Concepts in Enterprise

Resource Planning
Fourth Edition

Chapter One
Business Functions, Processes, and Data Requirements
 Objectives

After completing this chapter, you will be able to:

• Name the main functional areas of operation used in business.

• Differentiate between a business process and a business function.

• Identify the kinds of data each main functional area produces.

• Identify the kinds of data each main functional area needs.

• Define integrated information systems.

• Explain why they are essential in today’s globally competitive business

environment.

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 Introduction

• Enterprise Resource Planning (ERP) programs: Core software used

by companies to coordinate information in every area of business.

• ERP programs help manage companywide business processes using a

common database and shared management reporting tools.

• ERP software supports the efficient operation of business processes by

integrating activities throughout a business.

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 Functional Areas and Business Processes

• To understand ERP, you must understand how a business works

– Functional areas of operation
– Business processes

• Most companies have four main functional Marketing and

Sales (M/S)
Human
Resources (HR)
areas.

• Each main functional area consists of a Supply Chain

Accounting and
number of narrower business functions Finance (A/F)
Management
(SCM)
specific to the functional area.

Main functional areas of a business

• Business functions: Activities specific to a functional area of operation.

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 Functional Areas of Operation

Functional areas Supply Chain Accounting and Human

Marketing and Sales
of operation Management Finance Resources

Marketing a product Purchasing goods and Financial accounting Recruiting and

raw materials of payments from hiring
customers and to
suppliers

Taking sales orders Receiving goods and Cost allocation and Training
raw materials control

Business Customer support Transportation and Planning and Payroll

functions logistics budgeting
Customer relationship Scheduling production Cash-flow Benefits
management (CRM) runs management

Sales forecasting Manufacturing goods Government

compliance
Advertising Plant maintenance

Figure 1-1 Examples of functional areas of operation and their business functions

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 Functional Areas of Operation (cont’d.)

• Functional areas are interdependent - Each requires data from the

others.
• Better integration of functional areas leads to improvements in
communication, workflow, and success of company.
Functional Areas Links

Sales and SCM o Sales must know production schedules and agree on delivery dates of orders with
Production so customers are not promised dates that cannot be met.
o Production must tell Sales about production problems which will affect customers.

Sales and Finance o Finance must know about customer inquiries to check their credit rating before
sales are made.
o Finance will be involved when discounts are agreed upon or when there are
problems with customer payments.

Finance and all o Finance monitors departmental spending and the achievement of financial
other departments targets.
Human Resources o Will liaise over salary increases and bonuses.
and Finance
Human resources o HR handles job vacancies, promotion opportunities, training courses, and
and other functional continuing professional development (CPD) for all areas/staff.
areas

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 Business Processes

• Business process: Collection of activities that takes some input and

creates an output that is of value to the customer.

Business processes
involve more than one
functional area

Figure 1-3A process view of business

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 Business Processes (cont’d.)
• Thinking in terms of business processes helps managers to look at their
organization from the customer’s perspective.
• More managers are now thinking in terms of business processes rather
than business functions.

Functional area
Input Process Output
responsible for input
Request to purchase Marketing and Sales Sales order Order is generated
smartphone
Financial help for Accounting and Finance Arranging financing Customer finances through
purchase in-house the smartphone company
Fulfilment of order Supply Chain Management Shipping and delivery Customer receives
smartphone
Technical support Marketing and Sales 24-hours help line Customer’s technical query
available is resolved

Figure 1-2 Sample business processes related to the sale of a personal smartphone

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

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 Business Processes (cont’d.)

• Businesses must always consider customer’s viewpoint in any transaction.

• The customer may be the traditional external customer who buys the
product or service, or an internal customer (a colleague in another department).

• Successful customer interaction

o Customer (either internal or external) is not required to interact with each
business function involved in the process.
(The customer does not care that different functions are involved in processing their order,
and will not tolerate mistakes and delays caused by poor coordination of business functions).

• Successful business managers view business operations from the

perspective of a satisfied customer.

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 Information System

• Information system (IS): Computers, people, procedures, and software

which are required to store, organize, and deliver information.

• Information systems are a critical tool for integrating business functions.

• Information systems that share data

between functional areas are called
Integrated Information Systems.

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 In-class workshop: functional areas inside a
coffee shop

• We will examine the business processes of the coffee shop and see why
coordination of the functional areas helps achieve efficient and effective
business processes.
• Even though just a few people can run a small coffee shop, the operation of the
business requires a number of processes. Coordinating the activities within different
functional areas requires accurate and timely information.

Describe the functional areas

inside a coffee shop

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 In-class workshop: functional areas inside a
coffee shop (cont’d.)

• Marketing and Sales- Functions of Marketing and Sales

• Product development can be done in such a

Functional area
of operation
Marketing and Sales simple business; you gather information
about who buys which kind of coffee and
Developing products note what customers say about each
Determining pricing
product.

