SIF 8035 Informasjonssystemer Våren 2001
Øving 6 – SAP Løsningsforslag
Case description
The company IDES AG is a German-based car producer, which buys car parts (bumpers) from BMW and Volkswagen. The company is managed from Hamburg, though there are production facilities in both Hamburg and Frankfurt. The two factories operate independently of each other and have their own sales and purchasing organizations. The currency they use is DEM.
In order to introduce SAP R/3, the company has to analyze its process flows and decide what the flows should be. In terms of procurement processes, two different proposals are
considered.
(1) Alternative one (Tight control).
A purchasing requisition is generated from the production department and sent to the purchasing department. The purchasing requisition needs to be approved. There are three levels of approvals: if the purchasing amount is less than 1000 DEM, a personal approval is required; if the amount is between 1000 and 10000 DEM, approval of the head of the purchasing department is required; if the amount is greater than 10000 DEM, it must be approved by the plant manager. The purchasing department then assigns the requirement to a pre-planned “source of supply”, a contract. If there is no contract available for that material, the purchasing process is blocked until the purchasing manager negotiates a contract with some vendor. A purchasing order is then issued according to that purchasing requisition. After that, the purchasing department sends the purchasing order to the vendor. For important materials, the company also requires that the vendor return an acknowledgement telling that they can deliver the goods on the specified date. Also for important materials, a reminder will be sent out to the vendor if the material is not arrived on time. Once the goods arrive, with a shipping notification, the goods receipt processing begins. First, the purchasing department has to make sure that the correct number of the correct material is delivered. If it is OK, the warehouse people post the goods receipt and the invoice is sent to the financial department for registration.
(2) Alternative two (Loose control). Main differences are:
1) The purchasing requisition is assigned to an info record or a contract. Info records can be set up directly by purchaser without involving the manager.
2) No approval is needed for purchasing requisitions. 3) No reminders or acknowledgements are used.
Exercise
1) Construct an ARIS organization model (view) of IDEC AG and EPC models (control view) of the two alternative flows in the company.
2) Assess the two alternatives with respect to cost and speed (which one is more costly, which is slower). Justify your answer.
Solution
1.1) Organization view
As the case description is rather vague on organizational issues, we need to make a few assumptions to set up an organizational model (EPC organization view). The model below only includes the organizational parts mentioned in the case description and is not intended to be a complete organizational model of IDES AG. The structure for the Frankfurt division should be identical to the one for Hamburg. Some positions are added to the model, though in a real-world case there would be a lot more of them.
Frankfurt division IDES AG Management Hamburg division Sales department Purchasing departement Production department Warehouse department Purchasing manager Purchaser Production manager Production worker Sales manager Sales assistant Warehouse manager Warehouse assistant
Materials needed in production Create purchase requisitio Production departmen t Purchase req. XO R Manageri al release Purchasing value >= 10000 DEM 1000 < Purchasing value < 10000 DEM -Approved purchase req. XO R Managem ent Purchase req. Invoice Purchasing Value <= 1000 DEM -Departme ntal release Personal release Assign
PReq. departmenPurchase
t Purchase req. XO R Negotiat e with vendors n contract not exist Contracts exist -contract agreed n XO R Contract Create PO with contract and PReq. Purcahse req. Purchase order Contract XO R Ask for Acknowld dgement n Important material PO sent PO sent purchase dept. Purchase order Ackowled gement arrived Receive acknowle dgement No delivery in time Reminder sent Receiv e goods Goods returne d XO R Invoice arrived at plant Verify invoic e Warehous e dept. Finance departmen t Goods receipt slip
Purchase order
Invoice Goods receipt slip
Purchase order Issue material to production Warehouse dept. Material doc. Materials ready for productio n Delivery accepte d Invoice accepted Send out reminder XO R XO R Material arrived Acknowled gement Delivery in time
1.3) EPC model for loose control Materials needed in production Create purchase requisitio Production departmen t Purchase req. XOR Set up info rec. no info rec. or contract Contract or info record exist -n XOR Info rec. Assign PReq. Purchase req. Create purchase order Purcahse req. Purchase order Contract purchase dept. n Info rec. set n PReq. assigned purchase order sent Material s arrived at plant Receiv e goods Goods returne d XOR Invoice arrived at plant Verify invoic e Warehous e dept. Finance departmen t
Goods receipt slip
purchase order
invoice
Goods receipt slip
purchase order Issue material to production Warehouse dept. Material doc. Materials ready for productio n Delivery accepte d Invoice accepted
2) Assess the two alternatives with respect to cost and speed (which one is more costly, which is slower). Justify your answer.
Speed Price
Tight control
• Release slows down purchasing process.
• “No contract” slows down purchasing process.
• With Acknowledgement, reminder, it is less likely that goods are delayed, so it is less likely that production process halts.
• Contracts ensure good price.
• Release ensures that expensive material are not bought
unnecessarily.
• The fact that production is less likely to stop will save money
Loose control • No release -> faster purchasing process.
• If no contracts or IR exist, IR can be set up directly by purchaser -> no major slow down.
• With no Ack. Rem. , goods may not arrive on time, which slows down production process.
• May pay more, since we don’t take the time to negotiate contracts.
• May buy wrong material at high price.
• Production may stop with late delivery.
Note: Students should distinguish between purchasing costs, speed and production costs, speed.
