Introduction to ERP Introduction to ERP Systems and SAPSystems and SAP

MBA 8556MBA 8556

Fall 2004Fall 2004

Dr. WagnerDr. Wagner

What is ERP Anyway?What is ERP Anyway?

““Enterprise Resource Planning”Enterprise Resource Planning” A set of integrated software A set of integrated software

modules for supporting all of an modules for supporting all of an enterprise’s processes in real-time.enterprise’s processes in real-time.– Sales, Production, Logistics, Sales, Production, Logistics,

Purchasing, Accounting, and Human Purchasing, Accounting, and Human Resources share relevant information Resources share relevant information with each other as needed.with each other as needed.

Your first business Your first business enterprise…enterprise…

Think in terms of business Think in terms of business processes…processes…

What are the What are the processes processes involved in involved in running a running a lemonade stand?lemonade stand?– Assume one Assume one

personperson– Assume cash Assume cash

businessbusiness

Inputs Outputs

Process

Sample Lemonade Sample Lemonade ProcessesProcesses

Get OK

From Mom

Get supplies together

Get OK

From Mom

Make

lemonade

Make

Sign(s)

Choose

location

Make

lemonade

Make

lemonade

Set up

table

Rake in

The cash

Sample Lemonade Sample Lemonade ProcessesProcesses

Get OK

From Mom

Get supplies together

Get OK

From Mom

Make

lemonade

Make

Sign(s)

Choose

location

Make

lemonade

Make

lemonade

Set up

table

Rake in

The cash

Is it feasible?

What supplies do I need?

How much do we make?

How much to charge?

Who are my customers?

Is it worth continuing?

Your enterprise partners…Your enterprise partners…

Customers

Mom/DadGrocery

Friends

Lemonade Stand Exercise Lemonade Stand Exercise

Point of this exercise?Point of this exercise?– We can view everything we do, We can view everything we do,

personal and professional as a set of personal and professional as a set of processes.processes.

– Start to think about how our decisions Start to think about how our decisions affect others and their processesaffect others and their processes

Lemonade Stand Exercise Lemonade Stand Exercise

Point of this exercise?Point of this exercise?– We can view everything we do, We can view everything we do,

personal and professional as a set of personal and professional as a set of processes.processes.

– Start to think about how our decisions Start to think about how our decisions affect others and their processesaffect others and their processes

What would happen if all the partners What would happen if all the partners in this process had access to each in this process had access to each other’s information in real-time?other’s information in real-time?

Functional Silo View of an Functional Silo View of an OrganizationOrganization

Sale

s

Acc

ounti

ng Purc

hasi

ng P

roduct

ion

Logis

tics

Functional Silo View of an Functional Silo View of an OrganizationOrganization

Sale

s

Acc

ounti

ng Purc

hasi

ng P

roduct

ion

Logis

tics

Functional Silo View of an Functional Silo View of an OrganizationOrganization

Sale

s

Acc

ounti

ng Purc

hasi

ng P

roduct

ion

Logis

tics

Functional Silo View of an Functional Silo View of an OrganizationOrganization

Sale

s

Acc

ounti

ng Purc

hasi

ng P

roduct

ion

Logis

tics

Functional Silo View of an Functional Silo View of an OrganizationOrganization

Sale

s

Acc

ounti

ng Purc

hasi

ng P

roduct

ion

Logis

tics

Functional Silo View of an Functional Silo View of an OrganizationOrganization

Sale

s

Acc

ounti

ng Purc

hasi

ng P

roduct

ion

Logis

tics

Information?

