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1

Information Systems

for Business Integration

BUS3500 - Abdou Illia, Spring 2007

(Week 13, Thursday 4/5/2007)

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LEARNING GOALS

‡

Explain the difference between horizontal and

vertical business integration.

‡

Describe how Enterprise Resource Planning

systems integrate internal business processes.

‡

Describe how businesses can use Supply Chain

Management systems to improve balance

product demand with supply.

‡

Describe how businesses can use Customer

Relationship Management systems to improve

the customer experience.

3

Traditional File System:

Integration problem

‡

Each system uses its own programs and files

‡

When systems are not integrated

„Inability to share data

„Difficulties in maintaining

„Allows data duplication (i.e. redundancy)

System 1 Program 1

File 1 File 2 File 3

Program 2 File 1 File 2 File 3

System 2 Program 1

File 1 File 2 File 3

Program 2 File 1 File 2 File 3

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4

Database Systems: A Solution to

Integration problem

‡

Systems share the same database

‡

Database allows systems integration

„Systems share the same data

„Systems are easy to maintain

„No (or less) redundancy

System 1

Program 1 Program 2 System 2

Program 1 Program 2

DBMS

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Business Integration?

Sales

Department Logistics Department Production

Department

Horizontal Integration V

e r t i c a l

I n t e g r a t i o n

Suppliers

Customers

Why Horizontal Integration?

‡

Possible consequences of bad horizontal integration:

„ Delivery personnel not available when needed

„ Sold products not delivered on time

„ Etc.

Sales

Information System Operation & Delivery Information System

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Systems for Horizontal Integration

‡

Enterprise Resource Planning (ERP) systems

„ integrate all the internal processes through a common information system

ERP system Sales

Department Logistics

Department Production

Department Warehousing

Marketing

Department Accounting

Department

Common Database

Process1 Process2 Process1 Process2

Process1 Process2 Process1 Process2

Process1 Process2 Process1 Process2

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Integrating Internal Processes

with ERP

‡

ERP systems integrate all the functions and

departments within an organization through a

common information system

‡

Most common modules for an ERP system

„Finance

„Manufacturing: helps from product development to production

„Human resources:Handles all HR functions

„Procurement:helps manage the purchase of office supply & raw material

„Marketing:manage relationship with customers

‡

ERP mainly used by medium and large businesses

„Average lifetime cost: $15 Million (2003 surveys)

„Implementation process: up to 5 years

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Integrating Internal Processes

with ERP

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Factors in ERP System Success

‡

Active support of upper management

‡

Having the best people on the

implementation team

‡

Managing the time line well

‡

Soliciting user involvement

11

Vertical Integration with suppliers

‡

Possible consequences of bad vertical integration

with suppliers:

„Raw material shortage

„Receiving more raw material than needed

„Etc.

Suppliers

Company’s Internal processes

Lack of good integration

Q: What kind of solution can provide business integration in this specific case?

Sales Department Process1 Process2

Delivery Department Process1 Process2 Production

Department Process1 Process2

Systems for Vertical Integration

‡

Electronic Data Interchange (EDI):

„

Direct computer-to-computer transfer of

business documents in electronic form

Suppliers

Value Added Network (VAN) or Private network connection

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Electronic Data Interchange (EDI)

‡

Allows automatic transfer of electronic order

forms and their automatic processing

‡

EDI relies on a pair of message standards

„ANSI X12 – used in North America

„EDIFACT – international, but widely used in Europe

‡

Advantages:

„Eliminates paperwork

„Reduces errors

„Speeds supply process

‡

Disadvantages:

„Provides connection only between two companies

„Limits freedom of comparing prices.

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Systems for Vertical Integration

‡

Supply chain management (SCM) system

„ provide a direct electronic connection with suppliers

Company’s Internal processes Sales Department Process1 Process2

Delivery Department Process1 Process2 Production

Department Process1 Process2

SCM System

Network connection Suppliers

- Forecast demand - Handle purchase of supply - Manage storage + shipping

Three main functions

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Supply Chain Management (SCM)

‡

Stages of SCM (SC Council’s Reference Model):

1) Planning: develop and implement processes that attempt to forecast demand for products and services

ƒ Goal: Balance demand with supply of raw material 2) Sourcing: determine who should supply the items

required

ƒ Goal: Be supplied on time, within budget 3) Production: make the product

1)Schedule production

2)Ensure raw materials are on hand when needed 4) Product delivery (logistics)

1)Everything from receiving a customer inquiry to invoicing 2)Warehouse management is one very important factor 5) Returns: managing returns of raw materials as well as

finished goods

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Vertical Integration with customers

‡

Possible consequences of bad vertical integration

with customers:

„Out of product

„Poor customer support

„Etc.

Customers

Lack of good integration

Q: What kind of solution can provide business integration in this specific case?

Company’s Internal processes Sales Department Process1 Process2

Delivery Department Process1 Process2 Production

Department Process1 Process2

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Systems for Vertical Integration

‡

Customer Relationship Management (CRM)

„ information system for managing all of the functions that deal with customers

‡

Goal of CRM is to increase sales and repeat

business by learning the customer

„ Remember the customer’s needs and preferences

„ Determine the customer’s satisfaction with service

„ Determine which customers are in the magic 20 percent (or have the potential to become part of it)

CRM software

‡

CRM software modules include

„

Personalization

„

Marketing automation

„

Sales force automation

„

Service and support

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CRM Module Functions

‡

Personalization

„One-to-one marketing through personalized products and services

‡

Marketing automation

„Determine market segments

„Planning and implementing campaigns

„Analyzing results

„Segment customers

‡Demographics

‡Past purchases

‡Preferred method of shopping

20

CRM Module Functions

(continued)

‡

Sales force automation

„Managing contacts and leads by storing customers’ basic demographic data

„Provide to-do lists and calendars

„Recognize early customer trends

„Forecasts of future sales

‡

Service and support

„After-sales support

„Complaint resolution

„Returns

21

Summary Questions

5) What is a SCM system? What is the main goal of an SCM system?

5) What is a CRM software used for? What is their goal?

4) What is EDI? What kind of network connections are usually used in EDI? What is the EDI message standard used in the U.S.?

3) (a) What are the common modules found in ERP systems? (b) Name few ERP software vendors. (c) What are the success factors of ERP implementation?

2) (a) What kind of IS could be used for horizontal integration of business processes? (b) What kind of IS could be used for vertical integration of business processes?

1) What is the difference between Horizontal integration and Vertical integration?

Notes Malaga

References

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