1

CHAPTER 2

Literature Framework

2.1General Theory

2.1.1Definition of Data

Data is an elementary description of things, events, activities, and transactions that are recorded, classified, and stored but are not organized to convey any specific meaning. It can be numbers, letters, figures, sounds, or images.

(R.Kelly Rainer, Turban, & Potter, 2007, p. 5)

2.1.1.1Characteristics of Valuable Data

Table 2.1 Table of Characteristic of Valuable Data

Characteristics / Definitions
Accurate / Accurate information is error free, in some cases, inaccurate information is generated because inaccurate data is fed into the transformation process (this is commonly called garbage in, garbage out (GIGO)).
Complete / Complete information contains all the important facts. For example, an investment report that doesn’t include all important costs is not complete.
Economical / Information should also be relatively economical to produce. Decision makers must always balance the value of information with the cost of producing it.
Flexible / Flexible information can be used for a variety of purposes. For example, information on how much inventory is on hand for a particular part can be used by a sales representative in closing a sale, by production manager to determine whether more inventory is needed, and by a financial executive to determine the total value the company has invested in inventory.
Reliable / Reliable information can be depended on. In many cases, the reliability of the information depends on the reliability of data collection method. In other instances, reliability depends on the source of the information. A rumor from an unknown source that oil prices might go up may not be reliable.
Relevant / Relevant information is important to the decision maker. Information that lumber prices may drop may not be relevant to a computer chip manufacturer.
Simple / Information should also be simple, not overly complex. Sophisticated and detailed information may not be needed. In fact, too much information can cause information overload, whereby a decision maker has too much information and is unable to determine what is really important.
Timely / Timely information is delivered when it is needed. Knowing last week’s weather conditions will not help when trying to decide what coat to wear today.
Verifiable / Information should be verifiable. This means that you can check it to make sure it is correct, perhaps by checking many sources for the same information.
Accessible / Information should be easily accessible by authorized users to be obtained in the right format and at the right time to meet their needs.
Secure / Information should be secure from access by unauthorized users.

(Stair & Reynolds, 2006, p. 7)

2.1.2Definition of Information System

A collection of interrelated components that collect, process, store, and provide as output the information needed to complete a business task.

(Satzinger, Jackson, & Burd, 2005, p. 7)

2.1.2.1Information System Components

The basic components of information are listed below:

  1. Hardware is a device such as the processor, monitor, keyboard, and printer. Together, these devices accept data and information, process them, and display them.
  2. Software is a program or collection of programs that enable the hardware to process data.
  3. A database is a collection of related files or tables containing data.
  4. A network is a connecting system (wireline or wireless) that permits different computers to share resources.
  5. Procedures are the set of instructions about how to combine the above components in order to process information and generate the desired output.
  6. People are those individuals who use the hardware and software, interface with it, or use its output.

(R.Kelly Rainer, Turban, & Potter, 2007, pp. 6-7)

2.1.2.2Types of Information Systems

Table 2.2 Table of Types of Information System

Type of System / Function / Example
Functional area IS / Support the activities within
specific functional area / System for processing
payroll
Transaction processing
System / Process transaction data
from business events / Wal-Mart checkout
point-of-sale terminal
Enterprise resource
planning system / Integrate all functional
areas of the organization / Oracle, SAP
Office automation system / Support daily work activities
of individuals and groups / Microsoft Office
Management information
System / Produce reports summarized
from transaction data, usually
in one functional area / Report on total sales
for each customer
Decision support system / Provide access to data
and analysis tools / “What-if” analysis of
changes in budget
Expert system / Mimic human expert in a
particular area and make a
decision / Credit card approval
analysis
Executive information
System / Present structured,
summarized information
about aspects of business
important to executives / Status of production
by product
Supply chain management
System / Manage flows of products,
services, and information
among organizations / Wal-Mart Retail Link
system connecting
suppliers to Wal-Mart
Electronic commerce system / Enable transactions among
organizations and between
organizations and customers /

(R.Kelly Rainer, Turban, & Potter, 2007, p. 13)

2.1.3Definition of Knowledge

Knowledge consists of data and/or information that have been organized and processed to convey understanding, experience, accumulated learning, and expertise as they apply to a current business problem.

