History of SAP R/3The first version of SAP’s flagship enterprise software was a financial Accounting system named R/1. (The “R” was for “Real-time data processing”). The pronunciation is often mistakenly referred to as “sap”, as in tree sap. The correct naming is the individual letters S-A-P. This was replaced by R/2 at the end of the 1970s. SAP R/2 was a mainframe based business application software suite that was very successful in the 1980s and early 1990s. It was particularly popular with large multinational European companies who required soft-real-time business applications, with multi-currency and multi-language capabilities built in. With the advent of distributed client-server computing SAP AG brought out a client-server version of the software called SAP R/3 that was manageable on multiple platforms and operating systems, such as Microsoft Windows or UNIX since 1999, which opened up SAP to a whole new customer base. SAP R/3 was officially launched on 6 July 1992. SAP came to dominate the large business applications market over the next 10 years.


SAP R/3 is arranged into distinct functional modules, covering the typical functions in place in an organization. The most widely used modules are Financials and Controlling (FICO), Human Resources (HR), Materials Management (MM), Sales & Distribution (SD), and Production Planning (PP). Those modules, as well as the additional components of SAP R/3, are detailed in the next section.

Each module handles specific business tasks on its own, but is linked to the others where applicable. For instance, an invoice from the Billing transaction of Sales & Distribution will pass through to accounting, where it will appear in accounts receivable and cost of goods sold.

SAP has typically focused on best practice methodologies for driving its software processes, but has more recently expanded into vertical markets. In these situations, SAP produces specialized modules (referred to as IS or Industry Specific) geared toward a particular market segment, such as utilities or retail.

Using SAP often requires the payment of hefty license fees, as the customers have effectively outsourced various business software development tasks to SAP. By specializing in software development, SAP hopes to provide a better value to corporations than they could if they attempted to develop and maintain their own applications.


SAP R/3 is a client/server based application, utilizing a 3-tiered model. A presentation layer, or client, interfaces with the user. The application layer houses all the business-specific logic, and the database layer records and stores all the information about the system, including transactional and configuration data.

SAP R/3 functionality is structured using its own proprietary language called ABAP (Advanced Business Application Programming). ABAP, or ABAP/4 is a fourth generation language (4GL), geared towards the creation of simple, yet powerful programs. R/3 also offers a complete development environment where developers can either modify existing SAP code to modify existing functionality or develop their own functions, whether reports or complete transactional systems within the SAP framework.

ABAP’s main interaction with the database system is via Open SQL statements. These statements allow a developer to query, update, or delete information from the database. Advanced topics include GUI development and advanced integration with other systems. With the introduction of ABAP Objects, ABAP provides the opportunity to develop applications with object-oriented programming.

The most difficult part of SAP R/3 is its implementation, since SAP R/3 is never used the same way in any two places. For instance, Atlas Copco can have a different implementation of SAP R/3 from Procter & Gamble. Two primary issues are the root of the complexity and of the differences:

Customization configuration – Within R/3, there are tens of thousands of database tables that may be used to control how the application behaves. For instance, each company will have its own accounting “Chart of Accounts” which reflects how its transactions flow together to represent its activity. That will be specific to a given company. In general, the behavior (and appearance) of virtually every screen and transaction is controlled by configuration tables. This gives the implementor great power to make the application behave differently for different environments. With that power comes considerable complexity.
Extensions, Bolt-Ons – In any company, there will be a need to develop interface programs to communicate with other corporate information systems. This generally involves developing ABAP/4 code, and considerable “systems integration” effort to either determine what data is to be drawn out of R/3 or to interface into R/3 to load data into the system.
Due to the complexity of implementation, these companies recruit highly skilled SAP consultants to do the job. The implementation must consider the company’s needs and resources. Some companies implement only a few modules of SAP while others may want numerous modules.

SAP has several layers. The Basis System (BC) includes the ABAP programming language, and is the heart (i.e. the base) of operations and should not be visible to higher level or managerial users. Other customizing and implementation tools exist also. The heart of the system (from a manager’s viewpoint) are the application modules. These modules may not all be implemented in a typical company but they are all related and are listed below:
EH&S Environmental Health & Safety

Designed for the management of environmental regulatory information, particularly product safety data as required for Material Safety Data Sheets. EH&S has sub-modules of Product Safety, Dangerous Goods, Waste, Industrial Hygiene, and Occupational Health.

