SAP – The Basic Series

Who and / or what is SAP? How popular is it? Wow!

SAP the company was founded in Germany in 1972 by five ex-IBM engineers. In case you’re
ever asked, SAP stands for Systeme, Andwendungen, Produkte in der Datenverarbeitung which
– translated to English – means Systems, Applications, Products in Data Processing. So now you
know! Being incorporated in Germany, the full name of the parent company is SAP AG. It is
located in Walldorf, Germany which is close to the beautiful town of Heidelberg. SAP has
subsidiaries in over 50 countries around the world from Argentina to Venezuela (and pretty
much everything in between). SAP America (with responsibility for North America, South
America and Australia – go figure!) is located just outside Philadelphia, PA.

The original five founders have been so successful that they have multiplied many times over
such that SAP AG is now the third largest software maker in the world, with over 17,500
customers (including more than half of the world’s 500 top companies). SAP employs over
27,000 people worldwide today, and had revenues of $7.34 billion and Net Income of $581
million in FY01. SAP is listed in Germany (where it is one of the 30 stocks which make up the
DAX) and on the NYSE (ticker: SAP).

There are now 44,500 installations of SAP, in 120 countries, with more then 10 million users!

So what made this company so successful? Back in 1979 SAP released SAP R/2 (which runs on
mainframes) into the German market. SAP R/2 was the first integrated, enterprise wide package
and was an immediate success. For years SAP stayed within the German borders until it had
penetrated practically every large German company. Looking for more growth, SAP expanded
into the remainder of Europe during the 80’s. Towards the end of the 80’s, client-server
architecture became popular and SAP responded with the release of SAP R/3 (in 1992). This
turned out to be a killer app for SAP, especially in the North American region into which SAP
expanded in 1988.

The success of SAP R/3 in North America has been nothing short of stunning. Within a 5 year
period, the North American market went from virtually zero to 44% of total SAP worldwide
sales. SAP America alone employs more than 3,000 people and has added the names of many of
the Fortune 500 to it’s customer list (8 of the top 10 semiconductor companies, 7 of the top 10
pharmaceutical companies etc). SAP today is available in 46 country-specific versions,
incorporating 28 languages including Kanji and other double-byte character languages. SAP also
comes in 21 industry-specific versions.

SAP R/3 is delivered to a customer with selected standard process turned on, and many many
other optional processes and features turned off. At the heart of SAP R/3 are about 10,000 tables
which control the way the processes are executed. Configuration is the process of adjusting the
settings of these tables to get SAP to run the way you want it to. Think of a radio with 10,000
dials to tune and you’ll get the picture. Functionality included is truly enterprise wide including:
Financial Accounting (e.g. general ledger, accounts receivable etc), Management Accounting
(e.g. cost centers, profitability analysis etc), Sales, Distribution, Manufacturing, Production
Planning, Purchasing, Human Resources, Payroll etc etc etc. For a full description of the
modules included in SAP, see the related articles. All of these modules are tightly integrated
which – as you will find out – is a huge blessing … but brings with it special challenges.

SAP are maintaining and increasing their dominance over their competitors through a
combination of
- embracing the internet with mySAP.com (a confusing name we believe) to head off i2 etc
- extending their solutions with CRM to head off Siebel
- adding functionality to their industry solutions

Who is it made for? Why might I need it?

We have all heard about the large (and very large) companies who have implemented (or are still
busy implementing) SAP R/3. But SAP is gaining acceptance by smaller companies too.

There are many reasons a company selects and implements SAP – some are good and some are
bad. The good ones include replacing an out-dated and inefficient IT Architecture (including the
CIO’s nemesis … the burning platform), enabling business process change, and to gain
competitive advantage. The bad ones are too numerous to go into here but would include the
“why are we the only semiconductor company without SAP” question. More on the good reasons
follows:

1. Replacing an out-dated and inefficient IT Architecture: In the beginning, computer systems

were developed by individual departments to satisfy the requirements of that particular
department. When someone finally realized that benefits could be had by linking these systems
together, interface heaven was born. There are some companies today with literally thousands of
interfaces, each of which needs to be maintained (assuming of course that there is someone
around who understands how they work!). Sweeping them away and replacing them with an
integrated system such as SAP can save much money in support. Of course, if you have a
burning platform as well the question becomes even easier.

