After Completing This Chapter, You Will Be Able To

Lecture 2: Business Functions and
Business Processes
After completing this chapter, you will be able to:

• Name the main functional areas of operation used
in business
• Identify the kinds of data each main functional
area produces
• Identify the kinds of data each main functional
area needs
• ERP
1
Side Kick
• E-business
– Use of digital technology and Internet to drive major
business processes
• E-commerce
– Subset of e-business
– Buying and selling goods and services through
Internet
• E-government:
– Using Internet technology to deliver information and
services to citizens, employees, and businesses
2
Side Kick
• The use of Internet technology has transformed and continues to
transform businesses and business activity. This slide aims to
distinguish different terminology used in the book.
• E-business refers to the use of the Internet and networking to
enable all parts of the business, whereas e-commerce refers to
just that part of business that involves selling goods and services
over the Internet.
• Internet technology has also brought similar changes in the public
sector—the use of Internet and networking technologies in
government is referred to as e-government. Ask students what
changes in businesses or government due to new Internet
technologies they have noticed.
Concepts in Enterprise Resource Planning, Fourth Edition 3

Business Process
• Business processes:
– Flows of material, information, knowledge
– Sets of activities, steps
– May be tied to functional area or be cross-
functional
• Businesses: Can be seen as collection of business
processes
• Business processes may be assets or liabilities
4
Business Process
• Business processes are at the heart of every business.
This could include anything from ordering a burger at
McDonalds, to applying for a driver's license at the
DMV.
• Emphasize that studying a firm's business processes is
an excellent way to learn a great deal about how that
business actually works.
• How could a business process be a liability? Think of
some dysfunctional business processes or ask the
students to come up with some really poor business
process.
5
Functional Structure
6
Functional Structure
• Business processes span different parts of an organization.
• In fact, in today’s global economy, the various process steps
are increasingly executed by people in multiple locations
throughout the world.
• For example, a bicycle manufacturer may purchase
components from Italy, produce bicycles in Germany, and
sell those bicycles in the United States.
• Because the steps in business processes are performed in
locations that are geographically dispersed, it is impossible
to manage such processes effectively without the use of
modern information systems.
7
Functional Business Process
• Examples of functional business processes
– Manufacturing and production
• Assembling the product
– Sales and marketing
• Identifying customers
– Finance and accounting
• Creating financial statements
– Human resources
• Hiring employees

Business Process
• Systems that support end-to-end processes are
called enterprise systems (ES), and they are
essential to the efficient and effective execution
and management of business process.
• Every process is triggered by some event, such as
receiving a customer order or recognizing the need
to increase inventory. The specific steps in the
process are completed in different functional areas.

The Order Fulfillment Process
Fulfilling a customer order involves a complex set of steps that requires the close coordination of the sales,
accounting, and manufacturing functions.
10
Business Process
• For example, when a retailer (customer) places an order
for bicycles, the manufacturer (seller) uses a specific
process to ensure that the correct products are shipped to
the customer in a timely manner and that payment for the
order is received.
• These process steps can include validating the order,
preparing the shipment, sending the shipment, issuing an
invoice, and recording the receipt of payment.
• The sales department receives and validates the customer
order and passes it on to the warehouse, which prepares
and ships the order. The accounting department handles
the invoice and payment steps.
11
Key Business Process

Procurement Process

Production Process

Fulfillment Process

Inventory amd and Warehoues

Asset Management Process

Customer Service Process

A Project Management Process

Business Processes and Information
Systems
• Information technology enhances business

processes by:
– Increasing efficiency of existing processes
• Automating steps that were manual
– Enabling entirely new processes
• Change flow of information
• Replace sequential steps with parallel steps
• Eliminate delays in decision making
• Support new business models

Business Processes and Information
Systems
• Examples of entirely new business processes
made possible by information technology are
downloading a song from iTunes or buying a book
or e-book from Amazon.
• You might also mention the Amazon book reader
Kindle which is continuously connected to the
Internet and allows customers to download books
and pay for them using Amazon’s one-click
purchase method.
21
Business Process
• Business process: Collection of activities that takes
some input and creates an output that is of value to the
customer.
• ERP software supports the efficient operation of
business processes by integrating tasks related to
sales, marketing, manufacturing, logistics, accounting,
and staffing—throughout a business. In addition to this
cross-functional integration, which is at the heart of an
ERP system, companies connect their ERP systems,
using various methods, to coordinate business
processes with their customers and suppliers.

