Graduate Program in
Business Information Systems
BIS 581
Business Process Management
Lecture 8
Aslı Sencer
Department of Management Information Systems
Business Process Management - 8
Integration with ERP Systems
Global Competition
Global competition has led the organizations to increasingly view their
operations in terms of business processes and to develop information systems
to support these processes.
Ex: Apple designs its products in California, but produces them in
specialized contract manufacturing facilities in Asia. These facilities produce
for Apple’s competitors as well! Apple uses these savings in hiring more
researchers and designers in California.
Ex: Toyota designs its automobiles in Japan, but produces in United States
at the same high quality. They reinvest their savings for new product design.
One consequence of globalization is increased competition. Companies are no
longer limited to their local markets.
- This puts the pressure on companies to be more productive and efficient.
- They must develop strategies to tightly integrate their global operations.
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Information Revolution
Refers to the increased use of information and communication technology (ICT) to
create, deliver, and use information.
ICT includes Internet (e.g. E-mail, Web) and computer based business information
systems (e.g. SAP, ERP) that support the work of organizations.
ICT has helped organizations to globalize their operations by enabling them to
coordinate business processes that are performed around the world.
- Apple must quickly communicate any changes in its sales forces to its Asian
contract manufacturers to ensure that they can adjust their production to meet
the increased sales.
- Toyota must monitor every aspect of production facilities to ensure the quality
standards are met.
ICT enables, supports and encourages globalization. Design and production should not
necessarily be in the same location.
However, organizations are becoming dependent on ICT
- to run smoothly the global operations,
- to be more productive and remain competitive.
If ICT does not function properly, the entire organization can’t function!
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Knowledge Worker
A knowledge worker is the one who uses ICT to create, acquire, process,
sythesize, disseminate, analyze and use information to be more productive.
Ex: Product mngr, sales exec., production mngr, financial analyst.
Knowledge workers use two types of information:
• Structured information is well defined, its source is known, i.e., a manager
knows what information is needed and where to find it.
• Unstructured information is not clearly defined or readily available.
Knowledge work is typically nonroutine.
Ex: Getting customer feedback in regular meetings is nonroutine, since
quality feedback and design feedbacks are related to different business
processes.
Task workers perform routine, structured tasks in a repeated manner. They are
very important for the success of business operations, but have much
narrow view of the overall business process.
Ex: Customer service representatives, purchasing and accounting clerks,
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insurance claims processors.
Knowledge Workers (cont’d.)
“In all likelihood, you will be a knowledge worker at some point in your career”.
A knowledge worker needs to have:
Strategic thinking ability: The ability to see the big picture and understand how
your organization works as a whole.
Information literacy: The ability to determine what information is needed,
where to find it, and how to use it, rather than rely on others to find it for you.
Communication and collaboration ability: The ability to function as an effective
part of a project team where you understand your role as well as the roles of
others.
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Key Business Processes
• Goods and services are created via a sequence of
activities called a business process. The basic
processes of an organization are:
• Procurement: Organization acquires the basic
materials that it uses to produce goods and services
• Production: Manufacturing or generating the desired
goods and services
• Fullfillment: Delivering the goods and services to the
customers
Example: Amazon.com vs. Skateboard manufacturer
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Business process - example
• Make skateboards
– What are some parts of a skateboard
Answer: Board, wheels, nuts and bolts
– What are some steps in the production process?
Answer: Assembly, inspection, packing
• Buy parts
– What are some steps in the buying process
– Who performs these steps
• Sell skateboards
– What are some steps in the selling process
– Who performs these steps
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Procurement Process
Create Purchase
Requisition
Create & Send
Purchase Order
(PO)
1
2
Receive
Goods
3
Receive Invoice
From Supplier
4
Send Payment
To Supplier
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1. Determine how many of which material are needed, by whom and by
which date? Complete purchase requisition.
2. Select a suitable supplier. Create and send a purchase order (PO) to the
supplier.
