Concepts in Enterprise

Resource Planning
Third 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 a business process from a business
function
Identify the kinds of data that each main functional
area produces
Identify the kinds of data that each main functional
area needs
Define integrated information systems and explain why
they are important
Concepts in Enterprise Resource Planning, Third Edition

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

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, Third Edition

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, Third Edition

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, Third Edition

Functional Areas of Operation (contd.)

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

functions
Concepts in Enterprise Resource Planning, Third Edition

Functional Areas of Operation (contd.)

Functional areas are interdependent
Each requires data from the others

Better integration of functional areas leads to

improvements in communication, workflow, and
success of company
Information system (IS): Computers, people,
procedures, and software that store, organize, and
deliver information

Concepts in Enterprise Resource Planning, Third Edition

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
customers perspective

Concepts in Enterprise Resource Planning, Third Edition

Business Processes (contd.)

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

personal computer
Concepts in Enterprise Resource Planning, Third Edition

Business Processes (contd.)

Businesses must always consider customers
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

Successful business managers view business

operations from the perspective of a satisfied
customer

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Business Processes (contd.)

Sharing data effectively and efficiently between and
within functional areas leads to more efficient
business processes
Integrated information systems: Systems in which
functional areas share data

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Business Processes (contd.)

Figure 1-3 A process view of business

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Business Processes (contd.)

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

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Functional Areas and Business

Processes of a Very Small Business
Example: A fictitious lemonade stand

Examine business processes of the lemonade stand

See why coordination of functional areas helps achieve
efficient and effective business processes
Look at how integration of the information system
improves the business

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Marketing and Sales

Functions of Marketing and Sales

Developing products
Determining pricing
Promoting products to customers
Taking customers orders
Helping create a sales forecast

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Marketing and Sales (contd.)

Marketing and Sales tasks for the lemonade stand

Formal recordkeeping not required

Need to keep track of customers
Product development can be done informally
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

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Supply Chain Management

Functions within Supply Chain Management
Making the lemonade (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

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Supply Chain Management (contd.)

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

lemonade product sold

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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

Raw data: Numbers collected from those operations,

without any manipulation, calculation, or arrangement
for presentation

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Accounting and Finance (contd.)

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 lemonade stand

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Human Resources
Functions of Human Resources
Recruit, train, evaluate, and compensate employees

HR uses sales forecasts developed by the individual

departments to plan personnel needs
Systems integrated using ERP software provide the
data sharing necessary between functional areas

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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

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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.
M/S has a role in determining product prices
Pricing might be determined based on a products unit
cost, plus some percentage markup
Requires information from Accounting and Finance, and
Supply Chain Management data

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Marketing and Sales (contd.)

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
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Marketing and Sales (contd.)

M/S needs to interact with Human Resources to
exchange information on hiring needs, legal
requirements, etc.
Inputs for M/S

Customer data
Order data
Sales trend data
Per-unit cost
Travel expense company policy

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Marketing and Sales (contd.)

Outputs for M/S
Sales strategies
Product pricing
Employment needs

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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
With accurate data about required production levels:
Raw material and packaging can be ordered as needed
Inventory levels can be kept low, saving money

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Supply Chain Management (contd.)

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

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Supply Chain Management (contd.)

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
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Supply Chain Management (contd.)

Inputs for SCM

Product sales data

Production plans
Inventory levels
Layoff and recall company policy

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Supply Chain Management (contd.)

Outputs for SCM

Raw material orders

Packaging orders
Resource expenditure data
Production and inventory reports
Hiring information

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Accounting and Finance

Needs information from all other functional areas
A/F personnel:
Record companys 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
companys financial position and profitability

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Accounting and Finance (contd.)

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

M/S personnel require data from A/F to evaluate

customer credit

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Accounting and Finance (contd.)

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
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Accounting and Finance (contd.)

Inputs for A/F

Payments from customers

Accounts receivable data
Accounts payable data
Sales data
Production and inventory data
Payroll and expense data

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Accounting and Finance (contd.)

Outputs for A/F
Payments to suppliers
Financial reports
Customer credit data

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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

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Human Resources (contd.)

Figure 1-7 The Human Resources functional area exchanges data with the
Accounting and Finance, Marketing and Sales, and Supply Chain Management
functional areas
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Human Resources (contd.)

Observing governmental regulations in recruiting,
training, compensating, promoting, and terminating
employees
Inputs for HR
Personnel forecasts
Skills data

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Human Resources (contd.)

Outputs for HR

Regulation compliance
Employee training and certification
Skills database
Employee evaluation and compensation

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Human Resources (contd.)

Significant amount of data is maintained by and
shared among the functional areas
Timeliness and accuracy of these data critical to each
areas success and to companys 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

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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
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Summary (contd.)
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

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Summary (contd.)
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

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