Business Processes
• Collection of activities that takes one or more kinds
of input and creates an output that is of value to
customer
– Customer can be traditional external customer or
internal customer
• Thinking in terms of business processes helps
managers to look at their organization from the
customer’s perspective

Functional Areas and Business
Processes
• To understand ERP, you must understand how a
business works
– Functional areas of operation
– Business processes

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

Functional Areas of Operation (cont’d.)
Figure 1-1 Examples of functional areas of operation and their business functions

Business Processes (cont’d.)
Figure 1-2 Sample business processes related to the sale of a

personal smartphone

Business Process Modeling
• People remember
• 10%of what they hear;
• 20% of what they read;
• 80%of what they see and do.
• 83% of human learning occurs visually according
to a recent study by the US Federal Government.
• Information which is communicated visually is
retained up to six times greater than information
which is communicated by spoken word alone.

What is Business Process
Modeling?
• Visual representation of a BP
• Provides BP steps & activities in a graphical way
• Describes BP in a universally understood format
• Used to design, model, optimize, and document
BP

Why Model Business Process?
• Helps analyze and understand current BP

Steps/activities, sequence, people responsible, documents
• Identify bottlenecks, redundancies, unnecessary steps
or loops
• Helps identify problems & improvement opportunities
• Promote tool for training
• Improves efficiency, effectiveness, quality,
employee/customer satisfaction
• Determine the boundaries of the process
• Helps communicate business rules and processes

Documenting the existing B-
Processes
• Before you can improve a BP, you need to know
how it is currently performed: AS-IS.
• Even when no improvement is necessary,
documenting existing processes is a key step to
achieving consistent quality.
• Clear, consistent guidelines
• Training
• Continuity
• Adaptability
• Legal protection
• Accountability
Functional Areas and Business
Processes of a Very Small Business
• Example: A fictitious coffee shop
– Examine business processes of the coffee shop
– See why coordination of functional areas helps
achieve efficient and effective business processes
– Look at how integration of the information system
improves the business

Marketing and Sales
• Functions of Marketing and Sales
– Developing products
– Determining pricing
– Promoting products to customers
– Taking customers’ orders
– Helping create a sales forecast

Marketing and Sales (cont’d.)
• Marketing and Sales tasks for the coffee shop
– Formal recordkeeping not required
– Need to keep track of customers
– Product development can be done informally
– Good repeat customers allowed to charge purchases
—up to a point
• Records must show how much each customer owes
and his or her available credit

Supply Chain Management
• Functions within 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

Supply Chain Management (cont’d.)
• 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
• SCM and M/S must choose a recipe for each
coffee product sold

Accounting and Finance
• Functions within Accounting and Finance
– Recording raw data about transactions (including
sales), raw material purchases, payroll, and receipt
of cash from customers
• Raw data: Numbers collected from sales,
manufacturing and other operations, without any
manipulation, calculation, or arrangement for
presentation

Accounting and Finance (cont’d.)
• 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
• Systems integrated using ERP software provide
the data sharing necessary between functional
areas

Functional Area Information Systems
• Potential inputs and outputs for each functional
area described next
• Note the kinds of data needed by each area and
how people use the data
• Information systems maintain relationships
between all functional areas and processes

Marketing and Sales
• Needs information from all other functional areas
• Customers communicate orders to M/S in person
or by telephone, e-mail, fax, the Web, etc.
• M/S has a role in determining product prices
– Pricing might be determined based on a product’s
unit cost, plus some percentage markup
– Requires information from Accounting and Finance,
and Supply Chain Management data

Figure 1-4 The Marketing and Sales functional area exchanges data with
customers and with the Human Resources, Accounting and Finance, and
Supply Chain Management functional areas
• M/S needs to interact with Human Resources to
exchange information on hiring needs, legal
requirements, etc.
• Inputs for M/S
– Customer data
– Order data
– Sales trend data
– Per-unit cost
– Company travel expense policy

