What Is ERP? Introduction To SAP ERP Software & SAP ERP Modules

This SAP ERP Tutorial Explains What is an ERP System, ERP Modules & Advantages of ERP. It also Covers Features, Architecture & Components of SAP ERP System:

What Is ERP Software?

ERP stands for Enterprise Resource Planning (ERP). ERP is a software application that integrates multiple functional departments of a business.

ERP uses techniques and concepts of integrated management and enables effective management of business processes, operations, and resources. ERP implementation improves efficiency in the overall organizational operation.

SAP and ERP

ERP System – A Complete Introduction

An ERP system uses multiple components of the computer software and hardware to create an integrated management system. A key ingredient of most ERP systems is the use of a single, unified database to store data for various system modules or processes.

Examples of ERP include SAP, PeopleSoft, Oracle E-Business Suite, BAAN, etc.

Why Do Businesses Need An ERP Software?

Until recently most of the companies had an un-integrated organizational operation. Un-integrated systems support the operations of a single functional area only. Thus, a company would have stand-alone systems to manage production, sales, and supply chain, each with its own hardware, software, and methods of processing data and information.

For Example, the purchasing department gave purchase orders without having up-to-date information on the available stock.

However, to survive in today’s competitive market, companies need to have an integrated system, which would enable decision making based on real-time information.


Recommended Tool

#1) Oracle NetSuite

Oracle NetSuite Logo

Oracle NetSuite has an ERP solution that can streamline mission-critical processes. It has features and functionalities that will give you clear visibility and control over the business, from financials to supply chain management to billing & beyond. You can get Oracle NetSuite Free Product Tour.

Features

  • Oracle NetSuite provides robust financial management with built-in business intelligence.
  • It offers intuitive planning, budgeting, and forecasting solution.
  • It provides the features of Order Management that will accelerate the order-to-cash process.
  • It provides the features for Production Management, Supply Chain Management, Warehouse & Fulfillment, and Procurement.

An ERP System

  • Considers the entire organization as a system and the departments as the sub-systems.
  • Stores all organizational information centrally, so as to make it available to all the departments.
  • Maintains transparency across all the departments by ensuring that the company moves towards a common goal.

ERP System

Recommended Reading = >> 12 Best MRP Software Solutions

Conventional Packages Vs ERP

Enlisted below are some of the differences between conventional packages and ERP.

FeaturesConventional PackagesERP
Business ProcessCan handle individual process of the organization.Can handle the entire business process of the organization.
DatabaseEach process has its own database and is not connected with each other.Centralized database system that can be accessed across the processes.
Multitasking
Multi-lingual
Multi-Capacity
Not AvailableProvides all the three features.
Ability to AdaptNoneCan adapt version upgrade with minimal customization.

Enterprise Resource Planning (ERP) Modules

Given below are the common & basic modules of ERP that can be found in any ERP System. Depending on the needs of the organization the required components are integrated & a customized ERP system is formed.

All the below-mentioned modules can be found in any ERP system:

  • Human Resource
  • Inventory
  • Sales & Marketing
  • Purchase
  • Finance & Accounting
  • Customer Relationship Management(CRM)
  • Engineering/ Production
  • Supply Chain Management (SCM)

ERP System Modules

Each component mentioned above is specialized to handle a defined business process of the organization.

Commonly Used ERP Software

  • Microsoft Dynamics AX
  • SAP-ERP
  • Oracle E-Business Suite
  • Sage
  • ERP Next
  • SAP S/4 HANA
  • ERP 5

Recommended Reading =>> Best ERP Software Tools

Advantages Of ERP Software

ERP system provides several business benefits to the customers. A couple of major business advantages are listed below.

Implementation of ERP helps the organization to:

  1. Improve business performance by:
    • Working towards common organizational goals.
    • Reducing business process cycle time.
    • Increasing operational and business agility.
    • Achieving key performance indicators.
  2. Improve business growth requirements by providing new:
    • Products
    • Product lines
    • Customers
  3. Improve responsiveness across the organization by providing flexible, integrated, and real-time decision support.
  4. Perform business in multiple languages and currencies by providing multi-location functionality.
  5. Eliminate limitation in legacy systems, such as:
    • Century dating issues
    • Fragmentation of data and processing.
    • In-flexibility to change.
    • In-supportable technologies.
  6. Take advantage of untapped mid-market and increased functionality at a reasonable cost, like:
    • Client-server, as an open system technology.
    • Vertical market solutions.
  7. Stay at par with the global technology trends by adapting to the latest technologies in the Information Technology (IT) industry.

Implementation of ERP helps the Top Management to:

  • Perform medium-term business planning.
  • Enable change management.
  • Monitor company resources.
  • Identify trends and patterns.
  • Identify constraints and bottlenecks.

Implementation of ERP helps the users by:

  • Providing one-time data entry at the point of origin.
  • Providing automation of routine clerical activities.
  • Providing optimization across departments.
  • Enabling them to do short term business planning.

Introduction To SAP ERP System

Systems Applications and Product in data processing usually referred to as SAP, is the most popular ERP software in the world.

