Chapter 8

Chapter 8 Enterprise Information Systems

We have this beautiful, elegant, high-I.Q. part of our business that we have been working hard on for many years.”

Jeff Bezos, Founder Jeff Bezos, Founder and CEO of and CEO of Amazon.comAmazon.com

We have this beautiful, elegant, high-I.Q. part of our business that we have been working hard on for many years.”

Jeff Bezos, Founder Jeff Bezos, Founder and CEO of and CEO of Amazon.comAmazon.com

Learning Objectives9-2

IS Today (Valacich & Schneider) Copyright © 2010 Pearson Education, Inc. Published as Prentice Hall 04/20/23IS Today (Valacich & Schneider) Copyright © 2010 Pearson Education, Inc. Published as Prentice Hall 04/20/23

Enterprise Systems9-4

Problem: Information systems growing

over time Lack of integration

Different computing platforms Difficult to integrate Data must be reentered from one

system to another Same pieces of data stored in

several versions Functional areas should be

interrelated

Legacy System Approach9-5

Enterprise System Approach9-6

Supporting Business Processes9-7

Internally focused systems Support functional areas, business processes, and decision

making within an organization New information (value) is added at every step

Supporting Business Processes9-8

Externally focused systems (interorganizational systems) Coordinate business activities with customers, suppliers,

business partners, and others who operate outside the organization

Streamline the flow of information between companies

Internally Focused Applications: Value Chain

Flow of information through a set of business activities Core activities—functional areas that process inputs

and produce outputs Support activities—enable core activities to take place

Core Activities9-10

Inbound logistics activities Receiving and stocking raw materials, parts, and

products Cisco—delivery of electronic components from

suppliers

Operations and manufacturing activities Order processing and/or manufacturing of end

products Dell—component parts assembled to make products

Outbound logistics activities Distribution of end products Amazon.com—delivery of books to customers

Core Activities (cont’d)9-11

Marketing and Sales activities Presale marketing activities (e.g., creating marketing

brochures) Amtrak—use of IS to update prices and schedules

Customer service activities Post-sale activities HP—downloads related to purchased products

Support Activities9-12

Administrative activities Support of day-to-day operations (for all functional

areas)

Infrastructure activities Implement hardware and software needed

Human resource activities Employee management

Support Activities (cont’d)9-13

Technology development activities Design and development of applications to support the

primary activities

Procurement activities Purchasing of goods and services (inputs into the

primary activities)

Externally Focused Applications—Value System

Coordination of multiple value chains

Externally Focused Applications—Value System (cont’d)

Information Flows in a Value System Upstream information flow—information received from

another company Downstream information flow—information produced by a

company and sent to another organization

The Rise of Enterprise Systems9-16

Packaged applications Written by third-party vendors Used by many different organizations Useful for standardized, repetitive tasks Cost effective Examples: Microsoft Money and Quicken

Custom applications Developed exclusively for a specific organization Designed for particular business needs Higher development costs

The Rise of Enterprise Systems9-17

Evolution of enterprise systems Organizations start

with stand-alone applications

Legacy systems

Legacy Systems9-18

Each department has its own system Infrastructure specific Inefficient processes Potential for inaccuracies

The Need for Integrated Enterprise Systems

Advantages of integrated systems Centralized point of access

Conversion of information from legacy systems needed

Enterprise Resource Planning (ERP) vendors offer different modules Components that can be selectively

implemented Example: Modules of mySAP business suite

Vanilla Versus Customized Software

Vanilla version Features and modules that an enterprise system

comes with out of the box Certain processes might not be supported

Customization Additional software or changes to vanilla version Always needs to be updated with new versions of

vanilla

Best Practices-Based Software9-21

Most ERP vendors build best practices into their ERP systems Identify business processes in need of change Future updates are smoother if businesses

change their business processes to fit with ERP systems

Is following the best practices always the best strategy? If companies have competitive advantage from

unique business processes

Business Process Management (BPM)9-23

Systematic and structured improvement approach All or part of organization is involved Rethinking and redesign of business processes