3. Suppliers ships the material which the company receives and stores in its
warehouse.
4. The supplier sends an invoice.
5. The company makes the payment to the supplier.
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Fulfillment Process
Receive
Customer Order
Prepare
Shipment
Send
Shipment
Send Invoice
To Customer
Receive
Payment
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Functional Structure
• The most common organizational structure is
the functional structure, which lists the typical
tasks in functional areas
• Review steps in procurement
– Who does what where?
– Characterize processes - who is responsible for the
process?
• Why functional structure?
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Information Technology
Human Resources
Finance & Accounting
Research & Development
Sales & Marketing
Warehouse
Operations
Purchasing
Functional Organization
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Cross Functional Relations for the
Procurement and Fullfillment Processes
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The Silo Effect
• People working in a department focus so narrowly on their
specific task and lose sight of the big picture, commonly
referred to as silo effect.
• A major challenge in organizational management is to
effectively coordinate the activities among different functions
or departments.
• Communication and collaboration between functions
– What must be communicated?
– What information must be exchanged?
– How is this coordinated?
Answer: People in each step in a process must be informed when it is
time for them to complete their step.
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Consequences of Poor Coordination
• Increased lead times: How far in advance a company
must plan to obtain raw materials from its suppliers?
• Increased cycle times: The amount of time needed to
produce a product or process a customer order.
• Excess inventory
– Increased just in case inventory: Increased safety stock or
buffer stock
• Lack of visibility across processes
– Status of the process: “where is my order”
– How well is the process doing
• Why accept these delays?
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Ex: Delays in a paper-based process
Sales
Warehouse
Receive
Customer
Order
Create/
Update
Paperwork
Delay!
Prepare
Shipment
Send Paperwork
Delay!
Accounting
Send
Shipment
Create/
Update
Paperwork
Delay!
Send
Invoice
Send Paperwork
Delay!
Receive
Payment
Create/
Update
Paperwork
Delay!
Paper based processes (Ex: Salesperson completes a multipart sales order
document, keeps one part, sends the remaining to the warehouse. Warehouse
keeps its part, send the remaining to the accounting dept. Problem: What if a
paper is lost???)
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Delays are no longer acceptable
• Why?
– Globalization
– Increased competition
– Pressure to do better
• Organizations have historically accepted the negative
conseqences of the functional structure.
Organizations need to substitute process view for the
traditional functional view to break out of silos and focus on
processes!
• ICT is an integral part of the process view of organizations.
– Processes supported by functional systems vs. processes supported by
enterprise systems.
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The Importance of Information Systems
• Information systems are computer based systems that
– capture, store and retrieve data associated with process
activities and
– organize these data into meaningful information that
organizations use to support and assess these activities.
• Data: raw facts that have limited value or meaning.
– Ex: Customer names, product numbers, quantities sold
• Information: Organized and analyzed form of data so that it is
useful to an organization.
– Ex: Monthly sales quantities
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Functional Information Systems
• Organizations use a variety of information systems, that
focus on functions rather than processes and are not
well integrated.
– Sales department develops order management systems,
warehouses develop inventory control systems,
accounting develops a system to track invoices and payments.
• Exchange of information among these systems is often
difficult and is often exchanged manually, causing
delays, inventory problems, lack of visibility, etc.
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Process Using Functional Systems
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Enterprise Systems
• Functionally focussed information systems should be
integrated to form enterprise systems.
• ES not only support the the individual activities in a
process, they also help the organization coordinate
work across functions.
• Reduces delays, improves inventory control,
increases visibility.
• Increases efficiency by automating some routine
steps in the process.
Ex:Automatic generation of an invoice.
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Processes Using Enterprise Systems
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Is this for MIS/IT majors?
• Not just for IT majors!
• Recall other skills of a knowledge worker…..
