COMPANY HISTORY

Global Bike Inc. has a pragmatic design philosophy that comes from its deep roots in both
the off-road trail racing and long-distance road racing sports. Nearly 20 years ago, its
founders designed their first bikes out of necessity—they had races to win and the bikes
that were available at the time did not perform to their extremely high standards. So,
they took matters into their own hands and built legendary bikes that would outlast and
outperform the competition. From these humble origins, Global Bike Incorporated was
born and continues to deliver innovative high-performance bicycles to the world’s most
demanding riders.
This heritage of entrepreneurial spirit and quest for design perfection is still the
cornerstone of GBI’s corporate philosophy. GBI produces bikes for the most demanding
competitors—whether the competition is on pavement or dirt, for money, fame or just
bragging rights.
John Davis earned his racing scars in the mountain racing circuit in America, where he
won numerous downhill and cross-country championships. Early on, John realized that the
mass-produced bicycles available were inadequate in many ways for the type of racing he
was doing. So, John stripped four of his old bikes down to the bare metal and rebuilt
them into a single “Frankenstein” bike that he rode to win the national championship.
Once news of his Frankenstein bike got out, John’s friends and even his competitors
began asking him to build them a Frankenstein bike too. While recovering from an injury
in 1990, John started producing the first series of Frankenstein bikes in his garage—each
one custom-built from cannibalized parts from other bikes. As more and more orders
came in, John successfully expanded Frankenstein Bikes from his garage operations into a
full-blown manufacturing facility in Dallas and began producing custom trail bikes which
he sold through a network of specialized bike dealers throughout the country.
At nearly the same time, halfway around the world in Heidelberg, Germany, Peter
Weiss was studying engineering and competing in regional touring races on weekends. In
between his races and studies, Peter worked at a bike shop in Heidelberg, fixing student
bikes and tuning the touring bikes that he and his friends rode for competitions. As Peter’s
reputation as a fierce competitor and mechanical wizard grew, he also began to design
and build road bikes based on an ultra-light composite frame that he had created for one
of his engineering courses. Peter’s innovative use of carbon composite materials allowed
him to build a frame that was significantly stronger and one tenth the weight of
competing frames. As a student, Peter did not have a great deal of financial resources, so
he partnered with a local company that manufactured his frame designs as a contract
manufacturer. Soon, Peter’s frames were being used by racers all over Europe and he
started Heidelberg Composites to market and design frames which would be fabricated by
a contract manufacturer on a larger scale. Heidelberg Composites sold its frames to
specialized bike stores throughout Europe and directly to racing teams, eventually
becoming the leader in lightweight touring frames in Europe.
Through a twist of fate, Peter and John met each other in 2000 and immediately
recognized their mutual passion for performance and complimentary business models.
Each had been looking for a partner in another racing field and each had been looking for
a partner in a different market. They quickly realized that a merger between their two
companies would be extremely synergistic and that the combination of their product lines
and regional distribution channels would generate a great deal of efficiencies.
So, in 2001, Heidelberg Composites and Frankenstein Bikes merged to form Global
Bike Incorporated. Today, John and Peter share the responsibilities for managing GBI’s
growing organization as co-CEO’s. John is responsible for sales, marketing, service &
support, IT, finance and human resources groups and Peter is responsible for research,
design, procurement and manufacturing groups from an organizational reporting
perspective.

Figure 1: GBI organizational structure

However, GBI is a process-centric organization, so John and Peter prefer to think of the
processes that they are responsible for, rather than the functional areas of the company
that report to them. From this perspective, Peter is responsible for Idea-to-Market and
Build-to-Stock and John is responsible for Order-to-Cash and Service & Support, as well as
the supporting services for all four key processes. The simple way to look at their
responsibilities would be to say that Peter spends money and builds products and John
sells products and brings in money.

CORPORATE OVERVIEW
Due to several tax and export issues, GBI’s headquarters is located in Dallas and GBI is
registered as a US company, following US GAAP accounting standards. GBI operates a
subsidiary company, GBI Europe, which is based in Heidelberg and is subject to IFRS
accounting standards and German tax regulations.
Material planning, finance, administration, HR and IT functions are consolidated at the
Dallas headquarters. The Dallas facility manufactures products for the US and export
markets and its warehouse manages product distribution for the central US and internet
retailers. GBI also has warehouses for shipping and export in both San Diego and Miami.
San Diego handles West Coast distribution and exports for Asia, while Miami handles East
Coast distribution and Latin America exports.
GBI Europe has its headquarters in Heidelberg Germany. The majority of research and
development is housed in the Heidelberg offices. Heidelberg is also the main
manufacturing facility for GBI in Europe. The Heidelberg warehouse handles all shipping
for southern Europe. The Hamburg warehouse handles all shipping for the UK, Ireland,
Middle East and Africa. GBI sells its bikes throughout the world and employs
approximately 100 people, 2/3rds of the employees are in the US and the remaining 1/3
in Europe.

Figure 2: GBI Business Structure

PRODUCT STRATEGY
GBI is a world class bicycle company serving the professional and “prosumer” cyclists for
touring and off-road racing. GBI’s riders demand the highest level of quality, toughness
and performance from their bikes and accessories.
