What You Need To Understand About Information Systems
In order for organizations to keep up with the latest technology and compete within the global market, they must place great emphasis on their informational infrastructure. Over the past decades, information systems have been re-designed to improve the way in which information was previously gathered and retrieved. The systems collect, process, filter, store, disseminate, analyze, and communicate digital information. They are very complex systems used to control, manage, and support the performance of various business processes.
The operations information system gathers data, monitors, maintains, and supports the distribution system. Transaction processing system quickly process, store, and retrieve all queries that are entered into the system. The decision support systems allow upper management to customize reports and use the information to make long-term decisions. All of these systems integrated together make up what is known as the purchasing process system.
Now, let’s focus on the contributions information systems have on the procurement process and how systems such as SAP give organizations the ability to simplify all of their data to better serve their entire business infrastructure. The procurement functions of an organization can have a dynamic effect on their sourcing activities. SAP has the ability to drive a company’s sourcing activities by providing purchasers and external suppliers/providers the opportunity to collaborate with one another. SAP is capable of housing raw internal and external information into one centralized location. The system enables all the information to be accessible and shared when needed to all of its users in real-time for various purposes. It can provide data access to internal and external users at any giving time. This system can be integrated to serve as an information linkage throughout the procurement channel.
Information systems have become a part of how consumers are able to retrieve, purchase, and make buying decisions. Management information systems (MIS) are designed to collect information that can be used to help management during their decision making process. There are four systems that organizations use throughout their facility; transaction processing systems, operations information systems, decision support systems, and the expert systems. Each system component serves a specific purpose. By integrating these systems together enable information to be laid out given decision makers the opportunity to make the best possible decisions.
Operation information systems are the eyes and ears for engineers and managers. This information hub primarily functions are to accurately store raw data, translate processed data, and provide data integrated information in real-time. These systems are designed to streamline a firms operation by bridging the gap between the production process and business systems. Its focus is to improve performance, customer service, and decrease cost by providing management with the necessary information they need to make better informed decisions.
The transaction processing systems are responsible for the performing routine transactions necessary to conduct business. The system manages manufacturing and shipping transactions, employee records, sales order entry, payroll, etc. The system allows multiple individual transactions to be linked together automatically as one single transaction.
Decision support systems are knowledge-based systems that compile useful data into one system. During the problem solving and decision making process, the system is able to provide management with the information they need to make quality decisions. These systems tend to be integrated with the normal day-to-day business operations. They are capable of creating strategies by analyzing and collecting data. Human intelligence is still required to make the best decision possible and to carry out these strategies.
Prior to the information system era, the process of acquiring goods was a very slow labor intensified, paper-based, and costly. For decades the purchasing process consisted of spending many long hours on the phone getting quotes, lots of outside sales, printed catalogs, tons of paper work, etc. One of the major problems with this process is that as time went on it became even more expensive. Many purchasing errors were being made which also caused a huge financial strain on many organizations.
Through computers, email, and via fax, the procurement process evolved into a whole new industry within itself. The introduction of computers and facsimile (fax) machines made the process a lot more convenient but it still had a ways to go until information system applications became available. These devices allowed personnel to get things done in less time and with less error, therefore, improving organizations profit margins.
As time went on, information systems components such as the procurement business application were created. In the beginning, these systems were specifically designed to address individual department needs. Even though these systems drastically changed how information was gathered and retrieved, they still did not allow information to be shared amongst various departments within the organization. Those were cost savings that informational technologist felt could be addressed in a newer system.
SAP addressed those issues by designing a system that could meet the overall needs of an organization. They designed a system that allowed information to be interlinked and shared from one department to another. This became the new beginning of the procurement era.
The primary responsibility of the procurement department is to support the organization goals, meet objectives by managing and creating strong external and internal relationships, building an efficiently and effectively supply base.
The procurement manager is responsible for aligning and developing purchasing strategies that support the overall organizational strategies. It’s important that they monitor the supply markets and identify trends that could possibly impact the company strategies. They develop supply options and contingency plans that are designed to support the organization’s needs.
Procurement, engineering, marketing, finance, operations department, etc. work closely together as an intra-organizational cross-functional team to improve the business and procurement functions. By collaborating together, they are able to share information, provide greater insights and understanding, create requirements, and standardizations.
It’s crucial for procurement managers to carefully manage their supplier’s performance to ensure that they meet the company’s expectations.
Every product that is acquired has to go through a procurement cycle. A procurement cycle is all the steps a product goes through from the beginning of the request until it has been delivered to the customer. The procurement cycle begins when a customer request to purchase a particular product. That request generates several transactions to transpire. When an item is procured, the quality of that item is identified and that information is sent to the purchasing department . Once the bids are received and analyzed, the negotiation process and terms of condition will be established. The purchaser will then award the chosen vendor. The purchased products will arrive to the purchaser’s facility and the products will be entered into the inventory system.
SAP stand for Systems Application and Products in data processing, it’s an enterprise resource planning (ERP) information software. This system is tailored to support the essential functions of a firm’s entire business process and its day-to-day operations. The software allows integration of multiple business applications to be tied into one another in real-time. In the past, it was difficult and time consuming for companies to share vital information throughout their organization because each department had separate systems. SAP made it possible for one single system to collect and house each department’s information. SAP software is specially designed to meet the needs of a company’s core components which include logistics, human resource, and finance.
SAP is capable of controlling and managing all of the procurement and logistical business processes. The system automatically retrieves information from the requisition in order to generate purchase orders (POs). All of the procurement data that is entered into the system becomes the central focus for most of those sub components. SAP software enables the Material Management (MM) module to support all phases within the procurement process. It also serves as a massive source of communication amongst all of its procurement participants.
