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 today’s globally competitive
business environment
Concepts in Enterprise Resource Planning, Fourth Edition 2
 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
– Efficient operation of business processes by
integration
• 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 3
 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 4

 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 5

 Functional Areas of Operation (cont’d.)

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

Concepts in Enterprise Resource Planning, Fourth Edition 6

Functional Areas of Operation (cont’d.)

• Functional areas are interdependent

– Each requires data from the others
– Marketing and sales staff sell what supply chain
management people produce
• Better integration of functional areas leads to
improvements in communication, workflow, and
success of company
– Business processes are cross functional
• Information system (IS): Computers, people,
procedures, and software that store, organize, and
deliver information
Concepts in Enterprise Resource Planning, Fourth Edition 7
 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
customer’s perspective

Concepts in Enterprise Resource Planning, Fourth Edition 8

 Business Processes (cont’d.)

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

personal smartphone

Concepts in Enterprise Resource Planning, Fourth Edition 9

 Business Processes (cont’d.)

• Businesses must always consider customer’s

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 – if the other way ?
• Successful business managers view business
operations from the perspective of a satisfied
customer – one consistent face to customer
For example, if a customer wants to place an order for a product, but must interact with multiple departments such as sales, finance, and
shipping separately, it can be frustrating and inefficient for the customer
other:online

Concepts in Enterprise Resource Planning, Fourth Edition 10

 Example of business function and
business process
• Businesses must always consider the customer’s
viewpoint in any transaction. specific activity

– What is the difference between a business function

and a business process from the customer’s
point of view? series of interconnected business activities that work together to achieve a specific goal, such
as fulfilling an order or resolving a customer complaint

– Suppose the customer’s mobile phone is damaged

during shipment.
– Because only one functional area is involved in
accepting the return of the damaged item, receipt
of the return is a business function—specifically, it is
part of the customer relationship management
function of Marketing and Sales area.
Concepts in Enterprise Resource Planning, Fourth Edition 11
 Example of business function and
business process
• Businesses must always consider the customer’s
viewpoint in any transaction.
– Because several functional areas are involved in the
repair and return of the mobile phone back to the
customer, the handling of the repair is a business
process.
– Thus, in this example, the customer is dealing
with many of the company’s functional areas in the
process of buying and obtaining a smartphone.

Concepts in Enterprise Resource Planning, Fourth Edition 12

 Business Processes (cont’d.)

• Sharing data effectively and efficiently between and

within functional areas leads to more efficient
business processes

Concepts in Enterprise Resource Planning, Fourth Edition 13

 Business Processes (cont’d.)

• Integrated information systems: Systems in

which functional areas share data
• Better control for managers with integrated
information system
• Increase productivity – cost decreases
• Figure for process view of business operations

Concepts in Enterprise Resource Planning, Fourth Edition 14

 Business Processes (cont’d.)

Figure 1-3 A process view of business

Concepts in Enterprise Resource Planning, Fourth Edition 15

 Business Processes (cont’d.)

• 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
– Previous figure as example

Concepts in Enterprise Resource Planning, Fourth Edition 16

 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
– Coordinating the activities within different functional
areas requires accurate and timely information

Concepts in Enterprise Resource Planning, Fourth Edition 17

 Marketing and Sales
Marketing and Sales teams work together to develop new products or refine existing ones based on customer needs and preferences. The
Marketing team provides insights on market trends and customer needs, while the Sales team provides feedback on customer preferences
and pain points

• 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 18

 Marketing and Sales (cont’d.)

• Marketing and Sales tasks for the coffee shop

– Formal recordkeeping not required
– Need to keep track of customers ?
• Send flayers – send thank you notes

– Product development can be done informally

• Who buys which kind of coffee
• What each customer thinks about each product
• Historical sales records to spot trends which are not
obvious

Concepts in Enterprise Resource Planning, Fourth Edition 19

 Marketing and Sales (cont’d.)
• Marketing and Sales tasks for the coffee shop
– Deciding whether to sell a product also depends on
how much it costs to produce the product
• Analyze data from SCM
– (cost of purchasing machine etc.)
– Materials management data (cost of coffee beans
and chai tea)
– Accounting and Finance records must be accessed
as a part of the selling process
• Good repeat customers allowed to charge
purchases—up to a point
– Records must show how much each customer
owes and his or her available credit
Concepts in Enterprise Resource Planning, Fourth Edition 20
 Supply Chain Management

• Functions within Supply Chain Management

– developing production plans,
– ordering raw materials from suppliers,
– receiving the raw material into the facility,
– manufacturing products,
– maintaining facilities,
– shipping products to customers

Concepts in Enterprise Resource Planning, Fourth Edition 21

 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
– Forecast accuracy if based on previous data
– This forecast is important for production planning

Concepts in Enterprise Resource Planning, Fourth Edition 22

 Supply Chain Management (cont’d.)

• Production planning requires sales forecasts from

M/S functional area
– 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, why ?
– What it costs and how much should it cost.

Concepts in Enterprise Resource Planning, Fourth Edition 23

 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
– Provides summaries of operational data
– Controlling accounts
– Budgeting and planning
– Cash-flow management
• 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 24
 Accounting and Finance (cont’d.)