2. Enabling business process change – From the start, SAP was built on a foundation of process
best practices. Although it sounds absurd, it is probably easier (and less expensive) to change
your companies processes to adapt to SAP than the other way around. Many companies have
reported good success from combining a SAP implementation with a BPR project.

3. Competitive advantage – The CFO types around have heard this old saying from the CIO
types for many years now. The question still has to be asked … can you gain competitive
advantage from implementing SAP? The answer, of course, depends on the company. It seems to
us, however, that:

• being able to accurately provide delivery promise dates for manufactured products (and meet
them) doesn’t hurt … and
• being able to consolidate purchase decisions from around the globe and use that leverage when
negotiating with vendors has got to help … and
• being able to place kiosks in stores where individual customers can enter their product
specifications and then feed this data directly into it’s production planning process is pretty neat
• etc etc

How much does it cost? What will it take to implement it? Wow!
There is a defining moment in the journey of all companies on the road to SAP nirvana. This
moment comes just after the company has concluded that it want’s SAP, it needs SAP, it’s gotta
have SAP … then comes the question ‘so what does it take to implement it’?

Before being accused of being too negative, let me remind you that at the heart of every good
business decision lies a cost benefit analysis. If this cannot be complete with a positive outcome,
the initiative (whatever it is) should probably not be launched. Same goes for a SAP
implementation.

Implementing SAP is expensive. No doubt about it. But the potential rewards can dwarf the costs
(and have for many existing customers already). One customer reportedly made enough savings
on the procurement of a single raw material to pay for the entire enterprise-wide SAP
implementation! Of course these are hard to substantiate, but visit SAP’s website and take a look
at the customer testimonials.

SAP sells it’s R/3 product on a ‘price per user basis’. The actual price is negotiated between SAP
and the customer and therefore depends on numerous factors which include number of users and
modules (and other factors which are present in any negotiation). You should check with SAP,
but for a ballpark planning number you could do worse than starting with $4000 per user. There
is also an annual support cost of about 10% which includes periodic upgrades. Again, check with
SAP.

Then there is the implementation cost. Yowser. It is about now that you need to get the business
case out again and remind yourself why you need to do this. The major drivers of the total
implementation cost are the Timeframe, Resource Requirements and Hardware.

Timeframe – The absolute quickest implementation we have ever heard of is 45 days … but this
was for a tiny company with very few users and no changes to the delivered SAP processes. At
the other end of the scale you get the multi-nationals who are implementing SAP over 5 to 10
years. These are not necessarily failures … many of them are planned as successive global
deployments (which seem to roll around the globe forever). Of course the really expensive ones
are those we don’t hear about! For the most part, you should be able to get your (single instance)
project completed in a 9 to 18 month period.
People – The smallest of SAP implementations can get done on a part-time basis without outside
help. The largest swallow up hundreds of people (sometimes over a thousand) and include whole
armies of consultants. This adds up fast. Again, get that business case out. The types of people
you will need run the range from heavy duty techies to project managers.
Hardware – The smallest of SAP implementations probably use only three instances (boxes) …
one for the production system, one for test, and one for development. The largest
implementations have well over 100 instances, especially if they involve multiple parallel
projects (otherwise known as a program).
Adding all this up, your SAP project can run anywhere from $400,000 to hundreds of millions of
$’s. As you can see, SAP can be all things to all companies … so it’s best to talk to them (or your
consulting firm) about your specific requirements.

Is there any help out there? What should I do next? Help From SAP AG
There is a ton of help available out there – depending on your companies budget and culture – to
help you along your journey beginning with your strategy and ending up when you reach that
hallowed (and sometimes distant) ground of post-implementation. This article concentrates on
the help available from SAP AG. Article 5 discusses other sources of help.

SAP AG employs around 22,000 people. Although they re-organize as often as most other
companies, you can think of them as being organized into the following four areas: Pre-Sales,
Consulting, Training and Developers.

• Pre-Sales. These are people with heavy-duty functional knowledge of one or more SAP
modules and one or more industries. They give really excellent system demonstrations on
particular areas of the system which – while thick with pre-sales features – are an extremely
valuable source of information about SAP. I’m sure they have many other responsibilities as
well, but if you can, get a demo from them. For an even more useful demo, ask if you can
provide them with business process scenarios that are pertinent to your business or industry prior
to the demo.

