Transaction Processing

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Transaction Processing, Electronic Commerce, and Enterprise Resource Planning Systems:

Transaction Processing, Electronic Commerce, and Enterprise Resource Planning Systems Prof. K. Adisesha


TPS, MIS, DSS, and AI/ES Hierarchy: AI/ES DSS MIS TPS Information Data Less More Less More More More Less Less Routine Decision support Input & output Sophistication & complexity of processing & analysis K. Adisesha 2


Transactions Transactions… Basic business operations such as customer orders, purchase orders, receipts, time cards, invoices, and payroll checks in an organization Transaction processing systems (TPS) Perform routine operations and serve as a foundation for other systems K. Adisesha 3

Learning Objectives:

4- 4 Learning Objectives Relate functional areas and business processes to the value chain model Identify functional management information systems Describe the transaction processing system and demonstrate how it is supported by IT Describe the support provided by IT to each of these: production/operations, marketing and sales, accounting, finance, and human resources management Describe the benefits and issues of integrating functional information systems Describe the role of IT in facilitating customer relationship management (CRM)

Objectives of TPS:

4- 5 Objectives of TPS To provide all the information needed by law and/or by organizational policies to keep the business running properly and efficiently To allow for efficient and effective operation of the organization To provide timely documents and reports To increase the competitive advantage of the corporation To provide the necessary data for tactical and strategic systems such as DSS applications To assure accuracy and integrity of data and information To safeguard assets and security of information

Integrated Solutions Help Colonial Building Supply, Stay Competitive:

4- 6 Integrated Solutions Help Colonial Building Supply, Stay Competitive The Problem to remain competitive, Colonial Building Supply needed a technology to provide it with information about inventory levels and customer buying trends The Solution purchased a integrated system that includes: accounting, POS terminal, inventory control, purchasing/receiving, employee time control and attendance, hand-held automatic identification and data collection, and several others The Results Lower cost for data entry, reduction in inventory and storage space, fast access to information, better customer service, and higher employee satisfaction

Crossing Functional Boundaries at Colonial:

4- 7 Crossing Functional Boundaries at Colonial IT support the routine processes of a retailer, enabling it to be efficient and effective and to satisfy its customers IT software helped the modernization and reengineering of the company’s major business processes The software supports several business processes, not just one The system’s major applications were in logistics. However, a vendor provides integrated software IT can be beneficial to a relatively small company The integration includes connection to business partners using the Internet

Porter’s Value Chain Model and The Supply Chain:

4- 8 Porter’s Value Chain Model and The Supply Chain Typical functional areas mapped on the value chain of a manufacturing company Profit Margin Profit Margin Firm Infrastructure (Accounting, Finance, General Management) Human Resource Management (Human Resources) Technology Development (Engineering) Procurement (Material Management-Operations) Support Activities Service (Service or Marketing) Inbound Logistics (Material Managaement- Operations) Operations (Operations) Outbound Logistics (Material Managemnet- Operations) Marketing and Sales (Marketing) Primary Activities

Major Characteristics of Functional Information Systems:

4- 9 Major Characteristics of Functional Information Systems A functional information systems comprises several smaller information systems that support specific activities performed by each functional area The specific IS applications in any functional area can be integrated to form a coherent departmental functional, or they can be completely independent Functional information systems interface with each other to form the organization-wide information system Some organizational information systems interface with the business environment Information systems applications support the three levels of an organization’s activities: operational, managerial, and strategic

Computerization of Routine Transaction Processes:

4- 10 Computerization of Routine Transaction Processes Transaction Processing System (TPS) supports transaction processes monitors, collects, stores, processes, and disseminates information for all routine core business transactions includes accounting and finance transactions and some sales, personnel, and production activities

Major Characteristics of TPS:

4- 11 Major Characteristics of TPS Large amount of data are processed The sources of data are mostly internal, and the output is intended mainly for an internal audience The TPS processes information on a regular basis Large storage (database) capacity is required High processing speed is needed due to the high volume TPS basically monitors and collects past data Input and output data are structured High level of detail is usually observed Low computation complexity High level of accuracy, data integrity, and security is needed High reliability is required Inquiry processing is a must

