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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 are Operations (Sales & Distribution, Materials Management, Production Planning, Logistics Execution, and Quality Management), Financials (Financial Accounting, Management Accounting, Financial Supply Chain Management), Human Capital Management (Training, Payroll, e-Recruiting) and Corporate Services (Travel Management, Environment, Health and Safety, and Real-Estate Management).
SAP ERP is part of the applications in the SAP Business Suite.
SAP ERP was built based on the former SAP R/3 software. SAP R/3, which was officially launched on 6 July 1992, consisted of various applications on top of SAP Basis, SAP's set of middleware programs and tools. 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.
A complete architecture change took place with the introduction of mySAP ERP 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. The SAP Web Application Server was wrapped into SAP NetWeaver, which was introduced in 2003. Architectural changes were also made to support an enterprise service architecture to transition customers to a Service-oriented architecture.
The latest version, SAP ERP 6.0, was released in 2006. SAP ERP 6.0 has since then been updated through SAP enhancement packs, the most recent: SAP enhancement package 8 for SAP ERP 6.0 in 2016.
SAP ERP consists of several modules, including Financial Accounting (FI), Controlling (CO), Asset Accounting (AA), Sales & Distribution (SD), Material Management (MM), Product Planning (PP), Quality Management (QM), Project System (PS), Plant Maintenance (PM), Human Resources (HR). SAP ERP collects and combines data from the separate modules to provide the company or organization with enterprise resource planning.
Typical implementation phases:
- Phase 1 - Project Preparation
- Phase 2 - Business Blueprint
- Phase 3 - Realization
- Phase 4 - Final Preparation
- Phase 5 - Golive Support
Companies planning to implement or upgrade an SAP ERP system should pay strict attention to system integration to save their SAP ERP implementation from failure. With system integration in place, data flows completely and correctly among various SAP ERP components, thereby not only streamlining business processes but also eliminating or minimizing redundant data entry efforts.
Analyst firm Gartner estimates that 55% to 75% of all ERP projects fail to meet their objectives…Of the top 10 barriers to a successful ERP journey, 5 can be addressed by developing and implementing a structured change management program.
Deployment and maintenance costs
Effectively implemented SAP ERP systems have cost benefits:
- Reduced level of inventory through improved planning and control.
- Improved production efficiency which minimizes shortages and interruptions.
- Reduced materials cost through improved procurement and payment protocols.
- Reduced labor cost through better allocation of staff and reduced overtime.
- Increased sales revenue, driven by better managed customer relationships.
- Increased gross margin percentage.
- Reduced administrative costs.
- Reduced regulatory compliance costs.
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
- 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
- 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
- SAP R/1 System RF: 1973
- SAP R/2 Mainframe System: 1979
- SAP R/3 Enterprise Edition 1.0 A: July 1992
- SAP R/3 Enterprise Edition 4.0B (SAP R/3 4.0B): 06 April 1998
- SAP R/3 Enterprise Edition 3.1l (SAP R/3 3.1I): 11 May 1998
- SAP R/3 Enterprise Edition 4.3 (SAP R/3 4.3): June 1998
- SAP R/3 Enterprise Edition 4.5B (SAP R/3 4.5B): 29 March 1999
- SAP R/3 Enterprise Edition 4.6B (SAP R/3 4.6B): 06 December 1999
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- SAP ERP Central Component (ECC) 6.0: 24 October 2005
- SAP enhancement package 1 for SAP ERP 6.0 (EHP1 FOR SAP ERP 6.0): 21 December 2006
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- SAP enhancement package 5 for SAP ERP 6.0 (EHP5 FOR SAP ERP 6.0): 12 July 2010
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- SAP enhancement package 7 for SAP ERP 6.0 (EHP7 FOR SAP ERP 6.0): 13 August 2013
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- SAP enhancement package 8 for SAP ERP 6.0 (EHP8 FOR SAP ERP 6.0): 20 January 2016
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