Cross-Functional Nature of the Order Cross-Functional Nature of the Order Management ProcessManagement Process

Quote Commit ProduceCheckCredit Deliver Bill Collect

Cross-Functional Nature of the Order Cross-Functional Nature of the Order Management ProcessManagement Process

Quote Commit ProduceCheckCredit Deliver Bill Collect

Sales & Distribution

ProductionPlanning

Financial

Accounting

MaterialsMgmt

Cross-Functional Nature of the Order Cross-Functional Nature of the Order Management ProcessManagement Process

Quote Commit ProduceCheckCredit Deliver Bill Collect

Sales & Distribution

ProductionPlanning

Financial

Accounting

MaterialsMgmt

What if….What if…. You had Real Time information in You had Real Time information in

your Job?your Job?– Accurate inventory data Accurate inventory data – Single point of data entrySingle point of data entry

What if….What if…. You had Real Time information in You had Real Time information in

your Job?your Job?– Accurate inventory data Accurate inventory data – Single point of data entrySingle point of data entry

You could tap into information You could tap into information that other departments collect?that other departments collect?– Vendor selection dataVendor selection data– Vendor pricing data availableVendor pricing data available

What if….What if…. You had Real Time information in your Job?You had Real Time information in your Job?

– Accurate inventory data Accurate inventory data – Single point of data entrySingle point of data entry

You could tap into information that other You could tap into information that other departments collect?departments collect?– Vendor selection dataVendor selection data– Vendor pricing data availableVendor pricing data available

You had certain tasks and work processes You had certain tasks and work processes automated?automated?– RFQ and contract processingRFQ and contract processing– No more reconciliationsNo more reconciliations– Automatic data transfer and updateAutomatic data transfer and update

That’s what an ERP System That’s what an ERP System DoesDoes

It is a packaged business system It is a packaged business system that allows you to:that allows you to:

Automate and integrate many of Automate and integrate many of the more tedious business the more tedious business practices.practices.

That’s what an ERP System That’s what an ERP System DoesDoes

It is a packaged business system that It is a packaged business system that allows you to:allows you to:

Automate and integrate many of Automate and integrate many of the more tedious business the more tedious business practices.practices.

Share common data and practices Share common data and practices across the entire enterprise.across the entire enterprise.

That’s what an ERP System That’s what an ERP System DoesDoes

It is a packaged business system that It is a packaged business system that allows you to:allows you to:

Automate and integrate many of the Automate and integrate many of the more tedious business practices.more tedious business practices.

Share common data and practices across Share common data and practices across the entire enterprise.the entire enterprise.

Update and access information in a real-Update and access information in a real-time environmenttime environment

Why implement ERP?Why implement ERP?

Technological reasonsTechnological reasons

Business reasonsBusiness reasons

Other Organizations Other Organizations implemented ERP for these implemented ERP for these

Technology ReasonsTechnology Reasons

6

11

12

19

26

37

42Y2K

unable to supportgrowth

obsolete systems

difficulty integratingacquisitions

systems not integrated

poor quality ofinformation

disparate systems

Common Business Reasons for Common Business Reasons for implementing ERPimplementing ERP

10

15

15

20

21

24

27poor performance

inconsistentbusiness processes

globalization

unable to supportstrategies

complex processes

not responsiveto customers

high costs

Business Process Business Process ReengineeringReengineering

BPR is the creation of entirely new and BPR is the creation of entirely new and more effective business processes, more effective business processes, without regard for what has gone before.without regard for what has gone before.

BPR is cross-functional by its very natureBPR is cross-functional by its very nature BPR involves questioning assumptionsBPR involves questioning assumptions Text prefers “Text prefers “Business EngineeringBusiness Engineering” term ” term

to describe redesign of entire process to describe redesign of entire process chains across functional and even chains across functional and even organizational boundariesorganizational boundaries

ERP IndustryERP Industry 80% of Fortune 1000 have implemented80% of Fortune 1000 have implemented

– includes MSFT, IBM, and APPLEincludes MSFT, IBM, and APPLE 30-40%+ annual revenue growth for 30-40%+ annual revenue growth for

1995-2000 (SAP +14% Q2 2004)1995-2000 (SAP +14% Q2 2004)– partly attributable to Y2K re-engineeringpartly attributable to Y2K re-engineering

Major playersMajor players– SAP ---38% of marketSAP ---38% of market– PeopleSoftPeopleSoft– JDEdwards, Baan/Invensys, Oracle, SCT, JDEdwards, Baan/Invensys, Oracle, SCT,

SGAISGAI

Some ERPSome ERPMMarket Figuresarket Figures

1998 worldwide revenues (only license sales): $4.8 Billion1998 worldwide revenues (only license sales): $4.8 Billion

Source: Gartner Group

ERP:ERP:TThe Competitive Arenahe Competitive Arena

What is SAP?What is SAP?

