ERP Made Simple: ERP Explained in 80 Pages or Less

Table of Contents
Preface
1 Introduction
1.1 ERP Introduction
1.2 How does an ERP journey begin?
1.3 How does the ERP operation work?
2 Business & Processes
2.1 ERP Operations Introduction
2.2 SAP Operations Introduction
2.3 The SD Module
Sales Order Structure
The Sales & Distribution Process (Order-to-Cash)
SD Enterprise Integration (Advanced Topics)
2.4 The MM Module
Material Management Overview
Centralized / Decentralized Procurement
Purchase Order Structure
The Procurement Process (Procure-to-Pay)
MM Enterprise Integration (Advanced Topics)
2.5 The PP Module
Production Planning Overview
The Production Process (Plan-to-Product)
Production Order Structure
The Production Execution Process
PP Enterprise Integration (Advanced Topics)
2.6 The PS Module
Project System Overview
Project System Structure
The Project System Process (Engineer-to-Order)
The Project System Process (Build-to-Asset)
The Project System Process (Enterprise Asset)
PS Enterprise Integration (Advanced Topics)
2.7 The FI Module
Finance Overview
Finance Structure
The Finance Reporting Process (Record-to-Report)

ERP Made Simple: ERP Explained in 80 Pages or Less

 The 10+1 Basic Finance Processes
The Cash Management Solution
FI Enterprise Integration (Advanced Topics)
2.8 The CO Module
Controlling Overview
Controlling Solution
The Controlling Process
Controlling Process: CO-PC
Controlling Process: CO-PA
The Budgeting Solution
CO Enterprise Integration (Advanced Topics)
2.9 The HR Module
Human Resource Overview
Human Resource Structure
The Human Resource Process (Hire-to-Retire)
The 5 Basic HR Sub-modules
HR Enterprise Integration (Advanced Topics)
2.10 Enterprise Architecture
2.11 Configuration Concept (Advanced Topic)
2.12 Customization Concept (Advanced Topic)
3 The ERP Career
3.1 ERP Implementation Role
3.2 ERP Support Role
3.3 The Next Frontier
Appendix: SAP Mindmaps
FI Mindmap
CO Mindmap
SD Mindmap
MM Mindmap
PP Mindmap
PS Mindmap
HR Mindmap

ERP Made Simple: ERP Explained in 80 Pages or Less

Introduction
ERP Introduction
A software is no longer a software if we are talking about an ERP (Enterprise Resource Planning).
An ERP is much more than a piece of software; it embodies the enterprise, its processes, its
people and its culture. An ERP is cannot be used right out of the box, it has to be configured with
deep considerations of the enterprise structures and goals. All these are the results of lengthy
business discussions. Once an ERP strategy is made, there will be changes to the enterprise
operations, in turn affects the daily lives of people using the system. An ERP program in an
organization is both a threat and opportunity; it really depends on how the organization and each
individual manage it.

Formally, ERP belongs to a class of business systems that brings together enterprise information,
primarily financial, logistical and human resource related, in order to support of enterprise level
reporting planning and operations. ERP are typically modular in nature, as it plays a central role of
integrating major business lines, such as sales, purchasing, manufacturing, finance, etc. The
benefits of ERP are well-documented by Shang & Seddon’s ERP Benefits Framework (2002); the
list includes reduced cost, reduced cycle time, improved decision-making, improved customer
services, improved external/internal collaboration, empowered employee, learning facilitation,
better morale.

Having a centralized ERP presupposes that processes and data are consistently defined. The
challenge of ERP is not in the system application itself but rather on the level of clarity the
organization has of its own business processes. ERP implementation can fail either due to the
organizations having conflicting processes that no ERP application can support, or the ERP itself is
not flexible to handle the complex business operations – it is often more of the former than the
latter.

ERP Made Simple: ERP Explained in 80 Pages or Less

In the ERP market, there are heavyweight and lightweight players. The top 3 heavyweights include
SAP®, Oracle® and Microsoft®. We can use the below research by Panorama Consulting
Solutions as a reference to have a feel on the industry.

