Information Technology Foundations-BIT 112 CHAPTER 8 Organizational Information Systems

Information Technology Foundations-BIT Chapter Outline 8.1 Transaction Processing Systems 8.2 Functional Area Information Systems 8.3 Enterprise Resource Planning Systems 8.4 Customer Relationship Management Systems 8.5 Supply Chain Management Systems 8.6 Electronic Data Interchange and Extranets

Information Technology Foundations-BIT Learning Objectives Describe Transaction Processing Systems. Describe Functional Area Information Systems and the support they provide for each functional area of the organization. Describe Enterprise Resource Planning Systems. Describe Customer Relationship Management Systems. Describe Supply Chain Management Systems. Discuss Electronic Data Interchange and Extranets.

Information Technology Foundations-BIT Chapter Opening Case P. 232 Toyota Production System

Information Technology Foundations-BIT Toyota Production System (continued) Electronic dashboard showing status of assembly line

Information Technology Foundations-BIT Toyota Production System (continued)

Information Technology Foundations-BIT Toyota Production System (continued) The light curtain is bounded by the striped yellow/black line. The image on the right shows an actual light curtain. The light curtain is bounded by the yellow line around the mat. Clicking on either image will show a 30-second movie of how a light curtain works.

Information Technology Foundations-BIT Transaction Processing Systems (TPS) Transaction processing system (TPS) monitors, collects, stores and processes data generated from all business transactions. –A transaction is any business event that generates data worthy of being captured and stored in a database. There are two major types of TPSs. –Batch Processing When the firm collects data from transactions as they occur, placing them in groups or batches, then prepares and processes the batches periodically (e.g., every night). –Online Transaction Processing (OLTP) When business transactions are processed online as soon as they occur. Source data automation is automated TPS –Involves collecting data from sensors (e.g., barcode scanners) and entering the data directly into a computer without human intervention. Example: the barcode scanner.

Information Technology Foundations-BIT How Transaction Processing Systems Manage Data Batch Processing When the firm collects data from transactions as they occur, placing them in groups or batches, then prepares and processes the batches periodically (e.g., every night). Online Transaction Processing (OLTP) When business transactions are processed online as soon as they occur.

Information Technology Foundations-BIT Functional Area Information Systems Functional Area Information Systems are designed to support a functional area by increasing its internal effectiveness and efficiency in the following areas: –Accounting –Finance –Marketing –Operations (POM) –Human Resources Management Provide information mainly to operational managers in the functional areas via a variety of reports.

Information Technology Foundations-BIT Examples of Information Systems Supporting the Functional Areas

Information Technology Foundations-BIT Table 8.1

Information Technology Foundations-BIT Functional Area Information Systems Generate a Wide Variety of Reports Routine reports Ad hoc (on demand) reports –Drill-down reports –Key-indicator reports –Comparative reports Exception reports

Information Technology Foundations-BIT Routine - Summary Report Provides summarized information, with less detail.

Information Technology Foundations-BIT Routine - Detailed Report Provides high levels of detailed data, often in support of summary reports. Note that this detailed report provides the underlying data for “Remove Catch Basin”, which is the second item on the preceding summary report.

Information Technology Foundations-BIT Drill-Down Report Allows users to click on an item in a report and be able to access underlying details about that item. A type of ad-hoc report. RSSbus is a mashup tool that gives you the tools to quickly create structured drill-downs out of anything.

Information Technology Foundations-BIT Key-Indicator Report Summarizes the performance of critical activities. A type of ad-hoc report. The key indicator in this report is the number of prison inmates per 100,000 of population in

Information Technology Foundations-BIT Comparative Report Compare different business units and or time periods. A type of ad-hoc report. This report compares managed health care to traditional fee-for- service healthcare. For example: Advice to smokers to quit. –Fee-for-service has a 37% compliance rate. See purple arrow. –The minimum managed care plans have a 30% compliance rate. (left end of bar) –The maximum managed care plans have a 85% compliance rate. (right end of bar) –The average of all managed care plans (National Health Plan average) is 61% compliance.

