Chapter 8 Transaction Processing, Electronic Commerce, and Enterprise Resource Planning Systems

Sophistication & complexity of processing & analysis TPS, MIS, DSS, and AI/ES Hierarchy: Information AI/ES Less More Less More DSS Sophistication & complexity of processing & analysis Decision support Input & output Routine MIS TPS Data More Less More Less

Transactions Transactions… Transaction processing systems (TPS) Basic business operations such as customer orders, purchase orders, receipts, time cards, invoices, and payroll checks in an organization Transaction processing systems (TPS) Perform routine operations and serve as a foundation for other systems

Batch vs. On-Line Transaction Processing Two types of TPS: Batch processing A system whereby business transactions are accumulated over a period of time and prepared for processing as a single unit or batch On-line transaction processing (OLTP) A system whereby each transaction is processed immediately, without the delay of accumulating transactions into a batch

Data entry of accumulated transactions Batch Schematic Data entry of accumulated transactions Input (batched) Output

On-line Schematic Immediate processing of each transaction Output Terminal Terminal Terminal Output Immediate processing of each transaction Terminal Terminal Terminal

Applications software Integration of TPSs Schematic [ ]x n = Applications software People

Objectives of TPS Process data generated by and about transactions Maintain a high degree of accuracy Ensure data and information integrity and accuracy Produce timely documents and reports Increase labour efficiency Help provide increased and enhanced service Help build and maintain customer loyalty Achieve competitive advantage

Simplified Overview of a Transaction Processing System Schematic

Data entry & input Documents & reports Processing Database Documents: pick list cheques to vendors receiving notices paycheques Operational reports: finished product inventory status raw materials; packing materials; spare parts; inventory status Internally generated transactions: shipped orders purchase orders employee time cards Externally generated transactions: customer orders vendor invoices customer payments Database Database update: customer orders inventory purchase orders customers suppliers

Data Processing Activities Common to TPSs A transaction processing cycle Data collection Data editing Data correction Data manipulation Data storage Document production Schematic

Original data Data collection Data edit Data manipulation Data correction Data storage Document production

Source Data Automation The process of capturing data at its source with minimal manual effort Data are entered directly into the computer

Point-of-Sale Transaction Processing System Customer’s receipt Inventory database Management information system Exception report UPC and quantity Point-of-sale transaction processing system UPC Scanner Quantity, Date, time Item, quantity, date, time, price Purchases database UPC Price Item database

Control and Management Issues Business resumption planning The process of anticipating and providing for disasters. Disaster recovery The implementation of the business resumption plan. Transaction processing system audit An examination of the TPS in an attempt to answer three basic questions Does the system meet the business need? What procedures and controls have been established? Are the procedures and controls being properly used?

Traditional TPS – Order Processing Processing an order from entry to delivery, including traditional accounting transactions Schematic

Finished product inventory Customer Invoice Products Customer order in person or via mail, phone, EDI, internet Order entry/ sales configuration Inventory status Orders Planned shipments Finished product inventory Shipment planning Routing Pick list Planned shipments & routes Shipment execution Scheduling Shipped orders Invoicing

Data Flow Diagram of an Order Entry System Schematic

2. Verify product numbers & stock on hand Inventory D1 Products/prices D2 Customer payment history Product numbers, inventory levels Products, price information Credit status 2. Verify product numbers & stock on hand Open orders 1. Collect order info 3. Authorize credit Orders Orders D3 New orders Rejected, partly filled orders Back orders Back orders 4. Notify customer D4 Back orders Customer Customer notification Rejected orders D5 Rejected orders

Order Processing Support Systems - Sales Configuration Ensures that products and services ordered are sufficient to accomplish customer’s objectives and will work well together

Order Processing Support Systems - Shipment Planning A system that determines which open orders will be filled and from which location they will be shipped E.g., (from Figure 8.9) LOC LINK ITEM NUMBER DESCRIPTION ORDERED SHIPPED BO 8 105 10 L1L16028 20 S8276 30 S8279 40 FASENTING TOOL STAPLE ¾ INCH STAPLE 1 INCH SHIPPING CHARGE 3 15 EACH CASE 12

Order Processing Support Systems - Shipment Execution A system that coordinates the outflow of all products and goods from the organization, with the objective of delivering quality products on time to customers

Order Processing Support Systems - Inventory Control A system that updates the computerized inventory records to reflect the exact quantity on hand of each stock keeping unit Status reports Summarize all inventory items in stock, or shipped over a specified period of time E.g., see Figure 8.10

Order Processing Support Systems - Invoicing Generates customer invoices based on records received from the shipment execution TPS E.g., see Figure 8.11

Order Processing Support Systems - Customer Interaction System A system that monitors and tracks each customer interaction with the company

Customer interaction system Request for proposal Sale Problem, idea, request for information Other contacts Customer interaction system Market research Product development Sales Quality control Marketing

