Creating an Enterprise-Wide REA Model

In this topic, the integration of multiple REA diagrams into a single global or enterprise
model will be explained. Furthermore, this section will explain how the enterprise model is
implemented into a relational database and user views constructed.

There are three steps involved in the view integration process. First step, the
consolidation of the individual models. For wholesale supply companies without production
facilities, the model consideration will include revenue model cycle and expenditure cycle model
for their purchases and cash disbursements as well as payroll procedures.

1. Purchases and Cash Disbursement Procedures.

The purchases and

cash disbursement procedures show three event entities. The first entity is the Order Product
Entity. This is a support event that does not directly increase the inventory or resource. Sales to
customers (revenue cycle) decreases the inventory and once a company recognizes the need
for inventory, the purchasing clerk (internal agent) will select a supplier (external agent) and
place an order. This decision does not constitute an economic event, but a commitment to
purchase. There must be an on-order information to prevent inventory items from being
reordered and to assist customer service clerks in advising their customers about the inventory
status and expected due dates. The one-to-many relationship between the supplier and order
product means that each order goes to only one supplier. The supplier may have either zero or
many orders during that certain period.
 The second event entity is Receive Product. This is an economic event that causes
change in economic resource. In this event, the goods are received from the supplier and the
receiving clerk processes the items. The activities involved in this event includes counting,
inspecting, transporting the products into the warehouse, and updating the inventory records of
the company. There is a 0,1 cardinality in the association between the order product entity and
receive product entity. This indicates that, at any point in time, an order that has not yet been
received may exist.

The third and last event is Disburse Cash. It is an economic event that constitute the
give half of an economic exchange. This event causes the cash resource to decrease. There is
a one-to-many association with the supplier which implies that each disbursement made by the
company is directed to only one supplier, but each supplier may have received either zero or
many disbursements during the period. The one-to-many association between disburse cash
and receive product, on the other hand, indicates that each product receipt is paid in full, but
many receipts may be combined and paid with single disbursement. This is done to reduce
writing of checks.

2. Payroll Procedures.

T h e s e c o n d p r o

economic events. The first economic event is Get Time which is the receive half of the
economic exchange. In this event, a worker (internal agent) gives up his or her time which is
represented by the Employee Services Resource. The supervisor (external agent), on the other
hand, assumes control of the resources. Moreover, this event captures the daily time-giving
instances of employees by timekeeping mechanisms. The second economic event in payroll
procedures is Disburse Cash which, on the contrary, is the give half of the economic exchange.
This event involves distributing cash to an employee for the services rendered. The payroll clerk
(internal agent) has a participation in this event which results to cash resource being reduced.
The association between the Disburse Cash and Get Time events indicates the timing
differences between employees giving up their time and receiving payment for it. This is
because employees are not usually paid on daily basis. They would typically work for a week,
two weeks, or a month before being paid.

Merge Individual REA Diagram

Individual REA Diagrams are consolidated into a single enterprise-wide diagram.

Redundant event, agent, and resource entities are collapsed into a single entity to simplify the
diagram.

The second step

involved in the view
integration process is to define primary keys, foreign keys, and attributes. In this step, it is
necessary to define primary keys, foreign keys, and attributes to design the relational database
tables. An example for this step is the 18 tables in Apex’s database which shows their primary
keys, foreign keys, and attributes.
 In determining primary keys and attributes, understanding of each table’s purpose is
necessary, and this results from a detailed analysis of every user needs. The database designer
should select a primary key that will logically and uniquely define the non-key attributes in the
table. This can be accomplished with a sequential code such as invoice number, check number,
or purchase order number. Block codes, group codes, alphabetic codes, and mnemonic codes
can also be used. When it comes to defining attributes, each attribute in an entity should appear
directly or indirectly in one or more user views. Some attributes assigned in a table are common
to all organizations, but there are other attributes that are unique to specific applications and
can be derived only from user views.

In defining foreign keys, the designer must have a clear definition of the degree of
association between tables (1:1, 1:M, or M:M) to have a proper foreign key.

After defining primary keys, foreign keys, and attributes the next process is to normalize
the tables. It was previously discussed that tables that are not normalized properly show
negative operational symptoms called anomalies. Hence, the importance of normalizing tables
to prevent any anomalies in the model created. There are two conditions that must be met when
normalizing tables. These are:

1. All non-key attributes will be wholly and uniquely dependent on or defined by the
primary key.

2. None of the non-key attributes will be dependent on or defined by other non-key

attributes.
 The last step in the view integration process is to construct physical database and
produce user views. The resulting database will process all the information and transactions
related in the operations. It should be rich enough to support the information needs of every
user. This includes the needs of accountants, operations personnel, and the management. Rich
event tables can help in producing financial statements and other accounting reports that will be
beneficial to the organization.

Value Chain Analysis

Value chain are activities that add value or usefulness to the products and services of an
organization. The value chain analysis is a process that distinguish primary activities from
support activities. Primary activities are activities that create value, whereas support activities
are activities that helps in achieving primary activities. The application of value chain analysis
can help an organization to look beyond itself and maximize its ability to create value. An
example for this is by incorporating customer needs in its products or by accommodating the
flexibility of its suppliers in its production schedules.

Advantage of Using REA Approach

The use of REA Approach can provide the following advantages:

1. The REA Approach to modeling business processes can help managers to focus on the key
elements of economic events and in identifying the nonvalue-added activities that can be
eliminated from operations.

2. Improvement of the operational efficiency of individual departments can help in generating

excess capacity that can be redirected to increase the overall productivity of the organization.

3. The storage of both the financial and nonfinancial data in a common database will reduce the
need for a multiple data collection, storage, and maintenance procedures.

4. Storing financial and nonfinancial data about different business events in detailed form
permits a wider range of management decisions by supporting multiple user views.

5. The REA model can provide managers with a more relevant, timely, and accurate information
which can help them make better decisions. This will also translate into a better customer
service, higher-quality products, and flexible production processes.