1. Management Information Systems, Sixth Edition
Chapter 3:
Business Functions and Supply Chains

2. Objectives
Identify various business functions and the role of ISs in these functions
Explain how ISs in the basic business functions relate to each other
Articulate what supply chains are and how information technology supports management of supply chains
Management Information Systems, Sixth Edition

3. Objectives (continued)
Enumerate the purposes of customer relationship management systems
Explain enterprise resource planning systems
Management Information Systems, Sixth Edition

4. Effectiveness and Efficiency
Information technology makes work more effective, more efficient, or both
Effectiveness: the degree to which a goal is achieved
Efficiency: the relationship between resources expended and benefits gained in achieving a goal
Efficiency = Benefit / Costs
One system is more efficient if its operating costs are lower for the same or better quality product
Management Information Systems, Sixth Edition

5. Effectiveness and Efficiency (continued)
Productivity: efficiency of human resources
Productivity improves when fewer workers are required to achieve the same goal
Productivity tools: software applications that improve productivity
ISs contribute to both effectiveness and efficiency of businesses
Management Information Systems, Sixth Edition

6. Effectiveness and Efficiency (continued)
Customer relationship management (CRM) system: system that serves customers better and faster
Service continues after delivery of goods as customer service and more marketing
Often combined with supply chain management (SCM) systems to create an enterprise resource planning (ERP) system
Management Information Systems, Sixth Edition

7. Effectiveness and Efficiency (continued)
Management Information Systems, Sixth Edition

8. Effectiveness and Efficiency (continued)
Management Information Systems, Sixth Edition

9. Accounting
Accounting’s purpose is to track every financial transaction
Accounting systems are required by law and for proper management
Needed to ensure company is making a profit
Accounts payable and accounts receivable track who owes who what
Balance sheet: picture of financial situation
Includes profit-and-loss report
Management Information Systems, Sixth Edition

10. Accounting (continued)
Accounting information system: receives information from transaction processing systems (TPSs)
Automatically routes purchases to accounts payable
Automatically routes sales to accounts receivable
Generates reports on demand or on schedule
Work order: an authorization to perform work for a specific purpose
Management Information Systems, Sixth Edition

11. Accounting (continued)
Cost-accounting systems: accumulate data about costs involved in producing specific products
Accounting ISs are used for managerial purposes for budgeting and cost control
Management Information Systems, Sixth Edition

12. Accounting (continued)
Management Information Systems, Sixth Edition

13. Finance Firm’s health is measured by its finances
Information systems can improve financial management
Financial managers’ goal is to manage money as efficiently as possible by:
Collecting payables as soon as possible
Making payments at the latest time allowed
Ensuring funds are available for daily operations
Investing funds not used for current activities
Management Information Systems, Sixth Edition

14. Finance (continued)
Management Information Systems, Sixth Edition

15. Cash Management
Financial information systems help managers track company finances
Cash management systems: systems that deal specifically with cash
Electronic funds transfer: electronic transfer of cash from one bank account to another
Management Information Systems, Sixth Edition

16. Investment Analysis and Service
Investor’s goal is to buy an asset and sell it for a higher value
When investing in securities, you must know current prices in real time
Nearly instantaneous information systems can provide investors and clients with financial news, stock prices, commodity prices, and currency exchange rates
Management Information Systems, Sixth Edition

17. Investment Analysis and Service (continued)
Some important factors to consider in investing:
Variability of the security’s past yield
Expected return
Liquidity (how fast an investment can be turned into cash)
Management Information Systems, Sixth Edition

18. Engineering
Time to market: time between generating an idea for a product and completing a prototype
Brainstorming: process of a group of colleagues meeting and collaborating to generate creative solutions and new ideas
Minimizing time to market is key to maintaining competitive edge
Information systems can contribute significantly to minimizing time to market
Management Information Systems, Sixth Edition

19. Engineering (continued)
Computer-aided design (CAD): tools to create, modify, and store designs and drawings electronically
Rapid prototyping: creating one-of-a-kind products to test design in three dimensions
Allows a model to be produced in hours rather than days or weeks
Computer-aided manufacturing (CAM): systems that instruct machines how to manufacture parts and assemble products
CAD systems often transfer data automatically to CAM systems
Management Information Systems, Sixth Edition

