Chapter 8

What is a Transactional Processing and the role of TP systems. State the key objective of TP/TPSs.

Transactional Processing Systems monitor, collect, store as well as process data that is generated from all business transactions. These data are inputs to the organization’s database. They are also inputs to the functional information systems, decision support systems, customer relationship management, knowledge management, and e-commerce. TPSs have to handle high volume and large variations in volume (e.g. during peak times), efficiently, avoid errors and downtime, record results accurately and securely, as well as maintain privacy and security.
A fairly standard procedure occurs, whether in a manufacturing firm, service firm or a government organisation. First data is collected by people or sensors and are entered into the computer via any input device. Next, the system processes data in one of two basic ways: batch processing (placing data into groups). The system then prepares and processes the batches periodically (e.g. every night).

What is a functional area information system? List its major characteristics.

Functional area information systems (FAIS) provide information mainly to lower and middle level managers in the functional areas. They use this information to help them plan, organise and control operations. The information is provided in a variety of reports. The FAIS can also use data from external database to create the management reports.

How does a FAIS support management by exception? How does it support on-demand reports?

FAISs generates reports in its functional area. The FAISs also sends information to the corporate data warehouse and can be used for decision support. A FAIS produces primarily three types of reports: routine, ad hoc (on demand), and exception.
FAIS support management by exception as some managers prefer exception reports. Exception reports include only information that falls outside certain threshold standards. To implement management by exception, managers first create performance standards. The company must set up systems to monitor performance, compare actual performance to the standards, and identify predefined exceptions. Managers are altered to the exceptions via exception reports.
Ad hoc are on demand reports (out of the routine), they include requests for the following types of information:
- Drill down reports – show a greater level of detail
- key indicator reports – summarise the performance of critical activities
- comparative reports – compare e.g the performance of different business units

Define ERP and describe its functionalities.

Enterprise Resource Planning (ERP) Systems integrate the planning, management, and use of all an organisations resources. The major objectives of ERP systems are to tightly integrate the functional areas of the organisation and enable information to flow seamlessly across the functional areas. Tight integration means that changes in one functional area are immediately reflected in all other pertinent functional areas.
ERP provide the information necessary to control the business processes of the organisation. A business process is a set of related steps or procedures designed to produce a specific outcome. Business processes can be located entirely within one functional area, such as approving a credit card application or hiring a new employee. They can also span multiple functional areas, such as fulfilling a large order from a new customer.
ERP software included a set of interdependent software modules, linked to a common database that provides support for the internal business processes in the following functional areas: finance and accounting, sales and marketing, manufacturing and production, and human resources. These modules are built around predefined business processes, and users access them through a single interface.

List some drawbacks of ERP

The major drawbacks of ERP are as follows, they can be extremely complex, expensive, and time consuming to implement. For companies with well-established procedures this can be a problem. Finally companies must purchase the entire software package even if they require only a few of the modules.

Define a supply chain and supply chain management (SCM).

A Supply Chain refers to the flow of materials, information, money and services from raw material suppliers, through to factories and warehouses and then to the end customer. A supply chain also includes the organisations and processes that create and deliver products, information, and services to end customers.
Supply Chain Managements (SCM) function is to plan, organise, and optimise the supply chains activities. Like other functional areas, SCM utilises information systems. The goal of SCM systems is to reduce friction along the supply chain. Friction can involve increased time, costs, and inventories as well as decreased customer satisfaction. SCM systems then reduce uncertainty and risks by decreasing inventory levels and cycle time and improving business processes and customer service. All these benefits contribute to increased profitability and competitiveness.

List the major components of supply chains.

There are three main segments to the supply chain and they are:

1) Upstream: where sourcing or procurement from external suppliers occurs (e.g. orders, information, payments, returns)
2) Internal: where packaging, assembling, or manufacturing takes place
3) Downstream: where distribution takes place, frequently by external distributors (e.g. products, services, information)

There are several tiers of suppliers in the supply chain. A suppliers may have one or more subsupplier, and the subsupplier may also have its own subsupplier and so on.

There are typically three flows in the supply chain (material, information and financial):

1- Material Flows: are the physical products, raw materials, suppliers, and so forth that flow along the chain. Material flows also includes reverse flows – returned products, raw materials, supplies and so forth.
2- Information Flows: consist of data that are related to demand, shipments, orders, returns, and schedules, as well as changes in any of these data.
3- Financial Flows: involve money transfers, payments, credit card information and authorisation, payment schedules, e-payments, credit-related data.

What is the bullwhip effect?

The bullwhip effect refers to erratic shifts in orders up and down the supply chain. Basically, customer demand variables can become magnified when they are viewed through the eyes of managers at each link in the supply chain. If each distinct entity that makes ordering and the inventory decisions places its own interests above those of the chain, then stockpiling can occur at as many as seven or eight locations along the supply chain.

Define EDI and list its major benefits and limitations

Electronic Data Interchange (EDI) is a communication standard that enables business partners to exchange routine documents, such as purchasing orders, electronically. EDI formats these documents according to agreed-upon standards (for example, data formats) and then transmits message using a converter, called a translator. The message travels over either a value added network (VAN) or the internet.

Benefits:

- Minimizes data entry errors because each entry is checked by the computer.
- The length of the message can be shorter and the messages are secured
- Reduces cycle time
- Increases productivity
- Enhances customer service
- Minimises paper usage and storage

Limitations:

- Implementing an EDI system involves a significant initial investment.
- Ongoing operation costs are high due to use of expensive, private VANs.
- Traditional EDI systems are inflexible. For example it is difficult to make quick changes, such as adding business partners.
- Requires a long start up period.
- Business processes must sometimes be restructured to fit EDI requirements
- Also due to the fact that many EDI standards are in use today, one company might have to use several standards in order to communicate with different business partners.