(R.Kelly Rainer, Turban, & Potter, 2007, p. 5)

2.1.4Definition of Enterprise Resource Planning Systems

Enterprise resource planning (ERP) systems integrate the planning, management, and use of all resources of the organization. The major objective of ERP systems is to tightly integrate the functional areas of the organization, and to enable seamless information flows across the functional areas. Tight integration means that changes in one functional area are immediately reflected in all other pertinent functional areas.

(R.Kelly Rainer, Turban, & Potter, 2007, p. 248)

2.1.5Definition of Business Process

Business process is a set of related steps or procedures designed to produce a specific outcome. It can be located entirely within one functional area, such as approving a credit card application, or hiring a new employee.

(R.Kelly Rainer, Turban, & Potter, 2007, p. 249)

2.1.5.1Business Processes Supported by ERP Modules

ERP software includes a set of interdependent software modules, linked to a common database, that provide support for the internal business processes in the following functional areas:

  1. Finance and accounting processes
  2. General ledger, account payable, account receivable, fixed asset, cash management and forecasting, product-cost accounting, cost-center accounting, asset accounting, tax accounting, credit management, financial reporting.
  3. Manufacturing and production processes
  4. Procurement, inventory management, purchasing, shipping, production-planning, production scheduling, material requirements planning, quality control, distribution, transportation, plant, and equipment maintenance.
  1. Sales and marketing processes
  2. Order processing, quotations, contracts, product configuration, pricing, billing, credit checking, incentive and commission management, sales planning.
  3. Human resources processes
  4. Personnel administration, time accounting, payroll, personnel planning and development, benefits accounting, applicant tracking, compensation, workforce planning, performance management.

(R.Kelly Rainer, Turban, & Potter, 2007, p. 250)

2.1.6Definition of Best Practices

Best practices are the most successful solutions or problem-solving methods for achieving a business objective.

(R.Kelly Rainer, Turban, & Potter, 2007, p. 249)

2.1.7Definition of Evaluation

Systematic process of collecting and analyzing data in order to determine whether and to what degree objectives have been or are being achieved.

(Boulmetis & Dutwin, 2005, p. 4)

2.2Specific Theory

2.2.1Definition of Material

Term for all objects processed in materials management. A material master record is usually created for each material in the SAP system and each material is assigned a material number.

(Asap World Consultancy, 2012, p. 15)

2.2.2Definition of Material Management

The material management module comprises all activities related with material acquisitions (purchasing), and control (inventory, warehouse).

(Hernandez, 2005, p. 34)

2.2.2.1 Components of Material Management
1.Material Group

Grouping together of several materials with the same characteristics.

(Asap World Consultancy, 2012, p. 15)

2.Material Master

All the materials used in a company and their data are contained in the material master records.

(Asap World Consultancy, 2012, p. 15)

3.Material Type

An indicator that subdivides materials into different groups. For example: raw materials, semi-finished materials, finished materials, and operating supplies. The material type determines the material’s procurement type and controls the following:

  1. Screen sequence control
  2. Field selection
  3. Type of number assignment in material master maintenance
  4. Type of inventory management
  5. Account determination

(Asap World Consultancy, 2012, p. 15)

4.Price comparison list

Method for comparing prices in quotations. The price comparison list also directly compares a quotation with the minimum, average, or maximum price on an item by item basis.

(Asap World Consultancy, 2012, p. 17)

5.Purchase order

Request to a vendor to supply certain materials or perform certain services. A purchase order contains general data including terms of delivery and terms of payment, and one or more items with details such as material description, order quantity, delivery date, and price.

(Asap World Consultancy, 2012, p. 17)

6.Purchase requisition

Request or instruction to the purchasing department to procure a certain quantity of a material or service on or by a certain date.

(Asap World Consultancy, 2012, p. 17)

7.Purchasing document

Instrument used by the purchasing department to procure a material or services. The standard SAP R/3 System includes the following purchasing documents: purchase requisition, RFQ request for quotation, purchase order, contract, and scheduling agreement.

(Asap World Consultancy, 2012, p. 17)

8.Purchasing group

Key for a buyer or group of buyers responsible for certain purchasing activities. A purchasing group is internally responsible for the procurement of a material or class of materials, and, as a rule, the principal channel for a company’s dealings with its vendors.

