Sap Notions Fondamentales Chapitre 1 Et 2

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CHAPTER 1 - INTRODUCTION 1.1 Description of our new company 1.1.1 Introduction As a participant in the HEC Montreal Simulation game, you’ve just earned a new job in the industry of pre-packaged mixes of Muesli. Muesli is a popular breakfast dish. Dry muesli is a mixture of mainly rolled oats and wheat flakes, with nuts and pieces of dried fruit. According to Wikipedia,“Muesli was invented in 1900 by Swiss doctor Maximilian Bircher-Benner for patients in his hospital”. Muesli was first popularized in Germany and Switzerland. In the late 1980s, the company Kellogg marketed its brand Mueslix in North America. Since then, an interest for its own local brand of muesli has developed. Today, dry muesli is widely available in the form of pre-packaged mixes. It can be stored for many months and served mixed with yoghurt or milk and pieces of fresh fruit. Some like it in hot milk. Muesli provides an excellent source of essential ingredients as it is rich in fibre and essential trace elements. In the local market, about 2 million boxes of local brands of muesli were sold in 2003. Your new company is one of the local producing companies of pre-packaged muesli boxes. The market is surprisingly fragmented. This could be explained by the fact that entry costs in the industry are relatively small. In 2003, there were six local companies competing in this relatively small but competitive market. You are part of a small executive team leading this company. As member of the executive team, you will have to make strategic decisions throughout the quarters. You will have to select the recipe for your products, perform sale forecasting and production planning, make pricing decisions and determine advertising budgets for each distribution channel. Your team will also be responsible for accounting functions, including reporting quarterly profits. Your new employer has been clear. Unethical behaviour, such as falsifying financial reports, not paying suppliers or the bank loan on time, and violating the industry regulations are unacceptable and will be severely punished. Otherwise, the name of the game is to make the most profit. 1.1.2 Make-to-stock business processes Your muesli company is a make-to-stock manufacturer. It can only sell products that are held in inventory. Therefore, cereal boxes have to be manufactured in advance. This determines some of the business processes that your company will need to perform. Your executive team will need to forecast the number of products the firm intends to sell in the next period for each of its brands. Based on this forecast, production is planned. Material requirements are met by purchasing raw materials from the appropriate suppliers. Production is done in batch. Every product requires its own work center and manufacturing equipment. Further, purchasing raw material requires liquidity. If you choose to produce any large number of boxes in advance, you will have to borrow the necessary funds from the bank on which you will have to pay interest. 1 Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT, Gilbert BABIN and Robert PELLERIN, HEC Montréal. All rights reserved for all countries.

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Because this is a small company, your team will also have to supervise almost all of the operations of the company and take active part in some of day-to-day processes. There are tasks that you simply cannot delegate and the success of your company depends on your team. Your responsibilities in operations include issuing product requisition and purchase orders for raw materials, receiving and producing the receipts for raw materials, posting invoices and paying the suppliers, transferring the raw material and the finished products to the relevant storage location, and issuing the production order. We have provided a detailed description of the firm’s production cycle: Forecasting

Production Planning

Purchase Order

Goods Receipts Outgoing Payment Transfer Material Production Order Transfer Material Finished Product Transfer

Plants always need to produce a period worth of products in advance. Only product in stock at the beginning of the period can be sold to retailers. Therefore, the sales manager needs to forecast demand for the next period. Based on the forecasted sales unit for the next period, demand planning is transferred to production planning. The planner then runs the materials requirements plan (MRP), which automatically generates the raw materials purchase requisitions. When a purchase requisition is received, the purchasing manager contacts the suppliers of the products required. The purchasing manager chooses the vendor who offers the best price. He can either buy on the spot or from a contract previously negotiated. After assigning the chosen vendor to the purchase requisition, a formal purchase order is created. When the goods are received, the receiving clerk checks that the goods delivered correspond to the purchase order. The invoice sent with the product is forwarded to accounting and posted by an accounting clerk. Since the goods are payable upon reception, the accounting clerk carries out the transaction required to pay the vendor. A cheque for the amount owing is issued and sent to the vendor. The goods received are moved from the receiving dock to the raw materials’ storage shelves. Confirmation of this transfer is recorded in the system. Once all the inputs required for production are available, a production order is created. The raw materials required are then transferred from the storage to the production site. Confirmation of this transfer is also recorded in the system. Once manufacturing is completed, the finished products are transferred from the production site to the warehouse. This transfer is again confirmed in the system.

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Fortunately for your management team, your sales representatives will take care of receiving and managing sale orders, managing the shipping of finished products to the stores, and invoicing and receiving payment from clients. More precisely, they are responsible of the following processes: Sales Order Shipping Invoicing Incoming Payment

Regularly, retailers ask the manufacturers for a quotation. The retailer sends the order to the manufacturer. The sales representative records this order. The finished products are then shipped to the customers. In addition to entering a shipping slip, the clerk must also adjust the inventory of finished products (post goods issue). Accounting then sends an invoice to the customer. Upon reception of payment, the accounting clerk clears the customer account and records the deposit of the payment.

Finally, there is a list of managerial and strategic activities that you will have to undertake. The strategic decisions involved price fixing, allocating advertising expenditures, and choosing the recipes for your product. You will also have to deal with your banker in order to secure a credit line and issue quarterly financial reports. This is hard and challenging work but this is why you accepted the job. 1.1.3 The ERP system Considering all your responsibilities, your team will be kept pretty busy. Fortunately, the company has acquired a new ERP system: mySAP ERP. Presumably, none of you has any practical experience with my SAP ERP or another ERP system, but you are entrepreneurial and resourceful so you are looking to fully exploit the possibilities of the ERP system. You will quickly have to:

•

Become familiar with the enterprise resource planning (ERP) software.

•

Develop a practical understanding of the main concepts underlying an ERP software, and

•

Identify the benefits of intra-company integration.

An ERP software is an integrated information system that manages enterprise data, helps integrate business processes and provides data for business intelligence. One of your first tasks is to parameterize the system by entering what is called the master data (see chapter 2). Next, you will have to learn how to perform the various operational tasks in order to plan production, order raw material, produce, insert price lists and advertising budget, etc. (see chapter 3)

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1.1.4 Physical layout and logistics On your first day at your new job, the boss’s secretary, Ms. Christie, kindly proposes a visit of the factory. The main entrance leads to the reception and to the offices of the executive team, which in turn, leads you to a large shop floor. As you enter the shop floor, you begin to get a better understanding of your new business. Mr. Jack comes to greet you and begins to explain how the machines work.You listen carefully. On the shop floor the production machines are lined up. On the right of the shop floor, a door leads to the raw material warehouse. About twice a day, the raw materials are distributed in large receptacles. The raw materials are then mixed by a calibrated machine that processes the programmed recipe. The machine can be quickly stopped and recalibrated in order to produce a new recipe. Another machine inserts the plastic bags into the appropriate boxes. Finally, a third machine puts the mixtures into the boxes and seals the plastic bags and boxes. The finished products are then bundled into large delivery boxes. Each delivery box is identified with the product name and stored in the finished product warehouse which can be accessed at the left of the shop. By the shop floor, lie more offices. These offices belong to the salespeople, who are in charge of receiving the orders. Further in the back, you visit the two warehouses. The one at the right is the raw material warehouse. The delivery truck stops at the reception dock located at the back of the factory, where they unload the raw materials. The warehouse is actually quite large and there is no major storage space problem. On the other side, you access the finished product warehouse. As the products are being manufactured, they are stored in this warehouse. There are six different sections, one for each product in the company’s production line. When an order has been sent by a client, the salespeople prepare a shipment order and a delivery truck comes to the expedition dock to load the finished product boxes. “Clearly,” Mr. Jack says,“you do not want to have a delivery truck come in when there is no product in stock, so as a rule we never produce a shipment order if the desired product is out of stock. It happens from time to time. When it does we lose a sale. Once, an employee had forgotten to put the finished products in the finished product warehouse and we lost a lot of money. The boss was really not happy.” Your visit ends with the docks. The raw material comes in large batches measured in kilos. The delivery cost of cereals (wheat and oats) is 150 euros per trip. Usually, you are told, each delivery is relatively large, anywhere from 500 to 750 kilos. The delivery cost of dried fruits (raisins, blueberries, strawberries and nuts) is 80 euros per delivery. A typical delivery is 5 to 15 bags. Unfortunately, delivery of each raw material is done separately.