Typical Tasks in Transaction Processing:

4- 12 Typical Tasks in Transaction Processing POS Terminal Terminal File Product Processing System Inventory Files Department Sales Files Customer Makes a Purchase Master Files

Batch vs. On-Line Transaction Processing:

Batch vs. On-Line Transaction Processing Two types of TPS: Batch processing A system whereby business transactions are accumulated over a period of time and prepared for processing as a single unit or batch On-line transaction processing (OLTP) A system whereby each transaction is processed immediately, without the delay of accumulating transactions into a batch K. Adisesha 13

Batch Schematic:

Batch Schematic Data entry of accumulated transactions Input (batched) Output K. Adisesha 14

On-line Schematic:

On-line Schematic Output Terminal Terminal Terminal Terminal Terminal Terminal Immediate processing of each transaction K. Adisesha 15

Integration of TPSs:

Integration of TPSs Applications software People Schematic [ ] x n = K. Adisesha 16

PowerPoint Presentation:

K. Adisesha 17

Simplified Overview of a Transaction Processing System:

Simplified Overview of a Transaction Processing System Schematic K. Adisesha 18

PowerPoint Presentation:

Data entry & input Processing Documents & reports Database Internally generated transactions: shipped orders purchase orders employee time cards Externally generated transactions: customer orders vendor invoices customer payments Database update: customer orders inventory purchase orders customers suppliers Documents: pick list cheques to vendors receiving notices paycheques Operational reports: finished product inventory status raw materials; packing materials; spare parts; inventory status K. Adisesha 19

Data Processing Activities Common to TPSs:

Data Processing Activities Common to TPSs A transaction processing cycle Data collection Data editing Data correction Data manipulation Data storage Document production Schematic K. Adisesha 20

PowerPoint Presentation:

Data collection Data edit Data manipulation Data storage Document production Data correction Original data K. Adisesha 21

Source Data Automation:

Source Data Automation Source data automation The process of capturing data at its source with minimal manual effort Data are entered directly into the computer K. Adisesha 22

Point-of-Sale Transaction Processing System:

Point-of-Sale Transaction Processing System Customer’s receipt Inventory database Management information system Exception report Purchases database Scanner Point-of-sale transaction processing system Item database UPC and quantity Item, quantity, date, time, price UPC Price UPC Quantity, Date, time K. Adisesha 23

Control and Management Issues:

Control and Management Issues Business resumption planning The process of anticipating and providing for disasters. Disaster recovery The implementation of the business resumption plan. Transaction processing system audit An examination of the TPS in an attempt to answer three basic questions Does the system meet the business need? What procedures and controls have been established? Are the procedures and controls being properly used? K. Adisesha 24

Traditional TPS – Order Processing:

Traditional TPS – Order Processing Order processing Processing an order from entry to delivery, including traditional accounting transactions Schematic K. Adisesha 25

PowerPoint Presentation:

Customer Order entry/ sales configuration Shipment planning Routing Scheduling Shipment execution Invoicing Finished product inventory Customer order in person or via mail, phone, EDI, internet Orders Planned shipments Planned shipments & routes Pick list Shipped orders Inventory status Products Invoice K. Adisesha 26

Data Flow Diagram of an Order Entry System:

Data Flow Diagram of an Order Entry System Schematic K. Adisesha 27

PowerPoint Presentation:

D1 Products/prices D2 Customer payment history D3 New orders D4 Back orders D5 Rejected orders 3. Authorize credit 2. Verify product numbers & stock on hand 1. Collect order info 4. Notify customer Customer Back orders Back orders Customer notification Orders Product numbers, inventory levels D6 Inventory Products, price information Orders Credit status Open orders Rejected, partly filled orders Rejected orders K. Adisesha 28

Order Processing Support Systems - Sales Configuration:

Order Processing Support Systems - Sales Configuration Sales configuration Ensures that products and services ordered are sufficient to accomplish customer’s objectives and will work well together K. Adisesha 29

