i Business Processes: Operational Solutions for SAP Implementation Victor Portougal University of Auckland, New Zealand David Sundaram University of Auckland, New Zealand IRM Press Publisher of innovative scholarly and professional information technology titles in the cyberage Hershey • London • Melbourne • Singapore ii Acquisitions Editor: Development Editor: Senior Managing Editor: Managing Editor: Copy Editor: Typesetter: Cover Design: Printed at: Michelle Potter Kristin Roth Amanda Appicello Jennifer Neidig Angela Thor Sharon Berger Lisa Tosheff Yurchak Printing Inc Published in the United States of America by IRM Press (an imprint of Idea Group Inc.) 701 E Chocolate Avenue, Suite 200 Hershey PA 17033-1240 Tel: 717-533-8845 Fax: 717-533-8661 E-mail: cust@idea-group.com Web site: http://www.irm-press.com and in the United Kingdom by IRM Press (an imprint of Idea Group Inc.) Henrietta Street Covent Garden London WC2E 8LU Tel: 44 20 7240 0856 Fax: 44 20 7379 0609 Web site: http://www.eurospanonline.com Copyright © 2006 by Idea Group Inc All rights reserved No part of this book may be reproduced, stored or distributed in any form or by any means, electronic or mechanical, including photocopying, without written permission from the publisher Product or company names used in this book are for identification purposes only Inclusion of the names of the products or companies does not indicate a claim of ownership by IGI of the trademark or registered trademark Library of Congress Cataloging-in-Publication Data Portougal, Victor, 1941Business processes : operational solutions for SAP implementation / Victor Portougal and David Sundaram p cm Summary: "This book is about Enterprise Resource Planning (ERP) systems implementation, focusing on business operations/processes and information systems to support business operations/processes"-Provided by publisher Includes bibliographical references and index ISBN 1-59140-979-9 (hardcover) ISBN 1-59140-614-5 (softcover) ISBN 1-59140-615-3 (ebook) Management information systems Industrial management I Sundaram, David II Title HD30.213.P66 2006 658.4'038'011 dc22 2005023876 British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library All work contributed to this book is new, previously-unpublished material The views expressed in this book are those of the authors, but not necessarily of the publisher iii In Memoriam Dr Victor Portougal (1941-2005) Victor was a wonderful person who deeply impacted all those whom he touched His warmth, quick intelligence, hard work, ability to span interdisciplinary boundaries with ease, and great sense of humor will be sorely missed by his family, friends, colleagues, and students Victor taught me much as I worked closely with him on many projects in the past few years, especially the art of collaborative work He also sowed the seeds in my mind regarding ‘Time as a human construct’ One of the last things he was going to was teach me to play chess properly (he was the New Zealand Senior Chess Champion in 2002) Unfortunately it was not to be I will miss him David Sundaram iv Business Processes: Operational Solutions for SAP Implementation Table of Contents Preface viii Chapter I Business Processes: Definition, Life Cycle, and Identification Business Process Definition Distinguishing Business Processes from Business Functions The Process Lifecycle Process Identification Conclusion 19 Chapter II Business Processes: Modelling, Analysis, and Implementation Introduction Process Modelling Process Analysis Process Transformation Process Implementation Process Monitoring and Control Mal-Processes: Negative Business Process Scenarios Conclusion 20 20 20 22 24 31 32 34 44 v Chapter III Modelling Business Processes Need for Modelling Need for a Modelling Framework/Architecture House of Business Engineering The Control View and Event-Driven Process Chains Organisational View Function View Data View Business Blueprints SAP R/3 Reference Model and ARIS HOBE Capturing the EPC Model Modelling Guidelines Chapter IV Enterprise Systems Implementation Issues Enterprise Systems Project Management People, Process, and Technology Issues Critical Success Factors for Enterprise System Implementation Implementation Strategies Phased vs Big-Bang Implementation Approaches 45 45 46 47 48 60 62 63 64 66 66 69 72 79 80 81 81 84 Chapter V Enterprise Systems Implementation Phases 89 Introduction 89 Chartering 91 Preparing for the Enterprise System Project 101 Planning of the Business Processes 107 Configuring the System 114 Testing and Validation of the Enterprise System 119 Final Preparation 120 Going Live 121 Enterprise Systems Success 123 Enterprise System Implementation Risks 124 Conclusion 126 Chapter VI Enterprise Systems: The SAP Suite 128 Systems in an Organisation 128 Integrated Information Systems 129 vi SAP Modules of SAP SAP as Process-Ware Evolution of SAP SAP R/3 SAP Support for Making, Buying, and Selling mySAP.com Intelligence Density The Enterprise System Landscape Backward, Foreward, Inward, and Upward Costs of Enterprise Systems Problems with Enterprise Systems Benefits of Enterprise Systems 130 132 132 134 137 138 139 140 142 143 143 144 146 Chapter VII Case of ERP Implementation for Production Planning at EA Cakes Ltd 148 Organisation Background 149 Implementation Problems 154 Current Challenges 157 Case Development 158 Comments 164 Chapter VIII Core Business Processes in Enterprise Planning: Choosing the Structure of the System The Structural Components of a Planning System