SAP an overview

SAP is an ERP package, which is used in many companies worldwide.

The full form for SAP is System Application Products in Data Processing. The
product is German in origin.

The full form of ERP is Enterprise Resources Planning. Previously companies used to
do MRP i.e. Material Resource Planning. ERP is the up gradation of the same. The
need for ERP arose due to lack of proper / common database available for all the
functions in an organization.

For example, customer records as per sales department may be showing a different
balance /address in comparison to the records maintained by the accounts
department. Stock balance and value as per Stores department could vary vis-à-vis
the values as recorded by the accounts department. Also typically data / records of
various departments were maintained on different formats or on different platforms.
Certain departments of a company could be working in a computerized environment
and that too on different packages / operating systems like Unix /oracle. Some other
departments could be maintaining their records manually.

The situation leads to improper data available to the Management to plan and run
their business. Therefore a need was felt to have a package that has a Common
database and interconnects all departments / functions and also enables ON LINE
entry / access to data/ records. This consequently led to the development of ERP
packages worldwide like SAP (the biggest player), BAAN, Peoplesoft and J.D.Edwards.

The features of SAP include various modules and sub-modules.

• The main modules are financial accounting-FI,

• Production planning-PP,
• Sales and Distribution-SD,
• Controlling (costing)-CO,
• Materials management (MM) and
• Human Resources (HR).

There are various other modules like Plant maintenance, Quality management etc.
The database is common for all modules and avoids duplication of maintaining
master records. For e.g. the customer records will be maintained in SD module like
customer code, customer type, Credit/payment terms, address etc. The same would
be used by the FI module while perusing the customer accounts or entering the
receipt of payments. Similarly the sales manager can view the customer balances in
the FI module for follow up with the customer. Another example would be Vendor
Master maintained in MM module which can be accessed by the FI module user to
check the purchase order details, Delivery schedule, Payment terms etc. Also one
can access information on whether the material order has been received by the
stores department, whether the same is under inspection or if there is any shortage
or rejection. Once the material has been accepted and entered, the systems will
automatically pick up the value of the material from the purchase order. The
accounts department on receipt of the invoice can verify the same through' the MM
module and say whether the Goods Inward Notice is available on the system and give
credit to the Vendor's account for the value of the material purchased.
A notable feature of SAP is, wherever a transaction of a financial nature takes place,
whichever module is in use, the system generates an accounting entry, this is
contrary to the normal belief that—transaction takes place only in the accounting
department. For example, withdrawal of material /item through an indent from the
stores will not only result into the physical stock being reduced but also an
accounting entry being generated whereby the material consumed A/c (P/L
expense /Revenue A/c) will be debited and the stock account will be reduced
(Balance sheet item). This will lead to generation of an accounting document in MM
module itself. The value of the item drawn could depend on the policy of the
company whether it adopts FIFO, LIFO, and standard cost method s of valuation of
stock.

A natural question can arise -- whether the non-financial personnel of a company can
undertake accounting transactions. Herein the initial mapping of the systems and the
processes will be done at the time of the SAP implementation and the accounting
impacts will be studied and built into the Masters for automatic accounting effects for
various types of transactions. There is a Master called Chart of Accounts, which is the
backbone of SAP. It contains all accounts with their code, nature linkages, Groupings
etc. Of course this master has to be built very carefully and exhaustively.

The transaction-taking place in SAP will be recorded with the user identification, time
and date. No transaction can be erased. Any erroneous transaction can only be
rectified or reversed. Each transaction being recorded will lead to a specific
document number being created based on the transaction type and the number
ranges as defined in the document masters. The user by now can appreciate that it is
a system, which envisages lot of diligence and security. Therefore only authorized
personnel can deal with the system in order to avoid malfunctioning and misuse of
the system. User identification is to be given only to key personnel who are well
trained and well aware of the impact of the transactions to be undertaken by them.
Authorizations are given either for module based and /or screen based transactions.
For example, a user in MM module will not be allowed to operate on FI module.
However " view " authorizations for certain personnel can be given on case-to-case
basis. Authorization and monitoring of users have to be done by the System
Administrator. This is a key function and it is very important to avoid misuse/
malfunctioning of the system. Large and fast servers should be made available for
quick access of data. Proper facilities of back up and UPS should be provided. Care
should be taken to avoid loss of data.

SAP is a package with minimal customizations and the company implementing the
same may have to re-orient its business processes to fall in line with SAP
requirements