Order Processing Support Systems - Shipment Planning:

Order Processing Support Systems - Shipment Planning Shipment planning A system that determines which open orders will be filled and from which location they will be shipped E.g., (from Figure ) LOC LINK ITEM NUMBER DESCRIPTION ORDERED SHIPPED BO 8 105 10 L1L16028 20 S8276 30 S8279 40 FASENTING TOOL STAPLE ¾ INCH STAPLE 1 INCH SHIPPING CHARGE 3 15 15 EACH CASE CASE 3 15 12 3 K. Adisesha 30

Order Processing Support Systems - Shipment Execution:

Order Processing Support Systems - Shipment Execution Shipment execution A system that coordinates the outflow of all products and goods from the organization, with the objective of delivering quality products on time to customers K. Adisesha 31

Order Processing Support Systems - Inventory Control:

Order Processing Support Systems - Inventory Control Inventory control A system that updates the computerized inventory records to reflect the exact quantity on hand of each stock keeping unit Status reports Summarize all inventory items in stock, or shipped over a specified period of time E.g., see Figure K. Adisesha 32

Order Processing Support Systems - Invoicing:

Order Processing Support Systems - Invoicing Invoicing Generates customer invoices based on records received from the shipment execution TPS E.g., see Figure K. Adisesha 33

Order Processing Support Systems - Customer Interaction System:

Order Processing Support Systems - Customer Interaction System Customer interaction A system that monitors and tracks each customer interaction with the company K. Adisesha 34

PowerPoint Presentation:

Request for proposal Sale Problem, idea, request for information Other contacts Market research Sales Marketing Quality control Product development Customer interaction system Customer K. Adisesha 35

Order Processing Support Systems - Routing and Scheduling:

Order Processing Support Systems - Routing and Scheduling Routing A system that determines the best way to get goods and products from one location to another Scheduling A system that determines the best time to deliver goods and services K. Adisesha 36

Purchasing System:

Purchasing System Schematic K. Adisesha 37

PowerPoint Presentation:

Raw materials Packing materials Spare parts Inventory control Purchase order processing Receiving Accounts payable Employees Supplier Inventory control status report Purchase order Material Cheque Invoice Receiving notice Purchase order Purchase order request K. Adisesha 38

Purchasing System:

Purchasing System Inventory control Maintains stock of items such as raw materials, packing materials, spare parts, and supplies Purchase order (P.O.) processing A system that helps purchasing department complete transactions quickly and efficiently Receiving A system that creates a record of expected and actual receipts Reconciles purchase orders with what is actually received Accounts payable A system that increases an organization’s control over purchasing, improves cash flow increases profitability, and provides more effective management of current liabilities K. Adisesha 39

P.O. Example:

P.O. Example (Click to view) K. Adisesha 40

PowerPoint Presentation:

K. Adisesha 41

Accounting System:

Accounting System Accounting systems Consist of… Budget Accounts receivable Accounts payable Payroll Asset management General ledger K. Adisesha 42

Accounts Payable Example:

Accounts Payable Example (Click to view) K. Adisesha 43

PowerPoint Presentation:

K. Adisesha 44

Financial Systems:

Financial Systems Schematic K. Adisesha 45

PowerPoint Presentation:

Customer Accounts receivable Asset management Accounts payable Payroll Budget Customer General ledger Time cards Paycheques Labour costs Expense transactions Asset depreciation Amounts owed by company Amounts paid by company Cost of assets Payments Amounts owed by customers Amounts paid by customers K. Adisesha 46

Financial Systems - Accounts Receivable:

Financial Systems - Accounts Receivable Accounts receivable A system that manages the cash flow of the company by keeping track of the money owed the company on charges for goods sold and services performed K. Adisesha 47

‘Statement of Account’ Example:

‘Statement of Account’ Example (Click to view) K. Adisesha 48

PowerPoint Presentation:

K. Adisesha 49

Financial Systems – Accounts Receivable:

Financial Systems – Accounts Receivable Accounts receivable aging report Tells managers what bills are overdue, either customer by customer or in a summary format K. Adisesha 50