Information Technology Foundations-BIT Exception Report Includes only information that falls outside certain threshold standards. This image shows a financial transaction exception report using SAP from the University of Toronto in 2003.

Information Technology Foundations-BIT Enterprise Resource Planning Systems (ERP) The major objective of ERP systems is to tightly integrate the functional areas of the organization and to enable seamless information flows across the functional areas. Integrate the planning, management and use of all organization resources. ERP systems break down the information silos of an organization. Information Silos: Database systems developed for a specific functional area that does not communicate with systems in other functional areas. Typically, older IT solutions.

Information Technology Foundations-BIT Problems with information silos

Information Technology Foundations-BIT ERP Systems (continued)

Information Technology Foundations-BIT ERP Systems – Business Process Support ERP systems provide the information necessary to control the business processes of the organization. A business process is a set of related steps or procedures designed to produce a specific outcome.

Information Technology Foundations-BIT SAP Modules SAP, a leading ERP vendor, is moving away from describing their system as a set of modules, and now is using the term “solutions.” On their Website, SAP has structured their Solutions tab as follows: –Financials –Human Resources –Customer Relationship Mgmt –Supplier Relationship Mgmt –Product Lifecycle Management –Supply Chain Management –Business Intelligence

Information Technology Foundations-BIT Customer Relationship Management (CRM) An enterprisewide effort to acquire and retain customers. CRM systems enable a one-to-one relationship between a customer and a seller to be established. –One simple idea “Treat different customers differently.” –Helps keep profitable customers and maximizes lifetime revenue from them.

Information Technology Foundations-BIT The Need for CRM It costs six times more to sell to a new customer than to sell to an existing one. A typical dissatisfied customer will tell 8-10 people. By increasing the customer retention rate by 5%, profits could increase by 85%. Odds of selling to new customers = 15%, compared to the odds of selling to existing customers (50%). 70% of complaining customers will remain loyal if problem is solved.

Information Technology Foundations-BIT The Customer Life Cycle The customer life cycle is a term used to describe the progression of steps a customer goes through when considering, purchasing, using, and maintaining loyalty to a product or service. The customer life cycle: –engage, –transact, –fulfill, and –support.

Information Technology Foundations-BIT The Value of A Customer To A Company Depends on Three Dimensions 1.Duration of the relationship, 2.Number of relationships (e.g., the quanty of customer purchased products ), 3.Profitability of the relationship.

Information Technology Foundations-BIT Customer Touch Points Methods of interaction with a customer. Telephone Conventional mail Help desk Web site Store

Information Technology Foundations-BIT CRM Systems Provide Applications In 3 Major Areas Sales Force Automation (SFA) –functions provide such data as sales prospect and contact information, product information, product configurations and sales quotes. Marketing – support marketing campaigns & provide opportunities for cross-selling, up-selling and bundling. –Cross-selling is the marketing of complementary products to customers. –Up-selling is the marketing of higher-value products or services to customers. –Bundling is a type of cross-selling in which a vendor sells a combination of products together at a lower price than the combined costs of the individual products. Customer Service – can take many Web-based forms.

Information Technology Foundations-BIT The Many Forms of Customer Service Technical and other information and services Customized products and services Tracking account or order status Personalized Web pages FAQs and automated response Call centers

Information Technology Foundations-BIT Software as a Service for CRM (IT’s About Business 8.2) P. 241

Information Technology Foundations-BIT Supply Chain Management Systems (SCM) Supply Chain –Refers to the flow of materials, information, money, and services from raw material suppliers, through factories and warehouses, to the end customers. Supply Chain Management (SCM) –The function of planning, organizing and optimizing the supply chain’s activities. Interorganizational Information System (IOS) –Involves information flows among two or more organizations. Global Information Systems –Interorganizational information systems that connect companies located in two or more countries.