(Source - http://www.businessnsoftware.com/erp-market-share/, referencing Panorama Consulting

Solutions, 2012)

SAP provides has two primary ERP products, namely: the heavyweight SAP ECC (SAP ERP
Central Component), and a lighter-weight SAP B1 (Business One). Oracle has at least 5 ERP
solutions, namely: EBS (eBusiness Suite), Siebel, PeopleSoft, JD Edwards and NetSuite. Microsoft
has one primary ERP product, MS Dynamics AX (aka MS Dynamics 365F&O). Following the Big 3
is Infor; it has acquired 40 softwares (of which a significant number are business systems & ERP)
since its 2002 founding. There are too many Infor ERP to be listed.

SAP will be used as the referenced ERP when we are in specific discussions, whilst Oracle will be
used as a supplementary comparison where possible.

ERP Made Simple: ERP Explained in 80 Pages or Less

High-level diagram of the SAP ERP solution with extensions

SAP ECC has very comprehensive modules to cater for enterprise needs. For logistics, it has
Sales and Distribution (SD), Material Management (MM), Production Planning (PP), Quality
Management (QM), Project Systems (PS), Plant Maintenance (PM). For finance, it has Financial
Accounting (FI), Management Accounting (CO). For human resource, it has submodules like
Personnel Administration, Benefits Administration, Payroll, and Performance Management. In
addition, extension modules provide functionalities such TM (Transport Management), WM
(Warehouse Management), Treasury (TRM), and Financial Supply Chain (FSCM).

ERP Made Simple: ERP Explained in 80 Pages or Less

Apart from the ECC Core, SAP also provides ‘new dimension’ applications (which require extra
licenses). To name a few: SAP CRM (Customer Relationship Management), SRM (Supplier
Relationship Management), SCM (Supply Chain Management), BI (Business Intelligence/Data-
warehouse), BPC (Business Planning & Consolidation). SRM, SCM, BI, BPC functionalities are
gradually incorporated into the newer SAP HANA solution. Over the years SAP also bought over
new companies and products, this further augment its capabilities to deliver. For example, SAP
Hybris is positioned as Sales/Marketing cloud solution, SAP Ariba is an alternative procurement
solution, and SF (SuccessFactors®) to cater for HR requirements.

With the advancement of technology, in-memory technologies also made its way to ERP. Specific
to SAP, the in-memory database is known as HANA® database (technical details at SAP website).
HANA is a high performing native database created and used by SAP®; it allows SAP ERP
applications to push application level processing into the database level - yielding even better
performance and integration. S/4 HANA (aka SAP Business Suite for SAP HANA) the next
generation of ERP is made possible with HANA.

S/4 HANA can be deployed in the cloud or installed on-premises. The primary advantages of cloud
solution are having the infrastructure support taken care by the cloud provider and the solution can
be scaled for optimal usage. There are various cloud options, offering various degrees of
customizations. The more interesting part of all these is, the third option – hybrid deployment. For
instance, if the organization is deep into customizing its logistical modules but generic in its human
resource processes, they can opt for on-premises logistics and cloud human resource. Another
example will be individual on-premises subsidiaries’ ERP (SAP or non-SAP) linking back to the HQ
Central Finance cloud solution.

The ERP trend now is with in-memory and cloud computing. SAP, Oracle and other major ERP
suppliers are supporting this vision with various offerings.

We are not quite done yet before having some comparisons with Oracle - the other big player in
the ERP space.

ERP Made Simple: ERP Explained in 80 Pages or Less

High-level diagram for Oracle side
(for comparison purposes)

ERP Made Simple: ERP Explained in 80 Pages or Less

Oracle has a different market strategy for the ERP market, it basically uses a mixed approach of
building internally and buying externally. It is currently having 5 primary ERP suites, namely: E-
Business Suite (EBS), Siebel, PeopleSoft, JD Edwards, and NetSuite. The Oracle support strategy
for its ERP offerings is termed as ‘Oracle Applications Unlimited’. This is to say the firm is
committed to support all the acquired product suites with new developments till at least 2030. Of
the 5 Oracle ERP discussed, only EBS is internally built. Looking into EBS, it covers common ERP
areas and more; this includes Oracle Financials, Oracle HRMS, Oracle SCM, Oracle Procurement,
Oracle CRM, and Oracle Projects. Likewise for Oracle PeopleSoft and JD Edwards suites. The
question remains: will there be an ultimate consolidation of these big 5, or a totally new slick ERP
will arise after 2030? In spite, there is a 6th internally built Oracle ERP known as Oracle Fusion.

