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Network protocols

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Computing devices that are connected to the network must access and share the network to transmit and receive data. These devices are often referred to as nodes of the network. They work together by adhering to a common set of rules and procedures known as a protoco  that enable them to communicate with one another. The two major protocols are the Ethernet and Transmission Control Protocol/Internet Protocol.<br />
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Ethernet. A common LAN protocol is Ethernet. Most large corporations use 10-gigabit Ethernet, where the network provides data transmission speeds of 10 gigabits (10 billion bits) per second. However, 100-gigabit Ethernet is emerging.<br />
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Transmission Control Protocol/Internet Protocol. The Transmission Control Protocol  Internet Protocol (TCP/IP) is the protocol of the Internet. TCP/IP uses a suite of protocols, the main ones being the Transmission Control Protocol (TCP) and the Internet Protocol (IP). The TCP performs three basic functions: (1) It manages the movement of packets between computers by establishing a connection between the computers, (2) it sequences the transfer of packets, and (3) it acknowledges the packets that have been transmitted. The Internet Protocol (IP) is responsible for disassembling, delivering, and reassembling the data during transmission.<br />
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Before data are transmitted over the Internet, they are divided into small, fi xed bundles called packets. The transmission technology that breaks up blocks of text into packets is called packet switching. Each packet carries the information that will help it reach its destination the sender’s IP address, the intended receiver’s IP address, the number of packets in the message, and the number of the particular packet within the message. Each packet travels independently across the network and can be routed through different paths in the network. When the packets reach their destination, they are reassembled into the original message. It is important to note that packet-switching networks are reliable and fault tolerant. For example, if a path in the network is very busy or is broken, packets can be dynamically (“on the fl y”) rerouted around that path. Also, if one or more packets does not get to the receiving computer, then only those packets need to be resent.<br />
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Why do organizations use packet switching? The main reason is to achieve reliable end-to-end message transmission over sometimes unreliable networks that may have transient (short-acting) or persistent (long-acting) faults. The packets use the TCP/IP protocol to carry their data. TCP/IP functions in four layers (see Figure 6.7). The application layer enables client application programs to access the other layers, and it defi nes the protocols that applications use to exchange data. One of these application  protocols is the Hypertext Transfer Protocol (HTTP), which defi nes how messages are<br />
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formulated and how they are interpreted by their receivers. The transport layer provides the application layer with communication and packet services. This layer includes TCP and other protocols. The Internet layer is responsible for addressing, routing, and packaging data packets. The IP is one of the protocols in this layer. Finally, the network interface layer places packets on, and receives them from, the network medium, which can be any networking technology. Two computers using TCP/IP can communicate even if they use different hardware and software. Data sent from one computer to another proceed downward through all four layers, beginning with the sending computer’s application layer and going through its network interface layer. After the data reach the receiving computer, they travel up the layers.<br />
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TCP/IP enables users to send data across sometimes unreliable networks with the assurance that the data will arrive in uncorrupted form. TCP/IP is very popular with business organizations because of its reliability and the ease with which it can support intranets and related functions. Let’s look at an example of packet-switching across the Internet. Figure 6.8 illustrates a message being sent from New York City to Los Angeles over a packet-switching network. Note that the different colored packets travel by different routes to reach their destination in Los Angeles, where they are reassembled into the complete message.</div>

Computing devices that are connected to the network must access and share the network to transmit and receive data. These devices are often...

The basics of how networks actually operate.

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Analog and Digital Signals<br />Networks transmit information with two basic types of signals, analog and digital. Analog signals are continuous waves that transmit information by altering the characteristics of the waves. Analog signals have two parameters, amplitude and frequency. For example, all sounds  including the human voice are analog, traveling to human ears in the form of waves. The higher the waves (or amplitude), the louder the sound; the more closely packed the waves, the higher the frequency or pitch. In contrast, digital signals are discrete pulses that are either on or off, representing a series of bits (0s and 1s). This quality allows digital signals to convey information in a binary form that can be interpreted by computers. Figure 6.3 illustrates both analog and digital signals. The function of a modem is to convert digital signals to analog signals a process called modulation and analog signals to digital signals a process called demodulation. (The name</div>
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modem is a contraction of modulator-demodulator.) Modems are used in pairs. The modem at the sending end converts a computer’s digital information into analog signals for transmission over analog lines, such as telephone lines. At the receiving end, another modem converts the analog signal back into digital signals for the receiving computer. There are three types of modems: dial-up modems, cable modems, and DSL modems. The U.S. public telephone system was originally designed as an analog network to carry voice signals or sounds in an analog wave format. In order for this type of circuit to carry digital information, that information must be converted into an analog wave pattern by a dial-up modem. Dial-up modems have transmission speeds of up to 56 kilobytes per second (Kbps) and are almost extinct in most parts of the developed world. Cable modems are modems that operate over coaxial cable for example, cable TV. They offer broadband access to the Internet or corporate intranets. Cable modem speeds vary widely. Most providers offer bandwidth between 1 and 6 million bits per second (Mbps) for downloads (from the Internet to a computer) and between 128 and 768 thousand bits per second (Kbps) for uploads. Cable modem services share bandwidth among subscribers in a locality. That is, the same cable line connects to many households. Therefore, when large numbers of neighbors access the Internet at the same time, cable speeds can decrease signifi cantly during those times. DSL (discussed later in this chapter) modems operate on the same lines as voice telephones and dial-up modems. DSL modems always maintain a connection, so an Internet connection is immediately available.<br /><br />Communications Media and Channels<br />Communicating data from one location to another requires some form of pathway or medium. A communications channel is such a pathway. It is comprised of two types of media: cable (twisted-pair wire, cable, or fi ber-optic cable) and broadcast (microwave, satellite, radio, or infrared). Cable media or wireline media use physical wires or cables to transmit data and information. Twisted-pair wire and coaxial cables are made of copper, and fi ber-optic cable is made of glass. The alternative is communication over broadcast media or wireless media. The key to mobile communications in today’s rapidly moving society is data transmissions over electromagnetic  media the “airwaves.” In this section you will study the three wireline channels. Table 6.1 summarizes the advantages and disadvantages of each of these channels.</div>
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Twisted-Pair Wire. Twisted-pair wire is the most prevalent form of communications wiring; it is used for almost all business telephone wiring. As the name suggests, it consists of strands of copper wire twisted in pairs (see Figure 6.4). Twisted-pair wire is relatively inexpensive to purchase, widely available, and easy to work with. However, it also has some signifi cant disadvantages. Specifi cally, it is relatively slow for transmitting data, it is subject to interference<br /> </div>
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from other electrical sources, and it can be easily tapped by unintended receivers to gain unauthorized access to data. Coaxial Cable. Coaxial cable (Figure 6.5) consists of insulated copper wire. Compared to twisted-pair wire, it is much less susceptible to electrical interference, and it can carry much more data. For these reasons, it is commonly used to carry high-speed data traffi c as well as television signals (thus the term cable TV). However, coaxial cable is more expensive and more diffi cult to work with than twistedpair wire. It is also somewhat infl exible.</div>
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Fiber Optics. Fiber-optic cable (Figure 6.6) consists of thousands of very thin fi laments of glass fi bers that transmit information via light pulses generated by lasers. The fi ber-optic cable is surrounded by cladding, a coating that prevents the light from leaking out of the fi ber. Fiber-optic cables are signifi cantly smaller and lighter than traditional cable media. They also can transmit far more data, and they provide greater security from interference and tapping. As of mid-2013, optical fi ber had reached data transmission rates of more than 50 trillion bits (terabits) per second in laboratory experiments. Fiber-optic cable is typically used as the backbone for a network, whereas twistedpair wire and coaxial cable connect the backbone to individual devices on the network.<br /><br /></div>

Analog and Digital Signals Networks transmit information with two basic types of signals, analog and digital. Analog signals are continuous...

What Is a computer network?

