Chapter 7 Enterprise-Wide Information Systems prenhall/jessup

1. Chapter 7 Enterprise-Wide Information Systems www.prenhall.com/jessup

2. System Categories Enterprise-wide Systems aka Enterprise Systems, are systems that allow companies to integrate information across operations on a company-wide basis Interorganizational Systems (IOS) Systems that communicate across organizational boundaries who’s goal is to streamline information flow from one company to another

3. Enterprise Systems – Within the Organization Example – Order Process and Information Flow

4. Interorganizational Systems – Across Organizations Example – Order Process and Information Flow

5. The Value Chain –Internally Focused Used to identify the flow of information through a set of business activities. It identifies two types of activities, primary and support

6. The Value Chain - Primary Activities Functional areas within an organization that process inputs and produce outputs. These activities may vary widely based on the unique requirements of a company’s industry • Primary Activities include: • Inbound Logistics – receiving and stocking raw materials, parts, products • Operations/Manufacturing – processing orders and raw materials into finished product • Outbound Logistics – distribution of the finished product to customers • Marketing and Sales – creating demand for the product (pre-sales activities) • Customer Service – providing support for the product or customer (post-sales activities)

7. The Value Chain - Support Activities Support activities are business activities that enable Primary Activities These activities can be unique by industry but are generally more typical across industries • Support Activities include: • Infrastructure – hardware and software that must be implemented to support applications for primary activities • Human Resources – employee management activities: hiring, interview scheduling, and benefits management • Technology Development – the design and development of applications that support the organization • Procurement – purchase of goods or services that are required as inputs to primary activities

8. A Value System – Externally Focused • A connection of value chains across organizations • Allows the flow of information between organizations to support business activities • Upstream flow is information received from another organization (i.e. from company A to Company B above) • Downstream Flow is information sent to another organization (i.e. from Company B to Company C above)

9. Options for Enterprise Systems – Packaged vs. Custom Packaged Applications “Off the Shelf” computer applications purchased from a vendor or the company that created the system (i.e. Quicken or MS Money for financial applications) • Packaged Key Characteristics • Best Use - standardized, repetitive tasks • Cost Effectiveness – lower cost because vendors can create once and then sell many copies to others • Organizational Fit – may not be well suited for tasks that are unique to a particular business or industry • Maintenance – the vendor makes the changes and then sends the updates to its customer on a periodic basis. The customer does not control this schedule

10. Options for Enterprise Systems – Packaged vs. Custom Custom Applications “Custom-built” computer applications created by the organization or a third party (e.g. a consulting organization) • Custom Key Characteristics • Best Use - unique business process to an organization • Cost Effectiveness – much higher cost due to the one-time creation of the applications • Organizational Fit – excellent as they are designed to fit a specific business process • Maintenance – all changes are created and implemented by the organization using the application

11. Enterprise System Evolution System Types System Evolution Standalone Systems Integrated Systems (Intraorganizational) Integrated Systems (Interorganizational)

12. Enterprise Systems – Stand-alone or Legacy Stand Alone (Legacy) Systems A single system or groups of systems, designed to each support one or a fewbusiness functions (e.g. accounting system or a manufacturing system, etc.) • Stand Alone (Legacy) Systems • Little or no integration with other organizational systems. If integration exists, it is usually in batch (i.e. the accounting system gets updates from manufacturing system once a day or week • Organizational fit may be better than integrated packages due to the focus on one function and that they have been highly modified over time • Customization and the age of these systems make them difficult to support due to the complexity, use of older or obscure languages, etc.

