BUSINESS PROCESS

MANAGEMENT
Chapter One
Business Functions and Business Processes

Objectives
2

After completing this chapter, you will be able to:

Name the main functional areas of operation used in
business
Differentiate a business process from a business
function
Identify the kinds of data that each main functional
area produces
Identify the kinds of data that each main functional
area needs
Define integrated information systems and explain why
they are important
Concepts in Enterprise Resource Planning, Third Edition

Introduction
3

Enterprise Resource Planning (ERP) programs:

Core software used by companies to coordinate
information in every area of business
Help

manage companywide business processes

Use common database and shared management
reporting tools

Business process: Collection of activities that takes

some input and creates an output that is of value to
the customer
Concepts in Enterprise Resource Planning, Third Edition

Functional Areas and Business Processes

4

To understand ERP, you must understand how a

business works
Functional

areas of operation
Business processes

Concepts in Enterprise Resource Planning, Third Edition

Functional Areas of Operation

5

Marketing and Sales (M/S)

Supply Chain Management (SCM)
Accounting and Finance (A/F)
Human Resources (HR)
Business functions: Activities specific to a functional
area of operation

Concepts in Enterprise Resource Planning, Third Edition

Functional Areas of Operation (contd.)

6

Figure 1-1 Examples of functional areas of operation and their business

functions
Concepts in Enterprise Resource Planning, Third Edition

Functional Areas of Operation (contd.)

7

Functional areas are interdependent

Each

requires data from the others

Better integration of functional areas leads to

improvements in communication, workflow, and
success of company
Information system (IS): Computers, people,
procedures, and software that store, organize, and
deliver information

Concepts in Enterprise Resource Planning, Third Edition

Business Processes
8

Collection of activities that takes one or more kinds

of input and creates an output that is of value to
customer
Customer

can be traditional external customer or

internal customer

Thinking in terms of business processes helps

managers to look at their organization from the
customers perspective

Concepts in Enterprise Resource Planning, Third Edition

Business Processes (contd.)

9

Figure 1-2 Sample business processes related to the sale of a

personal computer
Concepts in Enterprise Resource Planning, Third Edition

Business Processes (contd.)

10

Businesses must always consider customers

viewpoint in any transaction
Successful customer interaction
Customer

(either internal or external) is not required to

interact with each business function involved in the
process

Successful business managers view business

operations from the perspective of a satisfied
customer
Concepts in Enterprise Resource Planning, Third Edition

Business Processes (contd.)

11

Sharing data effectively and efficiently between

and within functional areas leads to more efficient
business processes
Integrated information systems: Systems in which
functional areas share data

Concepts in Enterprise Resource Planning, Third Edition

Business Processes (contd.)

12

Figure 1-3 A process view of business

Concepts in Enterprise Resource Planning, Third Edition

Business Processes (contd.)

13

Businesses take inputs (resources) and transform

these inputs into goods and services for customers
Inputs:

Material, people, equipment

Managing inputs and business processes effectively

requires accurate and up-to-date information

Concepts in Enterprise Resource Planning, Third Edition

Functional Areas and Business Processes

of a Very Small Business
14

Example: A fictitious lemonade stand

Examine

business processes of the lemonade stand

See why coordination of functional areas helps achieve
efficient and effective business processes
Look at how integration of the information system
improves the business

Concepts in Enterprise Resource Planning, Third Edition

Marketing and Sales

15

Functions of Marketing and Sales

Developing

products
Determining pricing
Promoting products to customers
Taking customers orders
Helping create a sales forecast

Concepts in Enterprise Resource Planning, Third Edition

Marketing and Sales (contd.)

16

Marketing and Sales tasks for the lemonade stand

Formal

recordkeeping not required

Need to keep track of customers
Product development can be done informally
Good repeat customers allowed to charge purchases
up to a point
Records

must show how much each customer owes and his or

her available credit

Concepts in Enterprise Resource Planning, Third Edition

Supply Chain Management

17

Functions within Supply Chain Management

Making

the lemonade (manufacturing/production)

Buying raw materials (purchasing)

Production planning requires sales forecasts from

M/S functional area
Sales

forecasts: Analyses that attempt to predict the

future sales of a product

Concepts in Enterprise Resource Planning, Third Edition

Supply Chain Management (contd.)