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A computer network is a system that connects computers and other devices (e.g., printers) via communications media so that data and information can be transmitted among them. Voice and data communication networks are continually becoming faster that is, their bandwidth is increasing and cheaper. Bandwidth refers to the transmission capacity of a network; it is stated in bits per second.<br /><br />The broadband industry itself has diffi culty defi ning the term, broadband. The Federal Communications Commission originally defi ned broadband as the transmission capacity of a communications medium (discussed later in this chapter) faster than 256,000 (256 Kbps) bits per second. The FCC then upgraded its defi nition to 768 Kbps downstream (e.g., downloading a syllabus from your university’s network) and 256 Kbps upstream (e.g., uploading content to Facebook). In 2010, the FCC upgraded its defi nition of broadband to 4 Mbps (million bits per second) downstream and 1 Mbps upstream. In 2013, the FCC says that it is considering another defi nitional upgrade for broadband. Therefore, we defi ne broadband as the transmission capacity of a communications medium faster than 4 Mbps downstream and 1 Mbps upstream. The defi nition of broadband is fl uid, and will undoubtedly be changed to refl ectlarger transmission capacities in the future.<br /><br />You are familiar with certain types of broadband connections, such as digital subscriber line (DSL) and cable to your homes and dorms. DSL and cable fall within the range of transmission capacity mentioned here and are thus defi ned as broadband connections. The various types of computer networks range from small to worldwide. They include (from smallest to largest) personal area networks (PANs), local area networks (LANs), metropolitan area networks (MANs), wide area networks (WANs), and the Internet. PANs are short-range networks typically a few meters that are used for communication among devices close to one person. PANs can be wired or wireless. (You will learn about wireless PANs in Chapter 8.) MANs are relatively large computer networks that cover a metropolitan area. MANs fall between LANs and WANs in size. WANs typically cover large geographic areas; in some cases they can span the entire planet.<br /><br />Local Area Networks<br />Regardless of their size, networks represent a compromise among three objectives: speed, distance, and cost. Organizations typically must select two of the three. To cover long distances, organizations can have fast communication if they are willing to pay for it, or cheap communication if they are willing to accept slower speeds. A third possible combination of the three trade-offs is fast, cheap communication with distance limitations. This is the idea behind local area networks. A local area network (LAN) connects two or more devices in a limited geographical region, usually within the same building, so that every device on the network can communicate with<br /> </div>
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every other device. Most LANs today use Ethernet. Figure 6.1 illustrates an Ethernet LAN that consists of four computers, a server, and a printer, all of which connect via a shared cable. Every device in the LAN has a network interface card (NIC) that allows the device to physically connect to the LAN’s communications medium. This medium is typically unshielded twisted-pair wire (UTP). Although it is not required, many LANs have a fi le server or network server. The server typically contains various software and data for the network. It also houses the LAN’s network operating system, which manages the server and routes and manages communications on the network.<br /><br /><br />Wide Area Networks<br />When businesses have to transmit and receive data beyond the confi nes of the LAN, they use wide<br />area networks. Interestingly, the term wide area network did not even exist until local area networks appeared. Before that time, what we call a wide area network today was simply called a “network.” A wide area network (WAN) is a network that covers a large geographic area. WANs typically connect multiple LANs. They are generally provided by common carriers such as telephone companies and the international networks of global communications services providers. WANs have large capacity, and they typically combine multiple channels (e.g., fi beroptic cables, microwave, and satellite). The Internet is an example of a WAN. WANs also contain routers. A router is a communications processor that routes messages from a LAN to the Internet, across several connected LANs, or across a wide area network such as the Internet.<br /></div>
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Enterprise Networks<br />Organizations today have multiple LANs and may have multiple WANs. All of these networks are interconnected to form an enterprise network. Figure 6.2 displays a model of enterprise computing. Note that the enterprise network in the fi gure has a backbone network. Corporate backbone networks are high-speed central networks to which multiple smaller networks (such as LANs and smaller WANs) connect. The LANs are called embedded LANs because they connect to thebackbone WAN.</div>

A computer network is a system that connects computers and other devices (e.g., printers) via communications media so that data and informa...

IMAGINE YOUR E-COMMERCE PRESENCE

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Before you begin to build a Web site or app of your own, there are some important questions you will need to think about and answer. The answers to these questions will drive the development and implementation of your e-commerce presence<br />
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WHAT’S THE IDEA? (THE VISIONING PROCESS)<br />
Before you can plan and actually build an e-commerce presence, you need to have a vision of what you hope to accomplish and how you hope to accomplish it. The vision includes not just a statement of mission, but also identification of the target audience, characterization of the market space, a strategic analysis, a marketing matrix, and a development timeline. It starts with a dream of what’s possible, and concludes with a timeline and preliminary budget for development.<br />
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You examine any successful Web site, you can usually tell from the home page what the vision that inspires the site is. If the company is a U.S. public company, you can often find a succinct statement of its vision or mission in the reports it files with the U.S. Securities and Exchange Commission. For Amazon, it’s to become the largest marketplace on earth. For Facebook, it’s to make the world more open and connected. For Google, it’s to organize the world’s information and make it universally accessible and useful. The e-commerce presence you want to build may not have such all-encompassing ambitions, but a succinct statement of mission, purpose, and direction is the key factor in driving the development of your project. For instance, the mission of TheKnot is to be the Internet’s comprehensive, one-stop wedding planning solution.<br />
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WHERE’S THE MONEY: BUSINESS AND REVENUE MODEL<br />
Once you have defined a mission statement, a vision, you need to start thinking about where the money will be coming from. You will need to develop a preliminary idea of your business and revenue models. You don’t need detailed revenue and cost projections at this point. Instead, you need a general idea of how your business will generate revenues. . Basic business models are portal, e-tailer, content provider, transaction broker, market creator, service provider, and community provider (social network).<br />
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WHO AND WHERE IS THE TARGET AUDIENCE<br />
Without a clear understanding of your target audience, you will not have a successful e-commerce presence. There are two questions here: who is your target audience and where can you best reach them? Your target audience can be described in a number of ways: demographics, behavior patterns (lifestyle), current consumption patterns (online vs. offline purchasing), digital usage patterns, content creation preferences (blogs, social networks, sites like Pinterest), and buyer personas (profiles of your typical customer). Understanding the demographics of your target audience is usually the first step. Demographic information includes age, income, gender, and location. In some cases, this may be obvious and in others, much less so.<br />
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Before you begin to build a Web site or app of your own, there are some important questions you will need to think about and answer. The an...

ACADEMIC DISCIPLINES CONCERNED WITH E-COMMERCE

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The phenomenon of e-commerce is so broad that a multidisciplinary perspective is required. There are two primary approaches to e-commerce: technical and behavioral.<br />
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Technical Approaches<br />
Computer scientists are interested in e-commerce as an exemplary application of Internet technology. They are concerned with the development of computer hardware, software, and telecommunications systems, as well as standards, encryption, and database design and operation. Operations management scientists are primarily interested in building mathematical models of business processes and optimizing these processes. They are interested in e-commerce as an opportunity to study how business firms can exploit the Internet to achieve more efficient business operations. The information systems discipline spans the technical and behavioral approaches. Technical groups within the information systems specialty focus on data mining, search engine design, and artificial intelligence.<br />
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Behavioral Approaches<br />
From a behavioral perspective, information systems researchers are primarily interested in e-commerce because of its implications for firm and industry value chains, industry structure, and corporate strategy. Economists have focused on online consumer behavior, pricing of digital goods, and on the unique features of digital electronicmarkets. The marketing profession is interested in marketing, brand development andextension, online consumer behavior, and the ability of e-commerce technologies to segment and target consumer groups, and differentiate products. Economists share an interest with marketing scholars who have focused on e-commerce consumer response to marketing and advertising campaigns, and the ability of firms to brand, segment markets, target audiences, and position products to achieve above-normal returns on investment.<br />
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 Also read <a href="http://www.siteeconomics.net/2016/12/imagine-your-e-commerce-presence.html" target="_blank">imagine your e-commerce presence</a><br />
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Management scholars have focused on entrepreneurial behavior and the challenges faced by young firms who are required to develop organizational structures in short time spans. Finance and accounting scholars have focused on e-commerce firm valuation and accounting practices. Sociologists and to a lesser extent, psychologists have focused on general population studies of Internet usage, the role of social inequality in skewing Internet benefits, and the use of the Web as a social network and group communications tool. Legal scholars are interested in issues such as preserving intellectual property, privacy, and content regulation. No one perspective dominates research about e-commerce. The challenge is to learn enough about a variety of academic disciplines so that you can grasp the significance of e-commerce in its entirety.<br />
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The phenomenon of e-commerce is so broad that a multidisciplinary perspective is required. There are two primary approaches to e-commerce:...

