Concepts in Enterprise

Resource Planning
Third 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

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History of Information Systems Within
Organizations
 Functional Systems
• Functional systems facilitated the work of a single
department or function.
• These systems grew as a natural expansion of the
capabilities of systems of the first era.
– Payroll expanded to become human resources.
– General ledger became financial reporting.
– Inventory was merged into operations or
manufacturing.
• These new functional areas added features and functions
to encompass more activities and to provide more value
and assistance.
• Functional applications are sometimes called islands of
automation.
 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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 Competitive Strategy and Value Chains
• When Michael Porter wrote the now-classic Competitive
Advantage in the mid-1980’s his ideas laid the groundwork
for solving the problems of isolated information systems.
• Porter defined and described value chains, which are
networks of business activity that exist within an
organization.
• Porter also developed a model of competitive strategies
that helps organizations choose which information systems
to develop.
 The Value Chain
• Value in the Porter model is the total revenue that a customer is
willing to spend for a product or service.
• Value is stressed rather than cost because an organization that
has a differentiation strategy may intentionally raise costs in order
to create value.
• Margin is the difference between cost and value.
 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 lemonade stand
– 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 ratio of the products required
– 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

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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 receipt 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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