Concepts in Enterprise

Resource Planning
Fourth Edition

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 a business process from a business
function
• Identify the kinds of data that each main functional
area produces
• Identify the kinds of data that each main functional
area needs
• Define integrated information systems and explain
why they are important

Concepts in Enterprise Resource Planning, Third Edition 2

 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

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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

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 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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Functional Areas of Operation (cont’d.)

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
• Information system (IS): Computers, people,
procedures, and 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 or
internal customer
• 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.)

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

personal computer

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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 with each business function involved in
the process
• Successful business managers view business
operations from the perspective of a satisfied
customer

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 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

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 Business Processes (cont’d.)

Figure 1-3 A process view of business

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 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

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 Functional Areas and Business
Processes of a Very Small Business
• Example: A fictitious Coffee Shop
– Examine business processes of the lemonade stand
– 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 lemonade stand
– 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

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 Supply Chain Management

• Functions within Supply Chain Management

– Making the lemonade (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
lemonade product sold

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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 those
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 lemonade
stand

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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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 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

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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

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 Marketing and Sales (cont’d.)

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
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 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
– Travel expense company policy

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

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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
• 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
• 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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 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
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 Summary (cont’d.)
• 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
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 Summary (cont’d.)
• 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
– Need to share information between functions and
functional areas
– ERP software provides this capability by means of a
single common database

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