UNDERSTANDING E-COMMERCE ORGANIZING THEMES

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TECHNOLOGY: INFRASTRUCTURE<br />
The development and mastery of digital computing and communications technology  is at the heart of the newly emerging global digital economy we call e-commerce. To understand the likely future of e-commerce, you need a basic understanding of the information technologies upon which it is built. E-commerce is above all else a technologically driven phenomenon that relies on a host of information technologies<br />
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Underlying these technologies are a host of complementary technologies: cloud computing, desktop computers, smartphones, tablet computers, local area networks, relational and non-relational databases, client/server computing, data mining, and fiber-optic switches, to name just a few. These technologies lie at the heart of sophisticated business computing applications such as enterprise-wide information systems, supply chain management systems, manufacturing resource planning systems, and customer relationship management systems. E-commerce relies on all these basic technologies—not just the Internet. The Internet, while representing a sharp break from prior corporate computing and communications technologies, is nevertheless just the latest development in the evolution of corporate computing and part of the continuing chain of computer-based innovations in business. Figure 1.9 illustrates the major stages in the development of corporate computing and indicates how the Internet and the Web fit into this development trajectory.<br />
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To truly understand e-commerce, you will need to know something about packetswitched communications, protocols such as TCP/IP, client/server and cloud computing, mobile digital platforms, Web servers, HTML5, CSS, and software programming tools such as Flash and JavaScript on the client side, and Java, PHP, Ruby on Rails, and ColdFusion on the server side.<br />
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BUSINESS: BASIC CONCEPTS<br />
 While technology provides the infrastructure, it is the business application the potential for extraordinary returns on investment that create the interest and excitement in e-commerce. New technologies present businesses and entrepreneurs with new ways of organizing production and transacting business. New technologies change the strategies and plans of existing firms: old strategies are made obsolete and new ones need to be invented. New technologies are the birthing grounds where thousands of new companies spring up with new products and services. New technologies are the graveyard of many traditional businesses. To truly understand e-commerce, you will need to be familiar with some key business concepts, such as the nature of digital markets, digital goods, business models, firm and industry value chains, value webs, industry structure, digital disruption, and consumer behavior in digital markets, as well as basic concepts of financial analysis.<br />
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SOCIETY: TAMING THE JUGGERNAUT<br />
With 3.1 billion people now using the Internet worldwide, the impact of the Internet and e-commerce on society is significant and global. Increasingly, e-commerce is subject to the laws of nations and global entities. You will need to understand the pressures that global e-commerce places on contemporary society in order to conduct a successful</div>
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e-commerce business or understand the e-commerce phenomenon. The primary societal issues we discuss in this book are individual privacy, intellectual property, and public welfare policy. Because the Internet and the Web are exceptionally adept at tracking the identity and behavior of individuals online, e-commerce raises difficulties for preserving privacy—the ability of individuals to place limits on the type and amount of<br />
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information collected about them, and to control the uses of their personal information. Read the Insight on Society case, Facebook and the Age of Privacy, to get a view of some of the ways e-commerce sites use personal information. Because the cost of distributing digital copies of copyrighted intellectual property— tangible works of the mind such as music, books, and videos—is nearly zero on the Internet, e-commerce poses special challenges to the various methods societies have used in the past to protect intellectual property rights. Also Read<a href="http://www.siteeconomics.net/2016/12/academic-disciplines-concerned-with-e-commerce.html" target="_blank"> academic disciplines concerned with e-commerce</a></div>

TECHNOLOGY: INFRASTRUCTURE The development and mastery of digital computing and communications technology is at the heart of the newly em...

Economic feasibility assessing costs and benefits

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Economic feasibility</div>
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Economic feasibility is the analysis of the different costs and benefits of implementing the new system. It also assesses the relative importance of the new system in the comparison with other proposed systems . We will start by looking at different methods for assessing costs and benefits and then go on to look at how critical success factors and KPIs are devised during initiation as part of benefit identification to help align the outcomes of the project with business needs.<br /><br /><b>Assessing costs and benefits</b><br />Assessing costs and benefits of IS is not an exact science. A fundamental problem is that it is not easy to measure each benefit and cost accurately. Even where the benefits and costs are quantifiable, the figures used are only based on an estimate predicting several years into the future. This section outlines how cost–benefit analysis occurs at the start of a project to implement a new BIS. All feasibility assessments for information systems development should include a cost– benefit analysis. Although this may seem obvious, some companies miss out this stage because other factors are driving the development such as the need to counter a competitor threat or respond to customer demand. The creation of e-commerce systems by banks is an example of this – here the cost of setup and maintenance may be greater than the revenue achieved through increased sales. The marketing manager may, however, want to proceed with such a strategic initiative to gain first-mover advantage as explained above and to gain experience aimed at ensuring success in the future when this form of channel becomes more widely used.<br /><br />The business analyst undertaking a cost–benefit analysis will identify both tangible and intangible costs and benefits. When a cost or benefit is tangible, it is possible to set a definite numeric value against an item such as the cost of installing a new network. It is not possible to place a numeric value on intangible costs and benefits. Note that for some factors it may be difficult to establish whether the benefit is tangible or intangible. For example, although it is difficult to measure the benefit of general improvements in data quality, it would be possible to measure specific aspects of quality such as the time the new system takes to deliver information to the users. Tangible costs are a measure of cost that can be calculated for each item of expenditure on BIS. For example, the purchase price of new hardware needed to run new software is a tangible cost. A monetary value cannot be placed on an intangible cost: the disruption and possible user resistance that will occur due to implementing a new system will have an effect on overall company performance, but they are difficult to measure.<br /><br />A definite measure of improvement can be calculated for each tangible benefit. A reduction in cost per transaction system is an example of a tangible benefit for an online bank. It is  not possible to measure an intangible benefit. For example, the improved decision-making capability provided by a decision support system would be difficult to cost.<br /><br /><b>Assessing costs</b><br />A range of costs must be included in the feasibility study. These include:</div>
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<li>hardware and software purchase costs;</li>
<li>systems development staff costs if a bespoke or tailored solution is chosen</li>
<li> installation costs including cabling, physically moving equipment and bringing in new furniture to house the computers;</li>
<li> migration costs such as transferring data from an existing system to the new system or running the new and original systems in parallel until the reliability of the new system is established;</li>
<li>operating costs including maintenance costs of hardware such as replacing parts or upgrading to new versions of software. Staff costs in maintaining the hardware and software and trouble-shooting any problems must also be factored in. Operating costs may also include an environmental audit of the amount of energy and consumables used;</li>
<li> training costs;</li>
<li>wider organisational costs, for example redundancy payments, may need to be made if computerisation leads to loss of jobs.</li>
</ul>
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<br />Note that these costs include not only the initial cost of purchase, but also the ongoing maintenance costs. These are considerable for information systems and will often exceed the initial cost of purchase. It is worth noting that there is a growing realisation that the cost of ownership of a software or hardware product is potentially much higher than the purchase cost. This is mainly due to the cost of trouble-shooting software bugs and hardware faults, phone support, installing upgrades and paying for support and/or upgrades from the vendor. The cost of ownership of the selected software and hardware combination should obviously also be factored into your cost–benefit analysis. The cost of training and education and documentation of staff should also be included with standard development costs of paying analysts and programmers.<br /><br /><b>Assessing benefits</b><br />While information systems costs are relatively easy to identify, the benefits are harder to quantify since they are often intangible and will occur in the future. Benefits from a new system can be considered in terms of improvements to business processes and the quality of information used to support these processes. Common benefits include reduced costs of operating processes and greater efficiency leading to faster completion of tasks such as serving a customer.<br /><br />Parker and Benson (1988) recommend a structured approach to identifying tangible benefits. This involves considering the cost of performing a business process before introduction of a new system and comparing this to the cost after implementation. Costs may include staff time, materials and equipment. This result will indicate either a tangible benefit through cost reduction or an added cost of using the new system. Intangible benefits will include improvements to the quality of information, as described earlier . A new information system should enable information quality to be improved in some of the following ways:</div>
<ul>
<li> improved accuracy;</li>
<li>improved availability and timeliness;</li>
<li> improved usability (easier to understand and then act on information);</li>
<li> improved utilisation;</li>
<li> improved security of information.</li>
</ul>

Economic feasibility Economic feasibility is the analysis of the different costs and benefits of implementing the new system. It also ass...

