Lecture 3 24/1/12

Examples of functional business processes Manufacturing and production Assembling the product Sales and marketing Identifying customers Finance and accounting Creating financial statements Human resources Hiring employees Other examples include checking the product for quality (manufacturing and production), selling the product (sales and marketing), paying creditors (finance and accounting), and evaluating job performance (human resources). You could ask students to contribute other examples of business processes and describe which of the four types they are.

The Order Fulfillment Process Business Processes and Information Systems The Order Fulfillment Process Emphasize that each rectangle represents one part of the larger business process of order fulfillment. Notice that this business process spans more than one type mentioned on the previous slide. Fulfilling a customer order involves a complex set of steps that requires the close coordination of the sales, accounting, and manufacturing functions. Figure 2-1

Perspectives on Information Systems Levels in a Firm Ask students to think about how information systems would factor into the day-to-day jobs of each of the three types of workers in the pyramid. Business organizations are hierarchies consisting of three principal levels: senior management, middle management, and operational management. Information systems serve each of these levels. Scientists and knowledge workers often work with middle management. Figure 1-6

Business Processes and Information Systems Information technology enhances business processes in two main ways: Increasing efficiency of existing processes Enabling entirely new processes that are capable of transforming the businesses Business Processes and Information Systems Examples of entirely new business processes made possible by information technology are downloading a song from iTunes or buying a book from Amazon. You might also mention the Amazon book reader Kindle which is continuously connected to the Internet and allows customers to download books and pay for them using Amazon’s one click purchase method. Ask students if they can name any other similar processes.

Types of Business Information Systems Transaction processing systems Perform and record daily routine transactions necessary to conduct business Allow managers to monitor status of operations and relations with external environment Serve operational levels Serve predefined, structured goals and decision making The purpose of these systems is to answer routine questions about the flow of transactions through the organization. These systems are a necessity for any business.

Types of Business Information Systems A Payroll TPS Note that the outputs of the payroll system are useful not only within the company to managers, but also to regulatory agencies and other entities relying on the accuracy of the reported data. A TPS for payroll processing captures employee payment transaction data (such as a time card). System outputs include online and hard-copy reports for management and employee paychecks. Figure 2-2

Management information systems Serve middle management Provide reports on firm’s current performance, based on data from TPS Provide answers to routine questions with predefined procedure for answering them Typically have little analytic capability Emphasize to students that management information systems is a specific category of information systems for middle management. It has the same name, but a very different meaning from the term introduced in Chapter 1 (the study of information systems in business and management). In other words, the study of management information systems involves looking at all the systems used in business. An MIS system is a specific type of an IS. It’s easy to get the two confused.

How Management Information Systems Obtain Their Data from the Organization’s TPS Emphasize the relationship between TPS and MIS here. MIS receive data from an organization’s TPS systems and create outputs that management can use to make strategic decisions. In the system illustrated by this diagram, three TPS supply summarized transaction data to the MIS reporting system at the end of the time period. Managers gain access to the organizational data through the MIS, which provides them with the appropriate reports. Figure 2-3

Decision support systems Serve middle management Support non-routine decision making Example: What is impact on production schedule if December sales doubled? Often use external information as well from TPS and MIS Model driven DSS Data driven DSS You could ask whether or not students understand what is meant by nonroutine decision making, as opposed to routine decision making, and why DSS are specifically designed to assist managers in making that type of decision. Ask students for examples of non-routine decisions they make.

Voyage-Estimating Decision Support System DSS can rely on either analytical models or large databases to provide valuable information. You could ask which of these two types the above figure best resembles (analytical models). You could also ask them what types of decisions does this system help its users make? Examples include what vessels to send to particular destinations to maximize profit, the optimal rate at which vessels should travel to maximize efficiency while still meeting their schedules, and so forth. This DSS operates on a powerful PC. It is used daily by managers who must develop bids on shipping contracts. Figure 2-5

Executive support systems Support senior management Address non-routine decisions requiring judgment, evaluation, and insight Incorporate data about external events (e.g. new tax laws or competitors) as well as summarized information from internal MIS and DSS Emphasize the connection between ESS, MIS, and DSS. ESS rely on accurate inputs from a firm’s MIS and DSS to provide useful information to executives. These systems should not exist in isolation from one another. If they are isolated from each other, it is a kind of organizational dysfunction, probably inherited from the past.

Model of an Executive Support System The digital dashboard is a common feature of modern-day ESS. Emphasize that a critical feature of ESS is ease of use and simplicity of display. Executives using an ESS want quick access to the most critical data affecting their firm. This system pools data from diverse internal and external sources and makes them available to executives in easy-to-use form. Figure 2-6

Types of Business Information Systems Transaction processing systems: supporting operational level employees Management information systems and decision-support systems: supporting managers Executive support systems: supporting executives This slide is a recap of the previous slides describing these types of systems. In a constituency perspective, systems are distinguished on the basis of who uses the system– operational managers, middle management, senior management. Systems are often designed to fit the specific needs of each of these groups in a firm. These groups form “constituencies” that CIOs must appeal to for support.

