Graduate Program in Business Information Systems BIS 581

Graduate Program in Business Information Systems BIS 581 Business Process Management Lecture 8 Aslı Sencer Department of Management Information Systems

Business Process Management - 8 Integration with ERP Systems

Global Competition Global competition has led the organizations to increasingly view their operations in terms of business processes and to develop information systems to support these processes. Ex: Apple designs its products in California, but produces them in specialized contract manufacturing facilities in Asia. These facilities produce for Apple’s competitors as well! Apple uses these savings in hiring more researchers and designers in California. Ex: Toyota designs its automobiles in Japan, but produces in United States at the same high quality. They reinvest their savings for new product design. One consequence of globalization is increased competition. Companies are no longer limited to their local markets. - This puts the pressure on companies to be more productive and efficient. - They must develop strategies to tightly integrate their global operations. 3

Information Revolution Refers to the increased use of information and communication technology (ICT) to create, deliver, and use information. ICT includes Internet (e. g. E-mail, Web) and computer based business information systems (e. g. SAP, ERP) that support the work of organizations. ICT has helped organizations to globalize their operations by enabling them to coordinate business processes that are performed around the world. - Apple must quickly communicate any changes in its sales forces to its Asian contract manufacturers to ensure that they can adjust their production to meet the increased sales. - Toyota must monitor every aspect of production facilities to ensure the quality standards are met. ICT enables, supports and encourages globalization. Design and production should not necessarily be in the same location. However, organizations are becoming dependent on ICT - to run smoothly the global operations, - to be more productive and remain competitive. If ICT does not function properly, the entire organization can’t function! 4

Knowledge Worker A knowledge worker is the one who uses ICT to create, acquire, process, sythesize, disseminate, analyze and use information to be more productive. Ex: Product mngr, sales exec. , production mngr, financial analyst. Knowledge workers use two types of information: • Structured information is well defined, its source is known, i. e. , a manager knows what information is needed and where to find it. • Unstructured information is not clearly defined or readily available. Knowledge work is typically nonroutine. Ex: Getting customer feedback in regular meetings is nonroutine, since quality feedback and design feedbacks are related to different business processes. Task workers perform routine, structured tasks in a repeated manner. They are very important for the success of business operations, but have much narrow view of the overall business process. Ex: Customer service representatives, purchasing and accounting clerks, 5 insurance claims processors.

Knowledge Workers (cont’d. ) “In all likelihood, you will be a knowledge worker at some point in your career”. A knowledge worker needs to have: Strategic thinking ability: The ability to see the big picture and understand how your organization works as a whole. Information literacy: The ability to determine what information is needed, where to find it, and how to use it, rather than rely on others to find it for you. Communication and collaboration ability: The ability to function as an effective part of a project team where you understand your role as well as the roles of others. 6

Key Business Processes • Goods and services are created via a sequence of activities called a business process. The basic processes of an organization are: • Procurement: Organization acquires the basic materials that it uses to produce goods and services • Production: Manufacturing or generating the desired goods and services • Fullfillment: Delivering the goods and services to the customers Example: Amazon. com vs. Skateboard manufacturer 7

Business process - example • Make skateboards – What are some parts of a skateboard Answer: Board, wheels, nuts and bolts – What are some steps in the production process? Answer: Assembly, inspection, packing • Buy parts – What are some steps in the buying process – Who performs these steps • Sell skateboards – What are some steps in the selling process – Who performs these steps 8

Procurement Process 1 2 3 4 5 1. Determine how many of which material are needed, by whom and by which date? Complete purchase requisition. 2. Select a suitable supplier. Create and send a purchase order (PO) to the supplier. 3. Suppliers ships the material which the company receives and stores in its warehouse. 4. The supplier sends an invoice. 5. The company makes the payment to the supplier. 9

Fulfillment Process 10

Functional Structure • The most common organizational structure is the functional structure, which lists the typical tasks in functional areas • Review steps in procurement – Who does what where? – Characterize processes - who is responsible for the process? • Why functional structure? 11

Functional Organization 12

Cross Functional Relations for the Procurement and Fullfillment Processes 13

The Silo Effect • People working in a department focus so narrowly on their specific task and lose sight of the big picture, commonly referred to as silo effect. • A major challenge in organizational management is to effectively coordinate the activities among different functions or departments. • Communication and collaboration between functions – What must be communicated? – What information must be exchanged? – How is this coordinated? Answer: People in each step in a process must be informed when it is time for them to complete their step. 14