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1.2 Description of the marketplace 1.2.1 Supply of raw materials and inputs In order to produce a box of cereals, one can use up to six different ingredients: wheat, oats, nuts, raisins, strawberries and blueberries. The compositions of the cereals are not predetermined; therefore each firm must select the composition of each of its products. It is custom in the muesli industry to classify muesli cereal into six different categories depending on the composition of the product: original, raisins, nuts, blueberries, strawberries and mixed fruits. Each of these categories corresponds to a well-regulated label since consumers are looking for products associated with one of these appellations or labels. The regulation requires that a product referred to as “Blueberry Müesli” contains only blueberries, wheat and oats with a minimum of 20% for each. The same applies for Nut, Strawberry, and Raisin Müesli appellations. Product labelled as “Original recipe” must contain only oats and wheat with a minimum of 20% wheat and 30% oats. Products labelled “mixed fruits” must contain all six ingredients with a total of at least 30% non-cereal ingredients. The following table summarizes the labelling regulations. Table 1.1 : Muesli Label Regulation

Labels Original Blueberries Strawberries Raisins Nuts Mixed fruits

Ingredients Wheat Oats Blueberries Min 20% - Max 70% Min 30% - Max 80% No Min 20% Min 20% Min 20% Min 20% Min 20% No Min 20% Min 20% No Min 20% Min 20% No Min 20% Min 20%

Strawberries Raisins No No No No Min 20% No No Min 20% No No Min 30%

Nuts No No No No Min 20%

Boxes come ine two sizes: 500 gr. or 1 kg boxes. Some distribution channels will sell only small boxes; others, only the larger boxes (see the retail section). Packaging is comprised of two inputs: plastic bags and cardboard boxes. All the ingredients going into the production of muesli cereals are produced within highly competitive markets. Wheat, oats, raisins, strawberries, blueberries and nuts are all commodities whose prices are determined by the Global Commodities Market. Each individual firm in the local muesli industry is too small to have any impact on the commodity market prices. Distribution of food products is provided by a single distribution firm: FoodBrokers Inc.

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Blueberries and strawberries are typically the more costly inputs while wheat and oats are the cheapest. The production variable cost includes the cost of the raw materials, and the cost of the plastic bag and cardboard box. Raisins, blueberries and strawberries are typically the more costly inputs while wheat and oats are cheapest. In 2003, a study performed by HEC Montréal calculated the average cost of the raw materials included in dry muesli cereals. Table 1.2: Input Cost 2003 (at low seasonal price) Cost of inputs Wheat Oats Raisins Strawberries Blueberries Nuts Packaging 0.5kg Packaging 1kg

2003 1.82 euros/kg 1.66 euros/kg 5.18 euros/kg 6.62 euros/kg 8.52 euros/kg 3.91 euros/kg 0.80 euro 1.10 euros

2004 2.01 euros/kg 1.69 euros/kg 3.28 euros/kg 7.02 euros/kg 8.32 euros/kg 7.91 euros /kg 0.82 euro 1.19 euros

The study has shown that the cost of raw materials, in particular, strawberries and blueberries was seasonally determined. The prices during the off season periods may be more than twice than during the harvest season. In 2004, the price of raisins was at an all time low due to a price war between producing countries. In 2004, the price of nuts sharply increased because of the coup d’état and subsequent civil war in Demientia, the world’s major producer of nuts. The price was expected to increase substantially in the future. The next table presents some of characteristics of the commodity markets. Dates where the seasonal prices are at their highest and at their lowest are also listed.

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT, Gilbert BABIN and Robert PELLERIN, HEC Montréal. All rights reserved for all countries.

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Table 1.3: Commodity Markets Commodity Wheat

Description of the market Dates of high prices Heavily traded market with low Quarter 1: Day 10 to 20 volatility in the spot price.

Dates of low prices Quarter 3: Day 4 to 55

Oats

Large market with small volatility Quarter 2: Day 15 to 25 in the spot price.

Quarter 4: Day 10 to 20

Nuts

Volatile spot prices cause by Quarter 1: Day 1 to 25 international sourcing risk.

Quarter 3: Day 25 to 35

Strawberries

Seasonal market

Quarter 1: Day 30 to 40

Quarter 3: Day 1 to 10

Blueberries

Seasonal market

Quarter 2: Day 25 to 35

Quarter 3: Day 25 to 35

Raisins

Market control by the Dried Quarter 1: Day 25 to 35 Raisins Cartel (DRC), but in 2003 the Cartel had great difficulty in controlling its members.

Quarter 3: Day 45 to 55

The plastic bags and the cardboard boxes used in the packaging are produced mainly by specialized printing companies. The companies purchase the boxes from the cardboard producers and then print the brand logos according to specifications.The plastic bags are typically sold by the same companies. There are a few companies in the local market capable and so the market remains quite competitive. The main company that have been supplying your firm is Continental Printing Co. 1.2.2 Retail There are three distribution channels for muesli cereal in the local market: the convenient stores, the traditional grocery stores and the hypermarkets (large discount outlets). Grocery stores The grocery store is still the main distribution channel for the muesli industry. In 2003, 46.6% of total sales were through the traditional grocery stores. Grocery stores offer their customers more variety than the other types of stores. A typical store would carry 4 or 5 different brands of muesli on their shelves and grocery store would sell both small and large boxes. In 2003, there were 58 grocery stores Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT, Gilbert BABIN and Robert PELLERIN, HEC Montréal. All rights reserved for all countries.

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in the local market. Independent grocers The independent grocers or convenient stores are small proximity stores. They sell a small variety of products: beverage, beer, dairy product, candies and chips, newspapers and magazines, and some everyday non-perishable food products including muesli cereals. Convenient stores will only sell 500gr boxes. Their consumers are less sensitive to prices, but more sensitive to brand names and advertising. Convenient stores will typically order in small quantities and will stock the shelves only one or two brands. In 2003, the estimated market shared served by the convenience stores was 22%. Prices are on average 10% to 15% higher in the convenient stores than in traditional grocery stores. In 2003, there were 122 convenience stores in the local market. Hypermarkets The large discount stores or hypermarkets are a growing phenomenon. They not only sell food, they sell books, CDs, clothing, and electronic appliances. These stores have managed to attract numbers of consumers looking for cheaper prices. In 2003, 28.3% of sales were at hypermarkets, a major increase from the previous decade. Hypermarkets will only sell the large format and will offer a more limited variety than the grocery stores. Only 1 kilo boxes are sold at the outlets. Many studies have shown that outlet consumers are highly sensitive to price while less sensitive to advertising and branding. Typically, the products are sold at prices 5% to 10% lower than in traditional grocery stores. In 2003, there were 12 outlets in the local market.

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Table 1.4: Distribution Channels, 2003 Parameters Nb of stores Brands per store Total per store Sales per day (boxes) Sales per day (euro) Sales per year (euro) Turn around (weeks) Average Order (euro) Total per channel Sales per year (euro) Market share Nb of orders per quarter Advertising sensitivity Price sensitivity

Grocery stores 58 4 or 5

Independent Grocers 122 2

Hypermarkets 12 3

49 257.25 euros 90 037.50 euros 3 weeks 1 350.56 euros

12 54.00 euros 18 900.00 euros 5 weeks 945.00 euros

118 708.00 euros 247 800.00 euros 2 weeks 3 540.0 euros

5 222 K euros 49.7% 851 average average

2 305 K euros 22.0% 537 high low

2 973 K euros 28.3% 185 low high

Source : HEC Montréal, The Müesli Industry, 2003

1.2.3 Consumers In 2003, the total expenditure on the local brands of muesli was 10.5 million euros in 2003. While the total demand for ready-to-eat cereal was relatively stable throughout the year with a slight or minor increase during the winter, the net sale of local brands of mueslis was not. Traditional ready-to-eat cereal seems to offer a genuine competition to the local muesli brands. During the second quarter of 2003, a strike in one of the local plant substantially reduced the supply of muesli in the groceries, and consumers have substantially increased their consumption of other kinds of ready-to-eat cereals. As stated above, the muesli cereals are sold in six different appellations: original, raisins, nuts, blueberries, strawberries and mixed fruits. The HEC Montréal study of the muesli industry published in 2003 produced data on the market share of each labels. These are presented in Table 1.5. Note that there were no one-kilo boxes of blueberries in the market in 2003.

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Table 1.5: Statistics on sales per label (2003) Labels Original Nuts Strawberries Blueberries Raisins Mixed Fruit

Label 500g 8,4% 24,0% 16,0% 9.4% 18,8% 23.3%

repartition Label 1Kg 28,9% 23,9% 12,8% 31.4% 2.8%

repartition

In Table 1.6, the average price for each label in each distribution channel and size are presented. Not surprisingly, consumers looking for the high-end labels – blueberry, strawberry, raisin or mixed fruits – are willing to pay more for the cereal. Note that these numbers have changed in the past and more up-to-date studies may be required to better assess the market for mueslis. Table 1.6: Statistics on price per label, format and channel, 2003 Labels

Hypermarkets

Grocery stores

Average 1kg

Grocery stores

Blueberries Mixed Fruit Nuts Original Raisins Strawberries Average

4.97 5.45 3.85 4.30 4.51 4.47

5.23 5.83 4.05 4.43 4.71 4.58

5.13 5.62 3.97 4.37 4.59 4.53

3.77 3.24 3.48 2.73 2.95 3.36 3.25

euros euros euros euros euros euros

euros euros euros euros euros euros

euros euros euros euros euros euros

euros euros euros euros euros euros euros

Independent Grocers 4.05 euros 3.49 euros 3.79 euros 3.03 euros 3.25 euros 3.67 euros 3.53 euros

Average 500gr 3.88 3.35 3.63 2.88 3.07 3.49 3.37

euros euros euros euros euros euros euros

1.2.4 Banks It may not come as a surprise to you but your company needs money in order to make money. You have to stock raw material and produce finished goods ahead of schedule. In order to pay for inputs and production you will need liquid assets. Your company has had a good relationship with the First Regional National Bank. The Bank currently offers you a good credit rate and extends a sufficiently large credit line. After each quarter, your company will have to produce a full financial statement to your banker. Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT, Gilbert BABIN and Robert PELLERIN, HEC Montréal. All rights reserved for all countries.

