Skimming : Concepts in Enterprise Resource Planning

Concepts in Enterprise Resource Planning

Business Functions and Business Processes

• Most companies have four main functional areas of operation: Marketing and Sales (M/S), Supply Chain Management (SCM), Accounting and Finance (A/F), and Human Resources (HR). (p.2)
• Recently, managers have begun to think in terms of business processes rather than business functions. Recall that a business process is a collection of activities that takes one or more kinds of input and creates an output that is of value to the customer. ... Thinking in terms of business processes helps managers to look at their organization from the customer’s perspective. (p.3)
• Sharing data effectively and efficiently between and within functional areas leads to more efficient business processes. Information systems can be designed so that functional areas share data. These systems are called integrated information systems. (p.4)

The Development of Enterprise Resource Planning Systems

• Current ERP systems evolved as a result of three things (1) the advancement of hardware and software technology (computing power, memory, and communications) needed to support the system, (2) the development of a vision of integrated information systems, and (3) the reengineering of companies to shift from a functional focus to a business process focus. (p.19)
• The concept of an integrated information system took shape on the factory floor. Manufacturing software developed during the 1960s and 1970s, evolving from simple inventory- tracking systems to material requirements planning (MRP) software. (p.20)
• The functional business model illustrates the concept of silos of information, which limit the exchange of information between the lower operating levels. (p.22)
• In a process-oriented company, the flow of information and management activity is “horizontal” across functions, in line with the flow of materials and products. This horizontal flow promotes flexibility and rapid decision making. (p.23)
• Any large software implementation is challenging—and ERP systems are no exception. There are countless examples of large implementations failing, and it’s easy to understand why. Many different departments are involved, as are many users of the system, programmers, systems analysts, and other personnel. Without top management commitment, large projects are doomed to fail. (p.30)
• ERP packages imply, by their design, a certain way of doing business, and they require users to follow that way of doing business. Some of a business’s operations, and some segments of its operations, might not be a good match with the constraints inherent in ERP. Therefore, it is imperative for a business to analyze its own business strategy, organization, culture, and operation before choosing an ERP approach. (p.34)
• Sometimes, a company is not ready for ERP. In many cases, ERP implementation difficulties result when management does not fully understand its current business processes and cannot make implementation decisions in a timely manner. (p.35)
• Usually, a bumpy rollout and low ROI are caused by people problems and misguided expectations, not computer malfunctions. ... Many ERP implementation experts stress the importance of proper education and training for both employees and managers. Most people will naturally resist changing the way they do their jobs. Many analysts have noted that active top management support is crucial for successful acceptance and implementation of such company-wide changes. (p.37)

Marketing Information Systems and Sales Order Process

• When customers place an order, they usually ask for a delivery date. To get a shipping date, the in-office clerk must contact the warehouse supervisor and ask whether the customer’s order can be shipped from inventory, or whether shipping will be delayed until a future production run is delivered to the warehouse. (p.51)
• Next, the clerk checks the customer’s credit status. ... The form goes to Accounting, where accountants perform the credit check and then return the credit-check form showing the customer’s credit limit. (p.51)
• The program adjusts inventory level figures on a daily basis, using production records (showing what has been added to the warehouse), packing lists (showing what has been shipped from the warehouse), and any additional sources of data (such as shipping cases that have been opened to pull display boxes). Each month the warehouse staff conducts a physical inventory count to compare the actual inventory on hand with what the inventory records in the PC database show. (p.52)
• In other situations, the customer may want a partial shipment consisting of whatever is on hand, with the rest shipped when it becomes available, which is known as a backorder. Or, the customer might prefer to take the goods on hand, cancel the balance of the order, and place a new order later. (p.52)
• The Accounting department loads the data into the PC-based accounting program; then, clerks manually make adjustments for partial shipments and any other changes that have occurred during the order process. (p.53)
• When the SAP ERP system is instructed to save a sales order, it performs inventory sourcing—that is, it carries out checks to ensure that the customer’s sales order can be delivered on the requested delivery date.
• When the sales order is ready to be processed by the warehouse, a delivery document will be created with its own unique document number, which the system will link to the sales order document. Finally, when the bill (invoice) is prepared for the customer, the bill’s unique number (called the invoice number) will be created and related to all the other numbers associated with the sales order. (p.61)
• With the goal of providing “a single face to the customer,” the basic principle behind CRM is that any employee in contact with the customer should have access to all information about past interactions with the customer. (p.65)