Application areas for accounting information systems

Accounting information systems<br />Accounting information systems are used for the financial activities that take place in<br />
any organisation. These include the operation of sales order processing systems, payroll, budgeting and reporting of the financial condition of the organisation. Other functions include the management of capital investment and general cashflow management. Operational accounting systems focus on daily recording of business transactions, that is, the flow of funds through an organisation. All businesses require this basic information. In larger businesses these systems will be linked to other operational functions, such as sales order processing and inventory. Management accounting systems enable planning and control of business finance. These are sometimes referred to as ‘financial information systems’ and will be linked to executive information systems.<br /><br /><b>Application areas for accounting information systems</b><br />Most companies use an integrated accounting system that covers a number of application areas, as shown in Figure 6.18. The essential modules are accounts receivable, accounts payable and the general ledger. Many companies will look to extend these to related areas such as sales order processing and payroll.<br />
<ul>
<li>Sales order processing (SOP). This system is particularly important, as it records sales transactions and supplies documents to other areas such as stock control and manufacturing. There might also be links to payroll to calculate such elements as bonus payments to salespeople on receipt of a customer order. The accounts receivable system contains customer information such as sales made, payments made and account balances for overdue payments. These can be used to halt the extension of further credit until the balances have been cleared. The system may also be searched to identify customers who have purchased certain items – a list of them is then used as the basis for a mailing list for promotional purposes. The accounts payable system contains information regarding the firm’s creditors (as opposed to customers for the accounts receivable). The system provides information on which a schedule of supplier payments can be made and thus ensures that payments can be made as late as possible (to optimise cashflow) without losing discounts offered from suppliers for prompt payment.</li>
<li>Inventory. This system maintains stock levels by recording when stock is used for sales orders. A reorder point (ROP) system will generate an order for stock once the level of a stock item falls below a certain number of units. Other time-based systems will replenish stocks after a predetermined time interval.</li>
<li> Payroll. This system processes payments to employees, including deductions for such items as National Insurance and income tax. Many organisations will have electronic  links to banks for direct deposit to employee accounts rather than issuing pay cheques.</li>
<li> Budgeting systems. Budgets are an important control tool for management. A predetermined budgeted amount is periodically compared to the actual expenditure and any difference noted as a variance. This comparison of allocations (budgeted amounts) against actuals (amounts spent or received) can be reported to management. The identification of a variance will normally instigate a discussion and may lead to corrective action being taken to eliminate any adverse variance. Budgets for areas or departments can be aggregated or brought together to form a functional or organisational budget statement for higher-level decision making.</li>
<li> Cashflow reporting. A major cause of business failure is inadequate cash reserves to keep the organisation functioning. Cashflow reporting is necessary to keep track of the organisation’s cash reserves. Cash is needed for working capital (day-to-day expenses) and for the purchase of long-term assets such as plant or machinery. A cashflow report will contain a running total of the cash balance from information on cash inflows and outflows for each reporting period. An adverse cash position may necessitate the deferring of a planned acquisition. The report can be used as a planning tool by incorporating different cost and revenue scenarios and studying the results.</li>
<li>Capital budgeting system. The financial system should contain tools that allow for the evaluation of capital spending plans. Major investments are compared to the financial return that the organisation could have gained from placing the cash in a bank account and accruing interest. The investment evaluation may also inform the decision to buy or lease equipment. Financial measures often used to assess an investment include net  present value (NPV), internal rate of return (IRR) and payback period</li>
<li> Financial analysis system. Financial analysts use a variety of performance measures to gauge the financial position of an organisation. These include such measures as the current ratio, inventory turnover and earnings per share . An information system can be used to generate these values automatically using figures stored in a  database of such items as current assets and current liabilities.</li>
<li> Forecasting systems. By projecting budget statements into the future, an organisation is able to forecast its potential financial state. These forecasts will need to incorporate economic and market forecasts in order that sales and cost data can be estimated. </li>
</ul>
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<b>Spreadsheets</b><br />Owing to their flexibility in numerical analysis and the incorporation of built-in facilities for statistical and numerical analysis, spreadsheets are an ideal medium in which to  conduct financial analysis. For instance, a budget or cashflow forecast can be compiled by the addition of relevant items under income and expenses headings. If a spreadsheet template is constructed, consisting of the headings for the relevant items to be included, it is simply a matter of the user entering the appropriate amounts into the spreadsheet cells.Cashflow forecasts are an essential financial statement in any business. Bank managerscan be forewarned of the probable requirement for overdraft facilities. The forecasts are of particular importance to startup businesses where they can be used to support applications  for additional funding from potential money lenders. Once the cashflow statement has been entered, any values can easily be changed and the spreadsheet cell values will be updated to reflect the new cash position.<br /><br />Accounting packages<br />A vast number of accounting software packages are available which can produce invoice statements, monthly budget statements and other financial items needed to run a small or medium-sized organisation. The requirements for accounting information systems will differ from other types of system in which issues such as ease of use and performance will usually be considered important. In accounting systems, accuracy and reliability are paramount.<br /><br /><b>Financial modelling packages</b><br />While accounting packages tend to be restricted to operational systems, financial modelling packages are also available for decision making at the strategic and tactical levels of an   organisation. These provide the following types of facilities for strategic planning:<br />
<ul>
<li>corporate financial forecasting models;</li>
<li>merger and acquisition strategy</li>
<li> Facilities for tactical planning include:</li>
<li>annual budgets – cashflow, capital, tax planning;</li>
<li> new product assessments – ROCE (return on capital employed).</li>
</ul>
They can also be used for operational financial management issues such as:<br />
<ul>
<li> funds management – cash and securities, shares</li>
<li> cost accounting and project cost monitoring;</li>
<li>tax accounting. </li>
</ul>
Systems to provide these functions tend to be available as modules of the high-end accounting packages. Such software allows the decision maker to hold financial models of the organisation in order to construct ‘what-if?’ analysis. It has the advantage of providing more guidance than a spreadsheet does on building financial models.

Accounting information systems Accounting information systems are used for the financial activities that take place in any organisation. Th...

Workflow management systems (WFMS)