13. Enterprise Systems - Legacy System Example Legacy (stand-alone) Systems – information is not readily shared between systems (i.e. Inbound Logistics inventory information shared with Operations)

14. Enterprise Resource Planning Integrated Packages (Enterprise Resource Planning) Richly functional systems designed to support many organizational functions (e.g. accounting and finance) • ERP Key Characteristics • Internally focused systems designed to support the internal operations of the organization • Highly integrated systems sharing a common data warehouse for information sharing across functions, using real-time updates • Organizational fit may be less for individual departments but the integrated sharing of information usually outweighs these issues • Usually packaged applications supported by the vendor utilizing a common user interface • Customization is discouraged but these systems have the flexibility to support other outside applications using the common data repository and interfaces

15. Enterprise Systems – Integrated System Example Integrated Systems – Information is stored in a single data repository and can be accessed and updated by all functional systems (e.g. Operations)

16. Choosing an ERP System - Issues • ERP Systems are: • Supplied by multiple vendors including SAP, Baan, Oracle, etc., with each having their own unique features and structures • Packaged systems that are following a one size-fits all strategy which means they may not support all functions as well as a custom system • Similar but are also different. They should be selected based on factors including control, business requirements, and best practices

17. Choosing an ERP System – Selection Factors Control refers to where the power lies related to computing and decision support systems (centralized vs. decentralized) in selecting systems, developing policies and procedures, etc. (who will decide?) Business Requirements refers to the system’s capabilities and how they meet organizational needs through the use of software modules or groups of business functionality (what do you need?) Best Practices refers to the degree to which the software incorporates industry standard methods for doing business which can cause a need for significant business processes reengineering (how much change is required?)

18. ERP Capabilities – SAP Example

19. ERP and Business Process Reengineering Business Process Reengineering A systematic, structuredimprovement approach by all or part of an organization whereby people critically examine, rethink, and redesign business processes in order to achieve dramatic improvements in one or more performance measures (e.g. quality, cycle time, cost) Hammer and Champy, (“Reenginerring the Corporation”) “The radical redesign of an organization was sometimes necessary in order to lower costs and increase quality and that the information technology was the key enabler for that radical change”

20. Business Process Reengineering • Steps in Business Process Reengineering • Develop a vision for the organization that specifies business objectives (e.g. reduced costs, shortend time to market, improved quality, etc.) • Identify critical processes that are to be redesigned • Understandand measure the existing processes as a baseline for future improvements • Identify ways that information technology can be used to improve processes • Design and implement a prototype of the new process(es)

21. BPR Today – Observations and Research • Many large failures exist in large scale Business Process Reengineering implementations. To be successful and organizations must have: • Senior management support • A shared organizational vision • Realistic expectations of outcomes • Participants empowered to reengineer • The right people participating • Sound management practices • Appropriate funding • BPR failures can be tracked back to the lack of one or more of these factors in implementation!

22. BPR Today – Observations and Research • Large bodies of research are available on the role of BRP and BPR implementations. Some of this research has come to the following conclusions: • Reengineering and related organizational issues are as important as the technical implementation issues(Kumar and Van Hellersberg, 2000; Markus and Tanis, 2000) • Managers in many cases must choose between making the ERP system fit the organization or the organization fit the ERP system(Soh, Sia, Tay-Yoh, 2000) • For an ERP system to help transform the organization and gain new competitive capabilities, a full organizational and operational change is required (Willcocks and Sykes, 2000) • In order to be successful, manager must first transform the organization and then implement the ERP system

23. Enterprise Systems – Integrated (Interorganizational) Integrated Packages Richly functional systems designed to support externally focused functions (Upstream – Supply Chain Management and Downstream – Customer Relationship Management) • Integrated Packages • Highly integrated with internal systems (ERP) through the use of interfaces and specialty software • Organizational fit for these systems is very high as they are highly specific to the function they support • These are usually packaged applications that are supplied and supported by the ERP vendor or other third party system integrators • Customization or modifications are also discouraged to minimize support cost but the applications are highly tailorable with configuration options

24. Customer Relationship Management Objective Applications that help organizations attract new business and attract and encourage repeat business • Functions • There are two primary functions in CRM systems: • Sales – tools designed to assist in presales activities such as marketing and prospecting (e.g. Sales Force Automation) • Service – tools that help with the post-sales aspects of the business (e.g. call center technology, analytics) • Sources • There are two primary sources of CRM systems: • CRM Software Vendors – Siebel, FirePond, Onyx, E.Piphany • ERP Vendors – SAP, Baan, Oracle, etc.

