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Chp1
Definition ERP/ 4 Characteristic of ERP tb1
A core software programs that company used to integrate and coordinate information in every
area of business. ERP programs help organizations manage company-wide business
processes, using a common database and shared management reporting tools as well as access
information in a real-time environment and accurate. For example, ERP software can
integrate the task related to sales, marketing, manufacturing, logistics, accounting in order to
have an efficient operation.
Extra explain
Enterprise Resource Panning Systems are the first generation of enterprise systems meant to
integrate data and support all the major function of the organization (4function).
ERP systems integrate various functional aspects of the organization as well as systems
within the organization of its partners and suppliers.
Define integrated information systems
Systems in which functional areas share data. The data can be shared efficiently and
effectively between functional areas leads to more successful business processes. Integration
enhances in communication and workflow. It also allows managers look at their organization
from the customer's perspective.

Business Process & Business Function tb1&2

A business process is a collection of activities that take some input and creates an output that
is of value to the customer. The business process will help manager look at the business
operation from customer viewpoint. For example, the input is fulfilment of order, then, the
functional area should be responsible is Supply Chain Management. After the process of
shipping and deliver, and output will be created which is customer receives order. Tb3
Business process can help companies try to provide customers with goods and services faster
and less expensively than their competition. Increasing the efficiency of information systems
results in more efficient management of business processes
A business function is an activity specific to that functional area of operation. For a business
to operate effectively, various tasks are carried out by various functional departments
including Management and Sales, Supply Chain Management, Accounting and Finance and
Human Resources. The functional areas are interdependent and each requires data from the
others. For example, in the Marketing and Sales is responsible to take sales orders, Supply
Chain Management is receiving goods and raw materials, Accounting and Finance will do the
cost allocation and control and the Human Resource is responsible for training. Tb2
For example, in the Marketing and Sales is responsible for marketing a product, Supply
Chain Management is purchasing goods and raw materials, Accounting and Finance is
responsible for financial accounting and the Human Resource is responsible for recruiting
and hiring.
A Process View of Business/ Business Processes tb5

A business will take the inputs such as material, people, and equipment, and transform these
inputs into output such as goods and services for customers. In order to make sure these
inputs and business processes is managed effectively, an up-to-date and accurate information
is needed. This is because if the information is out-to-date, the decision making will be
affected subsequently will also cause customer dissatisfaction.

In the business operations, sales staff in the sale function will take a customer’s order. Then,
production employees in production function will schedule the manufacturing of the product.
After that, logistics employees in logistic function will responsible to schedule and carry out
the delivery of the product. Next, the production function may approach to the purchasing
staff in the purchasing function when raw materials are needed to make the product.
Purchasing staff will arrange for their purchase and delivery. So, logistics will receive the raw
material, verify its receipt to accounting so the vendor can be paid, and deliver the goods to
production. Throughout the process of business operation, accounting staff in accounting
function will always keep appropriate transaction records.

Basic functional areas

 Marketing and Sales: Develop products, 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
 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
Why ERP important? (4point) (reason)
 To be competitive
(Need to make fast decision, otherwise they will loss the business to the competitors) (in
order to make fast decision, company/organization need to have a good system that
provide the staff a reliable and accurate information),
 organizations must improve their business practices (respond quickly to stakeholder
such as customer, supplier, distributer)(when customer ask the product price or stock,
employee are able to access all the information through the ERP system) and
 share information with their supplier, distributors, and customers.
 An ERP system introduces “best practices” which are defined as “simply the best
way to perform a process”. (SAP, orcle, people soft normally will follow the US
regulation such as Sablanystc Act, whenever company have this “best practices”, they
will not have the problem in auditing)

5 Benefit of implementing ERP system tb36

1. More efficient business processes that cost less than those in unintegrated systems
By implementing ERP systems, companies can save money from the maintenance cost and
purchasing cost compared to the unintegrated systems. Company can also save the training
cost by eliminating the need for users to be trained on unintegrated systems.
2. ERP allows easier global integration
The company may have multiple subsidiaries in different country, it will be much easier to
integrate. Barriers of currency exchange rates, language, and culture can be bridged
automatically, so data can be integrated across international borders.
3. Integrates people and data while eliminating the need to update and repair many
separate computer systems
ERP is a single system that offer an interdepartmental database, where information funnels
through departments into one centralized location. A separate computer system will reduce,
so the repair cost can also be reduced.
4. Allows management to manage operations, not just monitor them
Management can set their own rules and tolerance. ERP system allow the manager to focus
on improving processes and makes the organization more adaptable when change is required.
5. Can dramatically reduce costs and improve operational efficiency
The company can buy a one big SAP system have lower cost than the company buy different
separate system. ERP allows the company efficiency manage business activities such as
demand forecasting and purchase order from customer.

Disadvantages of ERP
 1. Expensive to purchase.
The company needs to spend expensive license fees and installation costs. The company also
need to pay the consultants’ and analysts’ fees. The company even needs to spend money on
training managers and employees on implementation of new systems.
2. Time consuming to implement.
Implementation of new ERP systems normally will take few years. The company also need to
allocate time to learn the new ERP system post-implementation.
3. It requires significant employee training—but the payoffs can be spectacular.
Due to the systems complexity, the team must be training to adopt the software. Some
employees will learn faster, some will learn slower.