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Workflow management (WFM) is defined by the Workflow Management Coalition as:</div>
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the automation of a business process, in whole or part during which documents, information or tasks are passed from one participant to another for action, according to a set of procedural rules. Workflow systems are used to automate business processes by providing a structured framework to support the process. Workflows help manage business processes by ensuringthat tasks are prioritised to be performed:<br /><br />as soon as possible;<br />by the right people;<br />in the right order.<br /></div>
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This gives a consistent, uniform approach for improved efficiency and better customer<br />service. Workflow software provides functions to:<br />■ assign tasks to people;<br />■ remind people about their tasks which are part of a workflow queue;<br />■ allow collaboration between people sharing tasks;<br />■ retrieve information needed to complete the task, such as a customer’s personal details;<br />■ provide an overview for supervisors of the status of each task and the team’s performance.<br /><br />Workflow and groupware systems are often used to support re-engineering. BPR (business process re-engineering) is discussed in detail later. Today, these workflow systems are typical of e-business systems. Workflow is usually used in conjunction with DIP technology to improve efficiency by automatically routeing documents to the correct person to deal with them. Each person is given a list of tasks or documents on which to work, from what is known as the ‘workflow queue’. WFMS can be particularly effective when they replace a large paper-based system, and substantial amounts of time can be saved by eliminating lengthy searches for documents. Another improvement area is for customer service applications, such as at a call centre when a document can be called up instantaneously in response to a customer request. The drawbacks associated with the technology include the expense of installation and the problem of integration with existing computer network systems. In order to gain the full benefits from WFMS, it is also necessary to re-engineer or redesign the paper-based workflow in order to avoid simply automating inefficient processes.<br /><br /> WFM is most closely associated with large companies such as banks and insurance companies which deal with a large number of complex, paper-based transactions. These transactions need to be dealt with in a structured way and use structured or production workflow systems to manage them.<br /><br />Small and medium companies are making increasing use of workflow for administrative tasks. These involve fewer transactions and can be managed by less costly software which is based on an e-mail system. Example applications for this administrative or forms-based workflow include authorisation of travel claims or holidays or payment of an invoice. In the latter example, the details of the invoice could be typed into the workflow system by a clerk. The workflow system will then forward the details of the invoice to a senior manager for authorisation. When this has occurred, the authorised invoice will automatically be sent back to the clerk for payment. This process will occur entirely electronically through routeing of forms. Figure 6.12 illustrates the different categories of workflow software according to the degree of structured working they support. Production systems are highly structured and are used in call centres, for example, for assessing insurance claims or issuing new policies. Administrative workflow is more widely used, for routine administration such as processing a travel claim. Ad hoc workflow overlaps with groupware applications, such as in a group design of a new product.<br /><br />Although workflow can integrate with existing business applications to exchange data it usually uses its own database and custom interface. In order to increase the flexibility of workflow systems they can be combined with enterprise application integration (EAI) technology which enables the real-time exchange of information between different applications across and between organisations. The combination of workflow and EAI and other technologies may be promoted under the heading of business process management (BPM)  systems that enable dynamic cross-functional processes to be modelled responding to events in disparate systems throughout the organisation.</div>

Workflow management (WFM) is defined by the Workflow Management Coalition as: the automation of a business process, in whole or part duri...

Office automation systems (OAS)

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Office automation systems (OAS) are information systems intended to increase the productivity of office workers. Examples include groupware, workflow and general-purpose applications such as word processors and spreadsheets. Mission-critical applications such as groupware and workflow can be considered to be key for supporting the internal processes of the e-business. Laudon and Laudon (2010) state three critical organisational roles for office automation systems:</div>
<ul style="text-align: justify;">
<li>They coordinate and manage the work of local, professional and information workers within the organisation.</li>
<li> They link the work being performed across all levels and functions of the organisation.</li>
<li> They couple the organisation to the external environment, including to its clients and suppliers; when you call an organisation, you call an office. </li>
</ul>
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These roles emphasise the fact that the office should be seen as more than a typing area but rather as a centre for the exchange of organisational knowledge. Activities undertaken in offices include document management, collaborative work and the management of project activities.<br /><br />Personal OAS technologies have been introduced elsewhere . These applications included desktop publishing (DTP), for producing, for example, drafts of promotional marketing material such as brochures and flyers; personal information managers (PIM), for managing tasks and contacts; and project management software, to assist the management and control of projects. In this section we focus on groupware and workflow management systems, which are most significant in office automation systems, involving teams of people. They are the cornerstone of many ‘in-side e-commerce’ e-business systems.<br /><br />Groupware<br />Groupware is software that enables information to be shared by people collaborating on solving problems. This could include activities such as the scheduling and running of meetings, sharing documents and communicating over a distance. Groupware assists teams of people in working together because it provides the ‘three Cs’ of communication, collaboration and coordination:</div>
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<li> Communication is the core groupware feature which allows information to be shared or sent to others using electronic mail. Groupware for conferencing is sometimes known as  ‘computer-mediated communication’ (CMC) software.</li>
<li>Collaboration is the act of joint cooperation in solving a business problem or undertaking a task. Groupware may reduce some of the problems of traditional meetings, such as finding a place and a time to meet, a lack of available information or even dominance by one forceful individual in a meeting. Groupware improves the efficiency of decision making and its effectiveness by encouraging contributions from all group members. As a result, the study of groupware is known as ‘computer-supported collaborative work’ (CSCW)</li>
<li>Coordination is the act of making sure that a team is working effectively and meeting its goals. This includes distributing tasks to team members, reviewing their performance and perhaps steering an electronic meeting.</li>
</ul>
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<br />When people exchange information simultaneously, as is the case with real-time chat or a telephone conversation, this is said to be synchronous. When collaborators send messages that can be accessed at a later time, these are said to be asynchronous. Asynchronous exchange occurs with e-mail and discussion groups. A further reason that groupware has become a useful business tool is that it can be used for collaboration within and between companies when face-to-face contact is impossible. Employees can continue to communicate and work on joint projects even when they are in different locations or in different time zones. The asynchronous use of groupware is one of its key benefits. When considering the benefits of collaborative systems, it is useful to categorise them according to the quadrant in which they lie on a grid showing how people can work together in time and space (Table 6.1).  Software applications associated with groupware are summarised in Table 6.2.Normally, applications such as electronic calendars and e-mail are purchased as separate  software packages. However, some software provides an integrated package of groupware</div>
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functions. One such package is Lotus Notes, which is based on a database that allows the sharing of text, graphics, sound and video data. The system can run on a local-area network (LAN) or a wide-area network (WAN) and so allows information to be shared over  distance.Communication between users is automatically logged by Notes for reference. This facility canbe used to increase customer service by retrieving previous interactions between organisation members and customers in a variety of formats in response to a customer request. The other main integrated groupware packages are Novell Groupwise and Microsoft Exchange. These are similar to e-mail software in that they have an inbox of messages, but they also provide calendar and worklist facilities and document management. The use of groupware applications has been revolutionised by the adoption of intranets as part of the move to e-business. Many groupware products are now available through web browsers that enable, for example, e-mail to be sent and reviewed.<br /><br />Document imaging processing (DIP)<br />DIP systems attempt to alleviate the problems caused by paper-based systems, including the cost of handling large amounts of paperwork and the time wasted searching for paper documents. DIP systems convert documents (and images) into a digital format which allows storage, retrieval and manipulation of the document on computer. The document is converted using a scanner which can be either handheld and passed over a document, or a flat-bed type where a document is placed on a glass sheet and a scanner reader passes under it. It is then indexed and stored on high-capacity magnetic or optical storage.<br /></div>

Office automation systems (OAS) are information systems intended to increase the productivity of office workers. Examples include groupware...

Types of operational systems (TPS)

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Transaction processing systems (TPS) perform the frequent routine external and internal transactions that serve the operational level of the organisation. Examples of these transactions include:</div>
<ul style="text-align: justify;">
<li> customers placing orders for products and services from a company, such as making a holiday booking</li>
<li> a company placing orders with a supplier for components from which to make its products</li>
<li> payment for goods or services received by a third party;</li>
<li> a customer visiting a supermarket to shop (see the mini case study on retail applications of TPS by Sainsbury’s);</li>
<li>a customer ringing a call centre of a bank to pay their bills;</li>
<li>a withdrawal of money from an auto-teller machine (ATM)</li>
</ul>
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Although the functions undertaken by the TPS are routine and repetitive, they usually perform a vital function in the organisation. Figure 6.8 shows the typical components of a transaction processing system. Data are usually input by being keyed in to on-screen data entry forms such as those used when orders are placed by phone. For retail applications, customer transactions are recorded through bar-code technology. Transactions will typically occur across a local-area network within a retail branch or bank environment, with real-time processing and data transfer occurring across a widearea network with a central mainframe computer. Sometimes data on transactions such as loyalty card purchases are stored locally in the supermarket on a local server in real time and then uploaded by a batch system (when the store is closed) to head office. This arrangement is shown in Figure 6.9. Other information such as supply requests may be transmitted on demand in real time.<br /><br />There are two main types of transaction systems in operation. Batch systems, as the name suggests, collect information on transactions in batches before it is processed at times of lower transaction rates (such as overnight). Real-time systems process information immediately. Information from the transaction processing system is accessed in the branch and in the head office using online reporting, for example to find stock availability, or by offline</div>
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reporting, where information is stored in a separate system for detailed analysis. This is the approach used for data warehouses,  Because the TPS give direct contact with customers and suppliers beyond the boundary of an organisation, if they fail it becomes immediately apparent to the organisation’s   customers (think about the consequences of a failure of an airline reservation system!). Therefore these are often mission-critical systems which must be reliable and secure. Another reason for such applications being mission-critical is that data captured by the TPS are used to monitor the performance of the organisation. The Sainsbury’s case study shows that for some organisations there will be many TPS in operation which have become essential to the needs of the organisation.</div>

Transaction processing systems (TPS) perform the frequent routine external and internal transactions that serve the operational level of th...

