CHAPTER 8 Organizational Information Systems

Opening Case THE BREADTH OF INFORMATION TECHNOLOGY APPLICATIONS AT UPS Founded in 1907 as a messenger company in the U.S. UPS has grown into a $45-billion corporation by focusing on the goal of enabling commerce around the globe. The Business Problem Of course, UPS is not impervious to recessions. As of mid-2010, the entire express shipping industry, including UPS, was experiencing the effects of the economic downturn. Despite its problems, however, UPS plans not only to survive the difficult times but to emerge from them in better shape than its competitors. In fact, the company is positioning itself for rapid growth as the economy improves. To achieve this vision, UPS is adhering to its long-term commitment to information technology investments.

Opening Case Discussion Take a look at the UPS website at www.ups.com. What types of information systems does UPS use with its customers? What are some additional information systems that the company could use? What type of security should UPS have over its systems? Why is security and privacy important for a company like UPS?

Opening Case What we learned from this case? The opening case illustrates many of the information systems that we discuss in detail in this chapter and introduced in Chapter 2. UPS continues to develop information systems to support its global operations. In fact, UPS has implemented many different information systems and integrated them successfully, with outstanding corporate results.

Agenda 8.1 Transaction Processing Systems 8.2 Functional Area Information Systems 8.2.1 Definition 8.2.2 Information systems for specific functional areas 8.2.3 Functional area information systems reports 8.3 Enterprise Resource Planning Systems 8.3.1 Definition 8.3.2 Benefits and limitation of ERP 8.3.3 Enterprise application integration

CHAPTER OVERVIEW

LEARNING OBJECTIVES Describe transaction processing systems. (8.1) Describe functional area information systems and the support they provide for each functional area of the organization.(8.2) Describe enterprise resource planning systems, their benefits, and limitations.(8.3)

8.1 Transaction Processing Systems 8.1.1 Transaction processing system (TPS) 8.1.2 Batch Processing 8.1.3 Real-time transaction processing (Online Transaction Processing)

Transaction processing system (TPS) monitors, collects, stores and processes data generated from all business transactions. Batch Processing is when the firm collects data from transactions as they occur, placing them in groups or batches, then prepares and processes the batches periodically (say, every night). Real-time transaction processing (online transaction processing is when business transactions are processed online as soon as they occur.

How Transaction Processing Systems Manage Data

8.2 Functional Area Information Systems 8.2.1 Definition 8.2.2 Information systems for specific functional areas 8.2.3 Functional area information systems reports

8.2.1 Definition Functional area information systems (FAISs) provide information primarily to lower- and middle-level managers in the various functional areas. Managers use this information to help plan, organize, and control operations.

8.2.2 Information systems for specific functional areas The support that management information systems provide for functional areas include: Accounting Finance Human Resources Management Operations (POM) Marketing

Examples of Information Systems Supporting the Functional Areas

Information Systems for Accounting and Finance Financial and Economic Forecasting. Knowledge about the availability and cost of money is a key ingredient for successful financial planning. Cash flow projections are particularly important, because they tell organizations what funds they need and when, and how they will acquire them. Budgeting. An essential part of the accounting/finance function is the annual budget, which allocates the organization’s financial resources among participants and activities. The budget allows management to distribute resources in the way that best supports the organization’s mission and goals.

Investment Management: Organizations invest large amounts of money in shares, bonds, real estate, and other assets. Managing these investments is a complex task. To monitor, interpret, and analyze the huge amounts of on-line financial data, financial analysts employ two major types of IT tools: (1) Internet search engines and (2) business intelligence and decision support software.

Information Systems for Marketing It is impossible to overestimate the importance of customers to any organization. Therefore, any successful organization must understand its customers’ needs and wants, and then develop its marketing and advertising strategies around them. Information systems provide numerous types of support to the marketing function. In fact, customer-centric organizations are so important that we devote Chapter 9 (Customer Relationship Management) to this topic.

Information Systems for Production/Operations Management The production and operations management (POM) function in an organization is responsible for the processes that transform inputs into useful outputs and for the operation of the business. Because of the breadth and variety of POM functions, we present only four here: in-house logistics and materials management planning production and operation computer-integrated manufacturing (CIM) product life cycle management (PLM)

In-House Logistics and Materials Management Logistics management deals with ordering, purchasing, inbound logistics (receiving), and outbound logistics (shipping) activities. Related activities include inventory management and quality control. Inventory management determines how much inventory to keep available for manufacturing or for sale to customers. Quality-control systems used by manufacturing units provide information about the quality of incoming material and parts, as well as the quality of in-process semi-finished products and final finished products.

Planning Production and Operations In many firms, POM planning is supported by IT. POM planning has evolved from material requirements planning (MRP), to manufacturing resource planning (MRP II), to enterprise resource planning (ERP). The planning process that integrates production, purchasing, and inventory management of interdependent items is called material requirements planning (MRP). MRP deals only with production scheduling and inventories. More complex planning also involves allocating related resources (e.g., money and labour). In such a case, more complex, integrated software, called manufacturing resource planning (MRP II)

Computer-Integrated Manufacturing Computer-integrated manufacturing (CIM; also called digital manufacturing) is an approach that integrates various automated factory systems. CIM has three basic goals: to simplify manufacturing technologies and techniques, to automate as many of the manufacturing processes as possible, and to integrate and coordinate design, manufacturing, and related functions via computer systems.