• Outputs for M/S
– Sales strategies
– Product pricing
– Employment needs

Supply Chain Management
• Needs information from various functional areas
• Production plans based on information about
product sales (actual and projected) that comes
from Marketing and Sales
• With accurate data about required production
levels:
– Raw material and packaging can be ordered as
needed
– Inventory levels can be kept low, saving money

• Supply Chain Management data and records can:
– Provide data needed by Accounting and Finance to
determine how much of each resource was used
– Support the M/S function by providing information
about what has been produced and shipped
• Supply Chain Management interacts in some ways
with Human Resources

Figure 1-5 The Supply Chain Management functional area exchanges data
with suppliers and with the Human Resources, Marketing and Sales, and
Accounting and Finance functional areas

• Inputs for SCM
– Product sales data
– Production plans
– Inventory levels
– Layoff and recall company policy

• Outputs for SCM
– Raw material orders
– Packaging orders
– Resource expenditure data
– Production and inventory reports
– Hiring information

Accounting and Finance
• Needs information from all other functional areas
• A/F personnel:
– Record company’s transactions in the books of
account
– Record accounts payable when raw materials are
purchased and cash outflows when they pay for
materials
– Summarize transaction data to prepare reports
about company’s financial position and profitability

• People in other functional areas provide data to A/F
– M/S provides sales data
– SCM provides production and inventory data
– HR provides payroll and benefit expense data
• M/S personnel require data from A/F to evaluate
customer credit

Figure 1-6 The Accounting and Finance functional area exchanges data with
customers and with the Human Resources, Marketing and Sales, and Supply
Chain Management functional areas

• Inputs for A/F
– Payments from customers
– Accounts receivable data
– Accounts payable data
– Sales data
– Production and inventory data
– Payroll and expense data

• Outputs for A/F
– Payments to suppliers
– Financial reports
– Customer credit data

Human Resources
• HR needs information from the other departments
• Tasks related to employee hiring, benefits, training,
and government compliance are all responsibilities
of HR
• HR needs accurate forecasts of personnel needs
from all functional units
• HR needs to know what skills are needed to
perform a particular job and how much the
company can afford to pay employees

Human Resources (cont’d.)
Figure 1-7 The Human Resources functional area exchanges data with the
Accounting and Finance, Marketing and Sales, and Supply Chain
Management functional areas

• Observing governmental regulations in recruiting,
training, compensating, promoting, and terminating
employees
• Inputs for HR
– Personnel forecasts
– Skills data

• Outputs for HR
– Regulation compliance
– Employee training and certification
– Skills database
– Employee evaluation and compensation

• Significant amount of data is maintained by and
shared among the functional areas
• Timeliness and accuracy of these data critical to
each area’s success and to company’s ability to
make a profit and generate future growth
• ERP software allows all functional areas to share a
common database
– Allows accurate, real-time information to be available

Integrated Systems Approach
• Common set of applications
• Usually requires re-engineering business
processes
– Better alignment
• Limited customization
– Easier upgrades
• Overcomes inefficiencies of independent
systems
• Integrated data supports multiple business
functions
© Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition by Mary Sumner 1-60
Enterprise Systems/ERP
• Enterprise resource planning (ERP) systems are
the world’s largest and most complex ES.
• ERP systems focus primarily on intra-company
processes— that is, the operations that are
performed within an organization—and they
integrate functional and cross-functional business
processes.
• Typical ERP systems support Operations
(Production), Human Resources, Finance &
Accounting, Sales & Distribution, and Procurement.