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Your banker, a smart but rigid fellow named Gaston, does not like amateurs and cowboys. Your banker will extend you favourable credit conditions only if your company keeps reimbursing its debt on time and with interest. He does not like companies that take too much risk and have excess unsold merchandise. He dislikes managers that fail to pay bills on time – to their bank or suppliers. But most of all, he dislikes managers that do not respect the law or fail to respect elementary ethical rules. One of the most fundamental rules that he applies scrupulously is that his clients must produce accurate quarterly financial reports. Failure to produce these reports or, worse, to producing inaccurate reports can have major consequences. He has not hesitated in the past to reduce credit ratings whenever he felt necessary, refuse to increase credit lines or simply cancel the one you already have. As your boss often says: “I have worked hard to build my company’s reputation, do not damage it by bad management”. HERE IS A TIP: Just in case you did not get the message already: produce your financial reports accurately and on time. The prime interest rate has been relatively stable during the last decade. A sound monetary and fiscal policy has kept inflation down and the interest rates (namely, the business prime rates of the chartered banks) were around 4% and 5%. For most companies what really matters is their credit rating. The difference between a good credit rating and a bad one can lead up to an 8-point difference in the interest rate charged by the bank. The following chart lists the risk premium for each credit rating. Table 1.7: Premium on credit ratings Credit ratings AAA AA+ AAA BBB+ BBB BBBBB+ BB CC

Risk Premium +0.5% +0.75% +1.25% +2.25% +3.0% +3.5% +5.25% +6.25% +8%

Currently your company has an A credit rating. This is the highest rating given for companies of your size.

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1.3 Decision area 1.3.1 Products and recipes In the HEC Montréal Simulation game, firms can produce up to six different brands. For each of these products, the firm must specify its composition and the size of the box. Each team must find, according to its own strategy, the recipes that it wishes to produce and market. One of the strategic objectives is to try to find niches, i.e. recipes that are unique in the market and which are desired by a sufficiently large share of consumers. One other objective is to target appropriately the various distribution channels. One must recall that small boxes are only ordered by convenient stores and groceries, large boxes are sold only to hypermarkets and groceries. Also, try to produce lower cost recipes for the more price sensitive markets. HERE IS A TIP: The market for mueslis is relatively segmented. Consumers have different preferences about mueslis and use different suppliers. The key to success for firms competing in the market is to find the right niches. If you are the only firm serving a particular niche (say, small boxes of mixed fruit in grocery stores) you would be able to sell your product to this segment without fearing competition form alternative local brands. While a firm may choose to change the recipe of one of its products, it cannot do so when there are still units of that brand in stock. In order to introduce a “new recipe”, one must first clear its inventories for that product. The retailers use the description of your product in order to make their purchase decision, if you advertise one recipe but deliver instead some old boxes based on another recipe not only is it unethical but also illegal. If your company ever does so, you will be sued and it will damage seriously your reputation. HERE IS A TIP: Because a firm cannot change the recipe of one of its products while there are still some units of stock, we recommend that teams do not actively produce and market all six different brands at the beginning of the game but rather produce four or five different brands early in the game. This will allow teams to introduce easily one or more new recipes in the market during the game. Technically, a recipe must be specified in the bill of materials in your ERP system. Your must enter into the information system the percentage of each ingredient: wheat, oats, strawberries, blueberries, raisins and nuts. Percentages are measured in weight. It is very important that the sum of percentages total 100%, also the percentage must respect the labelling guidelines presented in Table 4. The food and drug administration is a serious organisation and it monitors product labelling carefully. Fines for violation of the labelling rule are high. As your boss often says: “If you cannot add a few numbers and adhere to simple arithmetical rules, you should not be here.”

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1.3.2 Forecasting, procurement and production The next decision your executive team will have to make is how much and when to produce. A manufacturer can only sell products that are held in inventory. Therefore, boxes of cereal have to be manufactured according to a make-to-stock manufacturing strategy. Your executive team will need to forecast the number of products the firm intends to sell in the next period for each of its brands. Production is done in batches but before producing you need to purchase the necessary inputs. Recall that your executive team has many operational responsibilities: you must issue product requests and purchase orders for raw materials, receive and produce the receipts for raw materials, send reception invoices and pay the suppliers, transfer the raw material to the plant warehouse, and finally issue the product order. Further, purchasing raw material requires liquidity. If you choose to produce a large number of boxes in advance, you will have to borrow the necessary funds from the bank on which you will have to pay interest. All this requires careful planning. As mentioned previously, the price of some raw materials (blueberries and strawberries) is highly seasonal. For those products it is preferable to buy the raw materials when the price is low and stock for future production. Long term planning becomes even more important in these cases. HERE IS A TIP: Ideally you would want to order raw material and produce in small batches but do so more frequently. This allows your company to be more responsive to the market and adjust quickly. 1.3.3 Pricing Whenever it desires, a firm may choose to change it prices. Price selection is a key element of ones strategy. If one charges too much, demand will be too low; if one charges too little, the profit will not be enough to pay for the fixed expenditures. Notice that the pricing decisions need not be the same for all distribution channels. Because, convenient stores customers are less price sensitive, it is a smart to charge these stores a higher price to these stores instead of than traditional grocery stores. Similarly, calculating the optimal price for each product and distribution channel is a complex task. Business acumen is required to make the correct pricing decisions. Remember that muesli consumption accounts for a small proportion of ready-to-eat cereal consumption. Consumers have other options. They can buy something else if mueslis are out of their price range. Remember also that you have overheads, advertising expenditures, interest payments and payments for the raw materials; you must price your product correctly so that you do not lose money. As your boss often says, “We do not run a charity group down here”. You must make a profit. In April 2004, a business conference was organized by the Muesli industry. According to one of the panellists, Ms. Scarlet Red, the best practice consists of charging a mark up of about 1.00 euro to 1.50 euros per box. Another industry expert, Professor Plum disagrees. It Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT, Gilbert BABIN and Robert PELLERIN, HEC Montréal. All rights reserved for all countries.

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is silly, he argues, to reduce pricing decisions based on one simple rule. Optimal pricing depends on many things: (i) the prices tendered by competitors; (ii) the size and cost of the product; (iii) the distribution channel; and (iv) ultimately the strategy of the firms including its advertising strategy. 1.3.4 Advertising In each quarter, you must decide on how much to invest in marketing. You must determine a marketing budget for the current quarter for each of your products (up to 6) and each of the distribution channels (up to 3). You will be able to increase your marketing budget during a quarter. The money invested in marketing during a quarter will be spent equally among the remaining days of the quarter. You will not able to be able to decrease your marketing budget during a quarter as some of the sum invested might already have been spent. HERE IS A TIP: Advertising is good but not always necessary. Do not spend all your margins on advertising; you will end up losing money. In the Muesli industry, marketing is persuasive. It seeks to convince consumers that your product is the one they should prefer. Globally, it is like a zero-sum game. If a firm increases advertising for one of its products it attracts consumers away from other products. HERE IS A TIP: Try to avoid spending a lot of advertising money for two different products in the same distribution channels. One euro spent on a product hurts the sale of the other and vice versa.

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CHAPTER 2 - SETTING UP THE SIMULATION COMPANIES This chapter presents the required pre-configuration every team needs to go through in preparation of the simulation game. Because the teaching objective of this simulation is not to have the team configure the whole system in order to participate in the game, a great deal of configuration has already been done for you. Yet, some preparation has been intentionally left to the participants. The participants will first review how their company was modelled in the system using the different organizational elements available in SAP. Then, each simulation company needs to create the master data that will be used in the game. Such a preparation should provide the participants with a first-hand contact of the system and help to appropriate the different building blocks of the information system that support their company. 2.1 Organizational elements The organizational elements represent the enterprise structure in the ERP system. They help to portray the specific organizational structure of a business in the system. Each module of the ERP system has it own organizational elements. During the configuration phase of an ERP implementation, the company must be modeled into the system using the different accounting, logistics and human resources organizational units. The main purpose of organizational elements is to segment the transactional data that will be collected by the system. Some elements, such as the company code, are required for legal financial reporting as they are necessary to track of where revenues and costs are incurred. Other elements will be used for internal corporate reporting and data segmentation. It should be noted that these elements are logical, i.e. they can represent both physical and virtual concepts. For example, there may be more than one storage location at a physical address to distinguish between stocks that require different valuation approaches. On the other hand, stock in transit could be stored in a virtual storage location that would not have a physical address. The following table presents the most important organizational elements available in SAP

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Table 2.1: Definition of organizational elements Module

Organizational Definition elements

Finance

Company code

The smallest organizational unit of Financial Accounting At least one company code per country. for which a complete self-contained set of accounts can be drawn up for purposes of external reporting.

