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.