Order Processing Support Systems - Routing and Scheduling A system that determines the best way to get goods and products from one location to another Scheduling A system that determines the best time to deliver goods and services

Purchasing System Schematic

Purchase order processing Raw materials Packing materials Spare parts Inventory control Inventory control status report Purchase order request Employees Purchase order processing Purchase order Purchase order Receiving Supplier Material Receiving notice Invoice Accounts payable Cheque

Purchasing System Inventory control Purchase order (P.O.) processing Maintains stock of items such as raw materials, packing materials, spare parts, and supplies Purchase order (P.O.) processing A system that helps purchasing department complete transactions quickly and efficiently Receiving A system that creates a record of expected and actual receipts Reconciles purchase orders with what is actually received Accounts payable A system that increases an organization’s control over purchasing, improves cash flow increases profitability, and provides more effective management of current liabilities

P.O. Example (Click to view)

Accounting System Accounting systems Consist of… Budget Accounts receivable Accounts payable Payroll Asset management General ledger

Accounts Payable Example (Click to view)

Financial Systems Schematic

Customer Asset management Cost of assets Payments Accounts payable Accounts receivable Amounts owed by customers Amounts paid by customers Amounts owed by company Amounts paid by company Payroll Labour costs General ledger Asset depreciation Paycheques Expense transactions Time cards Customer Budget

Financial Systems - Accounts Receivable A system that manages the cash flow of the company by keeping track of the money owed the company on charges for goods sold and services performed

‘Statement of Account’ Example (Click to view)

Financial Systems – Accounts Receivable Accounts receivable aging report Tells managers what bills are overdue, either customer by customer or in a summary format

‘Aging Report’ Example (Click to view)

Financial Systems - Payroll Generates payroll checks and stubs, as well as W-2 statements at the end of the year for tax purposes

Financial Systems - Payroll Payroll journal Helps managers monitor total payroll costs for an organization and the impact of those costs on cash flow

Financial Systems - Asset Management Asset management transaction processing system A system that controls investments in capital equipment and manages depreciation for maximum tax benefits

Financial Systems - General Ledger

Electronic Commerce (E-commerce) Business-to-business problems Inadequate models Integrating with existing systems Improving relationships with suppliers, customers, distributors. Consumer problems Wait for images to download Security of credit information Figuring out the ordering process Currently a small part of all commerce

Five Stage Model of E-Commerce The stages consumers experience in the sales life cycle Schematic

2. Selection & negotiation 4. Product & service delivery Buyer Electronic distribution Traditional delivery 1. Search and Identify 5. After sales service 2. Selection & negotiation 4. Product & service delivery 3. Purchasing

Buying Over the Internet Prepare list of items needed Log on to internet Access supplier’s home page Browse supplier’s catalog Input sent to supplier’s order entry system Place order Review response to request for quotation Fill out request for quotation form Pick items

Forecasted Volume of E-Commerce Mode 1997 2000 Consumer $0.5 billion $7 billion Business $8.0 billion $66 billion

Purchasing Products and Services Electronically Establish credit with suppliers Secure E-commerce transactions Secure financial transaction (SFT) SET = “secure electronic transaction” CyberCash

SET ‘Discussion’ (1) Short for Secure Electronic Transaction, a new standard that will enable secure credit card transactions on the Internet. SET has been endorsed by virtually all the major players in the electronic commerce arena, including Microsoft, Netscape, Visa, and Mastercard. By employing digital signatures, SET will enable merchants to verify that buyers are who they claim to be. And it will protect buyers by providing a mechanism for their credit card number to be transferred directly to the credit card issuer for verification and billing without

SET ‘Discussion’ (2) the merchant being able to see the number. The first applications based on SET are expected appeared in 1998.

Enterprise Resource Planning (ERP) Real-time monitoring of business functions Advantages Eliminate costly, inflexible legacy systems Provide improved work processes Provide access to data for operational decision making Upgrading technology infrastrucutre Disadvantages Time consuming, difficult, expensive to implement Make radical changes in how a company operates Lack of vendor responsiveness in light of high demand

ERP Examples Software Vendor Name of Product Avalon Software Avalon CIM qad.inc MRG/PRO Oracle Oracle Manufacturing SAP America SAP R/3 Baan Triton PeopleSoft J.D. Edwards World

Example of an ERP System - SAP/R3 Clients in the SAP system Application servers in the SAP system Business application programming interfaces (BAPIs) Database server in the SAP systems Objects in the SAP system Repository Tables

SAP Three-Tier Client/Server Architecture Database server Application servers Client desktop computers

Business Application Programming Interface (BAPI) Business processes Standard request for data or processing Standard results BAPI (public interface) Results consistent with current version of SAP software Request for data or processing consistent with current version of SAP software SAP software

End of Chapter 8 Chapter 9