• 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
– Data used to be sure you have enough cash to
purchase material and equipment
Concepts in Enterprise Resource Planning, Fourth Edition 25
 Human Resources
• Even a small business needs employees to support
M/S and SCM functional areas
• Functions of Human Resources
– Recruit, train, evaluate, and compensate employees
• HR uses sales forecasts developed by the
individual departments to plan personnel needs
• How much each employee is paid
– Depends on state laws

Concepts in Enterprise Resource Planning, Fourth Edition 26

 Human Resources
• Would increased sales justify hiring a part-time
worker at the prevailing wage? Or, should you think
about acquiring more automated ways of making
coffee, so a person working alone could run the
shop? Resolving these questions requires input
from Marketing and Sales, Supply Chain
Management, and Accounting and Finance.
• It is impossible to discuss the processes in one
functional area without discussing the links to other
functional areas
• Systems integrated using ERP software provide the
data sharing necessary between functional areas

Concepts in Enterprise Resource Planning, Fourth Edition 27

 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 28

 Marketing and Sales

Concepts in Enterprise Resource Planning, Fourth Edition 29

 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.
• This data is needed by SCM and A/F
• M/S has a role in determining product prices
– Pricing might be determined based on a product’s
unit cost, plus some percentage markup
– Requires information from Accounting and Finance,
and Supply Chain Management data

Concepts in Enterprise Resource Planning, Fourth Edition 30

 Marketing and Sales (cont’d.)

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 31
 Marketing and Sales (cont’d.)

• M/S needs to interact with Human Resources to

exchange information on hiring needs, legal
requirements, etc.
• HR communicate reimbursement policies
• Inputs for M/S
– Customer data (Customer)
– Order data (Customer)
– Sales trend data (Customer)
– Per-unit cost (A/F)
– Company travel expense policy (HR)

Concepts in Enterprise Resource Planning, Fourth Edition 32

 Marketing and Sales (cont’d.)

• Outputs for M/S

– Sales strategies (SCM)
– Product pricing (Customer & A/F)
– Employment needs (HR)

Concepts in Enterprise Resource Planning, Fourth Edition 33

 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
• accurate and timely production information supports the
sales process and can increase customer satisfaction-
How ?
• With accurate data about required production levels:
– Raw material and packaging can be ordered as needed
– Inventory levels can be kept low, saving money
– Stock out – Safety stock

Concepts in Enterprise Resource Planning, Fourth Edition 34

 Supply Chain Management
• In addition, Supply Chain Management can
share its planning information with the company’s
suppliers
– so they can plan their operations more efficiently
– which should allow the suppliers to reduce the price they
charge the company for their products.

Concepts in Enterprise Resource Planning, Fourth Edition 35

 Supply Chain Management (cont’d.)

• 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
– Passes hiring information to HR
– HR provides layoff and recall policy that might be
needed at manufacturing plant

Concepts in Enterprise Resource Planning, Fourth Edition 36

 Supply Chain Management (cont’d.)

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 37

 Supply Chain Management (cont’d.)

• Inputs for SCM

– Product sales data (M/S)
– Production plans (M/S)
– Layoff and recall company policy (HR)

Concepts in Enterprise Resource Planning, Fourth Edition 38

 Supply Chain Management (cont’d.)

• Outputs for SCM

– Raw material orders (A/F & Supplier)
– Packaging orders (A/F & Supplier)
– Resource expenditure data (A/F)
– Production and inventory reports (A/F & M/S)
– Hiring information (HR)

Concepts in Enterprise Resource Planning, Fourth Edition 39

 Accounting and Finance

• Needs information from all other functional areas

• A/F personnel:
– Record company’s 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
company’s financial position and profitability

Concepts in Enterprise Resource Planning, Fourth Edition 40

 Accounting and Finance (cont’d.)

• 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
• The quality of reports produced by A/F depends
upon the timeliness of all this data
• M/S personnel require data from A/F to evaluate
customer credit

Concepts in Enterprise Resource Planning, Fourth Edition 41

 Accounting and Finance (cont’d.)

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 42

 Accounting and Finance (cont’d.)

• Inputs for A/F

– Payments from customers (Customer)
– Accounts receivable data (Customer & M/S)
– Accounts payable data (SCM)
– Sales data (M/S)
– Production and inventory data (SCM)
– Payroll and expense data (HR)

Concepts in Enterprise Resource Planning, Fourth Edition 43

 Accounting and Finance (cont’d.)

• Outputs for A/F

– Payments to suppliers (Suppliers)
– Financial reports (SCM & M/S)
– Customer credit data (M/S)

Concepts in Enterprise Resource Planning, Fourth Edition 44

 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 45

 Human Resources (cont’d.)

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 46

 Human Resources (cont’d.)

• Observing governmental regulations in recruiting,

training, compensating, promoting, and terminating
employees
• Inputs for HR
– Personnel forecasts (SCM & M/S & A/F)
– Skills data (SCM & M/S & A/F)

Concepts in Enterprise Resource Planning, Fourth Edition 47

 Human Resources (cont’d.)

• Outputs for HR
– Regulation compliance (SCM & M/S & A/F)
– Employee training and certification (SCM & M/S &
A/F)
– Skills database (SCM & M/S & A/F)
– Employee evaluation and compensation (A/F)

Concepts in Enterprise Resource Planning, Fourth Edition 48

 Human Resources (cont’d.)

• Significant amount of data is maintained by and

shared among the functional areas
• Timeliness and accuracy of these data critical to
each area’s success and to company’s 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 49

 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 50
 Summary (cont’d.)

• 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 51
 Summary (cont’d.)

• 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 52