25. Sales Support – Sales Force Automation (SFA) Sales Force Automation provides salespeople and sales managers with computerized support tools to assist in daily routines Example: Siebel SFA displays multiple functions including: sales, quota & forecast by sales person; messages; appointments

26. Supply Chain Management • Objective • Applications that accelerate product development and reduce cost associated with procuring raw materials, components, and services from its suppliers • Supply Chain – the suppliers that an organization purchases from directly • Supply Network – the suppliers that an organization purchases from directly and its suppliers • Sources • There are two primary sources of SCM systems. These systems are built to tightly integrate with ERP systems • SCM Software Vendors – Agile, Ariba, I2, Manugistics, Commerce One, etc. • ERP Vendors – SAP, Baan, Oracle, etc

27. SCM – Example of a Supply Network

28. SCM Application Functions

29. SCM Application Functions 2nd Half

30. Supply Chain Management Benefits • Supply Chain Management applications can help organizations to gain competitive advantage and provide substantial payback in several ways by: • Streamlining workflow and increasing employee productivity (i.e. efficiently managing business travel, time, and expenses by collaborating with suppliers in realtime) • Accelerating product development (i.e. enabled by the ability of organizations to swiftly react to market conditions) • Streamlining cost and creating efficiencies across the supply network (i.e., supporting contract negotiation and measuring effectiveness of those agreements)

31. ESSENTIALS OF ENTERPRISE SYSTEMS AND SUPPLY CHAINS ERP and Supply Chains ERPor enterprise systemscontrol all major business processes with a single software architecture in real time. • It is comprised of a set of applications that automate routine back-end operations: • such as financial management • inventory management • Scheduling • order fulfillment • cost control • accounts payable and receivable, • It includes front-end operations such as: • POS • Field Sales • Service • It also increases efficiency, improves quality, productivity, and profitability.

32. ESSENTIALS OF ENTERPRISE SYSTEMS AND SUPPLY CHAINS

33. Supply Chain • Supply Chain Flows • Materials flows are all physical products, new materials, and supplies that flow along the chain. • Information flows relates to all data associated with demand, shipments, orders, returns and schedules. • Financial flows include all transfers of money, payments, credit card information, payment schedules, e-payments and credit-related data. Supply chain refers to the flow of materials, information, payments, and services from raw material suppliers, through factories and warehouses (Value Chain), to the final consumer (Demand Chain). It includes tasks such as purchasing, payment flow, materials handling, production planning & control, logistics & warehousing, inventory control, and distribution. When it is managed electronically it is referred to as an e-supply chain. Supply Chains contribute to increased profitability and competitiveness

34. Supply Chain Automotive Supply Chain

35. Supply Chains Components • The supply chain involves three segments: • Upstream, where sourcing or procurement from external suppliers occur • Internal, where packaging, assembly, or manufacturing take place • Downstream, where distribution or dispersal take place, frequently by external distributors. • It also includes the movement of information and money and the procedures that support the movement of a product or a service. • Organizations and individuals are also part of the chain.

36. Supply Chains Classifications • There are several major types of supply chain • Integrated make-to-stock • Continuous replenishment • Build-to-order • Channel assembly. “Supply” Chain Value Chain Demand Chain

37. Supply Chain Problems Adding value along the chain is essential for competitiveness, however problems exist especially in complex or long chains and in cases where many business partners are involved. These problems are due to uncertainties and the need to coordinate several activities, internal units, and business partners. • Demand forecasts are a major source of uncertainties • Competition • Prices • Weather conditions • Technological development • Customer confidence • Uncertainties exist in delivery times • Machine failures • Road conditions • Shipments • Quality problems may also create production delays

38. Supply Chain Problems continued The bullwhip effect refers to erratic shifts in orders up and down the supply chain because of poor demand forecasting, price fluctuation, order batching, and rationing within the chain. Even slight demand uncertainties and variability become magnified if each distinct entity, on the chain, makes ordering and inventory decisions with respect to its own interest above those of the chain. Distorted information can lead to tremendous inefficiencies, excessive inventories, poor customer service, lost revenues, ineffective shipments, and missed production schedules. A common way to solve the bullwhip problem is by sharing information along the supply chain through EDI, extranets, and groupware technologies. For example employing a vendor-managed inventory(VMI) strategy, the vendor monitors inventory levels and when it falls below the threshold for each product this automatically triggers an immediate shipment.

