Chap 2 - ERP Today - Lecture notes 2 PDF

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BUS 301S – Integrated Business Experience

CHAPTER 2 – ERP’S IN TODAY’S WORLD/INTRODUCTION TO SAP

Chris McBride, Denise McBride, Stephen Tracy CENTRAL MICHIGAN UNIVERSITY

Table of Contents Chapter 2 – ERP’s in Today’s World/Introduction to SAP ............................................................................. 2 Chapter Introduction ................................................................................................................................ 2 ERP in Today’s World ................................................................................................................................ 2 Who is SAP? .............................................................................................................................................. 3 What is SAP? ............................................................................................................................................. 4 Career possibilities with SAP ..................................................................................................................... 5 Certification............................................................................................................................................... 6 Business Rules ........................................................................................................................................... 6 A “Unique” Implementation of SAP? ........................................................................................................ 7 Are there other ERP Vendors? .................................................................................................................. 7 Implementing an ERP ................................................................................................................................ 8 SAP Organizational Structure ...................................................................................................................... 10 Communication ........................................................................................................................................... 13 Master Data ................................................................................................................................................ 13 Transactional Data ...................................................................................................................................... 14 Document Principle..................................................................................................................................... 14 Day-to-day using SAP .................................................................................................................................. 14 SAP Processes ............................................................................................................................................. 15 SAP Security ................................................................................................................................................ 16 SAP @ Pen Inc. ............................................................................................................................................ 17 Where Do We Go From Here? .................................................................................................................... 17 View from the Top ...................................................................................................................................... 18 Key Terms.................................................................................................................................................... 19 Self-Assessment .......................................................................................................................................... 19 Appendix A – List of ERP Vendors ............................................................................................................... 20

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Chapter 2 – ERP’s in Today’s World/Introduction to SAP Chapter Introduction This chapter will build on the basic definitions and concepts from chapter one. We will introduce the ERP software company SAP and explain how its software products work in a general manner. We will expand upon the discussion of data began in the last chapter as well as explain “the SAP way” of doing things. The primary purpose is to complete the base instruction for the course and move forward into the primary content beginning in chapter three. The knowledge gained from these first two chapters are the foundation of all remaining chapters. It is vital that you remain engaged, are asking questions, and actively participate. If you are not sure about this “SAP thing” make sure to read the “Who is SAP?” section for a compelling value case in why you want to develop SAP skills.

ERP in Today’s World Enterprise Resource Planning (ERP) systems are computer information systems. All ERP systems, whether it is QuickBooks Pro or SAP are specifically designed systems of software, hardware, network, people, and user interfaces to support the business process. These systems provide the business with a rich set of tools that help manage the business. While ERP systems are information systems, the business owns the processes, rules, and data. Business owning, maintaining and consuming the data ensures the proper business expertise is involved with making system decisions. As discussed in chapter one, the Business-IS alignment is a partnership involving the entire enterprise. The business units, shared services, and information systems must all work together to drive the organizational strategy. Today, ERP systems are connected to much more than just a company’s internal systems. Modern ERP software integrates all aspects of the business across a vast supply chain all in real-time. The concept of a real-time world, where everything happens at virtually the same time, was not possible until the late 1990s. This realtime concept changed with the wide-scale implementation of the internet and associated technologies. Prior to this period, computer technologies were inwardly focused. Companies primarily thought about efficiency in processes and controlling costs inside the company walls. Extending the reach of ERP systems outside of the company boundaries introduced a need for an entirely new way of thinking. New business models happen all the time. Henry Ford knew it when he developed his assembly lines over a hundred years ago. W. Edwards Deming knew it while working with Japanese auto manufacturers in the 1950s and 60s. The connected business world today is simply the next evolution. However, the science of process improvement from the past is still very relevant today and arguably more so with the real-time economy. 2

Watch this 2-minute video called “Henry Ford Assembly Line Invention” of Henry Ford’s new business model idea of how to build cars faster.

Who is SAP? The German software company, SAP AG, is the world’s leader in enterprise resource planning in terms of software and software-related service revenue. SAP is an acronym for Systems, Applications, and Products in Data Processing. SAP AG was founded in Walldorf, Germany, in 1972. It is currently the world’s third largest independent software manufacturer and the largest ERP vendor. Even if you have not heard of SAP, the business world has. A few facts regarding SAP (updated 2016) are below:  

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SAP serves over 310,000 customers (businesses, governments, non-profits, etc.) in 190 countries SAP customers include: o 87% of the Forbes Global 2000 companies o 98% of the 100 most valued brands o 100% of the Dow Jones top scoring sustainability companies SAP customers produce: o 78% of the world’s food o 82% of the world’s medical devices o 76% of the world’s financial transaction revenues touch a SAP system.