20. Engineering (continued)
Management Information Systems, Sixth Edition

21. Supply Chain Management
Supply chain: consists of procurement of raw materials, processing materials into goods, and delivering goods
Processing raw materials into goods is also known as manufacturing
Supply chain management: monitoring, controlling, and facilitating supply chains
Instrumental in reducing manufacturing cost
In retail the manufacturing phase does not exist and in service industries the term “manufacturing” is not applicable or meaningless.
Management Information Systems, Sixth Edition

22. Supply Chain Management (continued)
IT helps in manufacturing activities:
Scheduling plant activities to optimize the use of resources
Planning material requirements based on current and forecasted demand
Reallocating materials and resources from one order to another
Managing inventories
Grouping similar work orders for efficiency
Management Information Systems, Sixth Edition

23. Supply Chain Management (continued)
Management Information Systems, Sixth Edition

24. Material Requirements Planning and Purchasing
Material requirements planning (MRP): inventory control
Inventory based on future need not on past use
Determines when inventory needs to be restocked
Can predict future need based on demand forecasts
Takes customer demand as input, then works back to calculate resources needed to produce goods
Management Information Systems, Sixth Edition

25. Material Requirements Planning and Purchasing (continued)
Bill of materials (BOM): list of all raw materials and subcomponent demands to produce a product
Economic order quantity (EOQ): optimal quantity of a raw material that minimizes overstocking and saves cost, without missing production deadlines
Considers cost, discounts for large quantities, cost of warehousing material, cost of alternative uses of money, etc.
Management Information Systems, Sixth Edition

26. Manufacturing Resource Planning
Manufacturing resource planning (MRP II): combines MRP with other related activities to plan the entire manufacturing process
Can quickly modify schedules to accommodate orders, track production in real time & fix quality slippage
Uses master production schedule
Master production schedule: specifies how production capacity is to be used to meet customer demands and maintain inventory
It helps balance production economies, customer demands, manufacturing capacity, inventory levels over a planning horizon of several months.
Just-in-time manufacturing: suppliers ship parts directly to assembly lines as needed
Avoids warehousing costs (e.g. Cisco)
Management Information Systems, Sixth Edition

27. Monitoring and Control
Information systems are designed to control manufacturing processes as well as monitor them
Controlling processes helps ensure quality
Example: Ford Motor Company’s Project Execution.
Management Information Systems, Sixth Edition

28. RFID in SCM
Radio frequency identification (RFID): a technology containing circuitry that allows recording of information about a product
Electronic product code (EPC): a code on an RIFD tag that provides more information than the universal product code (UPC)
Information may include date of manufacturing, plant location, expiration date, destination
Ensures genuineness of products
Management Information Systems, Sixth Edition

29. RFID in SCM (continued)
Management Information Systems, Sixth Edition

30. RFID in SCM (continued)
Management Information Systems, Sixth Edition

31. Customer Relationship Management
Customer relationship management (CRM) systems: designed to support any and all relationships with customers
Supports three areas
Marketing
Sales
Customer service
CRM systems capture the entire customer experience with an organization
All company employees who deal with the customer have access to this information
Management Information Systems, Sixth Edition

32. Customer Relationship Management (continued)
Management Information Systems, Sixth Edition

33. Targeted Marketing
Targeted marketing: promotes to people most likely to purchase products
Database technology allows all companies to use targeted marketing, even small companies
Can direct promotional dollars to customers most likely to buy
Spam: cheap method of advertising involving sending mass communications
Management Information Systems, Sixth Edition

34. Targeted Marketing (continued)
Management Information Systems, Sixth Edition

35. Targeted Marketing (continued)
Database management systems sort consumers based on demographic information
Telemarketing: marketing over the telephone
Caller has large database of consumer data
Computer telephony integration: allows computer to use telephone line as input
Caller ID can be used to locate customer data
Data mining: uses large data warehouses to find trends and shopping habits of various demographic groups
Management Information Systems, Sixth Edition

36. Targeted Marketing (continued)
Targeted marketing and Web technologies enable retailers to personalize online shopping
Software can track Web page click streams to determine customer preferences
Management Information Systems, Sixth Edition

37. Human Resource Management
Human resource management (HRM) can be classified into five main activities:
Employee record management
Promotion and recruitment
Training
Evaluation
Compensation and benefits management
Management Information Systems, Sixth Edition

38. Human Resource Management (continued)F
Management Information Systems, Sixth Edition

39. Employee Record Management
HR departments must keep personnel records
To satisfy laws
For payroll and tax calculation and deposit
For promotion consideration
For periodic reporting
Human resource ISs are now digitized
Saves space to store records, time to retrieve them, and costs of both
Management Information Systems, Sixth Edition

