Week 7 Enterprise Systems and ERP (Chapter 10) PDF

ADM 2372 Management Information Systems Mayur Joshi, PhD Assistant Professor of Information Systems [email protected] © Copyright. Mayur Joshi. 2024. and © 2024 John Wiley &...

ADM 2372 Management Information Systems Mayur Joshi, PhD Assistant Professor of Information Systems [email protected] © Copyright. Mayur Joshi. 2024. and © 2024 John Wiley & Sons Canada, Ltd. or the authors All Rights Reserved. No part of this document may be reproduced, stored in a retrieval system or transmitted in any form or b y any means, electronic, mechanical, photocopying, recording or otherwise without prior written permission from the professor. Shar ing course materials without permission or uploading course materials to a content sharing website may be treated as an instance of acad emic fraud as well as copyright infringement. 1  Week 7 Enterprise Systems and Enterprise Resource Planning (Chapter 10) 2 Agenda 1. Transaction Processing Systems (TPS) 2. Functional Area Information Systems 3. Enterprise Resource Planning (ERP) Systems 4. ERP Support for Business Processes 3 Transaction Processing Systems (TPS) A transaction is “any business event that generates data worthy of being captured and stored in a database.” o a product manufactured, o a service consumed, o a person hired, o a payroll cheque generated A transaction processing system (TPS) “supports the monitoring, collection, storage, and processing of data from the organization’s basic business transactions, each of which generates data.” o Continuous “real-time” data collection o Efficiently handle high volumes of data and large variations in those volumes o Avoid errors and downtime o Record results accurately and securely o Maintain privacy and security 4 Transaction Processing Systems (TPS) 5 Transaction Processing Systems (TPS) Batch Processing o The firm collects data from transactions as they occur, placing them in groups, or batches. o The system then prepares and processes the batches periodically (say, every night). Online Transaction Processing (OLTP) o The firm collects as well as processes transactions online as soon as they occur. o E.g., when you pay for an item at a store, the system records the sale by reducing the inventory on hand by one unit, increasing sales figures for the item by one unit, and increasing the store’s cash position by the amount you paid. 6 Functional Area Information Systems Information Systems for Accounting and Finance (A&F IS) Information Systems for Marketing (Marketing IS) Information Systems for Production/Operations Management (POM IS) Information Systems for Human Resource Management (HR IS) 7 Accounting and Finance IS Financial planning and budgeting o Financial and economic forecasting o Budgeting Investment management o Systems for managing organization investments in stocks, bonds, real estate, and other assets. 8 Managing Financial Transactions Accounting/finance software packages that are integrated with other functional areas (e.g., Peachtree offers a sales ledger, a purchase ledger, a cash book, sales order processing, invoicing, stock control, a fixed assets register, etc.). Examples of organizations and IS o Global stock exchanges o Currency exchanges o Virtual close the ability of closing books quickly at any time, on very short notice (rather than quarterly) which provides almost real-time information on the organization’s financial health. o Expense management automation (EMA) 9 Control and Auditing Budgetary control Auditing o Two basic purposes of audits: Monitor how the organization’s monies are being spent Access the organization’s financial health Financial ratio analysis 10 Production/ Ops Management IS In-house logistics and materials management Inventory management Quality control Planning production and operations Computer-integrated manufacturing Product life cycle management 11 Human Resource Management IS Recruitment Human resources development Human resources planning and management o Payroll and employees’ records o Benefits administration o Employee relationship management 12 Examples of information systems supporting the functional areas 13 Enterprise Resource Planning (ERP) Systems 14 Core ERP Modules Financial management Operations management Human resource management 15 From FAIS to ERP FAIS ERP ERP System Production Production Production Data Information System Module HR HR Entire data of HR Information System Data Module Organization Finance & Finance & Accounting Finance & Accounting Information System Accounting Module Data - FAIS separated along functional areas, No integration - Single Software, Single database, - Duplication of information - Single version of the truth - Incompatibility between hardware & software platforms 16 Evolution of ERP 1960s: MRP (Material Requirement Planning) – computing resources applied to manufacturing problems (to inventory control, then to production schedules) 1980s: MRP-II (Manufacturing Requirement Planning) – introduced to encompass the entire factory production process (including labor, cash flows) 1980s: SAP (www.sap.com) began seeking integration of manufacturing processes with other functional areas such as HR, engineering, and project management, referred to as Enterprise Resource Planning (ERP), also known as Enterprise Systems (ES) [ Source: Information Systems for Managers: Texts and Cases by Gabriele Piccoli, 2007 ] 17 ERP Enterprise Resource Planning (ERP) systems integrate the planning, management, and use of all organizational resources, employing a common platform and database Major ERP vendors: – SAP: https://www.sap.com/canada/ – Oracle: https://www.oracle.com/ca-en 18 Example: order fulfillment without ERP Without ERP, information is transferred from one department to another 19  Example: Order fulfillment with ERP manufacturing “ERP takes a customer order scheduled to build and provides a software road products to fulfill order map for automating the - inventory checked different steps along the path - sales informed of to fulfilling it” current inventory human resources notified to hire more workers [ www.cio.com ] customer - purchasing instructed to ERP order buy more raw material / At the heart of an ERP system - order is placed is a database, when a user enters or updates info in one module, it is updated immediately and warehouse notified automatically throughout the customer tracks to schedule