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Concept Check
1. a
2. d
3. b
4. c
5. b
Discussion Questions
13. (S.O. 1) Describe how ERP systems enhance efficiency in a business organization.
ERP systems enhance efficiency by controlling all business processes in one
14. (S.O. 1) Why is real-time processing essential in an ERP system?
Real-time processing is essential in an ERP system because all employees in the
organization need to use the same information. Since data is stored in a single
database, it is important that the most up-to-date information is available because of
its usefulness in so many areas of the organization.
15. (S.O. 1) How has ERP increased the responsibilities of customer service
representatives?
16. (S.O. 1) What is an MRP II system and how is it different than the ERP systems in
use today?
Manufacturing Resource Planning (MRP II) software systems is focused on the
movement and use of resources needed by a manufacturing company, such as
purchasing, warehousing, and the scheduling of deliveries, production, and shipping.
MRP II systems evolved into ERP systems when the system’s functionality
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increased to include processes related to marketing, distribution, human resources,
etc.
17. (S.O. 1) What are the two databases used by ERP systems?
18. (S.O. 1) Differentiate between the “enterprise–wide” and “non–volatile” features of a
company’s data warehouse.
19. (S.O. 2) What was unique about SAP’s first ERP system?
SAP’s first ERP system was unique in that it integrated all business processes (not
just manufacturing) and that it made data available in real time.
20. (S.O. 2,5) Differentiate between the features of SAP’s R/1, R/2, and R/3. What does
the “R” stand for in this name?
SAP differentiated new versions of its software by coding them as R/1, R/2, and R/3,
where the “R” stands for “real–time processing” and the number relates to the
21. (S.O. 3) How do ERP II systems allow for businesses to improve efficiencies with
respect to sharing information with trading partners?
ERP II systems allow for businesses to improve efficiencies with respect to sharing
information with trading partners by using EDI, Internet EDI, or extranets to connect
with suppliers and customers. Exhibit 15-2 depicts a view of an ERP II system.
22. (S.O. 3) How did the tragic events of September 11, 2001 affect the market for ERP
systems?
23. (S.O. 4) What are some of the activities included in an ERP module for supply chain
management?
Supply chain management (SCM) is the management and control of all materials,
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24. (S.O.4) What are some of the features of an ERP module for customer relationship
management?
Customer relationship management (CRM) allows organizations to manage
customer relationships in an organized manner by providing a database of detailed
25. (S.O.5) Which company is today’s top-seller of ERP systems in the U.S.?
SAP is the top-selling tier one manufacturer of ERP systems in the U.S. (through
2007).
26. (S.O.5) Differentiate between Oracle’s “back office” and “front office” modules.
Back office modules are the ERP modules such as financial, manufacturing, supply
27. (S.O.5) Which tier one company introduced the first ERP system that was “pure
internet,” requiring no programming code to reside on the client computer?
Peoplesoft is the tier one company that introduced the first “pure internet” ERP
system that required no programming code to reside on the client computer.
28. (S.O. 5, 6) Which of the tier one ERP companies is likely to provide the “best fit” for
a manufacturing firm? For a human resources placement company?
29. (S.O.6) Why is business process reengineering an important aspect of ERP
implementation?
Business process reengineering (BPR) an important aspect of ERP implementation
because it aligns business processes with the underlying IT systems used to record
30. (S.O.6) Why should customization of an ERP system be limited?
Customization of an ERP system should be limited because of issues with cost and
upgrading. Any customizations may require changing or writing new programming
code and this can be a very expensive and time-consuming task. The cost of
customization can easily exceed the cost of packaged ERP software. Second, any
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customizations cannot be automatically incorporated when the ERP vendor provides
an upgraded version of the ERP software. Therefore, upgrading to the new version
may mean losing any customizations.
31. (S.O.6) Differentiate between location-wise and modular implementation approaches
to the conversion to an ERP system.
In a location-wise implementation of an ERP system, the organization chooses a
32. (S.O.7) Which method of conversion to an ERP system is sometimes referred to as
a “pilot” method? Why is this name appropriate?
The location-wise implementation method is considered a “pilot” approach because
the ERP is first implemented in a single location or sub-unit of the organization
before it is implemented across the entire organization. This allows any problems to
be worked out in an isolated area without impacting the entire organization. Thus,
the changes and resolutions experiences in this pilot area can be used to guide the
subsequent implementations.
33. (S.O.8) How can an ERP system assist a company in its efforts to comply with the
Sarbanes-Oxley Act of 2002?
ERP systems assist a company in its efforts to comply with the Sarbanes-Oxley Act
of 2002 by providing real-time financial information to facilitate the reporting
Brief Exercises
34. (S.O. 2) Why was there so much growth in the sales of ERP systems in the late
1990s?
