What is SAP

An SAP Newbie?... and Wondering "What is SAP?"... In this article, I have tried to demystify the area and the jargon around for beginners. At the same time, SAP professionals too may find some information helpful in broadening their understanding.

SAP stands for

SAP AG is the German enterprise software company providing business solutions for almost four decades. SAP stands for "Systems, Applications, and Products (in data processing)." This name is based on the original German name "Systeme, Anwendungen und Produkte (in der Datenverarbeitung)."

When you encounter the world of SAP, you hear a lot of jargon like SAP ERP, ECC, SAP Business Suite, etc. These relate to the SAP product offerings. During my initial years in SAP career, I remained pretty confused about all this terminology. But you don’t need to be and from your first day into exploring SAP, you can demystify these terms. (When you need to, visit SAP Definition of terms and its various offerings for the jargon involved.)

The Essence of ERP and SAP for A Newbie

Why the enterprises go for ERP software systems? How does SAP help them to run their business better? I have tried to cover the answers to these questions in brief later in this article but I have discussed them at length in one of my articles SAP For Dummies. You will get the essence of the ERP concept and SAP ERP system.

About the Company

SAP AG is the world’s leading provider of business software solutions and the world’s third largest independent software manufacturer market capitalization-wise. The company was founded in year 1972 and is headquartered in Walldorf, Germany.

SAP provides business solutions to companies of all sizes and lines of businesses. More than 176,000 customers in over 120 countries use its products and services. SAP has more than 54000 employees and presence in more than 50 countries worldwide. SAP acquired Sybase in 2010 to accelerate the reach of SAP Solutions and operates it as an independent business unit.

SAP had a revenue of Euro 12.5 (12,464 millions) billion for the year 2010.

The journey of SAP starting with a single financial accounting system in year 1973 to a complete ERP solution of today running on Netweaver platform makes an interesting story which is still evolving.

You can go through a brief History of SAP. Also read the interesting information on the acquisitions SAP has made in the past few years to position itself strategically on different fronts.

From SAP ERP To Business Suite

Once a company implements SAP software, it has its business processes online available to its users across departments. For example, the executive in the Material Management department who is responsible for taking action for materials in shortage, can raise the purchase requisition after running MRP (Material Requirements Planning) in the SAP system. MRP run calculates the material availability or shortfall on the basis of present requirements.

The authorized executive in the Purchase department views this purchase requisition and raises purchase order. The supplier supplies the material to the company. Quality checks, invoice, etc. are entered into the system by authorized users responsible for those functions. Finally the payment is made to the supplier. Entries are made to respective accounts automatically.

This series of activities form an end-to-end process called "Procure to Pay" and SAP MM (Materials Management) module addresses this business process. It is one example of end-to-end processes in a business enterprise. Other examples are Order-to-Cash, Plan-to-Produce, etc.

The following figure captures some of the business functions SAP ERP software streamlines:

The persons responsible in the respective departments carry out their business transactions and store business data. This data (information) is available across organizational boundaries to all SAP users.

SAP Business Suite takes a leap further. As you saw, SAP ERP is about back-end operations of a company - employees running operations inside. But what about the business operations extending beyond the companies boundaries like customer relations management(CRM), supplier relations management(SRM), e-commerce, etc. You can call them front-end operations.

Visit Introduction to SAP Business Suite to see how almost all the business processes involved in any business organization are available in the SAP family of solutions!.

The improved visibility across the organization helps businesses in better and faster decision-making. This results in saving in terms of time and money. The business processes are well-defined and this lends them to further investigation. Investigation leads to innovative ideas. Innovation leads to improvement of business processes. Improved business processes convert to increased business results and the enterprise is able to realize the returns on its investments.

Technological Evolution of SAP

SAP was founded in 1972. In 1973, SAP launched its financial accounting software product. They focused on Real-time data processing from where in the coming few years SAP named it - R/1 where R stands for real-time and the number 1 referred to single layer of software - database, application software and presentation running on a single system.

The database layer is responsible for storing and retrieving the information. The application software layer has the SAP applications running for carrying out business operations. Even the programs running in the application software layer are stored in the database and when the SAP system is started first time, it loads from the database. The presentation layer offers the user interface capabilities and allows the users to work with the SAP system.

The division into the three layers from software oriented point of view does not mean that they are completely separate software components. There is overlapping among them.

At that time, computer industry was in its infancy stage and only the big companies had mainframe computers. R/1 and R/2 belong to the mainframe era in the evolution of computers.

SAP gradually expanded to include other business functions like MRP, Inventory Management, etc. With the advent of personal computers (PCs), SAP R/3 came on the scene and received huge response. With SAP R3, it was possible to implement three layers of software i.e database, application and presentation on different computer systems. It helped in attaining great system performance.

The picture below depicts the evolution of SAP ERP software through path-breaking developments since its inception:

Since then SAP has grown so complex so as to include almost all business needs of an enterprise. You can see mySAP ERP in picture above, which extends beyond SAP R/3 in capabilities. mySAP ERP in 2004 is now SAP ECC (ERP Central Component) and is one enterprise solution out of the Business Suite.

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