The difference between the two ERP vendors (SAP, Oracle) is at both the marketing level and
product level. In Oracle, there is a large basket of matured ERP products, giving different varieties
to the customers. In SAP, attention is channeled into refining a smaller basket of ERP products (i.e.
ECC and B1), while having more capacity to take-on deeper extended functionalities.

All in all, the specific operating of each ERP products may differ but they are serving a common
market that has common requirements. In this sense, it is more important to know what are the
business requirements, rather than the exact steps to execute an operation.

ERP Made Simple: ERP Explained in 80 Pages or Less

Unit Glossary for SAP Products, with industry narratives.
This is needed for subsequent chapters referencing.
(This is also a useful job/learning aid for those using SAP)

Term Description Details

SAP ECC ERP Central SAP on-premises Enterprise Resource Planning solution.
Component As with most leading ERP, it is modular in nature,
comprising of finance, logistics and human resource
modules and submodules.
The next class of SAP ERP is S/4 HANA Enterprise
Management, this is an in-memory solution, with cloud
options.
SAP SD Sales and ECC Module. Dealing with sales orders and its
Distribution distribution.
SAP MM Material ECC Module. Dealing with external procurement and
Management managing of inventory.
SAP PP Production Planning ECC Module. Dealing with manufacturing related tasks.
SAP QM Quality ECC Module. Dealing with quality management and
Management inspections. Typically required when SAP PP module is
used.
SAP TM Transport ECC Module. Dealing with advanced transport planning
Management activities.
SAP WM Warehouse ECC Module. Dealing with warehousing planning
Management activities.
SAP PS Project Systems ECC Module. Dealing with projects. It has both logistics
and controlling components; and can be applied flexibly
among the two.
SAP PM Plant Maintenance ECC Module. Dealing with maintenance of the physical
assets (i.e. PPE - Property, Plant & Equipment). It is
primarily a logistic module but has a controlling
component to it.
SAP SM / CS Service It refers to the used of SD and PM module, for
Management / maintenance service sales to external customers. This is
Customer Service prevalent for the repair/refurbishment business.
SAP FI Financial ECC Module. Dealing with external regulatory reporting.
Accounting FI is further broken down into AP (Accounts Payable),
AR (Accounts Receivable), AA (Asset Accounting) and
Bank accounting.
SAP CO Management ECC Module. Dealing with internal management
Accounting reporting. It is a very dynamic business function; it really
depends on the organization, what it wants to do. There
are 3 key areas of focus (typically): Cost Analysis,

ERP Made Simple: ERP Explained in 80 Pages or Less

 Budgeting, and Profitability. SAP has 3 submodules,
namely: CO-OM (Overhead Management), CO-PA
(Profitability Analysis) and CO-PC (Product Costing)
SAP COOM Overhead It is a sub-module coming under CO. It caters for
Management overheads accounting and cost allocation, using primarily
Cost Centers (CC) and Internal Orders (IO) are used as
Cost Objects.
SAP COPA Profitability Analysis It is a sub-module coming under CO. It acts as a
strategic & financial reporting tool for analyzing the
profitability based on different market segments (e.g.
customer, products, region, etcs). There two primary
type: Account Based and Costing Based.
In S/4 HANA Enterprise Management, there is new
corresponding component (Account Based) known as
Margin Analysis. Costing Based remains unchanged.
SAP COPC Product Costing It is a sub-module coming under CO. It enables materials
costs planning (cost estimates) assess cost components
such as direct materials, direct labor and overheads.
SAP ML Material Ledger SAP Material Ledger is a component of the Product
Costing. It provides clarity on price history and difference.
Based on that it can incorporate the price difference back
into the material inventory.
SAP CM Cash (& Liquidity) ECC Module. Dealing with cash position, liquidity
Management forecast and bank management.
SAP TRM Treasury (& Risk) ECC Module. Dealing with cash and financial assets (e.g.
Management securities, debts, derivatives, commodities, loans)
optimization, and its related risks.
SAP FSCM Financial Supply ECC Module. Dealing with optimization of Accounts
Chain Management Receivable (and Accounts Payable, also other cash-
related) processes.
SAP IM Investment ECC Module. Dealing with capital investment. Typically
Management used with Asset Accounting and Project System.
SAP HR Human Resource ECC Module. Dealing with human resource and human
capital management.
SAP CATS Cross-Application ECC Component. Dealing with worktime tracking. It is
Timesheet used by various modules for cost controlling and is
integrated with HR time management.
SAP CRM Customer It is an extended application to handle the pre-sales
Relationship related activities.
Management
SAP SRM Supplier It is an extended application to handle supplier
Relationship integration and collaboration activities.
Management

