1. Management Information Systems,
Sixth Edition
Chapter 3:
Business Functions and Supply Chains

2. Objectives
• Identify various business functions and the role
of ISs in these functions
• Explain how ISs in the basic business functions
relate to each other
• Articulate what supply chains are and how
information technology supports management of
supply chains
Management Information Systems, Sixth Edition 2

3. Objectives (continued)
• Enumerate the purposes of customer
relationship management systems
• Explain enterprise resource planning systems
Management Information Systems, Sixth Edition 3

4. Effectiveness and Efficiency
• Information technology makes work more
effective, more efficient, or both
• Effectiveness: the degree to which a goal is
achieved
• Efficiency: the relationship between resources
expended and benefits gained in achieving a
goal
– Efficiency = Benefit / Costs
– One system is more efficient if its operating costs
are lower for the same or better quality product
Management Information Systems, Sixth Edition 4

5. Effectiveness and Efficiency
(continued)
• Productivity: efficiency of human resources
– Productivity improves when fewer workers are
required to achieve the same goal
• Productivity tools: software applications that
improve productivity
• ISs contribute to both effectiveness and
efficiency of businesses
Management Information Systems, Sixth Edition 5

6. Effectiveness and Efficiency
(continued)
• Customer relationship management (CRM)
system: system that serves customers better
and faster
– Service continues after delivery of goods as
customer service and more marketing
– Often combined with supply chain management
(SCM) systems to create an enterprise resource
planning (ERP) system
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7. Effectiveness and Efficiency
(continued)
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8. Effectiveness and Efficiency
(continued)
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9. Accounting
• Accounting’s purpose is to track every financial
transaction
• Accounting systems are required by law and for
proper management
• Needed to ensure company is making a profit
• Accounts payable and accounts receivable track
who owes who what
• Balance sheet: picture of financial situation
– Includes profit-and-loss report
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10. Accounting (continued)
• Accounting information system: receives
information from transaction processing systems
(TPSs)
– Automatically routes purchases to accounts
payable
– Automatically routes sales to accounts receivable
• Generates reports on demand or on schedule
• Work order: an authorization to perform work
for a specific purpose
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11. Accounting (continued)
• Cost-accounting systems: accumulate data
about costs involved in producing specific
products
• Accounting ISs are used for managerial
purposes for budgeting and cost control
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12. Accounting (continued)
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13. Finance
• Firm’s health is measured by its finances
• Information systems can improve financial
management
• Financial managers’ goal is to manage money
as efficiently as possible by:
– Collecting payables as soon as possible
– Making payments at the latest time allowed
– Ensuring funds are available for daily operations
– Investing funds not used for current activities
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14. Finance (continued)
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15. Cash Management
• Financial information systems help managers
track company finances
• Cash management systems: systems that deal
specifically with cash
• Electronic funds transfer: electronic transfer of
cash from one bank account to another
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16. Investment Analysis and Service
• Investor’s goal is to buy an asset and sell it for a
higher value
• When investing in securities, you must know
current prices in real time
• Nearly instantaneous information systems can
provide investors and clients with financial news,
stock prices, commodity prices, and currency
exchange rates
Management Information Systems, Sixth Edition 16

17. Investment Analysis and Service
(continued)
• Some important factors to consider in investing:
– Variability of the security’s past yield
– Expected return
– Liquidity (how fast an investment can be turned
into cash)
Management Information Systems, Sixth Edition 17

18. Engineering
• Time to market: time between generating an
idea for a product and completing a prototype
• Brainstorming: process of a group of
colleagues meeting and collaborating to
generate creative solutions and new ideas
• Minimizing time to market is key to maintaining
competitive edge
• Information systems can contribute significantly
to minimizing time to market
Management Information Systems, Sixth Edition 18

19. Engineering (continued)
• Computer-aided design (CAD): tools to create,
modify, and store designs and drawings
electronically
• Rapid prototyping: creating one-of-a-kind
products to test design in three dimensions
– Allows a model to be produced in hours rather
than days or weeks
• Computer-aided manufacturing (CAM):
systems that instruct machines how to
manufacture parts and assemble products
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20. Engineering (continued)
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21. Supply Chain Management
• Supply chain: consists of procurement of raw
materials, processing materials into goods, and
delivering goods
• Processing raw materials into goods is also
known as manufacturing
• Supply chain management: monitoring,
controlling, and facilitating supply chains
• CAD systems often transfer data automatically
to CAM systems
Management Information Systems, Sixth Edition 21