Became popular in 1990sIS seen as key enabler for radical changeProcesses intended to be cross-functionalVarious related terms:

BPM Steps9-24

1. Develop a vision for the organization (specify business objectives)

2. Identify critical processes that are to be redesigned

3. Understand and measure existing processes as a baseline

4. Identify ways IS can be used for improvement

5. Design and implement a prototype of the new processes

Conditions Leading to a Successful BPM

Support by senior managementShared vision by all organizational

membersRealistic expectationsParticipants empowered to make changesThe right people participatingSound management practicesAppropriate funding

Enterprise Resource Planning (ERP)9-26

Integrating data to integrate applications

Data warehouse Large, centralized

data repository Single place for data

storage and access

Choosing an ERP System9-27

Control Centralized control vs. control within specific business

units Level of detail provided to management Consistency of policies and procedures

Business requirements Selection of modules

Core and extended components

Core and Extended ERP Components

Core components—support primary internal activities

Extended components—support primary external activities

ERP Limitations9-29

ERP falls short in communicating across organizational boundaries

Not well suited for managing value system activities Other systems can work with ERP to provide these

capabilities

Customer Relationship Management (CRM)9-31

Customer Relationship Management(CRM) (cont’d)

The Web has changed the business Customers have the power Transactions vs. relationships Keeping customers satisfied is key

CRM Corporate-level strategy Concentrates on the downstream information flow

Attract potential customers Create customer loyalty

Managers need to be able to monitor and analyze factors driving customer satisfaction

Key Benefits of CRM9-33

1. Enables 24/7/365 operation2. Individualized service3. Improved information4. Speeds problem identification/resolution5. Speeds processes6. Improved integration7. Improved product development8. Improved planning

Developing a CRM Strategy9-34

More than just software purchase and installation

Enterprise-wide changes

Policy and Business Process Changes

Policies and procedures need to reflect customer-focused culture

Customer Service Changes9-36

Customer-focused measures of quality

Process changes to enhance customer experience

Employee Training Changes9-37

Employees from all business areas must value customer service and satisfaction

Data Collection, Analysis, and Sharing Changes

All aspects of customer experience must be tracked, analyzed, and shared

Consider ethical concerns

Architecture of a CRM Environment9-39

Operational CRM9-40

Systems for customer interaction and service Personalized and

efficient customer service

Access to complete information about customer

Sales Force Automation9-41

Component of operational CRMSupports day-to-day sales activities:

Order processing and tracking Account and contact management Opportunity management Sales management Territory management Customer history, preferences, (product and

communication), and management Sales forecasting and performance analysis

Advantages of Sales Force Management Systems for Sales Personnel

Advantages of Sales Force Management Systems for Sales Managers

Examples of Sales Measures Tracked by SFA

1. Revenue per sales person, per territory, or as a percentage of sales quota

2. Margins by product category, customer segment, or customer

3. Number of calls per day, time spent per contract, revenue per call, cost per call, ratio of orders to calls

4. Number of lost customers per period or cost of customer acquisition

5. Percentage of goods returned

SFA Provides Improved Understanding of Market Conditions

1. Improved understanding of markets, segments and customers

2. Improved understanding of competitors

3. Enhanced understanding of organization’s strengths and weaknesses

4. Better understanding of economic structure of the industry

5. Enhanced product development

6. Improved strategy development and coordination with the sales function

Customer Service and Support (CSS)9-46

Second component of operational CRM

Automation of traditional “help desk” services

Customer interaction center (CIC) Multiple communication

channels Customer service anytime,

anywhere through any communication channel

Low support cost

Enterprise Marketing Management (EMM)

Third component of an operational CRMMake sure right messages are sent to the

right people through the right channelsCustomer lists need to be managed

carefullyIndividualized attention to each potential

customerExtensive analytical capabilities

Analytical CRM9-48

Analysis of customer behavior and perceptions

Customized marketing Up-selling, cross-selling Retaining customers

Key technologies used to create predictive models Data mining Decision support systems