Relationship of systems to one another TPS: Major source of data for other systems ESS: Recipient of data from lower-level systems Data may be exchanged between systems In reality, most businesses’ systems only loosely integrated This slide once again emphasizes the relationship between different types of systems, but explain that actually achieving such a high level of integration is rare. You could ask students to offer reasons why it might be difficult to do this.

Systems That Span the Enterprise Enterprise applications Span functional areas Execute business processes across firm Include all levels of management Four major applications: Enterprise systems Supply chain management systems Customer relationship management systems Knowledge management systems Enterprise applications are used to manage the information used in the systems discussed previously. In other words, enterprise applications are used to ensure that TPS, MIS, DSS, and ESS work together smoothly.

Systems That Span the Enterprise Enterprise Application Architecture Representing an integrated enterprise system in a single graphic is very difficult. The basic point is that enterprise systems are very large and diverse databases that pull information from many parts of the firm, and many systems, and then dispense that information to a very wide variety of groups. This is precisely their advantage: one system, one company, one world. The multi-colored triangle represents an organization – the ovals represent the business functions and organizational levels affected by enterprise applications. The horizontal oval extends outside of the triangle because even business functions involving outside entities may be automated by enterprise applications. Enterprise applications automate processes that span multiple business functions and organizational levels and may extend outside the organization. Figure 2-7

Systems That Span the Enterprise Enterprise systems Collects data from different firm functions and stores data in single central data repository Resolves problem of fragmented, redundant data sets and systems Enable: Coordination of daily activities Efficient response to customer orders (production, inventory) Provide valuable information for improving management decision making This slide emphasizes the singularity of enterprise systems (one system) that does everything – or most everything– and serves a wide variety of groups and purposes in the firm.

Types of Business Information Systems Enterprise Systems Emphasize the central repository used in enterprise systems for all types of information collected and used by the business. Ask students what the difficulties of creating such a system might be (standardization across many business units, size of the system). Enterprise systems integrate the key business processes of an entire firm into a single software system that enables information to flow seamlessly throughout the organization. These systems focus primarily on internal processes but may include transactions with customers and vendors. Figure 2-8

Aka enterprise resource planning (ERP) systems Enterprise Systems Enterprise Systems Aka enterprise resource planning (ERP) systems Suite of integrated software modules and a common central database Collects data from many divisions of firm for use in nearly all of firm’s internal business activities Information entered in one process is immediately available for other processes This slide describes the main purpose of enterprise systems. Ask students for examples of why it might be valuable to have information from one process instantly available to another process. The text cites the example of Alcoa, which implemented enterprise software to eliminate redundant processes and systems, reduce requisition-pay-to-cycle time, reduce 20% of worldwide costs. This illustrates the tremendous value that an effective implementation of enterprise software can have.

Enterprise Systems Enterprise Software Built around thousands of predefined business processes that reflect best practices Finance/accounting: General ledger, accounts payable, etc. Human resources: Personnel administration, payroll, etc. Manufacturing/production: Purchasing, shipping, etc. Sales/marketing: Order processing, billing, sales planning, etc. To implement, firms: Select functions of system they wish to use Map business processes to software processes Use software’s configuration tables for customizing This slide describes the functions in an enterprise software package and how it would be implemented by a firm. Ask students why it is typically best to perform only minimal changes to enterprise software and instead, change the way the firm works in order to conform to the software’s business processes.

Increase operational efficiency Enterprise Systems Business Value of Enterprise Systems Increase operational efficiency Provide firmwide information to support decision making Enable rapid responses to customer requests for information or products Include analytical tools to evaluate overall organizational performance This slide discusses the business values of enterprise systems. What does it mean for the firm that enterprise systems enforce the use of common standardized definitions and formats for data by the entire organization.?

How Enterprise Systems Work This graphic illustrates the function of enterprise software to integrate and share data between the different business functions. Figure 9-1 Enterprise systems feature a set of integrated software modules and a central database that enables data to be shared by many different business processes and functional areas throughout the enterprise

Systems That Span the Enterprise Supply chain management systems Manage firm’s relationships with suppliers Share information about Orders, production, inventory levels, delivery of products and services Goal: Right amount of products to destination with least amount of time and lowest cost Emphasize that SCM systems are interorganizational systems, automating the flow of information across organizational boundaries. This distinction is important because SCM systems must be designed with the business processes of potential partners and suppliers in mind.

Supply Chain Management Systems The supply chain Network of organizations and processes for: Procuring raw materials Transforming them into products Distributing the products Upstream supply chain: Firm’s suppliers, suppliers’ suppliers, processes for managing relationships with them Downstream supply chain: Organizations and processes responsible for delivering products to customers This slide introduces the concept of the supply chain. Supply chain management software is a type of enterprise software for managing complicated supply chains that include many suppliers. The text gives the example of Nike’s sneakers’ supply chain. What types of firms are in the upstream supply chain? In the downstream supply chain?