Charter of accounts

A classification scheme consisting of a group of general A chart of accounts must be assigned to each ledger (G/L) accounts. A chart of accounts provides a company code. Many company codes can use framework for the recording of values to ensure an orderly the same operating charter of accounts. rendering of accounting data.

Controling

Controlling area

An organizational unit within a company, used to represent A controlling area may include one or many a closed system for cost accounting purposes. company code.

Logistics

Plant

The plant is an operating area or branch within a company. A plant can be assigned to one or more This is a place where materials are produced, or goods and company and a company code can have more services are provided. than one plant.

Storage location

An organizational unit allowing differentiation between the A storage location is assigned to a plant. A various stocks of a material in a plant. plant can have many storage locations.

Purchasing organization

The purchasing organization is responsible for all purchasing A company code can have one or more activities. purchasing organizations and a plant can be assigned to many purchasing organizations.

Sales organization

An organizational unit in Logistics that structures the A sales organization can be assigned to only company according to its sales requirements. A sales one company code. organization is responsible for selling materials and services.

Distribution channel

Channel through which saleable materials or services reach Many distribution channels can be assigned customers. to a sales organization.

Division

An organizational unit based on responsibility for sales or Many divisions can be associated to a sales profits from saleable materials or services. organization.

Sales areas

A sales area is for to group together sales organizational A sales area is a unique combination of a sales elements to segment the sales conditition. organization, a division and a distribution channel.

Sales and distribution

Relations to other organizational elements

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT, Gilbert BABIN and Robert PELLERIN, HEC Montréal. All rights reserved for all countries.

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ERP Simulation Game with mySAP ERP

The following figure presents the data model of the main organizational elements used in the simulation game. Figure 2.1 : Conceptual model of the main organizational elements

To speed up the preparation of the simulation, the organization elements that each team will be using in the game have been predeveloped in the system. The following table presents the list of organizational elements of each simulation company as well as their respective alphanumerical code. Note that ## corresponds to the two digits corresponding to the code of the simulation game and $ corresponds to the letter of your plant. For example, if the code of the simulation is 01 and your plant is A, than your company code is Z01A. The same correspondence will be used across the document.

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT, Gilbert BABIN and Robert PELLERIN, HEC Montréal. All rights reserved for all countries.

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ERP Simulation Game with mySAP ERP

Table 2.2 : Alphanumeric codes of organizational elements Organizational elements Company code Controling area Purchasing organization Plant Storage location for raw materials and packaging material Storage location for finished products Sales organization Distribution channel 10 Distribution channel 12 Distribution channel 14 Division Sales area for Z##$ 10 00 Sales area for Z##$ 12 00 Sales area for Z##$ 14 00

Keys Z##$ Z##$ Z##$ Z##$ 0088 0002 Z##$ 10 12 14 00 Z##$ - 10 - 00 Z##$ - 12 - 00 Z##$ - 14 - 00

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ERP Simulation Game with mySAP ERP

The next figure presents the organizational structure that was configured in the information system of each company. Figure 2.2 Organization structure of a typical muesli company

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT, Gilbert BABIN and Robert PELLERIN, HEC Montréal. All rights reserved for all countries.

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ERP Simulation Game with mySAP ERP

2.2 Master data Master data is one of the cornerstones of an ERP. This is data stored in the system’s central data base and used in a number of the organization’s business processes. The master data is therefore available to all authorized users throughout the various application modules. To develop a good understanding of their master data, each team will have to create the various types of master data that will be needed during the simulation game. Every participants of the simulation game should get a chance to create at least one master of each type. Thus, the creation of the master data should be shared among the different team partners. Be careful not to create the same data twice! In this simulation, each team needs to create the master data for finished products, raw materials, suppliers and customers as well as master production and cost accounting master data. We also have to create a price list and info records to link the master data for raw materials with their potential suppliers. The following figure presents the conceptual data model that interlinks all main master data used in the simulation game. Figure 2.3: Data model of the main master data used in the simulation game

The following table presents the definition of the main master data used in the simulation game.

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT, Gilbert BABIN and Robert PELLERIN, HEC Montréal. All rights reserved for all countries.

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ERP Simulation Game with mySAP ERP

Table 2.3: Definition of master data Type of master data Material master

Master data Finished products

Raw materials

Packaging material

Sales and distribution master data

Customers

Price list

Definition Type of material master that are produced in-house. Since they cannot be ordered by purchasing, a material master record of this material type does not contain purchasing data. Raw materials are always procured externally and then processed. A material master record of this type contains purchasing data, but not sales data since they cannot be sold. Packaging materials are used to transport goods and come with the goods free of charge. A material master record of this material type is managed on both a quantity basis and value basis. A business partner with whom a business relationship exists, involving the issue of goods or services. Set of price condition related to a sales area.

Relationship with organizational elements A finished product is linked to a plant, a storage location, a sales organization and one or more distribution channels.

Relationship with other master data The bill of material indicates the composition of a finished product.

A raw material is linked to a plant and a storage location.

The raw materials are included in the bill of material.

A packaging material is linked to a plant and a storage location.

The packaging materials are included in the bill of material.

Customers are assigned to one or more sales areas (sales organization, division and distribution channel) A price list is valid to a sales organization and a specific distribution channel.

Customers are assigned to a price algorithm that includes the price list. Price lists are linked to a finished product

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ERP Simulation Game with mySAP ERP

Type of master data Production master data

Master data Bill of material

Work centers

Routings

Purchasing master data

Vendors

Definition A complete, structured list of the components that make up an object. The list contains the description, the quantity, and unit of measure. The components are known as BOM items. An organizational unit that defines where and when an operation must be performed. Work centers can be machines, people, production lines and groups of craftsmen. A routing type that defines one or more sequences of operations for the production of a material. A business partner from whom materials or services can be procured.

Info-records The logical tie between a vendor and its products. Source list

The source list records the approved or blocked vendor for a given material.

Relationship with organizational elements The bill of material is a link to a specific plant.

Relationship with other master data The bill of material linked together the finished product with the raw material and packaging material required for its production.

The work centers are located in Eatch routing is linked to one a specific plant. work center.

Routings are specific to a plant. Routing are related to finished products, and work centers. Vendors are attached to a company code and a purchasing organization. Info records are valid for a specific plant and purchasing organization. Source lists are specific to a plant and a purchasing organization.

Vendors are linked to their respective raw and packaging material through the inforecords. Info records create the links between the vendors and each of the material they provide. Source lists tie together an approved/blocked vendor to a material. Info-records need to be created beforehand.

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ERP Simulation Game with mySAP ERP

Type of Master master data data Accounts Financial master data

Cost controlling master data

Definition

A structure that records value transactions within an accounting unit. The account can refer to an object to which the value transactions are assigned. Profits An organizational unit in centers accounting that reflects a management-oriented structure of the organization for the purpose of internal control. Cost centers An organizational unit within a controlling area that represents a defined location of cost incurrence.

Relationship with organizational elements Accounts are related to a charter of accounts.

Relationship with other master data Account we linked to account groups

Profit centers are links to a controlling area.

A profit center may contain many cost centers.

Cost centers are links to a controlling area.

A cost center may be related to one profit center.

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ERP Simulation Game with mySAP ERP

The following table presents a complete list of the data that needs to be created. Remember that ## corresponds to the two digits corresponding to the code of the simulation game and $ corresponds to the letter of your plant. Master data 6 finished products

Alphanumeric codes Z##$-01 Z##$-02

Z##$-03

Z##$-04

Z##$-05

Z##$-06

6 raw materials

Z##$whe

Z##$str

Z##$nut

Z##$blu

Z##$oat

Z##$rai

4 packaging materials 2 vendors

Z##$smbox

Z##$lgbox

Z##$smbag

Z##$lgbag

8##$1

8##$2

6 bill of materials

Z##$-01

Z##$-02

Z##$-03

Z##$-04

Z##$-05

Z##$-06

6 work centers

Z##$WP01

Z##$WP02

Z##$WP03

Z##$WP04

Z##$WP05

Z##$WP06

6 routings

Z##$-01

Z##$-02

Z##$-03

Z##$-04

Z##$-05

Z##$-06

3 x 6 price list (DC 10, 12 and 14) 6 info-records and 6 source lists for raw materials 4 info-records and 4 source lists for packaging 8 profits centers

Z##$-01

Z##$-02

Z##$-03

Z##$-04

Z##$-05

Z##$-06

8##$1 Z##$whe

8##$1 Z##$str

8##$1 Z##$nut

8##$1 Z##$blu

8##$1 Z##$oat

8##$1 Z##$rai

8##$2 z##$smbox

8##$2 Z##$lgbox

8##$2 Z##$smbag

8##$2 Z##$lgbag

Z##$-01

Z##$-02

Z##$-03

Z##$-04

Z##$-05

Z##$-06

Z##$-07

Z##$-08

8 cost centers

Z##$-01

Z##$-02

Z##$-03

Z##$-04

Z##$-05

Z##$-06

Z##$-07

Z##$-08

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ERP Simulation Game with mySAP ERP

The following figure illustrates the data model, one finished product and all their associated master data. The model includes the finished product Z##$-01 and assumed that all raw materials are from the same vendor (8##$1) whereas the packaging materials are also from a unique vendor (8##$3). Figure 2.4 Data model of product Z##$-01

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT, Gilbert BABIN and Robert PELLERIN, HEC Montréal. All rights reserved for all countries.

