ERP

THE DEVELOPMENT OF
ENTERPRISE RESOURCE PLANNING SYSTEMS
Learning Objectives:

Identify the factors that led to the

development of ERP
Describe the distinguishing characteristics
of ERP software
Summarize ongoing developments in ERP
 Today’s Agenda
The Evolution of IS (Revisit)
ERP Software Emerges: SAP and R/3
ERP for Midsize and Smaller Companies
Choosing Consultants and Vendors
The Significance and Benefits of ERP Software (Revisit)
The Evolution of Information System

The computer hardware and software

developments of the 1960s, 1970s, and 1980s
paved the way for the development of ERP
systems.
The Evolution of Information System
The software that holds that data in an organized
fashion, and that allows for the easy retrieval of data, is
the database management system (DBMS).
By the mid-1980s, the DBMS required to manage the
development of complex ERP software existed. The final
element required for the development of ERP software
was understanding and acceptance from the business
community.
The Evolution of Information System
The Manufacturing Roots of ERP
Manufacturing software advanced during the 1960s and
1970s, evolving from simple inventory-tracking systems
to material requirements planning (MRP) software.
MRP is a production-scheduling methodology that
determines the timing and quantity of production runs
and purchase-order releases to meet a master
production schedule
ERP Software Emerges: SAP and R/3
In 1972, five former IBM systems analysts in Mannheim,
Germany—Dietmar Hopp, Claus Wellenreuther, Hasso
Plattner, Klaus Tschira, and Hans-Werner Hector—formed
Systemanalyse und Programmentwicklung (Systems
Analysis and Program Development)
Later, the acronym was changed to Systeme,
Anwendungen und Produkte in der Datenverarbeitung
(Systems, Applications and Products in Data Processing.)
New Directions in ERP
Thus, the Y2K problem led to a dramatic increase in
business for ERP vendors in the late 1990s.
By 2000, SAP AG had 22,000 employees in 50 countries
and 10 million users at 30,000 installations around the
world. By that time, SAP also had competition in the ERP
market, namely from Oracle and PeopleSoft.
New Directions in ERP-PeopleSoft
PeopleSoft was founded by David Duffield, a former IBM
employee who, like SAP’s founders, faced opposition to
his ideas from IBM management.
In 2003, PeopleSoft strengthened its offerings in the
supply chain area with its acquisition of ERP software
vendor JD Edwards. Then, in late 2004, Oracle
succeeded in its bid to take over PeopleSoft.
Oracle, is a popular software choice for managing
human resources and financial activities
at universities.
New Directions in ERP-Oracle
Oracle began in 1977 as Software Development
Laboratories (SDL). Its founders, Larry Ellison, Bob Miner,
and Ed Oates, won a contract from the Central Intelligence
Agency (CIA) to develop a system, called Oracle, to
manage large volumes of data and extract information
quickly.
In 1979, the company changed
its name again, to Oracle.
SAP ERP MODULES
SAP ERP MODULES
● The Sales and Distribution (SD) module records sales orders
and scheduled deliveries. Information about the customer
(pricing, address and shipping instructions, billing details, and
so on) is maintained and accessed from this module.
• The Materials Management (MM) module manages the
acquisition of raw materials from suppliers (purchasing) and the
subsequent handling of raw materials inventory, from storage to
work-in-progress goods to shipping of finished goods to the
customer.
• The Production Planning (PP) module maintains production
information. Here production is planned and scheduled, and
actual production activities are recorded.
The Quality Management (QM) module plans and
records quality control activities, such as product
inspections and material certifications.
• The Plant Maintenance (PM) module manages
maintenance resources and planning for preventive
maintenance of plant machinery in order to
minimize equipment breakdowns.
• The Asset Management (AM) module helps the
company manage fixed-asset purchases (plant and
machinery) and related depreciation.
The Human Resources (HR) module facilitates employee
recruiting, hiring, and training. This module also includes
payroll and benefits.
• The Project System (PS) module facilitates the
planning for and control over new research and
development (R&D), construction, and marketing
projects. This module allows for costs to be collected
against a project, and it is frequently used to manage
the implementation of the SAP ERP system. PS
manages build to-order items, which are low-volume,
highly complex products such as ships and aircrafts
The Financial Accounting (FI) module records transactions in the
general ledger accounts. This module generates financial
statements for external reporting purposes.
• The Controlling (CO) module serves internal management
purposes, assigning manufacturing costs to products and to cost
centers so the profitability of the company’s activities can be
analyzed. The CO module supports managerial decision making.
The Workflow (WF) module is not a module that automates a
specific business function. Rather, it is a set of tools that can be
used to automate any of the activities in SAP ERP. It can perform
task-flow analysis and prompt employees (by email) if they need
to take action.
In summary,
❏ ERP integrates business functional areas with one
another.
❏ ERP software also makes management reporting and
decision making faster and more uniform throughout an
organization.
❏ ERP promotes thinking about corporate goals, as opposed
to focusing only on the goals of a single department or
functional area.
❏ When top management is queried on the reasons for
implementing ERP systems, the overriding answer is
control.
In summary,
❏ As businesses grew in size, and the business environment
became more complex and competitive, business managers
began to demand more efficient and competitive
information systems.
❏ SAP AG produced a complex, modular ERP program called
R/3. The software could integrate a company’s entire
business by using a common database that linked all
operations, allowing real-time data sharing and streamlined
operations.
In summary,

❏ SAP R/3, now called SAP ERP, is modular software

offering modules for Sales and Distribution, Materials
Management, Production Planning, Quality Management,
and other areas.

❏ ERP software is expensive to purchase and time

consuming to implement, and it requires significant
employee training—but the payoffs can be spectacular.
For some companies, however, the ROI may not be
immediate or even calculable.