A series of integrated core business A series of integrated core business application modules for transaction processingapplication modules for transaction processing

A set of functions that implement best A set of functions that implement best business practicesbusiness practices

Client/Server software that processes business Client/Server software that processes business transactionstransactions

A methodology for implementing application A methodology for implementing application softwaresoftware

SAP and MarketSAP and Market

SAP (Pronounced “Ess, Ay, Pee”!) SAP (Pronounced “Ess, Ay, Pee”!) is industry standard in:is industry standard in:– software, oil, chemicals, consumer software, oil, chemicals, consumer

goods, electronicsgoods, electronics Expanding into:Expanding into:

– healthcare, government, healthcare, government, pharmaceuticals, automotive, pharmaceuticals, automotive, construction, retail, serviceconstruction, retail, service

Event-Driven Transaction Event-Driven Transaction ProcessingProcessing

An EVENT is a condition that has business An EVENT is a condition that has business relevancerelevance– customer ordercustomer order– production orderproduction order– customer payment receiptcustomer payment receipt

Events trigger processing actionsEvents trigger processing actions Events are fundamental activities in Events are fundamental activities in

processing business transactionsprocessing business transactions Behind SAP’s EPC methodologyBehind SAP’s EPC methodology

– (Event Driven Process Chain)(Event Driven Process Chain)

3 Key ERP Concepts 3 Key ERP Concepts

1.1. Everyone works with real-time Everyone works with real-time shared data and applications shared data and applications

2.2. Technology becomes transparent Technology becomes transparent for users through open systems for users through open systems architecturearchitecture

3.3. A A Process ViewProcess View of the of the organization is required to make organization is required to make the project a successthe project a success

KKey Concept: ey Concept: Shared Data & ApplicationsShared Data & Applications

1.1. Integrated Data and ApplicationsIntegrated Data and Applications– Data sharing in common relational Data sharing in common relational

databasedatabase SAP term “Master Data” ex. Material SAP term “Master Data” ex. Material

mastermaster 95% accurate data is no longer good 95% accurate data is no longer good

enoughenough

KKey Concept: ey Concept: Shared Data & ApplicationsShared Data & Applications

1.1. Integrated Data and ApplicationsIntegrated Data and Applications– Data sharing in common relational Data sharing in common relational

databasedatabase SAP term “Master Data” ex. Material masterSAP term “Master Data” ex. Material master 95% accurate data is no longer good enough95% accurate data is no longer good enough

– Different Application modules are Different Application modules are responsible for maintaining master dataresponsible for maintaining master data

Application modules should reflect “process Application modules should reflect “process view” of organizationview” of organization

Name That Module. . .Name That Module. . .

R/3R/3Client / ServerClient / Server

FIFIFinancialFinancial

AccountingAccounting

COCOControllingControlling

AMAMFixed AssetsFixed Assets

Mgmt.Mgmt.

PSPSProjectProjectSystemSystem

WFWFWorkflowWorkflow

ISISIndustryIndustry

SolutionsSolutions

MMMMMaterialsMaterials

Mgmt.Mgmt.

HRHRHumanHuman

ResourcesResources

SDSDSales &Sales &

DistributionDistribution

PPPPProductionProductionPlanningPlanning

QMQMQualityQuality

Manage-Manage-mentment PMPM

Plant Main-Plant Main-tenancetenance

Key Concepts: Key Concepts: Technology becomes Technology becomes transparent for Users through Open transparent for Users through Open

Systems ArchitectureSystems Architecture

2.2. Open systems architectureOpen systems architecture Generally entails a 3-tier Generally entails a 3-tier

Client/Server architectureClient/Server architecture May require connecting to a wide May require connecting to a wide

variety of databases and variety of databases and mainframes/serversmainframes/servers

SAP solves this problem through the use SAP solves this problem through the use of various of various middlewaremiddleware technologies technologies that make this transparent to the userthat make this transparent to the user

Key Concepts: Key Concepts: A Process View of the A Process View of the Organization is Required for the Project to Organization is Required for the Project to

be a Successbe a Success

3.3. Business Process Redesign (BPR) of Business Process Redesign (BPR) of the Organization...the Organization...

– Often requires major changes. Why?Often requires major changes. Why?– May involve everyone in redesign of May involve everyone in redesign of

processes processes – Creates entirely new and more effective Creates entirely new and more effective

business processes, without regard for business processes, without regard for what has gone before.what has gone before.

