exercises 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Mid Term Course Notes (Improved Upon)
More interactions Horrors of the Book Long Class / Drinking from a Firehose Exam Prep Terminology (Book / Lecture) Slow Down / Speed Up Reminders 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Agenda Tonight we start discussing procurement Traditionally this is thought of as a brick and mortar business application Ultimately it is essential in information services as well We will cover Chapters 7 (Procurement) and 8 (Sales) This should give you a clear picture of leveraging SAP both upstream and downstream 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Procurement What is procurement? Procurement is the acquisition of goods and services from an external source It is not interesting – Jim “Iron Face” Wilson It is, however, essential It can also make you REALLY wealthy 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Where might we see procurement in IS industries?
8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Question Which of the following activities in the value chain includes receiving, storing and disseminating inputs to products? A) outbound logistics B) inbound logistics C) inventory control D) operations 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

What are the fundamentals of a procurement process?
Three activities Order; Receive; Pay As a reminder, this diagram depicts the three most basic components of the procurement process as well as some general roles that partake in these steps. The process generally begins with the placement of an order for purchase. This function can be performed by individuals in the purchasing unit within the organization, notably the purchasing manager. The order for procurement would be sent to the supplier who then delivers materials and/or services to the organization. In turn, these materials and/or services must be received by the organization to take ownership of them. This step in the process is generally handled in the warehouse by the warehouse manager (usually only for materials, not services). Ownership of the materials and/or services results in a liability or an obligation to compensate the supplier with payment. The accounting department would then be responsible for settling this liability by sending payment to the supplier. Figure 7-1 Main Procurement Process Activities and Roles Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Supporting the Inbound Logistics Process in the Value Chain Procurement of raw materials needed for production In this chapter we’ll focus on how procurement supports the Inbound Logistics process used at CBI. As you can see from this slide, procurement supports inbound logistics processes by ensuring availability of materials, such as raw materials used in production of a product. Figure 7-2 Procurement Process within the Value Chain of CBI Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Linking the fundamentals of the procurement process with Inbound Logistics in the Value Chain When we link the fundamentals of the procurement process with the Inbound Logistics in the Value Chain, we see how the process becomes more robust. In this example from CBI, we see the roles from the process (Order, Receive, and Pay), as well as the sub activities required in the processes to support the Inbound Logistics in the Value Chain. Here, Wally has qualified various suppliers as being able to supply the enterprise with goods (raw materials) needed by the Assembly Manager for production. The suppliers will provide him with quotes on these materials so he can make an informed decision as to which supplier will be selected to supply the needed goods (raw materials). Once this decision has been made, Wally then creates a Purchase Order and sends it to the selected supplier. When the supplier delivers the raw materials, Wally then begins inbound processing by receiving the goods (raw materials) into inventory where the quantity available is updated. Ann then assumes the next fundamental step in the procurement process by receiving the Bill (invoice) from the supplier. She then uses the Bill (invoice) as a basis for submitting payment to the supplier, completing the fundamental steps in this procurement process. As you can also see, the procurement of the goods (raw materials) is needed to provide an adequate supply of raw materials on inventory to support the Production process. The result of the Production process will thus lead to an increase in Finished Goods Inventory. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

To Illustrate the problems lets dive into the example from the book
8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Question Why did information silos exist in CBI before the implementation of SAP? A) The company used four different databases to store procurement information. B) The company's database was small and could not store necessary information. C) The company's database did not match purchase orders with suppliers' invoices. D) The company's database was large and centralized for all departments. 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Question The warehouse manager at CBI was unable to identify the cause of a sudden increase in the sales of certain bike models. Which of the following was the reason for this? A) The sales database did not contain information about the prices of product accessories. B) The sales database contained too much information about discounts and marketing campaigns. C) The sales database did not contain information about sales promotions. D) CBI did not have a sales database. 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

What were the problems with the Procurement process before SAP?
Warehouse problems: Growth in finished goods inventory Limited space for raw materials Lack of visibility into price discounts Accounting problems: Three-way match for payment was a challenge Correcting discrepancies were labor intensive Time delays in updating accounting data Purchasing problems: Purchasing wasn’t centralized Inexperienced users Errors in data entry Pressure for greater financial controls Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