‘Aging Report’ Example:

‘Aging Report’ Example (Click to view) K. Adisesha 51

PowerPoint Presentation:

K. Adisesha 52

Financial Systems - Payroll:

Financial Systems - Payroll Payroll… Generates payroll checks and stubs, as well as W-2 statements at the end of the year for tax purposes K. Adisesha 53

Financial Systems - Payroll:

Financial Systems - Payroll Payroll journal Helps managers monitor total payroll costs for an organization and the impact of those costs on cash flow K. Adisesha 54

Financial Systems - Asset Management:

Financial Systems - Asset Management Asset management transaction processing system A system that controls investments in capital equipment and manages depreciation for maximum tax benefits K. Adisesha 55

Financial Systems - General Ledger:

Financial Systems - General Ledger K. Adisesha 56

Typical TPS of a Manufacturer:

4- 57 Typical TPS of a Manufacturer Vendors Customers General Ledger Periodic Statements Manufac- turing Purchasing Order Receiving Goods Accounts Payable Shipping Accounts Receivable Inventory Customer Order Taxes Payroll Fixed Assets

Innovative IT Applications in the Functional Areas:

4- 58 Innovative IT Applications in the Functional Areas Supply-Chain Management objective is to support the flow of goods and materials from the original supplier through multiple production and logistic operations to the ultimate consumer extensive integrated software is available for managing portions of the supply chain as well as the entire process

Supply-Chain Management:

4- 59 Supply-Chain Management Suppliers Inbound Logistics Production Transaction Delivery Customer a) Supply Chain direct to customer Suppliers Manufacturing Distribution Retail Outlet Customer Transfer Transfer Transfer Transfer Supply Chain Organization Information Flow Cash Flow b) Supply Chain including wholesalers and retailers

In-House Logistics and Material Management:

4- 60 In-House Logistics and Material Management Inventory Management Quality Control

Planning Production/Operations:

4- 61 Planning Production/Operations Material Requirements Planning (MRP) Manufacturing Resource Planning (MRP II) Just-in-Time Systems Project Management Short-Term Schedules

Automatic Design Work and Manufacturing:

4- 62 Automatic Design Work and Manufacturing Computer-aided Design (CAD) Computer-aided Engineering (CAE) Computer-aided Manufacturing (CAM)

Computer-integrated Manufacturing (CIM):

4- 63 Computer-integrated Manufacturing (CIM) Three basic goals: simplification automation integration and coordination The CIM model made up by general business management, product and process definition, manufacturing planning and control, factory automation, and information resource management

Channel Systems:

4- 64 Channel Systems The customer is king (queen) Customer profiles and preference analysis Prospective customer lists and marketing databases Mass customization Targeted Advertisement on the Web customer inquiry systems and Automated Help Desk (EC application)

Channel Systems:

4- 65 Channel Systems Telemarketing Capabilities personalized contact with the customers allows customers to buy at their convenience effective in informing customers about a company’s products and services Limitations cost can be high difficult to find good telemarketers may be seen by many as a nuisance challenges in reaching people

Distribution Channels:

4- 66 Distribution Channels Distribution channels management DSS models are frequently used to support the decision of accomplishing by a company, or by a subcontractor Improving sales at retail stores using IT, it is possible to improve the situation by reengineering the checkout process

Marketing Management:

4- 67 Marketing Management Pricing of products or services Salesperson productivity Productivity software Products and customers profitability analysis Sales analysis and trends New products, services, and market planning

Managing the Accounting and Finance Systems:

4- 68 Managing the Accounting and Finance Systems TACTIAL SYSTEMS a. Budgeting Preparation and Control b. Investment Management c. Capital Budgeting d. Cost Analysis and Control e. Tax Management f. Auditing g. Financial Planning INTERNAL ENVIRONMENT Top Management Operation/ Production Marketing HRM Engineering EXTERNAL ENVIRONMENT IRS SEC Vendors Clients CPA Companies Suppliers Customers Business Partners STRATEGIC SYSTEMS a. Strategic Planning b. Ratios and Financial Health c. Merger and Acquisition Analysis OPERATIONAL AND TRANSACTION PROCESSING SYSTEMS a. The General Ledger b. Sales Order Processing c. Accounts Payable and Receivable d. Receiving and Shipping e. Payroll f. Inventory Management g. Periodical Reports & Statements

