SAP Defined – What is SAP?
There are two ways to define SAP. The first SAP definition is related to the company itself and the next is the name of the application software. What is SAP?
SAP is defined in literal terms from a German translation of Systeme, Anwendungen und Produkte in der Datenverarbeitung as Systems, Applications, and Products in Data Processing. The company’s main product is “R/3″ for “Realtime” and “3 tier” processing architecture consisting of application, database, and presentation layer (or GUI / user interface).
Originally the company was founded by five (5) prior IBM employees in 1972 who wanted to create a real-time business data system. The first name chosen for the company was not Systeme, Anwendungen und Produkte in der Datenverarbeitung (or SAP) but instead, what we know as the global ERP powerhouse of SAP was originally called Systemanalyse und Programmentwicklung or in English, Systems analysis and program development.
Sources:
German SAP web site
http://www.sap.com/germany/about/company/geschichte/geschichte_1.epx
Wikipedia SAP Germany History
http://en.wikipedia.org/wiki/SAP_AG
What is SAP?
The second way to define SAP is by what the product actually is and does. The definition of SAP as its software products includes the name of the flagship global ERP product. SAP’s primary flagship ERP software, or Enterprise Resource Planning system, is an integrated set of modules and functions for nearly every major business process imaginable. SAP’s global ERP system also includes a comprehensive set of industry solutions for major industry verticals.
SAP’s ERP system contains special subsets of software functions that are divided into processing modules. For example there is Sales and Distribution (SD), Materials Management (MM), Finance (FI), Controlling (CO), Production Planning (PP), Human Resources (HR), Quality Management (QM), Warehouse Management (WM), Plant Maintenance (PM), Project Systems (PS), Asset Management (AM), Treasury (TR), and many other modules.
These modules are tightly intergrated so that when you create a sales order all of the order data is passed into the delivery document to the customer (it does not have to be re-entered). As the delivery document is processed by shipping on hand stocks inventory amounts are reduced and accounting documents are automatically generated in the background related to a reduction in inventory. Afterward a customer invoice is generated from the delivery document and then additional accounting documents are generated related to the customer invoice.
As necessary, throughout the process when inventory is reduced to a certain level then MRP (Material Requirements Planning) runs planning for the replenishment of materials and MRP II (Manufacturing Resource Planning) is carried out to ensure that there is capacity in the manufacturing facility to replenish stocks. These replenishment and scheduling activities depend on the settings you make for how they behave and how the “master data” is set up to process those system settings.
As an example scenario if the company is a multinational with raw materials or subcomponents sourced from China or some other country the transactions can be carried out in their native language and currency. The shipment of raw materials may be sent to a sub-assemply factory in Italy where the system plans production capacities and schedules materials, people, machines, or other resources based on the receipt of materials, current production backlog, end customer order requirements, and other factors. This may include receiving other components or other sub-assemblies from still more countries, or locally to Italy. The system can also process these transactions in the local language and currency as well. Depending on the method the organization handles exchange rate differences the exchange rates are determined and all accounting entries are automatically generated for currency gains or losses depending on the processing of goods or services to and from the organizations involved. From there, the transportation time and shipping requirements with foreign trade, customs, duties, tariffs, and legal export or import requirements may also be processed or you may wish to use a freight forwarder. The Italian subassemblies may be shipped to still another country where the final product is assembled and then shipped the final country for customer delivery, or, they may be shipped direct to the customer and the order taking company receives the inter-company “vendor” invoicing while also invoicing the customer and collecting the cash.
All of these transactions can be carried out in such a way as to maximize tax benefits from each country or processing facility and to ensure that currency advantages are accounted for. Behind this there are accounting documents for each of these transactions which are automatically created and posted to the proper accounts in the proper legal entities. Appropriate country reporting and tax requirements are also taken care of depending on business needs.
Within each step of these processes there are “configuration” options which are the numerous settings of options on how each step in the process will behave. Layered on top of that configuration there is master data that interacts with those configuration settings and determines a finer level of actions or behaviors within each step and specific to each peice of master data, for example: you might maintain separate data requirements for each customer, each vendor, each material or service, pricing, etc… If the SAP application is still not able to handle a very specific business or country requirement SAP provides what they call “user exits” or in newer versions of the software there are “enhancement points”. These are places in the SAP standard coding where you can “exit” the standard processing and then influence, change, add additional data to the processing stream, and then re-enter the standard SAP application code.
As another example, at each step of the process there are alternates or options that can be set up with configuration or with master data to allow for alternate processing options. If a supplier is not able to fulfill part of an order an alternate supplier might automatically be chosen based on certain rules, or depending on the capacity of a manufacturing facility some of the subassembly processing might be moved from Italy to France. And each of these steps can be reported on, evaluated for efficiency, or given global consolidation in such a way as to help with vendor price negotiations.
This complexity and the deep business knowledge that it requires is why ERP consultants such as those who work with SAP are highly paid. As a result of the low barriers to entry it is also a prime target for fraud and cheats which is why many companies are disappointed with the lack of results they expect. For more information on some of the tactics and strategies these frauds use to cheat you, and some of the steps to combat them, see the article “Screening Methods to Find the Right SAP Consultant” and review the other information on this site.
