istanbul kÜltÜr university faculty of eng i neer i ng a nd arch i tecture
DESCRIPTION
Lecture Notes. ISTANBUL KÜLTÜR UNIVERSITY Faculty Of Eng i neer i ng a nd Arch i tecture Industr i al Eng i ne e r i ng Department. ENTERPRISE RESOURCE PLANNING. Contents. Section 1 : E RP - Business with ERP Section 2 : Marketing and Sales - PowerPoint PPT PresentationTRANSCRIPT
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ISTANBUL KÜLTÜR UNIVERSITY
Faculty Of Engineering and ArchitectureIndustrial Engineering Department
ENTERPRISE RESOURCE PLANNING
Lecture Notes
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Spring 2006 2
Contents
• Section 1 : ERP - Business with ERP • Section 2 : Marketing and Sales • Section 3 : Production and Materials Management• Section 4 : Accounting and Finance• Section 5 : Introduction to SAP R/3 (the ERP software)
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Spring 2006 3
SECTION 1
Enterprise Resource Planning- Business with ERP
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Spring 2006 4
Business in the Digital AgeBusiness in the Digital Age
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Spring 2006 5
The Business Application Architecture
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Spring 2006 6
Companies in e-CompetitionCompanies in e-Competition
Industrial Age Information Age
A New Business A New Business ModelModel
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Spring 2006 7
Business with ERP
• Businesses exist to make a profit• Businesses strive to provide goods and
services faster and cheaper than competition
• More efficient ways of accessing and sharing information will increase customer service and therefore profits
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Spring 2006 8
What is ERP offering?• ERP is business process infrastructure
– ERP is a software mirror image of the major business processes of a firm, such as customer order fulfillment and manufacturing.
– ERP software automates and integrates the basic processes of a firm, from finance to the shop floor, and eliminate complex, expensive links between computer systems that were never meant to talk to each other.
– provide interorganizational & intraorganizational collaboration & information sharing
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• ERP Business Technology architecture•Business Process Workflow Management
•Functional Information Management–Marketing, Operations, HRM, etc.
•Decision Support Models and Tools•Data Management
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Spring 2006 10
• ERP Functional Architecture– Information Systems Modules
•Human Resources Management•Manufacturing Management•Financial Management•Accounting •Marketing Management•Workflow Management
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Spring 2006 11
Motivation for Implementing ERP
Achieving and maintaining competitive advantage requires better information management:– Information Quality– Information Reliability– Information Access– Information Sharing
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Spring 2006 12
• Firms View ERP As a System:– to provide better information
management– to transform the competitive space– to transform relationships between
•their customers•their suppliers•their competitors
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Spring 2006 13
• Several factors led to development of ERP:
– speed and power of hardware increased, cost and size decreased
– client/server architecture– sophisticated software development– growth of business size, complexity, and
competition– Manage company-wide business operations– Uses a common database and shared
management reporting tools
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Spring 2006 14
Business Processes
• Managers now think in terms of business process
• Take the customer’s perspective
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Spring 2006 15
Logistics in business, the organized movement of materials and, sometimes, people. The term was first associated with the military but gradually spread to cover business activities.Separate activities or functions, all of which fall under a business firm's logistics “umbrella,” include customer service, demand forecasting, documentation flow, interplant movements, inventory management, order processing, packaging, parts and service support, plant and warehouse site selection, production scheduling, purchasing, returned products, salvage… Logistics in military science, all the activities of armed-force units in roles supporting combat units, including transport, supply, signal communication, medical aid, and the like.Components of Logistics It is useful to distinguish four basic elements or functions of logistics: supply, transportation, facilities, and services. (A fifth, management or administration, is common to all organized human activity.) All involve the provision of needed commodities or assistance to enable armed forces to live, move, communicate, and fight.
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For this, company needs to• Make sure functional areas are integrated• Ensure information on customer
configuration is up-to-date• Ensure manufacturing has configuration
info. from sales• Ensure that, if financing is required,
information from sales is available in accounting
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Spring 2006 17
Functional areas of operation
• Marketing and Sales• Production and Materials Management• Accounting and Finance• Human Resources
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Spring 2006 18
Functional Area Information Systems
• Potential inputs and outputs for each functional area
• Different kinds of data and usage of data
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Spring 2006 19
Marketing and Sales
• Determine pricing• Take customer
orders• Create sales
forecast• Do market research• Promote products
and/or services
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Spring 2006 20
Production and Materials Management
• Production Planning
• Product Information
• Need accurate forecasts from Marketing and Sales
• Compare costs with Accounting
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Spring 2006 21
Accounting and Finance• Record transactions• Summarize data
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Spring 2006 22
Human Resources
• Recruit• Train• Evaluate• Compensate• Retain
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Spring 2006 23
The Manufacturing Roots of ERP
• Materials Requirements Planning (MRP)• Electronic Data Interchange (EDI)• MRP - II• Downsizing and reorganization drove the
impetus for ERP
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Spring 2006 24
ERP and SAP’s R/3
• Software to allow all business areas to be integrated
• Interactive and real-time processing• Users interact with computer screen, not
printed data• Initially introduced R/2• Open architecture• Access common database
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Spring 2006 25
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Spring 2006 27
ERP Significance
• Global integration
• Eliminates updating and repairing separate computer systems
• Allows managers to manage, not just monitor
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Spring 2006 28
Cost of ERP• Large company
– $50-500 Million– $30 million in software– $200 million in consulting– $ millions for hardware– Implementation: 4-6 years
• Medium sized companies– $10-20 million– 2 year implementation
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Spring 2006 29
Questions about ERP
• Is it for every company?• Is the software inflexible?• How much profit should you expect?• Why do some have more success?
