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The Development of Enterprise Resource Planning Systems
While SAP has defined the tolerance group methodology as its method for placing
limits on an employee, configuration allows a company the flexibility to further tailor 33
this methodology for other uses. Assume a sporting goods company places an order in
January for 1,000 life jackets. The company receives only 995 in the shipment from the
manufacturer, which arrives in March. This delivery, although it is short five life jackets,
is close enough to the original order that it is accepted as complete. The difference of
the five life jackets represents the tolerance. By defining the tolerance group to accept a
variance of a small percentage of the shipment, the company has determined that it is
not worth pursuing the five extra life jackets. Tolerance could indicate a shortage, as in
this example, or an overabundance in an order. Thus, an order of 1,005 life jackets
would also be within the tolerance. Tolerance groups should be defined and documented,
in part to deal with fraud issues. The sporting goods company should know the reason
for a short order: is it because the order is within the tolerance range, or is it because
a worker on the loading dock stole five life jackets?
Question:
1. Can you think of other areas within a company that would need to have some
limits set on variances or payments? Why would it be beneficial to set those
tolerance groups?

Features of SAP ERP
Not only was SAP ERP the first software to deliver real-time ERP integration, it has other
features worthy of note. Its most significant characteristics are its suitability for large
companies, high cost, automation of data updates, and applicability of best practices—all
of which are described below.
The original SAP ERP system targeted very large companies. Prior to the development
of ERP systems, it was assumed that these giants could never have integrated systems
because of the sheer amount of computing power required to integrate them. Increased
computing speeds, however, meant that large companies in a variety of industries,
including manufacturing, gas and oil, airlines, and consulting, could have integrated
information systems.
Acquiring an SAP ERP software system is very expensive. In addition to the cost of the
software, many companies find they must buy new hardware to accommodate such
powerful programs. For a Fortune 500 company, software, hardware, and consulting
costs can easily exceed $100 million. Large companies can also spend $50 million to
$100 million when it is time to upgrade to a newer version of their ERP software. Full
implementation of all modules can take years. In fact, most companies view ERP
implementations as an ongoing process, not a one-off project. As implementations are
completed in one area of a company, other areas may begin an implementation or upgrade
a previous implementation.
The modular design of SAP ERP is based on business processes, such as sales order
handling, materials requirement handling, and employee recruiting. When data are
entered into the system, data in all related files in the central database are automatically
updated. No further human input is required to make the changes.
Before the development of SAP ERP, companies often sought vendors to write software to
fit their business processes. As SAP accumulated experience developing information systems,

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