It was started in 1972 by five IBMers with the objective of providing software for the core functions of an organization. In 1973, the company brought out the first financial accounting software called R1. The letter R was used for Real-Time Processing.

Towards the end of the 1970s, SAP R/2 was rolled out with IBM’s database and a dialog-oriented business application. In the early eighties, the R/2 was enhanced with the capabilities of processing business transactions in multi-language, and multi-currency to meet its international clientele.

SAP R/3 was introduced in the ’90s with the Client-Server architecture and a GUI that would run on almost any of the databases and on most of the operating systems. It denotes the beginning of a new era in enterprise computing with the movement from mainframe to 3-tier architecture.

Towards the end of the ’90s, the e-commerce enabled mySAP suite of products was introduced for leveraging the ever-expanding web technology. The latest addition to SAP technology is the SAP NetWeaver based on Enterprise Services Architecture (ESS) with application integration across diverse platforms for providing a one-stop end-to-end business processing.

* The letter “R” was for “Real-time data processing: Real-Time Processing means that actions are immediately executed in the system and have an immediate effect on the processes concerned.

SAP Features

SAP’s software had the following three features from the outset:

#1) Real-Time Processing: The Processing was supposed to be made in real-time i.e. the input is immediately available in the entire system.

#2) Standard Software: The software was supposed to be standardized to a large extent. In other words, every enterprise obtains the same software, which is then customized based on the need.

#3) Integrations: The various modules or components are supposed to be integrated i.e. the data from one application is also available to the other applications. For Example, the settlement for a completed procurement process (the Materials Management(MM) component in SAP) is implemented in financial accounting (the Financial Accounting(FI) component in SAP). In this process, the relevant departments use the documents that were created or stored in the SAP system during the operation.

SAP Methodology

SAP uses Accelerated SAP (ASAP) methodology for faster and cost-effective implementation of SAP projects.

ASAP helps to:

  • Reduce the implementation time.
  • Achieve quality implementations.
  • Make effective and efficient use of the project resources.

ASAP uses ASAP Roadmap, tools, and SAP services & training to effectively implement SAP projects. ASAP roadmap provides a concise project plan with different phases of the project lifecycle.

SAP Methodology

#1) Project Preparation

It consists of activities like:

  • Preparation of the initial scope.
  • High-level timelines and plans.
  • Project charter
  • Identification of team members and project kick-off.

#2) Business Blueprint

It includes activities like:

  • Business requirement gathering workshops.
  • Understanding existing business processes.
  • Documenting business requirements and goals.
  • Outlining the scope of the project and getting a sign-off.

#3) Realization

In this phase, the implementation team breaks down the business processes identified in Phase 2 and configures it with the SAP system.

#4) Final Preparation

It includes activities like:

  • End to end testing of the configured system.
  • Training of the end-users.
  • System management activities.
  • Cutover activities.

#5) Go-live and Support: In this phase, the system is released for the day to day business transactions. All the issues faced by the users are resolved by the support team.

Advantages Of SAP ERP System

Enlisted below are some of the advantages of SAP.

  1. There is no redundancy of data, due to the centralized database.
  2. Business processes are standardized.
  3. Planning, scheduling, management, and tracking have become an easier task in SAP as SAP uses Accelerated SAP (ASAP) methodology.
  4. Flexible reporting and monitoring projects have been automated.
  5. Customization and Version upgrade is easy in SAP. Hence it is a cost-effective solution for the industry.

Architecture Of SAP R/3

Architecture of SAP R3

SAP R/3 Architecture has been developed on 3-tier client-server architecture which has been made up of below three layers of data flow:

  • Presentation Layer
  • Application Layer
  • Database layer

#1) Presentation Layer

The presentation layer comprises the user interface that enables you to interact with the SAP R/3 application.

This layer passes the user input to the SAP R/3 system and displays the output. For example, you can specify the product details and view a Stock Overview report for the specified product using the graphical interface of the presentation layer.

The presentation layer provides two types of user interfaces.

SAP GUI: SAP GUI is an interactive graphical user interface that provides faster access than SAP GUI for HTML.

SAP GUI for HTML: SAP GUI for HTML is an interactive graphical interface that uses a web browser to access the SAP R/3 system.

#2) Application Layer

The application layer in SAP R/3 consists of two main components: work processes and dispatcher.

A work process is a program that performs a specific task. To perform any logical operation on data, the application layer uses a set of work processes.

The dispatcher manages the work processes. It receives user requests from SAP GUI and stores them in a request queue. The dispatcher checks the availability of work processes and assigns the tasks to the available work processes for execution.

When a task is completed, the dispatcher passes the result to the presentation layer for display.

A group of work processes controlled by a single dispatcher, using a common memory area, and accessing the same database is called an instance.

#3) Database Layer

The database layer stores system data and the new data that users input using the SAP GUI, and provides this data to the application layer for processing.

The database layer contains the database and a Relational Database Management System (RDBMS). The database stores the data. The RDBMS helps the application layer interact with the database.

SAP R/3 contains buffers in the shared memory of the application servers. Data that the application servers require frequently, is retrieved from the database and stored in buffers.