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Spring 2006 30
SECTION 2
Marketing and Sales
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Spring 2006 31
Marketing Personnel make decision on :
• What products should we produce?• How much of each product should we
produce?• How are our products best promoted and
advertised?• How should our products be distributed?• What price should we charge?
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Spring 2006 32
Fitter Snacker’s Sales Process
Quote
SalesOrder
Pick,Pack and
Ship
Invoice
Payment
Returns
Sales
Warehouse
Accounting
Receiving
Fitter Snacker’sSales Process
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Problems with Fitter Snacker’s Sales process:
• Sources:– Three unintegrated systems
• Sales Order System• Warehouse System• Accounting System
– Manual handling of transactions– Information not available in “real time”
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Spring 2006 34
Sales and Distribution with ERP
• SAP Sales and Distribution Process
Pre-Sales ActivitiesSales Order Processing
DeliveryBilling
Inventory Sourcing
Payment
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Spring 2006 35
Pre-Sales Activities
• Inquiry or Quote (binding)(araştır & fiyat ver)
• Marketing Activities– Tracking Contacts
• Sales Calls• Visits• Mailings
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Spring 2006 36
Sales Order Processing
• Activities required to record a sales order• Incorporate data from inquiry or quote• Automated Pricing and Discounting• Automate Credit Check
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Spring 2006 37
Inventory Sourcing
• Check of inventory, orders and production to see if order can be delivered when customer desires
• Includes shipping and considers weekends/holidays
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Spring 2006 38
Delivery
• Releasing documents to warehouse to initiate pick, pack and ship
• Sequenced and grouped for warehouse operation efficiency
• Materials Management module carries out picking, packing and shipping
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Spring 2006 39
Billing
• Sales order data copied to invoice• Can be printed and mailed, faxed or
transmitted electronically• Accounting records updated
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Spring 2006 40
Payment
• Payment may be physical check or electronic
• Cash debited and customer account credited
• Quick processing avoids credit check problems
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Spring 2006 41
Sales Order Entry in SAP R/3
Sold-to partyP.O. NumberRequired Delivery DateMaterialOrder Quantity
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Spring 2006 42
Master Data
• Master data is stored in a central database that is accessed by all modules
• Customer Master Data and Material Master Data are primary data sources for Sales Order Processing
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Spring 2006 43
Document Flow in SAP R/3
All documents related tooriginal sales order
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Spring 2006 44
Document Flow
• Sales order process creates numerous documents- Sales Order - Invoice- Delivery - Payment- Goods Issue - RMA
• Document Flow links all documents related to a sales order
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Spring 2006 45
Customer Relationship Management (CRM)
• ERP provides means to manage all data relating to a customer to improve the quality of the interaction
• CRM Activities include:– One-to-One Marketing– Sales Force Automation– Sales Campaign Management– Marketing Encyclopedias– Call Center Automation
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Spring 2006 46
CRM Benefits
• Lower Costs due to better use of sales and marketing resources
• Higher Revenue by improving the effectiveness of marketing efforts
• Improved strategy and performance measurement by changing management and staff focus
CRM software builds on ERP data to improve marketing effectiveness
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Spring 2006 47
Production and Materials Management at Fitter Snacker
• Must answer the following questions:– How much of each bar should be
produced?– What quantities of raw materials should
be ordered?– When should raw materials be ordered
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Spring 2006 48
General Approaches to Production
• Make-to-stock: Items produced in anticipation of orders
• Make-to-order: Items produced to meet specific customer orders
• Assemble to order: Final product assembled from make-to-stock items
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Spring 2006 49
Fitter Snacker Manufacturing Process
Raw
Mat
eria
l War
ehou
se Mixer
Mixer
Mixer
Mixer
Form Bake Pack
Fini
shed
Goo
ds W
areh
ouse
Snack Bar Line
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Spring 2006 50
Fitter Snacker Production Problems
• Communications– Marketing does not share data with production
