Types of Internal Information Systems and Their Problems

1. Chapter 7 Information Systems Within Organizations

2. Agenda • Internal IS Types • Types of Functional Systems • Problems of Functional Systems • Competitive Strategy and Value Chains • Business Process Design • Problems of Business Process Design • Inherent Process and Software • Types of Integrated, Cross-Functional Information System • Discuss and Case Study

3. Internal IS Types • Calculation Systems • Functional Systems • Integrated, Cross-Functional Systems

4. Calculation Systems • Purpose: to relieve workers of tedious, repetitive calculations. • Examples: payroll; general ledger, inventory • Problem: very little information

5. Functional Systems • Purpose: facilitate the work and generate information for a single department or function • Example: human resources from payroll system, financial reporting from general ledger, manufacturing system from inventory • As a natural expansion of the capabilities from the calculation systems • Problem: islands of automation

6. Integrated, Cross-Function Systems • Cross-departmental or cross-functional systems since they (cross department boundaries • Purpose: to integrate the activities in an entire business process for efficiency • Problems:difficulty to coordinate between department activities

7. Types of Functional Systems • Human resources systems • Accounting and finance systems • Sales and marketing systems • Operations systems • Manufacturing systems • Manufacturing-planning systems • Manufacturing-scheduling systems • Manufacturing operations systems

8. Human Resources Systems • Recruitment • Compensation • Evaluation (assessment) • Development and training • Human resource planning

9. Functions Supported by Human Resources System

10. Accounting and Finance Systems - I • Financial reporting applications: use the general ledger data to produce financial statements and reports for management, investors, and federal reporting agencies • Cost accounting applications: determine the marginal cost and relative profitability of products • Budgeting applications: allocate and schedule revenues and expenses and compares actual financial results to the plan

11. Accounting and Finance Systems - II • Accounts receivable applications: record receivables, payments against receivables, and manage account aging and collections • Cash management applications: schedule payments and receivables and plan cash usage to balance the cash needs against cash availability

12. Accounting and Finance Systems

13. Sales and Marketing Systems • Lead-tracking systems: store data about potential customers, contact history, and their product interests • Sales forecasting systems: to predict future sales • Customer management systems: maintain customer contact data, credit status, past orders, and other data • Product management systems: evaluate the success of products and assess the effectiveness of marketing activities such as promotions, advertising, sales channels, etc.

14. Sales and Marketing System

15. Operations Systems • Finished-goods inventory applications: manage the movement of goods from the inventory to the customer • Order entry systems: record customer purchases • Order management systems: track orders, arrange and schedule shipping, process exceptions (out of stock), inform customers of order status, and schedule delivery dates • Customer service applications: allow customers to call and ask questions about products, order status, problems, and make complaints

16. Operations Systems

17. Manufacturing Systems - I • Purpose: facilitate the production of goods • Inventory systems • Inventory control: and policy (track goods and materials into, out of, and between inventories use UPC and RFID) • Inventory management: use past data to compute stocking levels, reorder levels, and reorder quantities in accordance with inventory policy • Just-in-time (JIT) inventory policy: have production inputs (both raw materials and work in process) delivered to the production site whenever is needed to reduce the inventory to the minimum • Manufacturing planning systems: plan materials, equipment, people, and facilities for manufacturing • Bill of material (BOM): a list of every materials that comprise a product

18. Manufacturing Systems - II • Manufacturing scheduling systems: create a master production schedule (MPS) • Push Manufacturing process • Pull Manufacturing process • Material requirement planning (MRP): only for materials • Manufacturing resource planning (MRP II): for materials, personnel, and machinery and what-if analyses on variance in schedules • Manufacturing operations: to control machinery and production process (robots)

19. Manufacturing Activities Supported by Information Systems

20. Problems of Functional Systems • Duplicated data: each application with its own database • Disjointed business applications • Limited information due to lack of integrated enterprise data • Inefficient overall activities because of isolated decisions • Costly

21. Competitive Strategy • Michael Porter’s “Competitive Advantage” in the mid-1980 to choose the information system applications • Competitive advantage • Differentiation across an industry • Differentiation on a particular industry segment • Low cost across an industry • Low cost on a particular industry segment