 In the touring bike category, GBI’s handcrafted bicycles have won numerous design
awards and are sold in over 10 countries. GBI’s signature composite frames are world-
renowned for their strength, low weight and easy maintenance. GBI bikes are consistently
ridden in the Tour de France and other major international road races. GBI produces two
models of their signature road bikes, a deluxe and professional model. The key difference
between the two models is the type of wheels used, aluminum for the basic model and
carbon composite for the professional model.
GBI’s off-road are also recognized as incredibly tough and easy to maintain. GBI trail
bikes are the preferred choice of world champion off-road racers and have become
synonymous with performance and strength in one of the most grueling sports in the
world. GBI produces two types of off-road bike, a men’s and women’s model. The basic
difference between the two models is the smaller size and ergonomic shaping of the
women’s frame.
GBI also sells an accessories product line comprised of helmets, t-shirts and other
riding accessories. GBI partners with only the highest quality suppliers of accessories
which will help enhance riders’ performance and comfort while riding GBI bikes.
Product development is the most critical element of GBI’s past and future growth. GBI
has invested heavily in this area, focusing on innovation, quality, safety and speed to
market. GBI has an extensive innovation network to source ideas from riders, dealers and
professionals to continuously improve the performance, reliability and quality of its
bicycles.
Figure 3: GBI Product List
Figure 4: Bill of Materials for Deluxe Touring Bike
Figure 5: GBI US Customer List

DISTRIBUTION NETWORK
Given the highly specialized nature of GBI’s bicycles and the personalized needs of riders,
GBI sells its bikes exclusively through well-known and respected Independent Bicycle
Dealers (IBDs). These dealers employ staff members who are experts in off-road and tour
racing to help consumers choose the right GBI bike and accessories for their individual
needs.

INTERNET SALES
Due to the highly technical nature of its products, GBI has embraced the internet
primarily as an information channel, maximizing its potential for educating consumers and
partners and marketing its products to a large audience.
Since GBI’s main sales channel is through specialty resellers and there are complex tax
issues associated with selling in multiple states and countries, they have a limited
amount of internet sales.

PRODUCTION PLANTS
GBI operates two production facilities, Dallas and Heidelberg. Each facility has three
assembly lines and can produce around 1000 bikes per year. Total production capacity is
roughly 6000 bikes per year, but can be increased by 15%–20% by using overtime hours
and part-time workers.
GBI has outsourced the production of both off-road and touring frames and the carbon
composite wheels to trusted partners who have specialty facilities to fabricate the
complex materials used. GBI maintains very collaborative research and design
relationships with these specialty partners to ensure that innovations in both material and
structural capabilities are incorporated into the frames. GBI primarily assembles semi-
finished goods into finished goods at its production facilities. Finished goods are either
stored in the local warehouse or shipped to other regional distribution centers to fulfill
customer orders.

PARTNER NETWORK
GBI has established an extensive partner operation to ensure process continuity between
GBI and its partners to deliver best-in-class products for its customers. Special attention
has been paid to nurturing strong relationships with suppliers and GBI is generally the
largest customer of its main suppliers.

Figure 6: GBI US Vendor List

INFORMATION ARCHITECTURE
During 2009, GBI integrated a shared services model for all IT functions, located in the
Dallas office. Along with this move to centralized IT, GBI also implemented SAP ERP
(version 6.0). Prior to this, divisions were running multiple, independent application
environments. All ERP functions are centralized with the primary objectives to reduce
costs and deliver best-in-class technology to all divisions globally. This centralized
approach offers GBI an advanced business platform under a highly controlled
environment, which enables consistency of operations and process integrity across the
globe.
Key Terms

Account assignment category: A key that determines which specific accounting data
are needed to complete a process step—Chapter 4.
Account assignment object: Identifies the bearer of the cost of a purchase (e.g., cost
center) and is the entity for which the materials were purchased—Chapter 4.
Account determination: The process whereby the system determines which general
ledger accounts to post a debit or credit to in a given situation—Chapter 3, Chapter 4.
Account group: A data element in the chart of accounts that groups together accounts
with similar characteristics—Chapter 3.
Accounting data: Data in customer or vendor master that are specific to a company
code and include data such as valuation currency, the valuation class, and the price
control (vendor master) and payment terms and the reconciliation account (customer
master)—Chapter 4, Chapter 5.
Accounts payable accounting: The financial accounting process which records and
manages money owed to vendors for the purchase of materials and services—Chapter 3.
Accounts receivables accounting: The financial accounting processes which records
and manages money owed by customers for goods and services sold to them—Chapter 3.
Application layer: The component of the three-tier architecture that contains the
applications that execute user requests and transactions—Chapter 2.
Application platforms: A type of “enterprise operating system” for a company’s
enterprise systems landscape which facilitates communication between systems—Chapter
2.
Application suite: The combined collection of inter-company process-based applications
and intra-company process-based systems—Chapter 2.
Architecture: The technical structure of the software or the ways that users interact
with the software and the ways the software is physically managed on computer
hardware—Chapter 2.
