Concepts in Enterprise Resource Planning
Fourth Edition
Chapter One
Business Functions and Business Processes
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Concepts in Enterprise Resource Planning, Fourth Edition
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Objectives
After completing this chapter, you will be able to:
Name the main functional areas of operation used in business
Differentiate between a business process and a business function
Identify the kinds of data each main functional area produces
Identify the kinds of data each main functional area needs
Define integrated information systems, and explain why they are essential in todays globally competitive business environment
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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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
Concepts in Enterprise Resource Planning, Fourth Edition
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Functional Areas and Business Processes
To understand ERP, you must understand how a business works
Functional areas of operation
Business processes
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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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
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Figure 1-1 Examples of functional areas of operation and their business functions
Functional Areas of Operation (contd.)
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Functional Areas of Operation (contd.)
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
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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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 customers perspective
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Business Processes (contd.)
Figure 1-2 Sample business processes related to the sale of a personal smartphone
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Business Processes (contd.)
Businesses must always consider customers 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
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Business Processes (contd.)
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
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Business Processes (contd.)
Figure 1-3 A process view of business
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Business Processes (contd.)
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
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Functional Areas and Business Processes of a Very Small Business
Example: A fictitious coffee shop
Examine business processes of the coffee shop
See why coordination of functional areas helps achieve efficient and effective business processes
Look at how integration of the information system improves the business
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Marketing and Sales
Functions of Marketing and Sales
Developing products
Determining pricing
Promoting products to customers
Taking customers orders
Helping create a sales forecast
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Marketing and Sales (contd.)
Marketing and Sales tasks for the coffee shop
Formal recordkeeping not required
Need to keep track of customers
Product development can be done informally
Good repeat customers allowed to charge purchasesup to a point
Records must show how much each customer owes and his or her available credit
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Supply Chain Management
Functions within Supply Chain Management
Making the coffee (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
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Supply Chain Management (contd.)
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 recipe for each coffee product sold
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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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 sales, manufacturing and other operations, without any manipulation, calculation, or arrangement for presentation
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Accounting and Finance (contd.)
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 coffee shop
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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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
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Functional Area Information Systems
Potential inputs and outputs for each functional area described next
Note the kinds of data needed by each area and how people use the data
Information systems maintain relationships between all functional areas and processes
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Marketing and Sales
Needs information from all other functional areas
Customers communicate orders to M/S in person or by telephone, e-mail, fax, the Web, etc.
M/S has a role in determining product prices
Pricing might be determined based on a products unit cost, plus some percentage markup
Requires information from Accounting and Finance, and Supply Chain Management data
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Marketing and Sales (contd.)
Figure 1-4 The Marketing and Sales functional area exchanges data with customers and with the Human Resources, Accounting and Finance, and Supply Chain Management functional areas
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Marketing and Sales (contd.)
M/S needs to interact with Human Resources to exchange information on hiring needs, legal requirements, etc.
Inputs for M/S
Customer data
Order data
Sales trend data
Per-unit cost
Company travel expense policy
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Marketing and Sales (contd.)
Outputs for M/S
Sales strategies
Product pricing
Employment needs
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Supply Chain Management
Needs information from various functional areas
Production plans based on information about product sales (actual and projected) that comes from Marketing and Sales
With accurate data about required production levels:
Raw material and packaging can be ordered as needed
Inventory levels can be kept low, saving money
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Supply Chain Management (contd.)
Supply Chain Management data and records can:
Provide data needed by Accounting and Finance to determine how much of each resource was used
Support the M/S function by providing information about what has been produced and shipped
Supply Chain Management interacts in some ways with Human Resources
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Supply Chain Management (contd.)
Figure 1-5 The Supply Chain Management functional area exchanges data with suppliers and with the Human Resources, Marketing and Sales, and Accounting and Finance functional areas
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Supply Chain Management (contd.)
Inputs for SCM
Product sales data
Production plans
Inventory levels
Layoff and recall company policy
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Supply Chain Management (contd.)
Outputs for SCM
Raw material orders
Packaging orders
Resource expenditure data
Production and inventory reports
Hiring information
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Accounting and Finance
Needs information from all other functional areas
A/F personnel:
Record companys transactions in the books of account
Record accounts payable when raw materials are purchased and cash outflows when they pay for materials
Summarize transaction data to prepare reports about companys financial position and profitability
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Accounting and Finance (contd.)
People in other functional areas provide data to A/F
M/S provides sales data
SCM provides production and inventory data
HR provides payroll and benefit expense data
M/S personnel require data from A/F to evaluate customer credit
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Accounting and Finance (contd.)
Figure 1-6 The Accounting and Finance functional area exchanges data with customers and with the Human Resources, Marketing and Sales, and Supply Chain Management functional areas
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Accounting and Finance (contd.)
Inputs for A/F
Payments from customers
Accounts receivable data
Accounts payable data
Sales data
Production and inventory data
Payroll and expense data
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Accounting and Finance (contd.)
Outputs for A/F
Payments to suppliers
Financial reports
Customer credit data
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Human Resources
HR needs information from the other departments
Tasks related to employee hiring, benefits, training, and government compliance are all responsibilities of HR
HR needs accurate forecasts of personnel needs from all functional units
HR needs to know what skills are needed to perform a particular job and how much the company can afford to pay employees
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Human Resources (contd.)
Figure 1-7 The Human Resources functional area exchanges data with the Accounting and Finance, Marketing and Sales, and Supply Chain Management functional areas
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Human Resources (contd.)
Observing governmental regulations in recruiting, training, compensating, promoting, and terminating employees
Inputs for HR
Personnel forecasts
Skills data
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Human Resources (contd.)
Outputs for HR
Regulation compliance
Employee training and certification
Skills database
Employee evaluation and compensation
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Human Resources (contd.)
Significant amount of data is maintained by and shared among the functional areas
Timeliness and accuracy of these data critical to each areas success and to companys ability to make a profit and generate future growth
ERP software allows all functional areas to share a common database
Allows accurate, real-time information to be available
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Summary
Basic functional areas: Marketing and Sales, Supply Chain Management, Accounting and Finance, and Human Resources
Marketing and Sales: 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
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Summary (contd.)
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
Information systems capture, process, and store data to provide information needed for decision making
Concepts in Enterprise Resource Planning, Fourth Edition
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Concepts in Enterprise Resource Planning, Fourth Edition
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Summary (contd.)
Employees working in one functional area need data from employees in other functional areas
Functional area information systems should be integrated, so shared data are accurate and timely
Managers think in terms of business processes that integrate the functional areas
Need to share information between functions and functional areas
ERP software provides this capability by means of a single common database
Concepts in Enterprise Resource Planning, Fourth Edition
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