25

ERP Simulation Game with mySAP ERP SU3 System / User profile /Own data.

Before we start creating data in the system, it is recommended to set a default value for certain field that would need to be entered over and over again. To set a value to these field, access the transaction SU03. ollowing program in the pull-down menu path: system/user profile/own data. In the parameters tab, enter the following parameters ID and parameters value. Fields Parameter ID

Data to input BUK VKO

Parameter value Click on

WRK

Z##$

EKO

SPA

FWS

KPL

SPR

00

EUR

INT

EN

to save.

2.1 Creating the material masters The master record for the finished product is the most important master data in the system. This record is used by most of the R/3 modules. The centralization of all the information for each product on a single record prevents needless redundancies between different departments. In a transaction, the system copies from the record only the information required for the current business document (for example, the product description, weight, storage location, etc.). All the user has to enter is the information specific to each transaction (i.e. the quantity ordered). In this simulation, the Material Master is used at nearly all stages of the business process. Two types of product records must be created: one for finished products, and one for raw materials. 2.1.1. Finished products MMF1 Logistics / Materials Management / Material Master / Material / Create (Special) / Finished product

Each firm has to define its finished products. All teams need to create six finished products: Z##$-01, Z##$-02, Z##$-03, Z##$-04, Z##$-05 and Z##$-06, where ## corresponds to the two digits corresponding to the code of the simulation game and $ corresponds to the letter of your plant. The creating of the finished products requires specifying a set of parameters which indicate to SAP the business rules associated to this master data. Based on the simulation requirements, here are the main parameters that are used in all your finished products:

•

Boxes of muesli cereal are retail products (Field Industry sector).

•

They are classified in the system as food material (Field Material group). Material group is a grouping of materials and services according to their characteristics.

•

Boxes are counted in pieces (Field Base Unit Measure) and are sold on pallets (Field Transport Group) and transported by a forklift

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ERP Simulation Game with mySAP ERP

(Field Loading Group).

•

These products are taxable (Field Tax Classification) and are valued as finished products (Field Valuation Class) at the standard price (Field Price control) of 3 euros (Field Standard Price).

•

The availability of this product must be checked daily (Field Availability Check).

•

The material is planned using an MRP run (Field MRP Type) in a make-to-stock production strategy (Field MRP Group). Plants are using a lot-for-lot order quantity (Field Lot size), i.e. the system creates one large production lot from the independent requirements. The MRP controller is the role of the person in charge of doing the planning run.

•

Because of the simulation constraints, in-house production is assumed to take 0 days (Field In-house production), and time buffers are set to minimal delay (Field ShecdMargin Key).

Create the finished products Each firm has to define its finished products. All team need to define 6 finished products. On “Create Finished product (Initial Screen)”, enter the following information: Fields Material

Data to input Z##$-%%

Industry sector

Retail

where ## corresponds to the number of the simulation and $ corresponds to the name of your plant. For example, if the current simulation is the first, ## corresponds to 01. “$” corresponds to the letter of your plant (A to E). “%%” corresponds to the product number (01 to 06).

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ERP Simulation Game with mySAP ERP

STEP 2 : In the Step 1 : Click on “Select View(s)” “Organization levels”, and highlight the following views enter the following of the muesli data. Then click on information: “Continue (Enter)“ Views Fields

STEP 3 : The record contains a series of mandatory data in the various views of “Material Master”. Pressing “enter” starts an automatic check and you go on to the next tab.

Basic Data 1

Plant Storage location

Z##$ 0002

Sales Org. Distribution channel

Data to input

Description

Z##$-%%

Base Unit of Measure

PC (Pieces(s))

Material Group

Z##$

Gross weight

1

Net weight

1

Basic Data 2

You have no data to enter here. (Press “enter”.)

Sales: Sales Org. Data 1

Tax Classification

Sales: Sales Org. Data 2

You have no data to enter here. (Press “enter”.)

Sales: General / Plant Data

Availability check:

01 (Daily requirements)

Transport group

0001 (On pallets)

Loading group

0002 (Forklift)

1 (Full tax)

Foreign Trade: Export Data

You have no data to enter here. (Press “enter”.)

MRP1

MRP group

0010 (change from default 31)

MRP Type

PD (MRP)

MRP Controller

101

Lot Size

EX (Lot-for-lot order quantity)

In-house production

0 days ( You can ignore it by pressing “enter”)

SchedMargin key

001

Prod. stor. location

0002

MRP3

Strategy group

10 (Make-to-stock production)

MRP4

You have no data to enter here. (Press “enter”.)

Work Scheduling

You have no data to enter here. (Press “enter”.)

General Plant Data / Storage 1

You have no data to enter here. (Press “enter”.)

General Plant Data / Storage 2

You have no data to enter here. (Press “enter”.)

Accounting 1

Valuation class

7920 (Finished product)

Price control

S (Standard price)

Standard price

3 EUR

MRP2

Accounting 2 Costing 1

Z##$ 10

You have no data to enter here. (Press “enter”.) Z##$-01 Profit center

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT, Gilbert BABIN and Robert PELLERIN, HEC Montréal. All rights reserved for all countries.

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ERP Simulation Game with mySAP ERP

Costing 2 MMF1 Logistics / Materials Management / Material Master / Material / Create (Special) / Finished product

You have no data to enter here. (Press “enter”.) Then, click “yes” to save the product.

Extend the finished products: A message confirms that the finished product was created in the system. However, the product has been only assigned to the distribution channel 10. Because you will want the product to be available in the two other distribution channels, we need to extend the material master to these other sales areas. By extending the master data, you will be able to reuse the information previously entered in other segments of the organizational structure. There are three distribution channels: 10 (Hypermarkets), 12 (Grocery chains) and 14 (independent grocers). Your materials were already linked with the distribution channel 10. You have to extend your finished product with the distribution channel 12 and 14. Fields Material

Data to input Z##$-%% (The material you want to extend)

Industry sector

Retail

Click on “Select View(s) and highlight the same views as the first time you create your material. Then click on “Continue (Enter)”. In the “Organization levels”, enter the following information: Fields Plant

Data to input Z##$

Storage location

0002

Sales Org.

Z##$

Distribution channel

12

Click on “Continue (Enter)”. A notice saying “The material already exists and will be extended “ appears. Click on MM02 Logistics / Materials Management / Material Master / Material / Change / Immediately

to save.

Repeat the same operations to link your material with the distibution channel 14. Should you forget to input some data, you can go back in change mode (transaction MM02).

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT, Gilbert BABIN and Robert PELLERIN, HEC Montréal. All rights reserved for all countries.

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ERP Simulation Game with mySAP ERP MMR1

2.1.2 Creating raw materials

Logistics / Materials Management / Material Master / Material / Create (Special) / Raw Material

Each firm has to define all its raw materials. All teams need to create six raw materials: Z##$whe, Z##$str, Z##$nut, Z##$blu, Z##$oat and Z##$rai, where ## corresponds to the two digits corresponding to the code of the simulation game and $ corresponds to the letter of your plant. The creating of the raw products requires specifying a set of parameters which indicate to SAP the business rules associated to this master data. Based on the simulation requirements, here are the main parameters that are used in all your finished products:

•

Raw materials are retail products (Field Industry sector).

•

They are classified in the system as food material (Field Material group).

•

Raw materials are counted in kilograms (Field Base Unit Measure).

•

The procurement of all raw materials is the responsibility of purchasing group 100. The purchasing group number is the key for the group of buyers, who are responsible for certain purchasing activities.

•

The purchase orders of raw materials need to be generated automatically when purchase requisitions are converted into purchase orders (Field Autom.PO).

•

No direct planning is needed for the raw materials (Field MRP Group). The dependent requirements for the raw material will be generated by the MRP run (Field MRP Type) of their associated finished products.

•

Dependent requirements of raw materials are planned using a lot-for-lot order quantity (Field Lot size), i.e. the system creates one large production lot from the independent requirements.

•

The dependent requirements issued from the forecast of the independent requirements are assumed to be constant (Field Forecast model).

•

The MRP controller is the role of the person in charge of doing the planning run.

•

These products are valued as raw material (Field Valuation Class) and are valued using a moving average price (Field Moving average price) of 1 euro per KG.

•

The availability of the products must be checked daily (Field Availability Check), and the planned delivery time is assumed to be 1 day (Field Plnd Delivery time). Time buffers are set to minimal delay (Field ShecdMargin Key).

