Oz (5th edition)
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Effectiveness defines the degree to which a goal is
achieved. The effectiveness of an IS is determined by how
much of its goals are achieved or the degree to which it
achieves better outcomes than other competing IS.
 Example: The goal of a package tracking system was to
reduce customer inquiries by 75 percent
 Example: The goal of an EDI system was to reduce data
entry errors by 90 percent and cycle time for order
processing by 80 percent.
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Efficiency of a system is the ratio of benefits (in dollars) to cost (in
dollars)
 An IS (system 1) is more efficient than another IS (system 2) if the
operating costs of system 1 are lower for the same benefits than the
operating costs of system 2.
 Or, if operation costs of system 1 and system 2 are equal but system 1
produces more benefit than system 2, then system 1 is more efficient
than system 2.
Example: Suppose you use a data mining tool that identifies a group of
customers that fit a profile that they are likely to switch to a competitor.
You try an experiment that involves randomly assigning customers to
two different customer retention systems of equal cost. One system is
far superior than the other. This system is more efficient.
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Productivity usually refers to the efficiency of human
resources. If an IS helps workers produce more output
(benefits) for the same amount of input (costs), than
worker productivity is improved.
Examples:
 For word processing how do things like a spell check,
find and replace, cut and paste effect productivity?
 For spreadsheets where do you see productivity gains?
 For database management systems where do you see
productivity gains?
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Accounting examples
 Linked to transaction processing systems
 Accounts payable, accounts receivable, balance sheet,
and general ledger
Finance examples
 Cash management, electronic funds transfer,
investment analysis
Engineering examples
 Computer aided design (CAD)
 Computer aided manufacturing (CAM)
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Human resource management (HRM) examples; software
exists for each of the following HRM activities; software
exists for the individual tasks or software can be
purchased that does everything listed below
 Employee record management
 Promotion and recruitment
 Training
 Evaluation
 Compensation and benefits management
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In the 1980s organizations realized the value of sharing
information (integrated systems) between functional
areas
In the 1990s (pre-Internet) organizations realized the
value of sharing information with their trading partners
(interorganizational information systems or IOSs)
 Wal-Mart
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Trend has accelerated with advent of the Internet
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An ERP system is a program that uses a common
database to integrate departments and functions across a
company into a single computer system that serves the
needs of each department.
These systems focus on expediting the day-to-day
operations rather than planning. A better name for these
systems would be “enterprise application.”
Major vendors of ERP systems
 SAP (German)
 Baan (Dutch)
 Oracle (American)
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Cost of ERP systems runs in the millions
ERP systems are sold in a modular fashion
Full implementation may take several years.
Implementation is often mismanaged by the firm.
Installation and testing requires on-site deployment of
vendor representatives or outside consultants
These systems force firms to change SOP; often this
change causes lots of employee resistance
The role of application service providers for small and
medium sized firms
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Customer places an order and a paper form is generated
The paper form moves from desk to desk and is often
keyed into different departmental computer systems.
This process invites delays, losses, and errors (re-keying
information).
No one in the company knows the status of an order (e.g.,
the finance department cannot get into the warehouse’s
computer systems to determine if an item has been
shipped).
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When a customer order enters an ERP system, all the
information necessary to complete the order (e.g., the
customer's credit rating and order history from the
finance module, the company's inventory levels from the
warehouse module and the shipping dock's trucking
schedule from the logistics module, for example) are
available to the order taker.
People in different departments see the same
information and can update it. When one department
finishes with the order it is automatically routed via the
ERP system to the next department. To find out where
the order is at any point, you can use the ERP system to
track it down. With luck, the order process moves like a
bolt of lightning through the organization, and customers
get their orders faster with fewer errors.
With ERP, customer service representatives become
business people. The rep now has access to the customer's
credit rating from the finance department and the product
inventory levels from the warehouse. Will the customer pay
on time? Will we be able to ship the order on time? These are
decisions that customer service representatives have never
had to make before. Likewise, people in the warehouse who
used to keep inventory on scraps of paper must put that
information online, otherwise, customer service reps will not
see accurate inventory
 ERP requires people to change how they do their jobs.