shipping order fulfillment DSS, EIS entire system management has access to summaries/reports, analysis, accounting notified forecasting models, etc. to prepare bill [Source: E-business principles and Practice, by Jennifer Rowley, Palgrave, 2002] 20 ERP: Finance & Accounting Module A finance & accounting ERP module manages accounting data and financial processes within the enterprise with functions such as general ledger, accounts payable, accounts receivable, budgeting, and asset management – Features include: Credit-management: set limits on how much a customer can owe at any time, etc. (TPS level) Product profitability analysis (DSS, EIS level) 21 ERP: Finance & Accounting Module 22 ERP: Finance & Accounting Module 23 ERP: Production Module A production & materials management ERP module handles production planning and execution such as demand forecasting, production scheduling, job cost accounting, and quality control The Production Planning Process 1 Goal: to reduce excess or insufficient inventory, 2 delayed production, etc. 3 3 4 4 24 ERP: Production Module 25 ERP: Production Module 26 ERP: Human Resources Module A human resources ERP module tracks employee information including payroll, benefits, compensation, performance assessment, and assumes compliance with the legal requirements of multiple jurisdictions and tax authorities – Also supports analysis such as productivity assessment, salary trends, health and safety metrics, etc. 27 ERP: Human Resources Module 28 ERP: Human Resources Module 29 Implementing ERP There are different ways to implement an ERP system – On-premise implementation (in-house) Vanilla approach Custom approach Best of breed approach – SaaS (cloud based) 30 Implementing ERP Vanilla approach: implement a standard ERP package with minimal (or no) customization – Quick Custom approach: customize the ERP system by developing new functions designed specifically for the organization – Customization is costly and risky – ERP software is complex & hard/expensive to modify – Modifying ERP software might degrade its performance – Customization will have to be done for every new version released by the ERP vendor 31 Implementing ERP Best of breed approach – This approach combines the 2 previous ones – Mix and match ERP modules from different ERP vendors to best fit the unique processes of the organization E.g., buy a Financial Module and HR Module from an established ERP vendor to take advantage of the best practices, and buy a specialized & customized module for Production 32 Implementing ERP SaaS (Cloud-based approach) – Rent the system from an ERP vendor who offers it over the Internet using the SaaS model (similar to Vanilla Approach in terms of required changes) – Vendor is responsible for the management, maintenance, and security of the system – Relationship between the organization (client) and the ERP vendor is regulated by contracts and Service Level Agreements (SLAs) 33 Implementing ERP SaaS – Advantages Anywhere, anytime use Lower initial costs of hardware and software Scalable Pay for only what you use – Disadvantages Security issues associated with Internet-based computing Using the vanilla approach potentially reduces competitive advantage (by following the best practices) Usage problems if the Internet is not available or problems arise with the service provider 34 ERP Benefits Flexibility and agility – ERP breaks down silos (aka islands) – ERP makes organizations more flexible, agile, adaptive – Organizations can respond quickly to change and capitalize on opportunities Decision support – Organization-wide (as opposed to area-wide) information enables managers to make better decisions faster Quality & efficiency – ERP improves processes by making them more efficient and effective 35 ERP Limitations ERP systems are built based on “best practices” developed by vendors – ERP best practices are the “most successful way to execute a business process using an ERP system” – Companies may have to change their existing processes to fit the best practices of the ERP system e.g., in order to use an ERP HR Module, you might have to change the way you hire employees, or the way you pay them, etc. – If your processes are important to you (they bring you a competitive advantage), then adopting best practices represents a limitation 36  ERP Limitations Note: even though adopting best practices can be seen as a limitation, ERP implementation is an opportunity to improve or redesign inefficient and ineffective business processes (See Topic 2) 37  ERP Limitations Costs and risks of implementing ERP – If ERP implementation fails, it means losses in revenue, etc. e.g., FoxMeyer Drugs, a 5 billion dollars pharmaceutical company filed for bankruptcy protection after its ERP implementation failed According to www.cio.com the average ERP implementation takes 2 years and costs about 15 million USD 38  ERP Limitations Costs and risks of implementing ERP Expenditure Percentage Consulting fees Hardware 13.8 Software 17.5 Process change: BPI or BPR Internal Staff 23.2 Customizing the software 45.5 to the company’s needs Professional Services Integration of software Source: Paul Gray, Manager’s Guide to Making components & testing Decisions about Information Systems, John Wiley & Sons, 2006 Training Converting existing data to fit the new system 39  ERP Limitations Reasons for ERP Failure Failure to involve employees who will be affected by the ERP system Insufficient training Poor conversion of data from the old system to the new system Poor testing Trying to accomplish too much too fast in the conversion process 40 Integrated processes with ERP systems 41 ERP: new generation The new generation ERP systems (the textbook calls them ERP II but we will simply call them ERP) are accessible by customers, suppliers, and other partners through web-enabled links (e.g., through VPN connections) ERP Customers (internal Suppliers system) Partners ERP II (new generation ERP) 42 ERP: Core and Extended Modules 43  ERP: Modules and Other Systems ERP: Enterprise Resource Planning CRM: Customer Relationship Management CRM SCM: Supply Chain Management (Inter- organizational IS) Customers Business to Consumer ERP SCM e-commerce (B2C) Your Organization Exchange of information, Supplier Organizations payment, materials, physical Buyer Organizations Business to Business e-commerce (B2B) products, digital products Business to Business e-commerce (B2B) 44