What is ERP?

What is ERP? Enterprise Resource Planning.

By understanding what ERP is all about, you also then understand what SAP is, because SAP is an ERP software.

Here's a really good video that shows us what ERP actually is all about.

Link: http://www.youtube.com/watch?v=PVRgIXLWDHs&feature=related

SAP ERP Overview

Enterprise resource Planning (ERP) has been a popular business processing tool. It has helped many companies to gain a greater foothold on their business operations. If you are not familiar with ERP or have only a vague understanding of it, this article will help to get you up to speed with a brief ERP overview.

First of all, let’s get an understanding about what ERP is and how it works. Enterprise Resource Planning (ERP) is a software system (and sometimes hardware too) that can cut the operating costs of a business while at the same time increasing its productivity and profits. ERP does this by integrating all of a company’s businesses processes into one central cohesive repository of information with access for every sector of the firm’s staff that has a need to know. This means real time access to data, facts and figures to help a company make intelligent analysis and decisions.

So what you have with ERP fully integrated software systems which enable firms small, medium and large, to integrate all of their business processes, including manufacturing, finance and accounting, human resources, marketing an sales, inventory and warehouse, purchasing and distribution, customer relationship management, management planning, and more. It’s a comprehensive system that consists of applications or modules that can handle all of the essential tasks mentioned above and then some. It streamlines all company operations and gives you an up to date view of what’s happening in every department of the business. As such, it saves time and money. Every business should take time out to get a complete ERP overview and learn about re-engineering their business operations.

Enterprise Resource Planning gives you the opportunity to manage your business more efficiently as well as more effectively. It eliminates the need for calls or emails between different departments of the company to gather information. That’s old hat. With ERP everyone has access to the same information they need in order to do their job more proficiently. If you’re working in sales and marketing and you need information about inventory from the warehouse, you won’t have to go calling - or walking - in some instances to the warehouse. You will be able to interface with that information on your computer screen in real time, which will of course save you time.

Source: http://www.erp.com/section-layout/337-erp-software/6825-taking-an-erp-overview.html

1. Before production starts, there must be a Demand. Examples of a demand are Customer Orders and Consumer Demand Forecasts. These 2 types of demand are referring to Make to Order(MTO) Production Strategy and Make to Stock(MTS) Production Strategy respectively. It might take longer to complete a final product with the MTO strategy since the product is customized to the customer’s specifications. However, it relieves the problems of excessive inventory that is common with the traditional MTS strategy which is due to inaccurate forecasts. For this Overview, we will assume that we have a sales order from a customer.

2. "Manufacturing organizations, whatever their products, face the same daily practical problem - that customers want products to be available in a shorter time than it takes to make them. This means that some level of planning is required.“ Companies need to control the types and quantities of materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, all at the lowest possible cost. This is what Materials Requirement Planning (MRP) is able to offer us. It provides answers for several questions:

a)What items are required? By referring to Forecasts or Sales Orders, MRP can determine the demand quantity and then by referring to Bill of Material (BOM), MRP is able to find out which components (dependent requirements) are insufficient by referring to current stocks in the system, and how long it takes to replenish the ones that are insufficient by taking into consideration the lead times.

b)When are they required? With reference to Production time for the End Product (Independent requirement), and lead time for the components (dependent requirements), MRP is able to determine when the End Product can be readily available for the customer.

3. Stocks are checked whether there are enough to supply the Sales Order.

4. For insufficient stocks for both dependent and independent requirements, SAP creates a Planned Order for each material. Planned Orders will not be

created for sufficient stocks but instead, they will be “reserved” by the respective demands. For finished products planned orders, they will be converted to

Production Orders.

5. Dependent requirements / components are normally purchased from an External Vendor. Therefore, for insufficient stocks, they are automatically

converted to Purchase Requisition.

6. Next step would be to convert this Purchase Requisition which is an internal request to a Purchase Order.

7. Purchasing Department will now evaluate the Purchase Requisitions and convert them into a Purchase Order, after which the Orders will be sent out

to the respective Vendors.

8. Upon receiving the Purchase Order from us, vendors will then deliver the goods to us. The goods should be delivered according to the delivery date that

both parties have agreed. We then perform a Goods Receipt in SAP. This then updates our stock level which now indicates that we have sufficient stocks

to start Production.

9.  Once the components of the Final Products are readily available in the warehouse, it is then issued out for Production. This is following an example of

pre-production issuing where goods are issued in the system before production. It is also possible for post-production issuing (back flushing), where Goods

Issue is done once production is complete.

