Enterprise resource Planning (ERP), has been a popular, business processing tool.

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Enterprise Resource Planning, gives you the opportunity, to manage your business
,more efficiently as well ,as more effectively.,
It eliminates, the need for calls, or emails ,between different departments ,of the
company, to gather information.,
With ERP, everyone has access, to the same information, they need ,in order to do,
their job more proficiently.,
If you are working, in sales ,and marketing ,and you need information ,about
inventory, from the warehouse, you will not have, to go calling, or walking in some
instances , to the warehouse.,
You will be able, to interface ,with that information ,on your computer screen, in real
time, which will of course, save you time.,
With that being said, lets take a, step by step view, on how ,this actually happens ,
starting from a demand, and ending with a payment, from customer.,
For example purposes, we would be, focusing more, on a manufacturing, based
company.,
In this case, we assume that, we are producers, and seller of Laptop X.,
SD, Sales and Distribution,
Lets also assume, that we have , a Customer WINDCHILL that, wants to buy 100
Laptop X.,
In the real world, for a customer ,to legally request, for purchase, is by giving us, a
Purchase Order.,
In this Purchase Order, Customer WINDCHILL states ,the product that, he wishes to
purchase, along with the quantity, and price.,
Other information, such as delivery address, are also in the document.,
When we receive, this document, we are legally responsible, in providing the
products, to the Customer.,
So, upon receiving ,the Purchase Order from, Customer WINDCHILL, we convert it ,
to a Sales Order in SAP ERP.,
Once ,we create this Sales Order, in SAP ERP, the following processes, will

commence.,
MM, Materials Management,
Now, we have to remember, to produce 1 Laptop X, we would need ,Raw Materials
correct?
Lets list down, the Raw Materials, required to produce, 1 Laptop X:.,
One casing, one battery, one Processor, one keypad, two speakers.,
What do we call, this particular relationship, between the Finished Product (Laptop
X), and its components above?,
BOM:, Bill of Materials.,
This is vital, because without it, SAP ERP would not be, able to know, the required
quantities, and components, to produce one, Finished Product (Laptop X).,
Do we produce, the Raw Materials above?,
In 99% of the cases, chances are that ,we would be, purchasing them, from an
External Vendor.,
Lets assume that, we are purchasing, all these Raw Materials, from Vendor ABC.,
If you recall, from earlier in this post, I mentioned that, the legal document used,
when purchasing, is the Purchase Order.,
So now, we would be, creating a Purchase Order ,for all of these Raw Materials.,
Now the question is, how would the person, from the Purchasing Department, know
what is pending, for purchase?,
The answer, is MRP (Materials Requirement Planning).,
If you studied economics, you would very well, be aware ,of the term Supply, and
Demand right?,
Well, that applies here as well.,
Based on the Sales Order, that we received, from Customer WINDCHILL, we know,
we need to produce, 100 quantity of Laptop X.,
So this would be, our Demand.,
Now, since there is demand, we would need, to Supply them ,to the customer right?,
At this point, BOM plays its vital role.,
SAP will use, the BOM as reference, to find that, to produce 1 Laptop X, it requires 1

Casing, 1 Battery, 1 Processor, 1 Keypad, and 2 Speakers.,

So to produce 100 Laptop Xs?,
It wouldn't be, too hard for SAP , to just multiply ,each of the above, to find out, the
total requirements.,
With the above in mind, SAP generates a Planned Order, for each ,of the Raw
Materials above, stating the required quantities, for each to produce ,100 Laptop Xs.,
Now, another person plays, a key role ,called the Materials Planner.,
He would, now convert these Planned Orders, into Purchase Requisitions, in the SAP
System.,
Purchase Requisition is an internal document ,used within a company, to initiate a
Purchase Order.,
At this point in time, the Purchaser takes ownership.,
The Purchaser would now convert, these individual Purchase Requisition, and
include, all of them to, one Purchase Order, since they are being, purchased from the
SAME Vendor.,
One Purchase Order is valid, for one Vendor only.,
With the Purchase Order in place, you decide to Print it out, and send it, to Vendor
ABC.,
Vendor ABC responds, by acknowledging, this Purchase Order, and sends ,all the
required Raw Materials ,to us 2 days later.,
We now perform Goods Receipt, and place the Raw Materials, in our Storage
location.,

To complete ,the process for MM, we would process, the Invoice, sent by Vendor
ABC, which states the amount, to be payed to him.,
Note:, that Vendor ABC sends, the invoice, after he has delivered, the goods.,
This would be ,the link between MM, and AP (Accounts Payable), which is part of,
the FI Module.,
It is called, Accounts Payable, because we owe ,the vendor money.,

PP-Production Planning,
Remember above, in the MM section, I mentioned about, Planned Orders being
generated, for Raw Materials?,
Well, this also applies, for the Finished Product Laptop X.,
But in this case, the Materials Planner, would not convert it ,to a Purchase
Requisition, but instead, convert it, to a Production Order.,
With the Raw Materials available, in storage area, we are now able, to start out
Production.,
Once, we have finished produced,100 Laptop Xs, we transfer it, to Finished Product
Storage location ,while waiting ,to be delivered, to Customer WINDCHILL.,

SD-Sales and Distribution,

Now that we have, 100 Laptop Xs, waiting in our ,Finished Product storage location,
we can now Pick it, from the storage, and deliver them ,to Customer WINDCHILL.,
To complete the SD process, we would issue, an Invoice, (similar to the above, where
Vendor ABC, issued us, an Invoice) to Customer WINDCHILL.,
This would be, the link between SD ,and AR (Accounts Receivable).,
It is called, Accounts Receivable, because the customer ,owes us money.,
Well, this is basically, what SAP ERP is all about.,
There are other Modules, such as, PM-Plant Maintenance, QM-Quality Management,
etc.,
I will try ,to explain it, in my next post, using this same example.,