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Understanding ERP Overview of SAP SAP introduction session SAP PP session


Organization structure SAP Terminology


ERP Definition

An ERP system is
A unified environment Comprising of key business and management processes, information blocks and functional areas to deliver consistent, reliable and detailed information to facilitate timely and quality business decisions

But, beyond that it is


Before ERPs became popular, the typical company had many specialized computer systems. Each system was specified designed to serve the needs of an individual department

One system might manage accounting. Another might control production planning. A third might serve the Human Resources department. Some large companies had hundreds of different systems, and many companies built custom systems from scratch to meet their business needs.

Sometimes different computer systems didn't communicate with each other. Duplicate information had to be entered by hand in each system. This was slow, inefficient and subject to errors.

After ERP
HR Accounts Production

Sales Admin.



SAP Overview
SAP What, How & Why ------------------------------SAP R/3 is an Enterprise Resource Planning application, or ERP. An ERP is an integrated information system that usually serves many departments within a company. You may hear SAP R/3 called simply SAP or R/3

SAP What, How & Why

SAP was founded in 1972 in Mannheim, Germany. The name SAP is derived from the German phrase meaning Systems, Applications, and Products in Data Processing. It is pronounced as separate letters, and not as the word sap.

SAP What, How & Why

As the software is integrated, information no longer had to be entered more than once. Changes made in one part of the business were immediately visible to users working in other parts of the business, because the different parts of SAP's software were in constant communication. Users could have better, more accurate information with less effort.

SAP R/3 Modules

Sales & Distribution Materials Mgmt.


Financial Accounting Controlling Treasury



Product Planning


QM Quality

Plant Maintenance

Client/Server PS Client/Server ABAP/4 WF PM ABAP/4

Workflow Human Resources

R/3 R/3



Project System


Industry Solutions


Organizational Levels in Inventory Management

Organization Structure
Client 400

Company code 0001

Company code 0002

Plant 1000

Plant 1100

Plant 2000

SLoc 0001

SLoc 0002

Lagerort SLoc 0001 002

SLoc 0002

SLoc 0003

SAP Terminology

TRANSACTION A transaction is a task that you perform in SAP. Any time you view a report, or create or display a document, you are running a transaction.

Most transactions within SAP are associated with a four-character code called a transaction code. This transaction code can be used in the command field to jump directly to a transaction without having to follow the navigation path. You will learn how to do this in a later lesson.

Master data is important, long-term data stored within the SAP system. Vendors, customers, plant IDs, the chart of accounts, and product numbers are all examples of information that is stored as master data records


A document is data created in association with a particular business event or transaction. Sales orders, purchase orders, material requisitions, and general ledger postings are all examples of documents stored within SAP. Every document created in SAP is assigned a document number that uniquely identifies it.

SAP Overview - Integration with other Modules

Project systems Quality Production

Sales Logistics


Finance / Asset Management

Finance Controlling Project Systems Production Planning Quality management Materials Management Sales and distribution Human Resource Customer support Service management

Master Data Material Master Bill Of Material Work Centers Routings Sales and Operation Planning Demand Management Materials Requirements Planning Capacity Planning Production Control

Production Planning Master Data

Master Data in PP

Material Master Bills of Material Work Centers Routings

Master Data in PP
Routing Work Center

Process Order


Material Master

Production Planning Material Master

Concept of Material Master in SAP.

The material master contains information on all the materials that a company procures, produces, stores, and sells. The material master is used by all modules in the SAP. Different departments in a company work with the same material, so data in a material master record is subdivided in the form of user departments. Material description and base unit of measure appear in all user departments.

User departments(cont..)


Basic data MRP1 MRP2 MRP3 MRP4 Forecasting Work scheduling,

Basic data

On this data screen, data that is also used by other user departments is entered. Data like description of the material, base unit of measure, Division, Item Category, material group,, Weight of the item, Document or Drawing No etc are maintained. The above data is maintained across two views Basic Data 1&2 views.

Material Requirements Planning (MRP).