Supplier relationship management (SRM)

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SRM systems connect an organisation’s ERP system to its suppliers and refers to all activities involved with obtaining items from a supplier, which includes procurement, but also inbound logistics such as transportation, goods-in and warehousing before the item is used. Procurement is an important aspect of SRM as the cost of materials can represent a substantial amount of the total cost of a product or service. The use of process technology such as flexible manufacturing systems (FMS) (see later in this chapter) has meant a reduction in labour costs and thus a further increase in the relative cost of materials associated with a manufactured product. This means that the control of material costs becomes a major focus in the control of overall manufacturing costs for a product. A further issue that has increased the importance of procurement is that the efficient use of automated systems requires a high quality and reliable source of materials to be available. This is also  the case with the adoption of production planning systems such as JIT which require the delivery of materials of perfect quality, at the right time and the right quantity.<br />
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Another aspect of supplier relationship management is the choice of supplier, but before choosing a supplier, the organisation must decide whether it is feasible and desirable to produce the good or service in-house. Buyers in purchasing departments will regularly perform a make-or-buy analysis to determine the source of supply. Often goods can be sourced internally at a lower cost, with higher quality or faster delivery than from a supplier. On the other hand suppliers who focus on delivering a good or service can specialise their expertise and resources and thus provide better performance. Strategic issues may also need to be considered when contemplating the outsourcing of supplies. For instance internal skills required to offer a distinctive competence may be lost if certain activities are outsourced. It may also mean that distinctive competencies can be offered to competitors by the supplier. If a decision is made to use an external supplier, the next decision relates to the choice of that supplier. Criteria for choosing suppliers for quotation and approval include price, quality and delivery performance.<br />
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SRM also encompasses the area of warehousing. When producing a tangible item it is possible to provide a buffer between supply and demand by holding a stock of the item. Many organisations have specific locations to hold this stock, termed a warehouse or distribution centre. Most warehouses are used to hold a stock of incoming raw materials used in production or hold finished goods ready for distribution to customers. Warehouses are also used to store work-in-progress items or spares for equipment. Because of the need to process goods and services through the supply chain as quickly as possible to serve customer demand, warehouses are not simply seen as long-term storage areas for goods, but provide a useful staging post for activities such as sorting, consolidating and packing goods for distribution along the supply chain. One of the major issues in warehouse management is the level of decentralisation and thus the number and size of the warehouses required in inventory distribution. Decentralised facilities offer a service closer to the customer and thus should provide a better service level in terms of knowledge of customer needs and speed of service. Centralisation, however, offers the potential for less handling of goods between service points, lower control costs and lower overall inventory levels due to lower overall stock levels being required.<br />
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SRM can achieve significant savings and other benefits which directly impact the customer including faster purchase cycle times leading to a need for less material in inventory and less staff time spent in searching and ordering products and reconciling deliveries with invoices. Savings also occur through automated validation of pre-approved spending budgets for individuals or departments, leading to fewer people processing each order, and in less time. SRM also enables greater flexibility in ordering goods from different suppliers according to best value. A major benefit of SRM is the integration of the many information systems that are used to cover different parts of the SRM process. Perhaps the major barrier to the use of SRM is in the difficulty of linking systems with suppliers whose systems may be incompatible or non-existent. It may be that small firms may find themselves increasingly excluded by buyers due to their lack of investment in the required information technology infrastructure.<br />
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SRM systems connect an organisation’s ERP system to its suppliers and refers to all activities involved with obtaining items from a supplie...

Customer relationship management (CRM) systems

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CRM systems connect the ERP system to its customers and cover the whole process by which relationships with customers are built and maintained. CRM systems are designed to integrate the range of information systems that contain information regarding the customer<br />
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These include applications such as customer details and preference databases, sales order processing applications and salesforce automation. The idea is to acquire customers, retain customers and increase customer involvement with the organisation. CRM systems are built around a database and when this database is accessed by employees and customers using a web site the technology is often referred to as e-CRM. Common applications which would be integrated in a CRM system include:</div>
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<li>Customer data collection. This can include personal details such as age, sex and contact address, also a record of purchase transactions undertaken in terms of factors such as location, date, time, quantity and price. This information can be used by call centre staff to improve and tailor their services to individual customers</li>
<li> Customer data analysis. The captured data allow the categorisation and targeting of customers according to criteria set by the firm. This information can be used to improve the effectiveness of marketing campaigns.</li>
<li>Salesforce automation. The entire sales cycle from lead generation to close of sale and after-sales service can be facilitated using CRM.</li>
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The technology must support all of these applications through whatever communications channel the customer and employee use. Communication channels include face-to-face, mail, phone and e-mail as well as web-based interaction. As with other technologies the implementation of CRM is a choice between attempting to integrate a number of legacy (existing) systems such as sales order processing and choosing a single-vendor supplier such as for ERP. Single-vendor systems from suppliers such as SAP and Oracle are able to provide better integration and thus potentially better customer service. However, they are relatively expensive to install and one firm is unlikely to supply the best-in-class applications in all aspects of the CRM implementation.</div>

CRM systems connect the ERP system to its customers and cover the whole process by which relationships with customers are built and maintai...

Supply chain integration

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ERP systems provide integration of processes across functional areas within the organisation. SCM systems extend this integration across organisations within the supply chain. One way of looking at supply chain integration decisions is to use the technique of value-chain analysis  which views the decision in terms of which set of activities (e.g. design, assembly) should be undertaken, rather than from the viewpoint of products or services. This approach allows consideration of the fact that the outsourcing of one product or service may have cost implications for other products and services which are produced</div>
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using the same resources. However, value chain analysis aims to configure activities in order to minimise cost, given a firm’s competitive strategy, and not specifically define where (i.e. inside or outside the firm) activities should occur. This decision will need to be made within the constraints of the financial resources available to the organisation in acquiring supply chain elements and the challenge of the coordination of activities within the supply chain. The different degrees of integration in the supply chain are now discussed (Figure 6.6).<br /><br />Market relationships<br />In this relationship each purchase is treated as a separate transaction and the relationship between the buyer and seller lasts as long as this transaction takes. There can be some additional arrangements around this relationship such as the use of ES to share information, combining orders in a single delivery to reduce transportation costs, agreements on packaging standards to improve materials handling and other factors. A market relationship does have a number of advantages in that it permits flexibility in that suppliers can be changed or discontinued if demand drops or a supplier introduces a new product. Other advantages include the use of competition between suppliers to improve performance in aspects such as price, delivery and quality. However, there can be disadvantages in this arrangement in that either side can end the relationship at any time. A supplier withdrawal requires the often lengthy task of finding a new supplier. From a supplier perspective the withdrawal of a buyer may cause a sudden drop in demand on the operations facility, leading to disruption and idle resources.<br /><br />Strategic partnerships and alliances<br />When an organisation and supplier are trading successfully they can decide to form a strategic alliance or strategic partnership. This involves a long-term relationship in which organisations work together and share information regarding aspects such as planning systems and development of products and processes. There may also be agreement on such aspects as product costs and product margins. The idea of a partnership or alliance is to combine the advantages of a marketplace relationship which encourages flexibility and innovation with the advantages of vertical integration which allows close coordination and control of such aspects as quality. Some factors may mitigate against the formation of a partnership. For instance, for low-value items the use of a partnership may not be worthwhile. Also a company may not want to share sensitive information or lose control ofa particular product or process.<br /><br />The virtual organisation<br />The form of an organisation’s relationship within its supply chain is increasingly being affected by developments in e-business systems which can form a part of an Enterprise System. Evans and Wurster (1997) describe how information can impact the value chain in three ways:</div>
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<li> Reach – a business can share information with more stakeholders or gain a larger  audience at a relatively low cost.</li>
<li> Customisation – information can be more readily tailored for sharing with a large number of partners.</li>
<li>Dialogue – interaction between the parties is two-way rather than the traditional push of information. For example, it is possible for a supplier to anticipate a retailer’s product requirements from examining their inventory forecast rather than awaiting a faxed order.</li>
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<br />Thus the implication of e-business developments is that it becomes easier to outsource more and more supply chain activities to third parties and the boundaries between and within organisations become blurred. This development is known as virtualisation and companies that follow this route are known as virtual organisations. The objective is that the absence of any rigid boundary or hierarchy within the organisation should lead to a more responsive and flexible company with greater market orientation. Kraut et al. (1998) suggest that the features of a virtual organisation are:</div>
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<li> Processes transcend the boundaries of a single form and are not controlled by a single organisational hierarchy.</li>
<li> Production processes are flexible with different parties involved at different times.</li>
<li> Parties involved in the production of a single product are often geographically dispersed.</li>
<li> Given this dispersion, coordination is heavily dependent on telecommunications and data networks.</li>
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E-business can also be used to alter the supply chain structure by bypassing some of the tiers using a process known as ‘disintermediation and re-intermediation’, the creation of new intermediaries between customers and suppliers in the supply chainVertical integration Complete integration is achieved by an organisation when it takes ownership of other organisations in the supply chain. The amount of ownership of the supply chain by an organisation is termed its ‘level’ of vertical integration. When an organisation owns upstream or supply-side elements of the supply chain is termed ‘backward vertical integration’. Ownership of downstream or demand-side elements of the supply chain is termed ‘forward vertical integration’ (see Figure 6.7).</div>
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There are a number of factors that need to be taken into account when deciding the amount of vertical integration that is appropriate for an organisation. First, the amount of vertical integration that can feasibly be undertaken will be dependent on the financial resources of the organisation. It is unlikely that smaller firms will be able to own large sections of the supply chain, but even large organisations may find this difficult. For example, a car manufacturer may source an engine for a new car from a third party rather than invest millions of euros in developing a new design. Apart from cost, the time taken  to acquire supply chain capabilities may be a barrier. It may also be felt that resources used for vertical integration could be better spent elsewhere (R&D or marketing for example).</div>