There are two major contributing factors to the rapid growth in sales of ERP software
in the late 1990s. One factor was the explosive growth of e-commerce and the dot-
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35. (S.O. 3) What are the five most common reasons for increased spending on ERP
systems in the early 2000s? Which of these reasons was the impetus for Viper’s
ERP implementation in 2003?
Some of the reasons for this increased ERP spending are:
a. The need to improve customer service through standardizing and combining
business processes. This necessitates ERP software that can support
standardized and combined processes.
Viper Motorcycle Company implemented an ERP system primarily to enhance
compliance with the Sarbanes-Oxley Act of 2002.
36. (S.O. 4) Match the ERP modules on the left with the purpose of the related
processes on the right:
Financials
b. Maintenance of the general ledger and supporting journals
and sub-ledgers.
Human Resources
d. Accounting for personnel and payroll activities.
Procurement and
Logistics
c. Keeping track of purchasing and movement of goods and
materials.
f. Planning and scheduling of conversion activities.
a. Taking customer orders and preparing for the impending
revenue and cash collection.
e. Data mining and other processes for obtaining feedback
and supporting managerial decision-making.
37. (S.O.6) What potential advantages and disadvantages exist with respect to
engaging a consultant for an ERP implementation? Discuss.
The primary advantages of hiring a consulting firm include:
a. Experience. The use of consultants may provide for a more effective
implementation, as long as it is performed by professionals having
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b. Efficiency. Due to the experience of professional consultants, time
savings may be realized in terms of avoidance of unproductive time spent
on training, trial-and-error, etc.
38. (S.O.7) What are the primary benefits of an ERP system? What are the primary
risks?
The primary benefits of an ERP system are the following:
a. The interactive nature of the modules that allows processes to interact with
each other. For example, the ordering and receiving processes can
automatically trigger payment processes.
d. The single database that enhances sharing of information between the
business’ functional areas and between processes.
e. The capability to analyze large amounts of data in a single database.
Analytical tools are incorporated in ERP systems that allow detailed analysis
of the data.
The primary risks of an ERP system are the following:
a. The large size, scope, and complexity of ERP systems cause their
implementation to be very costly, time consuming, and potentially disruptive
to operations. (Implementation risk)
b. The potential for failure of the system may cause business disruption across
the entire enterprise. (Operation risk)
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a. Operational benefits, including reductions in time and costs, and
improvements in productivity, quality, and customer service.
b. Managerial benefits, including improvements in resource management,
40. (S.O.7) Name the AICPA Services Trust Principles’ five operations risks? Why
are these risks greater for ERP systems than for other IT systems?
The five areas of operations risks are as follows:
a. Security. The system is protected against unauthorized (physical and logical)
access.
b. Availability. The system is available for operation and use as committed or
These risks are greater for ERP systems than for other IT systems because of its
size and complexity. Security becomes a greater risk because the
processes are integrated, and often automatically triggered in ERP
systems. Therefore, any unauthorized user can affect more processes
than would be true in an older, legacy system. For example, unauthorized
access to a purchase module in an ERP system could allow an
unauthorized user to trigger not only purchase activities, but the related
payment within Accounts Payable.
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41. (S.O.8) Explain how an ERP system can enhance internal controls? Specifically,
how can it facilitate the separation of duties?
Since the passage of the Sarbanes-Oxley Act of 2002, ERP systems have been
improved to include enhancements to internal controls. These enhancements
include functions that assist management in complying with sections of the Act
by providing feedback information to management regarding internal controls.
ERP systems can be used to properly segregate duties. The ERP system can
incorporate a matrix of tasks that are incompatible duties. For each employee ID
and password, the system can check the employee’s access to various tasks to
insure that no employee can initiate or conduct incompatible tasks. The ERP
In addition to the preventative nature of attempting to restrict incompatible duties,
an ERP system also allows real-time monitoring and reporting of exceptions. As
processes and transactions occur that may be exceptions to what was expected,
they can be reported to management in real-time. Therefore, an ERP system
can assist management in monitoring internal control, monitoring errors and
problems, and monitoring exceptions to internal controls.
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Problems
42. (S.O. 1) Describe the ERP’s modular interface that is necessary in a typical
manufacturing environment.
An ERP system is a multi-module software system that integrates all business
processes and functions of the entire organization into a single software system,
43. (S.O. 2) Identify and describe the first generation of ERP systems used in the 1970s,
and the second generation of ERP systems used in the 1980s.
The first generation of ERP software was called Materials Requirements Planning
(MRP) software. MRP software of the 1970s allowed plant managers to coordinate
the planning of production and raw material requirements. MRP software determined
order size and timing of raw materials based on sales forecasts and factoring in lead
times for order and delivery of materials.