Installing the software without changing the ways people do
their jobs, will not produce benefits.
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ERP software requires people to adopt new work methods
and standardize processes and people often don’t agree that
the ERP way of doing things is better than existing
processes. Either people resist or force IT to customize ERP
software.
Too much customization can make the software unstable
and harder to maintain
Finding balance between customizing software and
changing business processes is difficult
Given these conditions, ERP projects fail because:
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Inadequate planning across functional areas
Inadequate training/education of users
Over customization of the ERP software
Users resistance to change
Items in list above are interrelated
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The supply chain concept
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Supply chain management
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Supply chain management systems/software
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SCM is the coordination of all the activities and information
flows involved in buying, making, and moving a product.
 SCM integrates supplier, distributor, and customer logistics
requirement into one cohesive process
 SCM is a network of facilities for procuring materials,
transforming raw materials into intermediate and finished
products, and distributing the finished products to customers
A big part of SCM involves controlling factors that involve the
moving the correct product/service to where it is needed on
time and at minimum cost (logistics).
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SCM is a more comprehensive word for manufacturing
SCM makes the most sense for firms that make physical
products; in retail SCM involves the purchasing of finished
goods; in service industries the term is meaningless.
Oz says the SCM consists of three processes
 Procurement of raw materials
 Processing the materials into intermediate and finished
goods (manufacturing)
 Delivery of the goods to customers
More comprehensive view on next slide
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Planning – consists of processes that balance aggregate
demand supply to develop a course of action to meet
sourcing, production, and delivery requirements.
Procurement – consists of processes that purchase goods
and services to create the firm’s products and services
Making – consists of processes that transform a product
into a finished state to meet planned or actual demand.
Delivery – consists of processes that provide finished
goods and services including the management of orders,
transportation, and distribution.
Returning – consists of processes associated with
returning products or receiving returned products.
Upstream
Supplier
Procurement
cycle
Internal
Downstream
Manufacturer
Distributor
Manufacturing
cycle
Retailer
Replenishment
cycle
Customer
Customer
order cycle
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Procurement of raw materials
 Inventory control software – material requirements planning (MRP)
software
Making the product (manufacturing)
 MRP II combines MRP software with other software to plan the entire
manufacturing process
 Monitoring and control software is available to control manufacturing
processes (see Ford example in text)
Shipping
 Software exists to optimize routes and loads
 Software exists to optimize space utilization
 Trucks are equipped with computers and satellite hardware and
software (e.g., GPS)
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Uncertainties make planning difficult
 Demand forecast must be based on good data;
sometimes firms use inaccurate data
 Unforeseen events like bad weather, labor problems,
unexpected shortages of materials make planning
predictions difficult
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Lack of coordination between processes of
 internal units of individual firms in the supply chain
 separate firms within the supply chain
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Many suppliers
Some firms have no distributor or retailer (Dell or LL Bean)
Each process cycle is either a push or pull process
depending on the timing of their execution relative to
customer demand
Pull process is initiated by a response to a customer order
Push process is initiated in anticipation of a customer order
Efficiencies occur when you can change a cycle from a
push process to a pull process (e.g., Dell)
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SCM systems try to streamline processes throughout the
chain by
 eliminating redundant operations,
 sharing information, and
 moving information quickly from one place to another
(EDI)
Most systems use the Internet (the browser is the user
interface)
New SCM systems involve more than two organizations
(e.g., suppliers, manufacturers, distributors, and customers)
Like ERP, SCM systems cause change; employees
sometimes resist change; customizing software can help but
has risks (see ERP)
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SCM systems are sold as suites or individual modules.
Each module is designed to handle specific situations (see
below). The SCM software often relies on a legacy or ERP
system to supply the data necessary to do the analysis.