ERP systems provide integration of processes across functional areas within the organisation. SCM systems extend this integration across or...

Supply chain management (SCM) systems

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Supply chain management (SCM) systems<br />
The supply chain consists of the series of activities that moves materials from suppliers, through the organisation to customers. Each product or service will have its own supply chain, which may involve many organisations in processing, transportation, warehousing and retail. A representation of the structure of a supply chain is shown in Figure 6.4. Activities on the input side to the organisation are termed ‘upstream’ or ‘supply side’ and are divided into tiers of suppliers. Upstream suppliers that supply the organisation directly are termed ‘first-tier’ and suppliers that supply first-tier organisations are termed ‘secondtier’ and so on. Examples of upstream suppliers are component and sub-assembly suppliers.</div>
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Activities on the output side are termed ‘downstream’ or ‘demand side’ and are divided into tiers of customers. Examples of downstream customers are wholesalers and retailers. There will be a separate supply chain for each product or service an organisation produces and this structure is sometimes referred to as the ‘supply network’ or ‘supply web’. The terms used in the area of supply chain management are defined in a number of ways and so the most common terms are first defined as they will be used in this text (Figure 6.5). Supply chain management and logistics are terms used to refer to the management of the flow of materials through the entire supply chain. Some-times logistics or business logistics refer to activities in the downstream portion of the chain. Inbound (or inward) logistics is used to describe the activity of moving material in from suppliers and outbound (or outward) logistics is used to describe the activity of moving materials out to customers.<br />
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The movement of materials within the organisation is termed materials management (materials management can also be used to refer to the management of upstream supply chain activities). Supply chain activities can be presented around the areas of procurement from suppliers and physical distribution management which deals with downstream activities such as warehousing and transportation to customers. Supply chain management enterprise systems connect the ERP system to an organisation’s customers and suppliers. Two areas where SCM systems are able to improve supply chain performance will be examined. The first area is the area of supply chain visibility and thesecond is of supply chain integration<br />
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<b>Supply chain visibility</b><br />
One of the key issues in supply chain design is that organisations need to cooperate with one another in order to provide customer satisfaction. One of the reasons for that cooperation is to limit fluctuations in demand which occur in these networks which affects performance. The behaviour of supply chains that are subject to demand fluctuations has been described as the bullwhip effect. The effect occurs when there is a lack of synchronisation between supply chain members, when even a slight change in consumer sales will ripple backwards in the form of magnified oscillations in demand upstream. There are other factors which increase variability in the supply chain. These include a time lag between ordering materials and getting them delivered, leading to over-ordering in advance to ensure sufficient stock is available to meet customer demand. Also the use of order batching (when orders are not placed until they reach a predetermined batch size) can cause a mismatch between demand and the order quantity. Price fluctuations such as price cuts and quantity discounts also lead      to more demand variability in the supply chain as companies buy products before they need them. In order to limit the bullwhip effect certain actions can be taken. </div>
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The major aspect that can limit supply chain variability is to share information amongst members of the supply chain and so improve supply chain visibility. In particular it is useful for members to have access to the product demand of the final seller, so that all membersin the chain are aware of the true customer demand. Enterprise systems can be used to connect to organisations within a supply chain and so information, generated by systems such as electronic point-of-sale (EPOS) systems which are used by retailers to collect customer demand information and RFID technologies (Chapter 5) which can be used to track inventories, can be transmitted to warehouses and suppliers further down the supply chain. If information is available to all parts of the supply chain it will also help to reduce lead times between ordering and delivery by using a system of coordinated or synchronised material movement.</div>

Supply chain management (SCM) systems The supply chain consists of the series of activities that moves materials from suppliers, through t...

The role of the ERP system in the procurement process

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<b>Implementing enterprise systems</b><br />Enterprise Resource Planning (ERP) systems offer a single solution from a single supplier with integrated functions for major internal processes such as production, distribution, sales, finance and human resources management. Three core ERP processes are procurement, fulfilment and production. The activity of procurement will be used as an example of the use of an ERP system.<br /><br /><b>The procurement process</b><br />The role of procurement is to acquire all the materials needed by an organisation in the form of purchases, rentals, contracts and other acquisition methods. The procurement process also includes activities such as selecting suppliers, approving orders and receiving goods from suppliers. The term purchasing usually refers to the actual act of buying the raw materials, parts, equipment and all the other goods and services used in operations systems. However the procurement process is often located in what is called the purchasing department. Figure 6.3 outlines the main steps in the procurement process and the role of the functional areas of operations, purchasing and suppliers in the process.<br /><br />The procurement process begins with the department requiring the goods or services issuing a purchase requisition which authorises the purchasing function to buy the goods or services. The requisition will usually include a description of what is to be purchased, the amount to be purchased and a requested date for delivery. Other information provided will be the account to which the purchase cost will be charged, the delivery address and the approval of an appropriate person of the transaction. The purchasing department will receive the request and prepare a ‘request for quotation’ document to a suitable supplier or suppliers. The quotation will require a price, any other payment terms such as quantity discounts, a delivery date and any other conditions stipulated by the supplier. When a supplier has been chosen then they are issued with a purchase order which represents a legal obligation by the buyer to pay for the items requested. The purchase order will usually include information.</div>
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specifying the item to be purchased, its price and delivery date. The supplier will then produce the goods or service and deliver them to the relevant department and provide an invoice form requesting payment. When the organisation is satisfied the good or services and the invoice details are satisfactory a payment will be issued to the supplier.<br /><br /><b>The role of the ERP system in the procurement process</b><br />The ERP system will make the procurement process more efficient by supporting the execution of the process, capturing and storing data generated by the process steps and providing information that can be used to monitor process performance. The execution of the process is supported by using the ES to store relevant data and documents in a common database. This eliminates the need to re-enter data at different stages of the process and means documents can be quickly and easily created and stored. Process execution is also supported by providing automatic notification of tasks that need completing by staff involved in the process. For example after a purchase requisition is received the purchasing department can be alerted to send requests for quotations from potential suppliers. The processes involved in the procurement process are now discussed in more detail to outline differences between the manual and ES approaches.<br /><br /><b>1. Request order (create purchase requisition)</b><br />In a manual system, physical checks of stock would need to be made to ascertain whether  a purchase of new materials is necessary. Then forms would need to be gathered that covered information such as previous purchases of items and lists of potential suppliers. Using the ES will enable a display of the supply of inventory at any time so the need to make a purchase requisition can be made. If necessary the purchase requisition process can be triggered automatically when stock drops below a determined level. Once the need for an order has been determined the ES displays a ‘purchase requisition’ screen which allows the user to search for the required materials from the database and allocate suppliers. The system will automatically recall details of previous suppliers. When complete the purchase requisition information is immediately available to other users in the organisation.<br /><br /><b>2. Get quotes (create request for quotation)</b><br />In a manual system the relevant suppliers would need to be identified and customer inquiry forms prepared requesting availability and pricing information for the relevant items. Customer quotation letters would need to be collated as they were received before orders could be approved. An ES will allow the automatic generation of customer inquiry letters using supplier information held in the database. Customer quotations are then received electronically and automatic notification is given as they are received.<br /><br /><b>3. Approve order (create purchase order</b>)</div>
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In a manual system once suppliers have been selected purchase requisition information will need to be transferred to purchase orders before they can be delivered to suppliers. An ES can automatically generate purchase orders and electronically dispatch them to the suppliers.<br /><br /><b>4. Receive products and services (create receiving report)</b><br />In a manual system the delivery list which identifies the contents of the shipment and contains the purchase order number must be match with the relevant purchase order from the paper files. A good receipt form must then be generated. In an ES the user simply enters the purchasing number from the delivery list to retrieve the details of the purchase order and to allow checking of the delivery contents. The goods receipt information can then be stored on the database.<br /><br /><b>5. Make payment (receive invoice and send payment)</b><br />In a manual system, when the invoice has been received from the supplier, then this will need to be matched with the purchase order and goods receipt document before payment can be authorised and sent. Using an ES, an invoice can quickly be generated and crosschecking of purchase order, goods receipt and invoice amounts is undertaken automatically.  Any payment terms can be allocated by the system and payment can be made electronically to the supplier’s bank account.</div>