(sales promotions and large, unexpected orders)• Inventory
– True inventory status not known– No real-time data on actual sales
• Accounting and Purchasing– Difficulty forecasting raw material and labor
costs– Adjusting accounts for actual vs. standard costs
time consuming and done infrequently
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Spring 2006 51
SECTION 3
Production and Materials Management
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Spring 2006 52
Production Planning Process
• Work from sales forecast to create aggregate production plan
• Break down aggregate plan into more specific plans
• Use production plan to determine raw material requirements
toplu
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Spring 2006 53
SAP R/3 Approach to Production Planning
Sales and Operations Planning
Demand Management
MRPDetailedScheduling
Sales Forecasting
PurchasingProduction
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Spring 2006 54
Sales Forecasting
Jan. Feb. March April May JunePrevious Year (cases) 5734 5823 5884 6134 6287 6435Growth: 3.0% 172 175 177 184 189 193Base Projection (cases) 5906 5998 6061 6318 6476 6628Promotion (cases) 500Sales Forecast (cases) 5906 5998 6061 6318 6476 7128
Sales Forecasting
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Spring 2006 55
Sales and Operations Planning
Sales and Operations Planning Jan. Feb. March April May June1) Sales Forecast 5906 5998 6061 6318 6476 71282) Production Plan 5906 5998 6061 6318 6900 67003) Stock Level 0 0 0 0 424 -44) Working Days 22 20 22 21 23 215) Capacity (Shipping Cases) 7333 6667 7333 7000 7667 70006) Utilization 81% 90% 83% 90% 90% 96%7) NRG-A (cases) 70.0% 4134 4199 4243 4423 4830 46908) NRG-B (cases) 30.0% 1772 1799 1818 1895 2070 2010
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Spring 2006 56
Demand Management
Week 1 Week 2 Week 3 Week 4 Demand Management 1/2 - 1/5 1/8 - 1/12 1/15 - 1/191/22 - 1/261/29 - 1/31 2/1 - 2/2 Monthly Demand NRG-A 4134 4134 4134 4134 4134 4198
NRG-B 1772 1772 1772 1772 1772 1799 Working Days in Week 4 5 5 5 3 2 Working Days in Month 22 22 22 22 22 20 MPS NRG-A 752 940 940 940 Weekly Demand NRG-B 322 403 403 403
Demand Management Jan 2 Jan 3 Jan 4 Jan 5 Jan 6 Monthly Demand NRG-A 4134 4134 4134 4134 4134
NRG-B 1772 1772 1772 1772 1772 Working Days in Month 22 22 22 22 22 MPS NRG-A 188 188 188 188 188 Daily Demand NRG-B 81 81 81 81 81
Week 5
984422
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Spring 2006 57
Material Requirement Planning - MRP
• Bill of Material (BOM)• MRP Record
Oats Lead Time = 2 weeks Week 1 Week 2 Week 3 Week 4 Week 5MPS NRG-A 752 940 940 940 984(cases) NRG-B 322 403 403 403 422MPS NRG-A 108 135 135 135 142(500 lb. batches) NRG-B 46 58 58 58 61Gross Requirements (lb) 44,070 55,087 55,087 55,087 57,667Scheduled Receipts 44,000 44,000Planned Receipts 88,000 44,000 44,000On Hand 11,650 11,580 493 33,406 22,319 8,652Planned Orders 88,000 44,000 44,000
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ERP in Supply Chain Management
Supplier
Raw
Mat
eria
ls
Manufacturer Wholesaler Retailer
Cus
tom
erGoods Goods Goods Goods Goods
$$ $ $ $
Information Information Information Information Information
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Supply Chain Management and ERP
• ERP not required for Supply Chain Management (SCM)
• ERP can facilitate sharing information in real time
• Use of internet can reduce communication costs
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Providing Production Data to Accounting
• Production data does not get entered into an ERP system directly– Many methods of gathering shop floor
data are available– ERP allows shop floor data to be
collected once for production and accounting purposes, and data is consistent in both areas
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SECTION 4
Accounting and Finance
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Accounting and Finance
• Accounting system data is used:
– By decision-makers throughout a company to plan and manage day-to-day activities
– By managers to make long-range operating forecasts
– By accountants to generate a company’s financial statements and other reports
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Basic Financial Statement
• Balance Sheet: shows company’s financial health at a point in time
• Income Statement: shows a company’s sales, cost of sales and profit or loss for a period.
• “Closing the books” means checking to see that financial statements are accurate and up to date. Usually done quarterly or monthly.
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Using ERP for Accounting and Finance
• Unintegrated systems usually require research effort by accountants to assemble required data
• ERP systems capture accounting data in real time as business transactions occur– Transfer of finished goods from
assembly line to warehouse results in changes to Accounting records as well as Materials Management records.
