Concepts in Enterprise

Resource Planning

Chapter One
Business Functions and Business
Processes
 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
needs (Input)
• Identify the kinds of data each main functional area
produces(Output)
• Define integrated information systems, and explain why
they are essential in today’s globally competitive
business environment
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 Introduction
• Enterprise Resource Planning (ERP) : is a system that
organization use to manage their business processes and
functions. This management is done by using a suite of
application SW called ERP SW.
– Help manage companywide business processes
– Use common database and shared management reporting
tools to integrate data from all the department in an
organization

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

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 Functional Areas of Operation
 Most companies have four main functional
areas of operation:
• Marketing and Sales (M/S)
• Supply Chain Management (SCM)
• Accounting and Finance (A/F)
• Human Resources (HR)

 Business functions: each area composed of

Activities specific to that functional area

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 Functional Areas of Operation (cont’d.)

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
-success of company
• Information system (IS): Computers software that
store, organize, and deliver information

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 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( person buys finished products) or internal
customer(one in another department)

• Thinking in terms of business processes helps

managers to look at their organization from the
customer’s perspective

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 Business Processes (cont’d.)

Sample business processes related to the sale of a personal

Smartphone

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 Business Processes (cont’d.)
• Businesses must always consider customer’s
viewpoint in any transaction
• Successful customer interaction
– Customer (either internal or external) is not required
to interact separately with each business function
involved in the process
– If department aren’t coordinating their business
functions, customer receive conflict information and
be dissatisfied.
• Successful business managers view business
operations from the perspective of a satisfied
customer
Concepts in Enterprise Resource Planning 11
 Business Processes (cont’d.)
• 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

Concepts in Enterprise Resource Planning, Fourth Edition 12

 Business Processes (cont’d.)

Figure 1-3 A process view of business

Concepts in Enterprise Resource Planning, Fourth Edition 13

 Business Processes (cont’d.)
• Businesses take inputs (resources) and transform
these inputs into goods and services for customers
– Inputs: Material, people, equipment
• Managing inputs and business processes
effectively requires accurate and up-to-date
information
For example,
the sales staff takes a customer’s order, and production employees schedule the
manufacturing of the product. Logistics employees schedule and carry out the delivery of the
product. If raw materials are needed to make the product, production prompts purchasing staff
to arrange for their purchase and delivery. Logistics will receive the raw material, verify its
receipt to accounting so the vendor can be paid, and deliver the goods to production.

Concepts in Enterprise Resource Planning, Fourth Edition 14

 Questions
• State the various SW modules in ERP system

Concepts in Enterprise Resource Planning, Fourth Edition 15

 Selecting an ERP system
• It can be difficult to know how to select an ERP system.
• E Five tips on how to choose an ERP system:
1-CREATE YOUR ERP RESEARCH TEAM:
• Consider people in the areas of
accounting,
Inventory,
order management,
human resources,
customer relationship management.
of your organization.
Note: Creating an effective team early on can take time, but long-term it will save you time, resources,

Concepts in Enterprise Resource Planning 16

 2- DETERMINE YOUR ERP NEEDS

• Balance present problems with the future needs of

your organization.
• Common questions to consider are:
• Financial reporting. How will we gain reliable financial reporting that is both accurate and
timely?

• Analytics and data. How much visibility will we be provided in terms of sales, production, and
procurement processes?

• User experience. How easy will the software be? How will it impact the productivity of
employees? What is the direct cost benefit to the organization?

• Automation. What automation of processes is needed? Can we use the software to automate
job costing, sales orders, and supply chain management? What other processes would be
advantageous to automate?

• Mobile accessibility. How accessible will the software be for mobile users who need real-time
access in the field? Which users will need mobile accessibility?
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 3. EVALUATE ERP PROVIDERS

There are some key considerations that will allow you to

narrow the field, saving you time and online headaches:
• Industry experience. What ERP providers are widely used in our industry? What
degree of expertise do they have specific to our industry?

• Customization & applications. Does the ERP platform allow for the development of
applications laid on top of it so we can customize for our specific organizational
needs?

• Flexibility. How flexible do we need the ERP software to be now, and in the future?
What degree of customization is needed to work in our industry?

• Reporting. How will the ERP software support industry-specific compliance

requirements and reporting?

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 4. EVALUATE ERP VENDORS
- Consider all phases of research: prelaunch, post-launch, and ongoing
support from an experienced vendor:
• Implementation experience. What level of experience does the ERP vendor have? Will they be
able to predict problems before they happen? How long have they supported the ERP software
we are looking to use?

• Industry expertise. What level of expertise will be provided? Do they have a deep bench of
industry specialists who will understand the specific needs of our business units?

• Customization. What level of customization will be provided? Will the ERP vendor have the
expertise to customize and add applications to meet our organizational needs, or will it be a
“cookie cutter” experience?

• Implementation. What is the launch time being offered? Is the launch time frame more about
“hitting a date” rather than providing world-class service?