18

Production plans used to develop requirements for

raw materials and packaging
Raw

materials: Bottled spring water, fresh lemons,

artificial sweetener, raw sugar
Packaging: Cups, straws, napkins

SCM and M/S must choose a recipe for each

lemonade product sold

Concepts in Enterprise Resource Planning, Third Edition

Accounting and Finance

19

Functions within Accounting and Finance

Recording

raw data about transactions (including sales),

raw material purchases, payroll, and receipt of cash
from customers

Raw data: Numbers collected from those

operations, without any manipulation, calculation, or
arrangement for presentation

Concepts in Enterprise Resource Planning, Third Edition

Accounting and Finance (contd.)

20

Data from Accounting and Finance used by

Marketing and Sales and Supply Chain
Management
Sales

records are important component of sales

forecast
Sales forecast is used in making staffing decisions and
in production planning
Records from accounts receivable used to monitor the
overall credit-granting policy of the lemonade stand
Concepts in Enterprise Resource Planning, Third Edition

Human Resources
21

Functions of Human Resources

Recruit,

train, evaluate, and compensate employees

HR uses sales forecasts developed by the individual

departments to plan personnel needs
Systems integrated using ERP software provide the
data sharing necessary between functional areas

Concepts in Enterprise Resource Planning, Third Edition

Functional Area Information Systems

22

Potential inputs and outputs for each functional area

described next
Note the kinds of data needed by each area and
how people use the data
Information systems maintain relationships between
all functional areas and processes

Concepts in Enterprise Resource Planning, Third Edition

Marketing and Sales

23

Needs information from all other functional areas

Customers communicate orders to M/S in person or
by telephone, e-mail, fax, the Web, etc.
M/S has a role in determining product prices
Pricing

might be determined based on a products unit

cost, plus some percentage markup
Requires information from Accounting and Finance, and
Supply Chain Management data

Concepts in Enterprise Resource Planning, Third Edition

Marketing and Sales (contd.)

24

Figure 1-4 The Marketing and Sales functional area exchanges data with
customers and with the Human Resources, Accounting and Finance, and
Supply Chain Management functional areas
Concepts in Enterprise Resource Planning, Third Edition

Marketing and Sales (contd.)

25

M/S needs to interact with Human Resources to

exchange information on hiring needs, legal
requirements, etc.
Inputs for M/S
Customer

data
Order data
Sales trend data
Per-unit cost
Travel expense company policy
Concepts in Enterprise Resource Planning, Third Edition

Marketing and Sales (contd.)

26

Outputs for M/S

Sales

strategies
Product pricing
Employment needs

Concepts in Enterprise Resource Planning, Third Edition

Supply Chain Management

27

Needs information from various functional areas

Production plans based on information about
product sales (actual and projected) that comes
from Marketing and Sales
With accurate data about required production
levels:
Raw

material and packaging can be ordered as

needed
Inventory levels can be kept low, saving money
Concepts in Enterprise Resource Planning, Third Edition

Supply Chain Management (contd.)

28

Supply Chain Management data and records can:

Provide

data needed by Accounting and Finance to

determine how much of each resource was used
Support the M/S function by providing information
about what has been produced and shipped

Supply Chain Management interacts in some ways

with Human Resources

Concepts in Enterprise Resource Planning, Third Edition

Supply Chain Management (contd.)

29

Figure 1-5 The Supply Chain Management functional area exchanges data
with suppliers and with the Human Resources, Marketing and Sales, and
Accounting and Finance functional areas
Concepts in Enterprise Resource Planning, Third Edition

Supply Chain Management (contd.)

30

Inputs for SCM

Product

sales data
Production plans
Inventory levels
Layoff and recall company policy

Concepts in Enterprise Resource Planning, Third Edition

Supply Chain Management (contd.)

