All about SAP Software

SAP (pronounced by saying each letter individually, like IBM or ABC) is the pioneer in enterprise systems.

sapSAP was the first company to build a packaged enterprise system, which means that it designed a single piece of software that is used by many companies. Prior to that time, software developers had to create customized software for every company, which was prohibitively expensive. SAP introduced the first integrated, end-to-end enterprise system, called SAP® R/3, in 1992.

The “R” in R/3 stands for “real time.” Prior to the development of enterprise systems, companies typically employed a number of different systems, each of which supported a single function or department. Thus, there were sales systems, accounting systems, manufacturing systems, and so on. These systems were not integrated, so sharing data between and among them was problematic. As you might expect, this architecture regularly experienced delays in executing business processes because data had to be transferred from one system to the next as the process was being performed. SAP R/3 was designed to eliminate these inefficiencies by executing an entire process from start to finish and consolidating all of the process data in a single database. Consequently, regardless of which individuals were completing a step in the process, all of the data were available to them in real time. In addition, everyone else in the company could see the status of the process in real time as well.

In today’s age of Twitter and RSS feeds, this development might seem trivial. At the time, however, it was a crucial innovation. SAP R/3 was quickly adopted by one major corporation after another, and it catapulted SAP software onto the “must do” list for nearly every large company. By 2010, SAP had more than 110,000 customers in over 120 countries, including nearly every Fortune 1000 company. In 2008, SAP’s market share in the ERP category was equivalent to the market share of the next four largest ERP vendors—combined.3, 4 Today, more than 75% of SAP’s customers are small and medium-sized businesses.

Enterprises of every size, in every industry, all over the world use SAP software to manage their business operations. Regardless of where you live, nearly every major corporation, government entity, and nonprofit organization you are familiar with runs the same SAP software that you will use in this course. Before you start to think that this book is a marketing brochure for SAP, you should understand why we have explained SAP’s strategic importance in business and have selected SAP ERP as the reference system for this textbook. One of the most lucrative and rewarding careers in the IT industry for nearly 20 years has been that of an SAP consultant.5 Contrary to what you may have heard, most SAP consultants are not programmers.

Rather, they are MIS and business majors who have developed a process perspective on business and have become competent in a specific capability of the SAP ERP system. However, even technical programmers who wish to work with SAP must have a deep understanding of how business works in order to program applications that enable business processes to operate more efficiently.

Integrated Business Processes with ERP Systems will incorporate a number of demonstrations, examples, and hands-on exercises using SAP ERP. Several other companies offer enterprise systems that have similar capabilities, but it would be very difficult to explain how processes are executed in each of them. We have chosen to include the most prevalent and widely used ERP system that you are likely to encounter in your career.

When SAP first introduced R/3, almost anybody could claim to be an R/3 expert and thus become a highly paid consultant. Unfortunately, this practice led to quite a few well-publicized project failures. In response, SAP introduced certifications for the various modules and technical skills required to be a properly trained consultant. This arrangement enabled consultants who participated in SAP training programs and demonstrated a high degree of skill to distinguish themselves for potential employers.

Cogent Consulting deliver process improvements and automation for SAP customers in procure to pay and order to cash. To achieve this we use a combination of market-leading software, expert SAP and business consulting and importantly our experience from supporting more than 40 SAP customers to realise significant benefits in their shared service centres.


Today, SAP provides more than 100 certification types, classified by solution, focus area, and role. Each certification type specifies three levels of skill: associate, professional, and master. It can take many years and tens of thousands of dollars to progress up to master-level certification. SAP is very proud of the high level of knowledge and skills that are required to earn certification.

As you probably suspect by now, the SAP testing process is extremely rigorous. Because an SAP certification is such a highly valued credential, once you have earned one, SAP provides you with a certification number that can be listed on your resume or CV and verified by potential employers—the thousands of consulting companies that implement SAP software and the more than 110,000 (in 2010) companies that run SAP software. As an added benefit to students enrolled at universities or technical schools that are members of the SAP University Alliances Program, SAP offers special certification academies on campuses around the world where students can earn the same certification as professionals at a reduced cost. This textbook and the additional online materials are based on the content in the SAP course, which results in an official SAP Associate Application Consultant certification and can be used as a supplement to the SAP course materials.

Alternatively, students who master the additional online materials can take the SAP certification exam at one of over 8,000 global testing centers without participating in a certification academy. Students who pass the exam will receive the same official SAP certification as working professionals who complete an SAP-sponsored training pro- gram. Earning this certification is the first step toward a successful and perhaps lucrative career as an SAP application consultant. Speak with your instructor, and consult the certification information on the SAP University Alliances Community for more details.