Assemble-to-order (ATO): Components (raw materials and semifinished goods)
needed to make the finished good are procured or produced to stock and the production
of finished goods is triggered by a sales order—Chapter 8.
Asset accounting: Used to record data related to the purchase, use, and disposal of
assets such as buildings, equipment, machinery, and automobiles—Chapter 3.
Asset class: A grouping of assets that possess similar characteristics. For example, all
computing equipment such as computers, printers, and monitors can be included in one
asset class—Chapter 3.
Asset explorer: Provides an overview of all the activities related to the asset, including
acquisition data, planned and posted depreciation for different depreciation areas, and
comparisons of data across multiple years—Chapter 3.
Asset management process: The set of tasks or activities that are concerned with
preventive and corrective maintenance of internal company assets such as machinery—
Chapter 1.
Assets: What the company owns, such as cash, inventory of materials, land, buildings,
and money owed to the company by its customers (receivables)—Chapter 3.
Availability Check group: Data in the material master which defines the strategy the
system uses to determine whether a quantity of material will be available on a specific
date—Chapter 8.
Availability check: A procedure to determine whether the required materials are
available or will be available when needed—in time for the desired delivery date
(fulfillment) or for use in production—Chapter 5, Chapter 6.
Back-flushing: A technique that automatically records the goods issue when the
production order is confirmed—Chapter 6.
Backward scheduling: A procedure used in fulfillment to determine when necessary
tasks (e.g, material staging, transportation planning, loading, and goods issue) needed to
fill a customer order must occur. The procedure begins with the required delivery date
and then works in reverse order to determine when each process step must be performed
—Chapter 5.
Balance sheet: A financial statement that presents a snapshot of the organization at a
point in time. It identifies assets, liabilities, and equity—Chapter 3.
Bank ledger accounting: Concerned with recording data associated with bank
transactions—Chapter 3.
Bill of materials (BOM): Identifies the components that are necessary to produce a
material; can include both raw materials and semifinished materials—Chapter 6.
Bill-to party: A required partner function in the customer master that identifies the
entity that will receive the invoice for a customer order—Chapter 5.
Blocked stock: A classification of materials (stock type) which indicates that the
materials are damaged or unusable for some reason, such as the when the vendor
delivers the wrong materials—Chapter 4.
BOM selection method: Identifies the criteria the system should use to select the BOM
when more than one BOM is defined for a material—Chapter 8.
Business areas: An internal divisions of an enterprise that is used to separate areas of
responsibility or to meet the external reporting requirements—Chapter 3.
Business intelligence: A general term that refers to the overall capabilities a company
uses to collect and analyze data from a variety of sources to better understand its
operations and make better managerial decisions—Chapter 2.
Business process: A set of tasks or activities that produce desired outcomes—Chapter
1.
Characteristics: One of three parameters used to define information structures,
characteristics identify the objects for which data are collected for reporting purposes.
These objects are typically organizational data such as plant and sales organization and
master data such as materials, vendors, and customers—Chapter 2.
Chart of accounts (COA): An ordered listing of accounts that comprise a company’s
general ledger—Chapter 3.
Client: The highest organizational level in SAP ERP. It represents an enterprise consisting
of many companies or subsidiaries—Chapter 2.
Company code-to-company code transfer: A movement of materials between two
plants in different company codes—Chapter 7.
Company code: Represents a separate legal entity and is the central organizational
element in financial accounting. That is, financial statements required for legal reporting
purposes are maintained at the company code level—Chapter 2.
Company-level purchasing: A model of a purchasing organization where a single
purchasing organization is responsible for multiple plants in one company code—Chapter
4.
Component assignment: A technique that assigns components in a BOM either to a
routing or to a specific operation within the routing—Chapter 6.
Condition types: Pricing elements that are used to determine the net price for a
material. Examples include gross price, discounts, taxes, surcharges, and taxes—Chapter
4.
Confirmation: The recording of the completion of an operation that indicates how much
work was completed, where it was completed (work center), and who completed it—
Chapter 6.
Consignment: An item category in procurement which indicates that the materials
purchased from a vendor will be paid for only when the materials are used or sold—
Chapter 4.
Consumable materials: Materials that are acquired to be consumed by or used within
the organization such as office supplies—Chapter 4.
Consumption-based planning: Calculates the requirements for a material based on
historical consumption data—Chapter 8.
Contracts: A type of outline agreement where a customers agrees to purchase materials
of a certain value over a certain time period subject to specific terms such as prices,
payment, and shipping—Chapter 4, Chapter 5.
Controlling: The tracking of costs and revenues for internal reporting that is intended to
help management control costs and revenues and assess the profitability of various
products and market segments—Chapter 1.
Cost center: A collector of costs that are incurred when companies execute process
steps. Examples include departments, locations (e.g, plant), and individuals—Chapter 3.
Cost objects: Collectors of costs that are incurred when companies execute process
steps. Examples include cost centers, customer orders, purchase orders, and production
orders—Chapter 3.
Credit control area: An organizational level that is responsible for customer credit.
Specifically, it determines customers’ creditworthiness, establishes credit limits, and
monitors and manages the actual extension of credit to customers—Chapter 5.