ERP Made Simple: ERP Explained in 80 Pages or Less

SAP SCM Supply Chain It is an extended application to handle advanced supply
Management chain activities, such as forecasting, planning and
scheduling.
SAP SOP Sales & Operations ECC Component. It is a flexible forecasting and planning
Planning tool with which sales, production, and other supply chain
targets can be set on the basis of historical, existing, and
estimated future data.
In S/4 HANA Enterprise Management, there is new
corresponding component known as Integrated Business
Planning for Supply Chain (IBP).
IS Industry Solutions Solutions to cater for specific industries’ needs. It can be,
that in these solutions there are traces of SD, MM, FI, HR
modules with extended functionalities – in this sense, IS
is an ERP. Example includes: IS Oil, IS Utility, etc
SAP BI/BW Business It is data warehouse solution. It works with SAP (i.e.
Intelligence / Data- ECC, CRM, SRM, IS) and non-SAP data. From SAP
warehouse ECC perspective, it is a comprehensive way to access
and integrate data.
SAP BPC Business Planning & It is an acquired software for Enterprise Performance
Consolidation Management (EPM). Specific area of focus includes
budgeting, planning and consolidation.
SAP IBPF Integrated Business It is part of S/4 HANA Enterprise Management, to bring
Planning for Finance all FICO Planning into one embedded BW environment. It
primarily include Cost Center Planning, Internal Order
Planning and Project System Planning.
Ariba® Ariba® It is an acquired software for procurement and sourcing.
Concur® Concur® It is an acquired software for Time & Expense Claims.
SF SuccessFactors® It is an acquired software for HR related activities.
Hybris® (Suite) Hybris® It is a set of SAP CRM solutions, comprising of the
existing SAP CRM solutions with the other SAP acquired
software(s). The name Hybris is taken from the one of the
acquired CRM software. The Hybris Family, as of writing,
comprises of 5 solutions (Hybris Commerce; Hybris
Billing; Hybris Marketing; Sales Cloud; Service Cloud)

ERP Made Simple: ERP Explained in 80 Pages or Less

Business & Processes
ERP Operations Introduction
The purpose of ERP is to optimize the use of its resources (i.e. money, goods and people); to
achieve this, the underlying ERP must provide information in a consistent and timely manner.
Achieving the above would require a roadmap of clear policies and well-defined processes. There
are well-known process terminologies, such as Order-to-Cash, Procure-to-Pay. Each of these will
be looked into with details. The below diagram and narratives describe how each processes are
inter-linked.

ERP Core Processes

ERP Made Simple: ERP Explained in 80 Pages or Less

The ERP operations typically start with a customer order going through the Order-to-Cash
process. Basing on the business model, appropriate supplying processes will be triggered.

For a trading business model with stocked goods, simple inventory issues will be the process for
supplying. For a trading business with non-stock goods, purchase orders will be raised to start the
Procure-to-Pay process.

For a manufacturing business, the Plan-to-Product process is used. The process comprises of the
planning phase and the execution phase. Planning decision depends on whether it is using Make-
to-Stock or Make-to-Order scenario. During execution phase, production orders will be raised to
start the manufacturing steps. In additional, goods that can have preset variation requirements
need to be processed via Configure-to-Order scenario.

For a manufacturing business with complex product (for instance, pre-studies are required), a
project step is needed prior to manufacturing. This flow is termed as the Engineer-to-Order
process.

For complex product that does not need manufacturing, the Build-to-Asset (aka Built-to-Order)
process can be used; a project will be setup for detailed tracking, subsequently resulting in a final
asset that may be sold.

Financial accounting and management accounting will be managed through the Record-to-Report
and Controlling process, respectively; whilst the human resource requirements will be managed
though the Hire-to-Retire process.

In summary, ERP empowers the enterprise to operate with seamless dataflow and business
insights. Enterprise profitability and performance can tracked and presented, with transactional
details that are readily available across the sub-ledgers and sub-modules.

Note: in certain organizations, Plan-to-Product solely refers to Make-to-Stock scenario. However,

for our purpose, the term will be used generically for both scenarios.