Managing the Accounting and Finance Systems:

4- 69 Managing the Accounting and Finance Systems Strategic Systems Tactical Systems Operational and Transaction Processing System Internal Environment External Environment

Financial Planning and Budgeting:

4- 70 Financial Planning and Budgeting Financial and economic forecasting Planning for incoming funds Budgeting preparation and operation Capital budgeting decision

Investment Management:

4- 71 Investment Management Access to financial and economical reports Internet meta-search engines for finding financial data Internet directories and yellow pages Software for monitoring, interpreting, analyzing financial data, and alerting management Financial analysis Treasury risk management systems (TRMS)

Control and Auditing:

4- 72 Control and Auditing Budgetary control Auditing Financial health analysis Profitability analysis and cost control Product pricing


4- 73 Recruitment Position inventory Employee selection Using the Internet

Human Resources Maintenance and Development:

4- 74 Human Resources Maintenance and Development Performance evaluation Training and human resources development Turnover, tardiness, and absenteeism analyses

Human Resources Planning and Management:

4- 75 Human Resources Planning and Management Personnel planning Succession planning Labor-management negotiations Benefits administration

Internet Applications:

4- 76 Internet Applications Eddify Corporation’s employee service systems allows users to access information via PCs, voice-recognition phone, kiosks, or faxes. Oracle corporation conducts its flexible benefits enrollment program on the intranet Apple Computers Inc. conducts extensive education and development activities on the intranet, including a remote management-training program

Reasons for Integration:

4- 77 Reasons for Integration Helps to reduce cost Helps to increase employees’ productivity Helps to facilitate information sharing and collaboration which are necessary for improving customer service IT helps CRM

Customer Relationship Management (CRM):

4- 78 Customer Relationship Management (CRM) The company’s success depends on effectively managing relationship with customers Relationship marketing overt attempt of exchange partners to build a long-term association, characterized by purposeful cooperation and mutual dependence on the development of social, as well as structural, bongs include the concepts of loyalty and trust

How is CRM Practiced?:

4- 79 How is CRM Practiced? Know who the company’s current and potential customers are Know who is a good customer, and who are the most profitable customers for the business Know why a certain customer is in the market, why he or she does business with the company, what the customers like and dislike about he business

The Enabling Role of IT:

4- 80 The Enabling Role of IT Using intelligent agent technology, American Airlines generates personalized Web pages for each of about 800,000 registered travel-planning customers Manchester Metropolitan University tracks a population of 30,000 students, manages modular courses, and keeps the student management systems updated by databases and parallel processing Charles schwab’s call center handles effectively over 1 million customer calls every day State Farm Insurance Co. manages several initiatives for retaining customers by a computerized incentives system

CRM Activities and IT Support:

4- 81 CRM Activities and IT Support CRM Activity (Sample) IT Support Information about choice of doctors, hospitals, and alternative medicine offered by HMO’s. Internet; online customer survey; groupware; expert systems for giving advice. Customized information and services in many languages; discounts based on healthy lifestyle; appointment reminders; information on doctors; and medical research. Help center to solve HMO member problem E-mail; data warehouse for customer information; data mining; intelligent translating systems; search engines on the Web help center. Web-based integrated call centers; quick reply to customers’ inquiries Facilitates help-desk activities; intelligent agents for answering FAQs

CRM Activities and IT Support:

4- 82 CRM Activities and IT Support CRM Activity (Sample) IT Support Monitoring of customers’ orders inside the company. Workflow software for planning and monitoring; intranets Appointment of account managers; creation of specialized teams (BPR) Expert systems for advice; groupware for collaboration. Seminars and educational activities for customers Online training; Internet. Self-tracking of shipments and orders. Web-based training software; workflow Segmenting of customers Data mining in data warehouses. Matching customers with products and services. Web-based intelligent agents.