C. Pang, Y. Dharmasthira, C. Eschinger, and K. Motoyoshi, Market Share: ERP Software, Worldwide, 2008, July 2008, Gartner.

A. Pang, Worldwide ERP Applications 2009–2013 Forecast and 2008 Vendor Shares, October 2008, IDC

J. Sahadi, Hot 6-fi gure jobs now, 2007 [Online], CNN/Money. 2007/pf/0708/gallery.hot_six_fi g_jobs_now/index.html.


Business Processes in Practice: Make-to- Stock vs. Make-to-Order (Apple Case Study)

dell-vs-appleA good example of a company that uses the make-to- stock strategy is Apple Inc. Apple uses the make- to- stock process for Macs sold in its Apple stores. The company first estimates the consumer demand for its Mac computers. It then calculates its available  manufacturing capacity and the quantities of raw materials it will need to build enough computers to meet consumer demand. Apple’s strategy is to purchase raw materials and reserve manufacturing capacity ahead of time to maximize the cost efficiencies of buying materials in bulk quantities and doing large production runs. Apple and its contract manufacturers then produce a specific quantity of each Mac model and ship them from the factory to the Apple stores and other retail outlets for sale. When customers come into an Apple
store, they expect that the computer they want to buy will be there and that they can take it home immediately after purchasing it.


Because Apple uses a make-to-stock strategy, the company must pay extremely close attention to both its retail sales and the amount of finished goods inventory it has in stock in order to estimate its demand as accurately as possible. If Apple overestimates the demand for a particular product, the company will be stuck with a large inventory of very expensive finished goods that customers
don’t want to buy and that will decrease in value while they sit on the shelf. Conversely, if it underestimates the demand for a product, customers who want to purchase the computer will be told it is out of stock. They will then have two options: place a back order and wait until the store gets resupplied with inventory, or shop for the product at a different store. Either outcome will make consumers unhappy and could result in lost sales.

In contrast, one of Apple’s major competitors— Dell—employs a make-to-order production strategy. Dell was the first company in the industry to build computers only after they had received a fi rm order and thus knew exactly what product the customer wanted. Because Dell does not have many retail outlets like Apple (although it has recently tested some retail partnerships), the company
relies primarily on telephone and Internet sales channels for the majority of their sales. In contrast to Apple customers, then, when Dell customers place an order, they anticipate that they will have to wait a few days for the computer to be produced and delivered.
After the customer places an order, Dell typically assembles the computer from raw materials it has on hand and then ships it directly to the customer.
Unlike Apple, then, Dell does not need to be very concerned with estimating demand for its finished products because it knows exactly what customers want based on customer orders. However, Dell must be extremely careful in purchasing raw materials and managing its production capacity. Because its production runs are very small—sometimes one computer at a time—it must estimate its raw material needs and production scheduling based on an unknown customer demand.
If Dell mismanages its production planning process, it is especially susceptible to an oversupply or undersupply of raw materials and shortages or idleness in production capacity. If Dell does not have sufficient raw materials or production capacity, customers will have to wait much longer for their computers to be shipped.
Conversely, if the company has excessive raw materials or unused production capacity, it loses money.
Although Dell’s customers are accustomed to waiting a few days for their computers to arrive, they probably will be upset if their deliveries are delayed for several weeks due to a shortage of raw materials or a backlog of production orders. Alternatively, Dell’s profitability will suffer if its production lines are idle or its warehouses are filled with unused raw materials.
Both Apple and Dell have chosen a production strategy that maximizes their profitability. Apple believes that by controlling the entire buying experience through their Internet and physical stores, they can attract more customers. This strategic objective drives Apple to place a much higher emphasis on having products available in the store when a customer comes there to shop, which increases the likelihood that she or he will make a purchase. In addition, Apple realizes significant cost savings through large, planned production runs and close coordination with retail sales data generated by their online and physical stores. For all these reasons, the make-to-stock production process is probably the best strategy for both Apple and its customers.
In the case of Dell, the make-to-order production process fits well with the company’s rapid assembly and standardized products. Dell’s customers are comfortable ordering a computer that they have never seen because they know that Dell uses high-quality, industry-standard components. They also trust Dell to ship them a finished computer in just a few days, and they are willing to wait
for it to arrive rather than pick it up in a store.

In essence, the preferences and behaviors of each company’s customers determine, to a great extent, the production process for each company. Apple’s customers want to touch and experience the product in a retail store, whereas Dell’s customers are content to
buy something over the phone or the Internet. Each company has optimized its production process to match both its specific set of customer requirements and its internal profitability goals and cost structure.

Source: Adapted from Magal and Word Essentials of Business Processes and Information Systems. John Wiley & Sons, Inc. (2009).