ERP Made Simple: ERP Explained in 80 Pages or Less

 This section is not part of the preview

ERP Made Simple: ERP Explained in 80 Pages or Less

The CO Module
Controlling Overview
SAP CO is dealing with internal management reporting (aka Management Accounting). It deals
primarily with 3 key aspects, namely: Cost Analysis, Budgeting, and Profitability. Controlling
may deploy various applications for each of their controlling functions. To get a grasp of how these
myriad applications work in symphony, it is helpful to know which controlling ‘departments’ (or job
functions) works with each of the areas. For cost control there are the controllers; for profitability
there are the FP&A (Financial Planning & Analysis) Analysts. Budgeting is somewhere shared.

For Cost Analysis, controlling users do use the CO functionalities within their ERP, sometime
supplementary cost data are extracted elsewhere. If the ERP is SAP ECC, then SAP CO mostly
likely will be used, due to its intrinsic level of integration. Almost nobody with SAP ECC, replaces
its SAP CO module and takes up something else – that is unimaginable.

For Budgeting, users typically use specialized budgeting application(s) that differ from their ERP.
This is because budgeting occurs at various levels (i.e. group, enterprise, operational) and multiple
timeframes (i.e. long-term, short-term, micro-term). SAP do offers SAP ECC Budgeting sub-
modules (Investment Management, Project Systems, Internal Order, and Cost Center) and SAP
BPC to support ERP level Budgeting. SAP BPC is recommended if the enterprise is having both
SAP and non-SAP systems as ERP.

ERP Made Simple: ERP Explained in 80 Pages or Less

Controlling Solution
In FI, transactions occur at the company code level; in CO, transactions are at the controlling area
level. One controlling area can have multiple company codes; this allows cross-posting of
cost/revenue among the Cost Objects. This is in line with FI statutory reporting requirement at
company code level; and global management reporting. Depending on how the enterprise is run,
the controlling area can be modelled at Company Code level, Regional level or Group level. In
case, controlling area is modelled below Group level, the COPA operating concern structure can
be implemented to further consolidate the controlling areas.

In SAP CO, there are 3 primary sub-modules, namely: Overhead Cost Management (CO-OM),
Product Costing (CO-PC), and Profitability Analysis (CO-PA). SAP PS can be used as part of
controlling; whilst BPC is an alternate budgeting tool.

ERP Made Simple: ERP Explained in 80 Pages or Less

Controlling Process: CO-PA
SAP COPA is the sub-module that brings together all data at various levels and harmonizes it in
the context of reporting profitability. It provides a unified reporting platform for Slice-and-Dice
Analysis. There are two versions of COPA, namely: Vanilla (aka Account-based) and Costing-
Based. Both versions are setup to provide enriched business dimensions for analysis. However,
the degree of breakdown at the value level differs.

The Vanilla version revolves along FI and is based on GL accounts (cost elements). Basically, it
enriches FI postings with key information such as Customers, Products, Market Segments, Sales
Order number, Purchase Order number etc. – while having fully reconcilable figures with SAP FI. It
provides cost information at the total level (GL accounts/cost elements), without any COGS
breakdown or Variance breakdown. Typically this is sufficient for non-manufacturing organization.

For enterprise with complex requirements requesting details on the COGS and Variances
breakdown; the Costing COPA, provides up to 120 freely-definable value fields to account for the
detailed requirement of cost/revenue breakdown – while still allowing up to 50 analysis fields (aka
dimension/characteristics). In addition, it also allows early posting of Sales Order entries prior to
Billing into Costing COPA for Order Intake Analysis. The actual data in Costing COPA can be fed
into production for Sales & Operations Planning (aka SOP).

ERP Made Simple: ERP Explained in 80 Pages or Less

Costing COPA forms the foundation of Cost-of-Sales Reporting (COS). Cost-of-Sales typically
breakdown Contribution Margin into various stages (at least 3), to get insights into various cost
components and breakeven points. In the below, it is shown that Contribution Margin I deals with
variable costs, Contribution Margin II deals with fixed manufacturing costs and Contribution Margin
III deals with non-manufacturing costs. The postings into between COPA, CO and FI are well
synchronized to be reconcilable.