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ERP Simulation Game with mySAP ERP

The same raw material will be used for the different finished products. Therefore, the creation of these 6 raw materials needs to be shared between the members of the team. You also have to create 4 markets data for the packaging support. N.B. You have to follow the same process for all the material masters that you need to create. For example, your plant will have to create component Z##$whe, then Z##$str and so on. Remember: ## corresponds to the number of the simulation and “$” correspond to the letter of your plant. For example, if the current simulation is the first and your plant is A, then Z##$ corresponds to Z01A. On “Create Raw Material (Initial Screen)”, enter the following information: Fields Material Industry sector

Data to input Z##$whe

Z##$str

Z##$nut

Z##$blu

Z##$oat

Z##$rai

Retail

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ERP Simulation Game with mySAP ERP

Step 1 : Click on “Select View(s)” and highlight STEP 2 : In the “Organization

STEP 3 : The record contains a series of mandatory data in the various views of “Material Master”. Pressing “enter” starts an automatic check and you go on to the next tab.

the following views of the muesli data. Then click on “Continue (Enter)“ Views Basic Data 1

Basic Data 2 Purchasing MRP1

MRP2

MRP3 MRP4 Forecasting General Plant Data / Stor. 1 General Plant Data / Stor. 2 Accounting 1

Accounting 2 Costing 1 Costing 2

Fields Description

levels”, enter the following information: Z##$whe wheat

Z##$str strawberries

Plant Storage location

Z##$ 0088

Z##$nut

Z##$blu

Z##$oat

nuts

blueberries

oats

Z##$rai Dried raisins

Base Unit of measure KG (Kilogram) Material Group Z##$ You have no data to enter here. (Press “enter”.) Purchasing group: 100 Autom. PO x MRP group 0000 MRP Type PD (MRP) MRP Controller 101 Lot Size EX (Lot-for-lot order quantity) Plnd Delivery time: 1 day SchedMargin key 001 Prod. stor location 0088 Backflush 2 (Work center decides whether to backflush) Availability check You have no data to enter here. (Press “enter”.) Forecast model D (Constant model) You have no data to enter here. (Press “enter”.)

01 (Daily requirements)

You have no data to enter here. (Press “enter”.) Valuation class Price control

3000 (Raw material 1) V ( Moving average price)

Moving price 2 EUR 8 EUR 8 EUR 8 EUR 2 EUR You have no data to enter here. (Press “enter”.) Profit center Z##$-01 You have no data to enter here. (Press “enter”.). Then, click “yes” to save the product.

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT, Gilbert BABIN and Robert PELLERIN, HEC Montréal. All rights reserved for all countries.

5 EUR

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ERP Simulation Game with mySAP ERP

Click on

to save.

If you forget information, go back in change mode (transaction MM02) MMR1 Logistics / Materials Management / Material Master / Material / Create (Special) / Raw Material

2.1.3 Creating packaging materials The creating of the packaging material requires specifying a set of parameters which indicate to SAP the business rules associated to this master data. Based on the simulation requirements, here are the main parameters that are used in all your finished products:

•

Packaging material are retail products (Field Industry sector).

•

They are classified in the system as food material (Field Material group).

•

Raw material are counted in pieces (Field Base Unit Measure).

•

The procurement of all raw materials is the responsibility of purchasing group 100 (Field Purchasing group).

•

The purchasing group number is the key for the group of buyers, who are responsible for certain purchasing activities.

•

The purchase orders of raw material need to be generated automatically when purchase requisitions are converted into purchase orders (Field Autom.PO).

•

No direct planning is needed for the raw materials (Field MRP Group).

•

The dependant requirements for the raw materials will be generated by the MRP run (Field MRP Type) of their associated finished product.

•

Dependant requirements of raw materials are planned using a lot-for-lot order quantity (Field Lot size), i.e. the system creates one large production lot from the independent requirements.

•

The dependant requirements issued from the forecast of the independent requirements are assumed to be constant (Field Forecast model).

•

The MRP controller is the role of the person in charge of doing the planning run.

•

These products are valued as raw materials (Field Valuation Class) and are valued using a moving average price (Field Moving average price) that varies according to the size of the packaging material.

•

The availability of this product must be checked daily (Field Availability Check), and the planned delivery time is assumed to be 1 day (Field Plnd Delivery time). Time buffers are set to minimal delay (Field ShecdMargin Key).

After creating all of the ingredients, you’ll have to create four other raw materials: small format box (0.5 kg), large format box (1 kg), a Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT, Gilbert BABIN and Robert PELLERIN, HEC Montréal. All rights reserved for all countries.

33

ERP Simulation Game with mySAP ERP

small format plastic bag and a large format plastic bag. N.B. You have to follow the same process for all the components that you need. For example, your plant will have to create component Z##$smbox, then Z##$lgbox and so on. Remember: ## corresponds to the number of the simulation and “$” corresponds to the letter of your plant. For example, if the current simulation is the first and your plant is A, then Z##$ corresponds to Z01A. On “Create Raw Material (Initial Screen)”, enter the following information: Fields Material Industry sector

Data to input Z##$smbox

Z##$lgbox

Z##$smbag

Z##$lgbag

Retail

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34

ERP Simulation Game with mySAP ERP

Step 1 : Click on “Select View(s)” and highlight STEP 2 : In the “Organization

STEP 3 : The record contains a series of mandatory data in the various views of “Material Master”. Pressing “enter” starts an automatic check and you go on to the next tab.

the following views of the muesli data. Then click on “Continue (Enter) Views Basic Data 1

Fields Description

levels”, enter the following information: Z##$smbox Small box 0.5kg

Z##$lgbox Large box 1kg

Plant Storage location

Z##$ 0088

Z##$smbag Small plastic bag 0.5kg PC (piece (s)) Z##$

Z##$lgbag Large plastic bag 1kg

Base Unit of measure Material Group Basic Data 2 You have no data to enter here. (Press “enter”.) Purchasing Purchasing group: 100 Autom. PO x MRP1 MRP group 0000 MRP Type PD (MRP) MRP Controller 101 Lot Size EX (Lot-for-lot order quantity) MRP2 Plnd Delivery time: 1 day SchedMargin key 001 Prod. stor. location 0088 Backflush 2 (Work center decides whether to backflush) MRP3 Availability check 01 (Daily requirements) MRP4 You have no data to enter here. (Press “enter”.) Forecasting Forecast model D (Constant model) General Plant Data / Stor. You have no data to enter here. (Press “enter”.) 1 General Plant Data / Stor. You have no data to enter here. (Press “enter”.) 2 Accounting 1 Valuation class 3000 (Raw material 1) Price control V ( Moving average price) Accounting 2 Costing 1 Costing 2

Moving price 0.5 EUR 0.75 EUR 0.25 EUR You have no data to enter here. (Press “enter”.) You have no data to enter here. (Press “enter”.) You have no data to enter here. (Press “enter”.), Then, click “yes” to save the product

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT, Gilbert BABIN and Robert PELLERIN, HEC Montréal. All rights reserved for all countries.

0.35 EUR

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ERP Simulation Game with mySAP ERP

Click on MM02 Logistics / Materials Management / Material Master / Material / Change / Immediately

to save.

Should you forget to input some data, you can go back in change mode (transaction MM02).

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT, Gilbert BABIN and Robert PELLERIN, HEC Montréal. All rights reserved for all countries.

36

ERP Simulation Game with mySAP ERP XK01 Logistics / Materials Management / Purchasing / Master Data / Vendor / Central / Create

2.2 Vendor master data Vendors are the business partners from whom material or services can be procured. There are four vendors from which you can buy the raw materials and packaging materials. Raw materials are bought from 2 specialized traders (FoodBroker Inc. and Alimentation Distribution Co.) while packaging material can be acquired from two packaging manufacturers (Rap Big Company and Continental Printing Co). Each time you do business with a vendor, the information contained in the master data is reused. In pratice, you will have to introduce much more data then we do here. You will certainly have to introduce adresses and phone numbers, name of contracts, etc. We skip these data entries for the simulation. This speeds up all the transactions. When creating vendors master records in the system, you will need to input several parameters. Here is the business logic underlying these parameters:

•

The account group is a classifying feature that sets the required specifications for business partners master record. You must choose the Vendor account group (Field Account Group). All vendors are based in Germany (Field Country).

•

Vendors apply the taxes on their invoice and you are charged in euros. Account payable must be pay immediately on reception of the invoice (field payment terms).

•

On the general ledger, the individual account payable are reconciled in the trade payable domestic account (field rec.account) and are managed with other domestic planning groups (field cash managing group).

•

Purchase orders need to be created automatically from the purchase requisition (field automatic pucharse order).

•

The following operation has to be repeated for each vendor. On “Create Vendor: Initial Screen”, enter the following information. For the vendor number only, the ## corresponds to a unique number for the current number of the simulation. The “$” corresponds to the number corresponding to the letter of your plant. For example the plant A corresponds to the number 1, the plant B corresponds to the number 2 and so on.

Fields Vendor

Data to input 8##$1

8##$2

Company code

Z ##$

Purchasing org.

Z ##$

Account group

0001 (Vendor)

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT and Gilbert BABIN, HEC Montréal. All rights reserved for all countries.

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ERP Simulation Game with mySAP ERP

On the “Create Vendor: Address” screen, enter the following information: Fields

Data to input

Vendor

8##$1

Title Name

8##$2 Company

FoodBroker Inc.

Continental Printing Co.

Raw materials

Packaging

DE

DE

Search term Country

Fields

Control

Sales / pur.tax

Payment Transactions

Press “enter” to skip the screen

Accounting Information Accounting

Z ##$01

Create Vendor screens : Press enter navigate through the screens.

