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CHAPTER 8 Transaction Processing, Innovative Functional Systems, and Integration

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IT for Management Prof. Efraim Turban

Learning Objectives
Relate functional areas and business processes to the value chain model Identify functional management information systems Describe the transaction processing system and demonstrate how it is supported by IT Describe the support provided by IT to each of these: production/operations, marketing and sales, accounting, finance, and human resources management Describe the benefits and issues of integrating functional information systems Describe the role of IT in facilitating customer relationship management (CRM)
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IT for Management Prof. Efraim Turban

Integrated Solutions Help Colonial Building Supply, Stay Competitive


The Problem
to remain competitive, Colonial Building Supply needed a technology to provide it with information about inventory levels and customer buying trends

The Solution
purchased a integrated system that includes: accounting, POS terminal, inventory control, purchasing/receiving, employee time control and attendance, hand-held automatic identification and data collection, and several others

The Results
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Lower cost for data entry, reduction in inventory and storage space, fast access to information, better customer service, and higher employee satisfaction

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IT support the routine processes of a retailer, enabling it to be efficient and effective and to satisfy its customers IT software helped the modernization and reengineering of the companys major business processes The software supports several business processes, not just one The systems major applications were in logistics. However, a vendor provides integrated software IT can be beneficial to a relatively small company The integration includes connection to business partners using the Internet

Crossing Functional Boundaries at Colonial

IT for Management Prof. Efraim Turban

Porters Value Chain Model and The Supply Chain


Typical functional areas mapped on the value chain of a manufacturing company
Firm Infrastructure (Accounting, Finance, General Management) Human Resource Management (Human Resources) Technology Development (Engineering) Procurement (Material Management-Operations)
Inbound Logistics Operations Outbound Logistics (Material ManagemnetOperations) Marketing and Sales (Marketing) Service (Service or Marketing)

Support Activities

fit Pro rgin Ma

Primary Activities

Pr M of a rg i t in

(Material (Operations) ManagaementOperations)

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Major Characteristics of Functional Information Systems


A functional information systems comprises several smaller information systems that support specific activities performed by each functional area The specific IS applications in any functional area can be integrated to form a coherent departmental functional, or they can be completely independent Functional information systems interface with each other to form the organization-wide information system Some organizational information systems interface with the business environment Information systems applications support the three levels of an organizations activities: operational, managerial, and strategic

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Computerization of Routine Transaction Processes


Transaction Processing System (TPS) supports transaction processes monitors, collects, stores, processes, and disseminates information for all routine core business transactions includes accounting and finance transactions and some sales, personnel, and production activities
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Objectives of TPS
To provide all the information needed by law and/or by organizational policies to keep the business running properly and efficiently To allow for efficient and effective operation of the organization To provide timely documents and reports To increase the competitive advantage of the corporation To provide the necessary data for tactical and strategic systems such as DSS applications To assure accuracy and integrity of data and information To safeguard assets and security of information

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Major Characteristics of TPS


Large amount of data are processed The sources of data are mostly internal, and the output is intended mainly for an internal audience The TPS processes information on a regular basis Large storage (database) capacity is required High processing speed is needed due to the high volume TPS basically monitors and collects past data Input and output data are structured High level of detail is usually observed Low computation complexity High level of accuracy, data integrity, and security is needed High reliability is required Inquiry processing is a must

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Flexibility to accommodate unpredictable growth in processing demands Cost effectiveness even for small dollar amounts Interactive, automatic billing, enabling companies to offer services to anyone, not just subscribers Timely search and analysis of large databases Multimedia data such as pictures and sound are handled effectively and efficiently High data throughput to support inquiries requiring massive file size Fast response time Effective storage of huge graphics and video databases

Benefits of Internet Transaction Processing

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Typical Tasks in Transaction Processing


Customer Customer Makes a Makes a Purchase Purchase POS POS Terminal Terminal Terminal Terminal File File Product Product Processing Processing System System Master Master Files Files
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Inventory Inventory Files Files Department Department Sales Files Sales Files

