What is SAP? Definition of SAP ERP Software

SAP stands for Systems Applications and Products in Data Processing.

It was Founded in 1972 by Wellenreuther, Hopp, Hector, Plattner and Tschira.

SAP by definition is also name of the ERP (Enterprise Resource Planing) software as well the name of the company.

SAP system comprises of a number of fully integrated modules, which covers virtually every aspect of the business management.

SAP is #1 in the ERP market. As of 2010, SAP has more  than 140,000 installations worldwide, over 25 industry-specific business solutions and more than 75,000 customers in 120 countries

Other Competitive products in the market are  Oracle, Microsoft Dynamics etc.

What is a SAP- ERP? Why it is Required?

Following Video will explain the need of an ERP software like SAP in an enterprise

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Video Transcript with Key Takeaways Highlighted:
  • The very basic question is  why Enterprise Resource Planning also called ERP is required ?To answer this , lets examine this typical business scenario
  • Sales Team approaches the  Inventory department to check for availability of the product.
  • In case the product is out of stock ,the sales team approaches the Production Planning Department to manufacture the product.The Production planning Team checks with inventory department for availability of raw material
  • If raw material is not available with inventory , the Production Planning team buys the raw material from the Vendors then Production Planning forwards the raw materials to the Shop Floor Execution for actual production.
  • Once ready , the Shop Floor Team forwards the goods to the Sales Team , who in turn deliver it to the client. The Sales Team updates the Finance with revenue generated by sale of product
  • Production planning Team update the finance with payments to be made to different vendors for raw materials.All departments approach the HR for any Human Resource related issue.
  • That is a typical business process of in a manufacturing company
  • Some Key Inferences one could derive from the scenario would be.
  • A typical Enterprise has many Departments or Business Units.
  • These Departments or  Business Units continuously communicate and exchange data with each other.
  • The success of any organization lies in effective communication, and data exchange, within these departments ,as well as associated Third Party such as Vendors, Outsourcers ,and Customers.
  • Based on the manner in which communication and data exchanged is managed
  • Enterprise systems can be broadly classified as 1) Decentralized System. 2) Centralized System which are also called as ERP.
  • Lets look at Decentralized system first
  • In a company with Decentralized System of Data Management  - Data is maintained locally at the  individual departments; Departments do not have access to information or data of other Departments
  • To identify problems arising due to decentralized Enterprise management system lets look at the same business process again.
  • The Customer approaches the sales team for a product, but this time around he needs the product, on an urgent basis
  • The Sales Team do not have real-time information access to the products inventory.
  • So they approach the Inventory department to check the availability of the product.
  • This process takes time and customer chooses another vendor
  • Loss of Revenue and Customer Dissatisfaction.
  • Now , suppose the product is out of stock and the  Sales Team approaches the Production Planning team to manufacture the product for future use.
  • Production Planning Team checks the availability of the raw materials required.
  • Raw Material Information is separately stored by Production Planning as well as Inventory Department.
  • Thus Data  Maintenance Cost (in this case Raw Material) goes up.
  • A particular raw material required to manufacture the product is available in the inventory ,but as per the database of the production planning team, the raw material is out of stock.
  • So , they go ahead and buy the raw material. Thus, material as well inventory cost goes up.
  • Once the  raw material is available ,the shop floor department suddenly realize they are short of workers
  • They approach the HR , who in turn hire  temporary employees at higher than market rates. Thus LABOR Cost Increases.
  • The production planning department fails to update the finance department on the materials they have purchased.
  • The finance department defaults the payment deadline set by the vendor causing the company loss of its repute and even inviting a possible legal action.
  • This is just a few of many a problems with decentralized systems.
  • Some Major problems with the decentralized system are -
  • Numerous disparate information systems are developed individually over time  which are difficult to maintain
  • Integrating the data is time and money consuming
  • Inconsistencies and duplication of data
  • Lack of timely information leads to  customer dissatisfaction , loss of revenue and repute
  • High Inventory , material and human resource cost.
  • These are some major drawbacks for which we need a solution. Well the Solution  lies in Centralized Systems ie. ERP.
  • In a company ,with Centralized System of Information and Data Management 1) Data is maintained at a central location and is shared with various Departments. 2) Departments have access to information or data of other Departments.
  • Lets look at the same business process again to understand how a Centralized Enterprise System helps overcoming problems posed by a Decentralized Enterprise System
  • In this Case , all departments  update a Central Information System
  • When  Customer approaches  the sales team to buy a  product on an urgent basis
  • The Sales Team has real-time information access to the products in inventory which is updated by the  Inventory Department in the  Centralized System
  • Sales Team respond on time leading to Increased Revenue and Customer Delight
  • In case , manufacturing is required ,  the  Sales Team update the  Centralized Database .
  • Production Planning Department is auto updated by the Centralized Database for requirements. Production Planning Team checks the availability of the raw materials required  via Central Database which is updated by the Inventory Department
  • Thus Data Duplication is avoided and accurate data is made available
  • The Shop Floor Team update their Man Power Status regularly in the  Central Database which can be accessed by the HR department. In case of shortage of workforce
  • HR team starts recruitment process with considerable lead time to hire  a suitable candidate at market price .Thus labor cost goes down
  • Vendors can directly submit their invoices  to the Central Enterprise System which can be accessed by the Finance Department. Thus payments are made on time and possible legal actions are avoided
  • Thekey benefits of the centralized system are
  • It Eliminates the duplication, discontinuity and redundancy in data
  • Provides information across departments in real time.
  • Provides control over various business processes
  • Increases productivity, better inventory management , promotes quality ,reduced material cost , effective human resources management, reduced overheads  boosts profits
  • Better Customer Interaction , increased throughput. Improves Customer Service
  • Hence , a Centralized Enterprise Management System is required.
  • SAP is a Centralized Enterprise Management System also know as Enterprise Resource Planning.

Instructions For Quiz
  • Multiple Choice Questions with only ONE valid answer

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