Management Information Systems week 1 and week 2

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Kenneth J. Sousa Effy Oz

MANAGEMENT

INFORMATION

SYSTEMS Seventh Edition

Chapter 3

Business Functions and

Supply Chains

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

• Enumerate the purposes of customer

relationship management systems

• Explain enterprise resource planning systems

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

Effectiveness and Efficiency (cont'd.)

• 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

Effectiveness and Efficiency (cont'd.)

• Customer relationship management (CRM)

system helps serve 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

Figure 3.1 Business activities consist of customer relationship management, supply chain management,

and supporting functions

Figure 3.1 2. Information systems in different business functions are interdependent

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

• General ledger is used to produce:

– Balance sheet: picture of financial situation

– Profit-and-loss report 8

Accounting (cont'd.)

• 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

Accounting (cont'd.)

• Cost-accounting systems: accumulate data

about costs involved in producing specific

products

• Accounting ISs are used for managerial

purposes for budgeting and cost control

Figure 3.3 Accounting information systems include features that reflect up-to-date performance of the

organization in financial terms

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

Figure 3.4 Financial information systems help manage cash and investment portfolios

Cash Management

• Financial information systems help managers

track company finances

• Cash management systems (CMSs): systems

that deal specifically with cash

• Electronic funds transfer (EFT): electronic

transfer of cash from one bank account to

another

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

Investment Analysis and Service (cont'd.)

• Some important factors to consider in investing:

– Risk, measured as variability of the security’s

past yield

– Expected return

– Liquidity: measure of how fast an investment can

be turned into cash

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

Engineering (cont'd.)

• 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

Figure 3.5 Engineering information systems assist engineers in designing new products and simulating how

they operate

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 (SCM): monitoring,

controlling, and facilitating supply chains

• CAD systems often transfer data automatically

to CAM systems

Supply Chain Management (cont'd.)

• 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

Supply Chain Management (cont'd.)

• IT helps in manufacturing activities (cont’d.):

– Grouping similar work orders for efficiency

– Considering the qualifications of each resource to

accomplish its task

Figure 3.6 Manufacturing and inventory control information systems help reduce cycle times and the cost of

maintaining inventory

Material Requirements Planning

and Purchasing

• Material requirements planning (MRP):

inventory control

– 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

Material Requirements Planning

and Purchasing (cont'd.)

• 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.

Manufacturing Resource Planning

• Manufacturing resource planning (MRP II):

combines MRP with other related activities to

plan the entire manufacturing process

– Uses master production schedule

• Master production schedule (MPS): specifies

how production capacity is to be used to meet

customer demands

Monitoring and Control

• Information systems are designed to control

manufacturing processes as well as monitor

them

• Controlling processes helps ensure quality

Shipping

• Performed by manufacturer or shipping

company

• Many variables affect cost and speed of shipping,

including:

– Length of routes

– Sequence of loading and unloading

– Type of shipped materials (e.g., perishable,

hazardous, or fragile)

– Fuel prices

– Road tolls

Shipping (cont'd.)

• Sophisticated software that optimizes shipping

efficiency helps a company stay competitive

• Need to optimize:

– Shipping time

– Cost of labor

– Equipment use

– Maintenance

• Vehicles equipped with computers, global

positioning systems (GPS), and satellite

communication have increased efficiency 29

Figure 3.9 How data is transferred between a truck and a shipper’s office

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, etc.

• Ensures genuineness of products

• Refer to Figures 3.10 and 3.11

Customer Relationship Management

• Customer relationship management (CRM)

systems are designed to support

– 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

Figure 3.12 Customer relationship management systems help marketing, sales, and customer service

departments target interested and profitable customers

Market Research

• To promote products successfully, organizations

must perform market research

• Market research: helps discover populations and

regions that are most likely to purchase product

• Activities may include:

– Conducting interviews with consumers and

retailers

– Building statistical models to predict sales

volumes of different products

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

• “Big data” refers to challenges of storing and

mining vast quantities of data

Targeted Marketing (cont'd.)

• Telemarketing: marketing over the telephone

– Caller has large database of consumer data

• Computer telephony integration (CTI): 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

Targeted Marketing (cont'd.)

• Targeted marketing and Web technologies

enable retailers to personalize online shopping

• Software can track Web page click streams to

determine customer preferences

Location-Based Services

• Offer the ability to accurately and efficiently

gather various dimensions of consumer

information in real-time, such as:

– When and where they shop

– What they buy

• Smartphone implementation of location-based

services “leads” prospective customers to their

businesses

– Increases sales and promotes their location

Customer Service

• Web-based customer service provides

automated customer service at any time 365

days per year

– Saves labor costs

– Reduces paper and postage costs

• Includes FAQs, tracking systems, maintenance

of customer profiles

• Artificial intelligence may be used to emulate a

real-life customer service representative

Salesforce Automation

• Equips traveling salespeople with information

technology to improve productivity

– Laptops, tablet computers, or smart phones

• Makes sales presentations more efficient

• Allows salespeople to present different options

for products and services at the customer

location

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

Figure 3.13 Human resource management information systems help managers optimize promotion and

recruitment, training, evaluation, and compensation activities

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

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: intraorganizational network that

supports Web applications

– Allows HR manager to post position vacancy

announcements that get wide exposure

Training

• One important HR function is improving

employee skills

• Multimedia software training is replacing

classrooms and teachers

– May include virtual reality simulated environments

• Information technology reduces training costs

dramatically

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 assists in standardizing the

evaluation process

– Provides tools such as step-by-step guides,

checklists, scales, weighted calculations, etc.

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

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 SCM systems

– Streamline operations throughout chain

• ERP systems can also serve as SCM systems,

connecting multiple organizations

Figure 3.14 A shared supply chain management system monitors the movement of raw and finished goods

The Importance of Trust

• SCM systems work best when all businesses in

the chain are sharing information

• Risk of disclosing important information to

competitors is present

• Risk of taking advantage of demand figures by

charging higher prices is present

• Effective SCM requires:

– Technology

– Trust

– Culture change 50

Continuous Attention to 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

– Supply companies must overstock inventory

• One company “sits” with lean inventory while

other stands with “overstock”

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

• Companies collaborating with retailers

– Use store sales data to compile a “perfect order”

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

– Sage

– Infor

Challenges and Disadvantages

of ERP Systems

• Challenges of ERP systems

– 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

Providing the Missing Reengineering

• Most reengineering projects of the 1990s failed

• In the late 1990s and early 2000s

– ERP systems forced changes in processes;

helped realize many of those reengineering ideas

• ERP systems allow better planning and

managing of processes at the organizational

level instead of at the organizational unit level

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

Summary (cont'd.)

• 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

Summary (cont'd.)

• 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