What is SAP? Let’s get a clear understanding about what people can mean when using this word. The SAP acronym can mean two things:
1. SAP is a software system that integrates internal and external management information across an entire organization. It embraces finance, manufacturing, sales and service, CRM, etc. SAP automates these activities with an integrated software application. Purpose of SAP is to facilitate the flow of information between all business functions inside the boundaries of the organization and manage the connections to outside stakeholders.
2. SAP is a German company that actually developed this software system.
What is SAP? An ERP System
When people talk about SAP, they usually mean the software system called SAP ERP. SAP ERP consists of several parts, which are called “modules”. Some common modules, such as finance and accounting, are adopted by nearly all users of SAP. Others such as human resource management are not. For example, a service company probably has no need for a manufacturing module. Other companies already have a system that they believe to be adequate. Generally speaking, the greater the number of modules selected, the greater the integration benefits, but also the greater the costs, risks and changes involved. There are following modules:
- Finance/Accounting (FI). It helps to manage accounting operations of a company (General ledger, payables, cash management, fixed assets, receivables, budgeting, consolidation).
- Human resources (HR). It helps to manage human resources of a company (Payroll, training, benefits, 401K, recruiting, diversity management).
- Manufacturing (PP). It helps to manage manufacturing processes of a company (Engineering, bill of materials, work orders, scheduling, capacity, workflow management, quality control, cost management, manufacturing process, manufacturing projects, manufacturing flow, activity based costing, product life cycle management).
- Supply chain management (SCM). It helps to manage logistics processes of a company (Order to cash, inventory, order entry, purchasing, product configuration, supply chain planning, supplier scheduling, inspection of goods, claim processing, commissions).
- Project management (PM). It helps to manage projects within a company (Costing, billing, time and expense, performance units, activity management).
- Customer relationship management (CRM). It helps to manage relations with customers of a company (Sales and marketing, commissions, service, customer contact, call center support).
- Data services. Various “self–service” interfaces for customers, suppliers and/or employees.
- Access control. Management of user privileges for various processes.
SAP scope usually implies significant changes to staff work processes and practices. Generally, three types of services are available to help implement such changes — consulting, customization, and support. Implementation time depends on business size, number of modules, customization, the scope of process changes, and the readiness of the customer to take ownership for the project. The typical project for a large enterprise consumes about 14 months and requires around 150 consultants. Small projects can require months; multinational and other large implementations can take years. Customization can substantially increase implementation times.
The fundamental advantage of SAP is that integrating the myriad processes by which businesses operate saves time and expense. Decisions can be made more quickly and with fewer errors. Data becomes visible across the organization. Tasks that benefit from this integration include:
- Sales forecasting, which allows inventory optimization
- Order tracking, from acceptance through fulfillment
- Revenue tracking, from invoice through cash receipt
- Matching purchase orders (what was ordered), inventory receipts (what arrived), and costing (what the vendor invoiced)
SAP centralizes business data, bringing the following benefits:
- It eliminates the need to synchronize changes between multiple systems—consolidation of finance, marketing and sales, human resource, and manufacturing applications
- It enables standard product naming/coding.
- It provides a comprehensive enterprise view (no “islands of information”). They make real–time information available to management anywhere, any time to make proper decisions.
- It protects sensitive data by consolidating multiple security systems into a single structure.
I hope that you have a better understanding of what is SAP and why people use it. If you have any questions, let me know in the comments below.