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Innovative IT Applications in the Functional Areas


Managing Production/Operations and Logistics
transform inputs into useful outputs very diversified, and so its supporting information systems related to finance and sales, engineering and design, and purchasing and logistics

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Typical TPS of a Manufacturer


Vendors Vendors
Receiving Receiving Goods Goods Accounts Accounts Payable Payable Purchasing Purchasing Order Order ManufacManufacturing turing Inventory Inventory Shipping Shipping Customer Customer Order Order

Payroll Payroll

Taxes Taxes

Customers Customers

General General Ledger Ledger Periodic Periodic Statements Statements

Fixed Fixed Assets Assets

Accounts Accounts Receivable Receivable 4-13

IT for Management Prof. Efraim Turban

Innovative IT Applications in the Functional Areas


Supply-Chain Management
objective is to support the flow of goods and materials from the original supplier through multiple production and logistic operations to the ultimate consumer extensive integrated software is available for managing portions of the supply chain as well as the entire process
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Supply-Chain Management
Suppliers Suppliers Transaction Transaction Inbound Logistics Inbound Logistics Delivery Delivery
Information Flow
Transfer Transfer Transfer Transfer

Production Production Customer Customer

a) Supply Chain direct to customer

Suppliers

Manufacturing

Distribution

Retail Outlet

Customer

Cash Flow Supply Chain Organization 4-15

b) Supply Chain including wholesalers and retailers

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In-House Logistics and Material Management


Inventory Management Quality Control

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Planning Production/Operations
Material Requirements Planning (MRP) Manufacturing Resource Planning (MRP II) Just-in-Time Systems Project Management
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Automatic Design Work and Manufacturing


Computer-aided Design (CAD) Computer-aided Engineering (CAE) Computer-aided Manufacturing (CAM)

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Computer-integrated Manufacturing (CIM)


Three basic goals:
simplification automation integration and coordination

The CIM model


made up by general business management, product and process definition, manufacturing planning and control, factory automation, and information resource management
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Channel Systems
The customer is king (queen)
Customer profiles and preference analysis Prospective customer lists and marketing databases Mass customization Targeted Advertisement on the Web customer inquiry systems and Automated Help Desk (EC application)
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Channel Systems
Telemarketing
Capabilities
personalized contact with the customers allows customers to buy at their convenience effective in informing customers about a companys products and services

Limitations
cost can be high difficult to find good telemarketers may be seen by many as a nuisance challenges in reaching people

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Distribution Channels
Distribution channels management
DSS models are frequently used to support the decision of accomplishing by a company, or by a subcontractor

Improving sales at retail stores


using IT, it is possible to improve the situation by reengineering the checkout process

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Marketing Management
Pricing of products or services Salesperson productivity Productivity software Products and customers profitability analysis Sales analysis and trends
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New products, services, and market planning

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Managing the Accounting and Finance Systems


STRATEGIC SYSTEMS
a. Strategic Planning b. Ratios and Financial Health c. Merger and Acquisition Analysis

INTERNAL ENVIRONMENT
Top Management Operation/ Production Marketing HRM Engineering a. b. c. e. g.

TACTIAL SYSTEMS
Budgeting Preparation and Control Investment Management Capital Budgeting d. Cost Analysis and Control Tax Management f. Auditing Financial Planning

EXTERNAL ENVIRONMENT
IRS SEC Vendors Clients CPA Companies Suppliers Customers Business Partners

OPERATIONAL AND TRANSACTION PROCESSING SYSTEMS


a. c. d. e. g. The General Ledger b. Sales Order Processing Accounts Payable and Receivable Receiving and Shipping Payroll f. Inventory Management Periodical Reports & Statements

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Managing the Accounting and Finance Systems


Strategic Systems Strategic Systems Internal Internal Environment Environment External External Environment Environment

