What is SAP? Meaning & Definition

As the world is progressing faster, new technologies are developing, making human life manageable. People make their company’s data available to specific local offices or authorized centers in the business domain. Every distinct business functionality is stored in a separate database. Doing this will result in difficulties for several businesses or local offices to transfer essential data. 

Many times, a single data is stored on several databases to make the transfer of information manageable. But, it may result in data errors and higher costs. To make business processes effective, the SAP software is widely used these days. You will get detailed information about the SAP software in this post. 

What is SAP?

What does SAP stand for? SAP stands for Systems, Applications, and Products. SAP is not an acronym; rather, it is pronounced as the initials for Systems, Applications, and Products. In 1972, people from Europe named Wallenreuther, Hopp, Hector, Plattner, and Tschira founded the SAP company. Earlier, the company was a startup, and later, it turned out into a multinational organization. It has its headquarters in Walldorf, Germany. 

The primary objective of developing the SAP software product was to improve business processes and build strong customer relationships. It is an all-in-one software product that incorporates essential business modules required for the business management process. 

Versions of SAP

Let us see all previous versions of the SAP software system in detail below.

what is SAP
  1. SAP R/1:

SAP R/1 is the first version of the SAP software product. In 1972, all five developers developed the SAP R/1 model for effective business processes. In the context of SAP R/1, the letter ‘R’ means the processing of real-time data. The number ‘1’ in the context of SAP R/1 stands for one-tier architecture. One-tier architecture involves three distinct layers, namely, Presentation, Application, and Database. All these three layers are installed on one single system or server. 

  1. SAP R/2:

The next version after the SAP R/1 was the SAP R/2. This version of the SAP software system was developed in 1979. IBM’s database and dialogue-oriented business applications are integrated with SAP R/2 version. The ‘R’ in the SAP R/2 is the same as that in the SAP R/1. But, ‘2’ in the SAP R/2 implies two-tier architecture. 

The two-tier architecture has Presentation, Application, and Database layers installed on two servers. The Presentation layer is installed on the first server, whereas Application and Database layers are present on the second server. 

  1. SAP R/3:

The upgraded version of the SAP R/2 is the SAP R/3. In the SAP R/3, ‘R’ stands for processing real-time data, whereas ‘3’ means three-tier architecture. The three-tier architecture also has three distinct layers, the same as that in the SAP R/1 and R/2. 

The three layers, Presentation, Application, and Database, are installed on three different systems in the three-tier architecture. The first layer, the Presentation layer, is present on the first server. An Application layer is present on the second system, and the Database layer is installed on the third server. 

  1. SAP S/4 Hana:

Another version of the SAP software product is the SAP S/4 Hana. Here, Hana means High-Performance Analytic Application. It is a database used for computing memory. This version of the SAP S/4 Hana was developed in 2010. 

Functional Modules of SAP 

The SAP software product has six functional modules, listed as below:

  1. Financial and Control (FICO)
  2. Production Planning (PP)
  3. Material Management (MM)
  4. Sales and Distribution (SD)
  5. Human Resources (HR)
  6. Customer Relationship Management (CRM)

Let us talk about each SAP functional module in detail.

what is SAP
  1. SAP Financial and Control (FICO):

In the context of SAP FICO, ‘FI’ stands for financial accounting and ‘CO’ implies Controlling. The primary objective of the SAP FI module is to store information about financial transactions. Additionally, this module collects and processes financial data in a real-time environment. The SAP FI also performs other tasks, like bank accounting, travel management, asset accounting, etc. 

The controlling module of the SAP software system enables business in decision-making processes. The other functionalities of the SAP CO module are analyzing profitability, controlling product costs, internal orders, accounting element costs, etc. 

  1. SAP Production Planning:

Another functional module of the SAP software product is Production and Planning. As its name suggests, this module helps businesses in planning and handling manufacturing and production exercises. The Production and Planning module’s primary task is to track process flows, expected cost, the actual price, and transforming the raw material into a well-finished product. This module is integrated with all other SAP software system modules, namely, FICO, MM, SD, HR, and CRM. 

  1. SAP Material Management:

SAP Material Management module is one of the most significant modules of the SAP software product. The SAP Material Management module’s significant tasks include material storage, purchasing, receiving goods, inventory, and procurement. As its name indicates, it involves day-to-day business processes of inventory and procurement of material. It is entirely integrated with all other SAP software product functional modules. 