Credit management master record: An extension of the customer master record that
includes data relevant to managing credit for that customer—Chapter 5.
Customer independent requirements (CIR): Actual customer orders that create a
requirement in the ERP system that is relevant for material planning—Chapter 8.
Customer Inquiry: Request for information regarding a potential order that the
customer might place with the company—Chapter 5.
Customer master data: Data that are needed to conduct business with customers and
to execute transactions that are specifically related to the fulfillment process—Chapter 5.
Customer relationship management (CRM): An enterprise system that is concerned
with connecting a company’s ERP system to those of its customers, and provides
companies with capabilities to manage marketing, sales, and customer service—Chapter
2.
Customer service process: The set of tasks or activities that are concerned with
providing after-sales customer service such as repairs—Chapter 1.
Customer-material information record: A record comprised of master data specific to
one customer and one material—Chapter 5.
Data layer: The component of the three-tier architecture where the application stores
your work (on your hard drive or flash drive)—Chapter 2.
Delivery document (inbound): Also known as a packing list, it accompanies the
shipment received from a vendor and identifies the materials included in the shipment
and the purchase order number—Chapter 4.
Delivery document (outbound): Document created to authorize the delivery of
customer orders that are ready to be shipped—Chapter 5.
Delivery tolerances: Specify how much over delivery and under delivery the ordering
party will accept—Chapter 4.
Demand management: A step in the material planning process which translates
disaggregated plans from sales and operations planning into requirements for individual
materials taking into account customer requirements and the planning strategy specified
in the material master—Chapter 8.
Dependent requirement: Refers to the source of the requirement for a material. A
material is said to have dependent requirement when its requirement is dependent on
the requirement for another material—Chapter 8.
Depreciation areas: The various ways that depreciation is calculated for an asset—
Chapter 3.
Depreciation: Decrease in value of an asset over time due to wear and tear—Chapter 3.
Disaggregation: The process of translating the production plan at the product group
level from sales and operations planning into planned independent requirements for the
individual materials in the product group hierarchy—Chapter 8.
Distribution chain: An organizational level which is a unique combination of a sales
organization and distribution channel. Some master data are maintained at this
organizational level—Chapter 5.
Distribution channel: The means by which a company delivers its goods and services
to its customers. Common distribution channels are wholesale and retail—Chapter 5.
Division: A grouping of materials and services with similar characteristics—Chapter 5.
Enterprise resource planning (ERP) system: The world’s largest and most complex
enterprise system. ERP systems focus primarily on intra-company processes—that is, the
operations that are performed within an organization—and they integrate functional and
cross-functional business processes—Chapter 2.
Enterprise systems (ES): Systems that support end-to-end processes and are essential
to the efficient and effective execution and management of business process—Chapter 1.
Enterprise-level purchasing organization: A model of a purchasing organization
where one purchasing organization manages purchasing for all the plants within the
enterprise; also called cross-company code purchasing organization—Chapter 4.
Equity: The owner’s share of the company’s assets displayed on a balance sheet—
Chapter 3.
Exception messages: Messages that the MRP procedure displays when it encounters a
problem, such as with scheduling, that it cannot resolve automatically. These messages
are reviewed and acted on by the MRP controller—Chapter 8.
Expenses: Costs associated with creating and selling products and services that are
included in the income statement—Chapter 3.
Financial accounting (FI) data: Data in customer, vendor, material, and other master
data that are relevant to financial accounting and are defined for specific company codes.
Examples include relevant general ledger account numbers, valuation currency, valuation
class, and price control—Chapter 4.
Financial accounting (FI) documents: An electronic record of the financial accounting
impact, that is, the impact on the company’s general ledger, resulting from the execution
of a business process step—Chapter 2, Chapter 3.
Financial accounting (FI) processes: Processes that track the financial accounting
impact of process steps with the goal of meeting external legal and regulatory reporting
requirements—Chapter 1.
Financial statement version: A hierarchical grouping of general ledger accounts that
are included in financial statements—Chapter 3.
Finished goods: Materials that are created by the production process from other
materials, such as raw materials and semifinished goods that are then sold to customers
—Chapter 2.
Flexible analysis: Reporting capabilities based on data in user-defined information
structures—Chapter 2.
Fulfillment process: The set of tasks or activities that are concerned with selling and
delivering the products to the organization’s customers—Chapter 1.
Functional structure: The blueprint of departments within an organization, each of
which is responsible for a set of closely related activities—Chapter 1.
General data: Data in customer, vendor, material, and other master data that are
relevant to all processes and organizational levels. Examples includes the material
number and description, and customer or vender name, address, and communication
information such as phone and fax numbers—Chapter 4, Chapter 5.
General ledger (GL): A collection of accounts that are used to record the financial
impacts of business process steps; it contains much of the data needed for financial
reporting—Chapter 3.
Global Bike Incorporated (GBI): A fictional company created to illustrate the
concepts, techniques, and principles discussed in this book. GBI’s operations have been
greatly simplified to make its business processes and its SAP ERP system easier to work
with—Chapter 1.