Tactical Systems Tactical Systems

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Operational and Operational and Transaction Transaction Processing System Processing System

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Financial Planning and Budgeting


Financial and economic forecasting Planning for incoming funds Budgeting preparation and operation Capital budgeting decision
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Investment Management
Access to financial and economical reports
Internet meta-search engines for finding financial data Internet directories and yellow pages Software for monitoring, interpreting, analyzing financial data, and alerting management

Financial analysis
Treasury risk management systems (TRMS)
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Control and Auditing


Budgetary control Auditing Financial health analysis Profitability analysis and cost control Product pricing
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Recruitment
Position inventory Employee selection Using the Internet
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Human Resources Maintenance and Development


Performance evaluation Training and human resources development Turnover, tardiness, and absenteeism analyses
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Human Resources Planning and Management


Personnel planning Succession planning Labor-management negotiations Benefits administration
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Internet Applications
Eddify Corporations employee service systems allows users to access information via PCs, voicerecognition phone, kiosks, or faxes. Oracle corporation conducts its flexible benefits enrollment program on the intranet Apple Computers Inc. conducts extensive education and development activities on the intranet, including a remote management-training program
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Reasons for Integration


Helps to reduce cost Helps to increase employees productivity Helps to facilitate information sharing and collaboration which are necessary for improving customer service IT helps CRM
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Customer Relationship Management (CRM)


The companys success depends on effectively managing relationship with customers Relationship marketing
overt attempt of exchange partners to build a longterm association, characterized by purposeful cooperation and mutual dependence on the development of social, as well as structural, bongs include the concepts of loyalty and trust
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How is CRM Practiced?


Know who the companys current and potential customers are Know who is a good customer, and who are the most profitable customers for the business Know why a certain customer is in the market, why he or she does business with the company, what the customers like and dislike about he business

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The Enabling Role of IT


Using intelligent agent technology, American Airlines generates personalized Web pages for each of about 800,000 registered travel-planning customers Manchester Metropolitan University tracks a population of 30,000 students, manages modular courses, and keeps the student management systems updated by databases and parallel processing Charles schwabs call center handles effectively over 1 million customer calls every day
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State Farm Insurance Co. manages several initiatives for retaining customers by a computerized incentives system

IT for Management Prof. Efraim Turban

CRM Activities and IT Support


CRM Activity (Sample)
Information about choice of doctors, hospitals, and alternative medicine offered by HMOs. Customized information and services in many languages; discounts based on healthy lifestyle; appointment reminders; information on doctors; and medical research. Help center to solve HMO member problem Web-based integrated call centers; quick reply to customers inquiries
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IT Support
Internet; online customer survey; groupware; expert systems for giving advice. E-mail; data warehouse for customer information; data mining; intelligent translating systems; search engines on the Web help center.

Facilitates help-desk activities; intelligent agents for answering FAQs

IT for Management Prof. Efraim Turban

CRM Activities and IT Support


CRM Activity (Sample)
Monitoring of customers orders inside the company. Appointment of account managers; creation of specialized teams (BPR) Seminars and educational activities for customers Self-tracking of shipments and orders. Segmenting of customers Matching customers with products and services.
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IT Support
Workflow software for planning and monitoring; intranets Expert systems for advice; groupware for collaboration. Online training; Internet. Web-based training software; workflow Data mining in data warehouses. Web-based intelligent agents.

IT for Management Prof. Efraim Turban

CRM Activities and IT Support


CRM Activity (Sample)
Customizing products to suit customers specific needs. Customer discussion forums. Loyalty programs for repeat customers.

IT Support
Intelligent agents to find what customer wants; CAD/CAM to reduce cost of customization Chat room; sponsored newsgroups. Data warehouses and data mining of customers activities; smart cards that record purchasers activities. Online surveys; newsgroups; chat room; e-mail Data warehouse; data mining.

Customer participation in product (service) development.


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Proactive approach to customers based on their activity level.

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