The Levels of Planning Production Units Planning Horizons and Planning Periods Planning Periods, Cycle Times, and Inventory The Range of Planning Horizons and Planning Periods Conclusion: The Holistic System 168 169 171 175 179 184 190 192 Chapter IX Capacity Management Business Processes Requirements Planning Capacity Planning at the Company Level Capacity Planning at the Aggregate Level Capacity Planning at the Shop Level 194 195 211 213 214 vii Chapter X Case Solutions 220 Description 222 Technical Material 225 Chapter XI Production Planning Redesign: Special Topics 238 Competitive Advantage from Production Planning 238 Balancing Capacity Vectors 244 The Factors of the Production Planning Environment 263 Coordination and Integration 274 Precedence Constraints 277 System Clock 278 Other Constraints and the Criterion 281 Chapter XII A Tutorial Case Study: Pasta Company Case Description Case Solution Conclusion 284 284 293 310 Chapter XIII Conclusion 314 Current Problems 314 Epilogue and Lessons Learned 315 References 317 About the Authors 324 Index 325 viii Preface This is a book about Enterprise Resource Planning (ERP)/Enterprise Systems (ES) implementation At the same time, it is also a book about business operations and information systems to support business operations The question is, why did we decide to unite these three seemingly disparate topics? There are a large number of books treating ERP implementation, operations management, and information systems, separately At the same time, books dedicated to all three topics applied to practical issues of ERP implementation are scarce Brady, Monk, and Wagner (2001) say that according to their experience teaching, ERP merely as software did not work In uniting these three topics in one book, they hope to avoid the problems they encountered, and therefore, better educate the students They discovered the ERP education was flawed because it was based on the following faulty assumptions: All students understand how businesses and functional areas operate In fact, many students not yet have a good grasp of how profit-making organisations operate All students understand the problems inherent in unintegrated systems In fact, even the most advanced undergraduate and MBA students not truly grasp what goes on in real companies, where people in different functional areas must work together to achieve company goals All students understand how an information system should help business managers make decisions In fact, some students not understand this well ix These same assumptions are also applied to ERP/ES implementation team members When a company decides to implement an ERP system, usually a team is formed consisting of at least two groups of specialists: Group Operational staff of the company under implementation; and Group System analysts from the software or consulting firm, specialised on ERP implementation Sometimes there are other groups like information systems (IS) specialists from the company under implementation, or software professionals from the software company, and this makes the team more inconsistent Considering the two basic groups, assumptions and may frequently be incorrect for Group 2, while assumptions and rarely are true for Group For successful implementation, both groups need an understanding that ERP can solve the problems that arise from having unintegrated information systems, for example, that data sharing in real time throughout a company’s functional areas is increasing the efficiency of operations, and is helping managers to make better decisions Jang and Lim (2004) argue that the use of a commercial Enterprise Resource Planning system is now integrated into Industrial Engineering (IE) curriculum The ERP system, a business information system that considers all facets of a business, provides an integrated presentation that is needed to educate future managers It also creates an active-learning environment that uses modern technology The integration also simulates real employment and addresses educational concerns Teaching the industry’s needs to students, and introducing them to a state-of-the-art ERP/ES system, can foster their future development This explains why we think that a book uniting the three above topics is vitally important for implementation specialists as well as for students The adoption of Enterprise Resource Planning in the business world may, in fact be the most important development in the corporate use of information technology in the 1990s (Davenport, Harris, & Cantrell, 2004) ERP systems appear to be a dream come true for managers who have longed for an enterprise-wide, integrated, information systems solution ERP systems are packaged software applications that connect and manage information flows within and across complex organisations, allowing managers to make decisions based on information that truly reflects the current state of their business ... Unfortunately it was not to be I will miss him David Sundaram iv Business Processes: Operational Solutions for SAP Implementation Table of Contents Preface viii Chapter I Business Processes: ...i Business Processes: Operational Solutions for SAP Implementation Victor Portougal University of Auckland, New Zealand David Sundaram University of Auckland, New Zealand IRM Press Publisher... Victor, 194 1Business processes : operational solutions for SAP implementation / Victor Portougal and David Sundaram p cm Summary: "This book is about Enterprise Resource Planning (ERP) systems implementation,