Chapter 14

Enterprise Resource Planning Systems

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Learning Objectives
1. Understand the scope of enterprise resource planning (ERP) systems. 2. Recognize the client/server structure of ERP systems. 3. Relate the value of integrated information in a complex firm. 4. Identify the challenges associated with implementing ERP systems.

Enterprise Resource Planning (ERP)

y

Enterprise resource planning (ERP) system: computer system that links all the areas of the business Manufacturing knows about new orders as soon as they are entered Sales knows the exact status of a customer order Purchasing knows what manufacturing needs to the minute The accounting system is updated as all the relevant transactions occur

Enterprise Resource Planning (ERP)

Continued
y

The potential benefits are huge Savings in redundant postings Redundant jobs can be eliminated Other jobs can be done faster Creates new ways to do business Benefits are not without cost ERP systems are complex and expensive May require major changes in processes

Major Developers of Enterprise Resource Planning Software

SAP
y y y y y y

SAP AG is the world leader in providing ERP software Flagship product is R/3 Software designed to operate in a three-tier client/server configuration Cost is a high-speed network of database servers Application consists of software modules Applications are fully integrated and share data Firms wishing to use SAP may need to change their practices to those implemented by SAP

Three-Tier Client/Server Configuration

SAP Application Modules

y

Software is built around a set of application modules: Financials Human capital management Operations Corporate services DuetMicrosoft Office integration Can be used either alone or in combination

Financials
y

Financial application provides functionality to run the financial accounts for the company The application is divided into three areas:
1. Financial and management accounting module: includes general ledger, accounts payable, accounts receivable, capital investments and closing the books 2. Corporate governance: internal control and audit functions needed to adhere to corporate governance standards, documentation of internal controls, and audits that comply with current requirements 3. Financial supply chain management: handles the money flow related to supply chain activities

Human Capital Management

y

This application contain the full set of capabilities needed to manage, schedule, pay, and hire the people who make a company run It includes: Payroll Benefits administration Application data administration Personnel development planning Workforce planning Schedule and shift planning Time management Travel expense accounting

Human Capital Management

Continued

The talent management functions are designed to help align employee goals with corporate goals by maximizing the impact of training Workforce deployment applications are to aid in deploying the right people with the right skills to positions in the firm Managing project teams, monitoring the progress of projects, and tracking time are supported

Operations
Materials management covers all tasks within the supply chain It also includes inventory and warehouse management y Plant maintenance supports the activities associated with planning and performing repairs and preventive maintenance y Quality management plans and implements procedures for inspection and quality assurance and is built around the ISO 9001 specifications.
y

Operations
y

Continued

Production planning and control supports both discrete and process manufacturing processes Sales order management, configuration management, distribution export control, and shipping and transportation management are handled as well

Corporate Services
y

The corporate services applications are designed to manage both centralized and decentralized services
This includes managing the firms real estate portfolio, including:
Property acquisition and disposal Property management Building operations and maintenance Investment reporting

Another major aspect of the corporate services is travel management

Implementing ERP Systems

y

SAP has strong competition Oracle i2 Technologies PeopleSoft Implementation of ERP is costly Cost of the software typically one-third or less of the total cost ERP implementation does not always work out

Reasons to Implement ERP

y

Desire to standardize and improve processes To improve systems integration Improve information quality