Management Information Systems,
Sixth 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
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Objectives (continued)
• Enumerate the purposes of customer
relationship management systems
• Explain enterprise resource planning systems
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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
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Effectiveness and Efficiency (continued)
• 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
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Effectiveness and Efficiency (continued)
• Customer relationship management (CRM)
system: system that serves 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
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Effectiveness and Efficiency (continued)
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Effectiveness and Efficiency (continued)
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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
• Balance sheet: picture of financial situation
– Includes profit-and-loss report
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Accounting (continued)
• 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
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Accounting (continued)
• Cost-accounting systems: accumulate data
about costs involved in producing specific
products
• Accounting ISs are used for managerial
purposes for budgeting and cost control
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Accounting (continued)
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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
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Finance (continued)
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Cash Management
• Financial information systems help managers
track company finances
• Cash management systems: systems that deal
specifically with cash
• Electronic funds transfer: electronic transfer of
cash from one bank account to another
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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
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Investment Analysis and Service
(continued)
• Some important factors to consider in investing:
– Variability of the security’s past yield
– Expected return
– Liquidity (how fast an investment can be turned
into cash)
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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
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Engineering (continued)
• 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
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Engineering (continued)
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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: monitoring,
controlling, and facilitating supply chains
• CAD systems often transfer data automatically
to CAM systems
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Supply Chain Management (continued)
• 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
– Grouping similar work orders for efficiency
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Supply Chain Management (continued)
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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
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Material Requirements Planning
and Purchasing (continued)
• 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.
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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: specifies how
production capacity is to be used to meet
customer demands
• Just-in-time manufacturing: suppliers ship
parts directly to assembly lines as needed
– Avoids warehousing costs
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Monitoring and Control
• Information systems are designed to control
manufacturing processes as well as monitor
them
• Controlling processes helps ensure quality
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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, fragile)
– Fuel prices
– Road tolls
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Shipping (continued)
• Sophisticated software that optimizes shipping
efficiency helps a company stay competitive
• Need to optimize:
–
–
–
–
Shipping time
Cost of labor
Use of equipment
Maintenance
• Vehicles equipped with computers, global
positioning systems (GPS), and satellite
communication have increased efficiency
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Shipping (continued)
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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
• Ensures genuineness of products
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RFID in SCM (continued)
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RFID in SCM (continued)
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Customer Relationship Management
• Customer relationship management (CRM)
systems: designed to support any and all
relationships with customers
– Supports three areas
• 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
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Customer Relationship Management
(continued)
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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
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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
• Spam: cheap method of advertising involving
sending mass e-mail communications
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Targeted Marketing (continued)
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Targeted Marketing (continued)
• Database management systems sort consumers
based on demographic information
• Telemarketing: marketing over the telephone
– Caller has large database of consumer data
• Computer telephony integration: 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
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Targeted Marketing (continued)
• Targeted marketing and Web technologies
enable retailers to personalize online shopping
• Software can track Web page click streams to
determine customer preferences
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Customer Service
• Web-based customer service provides
automated customer service 24/7
– Saves labor costs
– Saves paper costs
• Includes FAQs, tracking systems, maintenance
of customer profiles
• Artificial intelligence may be used to emulate a
real-life customer service representative
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Salesforce Automation
• Equips traveling salespeople with information
technology to improve productivity
– Laptops and personal digital assistants (PDAs)
• Makes sales presentations more efficient
• Allows salespeople to present different options
for products and services at the customer
location
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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
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Human Resource Management
(continued)
F
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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
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Employee Record Management
(continued)
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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: inter-organizational network that
supports Web applications
– Allows HR manager to post position vacancy
announcements that get wide exposure
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Training
• One important HR function is improving
employee skills
• Multimedia software training is replacing
classrooms and teachers
– May include 3D virtual reality simulated
environments in which the employee must act
• Information technology reduces training costs
dramatically
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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 tries to solve this problem
by standardizing evaluation process
– Provides tools to aid in evaluating every
employee fairly and objectively
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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
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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 supply chain management
systems
– Streamline operations throughout chain
• ERP systems can also serve as SCM systems,
connecting multiple organizations
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Supply Chain Management Systems
(continued)
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The Importance of Trust
• Supply chain systems work best when all
businesses in the chain are sharing information
• Trust between allied companies facilitates
collaboration
• Risk of disclosing important information to
competitors is present
• Risk of taking advantage of demand figures by
charging higher prices is present
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The Musical Chairs of 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, so supply
companies must overstock inventory
• One company “sits” with lean inventory while
other stands with “overstock,” hence musical
chairs
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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
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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
Microsoft
Sage Software
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Challenges and Disadvantages
of ERP Systems
• ERP systems pose many challenges:
– 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
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Providing the Missing Reengineering
• Although most reengineering projects of the
1990s failed, ERP systems helped realize many
of those ideas
– ERP systems forced changes in processes
• ERP systems allow better planning and
managing of processes at the organizational
level instead of at the organizational unit level
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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
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Summary (continued)
• 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
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Summary (continued)
• 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
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