Concepts in Enterprise

Resource Planning
Fourth Edition

CHAPTER ONE
BUSINESS FUNCTIONS AND BUSINESS PROCESSES
Introduction
Enterprise Resource Planning (ERP) programs: Core software used by companies to
coordinate information in every area of business
◦ Help manage companywide business processes
◦ Use common database and shared management reporting tools

Business process: Collection of activities that takes some input and creates an output
that is of value to the customer

Functional Areas of Operation

▪ Marketing and Sales (M/S)
▪ Supply Chain Management (SCM)
▪ Accounting and Finance (A/F)
▪ Human Resources (HR)

Business functions: Activities specific to a functional area of operation

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• A n E R P s y s t e m is a n integrated suite of information t e c h n o l o g y
applications that s u p p o r t the op e ra ti on s of a n enterprise from a
p r o c e s s perspective and replace legacy systems.
– Cross-Functional – s e r v e s m a n y functions
– Process-Centered – organized around p r o c e s s e s
• Built u p o n relational d a t a b a s e s y s t e m s
– There is o n e data store, o n e source of the truth
* Core ERP Processes
• S o l d in m o d u l e s

O p e r a t i o n s (Core)
· Engineering · Bills of Material · Scheduling
· Capacity · Process Manu. · Quality Control
· Cost Management · Discrete Manu. · Shop Floor Mgmt.
· Inventory · Order Entry · Purchasing
·Product ·Supply Chain ·Supplier
Configuration Planning Scheduling
· Quality Control ·Demand · Sourcing
Management
Financials (Core)
· General Ledger · Cash Management · Accounts Payable
· Accounts Receivable · Fixed Assets · Controlling
Projects
· Project Costing · Project Billing · Time and Expense
·Activity · Resource Availability · Project Contracts
Management
H u m a n R e s o u r c e s (Core)
· Human Resources · Payroll · Training
· Time & Attendance · Benefits · Recruiting
C u s t o m e r R e l a t io n s hi p M a n a g e m e n t
· Sales and Marketing · Commissions · Service
· Customer Contact · Call Center Support · Analytics
Plus: Various Self-Service Interfaces for
Customers, Suppliers, and Employees

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 Examples of functional areas of operation and
their business functions

Sample business processes related to the sale

of a personal smartphone

Customer (either internal or

external) is not required to
interact with each business
function involved in the process

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Sharing data effectively and efficiently between and within functional areas leads to more efficient business
processes

Integrated information systems: Systems in which functional areas share data

1990s: ERP Facilitated Adoption of Client

Server Computing

A process view of business

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 ERP System Disadvantages
• S t a n d a r d i z e d w a y of c o n d u c t i n g b u s i n e s s c a n b e a d i s a d v a n t a g e too
b e c a u s e le ve ls the p l a y i n g field s o m e w h a t b e t w e e n c o m p a n i e s

• L a c k of employee/user a c c e p t a n c e

• C o m p l e x solution

• M a i n t e n a n c e of h a r d w a r e a n d software

• C o s t l y a n d time c o n s u m i n g i m p l e m e n t a t i o n s

ERP Application Revenue Estimate

2007-2012 in Billions
In reality, a n ERP implementation is usually just one part of a more
complex environment, including bolt-ons, legacy applications
retained, possible data warehouse(s), enterprise application
integration (EAI) solutions and connections to.

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 E R P Tiers

Tier 1 Vendor – “Enterprise Space” - multi-site, multi-national corporations,

g o v e r n m• e n t entities with 1 0 0 0 or m o r e e m p l o y e e s

– # 1 SAP
• Stan ds for Systems, Applications an d Products in Data processing

• Formed by 5 former I B M engineers in 1 9 7 2 in Walldorf Germany

• S A P AG, S A G UK, S A P North America etc

• Nearly 200,000 customers, over 50,000 employees

• Service over 2 0 different industries

– # 2 Oracle

• More than 380,000 c u s t o m e r s — including 1 0 0 of the Fortune 1 0 0

— and with deployments across a wide variety of industries in more than 1 4 5
countries around the globe,