(Asap World Consultancy, 2012, p. 18)

9.Purchasing organization

Organizational unit that negotiates general conditions of purchase for several plants.

(Asap World Consultancy, 2012, p. 18)

10.Purchasing info record

Source of information for the purchasing department about a certain material-vendor relationship. The purchasing info record contains the following data: general data, quotation data, and order data. The purchasing info record permits the purchasing department to obtain the following information: which materials a certain vendor has submitted a quotation for or supplied to date and which vendors have quoted prices for or supplied a certain material.

(Asap World Consultancy, 2012, p. 18)

11.Contract

Part of the outline agreement, which help release orders for agreed-upon materials or services depending on the requirements of the purchasing organization.

(Kogent Learning Solutions, Inc, 2010, p. 105)

12.Quantity contract

Contract in which the purchase quantity of goods or services is agreed upon. In order to create a quantity contract you must enter the agreed quantity.

(Asap World Consultancy, 2012, p. 18)

13.Value contract

Contract in which the purchase of goods or services is agreed up to a certain total value. The goods to be released against the contract are specified in contract release orders. Criterion for the performance of a value contract is its agreed total value.

(Asap World Consultancy, 2012, p. 19)

14.Vendor

External source from whom materials or services can be procured.

(Asap World Consultancy, 2012, p. 19)

15.Goods receipt

Term in inventory management that refers to the acceptance of goods from a company. Goods receipts are documents posted with or without reference to a purchase order.

(Asap World Consultancy, 2012, p. 19)

16.Stock

Material management term for part of a company’s currents assets. It refers to the quantities of raw materials, operating supplies, semi-finished products, finished products, and trading goods in the company’s stores / warehouses.

(Asap World Consultancy, 2012, p. 20)

17.Consignment

Form of business in which a vendor maintains a stock of material at a customer (purchaser) location. The vendor retains ownership of the materials until they are withdrawn from the consignment stores. Payment for consignment stock is only required when the material is withdrawn. For this reason, the vendor is informed of withdrawals of consignment stocks on a regular basis.

(Asap World Consultancy, 2012, p. 21)

18.Consignment material

Goods from one or more vendors handed over to a company for storage or sale on a consignment basis and that are stored in this company’s storage facilities. Consignment material is not transferred to the company’s valuated stock until it is withdrawn. As a result of such withdrawals, the company incurs a liability toward the vendor. Such liabilities are settled at certain intervals.

(Asap World Consultancy, 2012, p. 21)

19.Consignment stock

Stock made available by the vendor that is stored on the purchaser’s premises, but remains the vendor’s property until withdrawn from stores or transferred to the purchaser’s own valuated stock.

(Asap World Consultancy, 2012, p. 21)

20.Request for Quotation

An invitation, which is extended to a vendor by a purchasing organization to submit a quotation (bid) for the supply of materials or performance of services.

(Dreamtech Press, 2006, p. 572)

21.Quotation

An offer by a vendor to a purchasing organization regarding the supply of materials or performance of services subjected to specified condition.

(Dreamtech Press, 2006, p. 573)

22.Invoice

Invoice is a legal document and contains basic information about the items, such as the name of the item(s), cost per unit, the discount offered, the taxes levied, and the terms of payment.

(Kogent Learning Solution, Inc., 2011, p. 506)

23.Reservation

A reservation is an instrument for making sure that this material is moved from stock to consumption at the correct moment.

(Asap World Consultancy, 2012, p. 134)

24.Goods Issue

The physical movement of goods or materials out of the company. It reduces the stock quantity. The goods issue can be of the following type:

  1. Goods consumption in the company
  2. Goods delivery to the customers

(Kogent Learning Solutions, Inc, 2010, p. 171)

2.2.3Material Requirement Planning (MRP)

MRP is a technique to calculate requirements for materials used in production.

(Alleio, 2007, p. 188)

1.Lot Size

The lot size is the quantity of materials used for reordering. It can be static, periodic, optimum, or fixed in attributes

(Kogent Learning Solutions, Inc, 2010, p. 89)

2.Reorder Point

A reorder point is simply a level of inventory that is designated as the signal to replenish.