Implementing enterprise systems Enterprise Resource Planning (ERP) systems offer a single solution from a single supplier with integrated f...

Implementing enterprise systems

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<b>The evolution of enterprise system architecture</b><br />Enterprise systems have existed since the 1960s and their evolution reflects the changes in information systems since that time. The first ES used a mainframe architecture with a central computer connected to a number of terminals. These systems were expensive, lacked scalability and were mostly sold by a single supplier, IBM, up until the 1980s. Consequently there use was mainly limited to large organisations. The second stage of ES development is the use of a client server architecture that distributes the workload of the application across multiple, smaller applications servers. This architecture significantly reduces the costs of purchasing and using an ES and improves the scalability of the system<br /><br />The third stage of ERP development is the use of web-based systems to integrate several client-server applications and create an enterprise application. This increases the flexibility of the ERP at a relatively low cost and the web provides a standard platform for integration of applications across organisations. These systems can be referred to as webintegrated ERP systems. These systems make use of service oriented architecture (SOA) which enables the integration of many different client server systems together. By using web services an organisation can integrate several client-server applications and create an enterprise composite application<br /><br /><b>Implementing enterprise systems</b><br />A framework for implementation of an ES may be linked to the approach of business process management (BPM). This identifies business processes as adding value to products and services; work gets done by people through business processes while the role of technology is to support those processes. ERP systems may lack process models that explain business operations and so BPM provides methods to automate or improve activities and tasks forparticular business purposes<br /><br />In common with other investment decisions that managers have to make in terms of people and equipment, it is important that decisions are based on achieving strategic objectives. It is unlikely that one ES software supplier will provide all the most up-to-date and relevant application software for a particular company. If alternative software is available that may provide a competitive advantage then a decision to forgo the advantages of integration may have to be taken. It should also be considered that the main reason for ES, in terms of achieving integration of systems, can usually be achieved at a price, in terms of the cost of writing integration software. The major choice facing an organisation is to renew IT systems in a number of ‘big bangs’ with the installation of detailed specified major systems or to develop systems that contain a mix of new and old (legacy) systems in a more incremental manner. Either of these choices may make sense and can incorporate the advantages of the other. Owing to the high cost and complexity of ES solutions, until recently only medium or large companies could afford the software and the consultants, which often cost millions of pounds. Smaller companies are, however, being increasingly targeted by ES vendors.<br /><br /><b>Types of enterprise systems</b><br />Enterprise resource planning (ERP) systems are enterprise systems which support processes within an organisation. These processes include procurement, product development, manufacturing and sales. An ERP system can be extended to service processes across organisations with the addition of enterprise systems such as supply chain management systems (SCM). These cover processes such as warehousing, transportation and supply network collaboration. Customer relationship management (CRM) systems cover marketing, sales and service. Supplier relationship management (SRM) systems cover sourcing, contract management, supplier collaboration and procurement. These different types of enterprise systems are now discussed in more detail.<br /><br /></div>

The evolution of enterprise system architecture Enterprise systems have existed since the 1960s and their evolution reflects the changes in...

Enterprise systems (ES) to support the business processes

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Enterprise systems (ES) aim to support the business processes of an organisation across any functional boundaries that exist within that organisation. They use Internet technology to integrate information within the business and with external stakeholders such as customers, suppliers and partners. The main types of enterprise system are enterprise resource planning (ERP) which is concerned with internal production, distribution and financial processes, customer relationship management (CRM) which is concerned with marketing and sales processes, supply chain management (SCM) which is concerned with the flow of materials, information and customers through the supply chain, and supplier relationship management (SRM) which is concerned with sourcing, purchasing and the warehousing of goods and services. Other types of ES include product lifecycle management (PLM), financial management and human capital management. Figure 6.1 shows a selection of enterprise applications available from the SAP software vendor.<br /><br />The main reason for implementing an ES is explained by Figure 6.2. It compares an Enterprise application with the previous company arrangement of separate data silos and applications (sometimes known as ‘information islands’) in different parts of the company. The problem of information silos arose as BIS selection became devolved, with the endusers in individual departments making their own BIS purchasing decisions. This often led to separate BIS applications from different vendors in different departments, often with poor data transfer between applications.<br /><br /><b>Characteristics of an enterprise system</b><br />An enterprise system (ES) is characterised by a cross-functional process view of an organisation. The ES will contain a set of defined business process designs, or process blueprints, covering areas such as procurement, production and fulfilment. The second  major characteristic of an ES is that it uses a centralised database structure that enablesintegration of data across the organisation.<br /></div>
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<b>The benefits of the ES approach include:</b></div>
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<li> integration of organisational processes resulting in increased efficiency and quality of customer service;</li>
<li>the defined business process blueprints contained in the ES can be used as a template for a BPM initiative  </li>
<li>better sharing of information within the organisation due to integration of modules leading to better decision making and a more agile organisation;</li>
<li>simplified support and maintenance through a single supplier rather than dealing with many legacy systems;</li>
<li>use of ‘best-of-breed’ ES solution applied by other companies. These are applications offered by vendors that are seen as providing excellent functionality within their area of application. These solutions are usually specific to one process and have evolved from departmental applications, for example a procurement system.</li>
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<b>The main disadvantage of ES systems are:</b></div>
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<li> high costs charged by suppliers for what is a large complex system;</li>
<li> implementation of the major organisational change required by these systems – a major planning, training and development effort is needed to successfully introduce a system that will radically change both the information systems and business processes of the organisation;</li>
<li> the business usually has to change its processes or way of working in order to fit the ERP process blueprint. For example, the ES supplier SAP has over 1000 detailed business activities defined in its model, such as ‘post an accounting entry’. Thus competitor companies can mitigate competitive advantage gained by implementing an ES by also implementing the same system using the same process designs. In addition, the use of ES standard process designs may inhibit innovation in developing new ways of undertaking business processes.</li>
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Enterprise systems (ES) aim to support the business processes of an organisation across any functional boundaries that exist within that or...