Consequences of Poor Coordination • Increased lead times: How far in advance a company must plan to obtain raw materials from its suppliers? • Increased cycle times: The amount of time needed to produce a product or process a customer order. • Excess inventory – Increased just in case inventory: Increased safety stock or buffer stock • Lack of visibility across processes – Status of the process: “where is my order” – How well is the process doing • Why accept these delays? 15

Ex: Delays in a paper-based process Paper based processes (Ex: Salesperson completes a multipart sales order document, keeps one part, sends the remaining to the warehouse. Warehouse keeps its part, send the remaining to the accounting dept. Problem: What if a paper is lost? ? ? ) 16

Delays are no longer acceptable • Why? – Globalization – Increased competition – Pressure to do better • Organizations have historically accepted the negative conseqences of the functional structure. Organizations need to substitute process view for the traditional functional view to break out of silos and focus on processes! • ICT is an integral part of the process view of organizations. – Processes supported by functional systems vs. processes supported by enterprise systems. 17

The Importance of Information Systems • Information systems are computer based systems that – capture, store and retrieve data associated with process activities and – organize these data into meaningful information that organizations use to support and assess these activities. • Data: raw facts that have limited value or meaning. – Ex: Customer names, product numbers, quantities sold • Information: Organized analyzed form of data so that it is useful to an organization. – Ex: Monthly sales quantities 18

Functional Information Systems • Organizations use a variety of information systems, that focus on functions rather than processes and are not well integrated. – Sales department develops order management systems, warehouses develop inventory control systems, accounting develops a system to track invoices and payments. • Exchange of information among these systems is often difficult and is often exchanged manually, causing delays, inventory problems, lack of visibility, etc. 19

Process Using Functional Systems 20

Enterprise Systems • Functionally focussed information systems should be integrated to form enterprise systems. • ES not only support the individual activities in a process, they also help the organization coordinate work across functions. • Reduces delays, improves inventory control, increases visibility. • Increases efficiency by automating some routine steps in the process. Ex: Automatic generation of an invoice. 21

Processes Using Enterprise Systems 22

Is this for MIS/IT majors? • Not just for IT majors! • Recall other skills of a knowledge worker…. . – Strategic thinking / big picture • • • How processes work How does my work impact the process How will my failures impact the process How does others’ work impact my work What must I do well to ensure that the process is successful – Communication and collaboration • How can you be effective in cross functional project teams if you don’t know the role of other players? – Information literacy • ES enables information literacy, by providing all information to support decision making. 23

Framework: Key Process Flows 24

Role of ES in organizations • Execute the process efficiently and effectively – Inform, provide data, help complete steps – Process automation – The system and the process are interwined, i. e. , if the system stops working, the process can not be executed. 25

Role of ES in organizations • Capture and store process data or transaction data in two ways: – Automatic capture • Who, when, where a process took place – Entered from outside the system: manually, barcodes • Name of the customer, order quantity, due date 26

Role of ES in organizations • Monitor process performance – Instance level information (status of a specific task or activity) • Where is the order of a specific customer? • When was it shipped? • Was the complete order shipped? – Process level information (aggregate level) • Purchase lead time • Time spent in the sales department • Total duration of a purchasing process 27

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Financial Impact of Process Steps • A process step may/may not have an immediate financial impact. – When a shipment is received, payment is made to the vendor, amount tied to the stocks is increased, bank deposit is decreased. – When a customer order comes, there is no financial impact until the completion of the shipment process. • A process should have two elements to have a financial impact: – An external entity: a customer or a vendor – An exchange of value: buy, sell, pay, get paid • Key financial statements – Balance sheet: financial conditions of a company at a specific point in time, what company owns (assets), owes to others (liabilities), shareholders’ investments in the company (equity) – Income statement: profit and loss statement for a specific period of time 29

Ex: Income statement 30

Ex: Balance sheet Assets Cash Accounts Receivable Inventory Raw materials Semifinished goods Finished goods Property, plant, equipment Total assets Liabilities Accounts payable Loans Total liabilities Equity Shareholders Equity Retained earnings Total equity=Total liabilities+Equity 31

Group Exercise 5: Data, Document, Information Flows Consider our registration process. Describe • Who are the knowledge workers in this process? • State the flow of data, documents and information flow • Describe the role of ES in supporting this process 32