Chapter 12

Enhancing Decision Making

LEARNING OBJECTIVES
After reading this chapter, you will be able to:
1. Describe different types of decisions and the decision-making
process.
2. Assess how information systems support the activities of
managers and management decision making.
3. Demonstrate how decision support systems (DSS)differ from
MIS and how they provide value to the business.
4. Demonstrate how executive support systems (ESS)help senior
managers make better decisions.
5. Evaluate the role of information systems in helping people
working in a group make decisions more efficiently.
CHAPTER OUTLINE
12.1 DECISION MAKING AND INFORMATION SYSTEMS
Business value of Improved Decision-Making Types of Decisions
The Decision-Making Process
Managers and Decision Making in the Real World
12.2 SYSTEMS FOR DECISION SUPPORT
Management Information Systems (MIS)
Decision-Support Systems (DSS)
Business Value of DSS
Data Visualization and Geographic Information Systems (GIS)
Web-Based Customer Decision Support Systems
12.3 EXECUTIVE SUPPORT SYSTEMS (ESS)
The Role of Executive Support Systems in the Firm Business Value
of Executive Support Systems
Executive Support Systems and the Digital Firm
12.4 GROUP DECISION-SUPPORT SYSTEMS (GDSS)
What is GDSS?
Overview of a GDSS Meeting
Business Value of GDSS
12.5 HANDS-ON MIS
Improving Decision Making: Analyzing the Impact of Component
Price Charges: Dirt Bikes USA
Improving Decision Making: Using Pivot Tables to Analyze Sales
Data
Improving Decision Making: Using a Web-Based DSS for
Retirement Planning
LAEARNING TRACK MODULE
Building and Using Pivot Tables

PROCTOR & GAMBLE RESTRUCTURES ITS SUPPLY

CHAIN
Procter & Gamble (P&G) is one of the World’s largest consumer
goods companies, with annual revenues of $51 billion and 80,000
employees in 140 countries. The company sells more than
300brand worldwide, including Crest, Charmin, Tide, Pringles, and
Pampers. Although P$G is known for innovation and marketing
muscle, it is always looking for ways to lower its costs, in response
both to competitors and to pressure from large customers, such
as Wal-Mart.
In the early 1990s, P&G started looking at ways to reduce supply
chain costs and improve efficiency throughout its entire North
American manufacturing and distribution network. Management
wanted answers to questions such as, “How many plants should
there be for a new product?’’ and “Where should they be
located?’’ “Where should distribution centers be located?” and
“How can we deliver these products faster and better to our major
customers?”
Answers were not easy to obtain because P&G’s supply chains
are incredibly complex, with more than 100,000 suppliers. P&G’s
Global Beauty Care division alone has hundreds of combinations
of suppliers, manufacturing facilities, and markets to deal with,
compounded by 10 to 15 new product launches per year. Each of
the company’s dozens of beauty care products has multiple sizes
and package designs. A tiny change-and changes are constant-
ripples through the supply chain, impacting inventory levels,
service levels, and costs.
Jean Kinney were not easy obtain because P&G purchasing
manager, recalls the launch of a new global healthcare product
whose success depended on the choice of plant location and
sources of raw materials. The problem was very complicated and
there were millions of possible solutions. If you asked the
managers in the countries that would be marketing this product,
they would all say that scale is important and P&G should build a
single megaplant instead of distributing production. In between
were millions of other options. What was the best approach?
P&G turned to its IT Global Analytics group for a solution. IT
Global Analytics constructed some models using Microsoft Excel
spreadsheet software enhanced by LINDO System’s What’s Best!
For more powerful optimization and palisade’s @RISK software for
monte Carlo simulation, which randomly generates values for
uncertain variables. The models tried to maximize the value of the
investment, considering manufacturing costs, freight costs,
import/export duties, local wage rates, foreign exchange rates,
taxes, and the cost of capital. This model was one of a series of
models developed by IT Global Analytics for restructuring P&G’s
supply chain. P&G used optimization models to determine how
best to allocate supply chain resources and simulation models to
mathematically try out various options to see how they reacted to
changes in important variables. In addition, the company used
techniques, such as decision trees, that combined the possibilities
of various outcomes with their financial results. Using these
decision-support tools, IT Global Analytics found that the success
of a supply chain is not necessarily based on the most optimal
solution but rather a robust solution that would stand up under
real-world conditions.
P&G uses a number of different software tools foe implementing
its models. In addition to Excel and add-on products, P&G also
uses stand-alone software packages. These packages include
Xpress-MP from Dash Optimization Inc. and Cplex from Ilog Inc.
for building optimization models, and Extend from imagine that
Inc. for building simulation models. Most of the data for these
decision-support systems come from a massive Oracle data
warehouse with 36 months of data on supplier, manufacturing,
customer, and consumer histories by region.
P&G’s use of decision-support systems for restructuring its
supply chain has paid off. The company consolidated North
American plants by 20 percent and lowered supply chain costs by
$200 million each year.
Procter & Gamble’s use of information systems to restructure its
supply chain illustrates how information systems improve decision
making by improving decisions about how to restructure P&G’s
supply chain, information systems helped the company operate
mor efficiently, reduce its costs, and increases responsiveness to
customers and to the marketplace
The chapter-opening diagram calls attention to important points
raised by this case and this chapter. P&G management was unable
to make good decisions about where to locate plants and
distribution centers for new