10. Production commences.

11. Once Production is complete, the Finished Products can now be stored in its designated storage location.

12. The next step is to Pick the Finished Products and Pack them as a preparation for delivery to the customer.

13. Deliver the Finished Products to the customer.

14. Once the customer has received the goods, we then Bill them for it.

15. The Production Order “Confirmation” is executed to record the progress of the Order.

16. After goods are delivered, vendors will send us an Invoice. We then perform Invoice processing in SAP. During this time, the invoice is checked

for accuracy by automatic referral to Purchase Order and Goods Receipt in the system. This is called a 3-way matching process.

17. With reference to the payment terms agreed between us and vendor, we make payments accordingly to take advantage of any discounts available.

18. Finally, Customers pay us by the Invoice amount that we have sent earlier.

This is just a simple scenario involving some of the major modules in SAP such as MM, PP, SD, QM and FICO. There are many other modules which I have not covered and play an equivalently important role for certain industries. It also depends on the customer on which modules they would like to implement.

What does a SAP Consultant do?

This is a video that i found on Youtube. It features a person from IBM describing her SAP Experience.
Link: http://www.youtube.com/watch#!v=Ejh65pFGGVE&feature=related

SAP ERP Overview: Advanced

Welcome back guys. I will be using the same example as the one from my previous post, cut and paste to be exact :) I strongly recommend that you go through the previous post first before reading this one. However, the additional information can be found by referring to the words in Italics.

Hi guys, I would like to share with you on what SAP ERP(Enterprise Resource Planning) is all about.
For example purposes, we would be focusing more on a manufacturing based company. In this case, we assume that we are producers and seller of Laptop X.

SD-Sales and Distribution

Lets also assume that we have a Customer XYZ that wants to buy 100 Laptop X. In the real world, for a customer to legally request for purchase, is by giving us a Purchase Order. In this Purchase Order, Customer XYZ states the product that he wishes to purchase along with the quantity and price. Other information such as delivery address are also in the document. When we receive this document, we are legally responsible in providing the products to the Customer. So, upon receiving the Purchase Order from Customer XYZ, we convert it to a Sales Order in SAP ERP. Once we create this Sales Order in SAP ERP, the following processes will commence.

MM-Materials Management 

Now, we have to remember, to produce 1 Laptop X, we would need Raw Materials correct? Lets list down the Raw Materials Required to produce 1 Laptop X.

• 1 Casing
• 1 Battery
• 1 Processor
• 1 Keypad
• 2 Speakers

What do we call this particular relationship between the Finished Product (Laptop X) and its components above? BOM: Bill of Materials. This is vital, because without it, SAP ERP would not be able to know the required quantities and components to produce 1 Finished Product (Laptop X).
Do we produce the Raw Materials above? In 99% of the cases, chances are that we would be purchasing them from an External Vendor. Lets assume that we are purchasing all these Raw Materials from Vendor ABC.
If you recall from earlier in this post, I mentioned that the legal document used when purchasing is the Purchase Order. So now, we would be creating a Purchase Order for all of these Raw Materials. Now the question is, how would the person from the Purchasing Department know what is pending for purchase? The answer, is MRP (Materials Requirement Planning). If you studied economics, you would very well be aware of the term Supply and Demand right? Well, that applies here as well. Based on the Sales Order that we received from Customer XYZ, we know we need to to produce 100 quantity of Laptop X. So this would be our Demand. Now, since there is demand, we would need to Supply them to the customer right?
At this point, BOM plays its vital role. SAP will use the BOM as reference to find that to produce 1 Laptop X, it requires 1 Casing, 1 Battery, 1 Processor, 1 Keypad, and 2 Speakers. So to produce 100 Laptop Xs? It wouldn't be too hard for SAP to just multiply each of the above to find out the total requirements :)
With the above in mind, SAP generates a Planned Order for each of the Raw Materials above stating the required quantities for each to produce 100 Laptop Xs.
Now, another person plays a key role called the Materials Planner. He would now convert these Planned Orders into Purchase Requisitions in the SAP System. Purchase Requisition is an internal document used within a company to initiate a Purchase Order.
At this point in time, the Purchaser takes ownership. The Purchaser would now convert these individual Purchase Requisition and include all of them to 1 Purchase Order, since they are being purchased from the SAME Vendor. *Note* that 1 Purchase Order is valid for 1 Vendor only.
With the Purchase Order in place, you decide to Print it out and send it to Vendor ABC. Vendor ABC responds by acknowledging this Purchase Order and sends all the required Raw Materials to us 2 days later.
We now perform Goods Receipt and place the Raw Materials in our Storage location.

