Business Operations & ERP Fundamentals

Posted on Sep 6, 2025 in Business Administration and Innovation Management

Production Calculations

Production Capacity: 200 bars/minute = 12,000 bars/hour = 3,000 lbs/hour

Daily Production Formulas:

Weekdays only: 5 days × 8 hours × 12,000 bars/hour
Weekdays + Saturday: 6 days × 8 hours × 12,000 bars/hour
Full week: 7 days × 8 hours × 12,000 bars/hour

Monthly Production: Working days × daily capacity

MRP Inventory Formula: On Hand = Previous On Hand + Scheduled Receipts – Gross Requirements

Place Planned Orders considering lead time (e.g., 2-week lead time means order in week 2 for week 4 need)

Production Approaches

Make-to-Stock: Made for inventory before orders (most consumer products)

Make-to-Order: Produced for specific customer orders

Assemble-to-Order: Assembled from inventory components for specific orders

Supply Chain Performance Metrics

On-time Performance: How often a supplier meets agreed delivery dates

Initial Fill Rate: Percentage of order provided in the first shipment

Initial Order Lead Time: Time needed for a supplier to fill an order

Cash-to-Cash Cycle Time: Payment to collection timespan

Key Business & System Terminology

System Types

Information System (IS) – computers, people, procedures, software
Integrated Information Systems – functional areas share data
Database Management System (DBMS) – manages database
Electronic Data Interchange (EDI) – computer-to-computer exchange
Open Architecture – allows third-party integration
Client-Server Architecture – emerged in the mid-1980s
Silo – isolated functional area

Data Classifications

Raw Data – unprocessed operational numbers
Master Data – stable customer/material information (shared across modules)
Transaction Data – temporary orders/invoices
Standard Costs – normal manufacturing costs
Data Mining – analyzing data for patterns

Business Concepts

Business Function – departmental activities
Business Process – cross-functional customer value activities
Best Practice – most efficient process method
Supply Chain – all activities from raw materials to the store shelf
Return on Investment (ROI) – benefits divided by costs
Lead Time – cumulative time for supplier processing/delivery
Document – electronic evidence of transaction
RMA – Return Material Authorization

Planning & Production Terms

Rough-cut Planning – aggregate planning (SOP)
Capacity – maximum production capability
Lot Sizing – production/order quantity determination
Staff Forecasts – personnel planning requirements
Workflow – automated process execution
Repetitive Manufacturing – production lines scheduled for time periods
Goods Receipt Transaction – notifies system of material arrival
Bill of Materials (BOM) – list of materials/quantities needed

SAP & Technology Terms

Document Flow – linked documents throughout the process
Condition Technique – pricing/discount control mechanism
Organizational Structure – customer/sales groupings
Tolerance Groups – employee transaction limits
User Authorizations – role-based access control
Global ATP – checks all facilities for most cost-efficient fulfillment
Purchase Order Number – customer-assigned number to sales order

Human Resources Terms

Human Capital Management (HCM) – managing company workforce
Succession Plan – strategy for replacing key employees
Payroll Run – process of determining each employee’s pay
Remuneration Elements – base pay, bonuses, overtime, sick pay, vacation
Short List – candidates selected for interviews
Requirements – skills/abilities associated with a position
Qualifications – skills/abilities associated with a specific employee

SAP ERP Modules

Key Acronyms and Definitions

Important Dates and Events

SAP Founded: 1972 | Sarbanes-Oxley Act: 2002 | Enron Collapse: 2001

Business Processes and Concepts

Production Planning Process (5 Steps)

Sales Forecasting – predict customer demand (A in diagram)
Sales & Operations Planning (SOP) – balance demand with capacity (B in diagram)
Demand Management – create Master Production Schedule, splits monthly into finer periods (C in diagram)
Materials Requirements Planning (MRP) – determine raw material needs using BOM (C in diagram)
Detailed Scheduling – consider capacity and labor; longer runs increase capacity and inventory (D in diagram)

Sales Order Process (6 Steps)

Pre-Sales Activities – customer inquiries, quotations (price requests)
Sales Order Processing – record items, pricing, credit checks, discounts applied
Inventory Sourcing – ATP checks, delivery confirmation
Delivery – release warehouse documents (pick, pack, ship instructions)
Billing – automatic invoice generation
Payment – customer remittance, cash debited, A/R credited

Four Core Functional Areas

Marketing & Sales: Product development, pricing, promotion, orders, forecasts

Supply Chain Management: Manufacturing, purchasing, production planning, logistics

Accounting & Finance: Transaction recording, cost control, budgeting, cash flow

Human Resources: Recruiting, training, payroll, benefits, compliance

Business Process vs. Business Function

Business Function: Activities within a single department

Business Process: Cross-departmental activities creating customer value

Benefits of Process Thinking: Customer focus, integration, efficiency

Management Organization: Cross-functional teams, process ownership

ERP System Characteristics

Integrated Information Systems – common database, good for production planning
Real-time Data – immediate updates across all areas
Modular Design – individual programs working together
Best Practices – built-in efficient processes
Configurable – customizable to company requirements
Common Database – single source of truth
Open Architecture – third-party integration capability
Workflow Automation – automated business processes

Document Flow

Definition: Linked set of document numbers related to the order process

Features: Electronic evidence, unique numbers, audit trail, drill-down capability

Master Data Concepts

Customer Master Data: Available to multiple modules, not just SD

Material Master Data: Available to multiple modules, not just MM

Benefits: Eliminates re-entry, ensures consistency, enables automation

Supply Chain Concepts

Traditional Supply Chain: Information passed reactively, takes weeks/months

ERP Benefits: Rapid information transmission to all members

Supply Chain Definition: Raw materials to finished products on the store shelf

Important Industries: Manufacturing, retail, automotive, electronics

Unexpected Demand Impact: Inventory depletion, overtime costs, material shortages

MRP Process Details

Purpose: Determines the amount and timing of raw material orders (not finished goods schedule)

Key Factors: Lead times help determine material ordering, not goods transfer

BOM Usage: List of ingredients/materials needed for production

Lot Sizing: Affects production runs and inventory levels

Accounting Integration

Financial Accounting: External reporting (Balance Sheet, Income Statement)

Managerial Accounting: Internal decision-making, cost analysis, budgeting

Three Cost Elements: Raw materials + Direct labor + Overhead

Integration Benefits: Real-time posting, automatic updates, audit trails

Human Resources Processes

Core Functions: Recruiting, hiring, training, payroll, benefits, compliance

SAP HR Distinctions:

Task – specific job responsibility
Job – general classification of tasks
Position – individual employee assignment
Person – individual holding position

Key Processes: Payroll runs, succession planning (key employees only), short list creation

Communication: HR communicates salary, benefit, and policy changes

Employee Turnover: Tied to job satisfaction and compensation (not just communication)

ERP Implementation Success Factors

Success: Management commitment, proper planning, comprehensive training, user involvement

Failure: People problems, unrealistic expectations, insufficient planning, inadequate training

Detailed Scheduling Effects

Longer Production Runs: Increase available capacity (fewer setups) + increase inventory levels

Shorter Production Runs: Lower inventory levels but more setups required