What is SAP? Definition, Characteristics, Architecture, History, Market, Business Processes

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What is SAP?

SAP (Systems, Applications and Products) in Data Processing is a software company that is known as a leader in Enterprise Resource Planning (ERP) software. The company, which was founded in 1972, is based in Walldorf, Germany. Its product, SAP, is a well-integrated software package that provides client/server business solutions.

It has managed to acquire a large stake in the market in spite of strong competitors. This is because SAP is the most sought-after vendor for ERP solutions.

According to Earl (1997), the introduction of client/server computing and usage of Business Process Re-engineering (BPR) applications has led to a sudden increase in demand of SAP ERP systems.

In common parlance, SAP ERP is also called just SAP. Technically, SAP retrieves and stores data in a third-party database known as Database Management Systems (DBMS), for example, Oracle, Informix, etc. Thus, it only serves as an interface between the input provider and DBMS.

In a business process, the graphic user interface of SAP that is implemented on the end-user side performs the following roles:

  • Receives all inputs given by the user by generating appropriate windows and buttons
  • Processes and transmits all inputs and requests of the user to the SAP system
  • Provides compiled, conclusive data to the end user

SAP has different software modules for processing different business functions. These include the following:

  • Finance
  • Sales and Distribution
  • Materials Management
  • Production and Planning
  • Human Resource Management
  • Quality Management

Let us study the features and characteristics of SAP in more detail in the next sections.

Characteristics of SAP

The main characteristics or features of the SAP ERP system, which make it popular among the users, are listed as follows:

  • It is a complete software package as it provides client/server solutions on the majority of business processes in any industry.

  • It integrates most of the business processes of an organisation.

  • It stores the data in a DBMS.

  • It provides real-time access of data to users.

  • It contains procedures to process most of the business transactions of a different nature.

  • It integrates and processes all business-planning activities with different business transactions.

  • It is adaptable to frequent changes in business requirements. It has a system that provides the ease of configuration resulting in higher adaptability.

  • It can be customised according to the needs of the user and the type of industry.

  • It maintains data integrity by using its powerful data verification system.

  • It has low running cost. Once the system is established and implemented, it can be run and maintained with a small, well-trained support staff.

  • Elimination of loopholes from business processes helps synchronise all business processes, resulting in increased productivity.

  • It provides real-time data reporting and processing.

  • It is used throughout the world.

  • It provides updated and customised reports from all departments to the management.

  • It supports multiple languages and currencies.

  • It maintains data consistency throughout the system—internally as well as externally.
  • It provides customised solutions according to the needs of the business and industry. ‰ Continuous support is guaranteed.

  • It reduces various operational and production costs of the business, such as sales order processing cost, distribution cost and freight cost.

  • It reduces the total operational time, which includes calculation time, request-to-quote time, order-to-delivery time, delivery-to-invoice time.

  • Availability of better product results in higher customer satisfaction.

  • It helps in increasing cash flow and investment potential.

  • It provides a faster payment and billing process due to better management and fewer reconciliations.

These characteristics are a major reason for SAP being the most powerful ERP system. SAP synchronises all business areas of an enterprise by integrating different functions, including Human Capital Management (HCM), Financial Management (FM), Production Management (PM), Customer Relationship Management (CRM), sales, customer services, logistics and materials management and procurement. These characteristics enable organisations to benefit from SAP implementation.

In spite of its many advantages, SAP suffers from one serious disadvantage, i.e., its complex and high cost of implementation. Hence, it is suited only for medium to large organisations. However, any company can achieve higher ROI with proper SAP implementation.

Architecture of SAP

It is important to understand the architecture of SAP. The SAP (client/server) architecture consists of three main layers, as shown in the Figure below:

Presentation Layer

This layer interacts with the database layer through the application layer. This layer also includes the SAP Graphical User Interface (GUI). Users provide inputs to the GUI by using keystrokes, mouse-clicks and function keys, which are passed on to the application server for processing. Similarly, the results sent by the application server are formatted by the GUI so that the users can understand them.

Application Layer

This layer interacts with the presentation and database layers. The application comprises an application server that decodes the ABAP/4 language and programs. The application server includes a set of executables, which control the input and output from the application layer.

Database Layer

This layer passes the data or information received to the application layer. It stores all data of the ERP SAP systems. The layer comprises a set of executables, which process the database requests as received from the application server. It transfers these requests to the Relation Database Management System (RDBMS), which provides the requested data to the database server.

History of SAP

SAP stands for Systems, Applications and Products. Originally, SAP was founded in June 1972 as Systemanalyse und Programmentwicklung (System Analysis and Program Development) in Mannheim, Baden-Württemberg, Germany, by five former IBM engineers from the Artificial Intelligence (AI) department.

The engineers were Dietmar Hopp, Hans-Werner Hector, Hasso Plattner, Klaus Tschira and Claus Wellenreuther.

SAP is now based in Walldorf, Baden-Württemberg, Germany. It has numerous regional offices across 130 countries. The founder members, who were earlier working on an enterprise-wide system, were asked to leave the project. However, they decided to resign from IBM and founded their private company, Systeme, Anwendungen und Produkte in der Datenverarbeitung (Systems, Applications and Products in Data Processing). Their first client was Imperial Chemical Industries, for which they developed a payroll and accounting program.