CRM Activities and IT Support:

4- 83 CRM Activities and IT Support CRM Activity (Sample) IT Support Customizing products to suit customers’ specific needs. Intelligent agents to find what customer wants; CAD/CAM to reduce cost of customization Customer discussion forums. Chat room; sponsored newsgroups. Loyalty programs for repeat customers. Data warehouses and data mining of customers’ activities; smart cards that record purchasers’ activities. Customer participation in product (service) development. Online surveys; newsgroups; chat room; e-mail Proactive approach to customers based on their activity level. Data warehouse; data mining.

Electronic Commerce (E-commerce):

Electronic Commerce (E-commerce) Business-to-business problems Inadequate models Integrating with existing systems Improving relationships with suppliers, customers, distributors. Consumer problems Wait for images to download Security of credit information Figuring out the ordering process Currently a small part of all commerce K. Adisesha 84

Five Stage Model of E-Commerce:

Five Stage Model of E-Commerce The stages consumers experience in the sales life cycle Schematic K. Adisesha 85

PowerPoint Presentation:

Buyer 1. Search and Identify 5. After sales service 4. Product & service delivery 2. Selection & negotiation 3. Purchasing Traditional delivery Electronic distribution K. Adisesha 86

Buying Over the Internet:

Buying Over the Internet Prepare list of items needed Log on to internet Access supplier’s home page Browse supplier’s catalog Pick items Fill out request for quotation form Review response to request for quotation Place order Input sent to supplier’s order entry system K. Adisesha 87

Forecasted Volume of E-Commerce:

Forecasted Volume of E-Commerce Mode 1997 2000 Consumer $0.5 billion $7 billion Business $8.0 billion $66 billion K. Adisesha 88

Purchasing Products and Services Electronically:

Purchasing Products and Services Electronically Establish credit with suppliers Secure E-commerce transactions Secure financial transaction (SFT) SET = “secure electronic transaction” CyberCash K. Adisesha 89

SET ‘Discussion’ (1):

SET ‘Discussion’ (1) Short for Secure Electronic Transaction , a new standard that will enable secure credit card transactions on the Internet. SET has been endorsed by virtually all the major players in the electronic commerce arena, including Microsoft, Netscape, Visa, and Mastercard. By employing digital signatures, SET will enable merchants to verify that buyers are who they claim to be. And it will protect buyers by providing a mechanism for their credit card number to be transferred directly to the credit card issuer for verification and billing without K. Adisesha 90

SET ‘Discussion’ (2):

SET ‘Discussion’ (2) the merchant being able to see the number. The first applications based on SET are expected appeared in 1998. K. Adisesha 91

Enterprise Resource Planning (ERP):

Enterprise Resource Planning (ERP) ERP Real-time monitoring of business functions Advantages Eliminate costly, inflexible legacy systems Provide improved work processes Provide access to data for operational decision making Upgrading technology infrastrucutre Disadvantages Time consuming, difficult, expensive to implement Make radical changes in how a company operates Lack of vendor responsiveness in light of high demand K. Adisesha 92

ERP Examples:

ERP Examples Software Vendor Name of Product Avalon Software Avalon CIM MRG/PRO Oracle Oracle Manufacturing SAP America SAP R/3 Baan Triton PeopleSoft PeopleSoft J.D. Edwards World K. Adisesha 93

Example of an ERP System - SAP/R3:

Example of an ERP System - SAP/R3 Clients in the SAP system Application servers in the SAP system Business application programming interfaces (BAPIs) Database server in the SAP systems Objects in the SAP system Repository Tables K. Adisesha 94

SAP Three-Tier Client/Server Architecture:

SAP Three-Tier Client/Server Architecture Client desktop computers Application servers Database server K. Adisesha 95

Business Application Programming Interface (BAPI):

Business Application Programming Interface (BAPI) Business processes BAPI (public interface) SAP software Standard results Results consistent with current version of SAP software Standard request for data or processing Request for data or processing consistent with current version of SAP software K. Adisesha 96

End of TPS:

End of TPS Thank you K. Adisesha 97

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