Chapter 2 – Enterprise Systems Accounting Information Systems 8e Ulric J. Gelinas and Richard Dull © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use

Learning Objectives Describe enterprise systems. Describe enterprise resources planning (ERP) systems. Explain the organization value chain. Describe the relationship of the organization value chain and an enterprise system. Illustrate the value of systems integration. Describe how an enterprise system supports major business event processes. Enumerate the pros and cons of implementing enterprise systems. 2

3 Enterprise Systems Integrates business processes and information from entire enterprise. Helps coordinate the operation of business functions. ERP systems are software packages that can be used for the core systems necessary to support enterprise systems.

4 Integrate Business Functionality When purchasing equipment the ERP will: Provide an electronic order form. Apply business rules. Route the order for approvals. Send the order to a buyer. Connect to the vendor. Use data to receive goods, project funding requirements, compare to budget, and analyze vendor performance.

5 ERP Systems Vendors

6 mySAP Business Suite

7 Third-Party Modules Customer Relationship Management (CRM) - builds and maintains customer related data. Customer Self-Service (CSS) - allows customers to complete tasks without assistance. Sales Force Automation (SFA) - automates sales tasks such as order processing and tracking.

8 Third-Party Modules, Cont’d. Supply Chain Management (SCM) - plans and executes demand planning, inventory acquisition, manufacturing, distributing and selling. Product Lifecycle Management (PLM) - manages product data from design through disposal of product. Supplier Relationship Management (SRM) - manages the interactions with organizations that supply the goods and services to an enterprise; includes procurement and contract management.

9 SAP NetWeaver

10 Enterprise Systems Value Chain Enterprise systems facilitate value chain management. The value chain is the system of activities that transform inputs into outputs valued by the customer. The goal of an organization is to add the greatest value at the lowest cost thus increasing competitive advantage.

11 Value Chain and Value System

12 The Value of Systems Integration Coordination of activities in the value chain. Performs this coordination by sharing data across business processes. The following slides describe what life would be like without integrated systems and how enterprise systems solve some of the problems.

13 Inefficient Customer Service 1. Check to see if the customer is in good standing – i.e. has good credit.

14 Inefficient Customer Service 2. Find out if the item in stock and ready for delivery. Tell the customer when she will receive the item. This date is known as “available to promise” or ATP.

15 Inefficient Customer Service 3. If item is not on the shelf, review production schedule and add the time required to pick, pack, and ship. This does not, however, tell if the item had already been allocated to another customer.

16 Inefficient Customer Service 4. If the item must be scheduled for manufacturing, when can it be scheduled and how long will the process take? It depends on the availability of the production line and personnel, as well as the required raw materials.

17 Inefficient Customer Service 5. May require contacting the vendors that supply these materials to determine when they can promise delivery.

18 Inefficient Customer Service 6. What price will be charged to this customer for this order? This price may be found on a static price list. However, the marketing department may determine prices dynamically.

19 Inefficient Customer Service 7.Need to know if the amount of the order falls within the customer’s credit limit. Without direct access to the open AR data, need to call accounting to approve this order.

Inefficient Customer Service If policy is not to turn down an order for insufficient credit without checking with the credit department the credit department must be called.

21 Inefficient Customer Service Do you think that Sally wants to keep the customer on the phone throughout this process? Would you consider this to be good customer service?

22 Solution to Inefficient Customer Service Enterprise system establishes ATP (available to promise) by checking warehouses and scheduled manufacturing. Database automatically determines price and creditworthiness.

23 Data Maintenance: Create Customer Record

24 Business Event Data Processing: Enter Customer Order

25 Using Stored Data for Decision Making

26 Major ERP Modules Sales and Distribution (SD) Records customer orders Shipping Billing Connections to Materials management module (MM) Financial accounting module (FI) Controlling module (CO)

27 Major ERP Modules, Cont’d. Materials Management (MM) Acquisition and management of goods from vendors Purchase order preparation Receiving Recording invoice Interacts with Sales and distribution module (SD) Financial accounting module (FI) Controlling module (C00)

28 Major ERP Modules, Cont’d. Financial Accounting (FI) Plays a central role in the SAP system. Incorporates data from other modules into general ledger accounts and financial statements. Business events from other modules are incorporated into the general ledger accounts and included in the external financial statements. The FI module also includes accounts receivable and accounts payable functions to record and manage that data directly and to complete events begun in the SD and MM modules.

29 Major ERP Modules, Cont’d. Controlling (CO) Often called Controlling and Profitability Analysis (CO/PA) Handles internal accounting including: –Cost center accounting –Profitability analysis for sales –Activity-based accounting –Budgeting

30 Major ERP Modules, Cont’d. Human Resources (HR) –Recruiting, management and administration of personnel –Payroll processing –Training and travel –Benefits –Reports

Order-to-Cash Respond to customer inquiries and RFQs. Organizations may choose to collect and retain customer related data. This data are recorded in an ERP system and can be analyzed Some companies purchase separate CRM packages.

32 Order-to-Cash 2. Sales order processing including: recording order, checking customer credit, and checking when the inventory will be available to send to the customer. Enterprise system schedules order for delivery and sends a picking request to the warehouse or purchase order to the vendor.

33 Order-to-Cash 3. Pick goods from shelf in the warehouse and pack the goods for shipment.

34 Order-to-Cash 4. Ship goods to customer. ERP system chooses the appropriate routing and carrier, and records the cost of goods sold and inventory reduction in the general ledger. Some ERP systems trigger the billing process at shipment.

35 Order-to-Cash 5. Billing, including preparing the customer invoice and recording the sale in AR. ERP system ensures correct quantities, prices, terms, addresses, etc. System can be used to analyze sales profitability by comparing product costs to selling price.

36 Order-to-Cash 6. Payment, including recording cash receipts and updating cash and accounts receivable. ERP data are used to manage customer credit and invest available cash.

SD Menu Options in SAP 37

SD Audit Trail for Completion of Steps in the Sales Process 38

39 Purchase-to-Pay 1. Determine requirements, complete purchase requisition. ERP system may automatically generate the purchase requisition and review requests to determine if they are authorized and within budget.

40 Purchase-to-Pay 2. Prepare and record purchase order. ERP system assists the buyer in identifying sources of supply, preparing RFQs to vendors, analyzing vendor quotes, comparing vendor prices, terms, and past performance.

41 Purchase-to-Pay 3. Goods receipt including comparing quantity ordered to quantity received and recording in GL. If match fails, ERP notifies proper personnel to ensure timely reconciliation. ERP ensures timely availability of goods and records vendor performance data.

42 Purchase-to-Pay 4. Receive vendor invoice, match with PO and receiving report; record payable. If the match fails, the ERP notifies personnel to ensure timely reconciliation of differences.

43 Purchase-to-Pay 5. Prepare and record cash disbursement and update accounts in the GL. ERP system facilitates this process by using vendor and AP data to schedule payments in accordance with vendor terms and to receive discounts.

MM Menu Options in the SAP System 44

Audit Trail for Completion of Steps in the SAP Purchase Process 45