Goods issue: One of four goods movements. A goods issue occurs when materials are
removed from storage, in which case inventory is reduced. A company typically generates
a goods issue when it (a) ships materials to a customer, (b) uses them for internal
consumption (e.g., to produce another material), or (c) designates them for sampling or
to scrap—Chapter 4, Chapter 6.
Goods movement: A process step that results in a change in stock quantity or status.
The four goods movements are goods receipt, goods issue, stock transfer, and transfer
posting—Chapter 4.
Goods receipt document: A document that records relevant data associated with the
receipt of material into inventory. Examples of data include material and quantities
received, location, and data and time—Chapter 4, Chapter 6.
Goods receipt processing time: The time it takes to unpack the boxes, count the
materials, inspect their quality, and physically move them to the appropriate storage
location—Chapter 4.
Goods receipt: One of four goods movements. A goods receipt records the receipt of
materials into storage, which results in an increase in inventory quantity—Chapter 4,
Chapter 6.
Human capital management (HCM): A collection of processes that focus on the
people within the organization. Examples include recruiting, hiring, training, and benefits
management—Chapter 1.
In quality inspection: A classification of materials (stock type) that indicates that the
materials must undergo inspection before being released for consumption—Chapter 4.
Income statement: A financial statement that summarizes the changes in a company’s
financial position over a period of time—Chapter 3.
Independent requirements: Refers to the source of the requirement for a material. A
material is said to have independent requirements when its requirement is not dependent
on any other material. Rather, it is based on external factors such as customer demand—
Chapter 8.
Information structures: Part of an ERP system’s information systems component,
information structures capture and store specified transaction data in an aggregated and
summarized form that enables users to analyze the data as needed. Information
structures can be standard (pre-defined) or flexible (user defined)—Chapter 2.
Interim storage areas: Designated spaces in a warehouse where materials are placed
in specially designated storage types that serve as a temporary holding area until
warehouse management steps are completed—Chapter 7.
Inventory management: The set of tasks or activities that are concerned with with the
movement of material in and out of storage locations in plants—Chapter 7.
Invoice verification: A step in the procurement process that involves a three-way
match between the purchase order, the goods receipt or delivery document, and the
invoice—Chapter 4.
Item category (BOM): Identifies the type of material included in the bill of material
and influences how the material will be used. Common item categories in a BOM are
stock item, non-stock item, variable-size item, text item, document item, class item, and
intra material—Chapter 6.
Item category (fulfillment): Part of the data in the line items of a sales order, item
categories determine how the item is handled with regard to pricing, billing, and shipping.
Examples include standard item, text item, and free-of-charge item—Chapter 5.
Item category (procurement): Part of the data in the line items of a purchase order,
item categories determine which process steps and data are needed when a company
purchases materials or services. Common item categories are standard, consignment,
subcontracting, third-party, stock transfer, and services—Chapter 4.
Key Figures: One of three parameters used to define information structures, key figures
are performance measures, such as quantities and counts that are associated with the
characteristics—Chapter 2.
Liabilities: What the company owes to others, including money owed to vendors
(payables) and loans from financial institutions—Chapter 3.
Lifecycle data management process: The set of tasks or activities that are concerned
with product design and improvement throughout the lifecycle of a product—Chapter 1.
Lot size key: Data in the material master that specifies the procedure which will be used
to determine the lot size when procurement proposals are generated—Chapter 8.
Lot size: The quantity of material that is specified in the procurement proposals
generated by the material planning process—Chapter 8.
Make-to-order (MTO): A production strategy where production of the finished goods
and any needed semifinished goods is triggered by a sales order; also called sales-order-
based production—Chapter 6, Chapter 8.
Make-to-stock (MTS): A production strategy where production of the finished goods
and any needed semi-finished goods is triggered by the need to increase inventory—
Chapter 6, Chapter 8.
Management accounting or controlling (CO) documents: Documents that record
the management accounting impact of business process steps—Chapter 2.
Management accounting: See Controlling—Chapter 1.
Master data: Represent entities associated with various processes, such as materials,
vendors, and customers—Chapter 2.
Master production scheduling (MPS): A specialized form of MRP that organizations
use to plan for highly profitable materials or for materials that use critical resources—
Chapter 8.
Material documents: An electronic record of material movements (good receipt, goods
issue, stock transfer, or transfer posting) which shows the location (plant and storage
location), material, quantity, and movement type associated with the movement.—
Chapter 2, Chapter 4.
Material group: A grouping of materials with similar characteristics so that they can be
planned collectively—Chapter 2.
Material planning process: The set of tasks or activities that are concerned when and
how many materials will be procured or produced—Chapter 1.
Material types: A grouping of materials based on how they are used in a firm’s
operations. It determines what data must be maintained in the material master and
which processes are permitted to use the material—Chapter 2.
Material: A term that encompasses all the products, components, parts, and so on that
an organization uses—makes, buys, stores, sells, etc.—Chapter 1.
Movement types: Determines which goods movement is being executed (e.g., goods
receipt or goods issue), what information must be provided when executing the
movement (e.g., storage location), and which general ledger accounts will be updated
(e.g., finished goods inventory)—Chapter 4.
MRP elements: Activities in the various business processes in an ERP system such as
purchase requisitions, sales orders, goods issues, and production orders that affect
material availability—Chapter 8.