• Consulting. While also knowledgeable in SAP (of course), these are mostly consulting types
like those that can be found in the major consulting firms. Often a team will consist of
consultants from SAP and a partner consulting firm and you will not know the difference. Expect
them to have business process and/or industry knowledge in addition to detailed SAP knowledge.
They are not readily available to non-customers as they are usually assigned to one or more
customers. A good list of consulting partners is available in the links section of this website.

• Training. In 1999 SAP opened up their training programs to non-customers and non-partners.
This opens up a whole world of top-rate training programs at SAP’s facilities around the globe.
These can be expensive, however, and up to three weeks are usually required to gain a
sufficiently deep understanding of a particular module or subject. If you have lots of time and
money, you could register for one of SAP’s ‘academies’ which are five-week crash courses
(emphasis on crash … as in burn) in one of the following areas: FI/CO, MM/SD, and HR/ABAP.
These end with an examination and ‘certification’ in your chosen area. More information on SAP
training courses can be found on SAP’s website.

• Developers. These heavy-duty techies are off limits to non-customers. Customers can
sometimes get a message to them via the OSS system – which is an automated trouble ticket type
system. If you ever actually see one, or have one on the phone, ask all the questions you can
think of, as you may never have the chance again!

Is there any help out there? What should I do next? Help From Other Sources
Here we will cover the help that is available from other sources, including: Consulting
Companies, SAPPHIRE and other SAP Events, ASUG, and this website.
1. Consulting Companies
One of SAP’s key strategies has been to develop partnerships with the Consulting Companies.
This has contributed enormously to the widespread adoption of SAP due to the fact that there are
literally thousands of consultants (SAP estimate 55,000) ready to help with all aspects of your
SAP implementation … from strategy to completion. There are two types of consulting partners:

1. Global consulting partners (13 of these at last count) are the largest of the consulting firms
who are able to provide global assistance to global companies, and

2. National consulting partners who are accredited by country

Your need of a consulting partner depends on your project scope and complexity, your project
budget, company culture, and prior SAP implementation experience in your company. Suffice to
say that without heavy prior SAP experience in your company, all but the simplest SAP
implementations would benefit from the involvement of experienced individuals who have done
it before. Rates depend on your negotiations with the consulting company, of course, but you
could do worse than use an estimate of $200 per person per hour. Consulting styles differ from
firm to firm, so make sure your company culture is compatible with the typical approach of your
chosen consulting partner. In addition, spend some time on their websites to get an idea of their
approach, experience and capabilities.

2. SAPPHIRE and other SAP events

SAPPHIRE is the name given to SAP’s annual user conference. Multiple SAPPHIRE’s can be
found around the globe each year, and are usually sold out in advance. North American
SAPPHIRE’s are typically held in hot cities (off season) and attract upwards of 14,000 prospects,
customers and partners. Read up on SAPPHIRE’99 here. SAPPHIRE is a great place to go
explore, but is quite expensive at around $2,200 for three days (food, lodging, travel etc is at
your own expense). Even so, it is well worth the time and expense.

Note: SAP holds other events throughout the year (TechEd, for example, is aimed at the more
technical users) see their website for additional details.

3. ASUG (America’s SAP User Group)

As the name suggests, ASUG is a forum for users of SAP. Non-users (prospects and consultants)
and not usually found lurking here. ASUG actually comprises of multiple sub-ASUG’s – each
focusing on a particular area of SAP, for example there is an ASUG for High Tech companies,
and an ASUG for companies using ALE etc. Leadership of these sub-ASUG’s (for lack of a
better description) usually rotates between members of the user community. ASUG provides
opportunities for networking, learning and influencing SAP (for example joining forces with
other users to convince SAP to include a particular modification in their standard software). In
addition to meetings within the sub-ASUG’s, there is an annual conference (which attracted
nearly 6,000 users and vendors in 1999). More details on ASUG can be found at www.asug.com.