QM-Quality Management

For Industries such as Pharmaceutical, it is extremely important to ensure that the goods received from Vendor are quality checked. We assume that we require quality checking for each and every Raw Material received from Vendor ABC.
During Goods Receipt, we tell the system that we would like for it to Store the Raw Materials in Quality Inspection storage location. When the raw materials are in Quality Inspection storage location, we are not able to use it yet for Production. Once the raw materials are inspected and passed the inspection test, the raw materials are then transported to the normal storage location.

To complete the process for MM, we would process the Invoice sent by Vendor ABC which states the amount to be payed to him. *Note* that Vendor ABC sends the invoice after he has delivered the goods. This would be the link between MM and AP (Accounts Payable) which is part of the FI Module. It is called Accounts Payable because we owe the vendor money.

PP-Production Planning

Remember above in the MM section i mentioned about Planned Orders being generated for Raw Materials? Well, this also applies for the Finished Product Laptop X. But in this case, the Materials Planner would not convert it to a Purchase Requisition, but instead, convert it to a Production Order.
With the Raw Materials available in storage area, we are now able to start out Production.
Once we have finished produced 100 Laptop Xs, we transfer it to Finished Product Storage location while waiting to be delivered to Customer XYZ.

QM-Quality Management

Before transferring the 100 Laptops to Finished Product storage location, we can actually send it for Quality check first. So, upon completion of production, we send these 100 Laptop Xs to Quality Inspection storage. Once it is inspected and passed, then we would transfer it to Finished Product storage location.

PM-Plant Maintenance

Do you know that the machines that you use to produce your Laptops requires regular service? It is just like our cars that we drive. The service here can be in the form of Planned Service where it can be based upon usage hours e.g. after 1000Hours of meter reading, or based upon a fixed period such as after 3 months, regardless if we use the machine or not. The way of servicing is already stored in SAP in the form of Task List. This means that, SAP will check the task list to see what kind of services that needs to be performed on the Equipment. Another type of service can be Unplanned services such as Breakdown Maintenance. For this type of Maintenance, it happens suddenly and requires immediate attention. Based on the Technicians expertise, he would determine whether internally within the company, they are able to fix the problem, or he requires help from an external vendor to perform the breakdown maintenance.

SD-Sales and Distribution

Now that we have 100 Laptop Xs waiting in our Finished Product storage location, we can now Pick it from the storage, and deliver them to Customer XYZ.

To complete the SD process, we would issue an Invoice (similar to the above where Vendor ABC issued us an Invoice) to Customer XYZ. This would be the link between SD and AR (Accounts Receivable). It is called Accounts Receivable because the customer owes us money.


With this, it should give you a clearer picture on what SAP ERP can do for you. Note that this is only the very basics and not to its full potential yet. There are other modules such as WM-Warehouse Management, HR-Human Resources, etc. It will only make things complicated if we put it all in this post. Hope this helps.

SAP ERP Overview: Basics

Enterprise resource Planning (ERP) has been a popular business processing tool. It has helped many companies to gain a greater foothold on their business operations. If you are not familiar with ERP or have only a vague understanding of it, this article will help to get you up to speed with a brief ERP overview.

First of all, let’s get an understanding about what ERP is and how it works. Enterprise Resource Planning (ERP) is a software system (and sometimes hardware too) that can cut the operating costs of a business while at the same time increasing its productivity and profits. ERP does this by integrating all of a company’s businesses processes into one central cohesive repository of information with access for every sector of the firm’s staff that has a need to know. This means real time access to data, facts and figures to help a company make intelligent analysis and decisions.

So what you have with ERP fully integrated software systems which enable firms small, medium and large, to integrate all of their business processes, including manufacturing, finance and accounting, human resources, marketing an sales, inventory and warehouse, purchasing and distribution, customer relationship management, management planning, and more. It’s a comprehensive system that consists of applications or modules that can handle all of the essential tasks mentioned above and then some. It streamlines all company operations and gives you an up to date view of what’s happening in every department of the business. As such, it saves time and money. Every business should take time out to get a complete ERP overview and learn about re-engineering their business operations.

Enterprise Resource Planning gives you the opportunity to manage your business more efficiently as well as more effectively. It eliminates the need for calls or emails between different departments of the company to gather information. That’s old hat. With ERP everyone has access to the same information they need in order to do their job more proficiently. If you’re working in sales and marketing and you need information about inventory from the warehouse, you won’t have to go calling - or walking - in some instances to the warehouse. You will be able to interface with that information on your computer screen in real time, which will of course save you time.

