Concepts in Enterprise Resource Planning

Fourth 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 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
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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

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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

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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 (contd.)

Figure 1-1 Examples of functional areas of operation and their business functions
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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

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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

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Business Processes (contd.)

Figure 1-2 Sample business processes related to the sale of a personal smartphone

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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

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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

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Business Processes (contd.)

Figure 1-3 A process view of business

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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

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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

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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

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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

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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

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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

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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

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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

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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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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

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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

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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
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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

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Marketing and Sales (contd.)

Outputs for M/S
Sales strategies Product pricing Employment needs

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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

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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

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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
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Supply Chain Management (contd.)

Inputs for SCM
Product sales data Production plans Inventory levels Layoff and recall company policy

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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

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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

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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

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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
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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

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Accounting and Finance (contd.)

Outputs for A/F
Payments to suppliers Financial reports Customer credit data

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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

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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
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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

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Human Resources (contd.)

Outputs for HR
Regulation compliance Employee training and certification Skills database Employee evaluation and compensation

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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

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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
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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
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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
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