The following Data relating to MRP is maintained: Planning Lot size (Fixed, Variable) Procurement Scheduling time(lead times : Planned Inhouse Production Times, Planned Delivery times etc.). Stock levels (Ex Safety Stock) Planning Strategy

The above data is maintained in Four screens MRP1,MRP2,MRP3,MRP4.

Data related to forecasting of material is maintained here. Consumption values and forecast values as a basis for calculations are maintained on this screen. Individual forecast models for a material can be maintained.

Work Scheduling

The following data is maintained on this screen :

Production scheduler,production scheduler profile Serial No Profile. Batch Management (If required). The base quantity to which the processing time relates, under Lot size dependent inhouse production time.

Production Planning Bill Of Material

Production Planning-Bill Of Material


Concept of Bill of materials in SAP

A bill of material is a complete, formally structured list of the components required to produce the product or assembly. The BOM contains the object number of each component, together with the quantity , unit of measure and item category of component. Bills of material (BOMs) contain essential master data for integrated materials management and control.

The data stored in bills of material serves as a basis for activities such as: A design department (working with CAD) can base its work on bills of material. You can also create a BOM in the R/3 System from your CAD program, via the SAP-CAD interface. A material requirements planning (MRP) department explodes bills of material on a certain date to calculate order quantities and dates for materials. A work scheduling department uses bills of material as a basis for operation planning and production control. Sales orders, As an aid to data entry. You can also create and maintain a BOM specifically for a sales order. Reservation and goods issue Product costing, To calculate the costs of materials required for a specific production order.

BOM Usage

R/3 allows you to define different scrap factors for BOM components. Three different scrap factors accumulate in MRP:

Scrap Data

Component scrap :

Is defined in the BOM item. It shows the % of the component that is lost as scrap.
Assembly scrap :

Is defined in the BOM header or in the material master record of the component. It shows the percentage of the finished or semifinished product that is lost as scrap due to manufacturing problems across all operations.

Overview of BOM Reporting Functions

The R/3 System supports the following reporting functions: Mass Changes : You can use the mass change function to change items in several BOMs at once. BOM Explosion: The system determines all the components which are contained in an assembly. BOM level by level Multi-level BOM Where-Used List :To determine which BOMs an object is used in. BOM Comparison: Two BOMs can be compared for single or multilevel. Displaying Change Documents

Work Centers

Work centers

A work center is a place where production operations are performed.

Machines, machine groups Employees, groups of employees

Together with bills of material and routings, work centers belong to the most important master data in the R/3 and control system.

Work center data in R/3

The data is grouped together in screens and screen groups :

Basic Data Assignments (To cost centers) Capacities Scheduling Default values Technical data

Basic data

In the Basic data screen the following data is maintained.

Short and long texts for description of work center. Various administrative data, such as the person responsible and the location of the work center Usage type: This specifies which type of task lists the work center can be used in. (for Production, Maintenance) Standard value key:Standard values are planned values for the execution of an operation and are maintained in the operation. E.g.:set-up and processing The execution time, costs and capacities are calculated in operations using formulae from the work centers and standard values from the operations. Performance Efficiency Rate Key :The performance efficiency rate key is the ratio between an individual's actual output and the planned average output .

Standard available capacity

Standard available capacity is used, among other things, for calculating execution time in a routing without reference to an order
It is valid indefinitely. It has a fixed working time It is valid on all working days in the factory calendar

Units of Measurement for Available Capacity

The base unit of measure for the available capacity must be a unit with dimension "time". the available capacity can be expressed in any unit for instance in numbers". A conversion factor must be specified , that is how many units of the new dimension correspond to a particular period of time, for instance 1 number = 30 minutes.


Scheduling Data

Formulas are used to calculate the execution times of operations in production orders using standard values

Formulas are used in the work center to calculate the following data in costing, scheduling and capacity planning: Costs
Execution times for production orders Internal processing times for networks and maintenance orders Capacity requirements.