SAP AG Corporate Overview (Updated August 2004)

3rd – SAP is the 3rd largest software company in the world
30,000 – Total number of people employed by SAP
5,400 – Number of programmers employed by SAP

$7.024 billion – FY03 Revenue

$1.077 million – FY03 Net Income

12,000 – Number of companies using SAP

79,800 – Number of SAP installations
12,000,000 – Number of people using SAP
120,000,000 – Total number of people in the 12,000 companies who are using SAP

28 – Number of languages supported by SAP

46 – Number of country-specific versions of SAP
22 – Number of industry-specific versions of SAP

1,000 – Number of pre-defined best practices contained in the SAP system

10,000 – Number of tables requiring configuration in a full SAP implementation

55,000 – Number of SAP experienced consultants worldwide

28 – Number of years ago SAP was started

5 – Number of people who started SAP

SAP Modules and Solutions Overview

SAP now are moving away from describing their system as a set of modules, and now are using
the term ‘solutions’, which is much better. If you visit SAP’s website (as we urge you to do) you
will find that they have structured their Solutions tab as follows:

1. Financials
2. Human Resources
3. Customer Relationship Management
4. Supplier Relationship Management
5. Product Lifecycle Management
6. Supply Chain Management
7. Business Intelligence

If you’re still looking for that list of modules, here they are:

FI Financial Accounting – essentially your regulatory ‘books of record’, including

1. General ledger
2. Book close
3. Tax
4. Accounts receivable
5. Accounts payable
6. Consolidation
7. Special ledgers

CO Controlling – basically your internal cost/management accounting, including

1. Cost elements
2. Cost centres
3. Profit centres
4. Internal orders
5. Activity based costing
6. Product costing

AM Asset Management – track, value and depreciate your assets, including

1. Purchase
2. Sale
3. Depreciation
4. Tracking

PS Project Systems – manage your projects, large and small, including

1. Make to order
2. Plant shut downs (as a project)
3. Third party billing (on the back of a project)

HR Human Resources – ah yes, people, including

1. Employment history
2. Payroll
3. Training
4. Career management
5. Succession planning

PM Plant Maintenance – maintain your equipment (e.g. a machine, an oil rig, an aircraft etc),
including
1. Labour
2. Material
3. Down time and outages

MM Materials Management – underpins the supply chain, including

1. Requisitions
2. Purchase orders
3. Goods receipts
4. Accounts payable
5. Inventory management
6. BOM’s
7. Master raw materials, finished goods etc
QM Quality Management – improve the quality of your goods, including
1. Planning
2. Execution
3. Inspections
4. Certificates

PP Production Planning – manages your production process, including

1. Capacity planning
2. Master production scheduling
3. Material requirements planning
4. Shop floor

SD Sales and Distribution – from order to delivery, including

1. RFQ
2. Sales orders
3. Pricing
4. Picking (and other warehouse processes)
5. Packing
6. Shipping

CA Cross Application – these lie on top of the individual modules, and include
1. WF – workflow
2. BW – business information warehouse
3. Office – for email
4. Workplace
5. Industry solutions
6. New Dimension products such as CRM, PLM, SRM, APO etc

SAP System Architecture

The SAP System follows a three tier architecture containing Presentation, Application and a
database layer. Each of these layer  has it’s own software component. With this setup, the overall
system can be distributed among a range of computers or it can also be in one system like
MiniSAP which has all these components in one computer. A common configuration includes
where in the database and the application server run concurrently in a single large computer. All
the other application servers run on their computers. Let’s explain all these three components
further so that you can develop a better understanding of the SAP system architecture.

Presentation Layer

This is the view you see when you login into SAP from your computer. This is presentation layer
that has been generated. The SAP GUI Software components ensure that the SAP system user
interface is shown and that the user’s actions are passed to the application server for further
processing.
Application Layer

The application layer is the one where the entire work is carried out for your. All your actions are
processed at this place. This software component can have one or more than one based on the
requirements and the processing needs of each and every organization.
The application server provides a range of services for the operation of the SAP system. The
application servers processes are carried out through work processes. This is defined at the start
of the SAP system. The work processes are components that are able to execute an application.
One thing to note here is that each work process is registered as a user in the database system for
the entire runtime of the SAP system.

Database Layer

Each SAP system has a central database in which the entire data is stored. Everything, like the
customer records, programs, just about anything which needs to be stored is maintained at this
level.

In a nutshell, any actions you do on the presentation layer is passed to the application layer for
processing which would retrieve any relevant data from the database layer and the application
layer processes the data and presents it to you via the presentation layer.

SAP Modules Briefed

Here is a brief overview of most of the modules and there processes in SAP. This should give
you a brief outline of what each module is about and also makes you understand as to what each
module does.

Materials Management (MM)

 The grouping of management functions supporting the complete cycle of material flow,
from the purchase and internal control of production materials to the planning and control
of work in process to the warehousing, shipping, and distribution of the finished product.