  1. SAP Sales and Distribution:
See also  5 Best Ways To Find Out Unknown Caller ID

Sales and distribution are the vital steps of any manufacturing organization. Hence, they are also involved in the SAP software system. The Sales and Distribution module’s meaningful goals are handling product orders from customers, product distribution to respective customers, invoicing, etc. This SAP function module is integrated with Material Management (MM) and Production Planning (PP) modules. 

  1. SAP Human Resource:

The SAP software system’s Human Resource functional module is responsible for handling the entire production cycle and payroll. It is also called the Human Capital Management module. This module is further categorized into five distinct sub-modules, Organizational management, payroll, personnel development, time management, and personnel administration. SAP HR module stores employees’ data in detail. 

  1. SAP Customer Relationship Management:

The final SAP software product’s functional module is Customer Relationship Management. The primary objective of the SAP CRM module is to build and improve customer relationships. It enables businesses to make new customer relations and obtain their faith. CRM functional module’s other goal is to accomplish the ‘Single Face to Customer’ principle. This principle enables customers to gain product information. 

What is SAP ERP?

In the ERP market, the SAP software program is one of the top products. The SAP software system has 140,000 users worldwide and has earned more than 75,000 customer relationships in more than 120 countries until 2010. You might be having a question about what is ERP. What is the definition of ERP? What is the need for ERP? So, Let us discuss ERP. 

ERP implies Enterprise Resource Planning. ERP is a system that looks after software and methods used for planning manufacturing activities, production, supply chain, customer relationship, risk management, and many other operations. You will understand the SAP ERP concept after looking at the following example. 

Consider a situation where a customer desires to buy a specific product from an organization. Hence, the customer asks the sales team for a particular product. Further, the sales team contacts with the inventory team about the need for the product. The inventory team then checks whether the specific product is available or not. After checking, they found that the product is not available. Therefore, to avoid such scarcity of products, the SAP ERP tool is developed. 

The SAP function modules and other additional modules get involved in the entire production process from purchasing the raw material through delivering the finished product. Let us now throw light on the production process as a whole engaged in any business organization. 

Production Process 

  1. Firstly, the customer contacts the sales department for the availability of a particular product. 
  2. Later, the sales department asks the inventory team for the product demanded by the customer. 
  3. The inventory team then verifies whether the specific product is available or out of stock. In case if the product is not available at that instance, the inventory department contacts the Production Planning team and asks it for the product development. 
  4. Later, the production planning department collaborates with the inventory team for the availability of the raw material required for developing the product. 
  5. If the raw material is not present, the production planning department looks at vendors that offer the raw material and buy it. 
  6. After buying the raw material, the production planning team sends it to the Shop Floor Execution department. This department starts producing the product. 
  7. When the product is finally developed, the Shop Floor Team sends it to the Sales department. 
  8. At last, the Sales department provides the product to the customer. 
  9. Once the product is sold, the sales team records the amount of the product in finance. 
  10. As the production planning team buys the raw material from the specific vendor, it updates the sum to be given to the vendor in finance. 
  11. In case of any HR problems, all the departments involved in the product manufacturing process approach Human Resource. 

The above business process is a typical process involved in all manufacturing organizations. From the above business process, we can interpret a few significant conclusions as below:

  • Several teams or departments are involved in the manufacturing process. 
  • All teams engaged in the business process constantly collaborate for exchanging information. 
  • Communication is an essential component of any enterprise’s manufacturing process. Having adequate and successful communication is a must between every team or department. 

There are two types of enterprises, centralized and decentralized. Enterprises are distinguished based on how the data is exchanged and the form of communication. Let us see each of the enterprise types in detail. 

What is a Decentralized System

We know that there are numerous departments involved in the business manufacturing process. In the decentralized system, the information about product development is stored within the respective departments, i.e., the data is stored locally. As the information is stored locally within departments, it becomes tough for every other department to access it. Hence, these are the two significant issues in the decentralized system. 

Let us take an example to interpret the rising issues in the decentralized system. Consider the same above example. The only difference we take in this example is that the customer requires the product urgently, which is out of stock. 