Concept Of Formulae in Work Centers

Cost center data

Work center is assigned to activity types. Activity types are used to describe the various forms of activity that are performed at a cost center. The activity types are used to calculate the costs for these activities.

Cost center data



A routing is a description of Which operations (process steps) have to be carried out The order in which they are carried out, Information about the operations . Details about the work centers at which they are carried out About the required production resources and tools (includes jigs and fixtures). Standard values for the execution of individual operations. Quality Inspection to be carried out for each operation

A routing is used as a source for creating a production order.

Structure of routing.

External Processing Data

Operations or sub-operations, carried out outside of your company by a vendor is External processing . When a production order is created the system automatically creates a purchase requisition for the operation or sub-operation for External Operation An operation or sub-operation is processed externally is decided by its control key.

Maintaining Material Components

Materials are to be made available in a production process. The following data already exists in the system:
The operations in the routing The master record for the material to be produced The bill of material (BOM) for the material to be produced

Production Resources/Tools

Production Resource/Tool(PRT) is a moveable operating resource used in production or plant maintenance. Production resources/tools can be assigned to operation, activities or phases in task lists. Production resources/tools that are used for testing during production, can be assigned to the corresponding inspection characteristic in the inspection plan.

Sales & Operations Planning

Integration between Sales and Manufacturing

Process Flow in Planning

Sales & Operations Planning (SOP) is a flexible forecasting and planning tool SOP constitutes the planning functionality in SAP. SOP is used to perform companys sales and production operations Sales, production targets can be set on the basis of historical, existing, and estimated future data. Rough-cut planning can be carried out to determine the amounts of the capacities and other resources required to meet these targets. SOP plans are passed on to Demand Management (PP-MP-DEM) in the form of independent requirements. This data is fed to Material Requirements Planning (PP-MRP).

Transfer to Demand Management.

Demand Management determines the requirement dates and requirement quantities for important assemblies and specifies the strategies for planning and producing / procuring finished products in the form of planned independent requirements. This ends the phase of SOP.

Demand Management

The function of Demand Management is to determine requirement quantities and delivery dates for atyerials / Components and important assemblies. The result of Demand Management is the demand program. The demand program is created in the form of planned independent requirements.

Demand Management uses planned independent requirements and customer requirements. Customer requirements are created in sales order management. To create the demand program for a material , planning strategy must be defined for it. Planning strategies represent the methods of production for planning and manufacturing or procuring a product.

Material Requirements Planning

Material Requirements Planning in R/3

Functions of material requirements planning is To guarantee material availability. It is used to procure or produce the requirement quantities on time both for internal purposes and for sales and distribution. Monitoring of stocks, creation of order proposals for purchasing and production. Determines any shortages and create the appropriate procurement elements. Create messages that inform the MRP controller of critical parts and exceptional situations so that the MRP controller can quickly reprocess the results of the automatic planning run in the specific area with problems.


Material Master BOMs Work Centers Routings Demand Management Sales and Distribution, if necessary

Concepts of MRP

Single-Item or Total Planning. For an individual material, planning is referred to as single-item planning. For a certain plant, where all materials to be planned are included, it is referred to as total planning. Scope of the Planning Run Regenerative planning: All materials are planned for a plant. Usually, the regenerative planning run is only carried out in the implementation stages. Net change planning: only materials which are included in the planning run are those which have undergone a change relevant to MRP since the last planning run.

Lot-Sizing Procedures

Concepts of MRP

Static lot-sizing procedures:Using quantity specifications entered in the material master record.

Lot for lot order quantity Fixed lot size Replenish up to maximum stock level

Planning Time Fence To protect the master plan from any automatic changes to master schedule items in the near future by using a planning time fence.

Manual Reorder Point Planning Specify both the reorder level and the safety stock level manually in the material master record.

Automatic Reorder Point Planning Both the reorder level and the safety stock level are determined by the integrated forecasting program , using past past consumption data (historical data) to forecast future requirements.