39. Supply Chain Solutions Information sharing among supply chain partners (c-commerce) sometimes referred to as the collaboration supply chain is one method to overcome problems in the flow. Others are: • Optimal Inventory Levels • Supply Chain Coordination and Collaboration • Supply Chain Teams • Performance Measurement and Metrics • Various IT-Assisted Solutions • wireless technology • optimal shipping plans • strategic partnerships with suppliers • just-in-time

40. Supply Chain Solutions

41. Supply Chain Collaboration Management Every company that has business partners has to manage the relationships with them. Information needs to flow between the firms and constantly updated and shared. • Manual methods include; phone, fax, and mail • EDI is typically used by large corporations • EC PRM functions include: • partner profiles • partner communications • lead management (of clients) • targeted information distribution • connecting the extended enterprise • partner planning • centralized forecasting • group planning • e-mail • price lists

42. Supply Chain Management

43. Global Supply Chains Supply chains that involve suppliers and/or customers in other countries are referred to as global supply chains. • Companies go global (disperse the value chain) for a variety of reasons. • lower costs of materials, products, services and labor • availability of products that are unavailable domestically • the firm's global strategy • technology available in other countries • high quality of products • intensification of global competition • the need to develop a foreign presence to increase sales • fulfillment of counter trade. Global supply chains are usually longer than domestic ones, and more complex. Therefore, additional uncertainties are likely.

44. Computerized Supply Chains The supply chain process is intertwined with the computerization of its activities. People have wanted to automate the processes along the chain to reduce cost, expedite processing, and reduce errors. • Material requirements planning (MRP) essentially integrates production, purchasing, and inventory management of interrelated products. • Manufacturing resource planning (MRP II), enhanced MRP methodology by adding labor requirements and financial planning. • Enterprise resource planning (ERP)further integrates the transaction processing as well as other routine activities in the entire enterprise. • Integrations continues along several paths • functional areas • Combining transaction processing and decision support • Business intelligence • CRM software

45. Computerized Supply Chains Continued

46. E-Commerce and Supply Chains E-commerce is emerging as a superb tool for providing solutions to problems along the supply chain. Many supply chain activities, from taking customers' orders to procurement, can be conducted electronically. • E-commerce • can digitize some products • can replace all paper documents • can replace faxes and telephone calls with electronic messaging • Enhances collaboration and information sharing • typically shortens the supply chain and minimizes inventories • facilitates customer service • introduces efficiencies into buying and selling • enables faster, cheaper, and better communication, collaboration, and discovery of information

47. E-Commerce and Supply Chains A major role of EC is to facilitate buying and selling along all segments of the supply chain. • Upstream Activitiesimprove the upstream supply chain through e-procurement • Internal Supply Activitiesfrom entering purchase orders, to recording sales, to order fulfillment, to tracking shipments, are usually conducted over a corporate intranet • Downstream Activitiesenhance the activity downstream activities by providing online ordering • Vertical exchangescombine upstream and downstream EC supply chain activities. These B2Bexchanges, provide a medium where buyers and sellers can meet.

48. E-Commerce and Supply Chains Continued

49. Supply ChainsBenefits There are many benefits to integrating functional systems. • Tangible benefits: • Inventory reduction • Personnel reduction • Productivity improvement • Order management improvement • Financial-close cycle improvements • IT cost reduction • Procurement cost reduction • Cash management improvements • Revenue/profit increases • Transportation logistics cost reduction • Maintenance reduction • On-time delivery improvement.

50. Supply ChainsBenefits Continued • Intangible benefits: • Information visibility • New/improved processes • Customer responsiveness • Standardization • Flexibility • Globalization • Business performance • Reduction in duplication of entries • controls and reconciliation are enhanced • rapid assimilation of data into the organization Systems can be integrated internally and externally. Internal integration refers to integration between applications inside a company, whereas external integration refers to integration of applications among business partners.