Business Functions and Supply Chains

This week we examine common business functions and the ways in which information systems support those functions. The outline presented here is intended to help point out important topics and terms. It is not intended to replace the lecture (or reading the chapter). If you are following along in the text, this material is covered in chapter three.

Objectives

• identify business functions and the role of IS in supporting those functions
• explain how IS used in business functions relate to each other
• explain what a supply chain is
• describe how IT can help support CRM
• explain the purpose of ERP systems
• explain how RFID works

Note: Since there are many terms and topics covered in this week's notes, highlights have been added to point out some of the more important concepts. Don't ignore the non-highlighted sections, but it would be beneficial to pay extra attention to the highlighted sections.

Terminology

• effectiveness: degree to which a goal is achieved
  • how much of goal is achieved
  • degree to which it achieves a better outcome
• efficiency: determined by benefits versus costs (efficiency = benefits / costs)
• productivity: human efficiency; output per worker
• productivity tools: tools which help make workers more productive (e.g. word processing, spreadsheet)
• AR: Accounts Receivable
• AP: Accounts Payable
• GL: General Ledger
• P&L: Profit and Loss Statement
• SCM: Supply Chain Management
• CMS: Cash Management System
• EFT: Electronic Funds Transfer
• time-to-market: the amount of time it takes to take a product from original conception to first unit ready for sale
• CAD: Computer-aided Design (also used for computer-aided drafting)
• CAM: Computer-aided Manufacturing
• CRM: Customer Relationship Management
• MRP: Material Requirements Planning (and purchasing)
• MRP II: Manufacturing Resource Planning
• HR: Human Resources
• JIT: Just-in-time
• BOM: Bill of Materials
• EOQ: Economic Order Quantity
• MPS: Master Production Schedule
• EPC: Electronic Product Code
• CTI: Computer Telephone Integration
• FAQ: Frequently Asked Questions
• PDA: Personal Digital Assistant

Note: Information systems (IS) can help with BOTH effectiveness AND efficiency.

Business function: Accounting

• tracks every financial transaction
• cost accounting: tracks labor, material, purchased services to calculate total cost to company of producing an item
• accounts receivable (AR): record of who owes the company money, how much, and when it is due
• accounts payable (AP): record of who the company owes, how much, when it is due
• balance sheet: used to present company's financial situation
• general ledger (GL): detailed listing of all accounts and activity for company accounting
• profit and loss statement (P&L): summary of major accounting categories to show profit or loss
• work order: authorization to perform work for a specific purpose
• transaction reports: reports detailing all transactions
• cash flow: keeps track of how much cash is on hand; vital for covering short-term expenses
• all of the accounting functions mentioned are supported by IS and are interdependent
• one of the less noticed functions of accounting is to calculate the overhead for goods sold; how much cost must be added to each product to account for management and other services or goods which are not obviously directly tied to the product as it is produced
• another function of accounting is to oversee payroll and keep track of all amounts, including what is owed to the government; the payroll is a much larger expense than most employees realize since some taxes are purposely hidden by the government

Business function: Finance

• must collect receivables as soon as possible
• try to delay payments as long as economically sensible
• ensure sufficient funds for day-to-day operation
• invest cash to maximize return
  • consider risk
  • examine expected return
  • maintain sufficient liquidity
• CMS: (cash management system) keeps track of cash flow
• EFT: (electronic funds transfer) is used to transfer funds quickly and cheaply

Business function: Engineering

• time-to-market: the amount of time it takes to take a product from original conception to first unit ready for sale
• brainstorming: when a group is formed to propose ideas quickly without immediate regard for their practicality so as to reduce inhibitions and obstructions; used to escape from everyday thinking and come up with new ideas
• CAD: computer-aided design (also used for computer-aided drafting)
• CAM: Computer-aided manufacturing (includes robots)
• prototype: a model of a product; used to check out a product inexpensively before design is finalized and production begins
• rapid prototyping: used to create quick three dimensional models of solid objects, or quick non-working (or barely working) versions of websites and software; used to check out possible design problems before additional engineering is approved
• simulation: allows for testing before even one physical prototype can be built

Note: People are often confused about the difference between the way the terms prototype and rapid prototype are used. A rapid prototype is a prototype, but a prototype is quite often NOT a rapid prototype. This is important to recognize since you may be asked what a prototype is. You should not assume it is a rapid prototype (quick 3-D model created to check a design or for testing).

Business function: SCM

• SCM stands for Supply Chain Management
• there are three main stages in SCM
  • procure raw materials
  • process materials into product (may include intermediate steps)
  • deliver product
• must schedule to optimize resources such as people, tools, buildings, and materials
• must make plans according to expected demand
• should be able to reallocate resources as needed
• should include inventory control
• should be able to group work orders for efficiency

SCM: MRP

• MRP: Material Requirements Planning (and purchasing)
• basically inventory control, but planning is based on future need instead of historic need (which is much more difficult)
• JIT manufacturing reduces lead time, amount of money tied up in inventory
• if JIT is not accurate, production may be halted
• BOM: Bill of Materials; lists what is needed to produce a product
• EOQ: Economic Order Quantity; specifies the optimal amount of a material to have on hand and how much to order
  • must minimize overstocking
  • must avoid running out of product
  • must consider discounts for volume purchases
  • must consider alternative uses of money to be spent
  • this number is different for every item in inventory
• MRP is ideally tied to purchasing

