I. Fundamentals of Enterprise Resource Planning (ERP)
● Definition: Core software that integrates information across all business areas
● Helps manage company-wide business processes
● Uses a single shared database and common reporting tools
● Key Characteristics of ERP:
1. Integration: Combines finance, supply chain, HR, procurement,
manufacturing, and CRM into one system for smooth information sharing
2. Real-time Data: Provides up-to-date data and reports for instant monitoring
and decision-making
3. Automation: Automates key processes (orders, inventory, payroll), reducing
errors and increasing efficiency
4. Scalability: Grows with the company—start small and add functions as the
business expands
● ERP Market Size: The market is massive, with revenues exceeding those of Nike,
Coca-Cola, and McDonald’s combined.
II. Business Functions vs. Business Processes
Understanding the difference between these two is critical for ERP.
● Business Function: Activities specific to a functional area of operation. For
example, "Market research" is a function of the Marketing department.
● Business Process: A set of activities that transforms inputs into valuable outputs for
customers
● Consists of linked tasks that achieve an organizational goal
○ Processes often cross multiple departments (e.g., a "Product Launch
Process" involves Marketing, SCM, HR, and Finance).
○ Thinking in terms of processes helps managers see the organization from the
customer's perspective.
III. The Four Main Functional Areas of Operation
Most companies operate through these four areas, which are highly interdependent.
1. Marketing and Sales (M/S)
● Functions: Marketing a product, taking sales orders, customer support, CRM, sales
forecasting, and advertising.
, ● Inputs: Customer data, order data, sales trend data, and per-unit cost.
● Outputs: Sales strategies, product pricing, and employment needs.
2. Supply Chain Management (SCM)
● Functions: Purchasing goods/raw materials, receiving, transportation/logistics,
manufacturing, and plant maintenance.
● Inputs: Product sales data, production plans, inventory levels, and layoff/recall
policies.
● Outputs: Raw material orders, packaging orders, resource expenditure data, and
production reports.
3. Accounting and Finance (A/F)
● Functions: Financial accounting, cost allocation, planning/budgeting, and cash-flow
management.
● Inputs: Payments from customers, accounts receivable/payable data, and sales
data.
● Outputs: Payments to suppliers, financial reports, and customer credit data.
4. Human Resources (HR)
● Functions: Recruiting and hiring, training, payroll, benefits, and government
compliance.
● Inputs: Personnel forecasts and skills data.
● Outputs: Regulation compliance, employee training/certification, and
evaluation/compensation.
IV. Strategic Objectives and Implementation
Implementing an ERP system is more than an IT project; it is a business tool.
● Operational View: Supports all business processes via a common database
(procurement, production, sales, etc.).
● Three Fundamental Strategic Objectives:
1. Creation of a common business process architecture.
2. Standardization of internal and external master data.
3. Standardization of the information system architecture.
● Synergy Effects: Standardizing processes beyond organizational boundaries leads
to enormous synergy and allows the implementation of best practices.
● Definition: Core software that integrates information across all business areas
● Helps manage company-wide business processes
● Uses a single shared database and common reporting tools
● Key Characteristics of ERP:
1. Integration: Combines finance, supply chain, HR, procurement,
manufacturing, and CRM into one system for smooth information sharing
2. Real-time Data: Provides up-to-date data and reports for instant monitoring
and decision-making
3. Automation: Automates key processes (orders, inventory, payroll), reducing
errors and increasing efficiency
4. Scalability: Grows with the company—start small and add functions as the
business expands
● ERP Market Size: The market is massive, with revenues exceeding those of Nike,
Coca-Cola, and McDonald’s combined.
II. Business Functions vs. Business Processes
Understanding the difference between these two is critical for ERP.
● Business Function: Activities specific to a functional area of operation. For
example, "Market research" is a function of the Marketing department.
● Business Process: A set of activities that transforms inputs into valuable outputs for
customers
● Consists of linked tasks that achieve an organizational goal
○ Processes often cross multiple departments (e.g., a "Product Launch
Process" involves Marketing, SCM, HR, and Finance).
○ Thinking in terms of processes helps managers see the organization from the
customer's perspective.
III. The Four Main Functional Areas of Operation
Most companies operate through these four areas, which are highly interdependent.
1. Marketing and Sales (M/S)
● Functions: Marketing a product, taking sales orders, customer support, CRM, sales
forecasting, and advertising.
, ● Inputs: Customer data, order data, sales trend data, and per-unit cost.
● Outputs: Sales strategies, product pricing, and employment needs.
2. Supply Chain Management (SCM)
● Functions: Purchasing goods/raw materials, receiving, transportation/logistics,
manufacturing, and plant maintenance.
● Inputs: Product sales data, production plans, inventory levels, and layoff/recall
policies.
● Outputs: Raw material orders, packaging orders, resource expenditure data, and
production reports.
3. Accounting and Finance (A/F)
● Functions: Financial accounting, cost allocation, planning/budgeting, and cash-flow
management.
● Inputs: Payments from customers, accounts receivable/payable data, and sales
data.
● Outputs: Payments to suppliers, financial reports, and customer credit data.
4. Human Resources (HR)
● Functions: Recruiting and hiring, training, payroll, benefits, and government
compliance.
● Inputs: Personnel forecasts and skills data.
● Outputs: Regulation compliance, employee training/certification, and
evaluation/compensation.
IV. Strategic Objectives and Implementation
Implementing an ERP system is more than an IT project; it is a business tool.
● Operational View: Supports all business processes via a common database
(procurement, production, sales, etc.).
● Three Fundamental Strategic Objectives:
1. Creation of a common business process architecture.
2. Standardization of internal and external master data.
3. Standardization of the information system architecture.
● Synergy Effects: Standardizing processes beyond organizational boundaries leads
to enormous synergy and allows the implementation of best practices.