ERP Made Simple: ERP Explained in 80 Pages or Less

The Budgeting Solution
There are at least four approaches to budget control in SAP.
 Cost Center and/or Internal Order level: this is a small-scale approach within ECC. It is easy
to setup and understand. However, budget is not centrally controlled, as budget is set at
individual object types (i.e. CC, IO). Core budget controls include availability tracking with
notifications and cost breakdown (budget/commitment/actual) reporting.
 Project Systems (PS) level: this is a comprehensive approach within ECC, where WBS is
set as the budget object with costs are booked against it. Apart from core budget control, PS
also allows hierarchical budget and cost management within PS. Refer to the earlier Build-to-
Asset process in SAP PS.
 Fund Management (FM) level: this is a holistic approach within ECC, where fund objects (i.e.
Fund Centers, Fund Programs, etcs) are set as the budget object whilst costs booked against
FI / CO are relayed to FM. Apart from core budget control, hierarchical budget management
of all cost object types is possible at FM level. It also offers cash availability view, which is not
possible with CO.
 SAP BPC: this is an external SAP system from ECC. BPC is both a budgeting and
consolidation system; if budgeting is done at BPC, the budget itself can also be consolidated
and match against actual consolidation figures.

ERP Made Simple: ERP Explained in 80 Pages or Less

Within ECC options:
Budget control setup revolves among cost objects that can hold both cost and budget (i.e. CC, IO,
and WBS). If in-depth capital investment management and Asset Accounting integration is required,
the Investment Management (IM) component can be further activated. In the case where CO
budget control is not covering the full budgetary requirements, the Fund Management (FM)
component can be activated.
Actual budget consumption instinctively comes from procurement (i.e. PR, PO). Other sources can
be manual FI / CO transfers. SAP budget control takes into consideration of actual cost and
commitment. When a PR is approved, it starts to hold a commitment; this consumed a portion of
the allocated budget for the specific cost object. When the PR is converted to a PO, the budget is
released from the PR but held at the PO level. When the PO is fully delivered or final invoiced, the
commitment is closed, and actual cost takes place. At any moment of time, cost and commitment
held by various objects are traceable.

ERP Made Simple: ERP Explained in 80 Pages or Less

If FM is activated, then the budget control is maintained at the funds objects (instead of cost
objects). Individual cost objects will be tagged to a fund objects (e.g. Fund Center, Fund Program).
GL accounts will be tagged to a FM commitment items. The combination of fund object and the
commitment item will hold the budget. Budget control at FM level has various versatilities, such as
budget control across modules, hierarchical budget management, revenue-increasing budget and
cash availability view. As FM is more to cash-basis whilst CO is more to accrual-basis, there will be
consumption categorizing differences. In FM, down-payment invoice is treated as commitment
while CO it is not monitored. In CO, goods receipt (valuated) is treated as actual while cash-basis
FM may not. Unlike CO, consumption can be mapped into FM without CO assignment (e.g HR-to-
FM).

ERP Made Simple: ERP Explained in 80 Pages or Less

Using SAP BPC:
SAP BPC is highly integrated with ECC. It can extract actual data from ECC for planning, and push
budgeted figures into ECC for fund control. Its user interface is Excel-based; and provides various
new add-in excel formulas for users to work with. BPC can be utilized as the centralized planning
platform for the whole of ECC. This ensures consistency of user input – rather than using various
planning utilities in each ECC modules. Collectively, the business functions (i.e. HR, Project &
Engineering, Finance & Administration, Sales & Distribution, and Production & Procurement) can
centrally perform Manpower Planning, CAPEX & Deprecation Planning, Finance & Administrative
Planning, Sales Forecast, Purchase Forecast, etc.

ERP Made Simple: ERP Explained in 80 Pages or Less

The BPC-ECC Budget & Planning Process
(1). BPC will extract the actual data from FI/CO/AA via nightly job.
(2). Business divisions/functions users input value for planning and forecasting using the BPC
Excel interface.
(3). Actual and Plan data can be compared side-by-side.
(4). The planned data can be used for centralized consolidation.
(5). The planned data is then retracted into ECC (FM) - for Budget Control.

BPC layout is well suited for customized planning process. For instance, if the budget cycle starts
in September with remaining 3 months (October, November, December) as forecast and next 12
month (January to December) as planned – the whole 15-month cycle can all be achieved in one
excel layout. As BPC leverages on the processing power of SAP BW / HANA, it can offer real-time
what-if analysis.