Continuous data collection and analysis is necessary

Customer Focused Business Processes Addressed by Analytical CRM

1. Marketing campaign management and analysis

2. Customer campaign customization

3. Customer communication optimization

4. Customer segmentation and sales coverage optimization

5. Pricing optimization and risk assessment and management

Customer Focused Business Processes Addressed by Analytical CRM (cont’d)

6. Price, quality, and satisfaction analysis of competitors

7. Customer acquisition and retention analysis

8. Customer satisfaction and complaint management

9. Product usage, life-cycle analysis, and product development

10.Product and service quality tracking and management

Collaborative CRM9-51

Effective communication with the customer from the entire organization CIC is the key

Collaborative CRM enhances communication Greater customer focus

Understanding of historical and current needs Lower communication barriers

Communication preferences of the customer considered Increased information integration

Customer information shared across the organization

Ethical Concerns with CRM9-52

Can personalization get too personal?

Supply Chain Management9-54

Upstream activitiesImprovement of business processes spanning

organizational boundariesFocus on upstream information flows

Acceleration of product development Reduction of costs of raw materials procurement

Collaboration with suppliers (supply network) Ability to compete more effectively in the market place Cost reduction Increased responsiveness to market demands

Supply Chain Management9-55

Supply chain: the producers of supplies that a company uses Suppliers work with additional suppliers Supply network

Problems with not collaborating effectively Information gets distorted Forecast errors add up, leading to degradation of

profitability and poor customer service “Bullwhip effect”

Goals of improving upstream information flows Accelerate product development Reduce costs associated with procuring raw materials

Supply Network9-56

Functions That Optimize the Supply Network (SCM Modules)

1. Supply chain collaboration2. Collaborative design3. Collaborative fulfillment4. Collaborative demand and supply planning5. Collaborative procurement6. Production planning7. Supply chain event management8. Supply chain exchange9. Supply chain performance management

SCM Architecture9-58

SCM modules support two functions Supply chain planning—development of resource plans to

support production

Supply chain execution—execution of supply chain planning

Supply Chain Planning (SCP)9-59

Four types of plans are developed:1. Demand planning and forecasting

o Examination of historic data

2. Distribution planningo Delivering products to consumerso Warehousing, delivering, invoicing, and payment

collection

3. Production schedulingo Coordination of activities needed to create the

product/serviceo Optimization of the use of materials, equipment, and

4. Procurement planningo Development of inventory estimates

Supply Chain Execution (SCE)9-60

Management of three key elements

1. Product flowo Flow of product from supplier to

consumero Automation of product returns

2. Information flowo Complete removal of paper documentso Access to current information at all times

3. Financial flowo Automatic flow of payments

Developing an SCM Strategy9-61

SCM efficiency and effectiveness need to be balanced Efficiency—cost minimization Effectiveness—customer service maximization

Tradeoffs—Supply chain strategy should match overall competitive strategy

Emerging SCM Trends9-62

Enterprise portals—B2B marketplace Access point to proprietary information Productivity gains and cost savings

Distribution portals Products from single

supplier to many buyersProcurement portals

Procurement of products between single buyer and multiple suppliers

Example: Distribution Portal9-63

Automation of business processes between supplier and multiple customers Before transaction During transaction After transaction

Trading exchanges Equilibrium between

buyers and sellers Vertical markets

Source: http://www.dell.com

Procurement Portal9-64

Automation of business processes between a buyer and multiple suppliers

Trading Exchanges9-65

Small companies don’t have funds for SCMTrading exchanges provide a solution

Operated by third-party vendors Revenue model

Commission for each transaction Usage and association fees Advertising

Many buyers and many sellers can come together Popular trading exchanges:

www.scrapsite.com (steel) www.paperspace.com (paper) www.sciquest.com (medical equipment)

Key Technologies for Enhancing SCM

Extensible Markup Language (XML) Specifies rules for tagging elements Specifies how information should be used and

interpreted <UPC>…. </UPC>

Useful for sharing data across applications over the web

Possible replacement for EDI Customizable XML variations

Extensible Business Reporting Language (XBRL) Publishing of financial information

Radio Frequency Identification (RFID)9-67

Replacement for standard bar codes Transceiver and antenna Line-of-sight reading not necessary RFID tags can contain more

information than bar codes

Diverse usage opportunities

Scanning can be done from greater distance Passive tags—range of few feet Active tags—range of hundreds of

Source: METRO AG.