(Mercado, 2008, p. 64)

2.2.4SAP

SAP is the most popular enterprise resource planning (ERP) software application used to provide enterprise business solutions. It stands for System, Application, and Products in Data Processing.

(Kogent Learning Solutions, Inc, 2010, p. 2)

2.2.4.1Organization Element in SAP
  1. Client

Client is defined as a legally and organizationally independent unit within the SAP system, for example, a company group, a business unit, or a corporation.

(Hernandez, 2005, p. 15)

  1. Company Code

SAP shorthand for a company that is a subsidiary of the client code enterprise.

(Asap World Consultancy, 2012, p. 110)

  1. Plant

Plant is a data object belonging to a specific company code. In fact, the plant need not be a production plant as such. It could be a warehouse or even part of a warehouse.

(Asap World Consultancy, 2012, p. 208)

  1. Storage Location

Storage Location is both an actual place and a data object that SAP treats as a collective label for a set of storage bins or other units in which material is held.

(Asap World Consultancy, 2012, p. 208)

2.2.5Definition of Lotus Notes

Lotus Notes is a client-server, collaborative application owned by IBM Software Group. IBM defines the software as an "integrated desktop client option for accessing business e-mail, calendars and applications on [an] IBM Lotus Domino server.

(Mamčenko, p. 11)

Lotus Notes is a logical choice for organizing their project and action reminders, especially if they already use Notes for email and calendaring.

(David Allen Company, Inc., 2011, p. 10)

2.2.6Definition of Fit Gap Analysis

Fit Gap Analysis is methodology which enterprise processes and system functions are compared, evaluated and listed down to arrive at match(fits) and mismatch (gaps).

(Pol & Paturkar, 2011, p. 2)

  1. Priority in Fit Gap Analysis
  2. High

Requirements that are mission critical, necessary for operation and without them the organization could not function; they also include important internal and external reporting requirements.

  1. Medium

These requirements are often current business system processes that are not mission critical to the organization’s business, but if met could provide significant cost benefit to the organization.

  1. Low

These requirements that are nice to be have and would add only minor value to the business processes.

(Dawson & Norwood, 2006, p. 4)

  1. Degree of fit in Fit Gap Analysis
  2. Fit (F)

The requirement is fully met by the software.

  1. Gap (G)

The software does not meet the requirement at all. Comments are provided and suggested alternatives are identified and a recommendation made; may result in recommending a customization to the software.

  1. Partial Fit (P)

The software has functionality that satisfies the requirement. Workarounds, custom reports, or customizations will, however, be identified where necessary to fully meet the requirement.

(Dawson & Norwood, 2006, p. 5)

2.2.7Purpose of Fit Gap Analysis

Fit Gap analysis is used for below purpose:

  1. To adapt local processes to industry best practices
  2. To assess statutory and/ or legal requirements
  3. To identify local and global practices not covered in test or pilot implementation

(Pol & Paturkar, 2011, p. 2)

2.2.8Methods in Fit Gap Analysis

Following four different methods are widely used to conduct Fit Gap Analysis:

  1. Simulation Based

Phases in Simulation Based:

  1. Plan

Fit Gap planning for day by day schedule, list of participants and detailed agenda is prepared based on business blueprinting outcome and initial requirement analysis.

  1. Implement

System is implemented in simulated test or sandbox environment.

  1. Analyze

System analysis carried out to compare package functionalities against enterprise requirement.

  1. Capture

System fits and gaps are captured and documented.

  1. Brainstorming Discussion Based

Phases in Brainstorming Discussion Based:

  1. Schedule

Detailed schedule for brainstorming discussion is chalked out. Schedule of Time Vs Topics to be discussed is prepared.

  1. Discuss

Presenter explains the system features and discuss on detailed functionalities; stakeholders communicate on what their needs are.

  1. Capture

Functionalities Versus Needs are captured.

  1. Analyze

Fits and Gaps are analyzed and documented.

  1. Questionnaire Based

Phases in Questionnaire Based:

  1. Analyze

Enterprise requirements are first analyzed based on business blueprint and initial requirement analysis.

  1. Formulate

Detailed list of fit-gap questionnaire is prepared based on the need analysis.