• Training. What pre- and post-launch training is offered? What additional resources will be
provided to help employees enjoy a smooth user experience?

• Support. What does ongoing support and collaboration look like? Will it be the same consistent
team who knows our organization, our nuances, and our history?
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5. SPEAK TO CLIENTS OF THE ERP
VENDOR
• A vendor is able to connect you with one of their
clients who can walk you through their experience.

• Make sure you ask about ongoing support, training,

and their relationship with the vendor.

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 ERP System execution
• big-bang deployment:
where at once all the old systems are upgraded to
the new one. A classic example,
Ex:An organization closed its operation worldwide for
eight days to switch systems.
• phased rollout :
where the system component is brought on-line
serially and operated and observed before moving
on to implementation of the next phase.

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 ERP Life cycle

1- Discovery Phase:
•Researching & select ERP
system.

•Setting up a project
team(executive sponsor, project
manager, manager from each
department that will use the
system)

•Defining detailed system

requirements

•Understanding current system

Concepts in Enterprise Resource Planning, Fourth Edition 22
 ERP Life cycle

2- Gap Analysis (To-Be

process):
• Review the current state and
determining what you need to do
as an expert in ERP system to
move into your future state.

•Key Features or Functions Missing:

Important features and functions
you need that weren’t in your
original requirements.

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 ERP Life cycle

3- Configuration of
ERP(Design):
•configuring and customizing the
software to support the
redesigned processes.

• It may also include developing

integration with any of the
organization’s other existing
business applications that won’t
be replaced by the ERP system.

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 ERP Life cycle

4- CRP(conference room pilot):

•Selected Manager from each
department will be have a
presentation showing the new
system and how it works in
detail.

•Mangers understand it well and

provide confirmation.

Concepts in Enterprise Resource Planning, Fourth Edition 25

 ERP Life cycle

5-Training:
•Develop training materials to
help user to adjust to new system.

•All kinds of employee including

managers will get complete train
on new system.

•Important step based on it ERP

system will work & run or not?

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 ERP Life cycle

6- Test:
•Allow all kind of users to test
new system for all their day to
day activities.

•If all is ok, confirmation is given

to move to last step

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 ERP Life cycle

7- Go live production:
•Configuration is done on
productivity.

•New system goes live or run the

business

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 Functional Areas and Business
Processes of a Very Small Business
• Example: A 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

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

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 Marketing and Sales (cont’d.)
• Marketing and Sales tasks for the coffee shop
– Formal recordkeeping not required, small business
– Need to keep track of customers to send thanks notes to
repeat customer.
– Product development can be done informally(who buys which
kind of coffee and note what customers say about each
product)
– Analyze historical sales records to spot trends(sent to SCM)
– Decide a new product by its gained profit (analyze data from
SCM
– Keep customer credit data available and accurate at the time
customer credit request(A/F)

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 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(A/F determine final product price based on SCM)
• M/S has a role on hiring needs,legal requirment (employment need)
Example:
- M/S require a sales person
- HR will do advertising for a salesperson job

Concepts in Enterprise Resource Planning, Fourth Edition 32

 Marketing and Sales (cont’d.)

Employment
needs

Planning
purpose for Prepare
each billing
product

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
Concepts in Enterprise Resource Planning, Fourth Edition 33
 Marketing and Sales (cont’d.)
• 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

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 Marketing and Sales (cont’d.)
• Outputs for M/S
– Sales strategies
– Product pricing
– Employment needs

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 Question

Concepts in Enterprise Resource Planning, Fourth Edition 36

 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

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 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

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 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

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 Supply Chain Management (cont’d.)
• 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

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 Supply Chain Management (cont’d.)

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

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 Supply Chain Management (cont’d.)
• Inputs for SCM
– Product sales data
– Production plans
– Inventory levels
– Layoff and recall company policy

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 Supply Chain Management (cont’d.)
• Outputs for SCM
– Raw material orders
– Packaging orders
– Resource expenditure data
– Production and inventory reports
– Hiring information

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 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

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 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

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 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

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 Accounting and Finance (cont’d.)
• 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

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 Accounting and Finance (cont’d.)

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

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 Accounting and Finance (cont’d.)
• Inputs for A/F
– Payments from customers
– Accounts receivable data
– Accounts payable data
– Sales data
– Production and inventory data
– Payroll and expense data

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 Accounting and Finance (cont’d.)
• Outputs for A/F
– Payments to suppliers
– Financial reports
– Customer credit data

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 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

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 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

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 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

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 Human Resources (cont’d.)
• Observing governmental regulations in recruiting,
training, compensating, promoting, and terminating
employees
• Inputs for HR
– Personnel forecasts
– Skills data

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 Human Resources (cont’d.)
• Outputs for HR
– Regulation compliance
– Employee training and certification
– Skills database
– Employee evaluation and compensation

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 Human Resources (cont’d.)
• 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

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 Functional Area Information Systems
• Potential inputs and outputs for each functional
area described
• 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

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