Role of MRP controller

The MRP controller is responsible for all activities for specifying the type, quantity and time of the requirements He must also confirm when and for what quantity an order proposal has to be created to cover these requirements. He is provided with the information on stocks, stock reservation and stock on order to calculate quantities and he needs all the information on lead times and procurement times to calculate dates. The MRP controller determines a suitable MRP and lot-sizing procedure for material to determine procurement proposals. The planning run in MRP determines any shortages and creates the appropriate procurement elements. The system creates messages that inform the MRP controller of critical parts and exceptional situations so that the MRP controller can quickly reprocess the results of the planning run in the specific area with problems.

The most important exception messages are rescheduling and reversal proposals. These messages refer to receipt components that cannot automatically be changed by the system (for example, production orders or purchase orders). In the SAP system, new dates are also proposed for firmed order proposals if the requirements situation has changed since the order proposal was firmed. In case of capacity planing the MRP controller receives the information on possible bottlenecks and overloads from the comparison of the available capacity with the capacity requirements. As a result, planned orders can be re-planned in the planning run before the master plan is passed on to production. Exception messages provide information that refer to a situation that may require attention, for example, start date of the planned order in past, stock level fallen below the safety stock level, and so on.

Role of MRP controller (cont..)

Role of MRP controller (cont..)

During availability check In the planning results and in the evaluations of the planning run, the MRP controller can use the ATP quantity to determine whether all issues are covered by the master plan and how many of the receipts are still open for new issues (such as sales orders) that may arise. This provides the MRP controller with all the information he requires for deciding whether the master plan has to be changed. After the planning run, the MRP controller can check and edit the order proposals created using the various evaluation functions available. The MRP controller can also firm order proposals so that the system makes no changes to them in the next planning run.

Capacity Planning

Capacity Planning

Capacity planning enables use of resources and

Comparing available capacity and capacity requirements, displayed in lists or graphics. Allotting available capacities to requirements. Selection of appropriate resources.

Capacity Requirements:
Calculating the capacity requirements of an operation for manufacturing a material takes place in scheduling using formulas in the work center Orders generate capacity requirements and thus a load on the resources(work centers) that are to process them. The following types of orders are relevant: Production orders in Shop Floor Control (SFC). Planned orders .

Concepts of capacity planning

Scope of functions in capacity evaluation

Gives an overview of the load situation of selected work centers .

This is a list predefined by SAP showing data on the capacity situation at work centers Columns displayed: Period Capacity requirements in the period Available capacity in the period Capacity load (capacity requirements/available capacity in percentage terms) in the period The various evaluations can be displayed both in tabular and graphical form. The SAP-Gantt diagram gives you an overview of

Capacity leveling is used in a company with the following objectives: Leveling overloads and underloads at work centers Achieving commitment of machines and production lines Selecting appropriate resources Operations are dispatched to the time when there is sufficient capacity for them to be executed In the dialog box Dispatch manually you can enter the date and the time when the operation is to start or finish as well as the work center. An operation can be dispatch to a different work center from the one to which it is planned.

Capacity Leveling

Production Control

Production Orders

Production orders are used to control production within a company. A production order defines
Which material is to be processed or produced, At which location I.e work center, At what time (When to produce ?), How much work (quantity) is required, Which materials are required, Which resources are to be used and How the order costs are to be settled.

Elements of Production Order

Creation and release of Production Order

An order can be generated in the following ways:

By converting a planned order to a production order Without any previous requirement, that is by creating it manually

When a production order is created the following actions are carried out: A routing is selected, its operations and sequences are transferred to the order. The bill of materials is exploded and the items in the bill of material are transferred to the order. Reservations are generated for bill of material items held in Stock. The planned costs for the order are generated. The capacity requirements are generated for the work centers. Purchase requisitions are generated for non-stock items and externally-processed operations.

Other data of Production order

Production resources/tools

Production resources/tools (PRTs) are, in contrast to machines and fixed assets, moveable resources that are not tied to a particular location and can be used several times. In the production order production resources/tools must always be allocated to a specific operation. However, the allocation can already take place in the routing.