– Is Cross-functional by its very natureIs Cross-functional by its very nature– Involves questioning assumptionsInvolves questioning assumptions

How will ERP affect our How will ERP affect our processes?processes?

Financial processesFinancial processes– Real-time cost and performance analysisReal-time cost and performance analysis

Across projects and divisionsAcross projects and divisions

– Better financial planningBetter financial planning Logistics processesLogistics processes

– Supports all phases of procurement processSupports all phases of procurement process– Integrates transportation management across Integrates transportation management across

the supply chainthe supply chain Sales processesSales processes

– Complex pricing and profitability analysisComplex pricing and profitability analysis– Real-time inventory controlReal-time inventory control

Classification of Information Systems

DSS

MIS

TPS

Classification of Information Systems

DSS

MIS

TPS

Classification of Information Systems

DSS

MIS

TPS

Benefits of R/3 Reference ModelBenefits of R/3 Reference Model

Don’t have to start from scratchDon’t have to start from scratch Quick overview of application architectureQuick overview of application architecture Identifies key R/3 process elementsIdentifies key R/3 process elements Helps visualize processesHelps visualize processes Shows R/3 functionalityShows R/3 functionality Speeds up processSpeeds up process Helps to define current processesHelps to define current processes

– maintains process documentsmaintains process documents

SAP R/3 Basis SystemSAP R/3 Basis System

Windows 3.11, Windows 95, Windows NT, OSF/Motif, Windows 3.11, Windows 95, Windows NT, OSF/Motif, OS/2-Warp, Macintosh OS/2-Warp, Macintosh

ABAP/4, C, C+ +ABAP/4, C, C+ +

DialogDialogSAP-GUISAP-GUI

LanguagesLanguages

Windows 3.11Windows 3.11, , Windows 95, Windows 95, Windows NT,Windows NT,

OS/2-WarpOS/2-Warp

ADABAS DADABAS DDB2 for AIXDB2 for AIX

INFORMIX-OnLine 7INFORMIX-OnLine 7ORACLE 7ORACLE 7

ADABAS DADABAS DMS SQL Server 6.0MS SQL Server 6.0

ORACLE 7ORACLE 7DB2/400DB2/400

AIXAIXDigital UNIXDigital UNIX

HP-UXHP-UX

SINIXSINIXSOLARSSOLARS Windows NTWindows NT OS/400OS/400

HardwareHardware AT&TAT&TBull/ZenithBull/Zenith

CompaqCompaq

SequentSequentSNISNI. . .. . .

Data Data GeneralGeneral

HP (Intel)HP (Intel)IBM (Intel)IBM (Intel)

BullBullDigitalDigital

HPHP

IBMIBMSNISNISUNSUN

UNIX SystemsUNIX SystemsIBMIBM

AS/400AS/400

OperatingOperatingSystemsSystems

DatabasesDatabases

Future Challenges for SAPFuture Challenges for SAP Based on late 1980’s C/S technologyBased on late 1980’s C/S technology

– not pure Object-Oriented designnot pure Object-Oriented design– servers are treated as distributed m/f with servers are treated as distributed m/f with

desktop as almost a dumb terminal using desktop as almost a dumb terminal using function calls to application serverfunction calls to application server

Lack of flexibilityLack of flexibility– difficult to modify business processesdifficult to modify business processes– modifications done by configuration channels or modifications done by configuration channels or

tack on modules by external vendors--possible tack on modules by external vendors--possible upgrade problemsupgrade problems

Complexity- frightens some customersComplexity- frightens some customers Lack of strategic fitLack of strategic fit

– best for strong top-down type of organizationsbest for strong top-down type of organizations