See also  How To Delete Google Search History On Android, iPhone, And Chrome | 7+ Best browsers

Firstly, the customer requests the sales team for a particular product. The customer requires the product on an urgent basis. As it is a decentralized system, the product availability information is not present with the sales team. It is present with the inventory team. Hence, the sales team contacts the inventory department. 

Not having real-time information with the sales department and fetching it from the inventory department consumes a lot of time. So, the customer approaches other dealers for the product. This may result in the company’s loss, that has a decentralized system. 

Now, consider a situation that the product requested by the customer is not available. Hence, the sales department contacts the production planning department to verify whether the product is available or not. As the product is unavailable, the production planning section ensures whether the required raw material is available or not. 

All information about the raw material availability is stored locally with the inventory and the production planning teams. Keeping raw material information locally with both the departments ends in higher maintenance costs. 

When the product is unavailable, and the sales team contacts the inventory team, it tells that the raw material is available. But, the production planning team displays that the raw material required is not present. Hence, buying the raw material is again expensive and raises inventory expenses. 

When the raw material is available, it is then transferred to the shop floor department for production. Suddenly, the shop floor team realizes that there are fewer workers available for the manufacturing process. Therefore, this team approaches HR. HR hires new employees, and labor cost increases. 

Now consider that the product planning team forgets to update the vendor’s sum to be given for the raw material purchased. Therefore, the finance team misses the payment deadline and does not pay the vendor on time. It results in the company’s bad reputation and loss. 

After looking at the manufacturing process’s above issues, we conclude that a decentralized system has multiple shortcomings. Below are the drawbacks of a decentralized system listed briefly:

  • Data redundancy and inconsistency is the primary drawback of a decentralized system. 
  • It performs time-consuming manufacturing processes. Hence, it leads to consumer dissatisfaction and the company’s reputation loss. 
  • The raw-material, inventory, and labor expenses rise due to local data storage. 
  • Keeping data consistent in all teams or departments is time-consuming. 

What is a Centralized System?

We have seen the shortcomings of a decentralized system. These drawbacks lead to the development of a centralized system. A centralized system is an all-in-one solution for the flaws of a decentralized system. 

what is SAP

In a centralized system, the product information is stored centrally, and all teams or departments can access this information anytime. Additionally, each team in the manufacturing process can access the data of all other groups. Hence, a centralized system is flexible and accessible. 

We take an instance to understand how a centralized system is useful and beneficial over a decentralized system. In a centralized system, Enterprise Resource Planning (ERP) acts as a Central Information System. Let us see how a centralized system (SAP ERP) works.

Consider the same example used in a decentralized system. A customer requires a particular product instantly. So, a customer approaches the company’s sales team for product availability. The sales department accesses the Central Information System updated by the inventory team to check whether the specific product is available or not. 

Therefore, the customer gets the product information instantly on request by the sales team, as the information is present in the Central Information System. The instant reply from the sales team may satisfy the customer. On the contrary, in a decentralized system, it would take a long time. 

Having a Centralized Information System is beneficial, as all teams get the product’s updated status. However, the production planning department checks in the Central Information System for raw data availability. The inventory section updates all information regarding the raw material. 

Doing this will help eliminate the redundant and inconsistent data from the database and avoid chaos during the manufacturing process. Additionally, the shop floor team also provides information about the workforce in the Central Information System. So, HR can easily access workforce information. 

If the manpower is fewer, the HR can immediately carry out the recruitment process for hiring new employees without delay. The financial team can access all expenses and invoices by vendors and pay them timely, which will enhance the company’s reputation and avoids legal actions. 

After looking at how a centralized system works, we may conclude that it is an effective and time-saving system. The SAP ERP software system is a centralized system. 

Benefits of a Centralized System

Listed below are some crucial benefits of a centralized system over a decentralized system:

  • One of the primary benefits of a centralized system is it does not involve data redundancy, inconsistency, and discontinuity. 
  • Every team engages in the manufacturing process can access the data from other groups. 
  • A centralized system enables businesses to enhance their productivity, management, workforce management, and customer satisfaction. 
  • The biggest perk of using a centralized system is it is time-saving. 

The SAP ERP software system is a centralized system. Let us now focus on the SAP ERP system’s architecture. 

The Architecture of SAP ERP System

In the above segment of this post, we have seen the three layers of the SAP ERP software system. The SAP ERP software program’s architecture consists of Presentation, Application, and Database layers. In one-tier, two-tier, and three-tier architecture, all three layers are present. 