On Price Blindness For a Moment
Price blindness creates a serious problem Consider the following scenario As a warehouse manager. In week X you receive double your standard order for product Y. Will you: A) order the same amount of raw materials that you always do (purchases today mean fewer tomorrow) B) order the 2x the amount of raw materials to restock Y (simple replenishment) C) order more of raw materials to restock Y to account for changed customer demand 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Ok, problems be here Lets talk about how SAP can begin to mitigate them To do this we are going to take a formal consulting view. We will: Define the pre-existing conditions Define the problems formally Examine the Industry Codify the Benefits 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

How did procurement at CBI work before SAP?
Wally ran the whole show Objectives Avoid running out of raw materials Use reliable suppliers Stay within budget How would you describe these objectives? Good? Bad? Middling? CBI decided to implement SAP to help overcome their problems. Because of this, they needed to reexamine and refocus their strategy. This reexamination was divided into three key activities: Determine the industry structure; Commit to a specific competitive strategy; and Develop objectives and measures for processes that support their competitive strategies. Doing this required a great deal of work which we’ll address next. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

What were the problems with this setup?
Warehouse Problems Excess raw and finished goods (storage issue) Price blindness (reason for spike) Accounting Non synchronized inventory and ordering Lagged accounting data Purchasing No purchasing department Audit Trails and financial control 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

How does CBI implement SAP?
CBI had to reexamine and refocus their strategy Involved three activities Determine industry structure Commit to a specific competitive strategy Develop objectives and measures for processes What tool would help them do this? CBI decided to implement SAP to help overcome their problems. Because of this, they needed to reexamine and refocus their strategy. This reexamination was divided into three key activities: Determine the industry structure; Commit to a specific competitive strategy; and Develop objectives and measures for processes that support their competitive strategies. Doing this required a great deal of work which we’ll address next. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Porter’s Puzzle Returns Triumphant!
Strong rivalry with low switching costs – Porter’s 5 Forces Adopt differentiation strategy To help determine the industry structure, CBI turned to Porter’s Five Forces Model. Using this model, CBI discovered the wholesale bike industry has strong rivalry with low switching costs. For CBI, this means a retailer could easily switch from one bike maker to another. Create objectives and measures for their processes Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

How does the Procurement process work at CBI after SAP?
Maintained same three major activities Order; Receive; and Pay Solutions to prior problems Purchasing Warehouse Accounting After CBI implemented SAP, the three fundamental activities in the procurement process remained (Order; Receive; Pay). However, SAP now provides CBI with a single database system where all data and information is stored together, not separately as in the past. Prior problems that existed before the SAP implementation were resolved. If you recall, CBI had experienced several problems specific to purchasing, the warehouse, and accounting. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

How does the Procurement process work at CBI after SAP?
Benefits of SAP for CBI’s procurement process Single database Shared information in real time Reduction of errors Improved financial controls Increased responsiveness As a result of the SAP implementation, CBI has been able to perform the procurement process and stay true to its competitive strategy. SAP provides an added benefit of having all data and information in a single database that allows for real time sharing of this information. Because of the single database, CBI has also realized a reduction of data entry errors. The real time sharing of information has also led to improved financial controls within CBI and increased responsiveness to its customers. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

How might SAP be further improved upon at CBI?
Other IS That Improve Supply Chain Processes RFID Sensors Robotics Other technologies also exist that improve supply chain processes. Augmented reality uses computer graphics that are overlaid on a physical location to provide imagery of status as well as locations of products. Radio frequency identification (RFID) are chips that are attached to materials and pass through scanners to provide visibility into movements of materials in an operation. Sensors can also be used by applying them to vehicles to track shipping and transportation activities. Robotics can also be used to automate various activities, particularly in the warehouse to more efficiently pick and put away materials. And finally 3D printing, also referred to as additive manufacturing could allow companies like CBI to “print” some raw materials in house instead of relying on suppliers. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Recap We just discussed the specific challenges faced by CBI during their SAP implementation Motivation for adopting SAP Benefits Further improvements 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Supporting the Sales Process with SAP
Chapter 8 Supporting the Sales Process with SAP Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Before The Break We discussed the benefits of ERP during the procurement process Namely order to pay We’re now going to flip the question Examine the sales process at Chuck’s bikes 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Question Which of the following statements is true of the sales process in an organization? A) It is a part of the inbound logistics activity of the value chain. B) Its major activities are selling, shipment, and payment. C) It is a part of the outbound logistics activity of the value chain. D) It is a support process, though it is commonly mistaken for an operational process. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