As MRP and MRP II systems became more popular in large manufacturing
companies, early pioneers of ERP systems were working on a broader concept of
information system software. Five former IBM systems analysts began work on an
early version of ERP software in 1972. These five formed a company that was to
become Systems, Applications and Products in Data Processing (SAP). SAP
designed the first true ERP system that was called SAP. SAP was intended to
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44. (S.O. 4) Compare and contrast the functionality of the Logistics module and Supply
Chain Management activities.
The logistics function manages all processes related to the purchase and movement
of materials and finished goods. This module incorporates the purchase processes,
as well as the processes and data resulting from the movement inventories. It is a
subset of the functions included in the supply chain management activities. Supply
chain management (SCM) activities encompass the planning and management of all
sourcing, procurement, conversion, and logistics functions. SCM also includes
coordination and collaboration with suppliers, intermediaries, third party service
providers, and customers.
45. (S.O.7,8) Suppose a company is experiencing problems with omitted transactions in
the conversion processes: i.e., inventory transactions are not always being recorded
46. (S.O.6) Using an internet search engine, search for the terms “best of breed” + ERP.
Locate information that addresses the debate/dilemma faced by many companies
regarding the decision implementing best of breed technology versus new
applications from an ERP vendor. Write a brief memo to discuss this issue.
Answers to this questions may vary. Following is a sample response:
An ERP system is an integrated system of modules intended to cover the entire
range of company activities. But in some cases, there may be advantages to
purchasing and using a module from another vendor if that vendor provides the best
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The best of breed approach aims to integrate a feature-rich system that can
integrate into the ERP system. The vendors of these applications often provide out–
of-the-box connectors to popular ERP systems to ease the difficulties of integration
into the ERP system. The advantages of choosing a best of breed approach include:
1) deeper and more industry specific functions, 2) not being tied to a single vendor,
3) fewer changes to industry specific processes within the company. The
disadvantages to best of breed include: 1) a greater total cost of purchasing and
47. (S.O.6) Using an internet search engine, search for the terms “big bang” + ERP.
Identify at least one company that represents a success story with regard to this
ERP implementation method (other than Marathon, as described in the Real World
Example). Also identify at least one company that experienced problems with this
approach (other than the city of Tacoma, as described in the Real World Example).
Answers may vary for this question. Some sample responses follow:
Some companies that have had success with regard to their experiences with big
bang implementation of ERP software include the United Nations Development
Programme, Hewlitt-Packard, Strategic Petroleum Reserve (63 days ahead of
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48. Using an Internet search engine, search for the terms “SAP” and “SME”. Describe
why a small to medium-sized entity might choose SAP as its ERP system.
a. Many SME’s anticipate, or at least hope for explosive growth in their
business. Such growth will make their companies larger, more
complicated, and more distributed. An ERP system can help them better
track and maintain operations and ERP systems are scalable as the
company grows. ERP systems allow them to better manage the growth.
b. ERP software solutions are not as expensive as they used to be,
particularly if a company uses SaaS (Software as a Service) in which they
do not necessarily need to buy expensive hardware to run ERP software
better serves the customers.
d. They are better able to keep track of strategic partnerships (such as
vendors)
e. ERP systems allow them to better “assess demand, react to changes
more quickly, provide accurate and consistent data, and engage
customers and employees”.
f. Their study of 300 SME’s with ERP systems in the top 20% experienced:
i. A shorter number of days to close the accounting records at the
end of the month (2.69 days average).
ii. A shorter time period of days sales outstanding (33.11 days), a
measure of cash collection speed.
Cases
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49. ERP Implementation at Zostner Industries.
a. An ERP system could improve performance at Zostner in many ways.
Because an ERP uses a single, shared database, information sharing and
integration of the various processes would occur. This would lead to more
efficient processes. Also. Management could receive more real-time
b. A ‘big bang” approach implements all modules of the ERP system across
the entire organization at the same time. Because of the scope and
complexity of a big bang implementation, there are many risks that can
cause a failure. ERP implementation usually requires business process
reengineering. So at the same time the new software is implemented,
there are many changes to processes. Thus, there is much complexity
one room at a time (modular). Using this analogy, it is easier to see that
the whole house approach is more likely to cause problems, delays, and
chaos.
c. To choose the order of implementing modules, Zostner should analyze
and determine which modules more closely relate to their strategic
50. Chacon University potential problems in an ERP implementation. There are
several areas of potential problems. Those identified or implied are:
a. Universities have a different environment than corporations. Corporations
are managed top-down with the chief executives holding much influence
over everything. Universities are much more decentralized and subunits
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c. Too many “home–grown” legacy systems that may be difficult to convert
into ERP systems. The article does mention that middleware can be used
to integrate the legacy systems into an ERP system.
g. Universities have lean staffs and tight budgets which leads to lack of staff
training and less testing of the system.
h. In some cases the load on the system of all the returning students in the
fall caused the web portal to crash. (for example at Massachusetts)
i. ERP vendors, such as PeopleSoft did not have as much experience in
University implementations and often were unable to provide answers.