22. Supply Chain Management (continued)
• IT helps in manufacturing activities:
– Scheduling plant activities to optimize the use of
resources
– Planning material requirements based on current
and forecasted demand
– Reallocating materials and resources from one
order to another
– Managing inventories
– Grouping similar work orders for efficiency
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23. Supply Chain Management (continued)
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24. Material Requirements Planning
and Purchasing
• Material requirements planning (MRP):
inventory control
– Determines when inventory needs to be
restocked
– Can predict future need based on demand
forecasts
– Takes customer demand as input, then works
back to calculate resources needed to produce
goods
Management Information Systems, Sixth Edition 24

25. Material Requirements Planning
and Purchasing (continued)
• Bill of materials (BOM): list of all raw materials
and subcomponent demands to produce a
product
• Economic order quantity (EOQ): optimal
quantity of a raw material that minimizes
overstocking and saves cost, without missing
production deadlines
– Considers cost, discounts for large quantities,
cost of warehousing material, cost of alternative
uses of money, etc.
Management Information Systems, Sixth Edition 25

26. Manufacturing Resource Planning
• Manufacturing resource planning (MRP II):
combines MRP with other related activities to
plan the entire manufacturing process
– Uses master production schedule
• Master production schedule: specifies how
production capacity is to be used to meet
customer demands
• Just-in-time manufacturing: suppliers ship
parts directly to assembly lines as needed
– Avoids warehousing costs
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27. Monitoring and Control
• Information systems are designed to control
manufacturing processes as well as monitor
them
• Controlling processes helps ensure quality
Management Information Systems, Sixth Edition 27

28. Shipping
• Performed by manufacturer or shipping
company
• Many variables affect cost and speed of
shipping, including:
– Length of routes
– Sequence of loading and unloading
– Type of shipped materials (e.g., perishable,
hazardous, fragile)
– Fuel prices
– Road tolls
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29. Shipping (continued)
• Sophisticated software that optimizes shipping
efficiency helps a company stay competitive
• Need to optimize:
– Shipping time
– Cost of labor
– Use of equipment
– Maintenance
• Vehicles equipped with computers, global
positioning systems (GPS), and satellite
communication have increased efficiency
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30. Shipping (continued)
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31. RFID in SCM
• Radio frequency identification (RFID): a
technology containing circuitry that allows
recording of information about a product
• Electronic product code (EPC): a code on
an RIFD tag that provides more information
than the universal product code (UPC)
– Information may include date of manufacturing,
plant location, expiration date, destination
• Ensures genuineness of products
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32. RFID in SCM (continued)
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33. RFID in SCM (continued)
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34. Customer Relationship Management
• Customer relationship management (CRM)
systems: designed to support any and all
relationships with customers
– Supports three areas
• Marketing
• Sales
• Customer service
• CRM systems capture the entire customer
experience with an organization
– All company employees who deal with the
customer have access to this information
Management Information Systems, Sixth Edition 34

35. Customer Relationship Management
(continued)
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36. Market Research
• To promote products successfully, organizations
must perform market research
• Market research: helps discover populations
and regions that are most likely to purchase
product
• Activities may include:
– Conducting interviews with consumers and
retailers
– Building statistical models to predict sales
volumes of different products
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37. Targeted Marketing
• Targeted marketing: promotes to people most
likely to purchase products
• Database technology allows all companies to
use targeted marketing, even small companies
• Can direct promotional dollars to customers
most likely to buy
• Spam: cheap method of advertising involving
sending mass e-mail communications
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38. Targeted Marketing (continued)
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39. Targeted Marketing (continued)
• Database management systems sort consumers
based on demographic information
• Telemarketing: marketing over the telephone
– Caller has large database of consumer data
• Computer telephony integration: allows
computer to use telephone line as input
– Caller ID can be used to locate customer data
• Data mining: uses large data warehouses to
find trends and shopping habits of various
demographic groups
Management Information Systems, Sixth Edition 39

40. Targeted Marketing (continued)
• Targeted marketing and Web technologies
enable retailers to personalize online shopping
• Software can track Web page click streams to
determine customer preferences
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41. Customer Service
• Web-based customer service provides
automated customer service 24/7
– Saves labor costs
– Saves paper costs
• Includes FAQs, tracking systems, maintenance
of customer profiles
• Artificial intelligence may be used to emulate a
real-life customer service representative
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42. Salesforce Automation
• Equips traveling salespeople with information
technology to improve productivity
– Laptops and personal digital assistants (PDAs)
• Makes sales presentations more efficient
• Allows salespeople to present different options
for products and services at the customer
location
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43. Human Resource Management
• Human resource management (HRM) can be
classified into five main activities:
– Employee record management
– Promotion and recruitment
– Training
– Evaluation
– Compensation and benefits management
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44. Human Resource Management
(continued)
F
Management Information Systems, Sixth Edition 44