Production and Supply Chain Management Information System

• The goal of production planning is to schedule production economically, so that the company can ship goods to customers by the promised delivery dates in the most cost- efficient manner. (p.78)
• Production planners are employees who interact with the inventory system and the sales forecast to figure out how much to produce. They follow three important principles:
  • Work from a sales forecast and current inventory levels to create an “aggregate” (“combined”) production plan for all products. Aggregate production plans help to simplify the planning process in two ways: First, plans are made for groups of related products rather than for individual products. Second, the time increment used in planning is frequently a month or a quarter, while the production plans that will actually be executed operate on a daily or weekly basis. Aggregate plans should consider the available capacity in the facility.
  • Break down the aggregate plan into more specific production plans for individual products and smaller time intervals.
  • Use the production plan to determine raw material requirements.
    (p.82)
• One simple forecasting technique is to use a prior period’s sales and then adjust those figures for current conditions. (p.85)
• A sales and operations plan is developed from a sales forecast and determines how Manufacturing can efficiently produce enough goods to meet projected sales. (p.86)
• The demand management step of the production planning process links the sales and operations planning process with the detailed scheduling and materials requirements planning processes. The output of the demand management process is the master produc-tion schedule (MPS), which is the production plan for all finished goods. (p.95)
• Materials requirements planning (MRP) is the process that determines the required quantity and timing of the production or purchase of subassemblies and raw materials needed to support the MPS. The MRP process answers the questions, “What quantities of raw materials should we order so we can meet that level of production?” and “When should these materials be ordered?” (p.96)
• A key decision in detailed production scheduling is how long to make the production runs for each product. Longer production runs mean that fewer machine setups are required, reducing the production costs and increasing the effective capacity of the equipment. On the other hand, shorter production runs can be used to lower the inventory levels for finished products. Thus, the production run length requires a balance between setup costs and holding costs to minimize total costs to the company. (p.104)

Accounting in ERP Systems

• Accounting activities can generally be classified as either financial accounting or managerial accounting. (p.118)
• Common financial statements include balance sheets and income statements. A balance sheet is a good overview of a company’s financial health at a point in time . The income statement, or profit and loss (P&L) statement, shows the company’s sales, cost of sales, and the profit or loss for a period of time (typically a quarter or year). (p.119)
• Managerial accounting deals with determining the costs and profitability of the company’s activities. While the information in a company’s balance sheet and income statement shows whether a firm is making an overall profit, the goal of managerial accounting is to provide managers with detailed information that allows them to determine the profitability of a particular product, sales region, or marketing campaign. (p.120)
• A manufactured item’s cost has three elements: the cost of raw materials, the cost of labor employed directly in the production of the item, and all other costs, which are commonly called overhead. Overhead costs include factory utilities, general factory labor (such as custodians or security guards), managers’ salaries, storage, insurance, and other manufacturing-related costs. (p.128)
• Materials and labor are often called direct costs because the constituent amounts of each in a finished product can be estimated fairly accurately. On the other hand, the overhead items, called indirect costs, are difficult to associate with a specific product or a batch of specific products. In other words, the cause-and-effect relationship between an overhead cost (such as the cost of heat and light) and making a particular product (NRG-A bars) is difficult to establish. (p.128)
• Standard costs for a product are established by studying historical direct and indirect cost patterns in a company and taking into account the effects of current manufacturing changes. At the end of an accounting period, if actual costs differ from standard costs, adjustments to the accounts must be made to show the cost of inventory owned on the balance sheet and the cost of inventory sold on the income statement. (p.129)
• The differences between actual costs and standard costs are called cost variances. Note that cost variances arise with both direct and indirect costs. These variances are calculated by comparing actual expenses for material, labor, utili-ties, rent, and so on, with predicted standard costs. (p.129)
• A trend in inventory cost accounting is toward activity-based costing (ABC). In ABC, accountants identify activities associated with overhead cost generation, and then keep records on the costs and on the activities. The activities are viewed as causes (drivers) of the overhead costs (p.132)

ERP and Electronic Commerce

• When a company receives an order through its Web site, the company should not merely file or print orders for later handling. The orders should be efficiently fed into the company’s marketing, manufacturing, shipping, and accounting systems—a series of steps sometimes called back-office processing. (p.215)
• Recent studies on back-office systems concluded that an attractive Web site does not provide enough benefit on its own for an e-commerce business to stay afloat. The conventional back-office systems must be in place and operating correctly for the business to flourish. As with any kind of business, effective infrastructure is key for e-commerce success. (p.216)