Over the years, there have been drastic changes in regard to the area of data processing (DP). In the past, DP was primarily used to provide administrative support for individual function areas like accounting or materials management (Buck-Emdon/Galimow, 3). Eventually, there was a demand for information from other departments. Programmers began writing code to integrate the areas. The problem that arose was with the way companies looked at integrating applications. Business applications were thought to be integrated, but in reality were not. Business application looked like they were integrated, but were actually only interfaced, meaning that real-time updating was not always available and data sources could become confused (Doane, 3). The problem with this is that information was too often limited to the department that generated it (Doane, 6). Also, with changing demands, adjustments with the hardware and software became extremely difficult to coordinate.
With short innovation cycles, worldwide competition, and the high information technology costs that companies are experiencing today, they are forced to find a better way to manage their information in a more efficient and accurate manner (Buck-Emdon/Galimow, 1). Enterprise-wide information management is necessary to get the decision-makers the information that they need to do their job. This purpose of this paper is to discuss enterprise resource planning and the software solutions that support it.
Enterprise resource planning (ERP) has become a popular term for the solution to this problem. A good definition for ERP is difficult to uncover. Whatis.com Inc. defined it as the broad set of activities supported by multi-module application software that help a manufacturer manage the important parts of the business (product planning, parts purchasing, maintaining inventories, etc.). What this means is that it is a way of integrating information across many applications. ERP has become a hot topic for most companies around the world.
Enterprise Resource Planning (ERP) software solutions have been growing in popularity over the past few years. To get a better idea of what ERP is, you need to look back to the history of MRP. ERP is just the most recent development of the previous inventory tracking systems. MRP (Materials Requirements Planning) systems were developed in the 1970’s as a computerized way for planning of materials acquisition for production. Next came the MRP II (Manufacturing Resources Planning). MRP II was an extension of MRP to include distribution management activities. During the 1990’s, MRP II extended to cover areas like Engineering, Human Resources, and Projects Management due to an increased demand for functionality. This is where ERP came into the picture.
Due to the continuous changes in the overall industry framework, ERP is becoming a necessity, forcing companies to make changes to the structure of their business operations to accomplish the objectives. ERP demands direct attention to the business processes along the entire net-value-added chain. To accomplish the goal, a strategy known as business process re-engineering is engaged, sometimes completely eliminating the legacy systems that have been used for a while. Typically, successful companies are characterized by the fact that, networked with customers and suppliers, they use the most modern information technology to make available products or services of the highest quality, in all sorts of varieties and with minimal delay, in response to customer demands (Buck-Emdon/Galimow, 1). Companies strive to keep the customer satisfied and accomplish this by providing the best possible product.
After researching the topic, two alternative solutions to ERP were discovered. One solution is in-house software development by reusing the existing software components. Between the functional complexity, the costs of developing and maintaining, and the rapid changes in business processes, this technique is hardly feasible. A more popular choice among management today is through the use of standard application software.
ERP standard software solutions provide a cleaner way of integrating business functions into one system. These packages help control the flow of information of a company from its customers to its suppliers. The number of vendors providing these products is growing quickly. Among the some of the companies providing software solutions for ERP are:
As indicated in Table 1, SAP holds the most market share at 29 percent as of September 1997. Since then, that number has increased and decreased many times, but remains around the same percentage. Competitors are developing products that can compete with SAP in certain areas. Vendors like PeopleSoft, Baan, and Oracle are some of the strong competitors in the ERP standard software market. SAP dominated the market for a long time, but is losing some of it to these companies. They are able to gain market share through their ability to offer products at lower costs and with ease of implementation. SAP is still the dominant vendor in this group. Therefore, this project was directed toward SAP AG and its product, the R/3 System.
SAP AG History. SAP (Systems, Applications, and Products in Data Processing) is a major contributor to the world of standard application software and is considered the leading global provider of client/server application solutions and one of the largest independent software vendors in the world (www.sapfans.com). SAP has been committed to the business applications arena for 26 years, giving it a remarkable level of experience solving the information management problems of businesses around the world.