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SAP R/3 Modules and Accounting
• Sales and Distribution (SD)• Production Planning (PP)• Materials Management (MM)• Financial Accounting (FI)• Controlling (CO)• Human Resources (HR)• Asset Management (AM)
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Credit Management
• Companies routinely sell to customers on credit
• Sellers must manage credit to avoid default by customers
• Sellers manage customer credit using credit limits
• Accurate and timely data required to manage credit
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Product Profitability Analysis
• Accurate data required to properly determine the profitability of a company’s products
• Inaccurate data can result from:– Inconsistent record keeping– Inaccurate inventory-costing systems– Problems consolidating data from
subsidiaries
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Inconsistent Record Keeping
• Companies may have divisions that keep records in different systems or with different structures
• Summarizing the data to provide management summaries may require additional processing by middleware systems (e.g. spreadsheets)
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Inventory Costing
• A manufactured items costs consist of three elements:– Cost of raw materials– Cost of direct labor– Cost of overhead (utilities, general
factory labor, supplies, manager’s salaries, storage and insurance costs)
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Inventory Costing
• Direct costs (material and direct labor) can be associated with products or batches of materials relatively easily
• Indirect costs (overhead) are difficult to assign to particular products or batches, but are a significant portion of a product’s cost
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Distribution of Indirect Costs
• Indirect costs are frequently allocated based on machine hours or labor hours used to make a product
• Standard costs are used to adjust accounting records for changes due to production and sale of products
• Cost variances must be recorded to reconcile actual and standard costs
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ERP and Inventory Cost Accounting
• Adjusting accounting records for cost variances can be difficult with unintegrated information systems
• ERP systems are configured with methods for computing variances so that the process is automated
• Real time data in ERP systems means that accurate cost data will be available
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Activity-Based Costing (ABC) and ERP
• In ABC, “activities” associated with overhead-cost generation are used to allocate costs more precisely
• Defining “activities” to relate overhead costs to products can be difficult
• ABC requires more record keeping, which can be simplified using an ERP system
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Problems in Closing Books
• Currency Translation – Daily fluctuation of exchange rates more easily handled by ERP systems
• Intercompany Transactions – Companies cannot make profits by selling products to themselves, so profits can’t be recorded from intercompany sales
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Management Reporting with ERP
• Document Flow allows for better management of the numerous transactions that are related to a customer order
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Management Reporting and Analysis
• Storing accounting records in a database allows for easier analysis
• Data warehousing provides separate, summarized data for reporting to avoid disruption of transaction processing
• SAP R/3 provides specialized information systems for analysis (LIS, SIS)
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SECTION 5
ERP Software : Introduction to SAP R/3
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SAP – an ERP Software• SAP AG produced an ERP program called R/3• Purchasing ERP software is expensive, with
spectacular payoffs and challenging implementation
• The future of ERP will focus on:– managing customer relationships– improving planning and decision making– linking operations to the Internet– focusing on smaller companies
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ERP Industry• 70% of Fortune 500 have implemented
– includes MSFT, IBM, and APPLE• 30-40%+ annual revenue growth for last 5
years– partly attributable to Y2K re-engineering
• Major players– SAP ---33% of market– PeopleSoft– JDEdwards, Baan, Oracle, SCT, SGAI
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ERP Market Figures• 1996 worldwide revenues (only license
sales): $4.8 Billion
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SAP R/3 Basis System
Windows 3.11, Windows 95, Windows NT, OSF/Motif, Windows 3.11, Windows 95, Windows NT, OSF/Motif, OS/2-Warp, Macintosh OS/2-Warp, Macintosh
ABAP/4, C, C+ +ABAP/4, C, C+ +
DialogDialogSAP-GUISAP-GUI
LanguagesLanguages
Windows 3.11Windows 3.11, , Windows 95, Windows 95, Windows NT,Windows NT,
OS/2-WarpOS/2-Warp
ADABAS DADABAS DDB2 for AIXDB2 for AIX
INFORMIX-OnLine 7INFORMIX-OnLine 7ORACLE 7ORACLE 7
ADABAS DADABAS DMS SQL Server 6.0MS SQL Server 6.0
ORACLE 7ORACLE 7DB2/400DB2/400
AIXAIXDigital UNIXDigital UNIX
HP-UXHP-UX
SINIXSINIXSOLARSSOLARS Windows NTWindows NT OS/400OS/400
HardwareHardware AT&TAT&TBull/ZenithBull/Zenith
CompaqCompaq
SequentSequentSNISNI. . .. . .
Data Data GeneralGeneral
HP (Intel)HP (Intel)IBM (Intel)IBM (Intel)
BullBullDigitalDigital
HPHP
IBMIBMSNISNISUNSUN
UNIX SystemsUNIX SystemsIBMIBM
AS/400AS/400
OperatingOperatingSystemsSystems
DatabasesDatabases