Tolerance groups
Tolerance groups, which are specific ranges that define transaction limits. SAP has defined
the tolerance group methodology as its method for placing limits on an employee,
configuration allows a company the flexibility to further tailor this methodology for other
uses. Tolerance could indicate a shortage or an overabundance in an order.
In addition, having a tolerance group can also prevent fraud. It is one of the ways to protect or
secure the business. If there is an over limit, then the staff need to get approval from upper
management. In contrast, if there is a under limit, then the staff need to take note on that.
Motivation to implement ERP
1. Replace legacy system (replace old system)
2. Simplify and standardize system
Before implement ERP, most of the companies have different system in different department.
By implementing ERP, a more standardize system can make the activities more consistent as
a result increase efficiency, lower costs and limit unnecessary variability.
3. Gain strategic advantage
Strategic advantage refer to how do you handle with customer, supplier. ERP systems allow
company clearly see what they have and what they need, and therefore, what promises they
can make to your customers. The easier access to extremely accurate and reliable data also
means that the company can react quickly to change and make informed, timely decisions.
4. Improve interactions with suppliers, customers
5. Ease of upgrading activities.
ERP is a single intergrade system, so the company only need to maintain it, it is easier to
update compare to the companies which have different system from different service
provider.
6. Link to global activities.
7. Restructure company organization
 8. Pressure to keep up with competitor

ERP GOALS
 The goal of an ERP system is to make the information flow dynamic and
immediate, therefore increasing its usefulness and value.
 Another goal of ERP is to integrate departments and functions across an
organization into a single infrastructure that serves the needs of each department.
 ERP systems replace an assortment of systems that typically existed in
organizations (accounting, HR, Materials Planning, Transaction Processing, etc.)
 ERP solves the critical problem of integrating information from different sources
and makes it available in real-time. (it is always up-to-date)

Tangible benefit with ERP (something that u can measure/calculate, can see the result)
1. Inventory reduction
2. Personnel reduction
3. Productivity improvement
4. Order management improvement
5. Financial close cycle reduction
6. IT cost reduction
7. Procurement cost reduction
8. Cash management improvement
9. Revenue/profit increase
10. Transportation/logistics cost reduction
11. Maintenance reduction
12. On-line delivery improvement

Intangible benefit with ERP

1. Informative/visibility
2. New/improved processes
3. Customer responsiveness
4. Integration
5. Standardization
6. Flexibility
7. Globalization
8. Business performance

Describe the distinguishing modular characteristics of ERP software.

• In 1982, SAP released its R/2 mainframe ERP software package because of sales grew
rapidly in 1980s. By 1988, SAP had established subsidiaries in numerous foreign
countries.
 • In 1988, SAP began development of its R/3 system to take advantage of client-server
technology. The first version of SAP R/3 released in1992. SAP R/3 system was
designed using an open architecture approach. The software could integrate a company's
entire business by using a common database that linked all operations, allowing real-
time data sharing and streamlined operations.
• SAP R/3, now latest version is called SAP ERP, is modular software offering modules
for Sales and Distribution, Materials Management, Production Planning, Quality
Management, and other areas. It allows All business areas to access the same database,
elimination of redundant data and communications lags, data to be entered once and
then used throughout the organization

Factors that led to the development of Enterprise Resource Planning (ERP) systems.
Three factors contributed to the development of ERP systems:
 Advancement of computer hardware and software
ERP systems is closely tied to the stunning development of computer hardware and software.
The first practical business computers were the mainframe computers of the 1960s . The
increasing accessibility of powerful computers has also shaped the ERP. The personal
computer (PC) allowed individuals more control over their computing, memory and
communications.
The advancement in computer software from 1970s where relational database software
developed. It can provide businesses the ability to store, retrieve, and analyse large volumes
of data. In 1980s, the spreadsheet software became popular. It is useful for managers easily
perform complex business analyses. By the mid-1980s, telecommunications developments
allowed users to share data and peripherals on local networks with Client-server architecture.
By the end of the 1980s, the hardware needed to support development of ERP systems was in
place. By the mid-1980s, database management system (DBMS) required to manage
development of complex ERP software existed. Manufacturing software developed during the
1960s and 1970s. It evolved from simple inventory-tracking systems to material requirements
planning (MRP) software and EDI also developed. Finally, in the late 1980s and the early of
1990 stimulus to ERP development because of the hard economic times. After that in the
2010s, cloud-based ERP developed.
 Development of a vision of integrated systems, and
ERP can integrate with other systems or software easily. Integrated systems make it easier for
companies to run their business processes more efficiently and effectively and gain more
profit. Integration of information system can produce more accurate data for top level
management to make decision. Integrated system when implemented will enable best
performance which is improved performance influence on financial and operational cost
reduction.
 Reengineering of companies to shift from a functional focus to a business process
focus.
Functional structures are act more independently and be less likely to interact with other
departments. A functional business orientation flows up and down like a pyramid, and each
department is managed separately. This structure could result in less shared communication
and less flexibility. So, it is reengineering of companies to shift from a functional focus to a
business process focus. In the business process different departments work together to
accomplish shared goals. It allows manufacturing, sales and other departments to collaborate
to find ways to optimize their processes. It is a is a collection of activities that take some
input and creates an output that is of value to the customer.