When the application server requires the same data again, it accesses the data from the buffers instead of retrieving it again from the database. This improves the processing speed of the application servers and the performance of the SAP R/3 system.

SAP Business Suite

SAP Business suite is SAP’s core product and consists of various solutions. You can purchase (or License) these solutions individually or as a complete package.

The SAP Business Suite consists of the following ERP Modules:

  • SAP ECC
  • SAP Customer Relationship Management (SAP CRM)
  • SAP Supplier Relationship Management (SAP SRM)
  • SAP Product Lifecycle Management (SAP PLM)
  • SAP Supply Chain Management (SAP SCM)

SAP ERP Modules

SAP NetWeaver is the technical basis for these products.

#1) SAP ECC

SAP ECC forms the core component of the SAP Business Suite. We can use SAP ECC to map the operative and administrative business processes across departments.

SAP ECC contains the following applications:

  • Accounting (SAP Financials).
  • Human Resources (SAP Human Capital Management).
  • Logistics (SAP Operations and SAP Corporate Services).

Within these applications, we can find the components (Formerly known as modules).

The following table shows some of the components.

ApplicationFunctionComponent (Acronym)
AccountingFinancial AccountingFI
ControllingCO
Financial Supply Chain ManagementFSCM
TreasuryTR
Project SystemPS
Human resources(HCM)Personnel AdministrationPA
RecruitmentPR
Personnel Planning and DevelopmentPD
PayrollPY
Time ManagementPT
Organizational ManagementOM
Travel ManagementTM
LogisticsPurchasingMM
Production Planning and ControlPP
Sales and DistributionSD
Customer ServiceCS
Warehouse ManagementWM
Quality ManagementQM
Real Estate ManagementRE
Plant MaintenanceEAM (PM)

The following figure shows the GUI of the SAP system directly after login, here we can clearly identify the enterprise areas covered by SAP ECC.

GUI of the SAP system

#2) SAP Customer Relationship Management (CRM)

This provides more details on Customer Relationship management with respect to SAP.

SAP CRM supports all phases in which the employees of business communicate and contact customers.

  • Marketing
  • Sales
  • Service

SAP CRM can also be used for scheduling and resource control. Reporting and analytical functions increase in importance. These functions are required to gain insight into customer behavior which can then be used for future promotions.

Mobile Applications in the CRM Area: CRM applications have been increasingly used in the last few years on mobile devices such as Blackberry or Apple iPhone.

#3) SAP Supplier Relationship Management (SRM)

The Purpose of SRM is to optimize business relationships with existing and potential suppliers. It strategically plans and controls relationships with these suppliers by integrating them closely with the purchasing process.

SAP SRM supports Contract and Supplier Management, Supplier selection, Supplier qualification, Purchase order, Source determination, Creation of invoice and Credit Memos.

#4) SAP Product Lifecycle Management (PLM)

SAP PLM supports the lifecycle of the product, from the initial product idea to drafts and alignment of production to the customer service. SAP PLM consists of all the functions associated with these tasks such as the management of plants, equipment, and product documentation

SAP PLM is frequently used in the automotive industry.

#5) SAP Supply Chain Management (SCM)

SAP SCM includes functions for the entire supply chain from the supplier to the customer which include Warehouse Management, Transportation Management, Tracking of the logistics process, Supplier collaboration and Planning and Optimization of the supply chain.

Industry Solutions

Besides the standard solutions, SAP also offers solutions for different industries. Industry solutions combine standard processes with specific requirements and functions. SAP offers packages for the following areas, among others:

  • Manufacturing Industry
    • SAP for Automotive
    • SAP for Aerospace
  • Processing Industry
    • SAP for Oil and Gas
    • SAP for Chemicals
  • Financial Service Provider and public administration
    • SAP for Banking
    • SAP for Health care
    • Sap for Defense and Security
  • Service Industry
    • SAP for utilities
    • SAP for Retail
    • SAP for Consumer Products

Case Study

Background: A large insurance company is facing a challenge in integrating its five different HCM platforms and solutions.

They had challenges with respect to:

  • Poor Data Quality
  • The high cost of maintenance
  • Low Transparency

The company was looking for a solution that will help them to integrate and standardize the HR process for its 15000 employees.

Solution: As a solution, the company decided to implement SAP ERP to enable the global HR process.

Benefit:

Implementation of SAP helped the company to:

  • Improve data accuracy.
  • Improve the Transparency to HR to function more efficiently.
  • Common Process for HR management.
  • Reduced cost by streamlined HR operations.

Conclusion

This tutorial explained the basics of ERP and SAP ERP framework, SAP R/3, What it is? What does it do? and Why does it works?

At the onset, this tutorial introduced the readers to SAP, its looks and structure of SAP along with its integration with different modules that provide a complete solution to the organization.

Before you use the power of SAP, you should understand how to interact with SAP effectively and confidently. Our upcoming tutorial will cover SAP Navigation and GUI.

Also Read => 12 Top Enterprise Software Solutions

Stay tuned for more informative SAP tutorials!!