45. Employee Record Management
• HR departments must keep personnel records
– To satisfy laws
– For payroll and tax calculation and deposit
– For promotion consideration
– For periodic reporting
• Human resource ISs are now digitized
– Saves space to store records, time to retrieve
them, and costs of both
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46. Employee Record Management
(continued)
Management Information Systems, Sixth Edition 46

47. Promotion and Recruitment
• HR can select best-qualified person for position
by searching database of applicants and existing
employees for specific criteria
• Automating the selection process significantly
minimizes time and money for recruitment
• Intranet: inter-organizational network that
supports Web applications
– Allows HR manager to post position vacancy
announcements that get wide exposure
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48. Training
• One important HR function is improving
employee skills
• Multimedia software training is replacing
classrooms and teachers
– May include 3D virtual reality simulated
environments in which the employee must act
• Information technology reduces training costs
dramatically
Management Information Systems, Sixth Edition 48

49. Evaluation
• Employee ability must be periodically evaluated
by supervisors
– May include evaluation of technical ability,
communication skills, professional conduct, and
general behavior
• Often a subjective process, which is a problem
• Evaluation software tries to solve this problem
by standardizing evaluation process
– Provides tools to aid in evaluating every
employee fairly and objectively
Management Information Systems, Sixth Edition 49

50. Compensation and Benefits
Management
• Compensation includes salary, hourly pay,
commissions, and bonuses
• Programs calculate pay and taxes
– Automatically generate paychecks and perform
direct deposits
• Software can help manage benefits
– Benefits database accessible through intranet or
Internet
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51. Supply Chain Management Systems
• Overall inventory in the U.S. is decreasing while
U.S. gross domestic product (GDP) is increasing
• Money saved from reduced inventory can be
spent elsewhere
• Reduction in inventory attributed to the use of
ISs, especially supply chain management
systems
– Streamline operations throughout chain
• ERP systems can also serve as SCM systems,
connecting multiple organizations
Management Information Systems, Sixth Edition 51

52. Supply Chain Management Systems
(continued)
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53. The Importance of Trust
• Supply chain systems work best when all
businesses in the chain are sharing information
• Trust between allied companies facilitates
collaboration
• Risk of disclosing important information to
competitors is present
• Risk of taking advantage of demand figures by
charging higher prices is present
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54. The Musical Chairs of Inventory
• Small enterprises do not use SCM systems
– Affect more powerful organization to which small
enterprise is linked
• Inventory turns: the number of times the
business sells its inventory per year
• When SCMs of companies are not linked,
demand requirements are unknown, so supply
companies must overstock inventory
• One company “sits” with lean inventory while
other stands with “overstock,” hence musical
chairs
Management Information Systems, Sixth Edition 54

55. Collaborative Logistics
• Web allows organizations from different
industries to collaborate
• Businesses combine freight and share trucks
– Can optimize logistics by connecting SCM
systems
• SCM systems can allow collaborative
warehousing to share warehouse space
Management Information Systems, Sixth Edition 55

56. Enterprise Resource Planning
• Many companies replace old, disparate
information systems with enterprise applications
• Enterprise resource planning (ERP) system:
manages daily operations and facilitates
planning
• Current ERP market includes four vendors:
– SAP
– Oracle
– Microsoft
– Sage Software
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57. Challenges and Disadvantages
of ERP Systems
• ERP systems pose many challenges:
– They are complex
– They often require special tailoring for specific
organizations
– They may not support a company’s unique sets
of business processes
– They are expensive
– A process that becomes a weak link in one area
may negatively affect other integrated processes
Management Information Systems, Sixth Edition 57

58. Providing the Missing Reengineering
• Although most reengineering projects of the
1990s failed, ERP systems helped realize many
of those ideas
– ERP systems forced changes in processes
• ERP systems allow better planning and
managing of processes at the organizational
level instead of at the organizational unit level
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59. Summary
• Effectiveness is the degree to which a task is
accomplished
• Efficiency is the ratio of output to input
• Productivity is the measure of people’s efficiency
• Information systems have been integrated into
accounting services
• Financial information systems help managers
track cash
Management Information Systems, Sixth Edition 59

60. Summary (continued)
• Computer-aided design (CAD) systems help
engineers design new projects
• Computer-aided manufacturing (CAM) systems
direct machines that assemble parts
• Supply chain management (SCM) systems
optimize workload, speed, and cost in supply
chains
• Customer relationship management (CRM)
includes the entire cycle of relationships with
customers
Management Information Systems, Sixth Edition 60

61. Summary (continued)
• Human resource management systems facilitate
staff selection and record keeping
• Multiple companies’ SCM systems can be
linked, facilitating cooperation, which requires
trust
• An enterprise resource planning (ERP) system
can encompass all business processes, but is
expensive and challenging
Management Information Systems, Sixth Edition 61