1 Information Systems for Business Integration BUS Abdou Illia, Spring 2007 (Week 13, Thursday 4/5/2007)

2 LEARNING GOALS  Explain the difference between horizontal and vertical business integration.  Describe how Enterprise Resource Planning systems integrate internal business processes.  Describe how businesses can use Supply Chain Management systems to improve balance product demand with supply.  Describe how businesses can use Customer Relationship Management systems to improve the customer experience.

3 Traditional File System: Integration problem  Each system uses its own programs and files  When systems are not integrated Inability to share data Difficulties in maintaining Allows data duplication (i.e. redundancy) System 1 Program 1 File 1 File 2 File 3 Program 2 File 1 File 2 File 3 System 2 Program 1 File 1 File 2 File 3 Program 2 File 1 File 2 File 3

4 Database Systems: A Solution to Integration problem  Systems share the same database  Database allows systems integration Systems share the same data Systems are easy to maintain No (or less) redundancy System 1 Program 1 Program 2 System 2 Program 1 Program 2 DBMS

5 Business Integration? Sales Department Logistics Department Production Department Horizontal Integration VerticalVertical IntegrationIntegration Suppliers Customers

6 Why Horizontal Integration?  Possible consequences of bad horizontal integration: Delivery personnel not available when needed Sold products not delivered on time Etc. Sales Information System Operation & Delivery Information System Lack of good integration means: - No reliable interface - No effective communications Q: What kind of solution can provide business integration in this specific case?

7 Systems for Horizontal Integration  Enterprise Resource Planning (ERP) systems integrate all the internal processes through a common information system ERP system Sales Department Logistics Department Production Department Warehousing Marketing Department Accounting Department Common Database Process1Process2Process1Process2Process1Process2Process1Process2Process1Process2Process1Process2

8 Integrating Internal Processes with ERP  ERP systems integrate all the functions and departments within an organization through a common information system  Most common modules for an ERP system Finance Manufacturing: helps from product development to production Human resources: Handles all HR functions Procurement: helps manage the purchase of office supply & raw material Marketing: manage relationship with customers  ERP mainly used by medium and large businesses Average lifetime cost: $15 Million (2003 surveys) Implementation process: up to 5 years

9 Integrating Internal Processes with ERP

10 Factors in ERP System Success  Active support of upper management  Having the best people on the implementation team  Managing the time line well  Soliciting user involvement

11 Vertical Integration with suppliers  Possible consequences of bad vertical integration with suppliers: Raw material shortage Receiving more raw material than needed Etc. Suppliers Company’s Internal processes Lack of good integration Q: What kind of solution can provide business integration in this specific case? Sales Department Process1 Process2 Delivery Department Process1 Process2 Production Department Process1 Process2

12 Systems for Vertical Integration  Electronic Data Interchange (EDI): Direct computer-to-computer transfer of business documents in electronic form Suppliers Company’s Internal processes Sales Department Process1 Process2 Delivery Department Process1 Process2 Production Department Process1 Process2 EDI System Value Added Network (VAN) or Private network connection

13 Electronic Data Interchange (EDI)  Allows automatic transfer of electronic order forms and their automatic processing  EDI relies on a pair of message standards ANSI X12 – used in North America EDIFACT – international, but widely used in Europe  Advantages: Eliminates paperwork Reduces errors Speeds supply process  Disadvantages: Provides connection only between two companies Limits freedom of comparing prices.

14 Systems for Vertical Integration  Supply chain management (SCM) system provide a direct electronic connection with suppliers Company’s Internal processes Sales Department Process1 Process2 Delivery Department Process1 Process2 Production Department Process1 Process2 SCM System Network connection Suppliers - Forecast demand - Handle purchase of supply - Manage storage + shipping Three main functions

15 Supply Chain Management (SCM)  Stages of SCM (SC Council’s Reference Model): 1)Planning: develop and implement processes that attempt to forecast demand for products and services  Goal: Balance demand with supply of raw material 2)Sourcing: determine who should supply the items required  Goal: Be supplied on time, within budget 3)Production: make the product 1)Schedule production 2)Ensure raw materials are on hand when needed 4)Product delivery (logistics) 1)Everything from receiving a customer inquiry to invoicing 2)Warehouse management is one very important factor 5)Returns: managing returns of raw materials as well as finished goods

16 Vertical Integration with customers  Possible consequences of bad vertical integration with customers: Out of product Poor customer support Etc. Customers Lack of good integration Q: What kind of solution can provide business integration in this specific case? Company’s Internal processes Sales Department Process1 Process2 Delivery Department Process1 Process2 Production Department Process1 Process2

17 Systems for Vertical Integration  Customer Relationship Management (CRM) information system for managing all of the functions that deal with customers  Goal of CRM is to increase sales and repeat business by learning the customer Remember the customer’s needs and preferences Determine the customer’s satisfaction with service Determine which customers are in the magic 20 percent (or have the potential to become part of it)

18 CRM software  CRM software modules include Personalization Marketing automation Sales force automation Service and support

19 CRM Module Functions  Personalization One-to-one marketing through personalized products and services  Marketing automation Determine market segments Planning and implementing campaigns Analyzing results Segment customers  Demographics  Past purchases  Preferred method of shopping

20 CRM Module Functions (continued)  Sales force automation Managing contacts and leads by storing customers’ basic demographic data Provide to-do lists and calendars Recognize early customer trends Forecasts of future sales  Service and support After-sales support Complaint resolution Returns

21 Summary Questions MalagaNotes 1)What is the difference between Horizontal integration and Vertical integration? 2) (a) What kind of IS could be used for horizontal integration of business processes? (b) What kind of IS could be used for vertical integration of business processes? 3)(a) What are the common modules found in ERP systems? (b) Name few ERP software vendors. (c) What are the success factors of ERP implementation? 4)What is EDI? What kind of network connections are usually used in EDI? What is the EDI message standard used in the U.S.? 5)What is a SCM system? What is the main goal of an SCM system? 5)What is a CRM software used for? What is their goal?