• In 2 0 0 3 acquired PeopleSoft, Hyperion a n d Siebel

• Tier 2 Vendors
– Market towards medium sized companies, few sites, 100-9 9 9 employees
– Largest of all ERP tiers in number of potential customers
– Tier 1 vendors moving into this area and below by reducing prices and
simplifying product
– S o m e vendors – Q A D and S S A

• Tier 3 Vendors
– Market towards small, single site, family run corporations, sales under $40 million
and less than 1 0 0 employees
– Vendors – Microsoft Dynamics GP, NetSuite, Made-2-Manage, SAP Business by Design,
SAP Business All in One

• Tier 4 Vendors
– Market towards small companies that can man age with basic accounting
software
– Vendors – Peachtree, Accpac, Quickbooks, SAP Business One, SAP Business by Design
Functional Areas and Business Processes of a
Very Small Business: A Fictitious Coffee Shop

Marketing and Sales

◦ Developing products
◦ Determining pricing
◦ Promoting products to customers
◦ Taking customers’ orders
◦ Helping create a sales forecast
Supply Chain Management
◦ Making the coffee (manufacturing/production)
◦ Buying raw materials (purchasing)
◦ Production planning requires sales forecasts from M/S functional area
◦ Sales forecasts: Analyses that attempt to predict the future sales of a product

Production plans used to develop requirements for raw materials and packaging
◦ Raw materials: Bottled spring water, fresh lemons, artificial sweetener, raw sugar
◦ Packaging: Cups, straws, napkins

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Accounting and Finance
Recording raw data about transactions (including sales), raw material purchases, payroll, and
receipt of cash from customers
Data from Accounting and Finance used by Marketing and Sales and Supply Chain Management
◦ Sales records are important component of sales forecast
◦ Sales forecast is used in making staffing decisions and in production planning
◦ Records from accounts receivable used to monitor the overall credit-granting policy of the
coffee shop

Human Resources
Functions of Human Resources
◦ Recruit, train, evaluate, and compensate employees

HR uses sales forecasts developed by the individual departments to plan personnel

needs

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 Information Systems maintain relationships between all
functional areas and processes

The Marketing and Sales functional area exchanges data with customers and with the Human
Resources, Accounting and Finance, and Supply Chain Management functional areas

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The Supply Chain Management functional area exchanges data with suppliers and with the
Human Resources, Marketing and Sales, and Accounting and Finance functional areas

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The Accounting and Finance functional area exchanges data with customers and with the Human
Resources, Marketing and Sales, and Supply Chain Management functional areas

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The Human Resources functional area exchanges data with the Accounting and
Finance, Marketing and Sales, and Supply Chain Management functional areas
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 Summary
Basic functional areas: Marketing and Sales, Supply Chain Management, Accounting and Finance, and Human
Resources
◦ Marketing and Sales: Sets product prices, promotes products through advertising and marketing, takes
customer orders, supports customers, and creates sales forecasts
◦ Supply Chain Management: Develops production plans, orders raw materials from suppliers, receives raw
material, manufactures products, maintains facilities, and ships products to customers
◦ Accounting and Finance: Financial accounting to provide summaries of operational data in managerial
reports, controlling accounts, planning and budgeting, and cash-flow management
◦ Human Resources: Recruits, hires, trains, and compensates employees, ensures compliance with
government regulations, and oversees the evaluation of employees

Information systems capture, process, and store data to provide information needed for decision making

Employees working in one functional area need data from employees in other functional areas
◦ Functional area information systems should be integrated, so shared data are accurate and timely

Managers think in terms of business processes that integrate the functional areas
◦ ERP software provides this capability by means of a single common database

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 Questions To Be Resolved In Class

1. Distinguish between a business function and a business process. What benefits

would there be with this type of organization?
2. Based on your Amazon experience, describe the flows of information between Marketing and
Sales, Accounting and Finance, and Supply Chain Management when buying and item.

True/False
A. Sales forecasts are historical records of sales.
B. The business process of Cash Flow Management is handled under the Accounting and
Finance functional area of operation.
C. Accounts receivable are recorded by the Human Resources department (HR).
D. To avoid stockouts, manufacturers might carry extra raw materials. This excess is known as
safety stock.
E. One of the four functional areas of operation is Human Resources (HR).

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