ERP Made Simple: ERP Explained in 80 Pages or Less

Enterprise Architecture
An enterprise is supported by myriad of applications for its business execution and strategic
planning. This goes from its production shop floor with MES (Manufacturing Execution System) to
its ERP to its headquarters’ EPM (Enterprise Performance Management) system. ERP is the
central piece of software in the Enterprise Architecture (EA). It is the nerve center of information,
taking data from various sub-systems, and setting the basis for management planning. From an
enterprise perspective, it is important to strategize on what application capabilities to acquired, and
how should each of these applications be used. Apart from knowing the ERP modules, it is
important to know how each of these modules is connected to its corresponding sub-systems.

ERP Core with Potential Integrative Sub-systems

ERP Made Simple: ERP Explained in 80 Pages or Less

Complementary components used by the industries

ERP Made Simple: ERP Explained in 80 Pages or Less

An Enterprise Architecture should, in general, be able to handle upstream demands from
customers agilely, collaborate with suppliers readily, process high-volume invoicing/payment
efficiently, operate its internal processes effectively, and analyze its data near-realtime - perhaps
with a centralized ERP and/or mixed specialized applications.

CRM suites enable enterprises with capabilities such as extensive pricing, quotation, service and
analytics to handle varying upstream demand. The potential CRM can be SAP Hybris suite or
Salesforce. In addition, CRM-related Billing solutions are able to track and bill large numbers of
customers, while reducing posting footprints into ERP. Likewise, in financial institutes, large
number of financial assets can be processed in SAP FAM (Financial Asset Sub-ledger) before
having the net balances sent into ERP. SRM solutions (such as SAP SRM, Ariba) enable
enterprises to have access to market-aligned practices, while maintaining good collaboration with
suppliers.

For backend high-volume invoice processing, OCR (Optical Character Recognition) solutions, such
as WMD xFlow and OpenText VIM, can be deployed for automated scanning (into ERP) – this free
up the effort for human processing and errors. For high-volume payments and collections, bank
integration can be setup using EDI/XML/CSV formats. Online self-service tools (such as Concur
Claim, SuccessFactors, Taleo, Workday) can be deployed, to ease the administrative load.

For advanced planning and scheduling of production, SAP SCM or other best-of-breed alternatives
(such as i2 and Manugistics) can be deployed for an end-to-end supply chain solution. Specialized
engineering software (such as CIDEON PDM Drawings, Maximo Asset Management) can be used
to further enhance the product design and engineering architecture. External project management
tools that are more compatible to the MES chosen (such as Primavera) can be brought into ERP or
PPM for holistic analysis.

The demand for Enterprise Performance Management, exist even without an ERP in place,
matured applications such as SAP BPC, Hyperion Planning, Cognos TM1 can be used
integratively or without. Business Intelligence tools such as SAP BusinessObjects, Tableau,
Qlikview, PowerBI, can used to facilitate visualization and trends identification.

ERP Made Simple: ERP Explained in 80 Pages or Less

The Enterprise Architecture varies with the industry that the enterprise is in, as such the ERP
modules activated per industry will be different. We will explore various architecture deployed using
examples from the Engineering, Real Estate, Retail and Banking industries.

Sample Architecture of Commercial Banking Enterprise

ERP Made Simple: ERP Explained in 80 Pages or Less

Why a Bank would require an ERP? Banks have 101 trading applications, literally. All these
systems need to be consolidated into the General Ledger for regulatory reporting. With all the data
available in the ERP, true hedging and in-house cash can be utilized. It is only in the central
reporting system, Balance Sheet items can be netted as either an asset position or a liability
position.

In a Banking organization, there can be Commercial Banking and Retail Banking scenarios.
Financial institutes deal with financial instruments (such as trade finance, debt, securities) as
products, rather than physical goods. The central module used would be FI, and CO; while a
myriad of trading applications becomes its sub-ledgers and sub-modules. The specific challenge of
this industry is stringent regulatory requirements for financial assets, hence it is recommended to
take up Financial Asset Sub-ledger (FAM) to meet the data granularity requirements of IFRS 9.

For commercial banking, there can be a variety of trading (or loans) systems used. Hence, the
Enterprise Architecture needs to include a layer of data harmonizing process before entering the
SAP ledgers. FAM is highly ECC compatible and has functions that support the liquidity coverage
requirements. In the event that FAM does not fit the Enterprise Architecture schema, a custom
application can be used to meet the intricate needs of Risk Weighted Asset Model. For retail
banking, it is recommended using Industry Solution for Banking (IS-B) for a smooth integration.