Sales and Distribution (SD)

 This module includes the business processes used to sell and deliver products and
services to customers and business partners. Information about the product and customers
(both of which are stored in the master data) is used in SD.

Production Planning (PP)

 This module supports functions for the overall level of manufacturing output and other
activities to best satisfy the current planned levels of sales (sales plan or forecasts), while
meeting general business objectives of profitability, competitive customer lead times as
expressed in the overall business plan. One of its primary purposes is to establish
production rates that will achieve management’s objective of satisfying customer
 demand, by maintaining, raising or lowering inventories or backlogs, while usually
attempting to keep the workforce relatively stable.

Plant Maintenance (PM)

 Supports the planning, processing, and completion of plant maintenance tasks

 Allows for planners to schedule routine maintenance in a way that is least disruptive for
manufacturing and sales requirements

Quality Management (QM)

 Supports the quality inspection aspects of the business, including purchasing, research,
and sales
 Allows for buyers and manufacturing personnel to track inspection lots and test results

Financial Accounting (FI)

 Designed for automated management and external reporting of General Ledger (GL),
Accounts Receivable (AR), Accounts Payable (AP), and Asset Management (AM) with a
user-defined chart of accounts.
 External reporting, such as income statement and balance sheet Represents cost and
revenue flows throughout the organization
 Aids in organizational decision making
 Supports internal reporting such as cost center reports

Asset Accounting (AA)

 AA provides tools to acquire, depreciate, evaluate, and retire assets. The kinds of assets
covered are fixed, low value, leased, and real estate.
 Low value assets depreciate in the year they are bought and are often aggregated as a
single asset master record.
 Depreciation often needs to be tracked (for more than one reason), so SAP R/3 allows
you to depreciate the same piece of equipment in several parallel ways.

Human Resources (HR)

 Takes care of payroll, time recording, applicant administration, and organization data. It
supports the planning and control of personnel activities.

Industry Solutions (IS)

 IS is scale able and flexible, and can be tailored to the specific needs of each business.
Examples are:
 SAP Aerospace and Defense
  SAP Automotive
 SAP Banking
 SAP Chemicals
 SAP Consumer Products
 SAP Engineering and Construction
 SAP Telecommunication
 SAP Utilities
 SAP Service Provider

Work Flow (WF)

 Links the integrated SAP R/3 application modules with cross-application technologies,
tools, and services, including e-mail.
 Work flow allows you to set up the followings:
 Maintain your company’s organization structure according to responsibility.
 Link the predefined standard tasks with the authorized agents in your company.
 Activate existing event receiver links between triggering events and consuming workflow
tasks.
 Name a technical person responsible for each standard workflow template.

Project System (PS)

 Helps you to plan, manage, control, and figure the cost of R&D projects, and so on. The
common tasks revolve around allocation of people, resources, and money within the
framework of schedule and task relationships.

Common Controls in SAP

Let’s look at a few of the common buttons and controls in the SAP system:

On any screen in SAP, the green check mark means enter. If you prefer, you can also use the
enter key on your keyboard.
 The green arrow (back) button will take you back one screen in the application in which you
are currently working. If you are at the initial application screen, the green arrow will return you
to the SAP Easy Access menu.

The yellow up arrow (exit) button will take you back to the SAP Easy Access screen.
Occasionally, if the application you are using has more than one level, the yellow exit arrow will
only exit you from the application you are currently in, and place you in the higher level
application. This might seem confusing, but you will understand as soon as you encounter such
an occurrence.

The red X button (cancel) will cancel the application you are currently using, and return you
to the SAP Easy Access menu with a single click

The create session button will open a new SAP session in addition to the one currently in use.
While it is not necessary to have more than one session open, it can be very helpful. Many users
will have at least two sessions open at a time, one to change or create system data, and another to
look at other areas for reference.

The help button can be very, well, helpful. When used properly it can give fast, relatively easy
to understand, definitions of user actions. To use the button, position your cursor on the object
you wish to know about, and click the help button. An information screen will be displayed
describing the object

The local layout customization button is used to change individual user display. The last
section in this guide will cover these functions.

This is the dropdown menu button. You will encounter this button connected to any textbox
which has pre-populated values to choose from

The session information button is the small triangle located at the bottom right of the screen.