– Strategic thinking / big picture
•
•
•
•
•
How processes work
How does my work impact the process
How will my failures impact the process
How does others’ work impact my work
What must I do well to ensure that the process is successful
– Communication and collaboration
• How can you be effective in cross functional project teams if you don’t
know the role of other players?
– Information literacy
• ES enables information literacy, by providing all information to support
decision making.
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Framework: Key Process Flows
Information Flow
Enterprise
Information
System
Data & Document Flow
Physical Flow
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Role of ES in organizations
• Execute the process efficiently and effectively
– Inform, provide data, help complete steps
– Process automation
– The system and the process are interwined, i.e., if
the system stops working, the process can not be
executed.
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Role of ES in organizations
• Capture and store process data or transaction data in
two ways:
– Automatic capture
• Who, when, where a process took place
– Entered from outside the system: manually,
barcodes
• Name of the customer, order quantity, due date
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Role of ES in organizations
• Monitor process performance
– Instance level information (status of a specific task or
activity)
• Where is the order of a specific customer?
• When was it shipped?
• Was the complete order shipped?
– Process level information (aggregate level)
• Purchase lead time
• Time spent in the sales department
• Total duration of a purchasing process
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Delay Causes
January 08
Q1 Order Summary
January
February
Packing Delay
14%
March
Total Orders
7
11
15
Total Late Orders
4
3
6
On Time Order %
43%
73%
60%
Average Order Time (Days)
2.86
2.12
2.94
Out of Stock
29%
On Time
43%
Shipping Delay
14%
Order Details: January
Order
Number
Customer Name
Order
Date
Ship Date
Order Value
Orderto-Ship
(days)
Reason for Delay
123456
World Wide Skateboard Distributors
01/04/08
01/06/08
$
300.18
1
On Time
123457
Extreme Skateboard Sports, Inc.
01/06/08
01/08/08
$
245.65
2
On Time
123458
"Waldo" Autry
01/08/08
01/11/08
$
123.43
4
Out of Stock
123459
West Michigan Sporting Goods, Inc.
01/10/08
01/12/08
$
342.53
2
On Time
123460
Flying Acrobats, Inc
01/12/08
01/20/08
$
556.43
5
Packing Delay
123461
MI Sporting Company
01/14/08
01/16/08
$
234.22
3
Out of Stock
123462
Saginaw Dawgs
01/16/08
01/18/08
$
653.45
3
Shipping Delay
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Financial Impact of Process Steps
• A process step may/may not have an immediate financial impact.
– When a shipment is received, payment is made to the vendor, amount tied to
the stocks is increased, bank deposit is decreased.
– When a customer order comes, there is no financial impact until the
completion of the shipment process.
• A process should have two elements to have a financial impact:
– An external entity: a customer or a vendor
– An exchange of value: buy, sell, pay, get paid
• Key financial statements
– Balance sheet: financial conditions of a company at a specific point in time,
what company owns (assets), owes to others (liabilities), shareholders’
investments in the company (equity)
– Income statement: profit and loss statement for a specific period of time
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Ex: Income statement
Revenues
Revenues from sales
Other revenues
Total Revenues
Expenses
Cost of Goods Sold
Selling Expenses
Advertising
Commission
Shipping
Salaries
Others
General and Administrative Expenses
Salaries
Legal and Professional
Utilities
Insurance
Supplies
Others
Total expenses
Net income=Revenue-Expenses
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Ex: Balance sheet
Assets
Cash
Accounts Receivable
Inventory
Raw materials
Semifinished goods
Finished goods
Property, plant, equipment
Total assets
Liabilities
Accounts payable
Loans
Total liabilities
Equity
Shareholders Equity
Retained earnings
Total equity
Total equity=Total liabilities+Equity
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Group Exercise 5: Data, Document,
Information Flows
Consider our registration process. Describe
• Who are the knowledge workers in this
process?
• State the flow of data, documents and
information flow
• Describe the role of ES in supporting this
process
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