See also  7 Solutions To Clear Instagram Search Suggestions

The one-tier architecture is usually used in large-scale production organizations and private sectors. On the contrary, the three-tier architecture of the SAP ERP system is used for public organizations or government sectors. The one-tier architecture can monitor several business processes than the two-tier system. Hence, the one-tier system is more flexible than the two-tier SAP ERP system. Let us have a look at the SAP ERP system’s architecture. 

  1. The Presentation Layer:

The business users use the presentation layer and offer a graphical interface of the SAP ERP system. The graphical user interface (GUI) of the SAP ERP program is compatible with installing on Microsoft Windows and Mac OS systems. It acts as a mediator between the end-user and the SAP ERP software. 

  1. The Application Layer:

Like CPU is a core of the computer, the application layer is also a core of the SAP ERP software system. It is responsible for functioning all business tasks, like client transactions, making reports, accessing the database, and communicating with all other applications. When there is a burden on the server, the SAP ERP software system enables us to distribute its logic on several systems. 

  1. The Database Tier:

The use of the database layer is to store the company’s data. In the SAP ERP software system, the database layer two different types of data. One is the business-generated data, and the other is the SAP system’s application data. The first kind of data, business-generated data, implies the business users’ data for business processes. The application programs in the SAP ERP are written in the ABAP programming language, and these programs are referred to as routines. 

Importance and Benefits of the SAP ERP System

The SAP (Systems, Applications, and Products) ERP software program is widely used in the business domain. It has manifested to be very useful in enhancing the growth and productivity of enterprises. 

  1. The SAP ERP system has an enhanced graphical user interface, making the system more manageable for users to use. 
  2. Another importance of using the SAP ERP system is to enhance business operations. All business plans and approaches are decided in a real-time environment. 
  3. The SAP ERP software program is also beneficial in the IT sector. Many departments in the IT industry, like order processing, inventory, production, etc. use the SAP ERP system. 
  4. It has introduced the latest SAP Net Weaver platform that enables business users to change business needs instantly. 
  5. The SAP ERP system is flexible and manageable, as it comprises several distinct modules, like sales and distribution, inventory, production planning, shop floor, and HR. 
  6. It allows all modules to share product data and communicate instantly. Labor expenses also get reduced, as this system tracks a real-time workforce. 
  7. Data analysis and reporting are some of the significant advantages of the SAP ERP software system. It reduces human errors and. In turn, it reduces the cost of recovering errors.
  8. An essential benefit of the SAP ERP system is it maintains the product data or business information consistent through all modules. Therefore, the decision-making process is carried out fastly. 
  9. The SAP ERP software system also handles business risks and foreign exchange rates. 

The SAP certification is offered for validating the expert and experienced SAP business users and professionals. The SAP ERP certification is one of the toughest and expensive. After you gain the SAP certification, you can become an SAP consultant. Several different certificates are available in the market today. These certifications are listed below:

  • SAP Certified Associate
  • Certified SAP Business Suite 7 Professional
  • SAP ERP Manager Government Certification
  • Certified SAP Business Objects Business Intelligence Professionals.

The requirement or eligibility criteria to acquire the SAP certification is only the graduation, like Btech, B.Sc., and B.Com. If you a master’s degree, it is also eligible. Gaining an SAP certificate is very beneficial in securing a high-paid salary job and reputation. 


The SAP (System, Application, and Product) is the best and most successful manufacturing organization solution. The term SAP is not a short form for the System, Application, and Product; instead, it is the combinations of their initials. 

There are four distinct SAP versions, SAP R/1, SAP R/2, SAP R/3, and SAP S/4 Hana. The SAP R/1 has one-tier architecture, SAP R/2 has two-tier architecture, and the SAP R/3 has three-tier architecture. All three architecture types have three layers, Presentation, Application, and Database. 

After that, we have covered six SAP ERP system’s function module, FICO, PP, MM, SD, HR, and CRM. The SAP system is an Enterprise Resource Planning software. There are two types of organizations, centralized and decentralized. In a decentralized system, SAP function modules store product data locally. On the other hand, there is a Central Information System in a centralized system, where all function modules update product data. 

Next, we covered the SAP ERP system’s architecture consisting of three different layers. Lastly, we noted the importance and benefits of the SAP ERP system. 

Recommended Articles