Information Technology Foundations-BIT Supply Chain (recall Figure 2.2)

Information Technology Foundations-BIT Warner’s Digital Supply Chain (IT’s About Business 8.3) P. 243

Information Technology Foundations-BIT The Structure & Components of Supply Chains A supply chain involves three segments: –Upstream, where sourcing or procurement from external suppliers occurs. –Internal, where packaging, assembly or manufacturing takes place. –Downstream, where distribution takes place, frequently by external distributors. Tiers of suppliers, a supplier may have one or more subsuppliers, and the subsupplier may have its own subsupplier(s) and so on.

Information Technology Foundations-BIT Generic Supply Chain A supply chain involves a product life cycle approach, from “dirt to dust”.

Information Technology Foundations-BIT Three Flows of the Supply Chain Material flows –the physical products, raw materials, supplies and so forth that flow along the chain. Information flows –all data related to demand, shipments, orders, returns and schedules as well as changes in any of these data. Financial flows –all transfers of money, payments and credit-related data.

Information Technology Foundations-BIT Problems Along the Supply Chain Poor customer service Poor quality product High inventory costs Loss of revenues New technologies

Information Technology Foundations-BIT Problems Stem Mainly From Two Sources Uncertainties due to demand forecast, delivery times, quality problems in materials and parts that can create production delays; –A type of Inventory setting problem is the Bullwhip effect. It refers to erratic shifts in orders up and down the supply chain. The need to coordinate several activities, internal units and business partners.

Information Technology Foundations-BIT The Bullwhip Effect

Information Technology Foundations-BIT Issues of Global Interorganizational system (IOS) Design Systems that connect companies located in two or more countries have unique issues to be addressed: –Cultural differences –Localization –Economic and Political Differences –Legal issues –Cross-border data transfer which refers to the flow of corporate data across nations’ borders.

Information Technology Foundations-BIT Putting it all together The relationships among SCM, ERP, and CRM

Information Technology Foundations-BIT Electronic Data Interchange (EDI), Extensible Markup Language (XML), and Extranets Electronic data interchange (EDI) –a communication standard that enables business partners to exchange routine documents, such as purchase orders, electronically. Extensible Markup Language (XML) –a general-purpose specification for creating custom markup languages; the primary purpose is to help information systems share structured data, particularly via the Internet, and it is used both to encode documents and to serialize data. Extranets –link business partners to one another over the Internet by providing access to certain areas of each other’s corporate intranets.

Information Technology Foundations-BIT

Information Technology Foundations-BIT XML and/or EDI Benefits Minimize data entry errors Length of messages are shorter Messages are secured Reduces cycle time Increases productivity Enhances customer service Minimizes paper usage and storage

Information Technology Foundations-BIT XML and/or EDI Limitations Significant initial investment to implement Ongoing operating costs are high due to the use of expensive, private VANs Traditional EDI system is inflexible Long startup period Multiple EDI standards exist

Information Technology Foundations-BIT Comparing Purchase Order Fulfillment Without EDI and/or XML

Information Technology Foundations-BIT Comparing Purchase Order Fulfillment With EDI and/or XML

Information Technology Foundations-BIT Extranets A private network that uses Internet protocols, network connectivity, and possibly the public telecommunication system to securely share part of an organization's information or operations with suppliers, vendors, partners, customers or other businesses. An extranet can be viewed as part of a company's intranet that is extended to users outside the company (e.g.: normally over the Internet). It has also been described as a "state of mind" in which the Internet is perceived as a way to do business with a preapproved set of other companies business-to-business (B2B), in isolation from all other Internet users. In contrast, business-to-consumer (B2C) involves known server(s) of one or more companies, communicating with previously unknown consumer users. ( The main goal of extranets is to foster collaboration between business partners.

Information Technology Foundations-BIT The Structure of an Extranet

Information Technology Foundations-BIT Types of Extranets A company and its dealers, customers or suppliers. –centers around one company. An industry’s extranet –major players in an industry team up to create an extranet. Joint ventures and other business partnerships. –partners in a joint venture use extranet as a vehicle for communications and collaboration.

Information Technology Foundations-BIT Chapter Closing Case P. 256 The JetBlue Fiasco