SAP AG was formed in 1972 after five IBM workers in Walldorf, Germany developed a financial accounting package for an IBM customer. They bought the rights from that customer and started to design and implement the financial system as a standard package (www.sapfans.com). From there, they began to develop applications for Materials Management and many others areas. Their first software suite developed to handle many functional areas was the R/2, which was designed for mainframe applications. In 1992, SAP released the R/3, a software suite for Client/server applications. Since then, the R/3 System’s popularity has increased greatly. Today they offer a number of products, but the R/3 seems to be the one that everyone is talking about.
The R/3 System. The R/3 system, SAP’s integrated software solution, is the world’s most-used standard business software for client/server computing (www.sapfans.com). It can be quickly adapted to new business demands, and can be easily integrated with other technologies and applications throughout the enterprise. With SAP products, customers have the option to install the core system and one or more of the functional components, or purchase the software as a complete package. Today, this package is installed in over 16,500 sites around the world. There are many success and failure cases relating to the implementation of the R/3. But, if it is implemented properly, R/3 can have many benefits including increased productivity and flexibility, assuring companies that their investment in hardware and software is justified and protected.
The R/3 system is a fully integrated suite of systems that supports the entire range of standard business applications. The idea behind the product was to cover all the possible business applications needed. In the development of the product, SAP wanted to construct it in such a way that could be implemented in as many industrial sectors and types of businesses within a large number of countries. The following principles were used for the design of the R/3 (Buck-Emden/Galimow, 167):
SAP aims to cover every possible situation and has accomplished this through research and development, putting 20% of their revenues towards developing a better product. Feedback also plays a large role in their creation of a more suitable product.
The standard business applications used in the R/3 include the following basic functional areas: Accounting, Logistics, Human Resource Management, R/3 Industry Solutions, Open Information Warehouse, and Office Functions (Buck-Emden/Galimow, 171).
For the areas not covered in the suite or for applications that need slight changes to fit the needs of the company, the R/3 offers the ABAP/4 Development Workbench. It is SAP’s proprietary programming environment used for the development or adjusting of applications. It supports the entire software development life cycle with tools for modeling, programming in the 4GL language ABAP/4, definition of data and table structures, and the design of graphical user interfaces (Buck-Emden/Galimow, 135). It also provides resources for software testing, tuning, and maintenance.
The programming language used is SAP’s very own 4GL language is called ABAP/4 (Advanced Business Application Programming). It is the basis for all R/3 applications. It allows for two types of applications to be implemented: transaction applications and database analyses (reporting). The essential attributes of this language are (Buck-Emden/Galimow, 139):
With the technological architecture of the R/3 System, it is able to follow internationally recognized standards and open interfaces listed below (Buck-Emden/Galimow, 94):
The Internet is a relatively new feature for the R/3 System and a very important one. The Internet allows a company to reach new customers through its marketing capabilities. It also allows your staff to easily communicate online through the use of an Intranet. Electronic commerce is another important feature that the Internet enables. It allows for business transactions to be made from any suitably networked computer between private parties and/or companies.
With the design of the R/3, companies are enabled to establish enterprise-wide information management that can lead to a path of efficiency. With implementing an ERP product, companies are forced to think and act in a new way. The transition can be tough on everyone. if implemented correctly. If implemented correctly, SAP provides a solution that can be very beneficial to a company.
Since the R/3 is a quickly growing trend in the world of IS, I conducted research in the areas of ERP, ERP software, and most of all, the R/3 system. The information for this assessment was derived from three major sources: a review of relevant SAP documentation, communication with a SAP consultant, and review of periodicals.
SAP Documentation. To get a good background on the R/3 system, I found a few books on the architecture and implementation concerns for the R/3. One book was based around the client/server architecture and how SAP used it. It started off showing how the client/server architecture changed the way data processing was handled. Then it gave the principle behind the client/server architecture.
Another helpful book that I reviewed shows how SAP can help give a company a competitive edge. It defines why SAP is so popular and compares it classical systems. Most of the relevant information was defined through implementation concerns for companies that might be planning to implement the R/3.
Communication with SAP Consultant. Throughout the duration of the project, I contacted SAP consultant that worked for Boehringer Mannheim Corporation. She sent me some information that she had received from SAP. This information basically represents all that the R/3 system could offer companies. She also told me that if I sent her some questions, she could answer them and send them back to me, but things got really busy for her and she failed to do so. It was a bad time for her because their whole company just went live and they had some major problems.