Example modules
 A procurement module enables analytic comparisons of competing
suppliers to help buyers make decisions on whom to buy from (sourcing)
 An advanced planning and scheduling module (like MRP 2) produce
schedules for what to make, where and when to make, and how to make it
while taking into account material availability, plant capacity, and other
business objectives (making)
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Major SCM vendors
 SAP, Oracle, I2, and Ariba
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Three measures that demonstrate the impact of SCM
systems
 Reductions in inventories
 Reductions in cycle time (the time it takes to complete a
business process)
 Reductions in production costs
According to IBM companies that have adopted SCM
systems have
 Reduced inventory levels by 10-50 %
 Improved rate of delivery accuracy by 95-99%
 Reduced cycle time (from order to collection) by 10-20%
 Reduced transportation costs by 10-15%
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Supply chain systems work best when all businesses are
sharing information
Trust between allied companies facilitates collaboration
Risk of disclosing important figures is present
Risk of taking advantage of demand figures is present
Examples
 Wal-Mart’s suppliers were initially reluctant to link their systems
with Wal-Mart
 GM is still reluctant to share its production schedule with Goodyear
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Just like ERP projects, SCM projects fail because:
 Inadequate planning across functional areas
 Inadequate training/education of users
 Over customization of the ERP software
 Users resistance to change
Additional considerations for SCM
 Cooperation between different firms compounds each
of the four areas above
 SCM software is very dependent on accurate data; some
firms try SCM systems without good data
 The trust issue
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ERP systems are firm wide information systems that
integrate key business processes so that information
can flow between different parts of the firm
Early ERP systems
 Supported only the internal portion of the supply
chain
 Were transaction-centric and had little analytic
features and did not support forecasts or continuous
planning
Newer ERP systems integrate or complement SCM
systems
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VANs
 Traditional EDI
Web enabled EDI
 XML
 Virtual private networks
 Extranets
RFID in the supply chain
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What is EDI?
 Exchange of standard business documents electronic
data using interorganizational information systems
 Shipping data, payment data, production/inventory
requirements
 Set of hardware, software, and standards that
accommodate the EDI process
Forms of EDI
 Earliest was through a VAN (since 80’s)
 Newest is through the Web
Figure 11.5
How EDI works
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How does EDI work?
 Supplier’s proposal sent electronically to buyer
organization.
 Electronic contract approved over network.
 Supplier manufactures and packages goods, attaching
shipping data recorded on a bar code.
 Quantities shipped and prices entered in system and
flow to invoicing program; shipping data and invoices
are transmitted electronically to buyer organization.
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Supplier ships the order.
Buyer organization receives packages, scans bar
code, and compares data to invoices actual items
received.
Payment approval transferred electronically from
the buyer’s accounts payable dept. to buyer’s bank .
Bank transfers funds from buyer to supplier’s
account using electronic fund transfer (EFT).
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EDI requires companies to agree on
▪ Compatible hardware and software
▪ Electronic form format
Established EDI standards
▪ X.12 de facto umbrella standard in U.S.
and Canada
▪ EDI for Administration, Commerce, and
Trade (EDIFACT) umbrella of standards in
Europe
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VAN suppliers
 GE Information Services, Sprint, WorldCom, Sterling Commerce
 Majority of EDI transaction take place with VAN
Web EDI
 Rapidly overtaking VAN EDI
 Use Web technologies
 Accessible to businesses of all sizes
 Success attributed to XML
▪ Complements HTML by allowing users to put tags around an
element that tells the browsers about the data content of an
element
▪ Businesses can create their own tags
Web EDI demo

http://www.covalentworks.com/How-does-your-EDI-service-work.asp#
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RFID tags permit recording information about products
such as date of manufacture, plant location, expiration
date, lot number, destination
Many RFID tags use the Electronic product code that
replaces the universal product code UPC with much more
information
Some tags are read only while others can be updated
Other uses include detect ion of recalled items, expired
items, counterfeit items, defective items
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