Chapter 07: Operational Systems

Stair, Reynolds and Chesney: Principles of Business Information Systems, Fourth edition (9781473774605)
© Cengage Learning 2021
 Principles

• An organization must have information systems that

support the routine, day-to-day activities that occur in the
normal course of business and help a company add value
to its products and services.
• Traditional transaction processing systems support the
various business functions of organizations that have not
yet implemented enterprise resource planning systems.
• Electronic and mobile commerce allow transactions to be
made by the customer, with less need for sales staff, and
open up new opportunities for conducting business.
• A company that implements an enterprise resource
planning system is creating a highly integrated set of
systems, which can lead to many business benefits.

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 Enterprise resource planning
• Organizations are moving from a collection of
non-integrated transaction processing systems to
highly integrated enterprise resource planning
(ERP) to perform routine business operations.
• An alternative approach to having separate
systems is to have one enterprise-wide system.
• Enterprise resource planning (ERP) is a set of
integrated programs that manage a company’s
vital business operations for an entire multisite,
global organization.

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 ERP Overview

• ERP systems evolved from materials requirement planning

(MRP) systems that allowed companies to plan out how
much raw material they would need at a certain time in the
future, plan their production, control their inventory and
manage their purchasing process.
• Organization realized that their systems lack the
integration needed to coordinate these activities and share
information. This led firms to create new systems which
came to be known as ERP.
• ERP emerged from the recognition that legacy transaction
processing systems lacked necessary integration for
information sharing.

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 Advantages of ERP

• Improved access to data for operational decision

making. ERP operate via an integrated database using one set of
data to support all business functions.
• Elimination of costly, inflexible legacy systems.
Replace separate systems with a single, integrated set of applications
for the enterprise.
• Improvement of work processes based on best
practices. ERP systems workflows are designed based on
industry best practices.
• Upgrade of technology infrastructure . Implementing
ERP is an opportunity to upgrade the firm’s IT infrastructure.

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 Disadvantages of ERP

• Expense and time in implementation

• Difficulty implementing change
• Difficulty integrating with other systems
• Risks in using one vendor
• Risk of implementation failure

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 Transaction processing systems

• Transaction processing systems (TPSs)

– Process detailed data necessary to update records about
fundamental business operations
– Include order entry, inventory control, payroll, accounts
payable, accounts receivable, general ledger, etc.
– Provide data for other business processes
• Management information system/decision support
system (MIS/DSS)
• Special-purpose information systems

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 Traditional transaction processing
methods and objectives 1
• Batch processing system
– Computerized processing in which business
transactions are accumulated over a period of time and
prepared for processing as a single unit or batch
• Online transaction processing (OLTP)
– Computerized processing in which each transaction is
processed immediately

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Traditional transaction processing methods
and objectives 2
• Organizations expect their TPS to:
– Process data generated by and about transactions
– Maintain a high degree of accuracy and integrity
– Avoid processing fraudulent transactions
– Produce timely user responses and reports
– Increase labour efficiency
– Help improve customer service
– Help build and maintain customer loyalty
– Achieve competitive advantage

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 Transaction processing activities

• TPS
– Capture and process data that describes fundamental
business transactions
– Update databases
– Produce a variety of reports

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 Transaction processing cycle

• Data collection
• Data editing
• Data correction
• Data manipulation
• Data storage
• Document production

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 Data collection

• Capturing and gathering all data necessary to complete

the processing of transactions
• Data collection can be:
– Manual
– Automated via special input devices (such as scanners, point-of-
sale devices, and terminals)
• Data should be:
– Collected at source
– Recorded accurately, in a timely fashion

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 Data Editing

• Checking data for validity and completeness to

detect any problems
• Examples
– Quantity and cost data must be numeric
– Names must be alphabetic
– Verification that codes associated with an individual
transaction are present in a database containing valid
codes

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 Data correction

• Re-entering data that was not typed or scanned

properly
• If invalid data is detected, system should provide
error messages
– Error messages must specify the problem so proper
corrections can be made
• Software tools can be used to identify bad data