Promoting products to
customers • Deciding whether to sell a product also
Business depends on how much it costs to produce
functions Taking customers’ orders
the product.
Helping create a sales
forecast
Advertising

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 In-class workshop: functional areas inside a
coffee shop (cont’d.)

• Supply Chain Management (SCM) - Functions of SCM

• Production is planned so that, as much as

Functional area Supply Chain possible, coffee is available when needed,
of operation Management
without excess that must be disposed of.
Developing production • Production plans are also used to develop
plans
requirements for raw materials (coffee
Ordering raw materials beans, tea bags, sweeteners, cream, and
from suppliers
milk) and packaging (cups, stirrers, straws,
Receiving the raw
Business material into the facility plates, and napkins).
functions
Manufacturing products • If the forecasts are accurate, you will not
Maintaining facilities
lose sales because of material shortages,
nor will you have excessive inventory that
Shipping products to might spoil.
customers

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 In-class workshop: functional areas inside a
coffee shop (cont’d.)

• Accounting and Finance (A/F) - Functions of (A/F)

– Performs financial accounting to provide summaries of operational data in managerial
reports.

Functional area Accounting and • Raw data of financial transactions are recorded
of operation Finance and then summarized in meaningful ways to
controlling accounts
determine the profitability of the coffee shop
and to support decision making.
Cost allocation and
control • Records from accounts receivable are used to
Business
functions Planning and determine whether to grant credit to a
budgeting particular customer during sales process.
Cash-flow
management • You need to be sure you have enough cash on
hand to purchase raw materials, as well as to
finance the purchase of new equipment, such
as an additional coffee machine for the
decaffeinated coffee.

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 In-class workshop: functional areas inside a
coffee shop (cont’d.)

• Human Resources (HR) - Functions of (HR)

– Even a simple business needs employees to support its operations, which means the
business must recruit, train, evaluate, and compensate employees.

• Human Resources uses sales forecasts to

Functional area
Human Resources plan personnel needs.
of operation
o At the coffee shop, the number of employees
Recruiting and hiring needed, and the timing of hiring depend on the
level of coffee and tea sales.
Training

Payroll • Input from M/S, SCM, and A/F is required by

Business
functions
HR to answer questions like:
Benefits
o How much should a part time helper be paid?
o Should you think about acquiring more automated
Government
compliance ways of making coffee, so a person working alone
could run the shop?

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 In-class workshop: functional areas inside a
coffee shop (cont’d.)

Conclusion
• The coffee shop, while a relatively simple business, has many of the
processes needed in larger organizations, and these processes involve
activities in more than one functional area.

• In fact, it is impossible to discuss the processes in one functional area

without discussing the links to other functional areas connections that
invariably require the sharing of data.

• Systems that are integrated using ERP software provide the data sharing
that is necessary between functional areas.

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 Functional Area Information Systems
Marketing and Sales
To summarize, inputs and outputs for Marketing and Sales could include the
following:

Inputs
Customer data
Order data
Sales trend data
Per unit cost
Company travel expense
policy
Outputs
Sales strategies
Product pricing
Employment needs

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 Functional Area Information Systems (cont’d.)
Supply chain management
To summarize, inputs and outputs for Supply chain management could
include the following:

Inputs
Product sales data
Production plans
Inventory levels
Layoff and recall company
policy
Outputs
Raw material orders
Packaging orders
Resource expenditure data
Production and inventory
reports
Hiring information

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 Functional Area Information Systems (cont’d.)
Accounting and Finance
To summarize, inputs and outputs for Accounting and Finance could include
the following:

Inputs
Payments from customers
Accounts receivable data
Accounts payable data
Sales data
Production and inventory
data
Payroll and expense data

Outputs
Payments to suppliers
Financial reports
Customer credit data

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 Functional Area Information Systems (cont’d.)
Human Resources
To summarize, inputs and outputs for Human Resources could include the
following:

Inputs
Personnel forecasts
Skills data
Outputs
Regulation compliance
Employee training and
certification
Skills database
Employee evaluation
and compensation

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 Summary

All manufacturing companies have basic functional areas of:

1.Marketing and Sales: develops products, sets product prices, promotes products
through advertising and marketing, takes customer orders, supports customers, and
creates sales forecasts.

2.Supply Chain Management: develops production plans, orders raw materials from
suppliers, receives the raw material into the facility, manufactures products, maintains
facilities, and ships products to customers.

3.Accounting and Finance: Records sales transactions, records customers’

payments, records suppliers’ invoices and payments to suppliers, and summarizes
operational data in managerial reports.

4.Human Resources: Recruits, trains, compensates, and oversees the evaluation of

employees.

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 Summary

• Functional areas are served by information systems, which capture,

process, and store data to provide information needed for decision
making.

• Employees working in one functional area need data from other functional
areas. Functional area information systems should be integrated, so
shared data are accurate and readily available.

• Business managers are increasingly thinking in terms of business

processes that integrate functional areas.
✓ The business process view promotes efficiency and competitiveness.
✓ Business processes require information sharing between functional areas.
✓ ERP software provides this capability by using a single common database.

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