SCM: MRP II

• MRP II: Manufacturing Resource Planning
• plans entire manufacturing process
• integrates with MRP
• must be able to modify schedules
• tracks production and quality
• MPS: Master Production Schedule; specifies how customer demand and inventory needs can be met; everything is based off the MPS
• JIT: Just-in-time; reduces inventory, costs, delays, amount of money tied up in inventory
• JIT is often done by linking suppliers to customers
• JIT can include drop shipping where seller never actually touches product; seller directs manufacturer to ship directly to customer

SCM: Monitoring and Control, Shipping

• Example of monitoring in text: Ford Motor Company using bar codes on the chassis of each car; scanned at each station; ensures that all tasks have been performed and all quality checks have been met
• issues in computer-aided shipping
  • length of routes
  • sequence of loading and unloading
  • efficiency of packing
  • type of materials being shipped (hazardous, fragile, perishable, etc.)
  • fuel costs
  • tolls
  • terrain
  • road restrictions

SCM: RFID in SCM

• EPC: Electronic Product Code
• RFID (Radio Frequency Identification): products contain a chip which can broadcast an identification number (and possibly some other limited data) when scanned by a radio frequency scanner; simple RFID chips need no battery and get the power they need from the radio wave sent by the scanner; more complex RFID chips may contain batteries
• RFID is similar to UPC, but can contain more information; information may be edited; information may be encrypted; uses radio waves so line-of-sight not needed
• can be used to:
  • identify product
  • detect hazards
  • detect counterfeits
  • check expiration dates
  • track shipments
  • track lot numbers
  • automate checkout

Business function: CRM

• CRM: Customer Relationship Management
• marketing and sales
  • can be highly targeted using databases to store customer information
  • can scan public records for marketing information (such as home sales)
  • customer surveys cna be very cost-effective; invite can be printed on receipt; very useful for quality control feedback
  • easy to target by gender, income, previous purchases, etc.
  • research can identify good regions and populations to sell to
  • includes sales analysis
  • used to predict future sales
  • can drive planning, scheduling, budgeting
  • telemarketing often controlled by software
    • computer calls before salesperson is actually free - that's why you sometimes wait
    • sit.wav tone can be used to automatically tell telemarketing software to delete your number
    • CTI: computer telephone integration
  • set-top boxes will allow personalized commercials
  • web sites can track your "click-stream" and what site you came from
  • social media marketing can be very effective and relatively inexpensive
• customer service
  • online account balance checking
  • online bill payment
  • online help
  • FAQ: page of frequently asked questions
  • online search facilities for customer service
  • moving to online makes service easier to offshore
• sales force automation
  • sales force equipped with PDAs or laptops
  • can carry electronic versions of contracts and orders
  • keeps sales force in contact with main office
  • sales force may have access to inventory
  • other support such as GIS could be available
• tracking customer contacts/issues from start to finish can greatly improve the quality of service

Business function: Human Resource Management

• employee record management
• employee promotion
• employee recruitment; the text gives an example of reducing the cost per hire from $5,000 to $12,000 down to $2,500 to $3,500 using recruitment software that helps analyze which candidates are most likely to succeed, and also reduced employee turnover
• training
• evaluation
• compensation and benefits

Business function: Inter-organizational SCM

• can increase production
• can decrease inventory
• can reduce work stoppages
• can increase delivery accuracy
• can reduce transportation costs
• bottom line: can improve effectiveness and efficiency
• must protect confidential information
• allows use of collaborative logistics
  • shared shipping
  • shared warehousing

Consumer Privacy

Many companies collect vast amounts of information about their customers (and potential customers). To be responsible, companies should declare and implement privacy and data retention policies which include the following:

• procedures must be implemented which guarantee that the items in this list are properly implemented
• the purpose for collecting the data and the type of information collected should be made known to the customer
• the data collected must be relevant for the purpose it is collected
• the data must be accurate
• the data must be current
• the data must be secure
• the data should never be shared with third parties without the express consent of the customer
• the data should be retained for a limited time
• the data should be recorded in a way that makes it impossible for others to also record the data (such as disabling RFID tags at the checkout counter)
• a process must be available for a customer to review and adjust their collected data

Enterprise Resource Planning

ERP software attempts to automate most of the functions discussed in this chapter. The software is extremely complex and quite expensive. SAP and Oracle produce the most common ERP packages. A failure to successfully implement one of these systems could bankrupt a company.

RFID

RFID stands for Radio Frequency IDentification. RFID chips and readers have become quite common. RFID chips range from very low cost chips with no on-board power source, to expensive RFID chips with on-board batteries. Chips with batteries can be read from further distances and can provide a lot more information when requested. The more interesting chips are the low cost chips. But how do they work if they have no on-board power source?

Cheap RFID chips get their power through the air. They have very tiny built-in antennas. When their antenna receives a signal of a specific frequency, the antenna picks up just enough power from that signal to send out a tiny message. An RFID scanner sends out a signal asking RFID chips to identify themselves. If any chips are in range, they can respond back to the scanner with their unique identification number. That number can be looked up in a database by the computer controlling the RFID scanner to see what RFID chips are present.

Please note that the RFID chip must pass close to an RFID scanner to give out its information. If the RFID chip is wrapped in something that interferes with the signal, then scanning can be disrupted. Simply wrapping an RFID chip in aluminum foil can reduce the effective scanning range from around 18 inches to a couple of inches.

People often get the mistaken impression that RFID chips would be great for locating stolen goods because the chips could be tracked like an emergency beacon. The only way that would work is if thieves were considerate enough to carry RFID scanners with them, scan every item they steal, transmit that information to the police along with a continuous update of where they are located, and the police acted on that information promptly to catch the thief with the merchandise.