Supply Chain Management Systems Nike’s Supply Chain Figure 9-2 This figure illustrates the major entities in Nike’s supply chain and the flow of information upstream and downstream to coordinate the activities involved in buying, making, and moving a product. Shown here is a simplified supply chain, with the upstream portion focusing only on the suppliers for sneakers and sneaker soles. This graphic illustrates the major entities in Nike’s supply chain. Ask students what the difference is between tier 1, 2, and 3 suppliers.

Supply Chain Management Systems Information and supply chain management Inefficiencies cut into a company’s operating costs Just-in-time strategy: Safety stock Bullwhip effect This slide discusses the effects of timely and untimely information on a supply chain. Ask students what causes inefficiencies in a supply chain (parts shortages, underutilized plant capacity, excessive finished goods inventory, high transportation costs). These are caused by untimely information. Perfect information can results in a just-in-time strategy. Because of uncertainties, manufacturers keep a safety stock. Another effect of uncertainties is the bullwhip effect.

Supply Chain Management Systems The Bullwhip Effect Figure 9-3 This graphic illustrates how a slight rise in demand by customers for an item will cause successive participants to slightly overstock related inventory “just in case”. These changes are amplified as one moves back further in the system. Inaccurate information can cause minor fluctuations in demand for a product to be amplified as one moves further back in the supply chain. Minor fluctuations in retail sales for a product can create excess inventory for distributors, manufacturers, and suppliers.

Supply Chain Management Systems Supply chain planning systems Model existing supply chain Demand planning Optimize sourcing, manufacturing plans Establish inventory levels Identifying transportation modes Supply chain execution systems Manage flow of products through distribution centers and warehouses This slide discusses the two main types of supply chain management systems. Ask students to describe what demand planning is (it determines how much product a business needs to make to satisfy customer demand).

Supply Chain Management Systems Global supply chains and the Internet Before Internet, supply chain coordination hampered by difficulties of using disparate internal supply chain systems Enterprise systems supply some integration of internal supply chain processes but not designed to deal with external supply chain processes Intranets and Extranets Intranets: To improve coordination among internal supply chain processes Extranets: To coordinate supply chain processes shared with their business partners This slide discusses how Internet technology has changed supply chains, allowing integration with external supply chains, using intranets and extranets. Ask students what the value is of sharing supply chain information with external supply chain partners.

Intranets and Extranets for Supply Chain Management Supply Chain Management Systems Intranets and Extranets for Supply Chain Management This graphic illustrates how an intranet can be used to integrate information from isolated business processes within the firm. Figure 9-4 Intranets integrate information from isolated business processes within the firm to help manage its internal supply chain. Access to these private intranets can also be extended to authorized suppliers, distributors, logistics services, and, sometimes, to retail customers to improve coordination of external supply chain processes.

Supply Chain Management Systems Global supply chain issues Global supply chains typically span greater geographic distances and time differences More complex pricing issues (local taxes, transportation, etc.) Foreign government regulations Internet helps companies manage many aspects of global supply chains Sourcing, transportation, communications, international finance This slide discusses the additional complexities experienced by global supply chains. The text cites the example of Koret of California, which uses e-SPS Web-based software to gain end-to-end visibility into its entire global supply chain. Today’s apparel industry relies heavily on outsourcing to contract manufacturers in China and other low-wage countries. Apparel companies are starting to use the Web to manage their global supply chain and production issues.

Supply Chain Management Systems Demand-driven supply chains Push-based model (build-to-stock) Schedules based on best guesses of demand Pull-based model (demand-driven) Customer orders trigger events in supply chain Sequential supply chains Information and materials flow sequentially from company to company Concurrent supply chains Information flows in many directions simultaneously among members of a supply chain network This slide discusses the fact that SCM systems facilitate efficient customer response, allowing the workings of the business to be driven more by customer demand, moving from push-based, sequential models to pull-based, concurrent models. Ask students for examples from the text of the pull-based model (Wal-mart, Dell.)

Business Value of Supply Chain Management Systems Match supply to demand Reduce inventory levels Improve delivery service Speed product time to market Use assets more effectively Reduced supply chain costs Increased sales This slide examines the value of using SCM systems to businesses. Ask students how increase sales can result from a more efficient supply chain.

Supply Chain Management Systems The Future Internet-Drive Supply Chain Figure 9-6 The future Internet-driven supply chain operates like a digital logistics nervous system. It provides multidirectional communication among firms, networks of firms, and e-marketplaces so that entire networks of supply chain partners can immediately adjust inventories, orders, and capacities. This graphic illustrates the multidirectional communications within a future supply chain driven by the Internet. Private industrial networks and net marketplaces are discussed in Chapter 10. Private industrial networks are typically a large firm using an extranet to link to its suppliers and other key business partners. Net marketplaces are digital marketplaces based on Internet technology for many different buyers and sellers