• Software tools
• Manages business systems
– Supply chain, receiving, inventory, customer orders,
production planning, shipping, accounting, HR
• Allows automation and integration of business
processes
• Enables data and information sharing
• Enterprise-wide system
• Introduces “best practices”

• Enterprise resource planning systems or

enterprise systems are software systems for
business management, encompassing
modules supporting functional areas such as
planning, manufacturing, sales, marketing,
distribution, accounting, financial, human
resource management, project management,
inventory management, service and
maintenance, transportation and e-business.
Traditional View of Systems
• Enterprise applications
– Systems for linking the enterprise
– Span functional areas
– Execute business processes across firm
– Include all levels of management
– Four major applications:
• Enterprise systems
• Supply chain management systems
• Customer relationship management systems
• Knowledge management systems
Types of ERP Application
1. Enterprise systems
– Collects data from different firm functions and stores
data in single central data repository
– Resolves problem of fragmented data
– Enable:
• Coordination of daily activities
• Efficient response to customer orders (production,
inventory)
• Help managers make decisions about daily operations
and longer-term planning
2. Supply chain management (SCM) systems

– Manage firm’s relationships with suppliers
– Share information about:
• Orders, production, inventory levels,
delivery of products and services
– Goal:
• Right amount of products to destination with
least amount of time and lowest cost
Supply Chain Management Systems
• Supply chain
– Network of organizations and processes for:
• Procuring materials, transforming them into products,
and distributing the products
– Upstream supply chain:
• Firm’s suppliers, suppliers’ suppliers, processes for
managing relationships with them
– Downstream supply chain:
• Organizations and processes responsible for delivering
products to customers
– Internal supply chain
Supply Chain Management Systems
• Supply chain management

– Inefficiencies cut into a company’s operating costs
• Can waste up to 25 percent of operating expenses
– Just-in-time strategy:
• Components arrive as they are needed
• Finished goods shipped after leaving assembly line
– Safety stock: Buffer for lack of flexibility in supply chain
– Bullwhip effect
• Information about product demand gets distorted as it
passes from one entity to next across supply chain
The Emerging Internet-Driven Supply Chain
The emerging Internet-driven supply chain operates

like a digital logistics nervous system. It provides
multidirectional communication among firms,
networks of firms, and e-marketplaces so that entire
networks of supply chain partners can immediately
adjust inventories, orders, and capacities.
Figure 9-5
3. Customer relationship management

systems:
– Provide information to coordinate all of the
business processes that deal with customers
• Sales
• Marketing
• Customer service
– Helps firms identify, attract, and retain most
profitable customers
Customer Relationship Management Systems
• Customer relationship management (CRM)

– Knowing the customer
– In large businesses, too many customers and too many
ways customers interact with firm
• CRM systems:
– Capture and integrate customer data from all over the
organization
– Consolidate and analyze customer data
– Distribute customer information to various systems and
customer touch points across enterprise
– Provide single enterprise view of customers
Customer Relationship Management (CRM)
CRM systems examine

customers from a
multifaceted perspective.
These systems use a set of
integrated applications to
address all aspects of the
customer relationship,
including customer service,
sales, and marketing.
Figure 9-6
• CRM software
– Packages range from niche tools to large-scale
enterprise applications.
– More comprehensive have modules for:
• Partner relationship management (PRM)
– Integrating lead generation, pricing, promotions, order
configurations, and availability
– Tools to assess partners’ performances
• Employee relationship management (ERM)
– Setting objectives, employee performance management,
performance-based compensation, employee training
• Operational CRM:
– Customer-facing applications such as sales force
automation, call center and customer service
support, and marketing automation
• Analytical CRM:
– Based on data warehouses populated by operational
CRM systems and customer touch points
– Analyzes customer data (OLAP, data mining, etc.)
• Customer lifetime value (CLTV)
4. Knowledge management systems (KMS)

– Support processes for capturing and applying
knowledge and expertise
• How to create, produce, deliver products and
services
– Collect internal knowledge and experience within
firm and make it available to employees
– Link to external sources of knowledge

After Completing This Chapter, You Will Be Able To

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Lecture 2: Business Functions and

After completing this chapter, you will be able to:

Concepts in Enterprise Resource Planning, Fourth Edition 3

Concepts in Enterprise Resource Planning, Fourth Edition 8

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• Information technology enhances business

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

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• Helps analyze and understand current BP

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• Enterprise resource planning systems or

2. Supply chain management (SCM) systems

• Supply chain management

The emerging Internet-driven supply chain operates

3. Customer relationship management

• Customer relationship management (CRM)

CRM systems examine

4. Knowledge management systems (KMS)