22. Value Chain - I • Value chains: networks of business activity within an organization with five primary activities and four support activities • Primary activities • Inbound logistics • Operations • Outbound logistics • Marketing and sales • Service • Four support activities • Firm infrastructure: department • Human Resources • Technology Development: research and development • Procurement • Value: the total revenue that a customer is willing to spend for a product or service

23. Porter’s Value Chain Model

24. Value Chain - II • Each primary activity accumulates costs and adds value to the product • Total margin of the chain: the difference between the total value added and the total costs incurred • Linkages • Interactions across value activities • Important sources of efficiencies • Supported by information systems • Examples: MRP and MRP II use linkages to reduce inventory costs

25. Business Process Design • Business process design (business process redesign) • Based on the value chain as a network of value-creating activities • Does not automate or improve existing functional systems • Create new, more efficient, business processes to integrate the activities of all departments in a value chain • Take advantage of as many activities of all departments involved in a value chain

26. Problems of Business Process Design • Expensive and difficult • Highly trained systems analysts for interviewing key personnel and documenting the existing system as well as one or more systems alternatives • Managers reviewing the results of the analysts’ activity, usually many times, and attempting to develop new, improved information systems and implement those new business processes • Employees resistance to change • Unknown about the effective of the ultimate outcome

27. Inherent Processes and Software • The process build in software such as SAP or Oracle • Pros • Save the organization the time, expense, and agony of process design • Enable the organization to benefit immediately from the tried and tested cross-departmental processes • Cons • Organization must conform its activities to those processes in order to use the software • Such change will be disruptive to ongoing operations and disturbing to employees

28. Types of Integrated, Cross-Functional Information System • Customer relationship management (CRM) • Enterprise resource planning (ERP) • Enterprise application integration (EAI)

29. Customer relationship management • The set of business processes for attracting, selling, managing, and supporting customers • Addresses all activities and events relating to the customer and providing a single repository for data about all customer interactions • Components • Solicitation: Web, email, direct mail, catalog, and etc. • Lead tracking (presale): strategies for sales calls and follow-ups • Relationship management (postsale): sales management applications and customer support applications

30. CRM Components

31. Enterprise Resource Planning - I • Integrate all of the organization’s principal processes such as SAP • Outgrowth of MRP II manufacturing systems for manufacturing company • Characteristics • A cross-functional, process view of the entire organization • A collection of interrelated activities within the entire organization • A formal approach based on documented and tested business models • A comprehensive set of inherent processes for all organizational activities • SAP defines the set as the process blueprint and documents each process with diagrams with standardized symbols • A centralized database

32. Enterprise Resource Planning - II • Problems • Difficult to implementing • Process change challenges • Cost: new hardware, software, procedures, employee training, converting data, and Other developmental expenses • Time • Benefits • Efficient business processes • Inventory reduction • Lead time reduction • Improved customer service • Greater, real-time insight into organization • Higher profitability

33. Enterprise Resource Planning - III • Implementation • Top executive total support • Model the current business processes • Compare these processes to the ERP blueprint processes and note the differences • Eliminate the differences by either changing the existing business process to match the ERP process or altering the ERP system • Train users on the new processes, procedures, and to use of the ERP system features and functions • Conduct a simulation test of the new system to identify problems • Convert its data, procedures, and personnel to the new ERP system

34. Enterprise Application Integration • Functions • Integrate existing applications by providing layers of software that connect applications • Enable existing applications to communicate and share data • Provide integrated information • Leverage existing system • Enable a gradual move to ERP

35. Discussion • Ethics (205a-b) • State the impacts on the overall operations of the organization generated by that particular salesperson? • Problem Solving (211a-b) • Summarize the strategies to reduce the employee’s resistance from implementing and using a new information system. • Security (217a-b) • State the strategies to prevent any disaster and crime to a centralized database. • Reflections (219a-b) • State your solution to gain the competitive advantages by using the ERP that has become a standard information system for operating efficiency in the industry.

36. Case Study • Case 7-1 (223 – 225) questions 2, 3, 4, and 5a

37. Points to Remember • Internal IS Types • Types of Functional Systems • Problems of Functional Systems • Competitive Strategy and Value Chains • Business Process Design • Problems of Business Process Design • Inherent Process and Software • Types of Integrated, Cross-Functional Information System • Discuss and Case Study