X

Rec Account:

160000 (Trade Payables – domestic)

Cash mgmnt group

A1 (Domestic)

Payment Transaction Accounting

Payment terms

Correspondence Accounting

Press “enter” to skip the screen

Purchasing Data Partner Functions

Z ##$02

Press “enter” to go on to the next screen.

0001 (Payable immediately Due Net)

Order currency

EUR (euro)

Automatic PO

X

Press “enter” to skip the screen

Do not forget to save data on the vendors by click on the disk

.

You must repeat this procedure for the other vendor. XK02

Should you need to modify the vendor record subsequently you need to execute the transaction XK02 .

Logistics / Materials Management / Purchasing / Master Data / Vendor / Central / Change Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT and Gilbert BABIN, HEC Montréal. All rights reserved for all countries.

38

ERP Simulation Game with mySAP ERP SA38

System menu > Services > Reporting

2.3 Customers master

•

A customer is a business partner with whom a business relationship exists involving the issue of goods or services. Each time a customer issues an order, you do not want to reenter the relevant information. The customers data contains the information on your customers that might be useful in futur transactions.

•

All customer are retailers located in Germany, they pay in euros.

•

Because of the important number of customer masters that need to be created in the system, they have already been created for you. However, you can display them by distribution channel with the following report.

On the “CABAP:Execute Program” screen, enter the following information. Field

Data to input

Program

RFDKVZ00

Click on On the “Customer List” screen, enter the following information: Fields

Data to input

Company code

Z##$

Search help ID

S (Customers per sales group)

Should you wish to narrow the search for a specific distribution channel, click on the complex search help and enter the desired number in the distribution channel field and click on continue. The Field « Communication with customer » in the « output control” field in the bottom of the page needs to be empty. Click on

to execute the report.

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT and Gilbert BABIN, HEC Montréal. All rights reserved for all countries.

39

ERP Simulation Game with mySAP ERP CS01 Logistics / Production / Master Data/ Bills of Material / Bill of Material / Material BOM / Create

2.4 Production Master data 2.4.1 Bill of Material In order to manufacture a finished product, you need to specify the raw material that is required. This information is used each time you issue a production order and when you make your procurement planning. The quantities of raw materials required for the production of a product is specified in a BOM (Bill of Material). Each finished product must have its BOM. A BOM is a complete and structured list of the components that make up the finished product. The list contains the description, the quantity and the unit of measure of each component. The components of a BOM are known as BOM items. In the context of the simulation game, the BOM represents the recipe of your muesli cereal boxes. Remember that you need to follow the label guideline in developing your product (see chapter 1). The BOMs must be associated with a specific plant. A given BOM cannot be used in two distinct plants. When a BOM is created, you must specify which plant will be used (field plant). You must also specify in what context the BOM will be used. In your case, it will be used in the production context (field BOM usage). You will be asked to enter a specific recipe for the BOM with your first six products. The same recipe will used for all products of all teams during the first round (quarter) of the simulation. You will be allowed to change this recipe in future rounds. When you complete a BOM, you will have to fill a table. Each row corresponds to a different component or BOM item. For each BOM item, you need to specify the material number of the component (field component), its quantity (field quantity), its unit of measure and the category of the item (field Ict). The category of all BOM items is stock item. The unit of measure (field Un) of the food products is in kilograms, the unit of packaging product is in piece. Here are the steps to create a bill-of-material in SAP. On “Create Material BOM: Initial Screen”, enter the following information. Remember that ## corresponds to the simulation numboer and $ to the letter of your plant. Data to input

Fields Product Plant BOM Usage

Z##$-01

Z##$-02

Z##$-03

Z##$-04

Z##$-05

Z##$-06

Z##$ 1 (Production)

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT and Gilbert BABIN, HEC Montréal. All rights reserved for all countries.

40

ERP Simulation Game with mySAP ERP

On the “Create Material BOM: General Item Overview” screen, enter the following information: Fields

Data to input

ICT

L (Stock Item)

Component Quantity Click on CS02 Logistics / Production / Master Data/ Bills of Material / Bill of Material / Material BOM / Change

Z##$whe

Z##$str

Z##$nut

Z##$blu

Z##$oat

Z##$rai

Z##$lgbag

Z##$lgbox

0,50

0,02

0,08

0,10

0,250

0,05

1

1

to save your list of components.

Should you wish to change the recipe of a product during the simulation, you need to change its bill of material. Be careful, you are not allowed to change a BOM if you still have inventory of the product. If you wish to radiate all inventories before changing your BOM, you can use the transaction code MI10 and physically recount your inventories (thus removing out-of-date items). Should you want to change the recipe of a product with inventories, you first need ask to the administrator of the game to write-off these stocks for you.

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT and Gilbert BABIN, HEC Montréal. All rights reserved for all countries.

41

ERP Simulation Game with mySAP ERP CR01 Logistics / Production / Master Data/ Work Centers / Work Center / Create

2.4.2 Creating the work centers

•

Each product needs a specific work center. Each participant needs to create one work center.

•

A work center refers to a production unit that defines where an operation must be performed. Work centers can be machines, people production lines and groups of craftsmen. Each work center is located in a specific plant. Each time you wish to produce a finished product you must assign the production task to a work center.

•

In the simulation game, you will create a work center for every finished product. Each participant needs to create a work center. Each work center will be dedicated to a unique finished product.

•

All your work centers are production lines (field worker center cat.).

•

The work centers are configured to support all tasks (field usage) for normal production (standard value key).

•

In the context of the simulation, we will not take into account the capacity of the work centers; nevertheless, we need to input some fictitious parameters into the system.

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT and Gilbert BABIN, HEC Montréal. All rights reserved for all countries.

42

ERP Simulation Game with mySAP ERP

On “Create Work Center: Initial Screen”, enter the following information:

Screens

Fields

Data to input

Plant

Z##$

Work Center

Initial Screen

Z##$WP01

Z##$WP02

Work Center category group Insert a description Basic data

Person responsible Usage Standard value key Backflush

Capacities

Capacity Category Capacity planner grp Base unit of meas.

Create work center Capacity utilization capacity : Header

1

No. of indiv. cap.

Z##$WP03

Z##$WP04

Z##$WP06

Work center 5

Work center 6

0011 (Production line) Work center 1

Work center 2

Work center 3

Work center 4 001

009 (All task list types) SAP1 (Normal production) X

002 (Labor) 101 H 100 1

Start

08:00:00

Finish

16:00:00 Then, click on “enter”.

Scheduling

Capacity Category

002

Costing

Cost Center

3035

Click on

Z##$WP05

to save your work center.

1: Click enter to access the ‘Create work center capacity: Header’ screen

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT and Gilbert BABIN, HEC Montréal. All rights reserved for all countries.

43

ERP Simulation Game with mySAP ERP CA01 Logistics / Production / Master Data/ Routings / Routings / Standard Routings / Create

2.4.3 Creating routings Each product needs a routing. Routings correspond to the steps necessary to produce a final product. Each participant needs to create the routing of its product. When you wish to produce a finished product, you must specify how to produce it and on which work centers to produce it. The routing defines one sequence of one or more operations for the production of a material. A routing is specific to a finished product to be manufactured (field material). In order to complete a routing, you must complete a table. Each operation corresponds to a row in the table. The first row describes the first task or operation to be performed, the second row to the second task, etc. In the simulation game, we assume that there is only one operation to in order to manufacture a muesli cereal box. Each task or operation in the routing is attached to a specific work center (field work center). Each time an operation in a routing is performed a document will be created in order to confirm the execution of the task. In the routing master data you must specify in advance the type of the document that will be associated with the operation. In the case of the simulation, it is an in-house production order that will be used (field Control key).

Screens

Data to input

Fields Material

Z##$-01

Z##$-02

Z##$-03

Z##$-04

Z##$-05

Z##$-06

Z##$WP05

Z##$WP06

Initial Screen

Header details

Operations1

Plant

Z##$

Usage

1 (Production)

Status

4 (Released (general))

Work center Control Key

Z##$WP01

Z##$WP02

Z##$WP03

Z##$WP04

ZSIM

Click on “CompAlloc” at the top. This will confirm the “Bill of material” for your product. Click on

to save your routing.

1 : On the “Create Routing:Header Details” screen, click on “Operations”

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT and Gilbert BABIN, HEC Montréal. All rights reserved for all countries.

44

ERP Simulation Game with mySAP ERP VK31 Logistics / Sales and Distribution / Master Data / Conditions / Create / Prices / Price List

2.5 Sales price 2.5.1 Set the sales price In SAP, the price-setting algorithms are saved in the conditions records. These conditions records are used to set prices automatically based on the various conditions applicable when a product is sold. These conditions include the price list, discounts, surcharges, transportation costs and taxes. You must specify a sale price and sale conditions for each finished product that you wish to sell to every sales area (a unique combination of sales organization, division and distribution channel) Each of those prices is contained in a price list together with the sales conditions. You must specify prices (field amount) in euros (field unit) for each finished product (field material) and channel (field distribution channel). For the system to interpret the amount introduced as a sales price, you must select the Condition type PR00 (field Condition type). On the “Create Condition Records: Overview” screen, click on the

Data to input

Fields

Material

icon and then enter the following information:

Z##$-01

Z##$-02

Z##$-03

Z##$-04

Distribution channel

10

Price list

01

Document currency

Unit

Z##$-05

Z##$-06

EUR PR00

Condition type Amount

Z##$-06

Z##$

Sales organization

Material

#Z##$-05

Z##$-01

Z##$-02

Z##$-03

Z##$-04

3 if it’s a small box and 5 if it’s a large box EUR

Because you cannot alter the master data during the simulation and because you may not know in advance in which distribution channels you will want to sell your product it is highly recommended to introduce a price for all three channels. Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT and Gilbert BABIN, HEC Montréal. All rights reserved for all countries.

