Outline

1. Transaction processing systems (TPS)

2. Benefits of TPS
Transaction Processing and ERP 3. Enterprise resource planning (ERP) systems
4. ERP packages; SAP
5. Benefits and risks of ERP systems
Lecture of Week 11 6. Federalist ERP
Ch 9: Transaction Processing and Enterprise
Resource Planning Systems
in Stair & Reynolds: Principles of Information
Systems
Lecture of Week 11 MSIS110 Slide 2

1.1 What Is TPS? 1.2 TP Steps & ATM Example

Transaction is an exchange (of goods, money, Enter data (data collection). Input card, pin, withdrawal
information) between two or more business entities. amount at an ATM.
z Example: When you buy a product at a store, a Validate data (data editing & Verify that card and pin
transaction takes place between you and the retailer. correction). match, card not stolen.
Transaction processing system (TPS) records data Process data into information Check that balance allows
about the transactions. (data manipulation). withdrawal, compute new
z Example: AT&T’s TPS handles some 240 million voice balance.
calls per day. Store processed data (data Update balance in account
z Each call requires some 10-20 transactions to route the call storage). database.
from source to destination.
z Each call triggers a transaction in the billing database. Generate output (document Output money, receipt, and
z Example: VISA International processes some 30 production and reports). card.
million credit card related transactions per day. Support user queries. Display balance.
Lecture of Week 11 MSIS110 Slide 3 Lecture of Week 11 MSIS110 Slide 4

1.3 Batch Processing 1.4 OLTP

In batch processing, transaction data is collected to a In online transaction processing (OLTP), the
file. transactions are processed immediately, as they occur.
The transactions are processed in a single batch run that
z Example: When you withdraw money from your
updates the related databases.
account at an ATM, your account balance is updated
Example: Payroll.
immediately.
z Data collection: Employees’ daily entry and exit times
Technology made OLTP possible in the early 1960’s.
are collected to a file.
z Example: Before OLTP entered into the banking
z Batch run: At the end of the month, a salary program
industry, your withdrawals were marked in your account
processes the transactions into hours worked, checks
booklet and recorded in a transaction file. Your account
pay rates for each employee from an employee
balance was updated in a nightly batch run.
database, computes salaries, records the paid salaries
to the company’s financial database, and outputs Even today, not all transactions need to be processed
paychecks. online (see the previous payroll example).
Lecture of Week 11 MSIS110 Slide 5 Lecture of Week 11 MSIS110 Slide 6

1
 2 Why TPS? 3.1 ERP
Competitive advantage through cost efficiency. In the 90’s the transaction processing systems evolved
z Transaction processing time and errors are reduced into enterprise resource planning (ERP) systems, or
with automated systems. simply, enterprise systems
z Example: Imagine the costs of manual processing An ERP system integrates all information flowing through
of the daily transactions of AT&T or VISA a company.
International! z Information on primary activities: supply chain and
Competitive advantage through product differentiation. customer information
z Customer transactions are processed fast. z Information on support activities: financial, accounting,
z Customers may have an interface to the TPS. human resources information
z Example: ATM machines, e-commerce. ERP system is used by employees and managers.
z Customers may track their transactions in the company. z ERP includes all TPS and provides also analysis and

z Example: FedEx shipment status. planning tools.

Lecture of Week 11 MSIS110 Slide 7 Lecture of Week 11 MSIS110 Slide 8

3.2 Anatomy of ERP Systems 4.1 ERP Business

Adapted from Davenport: “Putting the Enterprise into the Enterprise
System” (Harvard Business review on the Business Value of IT, HBS It is estimated that businesses spend around 10 billion
Press, pp.159-185, 1999) (US) dollars per year on ERP systems, says Davenport.
Managers
Sales and customer service reps

Biggest ERP system vendors

Administrators and workers

Reporting
Sales & applications Financial z SAP, http://www.sap-ag.de/ (Germany)
delivery applications
Customers

applications z Baan, http://www.baan.com (The Netherlands)

Suppliers

Central Manufacturing
database applications z Oracle, http://www.oracle.com (US)
Service
applications z PeopleSoft, http://www.peoplesoft.com (US)
Inventory &
Human resource supply
management applications
applications
Employees
Lecture of Week 11 MSIS110 Slide 9 Lecture of Week 11 MSIS110 Slide 10

4.2 SAP 4.3 Examples of SAP Components

SAP’s R/3 package is the market leader. Financial components: Accounts receivable & payable,
z Modular design where a company can purchase and cash mgmt, general ledger (=financial reporting), product-
install only those ERP components it needs. cost accounting, profitability analysis, profit center
z The components have some flexibility so that they can
accounting
be adjusted to fit the company’s specific needs. Human resources: HR time accounting, payroll,
z R/3 is client-server sw, R/2 is mainframe based sw.
personnel planning, travel expenses
SAP says: “10 Million Users. 36,000 Installations. 1,000 Operations & logistics: inventory, materials, project,
Partners. 21 Industry Solutions.” quality, routing mgmt, plant maintenance, production
planning, shipping
SAP customers: Boston Beer, Carlsberg, Guinness, Danone,
Mövenpick, Nabisco, Nestlé, Colgate-Palmolive, Reebok, Rolex,
Sales & marketing: order, sales mgmt, pricing, sales
BMW, Pirelli, Acer, Compaq, HP, IBM, AMD, Intel, Texas Instruments, planning
Adobe, Microsoft, Ericsson, Lucent, Nokia E-business
Lecture of Week 11 MSIS110 Slide 11 Lecture of Week 11 MSIS110 Slide 12

2
 5.1 ERP Benefits
Competitive advantage through cost efficiency.
z Centralized management of company data and
resources.
z Up-to-date information
z Easy to combine data from different business units
Competitive advantage through product differentiation.
z Improved customer service.
z Example (from Davenport’s article): After installing
an ERP system, IBM’s Storage Systems can reprise
all its products in 5min instead of 5 days, ship a
replacement part in 3 instead of 22 days, and
complete a credit check in 3sec instead of 20min.
Lecture of Week 11 MSIS110 Slide 13
5.3 ERP Risks II
Using an ERP may undermine competitive advantage
achieved through product differentiation.
z The product of a company can be seen as the result of
processes and information flows taking place in the
company.
z If all companies have the same processes and
information flows, how can their products differ?
Lecture of Week 11 MSIS110 Slide 15
5.2 ERP Risks I
In the past, companies shaped their information systems
to fit their business.
z ERP systems are generic, off-the-shelf solutions.
z A company may need to change the way it does
business (its processes) in order to use the ERP.
z Alternatively, a company may choose to customize
(rewrite) ERP components to fit its processes.
Installing an ERP may undermine competitive advantage
achieved through cost efficiency.
z Changing company processes is VERY expensive.
z Customizing ERP components is moderately
expensive, but creates costs whenever the ERP
software is updated.
Lecture of Week 11 MSIS110 Slide 14
6 Federalist ERP
In the federalist ERP system model, a company considers
what should be common throughout the organization (ERP)
and what should be allowed to vary (no ERP).
Example (from Davenport): Monsanto, producer of
pesticides, productivity enhancers for cows, and seeds.
z http://www.monsanto.com/
z Standardized 85% of data representation from its different
business units; the ERP system connects that part.
z For example, 24 supplier coding schemes were unified into one.
z Differences among the units’ customers and
manufacturing processes were so great that they could
not be characterized with a common data model; the ERP
system does not include these parts.
Lecture of Week 11 MSIS110 Slide 16