Enterprise Resource Planning (ERP)
An ERP is a software package which helps an organisation in almost all kind of business processes. Almost all of us have studied basic management functions viz. Planning, Organising, Staffing and Controlling. In a big organisation, these functions have to be executed very carefully keeping in mind that even a minor glitch can cause major monetary/non-monetary losses. Careful decision making requires understanding of complex enterprise structure and industry to which the organisation belongs.
Due to the limitations of the human brain and keeping in mind the increased use of technology, an integrated software has to be installed in the organisation’s systems which can help in the effective execution of the management functions.
This is why ERP was invented.
In an ERP environment, all the business processes of an organisation will be integrated and will be updated on real time basis (Real Time means the quick updation of a transaction in the computer systems as soon as the transaction takes place in the organisation).
An Example
XYZ is a hospital and is in very bad state of management.
The hospital’s medical supplies are not supplied on time. The doctors while writing prescripttttttion don’t know about the availability of the medicine. It creates a chaos among attendants.
The hospital’s financial system is not organised such that there have been incidents of double payments to doctors and there are higher chances of cash embezzlement also. The quarterly/half yearly/yearly returns are not filed on time which leads to penal proceedings against the hospital.
The hospital’s hierarchy is so messed up that nobody knows who reports to whom. Because of this, employees do not care for their performance.
Here, the hospital needs an integrated system where all the processes are linked with each other so that one department knows the current status of the information they require from other department and data is updated on real time basis.
An ERP can help this pitiable hospital.
After implementing ERP in the hospital:
- Through Material Management, the medical supplies will be requisitioned on time and so delivered on time.
- Through Management Accounting (CO), the cost of each department will be mapped at one place which will help analysing the costs and their relative benefits to the organisation. This will help the organisation in taking required cost cutting decisions (if any). It will further enhance the profitability also.
- Through Financial Accounting (FI), payments will be regularised and controlled. There cannot be any chance of double payment in such environment. Also mandatory reports like Trial Balance, Cash Flow, and Balance Sheet can be generated without any hassle. It will help the hospital file these reports on time and avoid any sort of penalty.
- Through Human Resource, the employee hierarchy will be defined and the performance of each employee will be monitored by their immediate supervisors in a very systematic way.
(The words in bold are the modules in SAP ERP which offer customised support to the organisation)
Likewise, there are other modules in the ERP to support in other business processes including planning, budgeting, treasury, internal/external reporting, Sales and Distribution, Project Planning etc.
SAP
As I mentioned in my previous article /forum/sap-fico-and-cas-169550.asp , SAP is an IT company from Germany which has developed this Enterprise Resource Planning (ERP) software (called ECC 6.0 now).
SAP is the world leader in ERP implementation and support. SAP is majorly involved in research and development of ERP and other products. It does not implement ECC 6.0.
So here came this idea of SAP consulting. Engineers with software coding knowledge are required to implement ECC 6.0 since it requires high level coding for customisation. IT companies across the globe had these engineers. All they needed was some more people with business process understanding (e.g. MBAs and CAs) to bridge the gap between engineers and client organisation.
Role of an MBA or CA is to make sure that the output generated by ECC 6.0 is what is expected as per the management and accounting/taxation principles.
SAP Modules
FI Financial Accounting
CO Controlling (Management Accounting)
MM Materials Management
SD Sales and Distribution
PP Production Planning
PM Project Management
HR Human Resource
Treasury Capital and Investment Transactions
SRM Supplier Relationship Management
SCM Supply Chain Management
This is a detailed page about SAP ERP software: https://en.wikipedia.org/wiki/SAP_R/3
FICO
As Chartered Accountants, our main area of competency in SAP is FI and CO modules.
FI SUB-MODULES
AP Accounts Payables
It stores all the payables related information e.g. creditors’ detail, bills payable detail, detail of the payments made, mode of payment (if any) for creditors, terms and conditions for payment (related to the discount given if payment is made within a certain time period).
AR Accounts Receivables
It Stores all the receivables related information e.g. debtors’ detail, bills receivable detail, details of payments received, discount given to debtors etc.
BA Bank Accounting
When a payment is made to a creditor (creditor is called “vendor” in SAP) or received from customers, the bank balance has to be updated. For this there should be bank related data defined (data definition is called “mapping” in SAP) in the system. So “Bank Accounting” is also an integral part of AP module.
AM Asset Management
It stores all the information related to fixed assets (fixed assets are called “Capital Assets” in SAP), asset group, depreciation methods (these methods are defined as “depreciation key” in SAP) etc.
GL General Ledger
It stores information of all the ledgers created in the SAP system including those related to revenue, nominal, assets, liabilities, capital. Here, we define what are the P&L components and what are the Balance Sheet components.
CO SUB-MODULES
It stores all the information related to cost elements, cost centers in the organisation (the units which drives the organisation’s expenses). Cost Element is a ledger of nominal type (an expense account) which is mapped to cost centers (e.g. a department). It also stores information related to cost allocation, cost drivers etc.
In Controlling (CO) module, internal orders are created to keep track of the costs related to a single project. The term Internal Order is attached to an assignment that has to be carried out with the help of a set of activities (a mini project). E.g. the construction of a bridge by a construction company.
One internal order stores all the costs of one such project. It also keeps track of the stages of the project and hence helps in better execution of the project.
It stores all the information related to profit centers in an organisation (the unit which generated revenue).
It contains information about the product costing and the profitability margins at different levels.
Hope the Information helps
Regards
CA Sheli Sehrawat
CAclubindia
