SAP ERP - What Is Sap Software

SAP ERP is enterprise resource planning software developed by the German company SAP SE. SAP ERP incorporates the key business functions of an organization. The latest version (SAP ERP 6.0) was made available in 2006. The most recent Enhancement Package (EHP8) for SAP ERP 6.0 was released in 2016.

Business Processes included in SAP ERP include Operations (Sales & Distribution, Materials Management, Production Planning, Logistics Execution, and Quality Management), Financials (Financial Accounting, Management Accounting, Financial Supply Chain Management) and Human Capital Management (Payroll, e-Recruiting).

Overview

SAP ERP is part of the applications in the SAP Business Suite.

Development

SAP ERP was built based on the former SAP R/3 software. SAP R/3 through version 4.6c consisted of various applications on top of SAP Basis, SAP's set of middleware programs and tools. When SAP R/3 Enterprise was launched in 2002, all applications were built on top of the SAP Web Application Server. Extension sets were used to deliver new features and keep the core as stable as possible. The Web Application Server contained all the capabilities of SAP Basis.

As a result of marketing changes and changes in the industry, new versions of SAP have been released. The first edition of mySAP ERP was launched in 2003 and bundled previously separate products, including SAP R/3 Enterprise, SAP Strategic Enterprise Management (SEM) and extension sets. The SAP Web Application Server was wrapped into NetWeaver, which was also introduced in 2003.

A complete architecture change took place with the introduction of mySAP ERP edition in 2004. R/3 Enterprise was replaced with the introduction of ERP Central Component (SAP ECC). The SAP Business Warehouse, SAP Strategic Enterprise Management and Internet Transaction Server were also merged into SAP ECC, allowing users to run them under one instance. Architectural changes were also made to support an enterprise service architecture to transition customers to a services-oriented architecture.

Implementation

SAP ERP consists of several modules, including utilities for marketing and sales, field service, product design and development, production and inventory control, human resources, finance and accounting. SAP ERP collects and combines data from the separate modules to provide the company or organization with enterprise resource planning.

An article in the IEEE Transaction on Engineering Management journal reports an industrial case in which senior management successfully dealt with a troubled SAP R/3 implementation in an international fast-moving consumer goods (FMCG) company during 2001 and 2002.

Deployment and maintenance costs

Effectively implemented SAP ERP systems can have cost benefits. Integration is the key in this process. "Generally, a company's level of data integration is highest when the company uses one vendor to supply all of its modules." An out-of-box software package has some level of integration but it depends on the expertise of the company to install the system and how the package allows the users to integrate the different modules.

It is estimated that "for a Fortune 500 company, software, hardware, and consulting costs can easily exceed $100 million (around $50 million to $500 million). Large companies can also spend $50 million to $100 million on upgrades. Full implementation of all modules can take years," which also adds to the end price. Midsized companies (fewer than 1,000 employees) are more likely to spend around $10 million to $20 million at most, and small companies are not likely to have the need for a fully integrated SAP ERP system unless they have the likelihood of becoming midsized and then the same data applies as would a midsized company. Independent studies have shown that deployment and maintenance costs of a SAP solution can greatly vary depending on the organization. For example, some point out that because of the rigid model imposed by SAP tools, a lot of customization code to adapt to the business process may have to be developed and maintained. Some others pointed out that a return on investment could only be obtained when there was both a sufficient number of users and sufficient frequency of use. Deploying SAP itself can also involve a lot of time and resources.

ERP advantages and disadvantages

Advantage

• Allows easier global integration (barriers of currency exchange rates, language, and culture can be bridged automatically)
• Updates only need to be done once to be implemented company-wide
• Provides real-time information, reducing the possibility of redundancy errors
• May create a more efficient work environment for employees
• Vendors have past knowledge and expertise on how to best build and implement a system
• User interface is completely customizable allowing end users to dictate the operational structure of the product

Disadvantages

• Locked into relationship by contract and manageability with vendor - a contract can hold a company to the vendor until it expires and it can be unprofitable to switch vendors if switching costs are too high
• Inflexibility - vendor packages may not fit a company's business model well and customization can be expensive
• Return on Investment may take too long to be profitable
• Implementations have a risk of project failure