MRP list: Similar to the stock/ requirements list, an MRP list displays static data as of the
time the MRP step was executed—Chapter 8.
MRP type: Specifies the production control technique used in planning when using MRP.
Examples include consumption-based planning, materials requirement planning (MRP),
and master production scheduling (MPS)—Chapter 8.
Net change planning (NETCH): One of the control parameters in the MRP step that
determines how the materials in the planning file are processed. In net change planning
only the materials for which there has been an MRP-relevant change are planned—
Chapter 8.
Net change planning in the planning horizon (NETPL): One of the control
parameters in the MRP step that determines how the materials in the planning file are
processed. Net change planning in the planning horizon plans only those materials for
which there has been an MRP-relevant change within a specified period of time called the
planning horizon—Chapter 8.
Online analytic processing (OLAP): A processing environment that provides reporting
in the form of analytics via information systems through the use of characteristics, key
figures, and period definition—Chapter 2.
Online lists: Lists of master data—such as materials, vendors, and purchasing info
records—and documents—such as transactions, FI, CO, and material documents—that are
generated during the execution of a process—Chapter 2.
Online transaction processing (OLTP): A processing environment that supports the
execution of process steps quickly and efficiently and captures and stores the resulting
detailed transaction data—Chapter 2.
Operations: A value-added activity needed to produce a material—such as drilling or
painting—Chapter 6.
Organizational data: Represent the structure of an enterprise in an ERP system.
Examples include client, company code, plant, sales organization, and purchasing
organization—Chapter 2.
Outline agreements: Binding agreements between an customers and vendors to
purchase specific quantities or values of materials. Types of outline agreements include
contracts and scheduling agreements—Chapter 5.
Outline purchase agreements: Agreements between an organization and its vendor
regarding the purchase of a specific quantity or value of materials or services within a
specified period according to predefined terms and conditions—Chapter 4, Chapter 5.
Output conditions: Rules that determine how communication between an organization
and its customers and vendors is facilitated. The rules determine the transmission time
(when), the output medium (how), the various output types (what), are communicated to
the recipient (who)—Chapter 4, Chapter 5.
Packing list: See delivery document (inbound)—Chapter 4.
Parallel accounting: The implementation of multiple ledgers in parallel, so that each
ledger can be used for different purposes—Chapter 3.
Partner functions: The various roles of customers in the fulfillment process. Examples
include sold-to party, ship-to party, bill-to party, and payer—Chapter 5.
Payer: A required partner function in the customer master that identifies the entity that
will pay the invoice—Chapter 5.
Period definition: One of three parameters used to define information structures. It is
the time period for which data are collected and aggregrated—Chapter 2.
Planned independent requirements (PIR): Independent requirements that are
calculated or estimated based on actual and forecasted sales—Chapter 8.
Planned order: A document representing a formal request for production that indicates
what materials are needed, how many units are needed, and when they are needed—
Chapter 6.
Planning result report: A report similar to the stock/requirements list but with
quantities for MRP elements aggregated—Chapter 8.
Planning time fence: Data in a material master that specifies the period of time during
which the ERP system is not allowed to automatically change procurement proposals—
Chapter 8.
Plant-level purchasing organization: A model of a purchasing organization where
each plant has its own purchasing organization—Chapter 4.
Plant-to-plant transfer: A movement of materials between two plants within the same
company code—Chapter 7.
Plant: An organizational element that performs multiple functions and is relevant to
several processes. It is a facility where products or services are created, materials are
stored, production planning is carried out, and service or maintenance is performed—
Chapter 2.
Post goods issue: A step in the fulfillment process that indicates that materials have
been shipped out of the plant—Chapter 5.
Posting change notice: A request to change the status of the material in the
warehouse, for example, from in quality inspection to unrestricted use—Chapter 7.
Presentation layer: The component of the three-tier architecture that allows users to
interact with an application through the use of typing, menus, and selecting—Chapter 2.
Price control: Data in the material master that identifies the method that is used to
value the materials. The two options for price control are moving average price and
standard price—Chapter 4.
Pricing conditions: Master data that companies use to determine the net price of
products. Examples of conditions include gross price, discounts, surcharges, and freight—
Chapter 4, Chapter 5.
Processing key: One of these control parametersthat determines determines how the
materials in the planning file are processed. Three common options are regenerative
planning, net change planning, and net change planning in the planning period—Chapter
8.
Procurement process: The set of tasks or activities that are concerned with acquiring
needed materials externally from a vendor to attain an inventory level satisfactory for
production and fulfillment processes—Chapter 1.
Procurement type: Data in the material master which indicates whether a material is
produced in-house (via the production process), obtained externally (via the procurement
process), either, or neither—Chapter 8.
Product group: A grouping of products with similar planning characteristics, such as
similar types or similar manufacturing processes—Chapter 8.
Product lifecycle management (PLM): An enterprise system that is concerned with
research, design, and product management. In effect, PLM systems help companies take
new product ideas from the virtual drawing board all the way to the manufacturing facility
—Chapter 2.
Product routing: A list of operations or tasks needed to produce a material, as well as
the sequence in which those operations must be completed—Chapter 6.