It is safe to say that each of you will most likely interact with a SAP system on a fairly regular basis and not even be aware of it. Watch the following 3-minute video titled “SAP Key Facts.”

After watching this video, hopefully, you can begin to see why having skills in SAP are so valuable. Read the following document for other facts and figures. (Double click on the embedded document below.)

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What is SAP? SAP is business software, specifically, ERP software. SAP ERP is designed for worldwide usage to satisfy the information needs for many business sizes, from small local ($10 million USD) to large international enterprises. In SAP, business functions are called modules. SAP modules contain the master data and processes to support the organization. A subset of the modules and capabilities in SAP ERP include: •

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Logistics o Sales & Distribution o Plant Maintenance o Materials Management o Production Planning o Quality Management Accounting o Financial Accounting o Controlling o Asset Management o Treasury Human Resources o Personnel Management o Benefits o Payroll

There are many more modules included in the basic SAP ERP package. Companies decide which modules they want to implement. SAP also has many other product offerings such as SAP Customer Relationship Management (CRM), Supplier Relationship Management (SRM), and Product Lifecycle Management (PLM) to name a few. SAP is multilingual and multi-currency enabling business to be conducted worldwide. SAP, with Unicode, supports over 500 native and historical languages and 86 additional country specific languages with up to 200 active at a time within the same system (based on version). SAP further has the ability to satisfy the information needs of specific industry sectors. Currently, there are 27 industry specific solutions offered to fit the need of a diverse customer base. These specific sectors include but are not limited to: Aerospace & Defense Automotive Banking Chemicals Consumer Products Engineering and Construction

Healthcare High Tech Higher Education Industrial Machinery Insurance Life Sciences

SAP ties together business functions to create an integrated business solution to help the organization run smoothly. SAP’s real-time environment is scalable and flexible to accommodate an organization’s needs and growth. SAP does this through “SAP Best Practices” which are built into the system. Best Practices are well-proven business processes that help companies understand the potential uses and 4

efficiencies of SAP. If a company wants to implement change but not sure how to do it, they can review these Best Practices. SAP is a flexible building block technology that enables an enterprise to implement and adapt the solution quickly using fully documented and reusable templates. SAP at CMU: Central Michigan University began using SAP for all of its business financials and human resources functions in 1997. The same year the SAP University Alliance Program in the College of Business Administration began offering classes featuring SAP. CMU is one of the very few universities in the world that are both a SAP customer and University Alliance Partner. Since 2006, CMU has used SAP’s Student Lifecycle Management module to manage all student data, course data, academic work, admissions, billing, and grades. All of CMU’s students use SAP when they register for classes, pay their bills online, check grades, and many other functions.

Career possibilities with SAP As you progress through your degree at CMU or your professional career, you will become aware of career opportunities and paths that are available in the world of SAP. This course will describe only the business process and “user” standpoint of SAP only. This view of the business is referred to as “functional” responsibilities. Functional refers to executing business processes and supporting the processes that enable the enterprise. In the functional space, there are many general categories of responsibilities. There are “normal users,” which represents most of the employees. There are superusers or “subject matter experts” (SMEs) who have a higher level of expertise and responsibility in a given functional area (such as accounts receivable or shipping). There are also business analysts who provide deep business and technical expertise to maintain and improve the SAP system and the supported processes. Business analysts provide the bridge between the business and the technical people. Many of our information systems majors and minors are hired as business analysts. An additional expertise is SAP configuration. Configuration is the technical definition and “set up” of a company’s specific business rules and processes. This work is generally the responsibility of the business analyst and functional SMEs along with consultants. SAP is a complete technical environment which means that it contains all of the tools that it needs for development (computer programming), testing, implementation (adding new capabilities), and deployment (providing access to the new capabilities to the users). Programming is accomplished using a proprietary programming language called ABAP. ABAP programming is the method through which all internal SAP programs and functions are written. As stated above, SAP is a complete technical environment. The technical components of computer hardware, operating systems, SAP software, databases, and other technical features such as SAP Security are managed through SAP Netweaver. SAP Netweaver is maintained by technical staff commonly referred to as the “basis” team. It is the role of basis people to monitor and maintain the technical systems and business processes that a company utilizes. The basis team also works to integrate non-SAP systems into the environment such as “legacy” systems to share data. Legacy systems are older systems that are currently being used. This integration is often done during system 5

