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SAP ERP Modules Explained
Initially, when I coming to know SAP, I had no idea about ERP, MM, SD, FI, etc. So, I took the time to learn these concepts, and that's why I’d like to share what I’ve learned. I believe this will definitely be helpful for understanding how ERP works. SAP ERP is an enterprise resource planning system that integrates core business processes across Organization. This blog covers an overview of SAP ERP core modules and concepts ideal for both beginners and professionals looking to refresh their knowledge.
ERP Module Categories
Technical Modules
Technical modules involve the development of SAP modules, which can be categorized as standard or custom. Standard modules can be extended based on requirements, and custom modules can be developed to meet new requirements. This process includes designing the system architecture.
Functional Modules
Function Modules are between the end user and business which I elaborate in below
Master Data vs Transactional Data
- Master Data: This is static data like customer, material, or supplier records.
- Transactional Data: This is a dynamic data which changed constantly for every transaction like purchase orders, sales orders, and invoices. For both master and transactional data below is the example and what they record during the process.
Understanding SAP Clients
A Client that Holds the separate system for the different scenario like development, quality, production, sandbox, support, Quality for support and they name it as different as D52, P52 etc. it differs from organization to organization.
Types of SAP Clients:
- Production – Live environment
- Quality Assurance (QA) – For testing
- Development - For developing
- Sandbox – For experimentation
- Training – For end-user training
SAP Security Roles
Security has complete control over who can access what, and they have the sole authority to make those decisions. For example, developers cannot access every transaction available in SAP Logon they have certain restrictions.
Access Control Can Be Based On:
- Company Code
- Plant
- Sales Organization
- Transaction Codes (allowed or denied)
- Launchpad Tile (allowed or denied)
Key SAP Modules and What They Do
1️ SAP Financial Accounting (FI)
It captures every financial transaction across and within the organization. It helps manage financial records and supports the business in financial decision making.
General Ledger
- It this every crucial part that holds financial information such as Bank statement and balance sheet like database.
Accounts Payable (AP)
- It manages the payment for suppliers and records the financial activity between supplier and organization.
- It handles credit memos, invoices, and reporting
Accounts Receivable (AR)
- It manages the money that comes into the company, for example, customer payments for a car.
Asset Accounting
- Fixed asset that used throughout the organization for managing the company example chairs, laptops etc.
- The lifecycle of entire Asset Accounting is acquisition, depreciation and Retirement. Acquisition is records the purchase of machinery, lease the building etc., depreciation is calculation decrease period the purchased asset for the company and retirement is disposing the Asset.
Bank Accounting
- It helps to Manages bank statements, payments, and reconciliation.
Procure to Pay (P2P):
Procure to Pay (P2P) is an end-to-end business process that begin with purchasing goods and services and ends with vendor payment. It integrates procurement process and finance functions, ensuring purchasing operations and timely supplier payments to record. It starts with a Purchase Requisition, which is a request for goods and services. After that, an order is created and the material is dispatched. Once the item is dispatched, it must be received in the inventory, and the system should be updated with the details of what materials and how many units were received. After that, the invoice is collected, and finally, the payment is processed.
In SAP, P2P is primarily handled through the MM and FI where procurement process is managed and Payments are processed.
2️ SAP Controlling (CO)
It handles overall cost spending of the company that tracks internal costs, internal project, external project cast and monitors company spending etc.
Key Components:
- Profit Centre Accounting: It tracks profit of the organization
- Cost Centre Accounting: It Monitors departmental expenses
- Internal Orders: It tracks cost of the internal project
- Product Costing: It calculates the cost of the product.
- Profitability Analysis: Analysis the profit based on the region and customer
Record to Report (R2R)
The below image provided the Record to Report (R2R) process in SAP operations. R2R refers to the end-to-end process of recording transactions, closing financial periods, and generating reports for stakeholders. It records the every transaction and report the transaction finally.
It provides a structured approach to capturing the business transaction, Jornal Entries and sub ledger updates, Month end year end closing activities, financial report of balance sheet and tax reports, check accounting accuracy, closing books efficiently, and reporting.
3️ SAP Sales & Distribution (SD)
Sales Distribution it very essential part of sales process it track from sale of the car to billing by the customer.
It initiates with the pre-sales process, which involves inquiries about the product and receiving quotations. After that, the customer decides whether to proceed with the purchase. Once confirmed, a sales order is created. After finalizing contracts and agreements, the process moves to the delivery stage. Required documents are prepared, items are picked from inventory, packed, and shipped to the specified address. Finally, the order is billed based on the invoice, payment is received, and the order is considered dispatched.
Integration Example:
The sales part integrate with both FI and MM part
- Sales Order Creation
- Checks stock availability in MM
- Runs credit checks in FI
4️ SAP Material Management (MM)
It insures the material availability throughout the lifecycle.
Procurement Lifecycle:
Material procurement in SAP MM (Materials Management) encompasses the complete lifecycle of acquiring goods and services from external suppliers, using MM we can manage all procurement activity. SAP MM equips organizations with tools to streamline and manage procurement activities efficiently. Below is a simple steps involved:
- Initiating Purchase Requisition (PR) - It is the process that creating purchase requisition as an internal request to procure the goods and services. It can be either manually or automatically based on availability.