31

Outputs for SCM

Raw

material orders
Packaging orders
Resource expenditure data
Production and inventory reports
Hiring information

Concepts in Enterprise Resource Planning, Third Edition

Accounting and Finance

32

Needs information from all other functional areas

A/F personnel:
Record

companys transactions in the books of account

Record accounts payable when raw materials are
purchased and cash outflows when they pay for
materials
Summarize transaction data to prepare reports about
companys financial position and profitability

Concepts in Enterprise Resource Planning, Third Edition

Accounting and Finance (contd.)

33

People in other functional areas provide data to

A/F
M/S

provides sales data

SCM provides production and inventory data
HR provides payroll and benefit expense data

M/S personnel require data from A/F to evaluate

customer credit

Concepts in Enterprise Resource Planning, Third Edition

Accounting and Finance (contd.)

34

Figure 1-6 The Accounting and Finance functional area exchanges data with
customers and with the Human Resources, Marketing and Sales, and Supply
Chain Management functional areas
Concepts in Enterprise Resource Planning, Third Edition

Accounting and Finance (contd.)

35

Inputs for A/F

Payments

from customers
Accounts receivable data
Accounts payable data
Sales data
Production and inventory data
Payroll and expense data

Concepts in Enterprise Resource Planning, Third Edition

Accounting and Finance (contd.)

36

Outputs for A/F

Payments

to suppliers
Financial reports
Customer credit data

Concepts in Enterprise Resource Planning, Third Edition

Human Resources
37

HR needs information from the other departments

Tasks related to employee hiring, benefits, training,
and government compliance are all responsibilities
of HR
HR needs accurate forecasts of personnel needs
from all functional units
HR needs to know what skills are needed to
perform a particular job and how much the
company can afford to pay employees
Concepts in Enterprise Resource Planning, Third Edition

Human Resources (contd.)

38

Figure 1-7 The Human Resources functional area exchanges data with the
Accounting and Finance, Marketing and Sales, and Supply Chain
Management functional areas
Concepts in Enterprise Resource Planning, Third Edition

Human Resources (contd.)

39

Observing governmental regulations in recruiting,

training, compensating, promoting, and terminating
employees
Inputs for HR
Personnel

forecasts
Skills data

Concepts in Enterprise Resource Planning, Third Edition

Human Resources (contd.)

40

Outputs for HR
Regulation

compliance
Employee training and certification
Skills database
Employee evaluation and compensation

Concepts in Enterprise Resource Planning, Third Edition

Human Resources (contd.)

41

Significant amount of data is maintained by and

shared among the functional areas
Timeliness and accuracy of these data are critical to
each areas success and to companys ability to
make a profit and generate future growth
ERP software allows all functional areas to share a
common database
Allows

accurate, real-time information to be available

Concepts in Enterprise Resource Planning, Third Edition

Summary
42

Basic functional areas: Marketing and Sales, Supply

Chain Management, Accounting and Finance, and
Human Resources
Marketing and Sales: Sets product prices, promotes
products through advertising and marketing, takes
customer orders, supports customers, and creates sales
forecasts
Supply Chain Management: Develops production plans,
orders raw materials from suppliers, receives raw
material, manufactures products, maintains facilities,
and ships products to customers
Concepts in Enterprise Resource Planning, Third Edition

Summary (contd.)
43

Accounting and Finance: Financial accounting to provide

summaries of operational data in managerial reports,
controlling accounts, planning and budgeting, and cashflow management
Human Resources: Recruits, hires, trains, and
compensates employees, ensures compliance with
government regulations, and oversees the evaluation of
employees
Information systems capture, process, and store data to
provide information needed for decision making
Concepts in Enterprise Resource Planning, Third Edition

Summary (contd.)
44

Employees working in one functional area need

data from employees in other functional areas
Functional

area information systems should be

integrated, so shared data are accurate and timely

Managers think in terms of business processes that

integrate the functional areas
Need

to share information between functions and

functional areas
ERP software provides this capability by means of a
single common database
Concepts in Enterprise Resource Planning, Third Edition