Product Life Cycle Management Product life cycle management (PLM) is a business strategy that enables manufacturers to share product-related data to support product design and development and supply chain operations.

Information Systems for Human Resource Management Organizations today are now using IT to perform some key HR functions: recruitment, HR maintenance and development, Payroll, Employee Benefit Administration and HR planning and management?

8.2.3 Functional area information systems reports Routine reports Ad hoc (on demand) reports Drill-down reports Key-indicator reports Comparative reports Exception reports Functional area information systems generate a wide variety of reports. Summary reports provide summarized information, with less detail. A drill-down report allows users to click on an item in a report and be able to access underlying details about that item. A key indicator report summarizes the performance of critical activities. Exception reports include only information that falls outside certain threshold standards.

Functional area information systems generate a wide variety of reports. Summary reports provide summarized information, with less detail. Drill-down report allows users to click on an item in a report and be able to access underlying details about that item. Key indicator report summarizes the performance of critical activities. Exception reports include only information that falls outside certain threshold standards.

8.3 Enterprise Resource Planning Systems 8.3.1 Definition 8.3.2 Benefits and limitation of ERP 8.3.3 Enterprise application integration

8.3.1 Definition Enterprise Resource Planning (ERP) systems integrate the planning, management and use of all resources of the organization. That is, ERP systems are designed to break down the information silos of an organization. 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. A business process is a set of related steps or procedures designed to produce a specific outcome.

SAP Modules

SAP 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 Management Supplier Relationship Management Product Lifecycle Management Supply Chain Management Business Intelligence SAP modules: FI Financial Accounting – essentially your regulatory ‘books of record’ Book close General ledger Tax Accounts receivable Consolidation Accounts payable Special ledgers Cost elements CO Controlling – basically your internal cost/management accounting Internal orders Profit centers Cost centers AM Asset Management – track, value and depreciate your assets Product costing Activity based costing Depreciation Sale Purchase PS Project Systems – manage your projects, large and small Tracking Plant shut downs (as a project) Make to order Third party billing (on the back of a project) Employment history HR Human Resources – people Career management Training Payroll Succession planning Labor PM Plant Maintenance – maintain your equipment Material MM Materials Management – underpins the supply chain Down time and outages Purchase orders Requisitions Goods receipts Bills of Material Inventory management Planning QM Quality Management – improve the quality of your goods Master raw materials, finished goods etc Inspections Execution Certificates PP Production Planning – manages your production process Master production scheduling Capacity planning Material requirements planning Shop floor RFQ SD Sales and Distribution – from order to delivery Picking (and other warehouse processes) Pricing Sales orders Shipping Packing CA Cross Application – these lie on top of the individual modules WF – workflow Office – for email BW – business information warehouse Industry solutions Workplace New Dimension products such as CRM, PLM, SRM, APO etc

8.3.2 Benefits and limitation of ERP The major benefits fall into the following categories: Organizational flexibility and agility Decision support Quality and efficiency Decreased costs

Limitation Companies may need to change existing business processes to fit the predefined business processes of the software ERP systems can be extremely complex, expensive, and time consuming to implement. The costs and risks of failure in implementing a new ERP system are substantial

8.3.3 Enterprise Application Integration An Enterprise Application Integration (EAI) system integrates existing systems by providing layers of software that connect applications together. The EAI system enables existing applications to communicate and share data, thereby enabling organizations to use existing applications while eliminating many of the problems caused by isolated information systems.

Closing Case THE NO-FLY ZONE In the weeks following the attacks of September 11, 2001, the U.S. government sought ways to increase the amount of intelligence data accessible to all agents and key agencies in the form of meaningful reports. The Business Problem For example, in a now-famous memo from an FBI field office in Phoenix, Arizona, an agent reported suspicions about Middle Eastern men training in Arizona flight schools prior to September 2001. Unfortunately, the agent’s superiors never acted on this information. These men turned out to be among the 9/11 hijackers.

Closing Case Discussion Is the watch list program a success or a failure? Support your answer. Are the problems with the watch list the result of technology? If so, how? If not, what is the cause of the problems with the watch list? Support your answer.

Closing Case The Results James Robinson is a retired Air National Guard brigadier general and a commercial pilot for a major airline. However, he has trouble even getting to his plane because his name is on the government’s terrorist watch list. He must go to the ticket counter and have an agent verify that he is James Robinson, the pilot, and not James Robinson, the terrorist. More than 30,000 airline passengers who have been misidentified in the United States have asked the TSA to have their names cleared from the watch list. Unfortunately, the number of requests to TRIP is more than 2,000 names per month. That number is so high that the DHS has been unable to meet its goal of resolving cases in 30 days.

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