implementations. Implementations are large projects that introduce new technology or capabilities to a company. They also are responsible for the all technical aspects of the technology following “go-live” of the new solution. Go-live is the industry term for the time a company starts to use a new piece of software. All of the knowledge and skills explained in this section are available to all undergraduates in the College of Business Administration and are classes designed specifically for Information Systems majors and minors. BIS 347 (Introduction to Enterprise Systems), BIS 357 (ABAP Programming), BIS 458 (SAP Configuration and Implementation), and BIS 530 (SAP Basis) are all SAP focused courses and are regularly offered throughout the academic year.

Certification In addition to the various skill-based classes listed above, each CBA student has the opportunity to gain certification from SAP. Every May following the spring semester, Central Michigan University offers the “SAP TERP10 Academy” which is a two-week course taught by an SAP certified CMU instructor. The course focuses on business transaction cycles within the various SAP modules. The course is not technical. It covers the business processes listed in the modules above and a few more. Those who pass this rigorous academy receive a certification as an “SAP Consultant” and are officially registered on the SAP website. You will stand out from the competition by being able to put “SAP Experience” or even better, “SAP TERP10 Certified” on your resume. Some companies even require it as a condition of employment. Companies that have implemented ERP systems know it takes time and resources to train new employees. They are aware of the challenges of learning how to navigate through a complex system such as SAP. Possessing an understanding of SAP out of college catches the eye of many employers and often lead to higher compensation. Certification from the SAP TERP10 Academy can lead to starting salaries as much as $10,000 higher than those that do not have it!

Business Rules Along with various types of data, a company needs to have certain business rules defined. Business rules can be thought of as the internal controls of the system. Business rules assert business structure and control or influence the behavior of the business. Business rules set things like how to do a credit check, how to determine a shipping point, how to set purchasing limits, or who must authorize or sign off on a specific requirement as decided by the company. These business rules are control limits that support the specific business processes the company has defined. These rules ensure everyone that uses the system uses it the same way and, more importantly, the system responses the same way.

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A “Unique” Implementation of SAP? How can so many different companies use the same software? Don’t think of the SAP software as you would Word or Excel as these are examples of software you use “out of the box.” The answer is configuration. Configuration is what allows many diverse companies to use the same software. SAP allows a company to configure the system to the companies defined business rules. Configuration is the setting of values and creation of rules that are specifically put in place by a SAP customer to support the customer’s specific business practices. It is the tool that is used to create the internal business structures the company needs. SAP has literally thousands of configurable settings making no two systems alike. These internal controls are defined by business people and are entered into the system or configured by people with specialized skills called business analysts. While configuration is vital for the implementation of new SAP systems, configuration continues throughout the entire SAP lifecycle as a company continuously improves and/or adopts new business strategies. There are no two businesses exactly alike; therefore, it seems impossible to create software that “knows” your business. The secret is in the data and how the various types of data are used with the configured system. Configuration is not only defining simple business rules but defining how the business works. The real power of ERP systems is in how they can be adapted across industry sectors and organizations to be effective. The data and the business rules create inputs into the system which defines how SAP behaves. SAP configuration, representing the organization’s business rules, works with organizational data and master data as the inputs to the SAP processes. The SAP processes will then produce the proper outputs. The output of these processes are the company’s transactional data. The data is then used to make the “knowledgeable” business decisions. In later chapters, we will discuss how all four of these components: organizational data, master data, business rules, and transactional data work together to support our business success. As stated in the previous section, the College of Business offers a class BIS 458 – Configuration and Implementation / SAP Software and BIS 658 – Enterprise System Configuration Using SAP (graduate level) specifically on this topic.

Are there other ERP Vendors? There are many competitors in the global ERP marketplace. SAP and Oracle are the two largest, but there are many niche systems that provide specific solutions to specific industries and company sizes. We will not discuss other ERP vendors in any greater detail here, but you can learn about them by completing some research. Most of these ERP vendor products do the same kinds of things. Some are specialized for smaller companies and some for specific industries, and this is only a very small list of the global marketplace. See Appendix A for a list of some popular ERP systems.

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Implementing an ERP We have all of the background information now to launch and manage a business successfully. With this knowledge, let’s think about implementing SAP for Pen Inc. As you learned from the Preface, this company manufactures pens and pencils. It also resells pens and pencils that it buys from other sources. Image yourself as part of the leadership team that wa...