SAP an overview

SAP is an ERP package, which is used in many companies worldwide.

The full form for SAP is System Application Products in Data Processing. The product is
German in origin.

The full form of ERP is Enterprise Resources Planning. Previously companies used to do MRP i.e.
Material Resource Planning. ERP is the up gradation of the same. The need for ERP arose due to
lack of proper / common database available for all the functions in an organization.

For example, customer records as per sales department may be showing a different balance
/address in comparison to the records maintained by the accounts department. Stock balance
and value as per Stores department could vary vis-à-vis the values as recorded by the accounts
department. Also typically data / records of various departments were maintained on different
formats or on different platforms. Certain departments of a company could be working in a
computerized environment and that too on different packages / operating systems like Unix
/oracle. Some other departments could be maintaining their records manually.

The situation leads to improper data available to the Management to plan and run their business.
Therefore a need was felt to have a package that has a Common database and interconnects all
departments / functions and also enables ON LINE entry / access to data/ records. This
consequently led to the development of ERP packages worldwide like SAP (the biggest player),
BAAN, Peoplesoft and J.D.Edwards.

The features of SAP include various modules and sub-modules.

 The main modules are financial accounting-FI,

 Production planning-PP,
 Sales and Distribution-SD,
 Controlling (costing)-CO,
 Materials management (MM) and
 Human Resources (HR).

There are various other modules like Plant maintenance, Quality management etc. The database
is common for all modules and avoids duplication of maintaining master records. For e.g. the
customer records will be maintained in SD module like customer code, customer type,
Credit/payment terms, address etc. The same would be used by the FI module while perusing
the customer accounts or entering the receipt of payments. Similarly the sales manager can view
the customer balances in the FI module for follow up with the customer. Another example would
be Vendor Master maintained in MM module which can be accessed by the FI module user to
check the purchase order details, Delivery schedule, Payment terms etc. Also one can access
information on whether the material order has been received by the stores department, whether
the same is under inspection or if there is any shortage or rejection. Once the material has been
accepted and entered, the systems will automatically pick up the value of the material from the
purchase order. The accounts department on receipt of the invoice can verify the same through'
the MM module and say whether the Goods Inward Notice is available on the system and give
credit to the Vendor's account for the value of the material purchased.

A notable feature of SAP is, wherever a transaction of a financial nature takes place, whichever
module is in use, the system generates an accounting entry, this is contrary to the normal belief
that—transaction takes place only in the accounting department. For example, withdrawal of
material /item through an indent from the stores will not only result into the physical stock being
reduced but also an accounting entry being generated whereby the material consumed A/c (P/L
expense /Revenue A/c) will be debited and the stock account will be reduced (Balance sheet
item). This will lead to generation of an accounting document in MM module itself. The value of
the item drawn could depend on the policy of the company whether it adopts FIFO, LIFO, and
standard cost method s of valuation of stock.

A natural question can arise -- whether the non-financial personnel of a company can undertake
accounting transactions. Herein the initial mapping of the systems and the processes will be done
at the time of the SAP implementation and the accounting impacts will be studied and built into
the Masters for automatic accounting effects for various types of transactions. There is a Master
called Chart of Accounts, which is the backbone of SAP. It contains all accounts with their code,
nature linkages, Groupings etc. Of course this master has to be built very carefully and
exhaustively.

The transaction-taking place in SAP will be recorded with the user identification, time and date.
No transaction can be erased. Any erroneous transaction can only be rectified or reversed. Each
transaction being recorded will lead to a specific document number being created based on the
transaction type and the number ranges as defined in the document masters. The user by now
can appreciate that it is a system, which envisages lot of diligence and security. Therefore only
authorized personnel can deal with the system in order to avoid malfunctioning and misuse of
the system. User identification is to be given only to key personnel who are well trained and well
aware of the impact of the transactions to be undertaken by them. Authorizations are given either
for module based and /or screen based transactions. For example, a user in MM module will not
be allowed to operate on FI module. However " view " authorizations for certain personnel can be
given on case-to-case basis. Authorization and monitoring of users have to be done by the System
Administrator. This is a key function and it is very important to avoid misuse/ malfunctioning of
the system. Large and fast servers should be made available for quick access of data. Proper
facilities of back up and UPS should be provided. Care should be taken to avoid loss of data.

SAP is a package with minimal customizations and the company implementing the same may
have to re-orient its business processes to fall in line with SAP requirements