Checking the Availability of Material

Before you start with production, check can be done whether all the material components allocated to the production order are available on the calculated requirements dates. In a production order, the system can only check a material component, if it is
kept in stock not a phantom item not a bulk material

Release of production order

The following restrictions apply to a production order with the status "created and which is not released. Completion confirmations cannot yet be carried out for the order. Shop papers cannot be printed. Stock movements I.e goods issues, receipts cannot be carried out for the order.

The release of the order cancels these restrictions. Printing orders is possible once the order is released. Shopfloor papers include: operation control ticket job ticket pick list time ticket confirmation slip


Part of order monitoring, this documents the processing status of operations or suboperations. In the SAP System, a distinction is made between partial and final confirmations. With confirmation you specify
The quantity in an operation that was produced as yield, scrap and the quantity to be reworked Dates How much work was actually done Which work center was used for the operation Reason for variance

Usually confirmations are made for

An order An operation

When a production order is settled, the actual costs incurred for the order are settled to one or more receiver cost-objects (for example, to the account for the material produced or to a sales order). If the costs for the production order are settled to a material account, the order is credited each time material is delivered to stock. The material stock account is debited accordingly. If the costs for the production order are settled to another receiver (for example to a sales order), the order is credited automatically at the time of settlement.

Order Settlement


Production Order Creation Order Confirmation Goods Movement

Increase awareness about:

the cross-functional implications, system checks and the results of the transactions

Production Order Creation

A production order defines
Which material is to be processed or produced At which location I.e work center. At what time( when to produce ? ) How much work(quantity) is required. Which resources/work centers are to be used and How the order costs are to be settled.

Production Order Creation

You can create production orders either:

with or without material

Production Order Creation

When a production order is created the following actions are carried out:

A routing is selected, its operations and sequences are Transferred to the order. The bill of materials is exploded and the items in the bill of material are transferred to the order.

Production Order Creation

When a production order is created the following actions are carried out:
The planned costs for the order are generated. The capacity requirements are generated for the work centers. Purchase requisitions are generated for non-stock items and externally-processed operations.

Process Order Creation


Header: Quantities, dates and scheduling data. Allocation: Inspection Lot, Created/changed by, responsibility, plants, other assignments Goods receipt: Tolerances, receipt and delivery Master data: Recipe, production version, costing data

Production Order Creation

The following information is listed for every operation: The operation number (this number specifies the sequence in which operations are processed). The work center where the operation is to be executed

The control key that determines how the operation is to be used (for example, whether it must be confirmed, whether it can be scheduled, whether it can be printed, and so on) The current status of the operation (for example, whether it has already been created or released) A short description of the operation

Production Order Creation

If a bill of material exists for the material to be produced, the BOM items contained in the bill of material are automatically taken over into the production order as components.

Production Order Confirmation

A confirmation documents the state processing of orders, operations, sub-operations and individual capacities. It is an instrument for controlling orders. With confirmation you specify The quantity in an operation that was produced as yield dates How much duration was required
Which work center was used for the operation rework reasons for deviation

Production Order Confirmation

Usually confirmations are made for

An order An operation

Production Order Confirmation

Confirmations Result in a reduction in the capacity load on the resource

an update of the costs, based on the confirmed data an update of the order data, such as times or order status withdrawal postings for backflushed components an automatic goods receipt

Goods Movement
Before you can start producing a material, all the necessary material components have to be issued from stock via goods issues. The delivery to stock of the manufactured material is documented in the system via a goods receipt. : A material document is created to record the goods movement. The stock quantities of the material are updated. The stock values are updated in the material master record and the stock/consumption accounts are updated.

Goods Movement
Movement types 261 for GI to order 101 for GR from order

Single FG RM cost 5 Rs + Processing cost 10Rs =

FG cost 15 Rs

Multiple FG RM cost 5 Rs + Processing cost 10Rs = FG2 cost ? Rs

FG1 cost ? Rs


To decide the % of cost breakup we need the equivalence number