It is known that Deutsche Bank, for example, has been using ECC for years to consolidate its high
volume of financial transactions.

ERP Made Simple: ERP Explained in 80 Pages or Less

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ERP Made Simple: ERP Explained in 80 Pages or Less

Customization Concept
As ERP caters to a wide range of business scenarios, its standard processes could not be fine-
tuned to the enterprise’s needs in every way. This means customization is inevitable. But to what
extend? Customization is a double-edge sword: on one hand it allows tailoring of ERP components
to the specific enterprise business; on the other it introduces variation processes against the
standard ERP processes. Variation processes are not necessarily bad, but it might have
compatible issues with the ERP (especially during upgrades). Hence, an optimal balance needs to
be established between customization and standardization.

There are 6 identified customization areas – abbreviated as RICEFW:

(1) Reports: This is for custom reports to meet the individual enterprise reporting needs. Each
enterprise belongs to a different industry and business environment, its needs for reporting differs.
ERP typically provide various reporting utilities for customized reports. For SAP, there is the Report
Painter tool for fast report generation in finance; whilst various Logistic Information InfoStructures
are available for logistic reporting – in both case there is no need to resort to programming. SAP
Infoset Query builder can be used to join data from both finance and logistics via its click-and-drag
interface; programming codes may be inserted to various spots for enhanced querying. Extended
reporting can be performed using SAP BW/BI. S/4 HANA provides HANA modeling capabilities for
extract analytical data in-place.
(2) Interfaces: This is for interfacing connectivity to meet the individual enterprise application
landscape. Each enterprise has different applications infrastructure, its needs for integration differs.
ERP will not know beforehand what these exact requirements are but may offer adaptors for
smooth interfacing. In logistics, it is possible to have integration with external vendor or even
internal vendor for order automation. In finance, it is common to have bank interfaces for automatic
bank transfers. SAP provides various pre-built interfacing mechanisms for logistics and finance.
Interfacing technologies include CSV, XML, EDI, SAP-ALE, SAP-IDoc, Web Services, etc. At the
frontend level, it is also possible to use external user interfaces coded in C++, Java, Excel or even
Python.
(3) Conversions: This is for bringing in legacy data into the ERP. SAP uses the Legacy System
Migration Workbench (LSMW) tool to load legacy data to standard objects. Data can be prepared
in an Excel file, and the LSMW will run through each record while data-posting into specific
transaction screens. Custom LSMW can be built.
(4) Enhancements: This is for adjusting standardized ERP processes. Each enterprise will have
its idiosyncrasies in its business processes, certain level of alteration is required. SAP provides
various enhancement techniques (such as Exits, BADI, BTE, Spots, etc.) for business alignment.
For example, the ‘Selling Type’ information needs to be captured in the Sales Order. Hence, there
is a need to create the ‘Selling Type’ input field in the Sales Order screen using Screen Exits.
During saving of the Sales Order, the ‘Selling Type’ is updated to the database - using Program
Exits.

ERP Made Simple: ERP Explained in 80 Pages or Less

(5) Forms: This is for custom forms to meet the individual enterprise correspondence and
documentation needs. SAP provides template forms (such as Billing Invoice, Dunning List, Picking
List) for enterprise to adapt for usage.
(6) Workflows: This is for automated tasks and notifications. SAP provides predefined workflows
(such as PR/PO approval). Custom workflow can be built.

ERP Made Simple: ERP Explained in 80 Pages or Less

The Next Frontier
The development of ERP is influenced by two primary factors: Business requirements and IT
capabilities. This has resulted in ERP reinventing itself. An example would be the next generation
ERP, S/4 HANA Enterprise Management (S4EM). It leverages on its high performance in-memory
capabilities to eliminate architectural limitations and simplified its data model – this entails greater
ease and elegance for handling new requirements such IFRS 15 and IFRS 16.

The fundamental change of S4EM is to have a centralized ledger structure, aka the Universal
Journal (UJ). In ECC, a posting in FI, may lead to a posting in CO. Hence, at least two documents
are being created in two places. With UJ, postings are only passed once into one place. This
ensures high degree of data synchronism.

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officially connected with SAP®, Oracle® and Microsoft®, or any of their subsidiaries or their
affiliates.

ERP Made Simple: ERP Explained in 80 Pages or Less

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ERP Made Simple: ERP Explained in 80 Pages or Less