Explanation above was taken from : http://www.erp.com/section-layout/337-erp-software/6825-taking-an-erp-overview.html

With that being said, lets take a step by step view on how this actually happens starting from a demand and ending with a payment from customer. For example purposes, we would be focusing more on a manufacturing based company. In this case, we assume that we are producers and seller of Laptop X.

SD-Sales and Distribution

Lets also assume that we have a Customer XYZ that wants to buy 100 Laptop X. In the real world, for a customer to legally request for purchase, is by giving us a Purchase Order. In this Purchase Order, Customer XYZ states the product that he wishes to purchase along with the quantity and price. Other information such as delivery address are also in the document. When we receive this document, we are legally responsible in providing the products to the Customer. So, upon receiving the Purchase Order from Customer XYZ, we convert it to a Sales Order in SAP ERP. Once we create this Sales Order in SAP ERP, the following processes will commence.

MM-Materials Management 

Now, we have to remember, to produce 1 Laptop X, we would need Raw Materials correct? Lets list down the Raw Materials Required to produce 1 Laptop X.

• 1 Casing
• 1 Battery
• 1 Processor
• 1 Keypad
• 2 Speakers

What do we call this particular relationship between the Finished Product (Laptop X) and its components above? BOM: Bill of Materials. This is vital, because without it, SAP ERP would not be able to know the required quantities and components to produce 1 Finished Product (Laptop X).
Do we produce the Raw Materials above? In 99% of the cases, chances are that we would be purchasing them from an External Vendor. Lets assume that we are purchasing all these Raw Materials from Vendor ABC.
If you recall from earlier in this post, I mentioned that the legal document used when purchasing is the Purchase Order. So now, we would be creating a Purchase Order for all of these Raw Materials. Now the question is, how would the person from the Purchasing Department know what is pending for purchase? The answer, is MRP (Materials Requirement Planning). If you studied economics, you would very well be aware of the term Supply and Demand right? Well, that applies here as well. Based on the Sales Order that we received from Customer XYZ, we know we need to to produce 100 quantity of Laptop X. So this would be our Demand. Now, since there is demand, we would need to Supply them to the customer right?
At this point, BOM plays its vital role. SAP will use the BOM as reference to find that to produce 1 Laptop X, it requires 1 Casing, 1 Battery, 1 Processor, 1 Keypad, and 2 Speakers. So to produce 100 Laptop Xs? It wouldn't be too hard for SAP to just multiply each of the above to find out the total requirements :)
With the above in mind, SAP generates a Planned Order for each of the Raw Materials above stating the required quantities for each to produce 100 Laptop Xs.
Now, another person plays a key role called the Materials Planner. He would now convert these Planned Orders into Purchase Requisitions in the SAP System. Purchase Requisition is an internal document used within a company to initiate a Purchase Order.
At this point in time, the Purchaser takes ownership. The Purchaser would now convert these individual Purchase Requisition and include all of them to 1 Purchase Order, since they are being purchased from the SAME Vendor. *Note* that 1 Purchase Order is valid for 1 Vendor only.
With the Purchase Order in place, you decide to Print it out and send it to Vendor ABC. Vendor ABC responds by acknowledging this Purchase Order and sends all the required Raw Materials to us 2 days later.
We now perform Goods Receipt and place the Raw Materials in our Storage location.

To complete the process for MM, we would process the Invoice sent by Vendor ABC which states the amount to be payed to him. *Note* that Vendor ABC sends the invoice after he has delivered the goods. This would be the link between MM and AP (Accounts Payable) which is part of the FI Module. It is called Accounts Payable because we owe the vendor money.

PP-Production Planning

Remember above in the MM section i mentioned about Planned Orders being generated for Raw Materials? Well, this also applies for the Finished Product Laptop X. But in this case, the Materials Planner would not convert it to a Purchase Requisition, but instead, convert it to a Production Order.
With the Raw Materials available in storage area, we are now able to start out Production.
Once we have finished produced 100 Laptop Xs, we transfer it to Finished Product Storage location while waiting to be delivered to Customer XYZ.

SD-Sales and Distribution

Now that we have 100 Laptop Xs waiting in our Finished Product storage location, we can now Pick it from the storage, and deliver them to Customer XYZ.

To complete the SD process, we would issue an Invoice (similar to the above where Vendor ABC issued us an Invoice) to Customer XYZ. This would be the link between SD and AR (Accounts Receivable). It is called Accounts Receivable because the customer owes us money.


Well, this is basically what SAP ERP is all about. There are other Modules such as PM-Plant Maintenance, QM-Quality Management, etc. I will try to explain it in my next post, using this same example.