What Are the Fundamentals of a Sales Process?
Figure 8-2 Sales Process Within the Value Chain of CBI Once again, note that these things do bleed into each other. The relationship between each of the activities is symbiotically related to the others If this diagram looks familiar to you, it should. This is the same value chain diagram we saw in chapter 7. However in this chapter our focus is on sales. As we can see, sales and marketing plays an important role in the value chain of CBI. This is also supported in some degree by outbound logistics, which is getting products to their customers. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

What Are the Fundamentals of a Sales Process?
“For a business, sales is the most important process. Without sales, no one gets paid and buildings go dark” How much does it cost to acquire new customers? Why? Here we see the main activities, selling, shipping, and receipt of payment that we saw a short while ago. But here, the activities are broken down into subactivities. We’ve also replaced the roles with actors. In the sales process at CBI we see Sue (actor) creates sales orders as part of the selling activity. Wally then is responsible for picking, packing, and shipping the products to the customer. Finally, Ann in accounting will send the invoice for the sales order to the customer and perform the receipt of payment. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Pre-Sales Sue and other sales reps Contact customers Give price quotes Verify product availability Check special terms Confirm deliver options Pray If the customer decides to buy… Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

With a sales order in hand, is it time for Sue to head to Maxi’s and buy a round of drinks? Why or why not?* *Maxi’s being a terrible place to have a drink should not influence your decision Sales Order Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

3 Information Silos 3 People Sale price? Credit? In Stock? Prior to SAP, the sales process at CBI consisted of six roles, three performed by people and three performed by computers. As we see in this slide, the three roles performed by people include a sales agent, warehouse manager, and accountant. These roles also interact with separate database systems which we’ll discuss in the next slide. But, the process we see here isn’t all that different from the procurement process we saw in chapter 7. As an example, a sales agent will create a sales order in the sales database. Before a sales order can be approved, it goes to an accountant who checks the warehouse database to see if the materials are available on inventory. The accountant also has to check the accounting database for existing customers to review their payment history. If all goes well, the accountant passes the sales order on to the warehouse to fulfill the order. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

A Common Scenario Inventory only updated once at the end of each day When Sue sold 50 bikes, inventory showed 55 available but 10 bikes sold earlier in the day to a small company Accounting knew about the earlier sale and had to cancel the order for their biggest customer because they only had 45 bikes Big customer didn’t need bikes for a few weeks but frames discontinued and nobody told sales to stop selling these bikes. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Is this the “well oiled machine”? Wally picks-n-packs orders before Accounting approves credit. What happens to inventory and how much time is wasted when credit is denied? Since the inventory info is only updated once at the end of each day, does the salesperson really know what they have to sell? What kind of chaos do you have managing credit if a mistake is made creating an invoice, posting a payment, or dealing with a return? Prior to SAP, the sales process at CBI consisted of six roles, three performed by people and three performed by computers. As we see in this slide, the three roles performed by people include a sales agent, warehouse manager, and accountant. These roles also interact with separate database systems which we’ll discuss in the next slide. But, the process we see here isn’t all that different from the procurement process we saw in chapter 7. As an example, a sales agent will create a sales order in the sales database. Before a sales order can be approved, it goes to an accountant who checks the warehouse database to see if the materials are available on inventory. The accountant also has to check the accounting database for existing customers to review their payment history. If all goes well, the accountant passes the sales order on to the warehouse to fulfill the order. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

What Were the Problems with the Sales Process Before SAP?
There were three key problems with the sales process before SAP. These problems involved the three roles identified above. Let’s take a look now at each of these problems individually. A Note on User Error…. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