products because P&G’S supply chain was extremely large,

complex, and affected by many different variables. Bad decisions
about where to locate plants and distribution centers increased
costs to procure, manufacture, warehouse, efficiently. P&G solved
this problem by implementing new, model-based, decision-
support systems capable of evaluating large quantities of data and
thousands of variables. These systems helped decision makers
find an optimal design for P&G’s supply chain and improve the
allocation of supply chain resources.

HEADS UP
This chapter focuses on how business firm use information
systems to improve decision making. A wide variety of
information systems directly improves decision making
throughout the firm, form the executive suite to the customer
service center and the factory floor. There are even systems to
help customers make better decisions. It would not be an
overstatement to say that a primary contribution of information
systems to business firms has been to improve decision making at
all levels.
 If your career is in finance and accounting, you will be
working with decision-support systems that use
financial methods for break-even analysis,
profitability analysis, capital budgeting, and financial
forecasting, and executive support systems (ESS)
providing overviews of firmwide financial
performance.
 If your career is in human resources, you will use
decision-support systems for analyzing the impact of
employee compensation plans and for projecting the
firm’s long-term labor force requirements.
 If your career is in information systems, you will be
developing databases, models, and reporting
capabilities for systems to support decision making.
 If your career is manufacturing, production, or
operations management, you will be using decision-
support systems to guide decisions about the
optimization of sourcing, production, logistics, and
maintenance that must evaluate many interrelated
variables.
 If your career is in sales and marketing, you will be
working with decision-support systems to guide
decisions about product pricing, sales forecasting,
advertising and promotional campaigns, and location
of retail outlets.

12.1 DECISION MAKING AND INFORMATION

SYSTEMS
Decision making in business used to be limited to management.
Today, lower-level employees are responsible for some of these
decisions, as information systems make information available to
lower levels of the business. But what do we mean by better
decision making? How does decision making take place in business
and other organizations? Let’s take a closer look.

BUSINESS VALUE OF IMPROVED DECISION MAKING

What is the monetary value to the business of better decision
making? Table 12-1 attempts to measure the monetary value of
improved decision making for a small U.S. manufacturing firm
with $280 million in annual revenue and 140 employees. The firm
has identified a number of key decisions where new system
investments might improve the quality of decision making. The
table provides selected estimates of annual value (in the form of
cost savings or increased revenue) form improved decision making
in selected areas of the business.

TYPES OF DECISIONS
Chapter 2 showed that there are different levels in organization.
Each of these levels has different information requirements for
decision support and responsibility for decision support and
responsibility for different types of decisions (see Figure 12-1).
Decisions are classified as structured, semistructured and
unstructured.
Unstructured decisions are those in which the decision maker
must provide judgement, evaluation, and insight to solve the
problem. Each of these decisions is novel important, and
nonroutine, and there is no well-understood or agreed-on
procedure for making them.