Production capacity: A measure of how many units of a material a plant can produce
within a given timeframe—Chapter 6.
Production order: A document created when production is authorized. It represents an
actual commitment to produce a specific quantity of materials by a certain date—Chapter
6.
Production process: A set of tasks and activities that are concerned with acquiring
needed materials internally by converting raw materials into semifinished goods and raw
materials and semifinished goods into finished goods—Chapter 1.
Production resource tools: Movable resources that are shared among different work
centers—examples consist of calibration or measurement instruments, jigs and fixtures,
and documents such as engineering drawings—Chapter 6.
Profit and loss statement: See income statement—Chapter 3.
Project management processes: A set of tasks and activities that are concerned with
planning and executing large projects such as the construction of a new factory or the
production of complex products such as airplanes—Chapter 1.
Purchase order: A formal communication to a vendor that represents a commitment to
purchase the indicated materials under the stated terms—Chapter 4.
Purchasing data (material master): Data in the material master relevant to how the
materials are purchased. Examples include the purchasing group, goods receipt
processing time, and delivery tolerances Chapter 4.
Purchasing data (vendor master): Data in the vendor master which specify how
materials are purchased from the vendor. Examples includes data needed to determining
prices, create and communicate purchase orders, verify invoices—Chapter 4.
Purchasing group: An individual or a group of individuals who are responsible for
purchasing activities for a material or a group of materials—Chapter 4.
Purchasing info record: An intersection or a combination of material and vendor
master data that contains data specific to one vendor and one material or material group
—Chapter 4.
Purchasing organization: An organizational unit within an enterprise that performs
strategic activities related to purchasing for one or more plants—Chapter 4.
Quotation: A response to a customer inquiry regarding the ability to sell materials under
specific terms and conditions—Chapter 5.
Raw materials: Materials that are purchased from an external source—a vendor—and
used in the production process; usually not sold to end customers—Chapter 2.
Reconciliation accounts: General ledger accounts that consolidate data from a group
of related sub-ledger accounts, such as customers and vendors—Chapter 3.
Regenerative planning (NEUPL): One of the control parameters in the MRP step that
determines how the materials in the planning file are processed. Regenerative planning
plans all MRP-relevant materials. All data from previous planning runs are discarded, and
new data are generated—Chapter 8.
Reporting: A general term used to describe the ways that users can view and analyze
both transaction and historical data to help them make decisions and complete their tasks
—Chapter 2.
Revenues: The money that a company earns by selling its products and/or services—
Chapter 3.
Safety stock: Data in the material master which specifies the minimum desired level of
inventory that must be maintained—Chapter 8.
Sales and operations planning: A step in the material planning process that uses a
sales forecast, and inventory requirements, to generate an operations plan—Chapter 8.
Sales area data: One of the three segments of the customer master that is specific to a
particular sales area. Sales area data relate to shipping, billing, and partner functions—
Chapter 5.
Sales area: A unique combination of sales organization, distribution channel, and
division—Chapter 5.
Sales order: An internal document used to manage and track the order as it flows
through the process—Chapter 5.
Sales organization data: Data in the material master that is relevant to the fulfillment
process and is specific to a sales organization. Examples include delivering plant, sales
units, and minimum quantities—Chapter 5.
Sales organization: An organizational unit responsible for the sale and distribution of
goods and services for a particular geographical area, such as a regional or national
market—Chapter 5.
Sales plant data: Data in the material master that is relevant to the fulfillment process
which provides details on how the material will be shipped from that plant—Chapter 5.
Schedule lines: Detailed data associated with line items in a sales order that specify
delivery quantities and dates for that line item—Chapter 5.
Scheduling agreement: A type of outline agreement where a customers agrees to
purchase a specific quantity of materials over a certain time period subject to specific
terms such as prices, payment, and shipping—Chapter 4, Chapter 5.
Segment: A division of an enterprise for which management monitors performance
(revenue, costs, profitability, etc.) separately—Chapter 3.
Semifinished goods: Materials that are typically produced in-house from other
materials (e.g., raw materials) and are used in the production of finished goods—Chapter
2.
Service-oriented architecture (SOA): The technical architecture of an enterprise
system that allow systems to connect with one another through standardized interfaces
called Web services—Chapter 2.
Services: An item category in procurement which indicates that services, rather than
materials are being purchased—Chapter 4.
Ship-to party: A required partner function in the customer master that identifies the
entity that actually receives the shipment—Chapter 5.
Shipping point: A location in a plant from which outbound deliveries are shipped. It can
be a physical location, such as a loading dock, a rail depot, or a mail room. It can also be
a designated group of employees—Chapter 5.
Silo effect: A tendency where workers complete their tasks in their functional “silos”
without regard to the consequences for the other components in the process—Chapter 1.
Sold-to party: A required partner function in the customer master that identifies that
entity that placed the order—Chapter 5.
Source list: A collection of vendors that can become potential suppliers for a company’s
supply chain—Chapter 4.
Standard analysis: Reporting capabilities based on predefined analytics for data in
standard information structures—Chapter 2.
Standard information structures: Predefined information structures in the system that
collect the data needed to generate the most commonly used reports—Chapter 2.