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 Data manipulation

• Performing calculations and other data transformations

related to business transactions
• Can include the following:
– Classifying data
– Sorting data into categories
– Performing calculations
– Summarizing results
– Storing data in the organization’s database for further processing

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 Data storage

• Updating one or more databases with new

transactions
• After being updated, this data can be further
processed and manipulated by other systems

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 Document production and reports

• Generating output records, documents, and reports

– Hard-copy paper reports
– Displays on computer screens
• Results from one TPS can be inputs to another system
• Typical uses
– Checks and invoices, management information, decision support,
and compliance with local, state, and federal regulations

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 TPS applications

• Order Processing Systems include order entry, sales

configuration, shipment planning, shipment execution,
inventory control, and accounts receivable
• Purchasing Systems include inventory control, purchase
order processing, receiving, and accounts payable
• Accounting Systems include the budget, accounts
receivable, payroll, asset management, and general ledger

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 Electronic commerce

• Electronic commerce is conducting a business transaction

(e.g., distribution, buying, selling, and servicing)
electronically over computer networks, primarily the
Internet but also extranets, and corporate networks
• B2C – business to consumer, allows customers to place
orders, with their order processing system
• B2B – business to business, where the customer is
another business
• C2C – allowing consumers to sell to other consumers.
eBay is an example

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 Mobile commerce

• Mobile commerce (m-commerce) relies on the use

of wireless devices, such as personal digital
assistants, mobile phones, and smartphones, to
transact

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 Production and Supply Chain
Management 1
• ERP production plan process: draws on the
information available in the ERP system database
– Sales forecasting: estimates future customer demand
– Sales and operations plan: takes demand and current
inventory levels to determine production for future
demands
– Demand management: develops master production
schedule

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 Production and Supply Chain
Management 2
• ERP production plan process (continued)
– Detailed scheduling: schedules production run for each product
and from one product to the next
– Materials requirement planning: determines amount and timing of
raw material orders with suppliers
– Purchasing: purchases raw materials and transmits to qualified
suppliers
– Production: plans details of running and staffing production
operation

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 Customer Relationship Management

• Customer relationship management (CRM) system:

helps a company manage all aspects of customer
encounters, including:
– Marketing and advertising
– Sales
– Customer service after the sale
– Programs to retain loyal customers

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 Sales ordering

• Sales ordering: set of activities that must be

performed to capture a customer sales order,
including the following:
– Recording items to be purchased
– Setting sales price
– Recording order quantity
– Determining total cost of the order including delivery
costs
– Confirming customer’s available credit

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 International issues associated
with operational systems
• Challenges that must be met by an operational
system of a multinational company include:
– Different languages and cultures
– Disparities in IS infrastructure
– Varying laws and customs rules
– Multiple currencies
• ERP software vendors help meet these
challenges

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 Summary

• Enterprise system: ensures information can be shared

across all business functions and all levels of management
to support the running and managing of a business
• Transaction processing systems (TPSs): process detailed
data necessary to update records about fundamental
business operations
• Batch processing system: accumulate transactions over a
period of time and then process them
• Online transaction processing (OLTP): process each
transaction immediately

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© 2021 Cengage Learning
 Summary (cont.)

• Transaction processing cycle: data collection,

data editing, data correction, data manipulation,
data storage, and document production
• Many types of transaction processing systems
support order processing, purchasing, and
accounting business functions

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Systems, 4e
by Stair, Reynolds & Chesney
© 2021 Cengage Learning
 Summary (cont.)

• Enterprise resource planning (ERP): set of

integrated programs that manage a company’s
vital business operations for an entire multisite,
global organization
• Customer relationship management (CRM)
system: helps a company manage all aspects of
customer encounters
• Enterprise system of a multinational company
must meet many challenges

For use with Principles of Business Information

Systems, 4e
by Stair, Reynolds & Chesney
© 2021 Cengage Learning