Table below presents the evolution of SAP over the years:

1972 SAP founded in Germany
1973SAP R/98 launched as first commercial software
1976SAP GmbH founded
1979 SAP R/2 launched for mainframe computers
1988SAP GmbH became SAP AG and listed under Frankfurt
and Stuttgart Stock Exchange
1992 SAP R/3 launched as client-server application
1996 SAP R/3 became Web-enabled partially
1997 New product line including CRM, SCM, DBMS launched
1999 mySAP.com released
2000-2005 mySAP business Suite, NetWeaver, XApplications launched
2014 SAP AG become SAP SE
Evolution of SAP

The benefits of SAP implementation in different enterprises can be understood better by studying the various SAP application areas, SAP modules and SAP sub-modules. These are discussed in the following sections.

Business Processes and SAP

In a typical business organisation, there are several business processes that work together in an integrated manner. These business processes aim at achieving the business goals and objectives of the organisation.

A business process is defined as a set of connected activities belonging to different functional areas, which generate value for the organisation.

Business processes can be further divided into various sub-categories as per SAP, which are as follows:

Application Core Processes

These refer to the core business processes that are critical for business operations. Although these core processes are well packaged and pre-defined, they can be customised according to the SAP applications; for example, SAP CRM is customised to address customer relation issues of an organisation.

Composite Business Processes

These refer to the processes made for specific business requirements. Generally, composite business processes are driven by sudden changes in the business or by critical business events. These processes are aimed at adding value to the business over and above the application core processes. They can be further classified into collaborative processes (human-centric) and integration processes (systemcentric).

These sub-processes help to provide a competitive edge to the business. They are used for aligning the existing business partners and legacy systems (core processes) along with the new processes (composite processes) and applications.

SAP implementation through automation or computerisation of any function or business unit requires a thorough understanding of the business and its processes. Integration and reorganisation of all business processes is known as Business Process Engineering. Let us understand the business processes and SAP functionality with the help of Figure 4.7:

Figure shows how various business functions are interlinked to form an integrated system that can provide one single facet of information across the entire business unit. Once integrity is established in business processes, a process-based IT infrastructure is build, which serves as a pre-requisite for the introduction and implementation of the SAP system.

Once implemented, the SAP system records and updates data on multiple functions of the business simultaneously. For instance, SAP automatically updates the inventory database and manufacturing plans whenever new sales is made by the Sales function.

Similarly, SAP updates the material stock level whenever there are changes in the manufacturing plans, thus notifying the management to order raw material on a timely basis. The SAP system also enables organisations to bill customers immediately after the goods are shipped to them.

SAP R/3 is a powerful system that is able to meet all the needs of an organisation, by effective flow of data to distant locations while maintaining data consistency and reliability. We will study about SAP R/3 in detail in the subsequent section.

ERP Market

The increasing competition in the market drives organisations to constantly improve and increase value-added services for attracting customers. Some of the factors that have compelled these organisations to adopt business improvement processes and solutions include the need for increased efficiency and speed of operations, cost optimisation, manpower optimisation, constantly evolving market trends, etc.

Adopting a business solution would help these organisations to sustain their competitive advantage. The ERP market offers several such solutions in the form of ERP software to these organisations. Several organisations in India have already invested in ERP software while many more are in the process of doing so.

The international ERP market consists of several software modules, where each of these modules serves a specific business operation. For example, product management, manufacturing, financial management, customer management, supplier management, project management and HRM are some areas that use ERP software modules.

Recent Trends in ERP Market

Some of the recent trends in the ERP market can be briefly explained as follows:

  • Dominance of top vendors: The ERP software market has always been highly consolidated. It is mostly dominated by large vendors, such as SAP, Oracle and Microsoft. At present, Oracle and SAP control over half the market. However, the mid-market segment in India is moving towards lesser known CAPEX cloud SaaS vendors, such as UNIT4 Business Software, NetSuite and Epicor.

  • Industry-specific ERP products differentiate the vendors in the market: The ERP market has grown to a level where the most basic business operations, such as human resource and finance, are successfully supported by most of the ERP offerings in the market. Therefore, vendors have now started differentiating on the basis of industry-specific business operations.

  • Transfer of focus from large enterprises to small- and mid-sized enterprises: Issues related to the implementation of ERP systems and high costs have led organisations to reconsider their plans for purchasing and implementing enterprise-wide ERP systems. Therefore, the ERP market is gradually leading towards saturation among large enterprises. This has led to a shift in the focus of ERP vendors from large businesses to small- and mid-size industries.

The 2014 Manufacturing Report provides the market share statistics of the frequency with which each ERP vendor was selected by organisations. Figure 11.1 shows the total market share distribution of ERP vendors from May 2012 to September 2013:

SAP has a presence of about 17% in the manufacturing ERP market. Oracle and Microsoft trail with about 14% and 7%, respectively. The Tier II ERP solutions hold almost 21% of the manufacturing ERP market.

Future Trends in ERP Market

The future trends in the ERP market are assumed to be as follows:

  • Industry-specific ERP offerings would continue to decide the success of ERP vendors: With the introduction of new rules, compliance guidelines, industry-specific issues, etc., businesses would require new ERP products to address particular business requirements.

  • Increased emphasis would be on the user interface: A substantial ERP product differentiation is expected on the basis of the user interface. Web applications are expected to transform the user interfaces of back-end business applications.

  • Alternative ERP modules would gain power in the ERP market: Software as a Service (SaaS) or customised ERP modules would reinforce their place as the conventional ERP solution model among the end users.

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