40. Employee Record Management (continued)
Management Information Systems, Sixth Edition

41. Promotion and Recruitment
HR can select best-qualified person for position by searching database of applicants and existing employees for specific criteria
Automating the selection process significantly minimizes time and money for recruitment
Intranet: inter-organizational network that supports Web applications
Allows HR manager to post position vacancy announcements that get wide exposure
Management Information Systems, Sixth Edition

42. Training One important HR function is improving employee skills
Multimedia software training is replacing classrooms and teachers
May include 3D virtual reality simulated environments in which the employee must act
Information technology reduces training costs dramatically
Management Information Systems, Sixth Edition

43. Evaluation
Employee ability must be periodically evaluated by supervisors
May include evaluation of technical ability, communication skills, professional conduct, and general behavior
Often a subjective process, which is a problem
Evaluation software tries to solve this problem by standardizing evaluation process
Provides tools to aid in evaluating every employee fairly and objectively
Management Information Systems, Sixth Edition

44. Compensation and Benefits Management
Compensation includes salary, hourly pay, commissions, and bonuses
Programs calculate pay and taxes
Automatically generate paychecks and perform direct deposits
Software can help manage benefits
Benefits database accessible through intranet or Internet
Management Information Systems, Sixth Edition

45. Supply Chain Management Systems
Overall inventory in the U.S. is decreasing while U.S. gross domestic product (GDP) is increasing
Money saved from reduced inventory can be spent elsewhere
Reduction in inventory attributed to the use of ISs, especially supply chain management systems
Streamline operations throughout chain
ERP systems can also serve as SCM systems, connecting multiple organizations
Management Information Systems, Sixth Edition

46. Supply Chain Management Systems (continued)
Management Information Systems, Sixth Edition

47. The Importance of Trust
Supply chain systems work best when all businesses in the chain are sharing information
Trust between allied companies facilitates collaboration
Risk of disclosing important information to competitors is present
Risk of taking advantage of demand figures by charging higher prices is present
Management Information Systems, Sixth Edition

48. The Musical Chairs of Inventory
Small enterprises do not use SCM systems
Affect more powerful organization to which small enterprise is linked
Inventory turns: the number of times the business sells its inventory per year
When SCMs of companies are not linked, demand requirements are unknown, so supply companies must overstock inventory
One company “sits” with lean inventory while other stands with “overstock,” hence musical chairs
Management Information Systems, Sixth Edition

49. Collaborative Logistics
Web allows organizations from different industries to collaborate
Businesses combine freight and share trucks
Can optimize logistics by connecting SCM systems
SCM systems can allow collaborative warehousing to share warehouse space
Management Information Systems, Sixth Edition

50. Enterprise Resource Planning
Many companies replace old, disparate information systems with enterprise applications
Enterprise resource planning (ERP) system: manages daily operations and facilitates planning
Current ERP market includes four vendors:
SAP
Oracle
Microsoft
Sage Software
Management Information Systems, Sixth Edition

51. Challenges and Disadvantages of ERP Systems
ERP systems pose many challenges:
They are complex
They often require special tailoring for specific organizations
They may not support a company’s unique sets of business processes
They are expensive
A process that becomes a weak link in one area may negatively affect other integrated processes
Management Information Systems, Sixth Edition

52. Providing the Missing Reengineering
Although most reengineering projects of the 1990s failed, ERP systems helped realize many of those ideas
ERP systems forced changes in processes
ERP systems allow better planning and managing of processes at the organizational level instead of at the organizational unit level
Management Information Systems, Sixth Edition

53. Summary Effectiveness is the degree to which a task is accomplished
Efficiency is the ratio of output to input
Productivity is the measure of people’s efficiency
Information systems have been integrated into accounting services
Financial information systems help managers track cash
Management Information Systems, Sixth Edition

54. Summary (continued)
Computer-aided design (CAD) systems help engineers design new projects
Computer-aided manufacturing (CAM) systems direct machines that assemble parts
Supply chain management (SCM) systems optimize workload, speed, and cost in supply chains
Customer relationship management (CRM) includes the entire cycle of relationships with customers
Management Information Systems, Sixth Edition

55. Summary (continued)
Human resource management systems facilitate staff selection and record keeping
Multiple companies’ SCM systems can be linked, facilitating cooperation, which requires trust
An enterprise resource planning (ERP) system can encompass all business processes, but is expensive and challenging
Management Information Systems, Sixth Edition