Statement of cash flow: A financial statement that displays all the cash receipts and
payments over a specified period of time—Chapter 3.
Stock in transit: A classification of materials (stock type) that indicates that the
materials are in the process of being moved from one plant to another—Chapter 4.
Stock materials: Materials that are stored in inventory until needed for production or for
subsequent sales to customers—Chapter 4.
Stock status: See stock type—Chapter 4.
Stock transfer (goods movement): One of four goods movements. A stock transfer
occurs when materials are moved from one plant to another within the same organization
—Chapter 4.
Stock transfer (item category): An item category in procurement which indicates that
the materials are being acquired from another plant within the same organization.
Stock transport order: An alternative to a purchase order in the purchasing process
that it is used to procure materials from another plant within the organization rather than
an external vendor—Chapter 7.
Stock types: A classification of materials that determines how the company can use the
materials in its various processes. Common stock types are unrestricted use, in quality
inspection, blocked stock, and stock in transit—Chapter 4.
Stock/requirements list: A reporting tool in material planning that displays all of the
activities (i.e., MRP elements) that can potentially impact material inventory as well as
additional information relevant to planning—Chapter 6, Chapter 8.
Storage bins: Areas in a warehouse in which the materials are actually stored—Chapter
7.
Storage location-to-storage transfer: A stock transfer between two storage locations
within the same plant—Chapter 7.
Storage locations: Locations within a plant where materials are kept until they are
needed—Chapter 4.
Storage type: A division of a warehouse based on the characteristics of the space,
materials, or activity—Chapter 7.
Strategy group: Data in the material master which specifies the high-level planning
strategy used in production. Examples include make-to-stock, make-to-order, and
assemble-to-order—Chapter 8.
Sub-ledgers: See subsidiary ledger—Chapter 3.
Subcontracting: An item category in procurement which indicates that the materials
will be sent to a vendor, who will use them to create semifinished goods and send them
back to the company—Chapter 4.
Subsidiary ledgers: Ledgers that are not part of the general ledger that are used to
track individual customer receivables, vendor payables, and asset information. These
data are summarized in the general ledger using special accounts known as reconciliation
accounts—Chapter 3.
Supplier relationship management (SRM): An enterprise system that is concerned
with managing the quotation and contracts processes with suppliers—Chapter 2.
Supply chain management (SCM): An enterprise system that is concerned with
connecting a company to other companies that supply the materials it needs to make its
products. This in return helps plan for a company’s production requirements—Chapter 2.
Task list: A list of operations that are required to accomplish a task—Chapter 6.
Third-party order: An item category in procurement which indicates that the materials
orders are to be shipped directly to a cutomer—Chapter 4.
Three-tier client-server architecture: An application architecture which separates
applications into three separate layers—presentation layer, application layer, and data
layer—Chapter 2.
Three-way match: A method of invoice verification that occurs by comparing the
purchase order, goods receipt, and invoice to ensure that the quantities and price in all
three documents are consistent—Chapter 4.
Trading goods: Materials that are purchased and then sold to customers without any
further processing of the material—Chapter 2.
Transaction data: Data that are generated as a result of executing a business process
steps—Chapter 2.
Transaction documents: An electronic record of the data generated as a result of
executing a business process step—Chapter 2.
Transfer of requirements: The transfer of data from the sales order to the material
planning process to plan the procurement and production of materials—Chapter 5.
Transfer order: A document that companies use to execute the movement of materials
into and out of bins in a warehouse—Chapter 7.
Transfer posting: One of four goods movements. A transfer posting is used to redefine
a material from one stock type (status) to another or to change the material type of a
material—Chapter 4.
Transfer requirement (TR): A document that companies use to plan the movement of
materials into and out of bins in a warehouse—Chapter 7.
Unrestricted use: A classification of materials (stock type) that indicates that the
materials can be used in any manner that management feels will benefit the enterprise—
Chapter 4.
User-defined information structures: Information structures in the system that
collect the data needed to generate custom reports. User-defined information structures
are created by combining available characteristics and key figures to create new key
figures using user-specified formulae—Chapter 2.
Valuation class: Data in the material master which identifies the general ledger
accounts associated with a material—Chapter 4.
Valuation currency: Data in the material master which identifies the currency that the
materials will be priced in, such as U.S. dollars or Euros—Chapter 4.
Vendor master data: Data that are needed to conduct business with a vendor and to
execute transactions related to the purchasing process—Chapter 4.
Warehouse management process: A set of tasks or activities that are concerned with
the efficient storage and removal of materials from storage bins and allow more granular
movement of materials than inventory management—Chapter 1.
Warehouse picking area: A division of a storage area based on removing or picking
materials. A picking area groups storage bins based on similar picking strategies—Chapter
7.
Work center: A location in a plant where value-added work, such as drilling, assembly,
and painting, needed to produce a material is carried out—Chapter 6.
Work lists: Identify tasks that are scheduled to be completed in a process—Chapter 2.
Work-in-process (WIP): Materials currently being used in production are considered
WIP inventory and must be properly accounted for in the general ledger—Chapter 6.

This eBook is licensed to Andres Roa, roa.efrain@ur.edu.co