Use of RFID in Supply Chain Management

Pallet of inventory processed through an RFID gate

Source: METRO AG.

The Formula for Enterprise System Success

1. Secure executive sponsorship Most failures due to lack of top-level management

support2. Get help from outside experts

Consultants are specifically trained Implementation tends to happen faster

3. Thoroughly train users Most overlooked, underestimated, and poorly budgeted

expense Training can prevent dissatisfaction

4. Take a multidisciplinary approach to implementations Include end users from all functional areas in the

implementation5. Look beyond ERP

Looking Beyond ERP9-71

ERP systems are difficult to install, maintain, and upgrade

Service oriented architecture (SOA) Business processes are broken down into services Services are designed to achieve desired results for service

consumer E.g., Oil change

Enables businesses to react more swiftly to changing needs

Three principles of services Reusability Interoperability Componentization

ERP vendors are offering products for transitioning to SOA

Service Oriented Architecture9-72

Multiple applications can access multiple services

End of Chapter Content9-73

Opening Case—Managing in the Digital World: Amazon.com

35 million customers worldwideInnovations leading to satisfactionExcellent at managing entire supply chain

Both acquiring the right products at the right time and shipping the products to the customers are crucial

12 North American,7 international fulfillment centers

Amazon.com manages fulfillment for Target.com as well as other businesses

Independent retailers can use Amazon.com’s supply chain infrastructure on an as-needed basis

Three-Dimensional Fabrication

Fabbing—three-dimensional (3D) printing 2 printer heads

First lays down a fine powder Second head is a gluing agent With each pass of the heads one layer of the model is

done Prototype made in hours vs. days

Fast production of prototypes that are 3-D Usable With moving parts

Hewlett-Packard (HP)—leader 3-D HP printers now available for $1,000

Outsourcing Your McDonald’s Order

McDonald’s—One of America’s success stories Founded in 1948 in San Bernardino, California $20 billion business 31,000 locations

Outsourcing the drive-through All stores already had an

Internet connection Orders processed overseas Entered into the queuing system Food quality remains the same

SAP—Dietmar Hopp, Hans-Werner Hector, Hasso Plattner, Klaus Tschira, and Claus

Wellenreuther9-77

Former IBM employees80’s—multiple

international subsidiariesLargest software company

39,300 people 3rd largest in terms of revenue

Includes: ERP CRM PLM SCM SRM

Census Computers9-78

2006 Census announced $600 million contract for

PDAs for census workers Test run unsuccessful PDAs not equipped for large volume of data Contract overruns

2008 Plans for the PDAs scrapped Contract still paid

Customer Relationship Management (CRM)—Targeting or Discriminating?

CRM can be called a marketer’s dream Getting to know customers Maximizing the benefits gained from customers Customer segmentation Target marketing

Companies need to develop ethical principles of CRM use Establish how data will be used Inform customers about the use of data Refrain from stepping over the ethical/unethical

RFID on the Rise9-80

Market for RFID is exploding Expected growth from $5.29 billion (2008) to $12.3 billion

(2010) Supply chain elements will account for majority of the growth Second largest growth segment will be consumer items Currently, largest RFID market sector is security and access

control (62.6%), followed by animals (28.8%)

Manufacturing9-81

Computer Aided Design (CAD) Create drawings faster Reduce cycle time Improve sharing of designs

3-D drawings and printingComputer-Aided Engineering (CAE)

Testing of features before the first prototype is built

Computer-Aided Manufacturing (CAM) Takes input from CAD system Controls manufacturing of components

Chapter 8

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