45

ERP Simulation Game with mySAP ERP

Therefore, repeat the same operations for each product for the distribution channel 12 and 14. VK32 Logistics / Sales and Distribution / Master Data / Conditions / Change / Prices / Price List

2.5.2 Change the sale price You will able to change these prices during the simulation by using the following instructions. On “Price List with Release Status”, enter the following information: Fields Sales organization

Data to input Z##$

Distribution channel

10, 12 or 14

Material number

Z##$-%%

Click on On “Change Condition Records: Overview”, enter the following information: Field Amount Click on

Data to input The new sale price of your material to save.

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT and Gilbert BABIN, HEC Montréal. All rights reserved for all countries.

46

ERP Simulation Game with mySAP ERP ME11 Logistics / Materials Management / Purchasing / Master Data / Info Record / Create

2.6 Info Records 2.6.1 Define info records for raw material An info record creates a link between the vendors and the raw materials. If a vendor sells a raw materials then an info record must be created in order to stipulate the condition of the sale for this specific material by this specific vendor. Some of the conditions of sale will have to change each time you order, However, default values must be introduced. In each info record, you must set a plan delivery time of one day (field plnd dely time), the purchasing unit in charge of the procurement (field purchasing organization), the standard quantity (Field Standard qty). The info records also contain the expected net price of this product (Field Net price). The expected price and the freight cost in the info record will correspond to the average cost from the vendor. This price will fluctuate from one quarter to the other, so that you will need to change manually this price when processing the purchase order. The “$” corresponds to the number corresponding of the letter of your plant. For example the plant A corresponds to the number 1, the plant B corresponds to the number 2 and so on. Info Records are the logical link between raw materials and vendors. There are 6 info records to be created for raw materials.

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT and Gilbert BABIN, HEC Montréal. All rights reserved for all countries.

47

ERP Simulation Game with mySAP ERP

On “Create Info Record: Initial Screen”, enter the following information: Screens

Data to input

Fields

Initial screen

Vendor

8##$1

8##$1

8##$1

8##$1

8##$1

8##$1

Material

Z##$whe

Z##$str

Z##$nut

Z##$blu

Z##$oat

Z##$rai

10

3

6

Purch. org.

Z##$

Plant

Z##$

Plnd dely time Purchase org. data 11

1

Purch group

100

Standard qty

100

Net price

3

10

6

1 : On the “Create Info Record: General Data” screen, click on “Purch. Org data 1”

Click on

to save.

ME11

2.6.2 Define info records for packaging

Logistics / Materials Management / Purchasing / Master Data / Info Record / Create

We must also establish a link between the packaging goods and their suppliers. If a vendor sells a package product an info record must be created in order to specify the sale conditions. Your team needs to create four info-records. The packaging info record contains the same information that those of the material info records. For the vendor number only, the ## corresponds to a unique number for the current number of the simulation. The “$” corresponds to the number corresponding of the letter of your plant. For exemple the plant A corresponds to the number 1, the plant B corresponds to the number 2 and so on.

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT and Gilbert BABIN, HEC Montréal. All rights reserved for all countries.

48

ERP Simulation Game with mySAP ERP

On “Create Info Record: Initial Screen”, enter the following information: Screens

Data to input

Fields

Initial screen

Vendor

8##$2

8##$2

8##$2

8##$2

Material

Z##$smbox

Z##$lgbox

Z##$smbag

Z##$lgbag

0,30

0,35

8

8

Purch. org.

Z##$

Plant

Z##$

Plnd dely time

1

Purchase org.

Purch group

100

data 11

Standard qty

100

Net price Conditions2

0,52

0,84

Cnty Amount

FRB1 8

8

1 : On the “Create Info Record:General Data” screen, click on “Purch. Org data 1” 2: On the “Create Info Record: Purch.Organization data 1” screen click on “Conditions”.

Click on ME01 Logistics / Materials Management / Purchasing / Master Data / Source list / Create

to save.

2.7 Source list A source list used in the administration of sources of supply. It allows (or disallows) sources of a material for certain part of an organization. The source list records the approved (or blocked) vendors for the specified material. It is possible to define a fixed source of supply (field Fix) for a certain period of time (field valid from and valid to) for a given purchase organization (field Porg). The source list is required to be able to convert automatically purchase requisitions into consolidated purchase orders. In addition, by choosing a fixed vendor for the source list, it is possible to set the MRP to assign automatically the source of supply when creating the purchase requisition (field MRP).

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT and Gilbert BABIN, HEC Montréal. All rights reserved for all countries.

49

ERP Simulation Game with mySAP ERP

On the “Maintain Source List: Initial Screen”, enter the following information:

Plant

Z##$lgbag

Z##$smbag

Z##$lgbox

Z##$smbox

Z##$rai

Z##$blu

Z##$nut

Z##$str

Material

Z##$oat

Data to input

Fields Z##$whe

Screens

Z##$

Press “enter” to go on to the next screen. On the “Maintain Source List: Overview Screen”, enter the following information:

Valid from

Z##$lgbag

Z##$smbag

Z##$lgbox

Z##$smbox

Z##$rai Today

Valid to

One year from today

Vendor

8##$1

Porg

8##$2 Z##$

Fix

x

MRP Click on

Z##$oat

Z##$blu

Z##$str

Z##$whe

Material

Z##$nut

Data to input

Fields

1 (Record relevant to MRP) to save.

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT and Gilbert BABIN, HEC Montréal. All rights reserved for all countries.

50

ERP Simulation Game with mySAP ERP

2.8 Controlling master data KE51 Accounting / Controlling / Profit Center Accounting / Master Data / Profit Center /Individual Processing

The following paragraphs describe the creation of controlling master data. 2.8.1 Creating profit center If required, enter Controlling Area “Z##$”, then press Enter. Note that the first profit center was already been created for you (Z##$-01) Enter the following information: Data to input

Fields Profit center

Z##$-02

Copy from

Z##$-01

Co area

Z##$, Then, press “enter”

Name

Z##-$-02

Long text

Z##-$-02

Person respons.

Leave the default value in this field.

Profit Ctr Group

H1

Click on

Z##$-03

Z##$-04

Z##$-05

Z##$-06

Z##$-07

Z##$-08

Z##-$-03

Z##-$-04

Z##-$-05

Z##-$-06

Z##-$-07

Z##-$-08

Z##-$-03

Z##-$-04

Z##-$-05

Z##-$-06

Z##-$-07

Z##-$-08

to save.

A window will confirm the creation of the profit center. Press “enter” to continue, and then activate the profit center by clicking on activate (SHIFT+F1). In the status bar, a message will confirm the creation and activation of the profit center.

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT and Gilbert BABIN, HEC Montréal. All rights reserved for all countries.

51

ERP Simulation Game with mySAP ERP KS01 Accounting / Controlling / Cost Center Accounting / Master Data / Cost Center /Individual Processing

2.8.2 Creating cost centers If required, enter Controlling Area “Z##$”, then press Enter Tabs

Data to input

Fields Cost center

Z##$-02

Z##$-03

Z##$-04

Valid from

Z##$-06

Z##$-07

Z##$-08

Today

To

Enter 31.12.9999, then press “enter”

Reference: Cost center

Z##$-01

Controlling area

BasicData

Z##$-05

Z##$-01, Then press “enter” to continue

Name

Z##$-02

Z##$-03

Z##$-04

Z##$-05

Z##$-06

Z##$-07

Z##$-08

Description

Z##$-02

Z##$-03

Z##$-04

Z##$-05

Z##$-06

Z##$-07

Z##$-08

Z##$-07

Z##$-08

Person respons.

Leave the default value in this field.

Department

Corporate

Cost center category

1

Hierarchy area

Z##$

Business area

1000

Functional area

0100

KCH6N Accounting / Controlling / Profit Center Accounting / Master Data / Standard Hierarchy / Display

Profit center Click on

Z##$-02

Z##$-03

Z##$-04

Z##$-05

Z##$-06

to save

2.9.3 Displaying profit and cost centers hierarchy

OKENN Accounting / Controlling / Cost Center Accounting / Master Data / Standard Hierarchy / Display

In the following screen, you will be able to see all the information regarding the profit centers created under hierarchy H1 and the status of these profit centers (Active is represented with a green light). In the following screen, you will be able to see all the information regarding the cost centers created under hierarchy H1 and the status of these cost centers (Active is represented with a green light).

Copyright © 2006, Pierre-Majorique LÉGER, Jacques ROBERT and Gilbert BABIN, HEC Montréal. All rights reserved for all countries.

52