Review of SAP-Related Articles. While researching, I was able to find some information on the Internet. While the research was restrictive, there were a few relevant articles that were of use for the project. I found many cases of companies that implemented the R/3, many of which had problems. It was important to see real-world cases so that I could get both sides of SAP as related to the R/3.
Most of my information on Enterprise resource planning came from articles on the Internet. I was able to uncover the concept behind ERP and the many solutions to provide support for the process.
The SAP has many benefits that come with their products. They have been in the business for 26 years giving them more experience than their competitors.
The R/3 can be integrated with other PC applications. Applications data can be read using software like Microsoft’s Excel, a spreadsheet package, as a list viewer. It File Transfer Service allows data to be read and written in the presentation computer.
The openness is also another strongpoint. It is designed as an integrated suite of applications, but the modules can also be used individually. You also have the ability to expand modules using the ABAP/4 Workbench to meet the specific requirements of your business.
The R/3 openness gives companies ability to run on the hardware platforms of the leading vendors that comply with open systems computing standards and can be integrated with your in-house applications. It supports many platforms, which makes it easy to choose the best platform suited depending on performance requirements and existing IT infrastructure. The following technology environments are supported by the R/3:
The R/3 System is infinitely expandable depending on the company’s needs. It has the ability to grow as the company grows. Tasks are appropriately distributed across a number of computers and can communicate with each other across the network. If a server starts showing signs of overload, a new server can be brought in to take some of the load.
The true power of SAP software lies in the real-time updating that connects the entire scope of business applications. Actually, R/3 stands for real-time integration, release 3. As information is added or changed within a business application, this integration ensures that all other related functions and applications are immediately updated to reflect the new input. The responses appear from a departmental to a global scale. This integration reduces the traditional time delays incurred both by manual methods of information recording and communication and by unintegrated islands of automation (www.sapfans.com). This gives the customer, meaning the person using the information, the information that is needed on the desktop right when it is needed.
The R/3 supports many different countries for its functionality. The languages that are used on the screens, on-line help, and on-line documentation is driven by the user’s log-on, as is master data that is linked to language-dependent tables (Doane, 13).
In addition to the European character sets, the R/3 allows for pictographic display, such as Japanese kanji or Arabic. With this ability, various counties can be logged in at the same time, each working in their native language, doing the exact same thing. There are also many other country specific features that were included in the R/3. It has incorporated multi-currency handling, tax considerations by jurisdiction (country, province, state, NAFTA, GATT, EC) and human resource requirements (Doane, 13).
The R/3 has many advantages to it that makes it stand out in the market of ERP standard software, but there are also many disadvantages. SAP software is difficult, timely, and expensive to implement, which causes many failure cases. It takes a lot of planning and scheduling to accomplish an SAP implementation. There is a lot of research needed before beginning a project like this.
One common problem with failure is the misconception about SAP being only software. It is a software package, but there is much more to it than that. You don’t just install it on a server and its ready to go. The relevant people within the company need to be more familiar with the product before the company invests the resources for the project. If your company were planning on investing a large amount of money into a project like this, it would be wise to investigate it.
Cost is another significant problems with SAP. There are many costs involved with the implementation of the R/3. First you have the initial expense of the purchase and the time required installing the product. With the initial costs include the purchase of hardware and software. Implementation of ERP software invokes the re-engineering of affected business processes, due to the complexity of the product. Since most companies don’t have anyone that knows a great deal about implementing the R/3, consultants are need for assistance. Consulting costs can equal anywhere from 1 to 10 times the amount of the product. On the same level, the company also needs to pay for the training of in-house IS staff to run this system. Once it is completed, all employees will need training on how to use the system. You can also count on the dissatisfaction from some employees that don’t want this change, which will cause a loss in production. All of these costs need to be reviewed before jumping in to a project like this.
Another major problem with companies trying to implement the R/3 is that many times, the implementation is taken in incremental stages as opposed to the way that SAP promotes; through serious business process re-engineering. The longer the project is draw out, the harder it is to see the goal that it was intended to accomplish.
The R/3 can be a tremendous product for helping a company achieve their ERP goals. The functionality of the product is recognized worldwide as an advantage over most other ERP software vendors. It can help give the company a competitive advantage that will enable it to achieve in the long term. It is a difficult technology to implement, but the conditions are getting better. SAP puts 20% of their profit towards research and development to make their product fit the needs of the customers. If implementation is carried out properly, a company is be able to reap its endless benefits.
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