- Issuing Request for Quotation (RFQ) - If it external an RFQ is generated and sent to selected vendors it helps to prepare RFQ to suppliers.
- Evaluating Vendor Quotations
Once vendors respond, quotations are evaluated within SAP MM If it external an RFQ is generated based on some criteria like cost, quality and time taken for delivery. - Creating Purchase Order (PO)
Once vendor selection is completed, a purchase order is created containing all procurement detail such as quantity, pricing, delivery schedule, and payment terms. - Recording Goods Receipt (GR)
Delivery, a goods receipt is entered in SAP MM. This step confirms receipt and automatically updates inventory levels. It records every detail about the goods. - Invoice Verification
Following the Good Receipt, the vendor submits an invoice. SAP MM supports three-way matching invoice, Purchase order, Goods Receipt to validate before forwarding it for payment. - Processing Payments
Verified invoices are handed off to SAP FI for payment processing, ensuring vendors are paid as per agreed terms also records any money balance. - Vendor Performance Evaluation
Visit the vendor’s location to evaluate the quality and safety standards and determine whether to continue working with the vendor in the future. - Maintaining Material Master Data
It has complete data of vendors such as vendor details, and pricing is crucial throughout the procurement process. - Utilizing Reports & Analytics
SAP MM offers powerful reporting tools to track procurement performance and identify the place to optimize and efficient.
Inventory & Physical Stock Management:
- Physically goods are stored and managed here.
Source to Pay (S2P):
Source to Pay (S2P) is a process for finding and managing suitable suppliers to purchase goods and services. It involves supplier identification and providing the RFQ. Once bid evaluation is completed, contract negotiation begins, and the requisition is approved. After that, a purchase order (PO) is created, goods receipt (GR) is generated, inventory is updated, and finally, the invoice is verified and payment is processed.
5️ SAP Production Planning (PP)
SAP Production Planning (PP) module is used to help plan manufacturing for sales and distribution of products.
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Manufacturing Types:
- Repetitive Manufacturing: products stay the same over a long period of time
- Discrete Manufacturing: product is customize or change frequently
Key Components:
- Bill of Materials (BOM): Complete list of the material and assemblies needed to manufacture a product
- Routing: routing used for finished or semi-finished product calculate operation cost for finished product.
- Capacity Planning: Used to balance production across different work centre.
- Material Requirement Planning (MRP): Ensures material is available, key feature of MRP is that when it run, it will create procurement proposals. It ensures production can happen to meet our demand and it minimize the cost of holding too much unnecessary inventory.
6️ SAP Quality Management (QM)
SAP Quality Management deals with managing quality throughout a company’s processes.
Key Processes:
- Quality Inspection: determine if the units inspected meet defined quality requirement.
- Unit quality is measured.
- Result and defect recording
- Quality Control: Preventive, Monitoring and corrective actions
- Quality Notifications: It involves in Record poor quality of internal or external issues. It can be created anywhere in the product cycle. This includes incoming inspection when a product has been purchased externally and final inspection before sending finished products out to our customers. It measures and monitor the quality against
7️ SAP Plant Maintenance (PM)
SAP Plant maintenance to manage the equipment and infrastructure of the plant.
Preventive maintenance: Maintains condition of a production area.
Repair: Restore condition of a production area.
8️ SAP Project System (PS)
SAP Project System that enables companies to manage all projects, large or small scale throughout the project lifecycle. It includes project planning, execution and completion.
Internal financed projects – funded by company themselves.
External financed projects – sponsored by clients and are executed to meet client requirement.
Key components of PS:
- WBS (Work Breakdown Structure)
- Shows amount of work
- Shows how long.
- Shows cost involved.
- Once work breakdown is calculated, we’re able to accurately begin process planning, cost planning, scheduling and date and capacity planning.
9️ SAP Human Capital Management (HCM)
SAP HCM is a comprehensive solution designed to Manage all human resource and all these functions rely on organizational management.
Organizational Management: Where organizational populated, with different areas, position, and employee names.
Employee Administration: Which handle employee address, bank details and tax information.
Time Management: To record attendance, shift management and leave.
Benefits Management: Where companies can create their own unique benifit packages.
Recruitment: Includes Application tracking and reporting.
Learning Management: It helps enable online training and to track the completion of course by employees.
SAP Navigation for End Users
Clients
- Different clients = different environments (e.g., 100, 110 etc…)
Transaction Codes (T-Codes)
- Shortcut commands for SAP tasks
- Ending with:
- 01: Create
- 02: Change
- 03: Display
- Starting with:
- Y or Z: Custom codes
- /n → Open transaction in the same session
- /o → Open transaction in a new session
Conclusion: The SAP Advantage – Integration and Efficiency Across Functions
SAP ERP modules are the principal of enterprise systems, integrating various business processes across organization. Whether it's managing FI (Financial Accounting), MM (Material Mangement), SD (Sales and Distribution) Modules and etc. Processes like Source to Pay (S2P), Procure to Pay (P2P), Record to Report (R2R) and Order to cash (O2C) demonstrate the inter connection of strategic and operational activities within an organization. With SAP’s modular approach, businesses can achieve efficiency process the overall lifecycle of the product so and so, accuracy, and transparency across their procurement and finance functions. By understanding the process and how it works throughout the organization, you can make decisions based on the data collected during the process, which increases the performance of the organization.
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