The procurement system is responsible for storing, retrieving, maintaining, creating, and making all the vendor and material information available to all of the sub components within the SAP system. The main focus of the SAP MM module is to requisition information, create purchase orders of goods or services, process finished goods, account payable, master raw materials, invoice receipts, bill of materials (BOMs), manage inventory, and etc.
The procurement process using SAP MM module goes through several phases similar to a normal procurement cycle. There’s one major difference, when using SAP MM the phases are automatically generated.
During the first phase, the system identifies the material requirements. The automated system is able to check the inventory on hand to identify material stock levels. The system automatically checks the master records and the use of the order-point method to keep up with the material on hand. The material planning and control system allows you to generate purchasing requests or they can be manually imputed into the system.
The next step is to determine potential vendors/supplier to be used. Potential suppliers should be determined based on your firm’s sourcing guidelines which should already be imputed into the system database. SAP EDI allows you to electronically send a request for quotation to those selected vendor/suppliers. This automated application (SAP EDI) speeds up the time it takes to request and receive a quote from a vendor/supplier.
Once the quote has been received from the selected vendors/suppliers, the vendor selection and comparison of quotations process begins. The system has the ability to simulate price scenarios, which will allow you to compare the data received. Once the chosen vendor/supplier has been selected, you should automatically send out rejection letters to those who were not selected.
The procurement system obtains information from the requisition and quotation. That information is used to create purchase orders (POs). Long-term contract and vendor scheduling agreements can be created using SAP MM. It also has the ability to track, follow-up, and send out information pertaining to the purchase order as specified.
Once the product is received through the receiving dock, the invoice is checked for accuracy. Receiving personnel have the ability to access PO invoices. They are responsible for comparing the invoice order numbers with the delivered goods and entering that information into the system.
Next, the system generates a receipt of goods. This information makes it possible for procurement personnel to know exactly what they have in stock. Lastly, a payment for goods is sent to the vendors/suppliers.
At one point of time not long ago, SAP, PeopleSoft, Oracle, and JD Edward (JDE) were the 4 largest Enterprise Resource Planning (ERP) software vendors. In 2003, JD Edward was acquired by PeopleSoft. Later on in 2005, PeopleSoft was purchased by Oracle. Today the two largest ERP vendors are SAP and Oracle.
Oracle is an ORDBMS produced by the Oracle Corporation. It can be used in mid-size to large enterprise environments. Oracle’s DBMS, database can be accessed using SQL (Structured Query Language). These SQL commands can be embedded in other languages or could be executed directly as scripts. It has the ability to execute stored information and functions by using PL/SQL (procedural extension to SQL developed by Oracle Corporation) or other object oriented languages such as Java. For storage, Oracle uses a two level mechanism. The first level is a logical storage organized as tablespaces. Tablespaces are made up of memory segments which in turn are made up of more extents. Second level is the Physical storage made up of data files.
SAP is a little more complex than Oracle. The software has the ability to integrate multiple business applications at once. Where as Oracle can only be used in enterprise environments. SAP allows real time management and tracking of sales, productions, finance, accounting, and human resources in an enterprise, while Oracle DBMS can be used to manage data in the enterprise. SAP is developed to be used with many database systems and it includes interfaces for Oracle as well. During the initial SAP installation, Oracle can be defined as the database that is going to be used while the SAP system issue SQL commands that are compatible with the Oracle DBMS.
PeopleSoft is an ERP software application provided by the PeopleSoft Corporation/Oracle. PeopleSoft, being an ERP vendor, has the ability to provide a number of software such as Higher Education, Customer Relationship Management or CRM, System Administration, Human Resource Management System, Supply Chain Management, Project Administration, Human Resources, Materials management, etc.
Oracle schemas are included in the PeopleSoft database. Schemas are objects that make up the PeopleSoft application. PeopleSoft is known to run much smoother, easier to use, and give its users the ability to customize the feel of the system versus SAP. Both systems are very similar at the core, but PeopleSoft tools are considered easier to use and better to manage.
On the other hand, SAP takes the lead in terms of HR integration with manufacturing, distribution, and financials. If an organization does not engage in manufacturing, Oracle’s PeopleSoft would be considered a better choice.
PeopleSoft also produces a large range of software solutions used in manufacture, financial services, performance management, and student administration. Among its main customers are corporations, governments, and various other large organizations.
When implementing a custom in-house information system, a company is responsible for all development cost, enhancements, upgrades, and debugging. They will need to acquire the services of a custom programmer and he/she will write a program based on the organization’s specifications. One of the major problems companies run into when creating custom in-house systems is that programmers typically do not know anything about their business. Programmers will more than likely have a difficult time anticipating any unforeseeable requirements other than the ones specified. The company will be responsible for the implementation of the new systems and all the errors and kinks will have to be worked out by them.
These in-house, custom designed systems are limited and they are not designed to serve as an enterprise wide fully integrated system. In the long run, these custom designed systems can take just as long to develop and cost just as much as a pre-designed system.
Information systems have drastically changed the way organizations function, communicate, share information, solve problems, and make decisions. The procurement process cannot effectively and efficiently operate on its own without placing great emphasis on the information infrastructure. All of the information hubs interlinked together are majors contributors to the financial success of the organization.
Purchasers would not be able to maximize their procurement potentials if it wasn’t for the development of information systems such as SAP. SAP ERP has the capability to extend across an organizations entire system and compile the data for multiple departments and or plants into one centralized system. SAP ERP provides their user with an immediate economic advantage over their competition. Due to the growing pressure to remain competitive, SAP continues to provide organizations with the best integrated information system to this day.