How Does CBI Implement SAP? Objectives and Measures
As we saw in the previous chapter, ERP systems are implemented for reasons beyond overcoming problems. They’re also implemented to help achieve business strategies. CBI needed to reassess their competitive strategy and realized they needed to focus on a strategy of differentiation. As a result, management decided on one efficiency objective and two effectiveness objectives. Recall we talked about these in earlier chapters. As you can see in this diagram, from an efficiency standpoint, CBI wished to reduce the number of cancelled sales orders. From an effectiveness standpoint, they felt a need to be more responsive to customers and reduce cancelled sales orders to their top customers. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

How Does the Sales Process Work at CBI After SAP?
Sue can see that there are 55 bikes available but that 10 have already been sold to another customer. These 10 have not been shipped and her customer will have priority. Inventory updated in real-time Maintained same three people roles Sales; Warehouse; Accounting Single shared database Solutions to prior problems Sales Warehouse Accounting Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Off Book For A Second Customer priority… why is this a thing? How should we manage it? Do we manage it visibly or invisibly? What are the benefits of each? Why must must must must must customer priority be centrally controlled? Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Question In the new SAP system at CBI, once a sales order is created, ________. A) an invoice is submitted B) pre-sales actions are verified C) a transaction number is created D) a credit approval request is generated Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Question When the warehouse manager at CBI selects the Post Goods Issue button in SAP, ________. A) a sales offer is made to the customer B) the legal ownership of the product changes C) a purchase request is generated for approval D) a purchase order is generated for approval Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Wally picks, packs and ships this order… …once Wally posts that the order has shipped, who legally owns the 50 bikes and what happens next? This screen in SAP is used for creating the Outbound delivery for the sales order. As you can see, it is created with reference to the sales order number which ensures data integrity. Warehouse Messages to create outbound deliveries for saved sales orders Order quantities automatically populated in outbound delivery Options to overwrite quantities Post goods issue message to accounting Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

The text says that accounting receives a message and generates an invoice but seriously, do I really need anyone to do this if everything I need to generate the invoice is in SAP? Do I print out and invoice and mail it? Could I have shipped it with the order? Can I send it to them electronically and get my cash sooner? Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Question The accounting department at CBI receives a message that it can bill a customer for a sale when the ________. A) sales order is approved in SAP B) sales order is generated in SAP C) order is picked and packed at the warehouse D) warehouse posts the goods issue in SAP Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

If the customer sends me a check then I do need a clerk to post it. If the customer sends me an electronic payment, how many people do I need to post the payment? This screen depicts the posting of incoming payments. You can see the bank data section contains the information necessary for posting the cash from the payment. You also see the Open item section contains an account for the customer, ensuring the payment is posted against the customer’s open items. Accounting Messages received for credit checks Messages received to create invoices Invoices created from Billing Due List Payments posted against customer open items Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

How Can SAP Improve the Integration of Customer-Facing Processes at CBI? Methods Integration by Sharing Data Increasing Process Synergy Technical Challenges SAP Integration Problems with Emerging Technologies Business Challenges As we begin our conversation on improving the integration of customer-facing processes, we’ll need to familiarize ourselves with customer-facing processes. We’ll then address each of the areas you see here in this slide in more detail. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Question Certain online CRM service providers use a pay-as-you-go plan to charge the customers. Such a payment arrangement is called ________. A) cloud servicing B) software as a service C) site licensing D) indirect billing Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

How does the Use of SAP Change CBI?
New skills are needed Process focus More data sharing Outsourcing The implementation of SAP resulted in changes for CBI. Some of these changes could be anticipated, like the need to train employees because the skill sets would be somewhat different. It also forced CBI to be more focused on processes and less on individual activities. The systems also provided real time data to various users and integrated processes. Finally, as we saw in previous slides, various IS could be used to support processes, like robots. The use of robots had benefits from an efficiency standpoint, but new challenges arose. Workers like Wally became frustrated with the new system because they were more hands-on and now spent most of their time managing data, documents, and reports churned out by SAP. Change, such as was the case at CBI, introduces other challenges, like the human challenges we just mentioned. Those also have to be managed to stay competitive in business. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

LAC+USC Medical Center
One of the largest hospitals in the United States One million ambulatory care/ 39k inpatient visits per year ED – 150k per year Home of the “circle of death” during the late 80s LA crack epidemic and the gang wars of the early 1990s (i.e. Bloods and Crips)  25k casualties Take five minutes, how would ERP improve their performance? 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

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