FI Financial Accounting

Designed for automated management and external reporting of general ledger, accounts receivable, accounts payable and other sub-ledger accounts with a user defined chart of accounts. As entries are made relating to sales production and payments journal entries are automatically posted. This connection means that the “books” are designed to reflect the real situation.

The FI module has 8 sub modules:

General Ledger Accounting


Accounts Payable

Accounts Receivable

Bank Accounting

Asset Accounting

Special Purpose Ledger

Funds Management

Contract Accounting

CO Controlling
Represents the company’s flow of cost and revenue. It is a management instrument for organizational decisions. It too is automatically updated as events occur.

The CO module has following sub modules:

Overhead Costing (Cost Centers, Activity Based Costing, Internal Order Costing)

Profitability Analysis

Product Cost Controlling

AM Asset Management
Designed to manage and supervise individual aspects of fixed assets including purchase and sale of assets, depreciation and investment management.

PS Project System
Designed to support the planning, control and monitoring of long-term, highly complex projects with defined goals.

FS Insurance
An integral part of mySAP ERP, SAP for Insurance enables insurance companies to handle customer and market requirements and simultaneously control profitability and economic viability.
In Release 6.00, SAP for Insurance includes the following components:

Collections and disbursements

Claims management

Commissions management

Policy management

Reinsurance management

Payment Engine (Banking Payments Solution still in development)

IS Industry Solutions
Combines the SAP application modules and additional industry-specific functionality. Special techniques have been developed for industries such as banking, oil and gas, pharmaceuticals, etc.
As of Feb 2006, following Industry Specific Solutions are supported by SAP:


Aerospace and Defense

Apparel and Footwear



Catch Weight Management (Variable Weight Items such as Meats and Cheeses)

Defense and Security


Higher Education

Hospitality Management

High tech



Milling (or IS-MILL)


Public Sector


Recycling Admin

Service Provider



IS-U Supplier Switch


IS-U EDM Billing

IS-U Agregated Billing


HR Human Resources
Complete integrated system for supporting the planning and control of personnel activities and HR module is sometimes equivalently referred to as HCM (Human Capital Management).

Organizational Management

Personnel Administration


Personnel Development

Time Management

Payroll Management

Training and Event Management
HCM Human Capital Management LE Logistics Execution
PLM Product Lifecycle Management

PM Plant Maintenance
Equipment servicing and rebuilding. These tasks affect the production plans.

MM Materials Management
Supports the procurement and inventory functions occurring in day-to-day business operations such as purchasing, inventory management, reorder point processing, etc.

QM Quality Management
A quality control and information system supporting quality planning, inspection, and control for manufacturing and procurement.

PP Production Planning
Used to plan and control the manufacturing activities of a company. This module includes; bills of material, routings, work centers, sales and operations planning, master production scheduling, material requirements planning, shop floor control, production orders, product costing, etc.

Production Planning Process Industries.With the component PP-PI (Production Planning for Process Industries), SAP provides an integrated planning tool for batch-oriented process manufacturing. It has been developed in cooperation with IDS Prof. Scheer GmbH, Saarbrücken.
It is primarily designed for the chemical, pharmaceutical, food and beverage industries as well as the batch-oriented electronics industry. PP-PI supports:

The integrated planning of production, waste disposal, and transport activities within a plant The integration of plants within the company: Vertically by means of an information flow, ranging from central business applications down to process control Horizontally by the coordination of planning between production plants, recycling and waste disposal facilities, and production laboratories.

SD Sales and Distribution
Helps to optimize all the tasks and activities carried out in sales, delivery and billing. Key elements are: presales support, inquiry processing, quotation processing, sales order processing, delivery processing, billing and sales information system.

Supply Chain Management

Supplier Relationship Management

Business Information Warehouse

Strategic Enterprise Management

WM Warehouse Management
Subdivides the “Storage Location”, which is used in the MM Module to define inventory values by location, into “Storage Types” and then into “Storage Bins”. Control of stock to a physical level down to a warehouse bin. Placement and removal rules can be configured, stock counts can be done.

HUM Handling Unit Management
Used as a unique ID for each pallet of stock held in the warehouse.

AF&R Advanced Forecasting & Replenishment
Mostly referred to as Forecasting & Replenishment  

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