ITM330 Midterm notes.docx

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Ryerson University
Information Technology Management
ITM 330
Selcuk Savas

Chapter 1 Functional Areas of Operation • Marketing and Sales (M/S) • Supply Chain Management (SCM) • Accounting and Finance (A/F) • Human Resources (HR) • Information system (IS): Computers, people, procedures, and software that store, organize, and deliver information Business Processes external customer (the person who buys the finished product), or it may be an internal customer (such as a colleague in another department. Information systems can be designed so that functional areas share data. These systems are called integrated information system Customer order processes Logistics function – Production function – Purchasing – Accounting – Sales Function Accounting and Finance • Raw data: Numbers collected from those operations, without any manipulation, calculation, or arrangement for presentation SCM needs Sales forecast from M/S and they need Sales record from Accounting. HR uses Sales forecast to plan for employees n customer needs. Chapter 2 The Evolution of Information Systems • Silos – Information systems configuration used until recently – Companies had unintegrated information systems that supported only the activities of individual business functional areas • Current ERP systems evolved as a result of: – Advancement of hardware and software technology – Development of a vision of integrated information systems – Reengineering of companies to shift from a functional focus to a business process focus • Moore’s Law – Number of transistors that could be built into a computer chip doubled every 18 months • Advancements in computer software – 1970s: relational database software developed • Provide businesses the ability to store, retrieve, and analyze large volumes of data – 1980s: spreadsheet software became popular • Managers can easily perform complex business analyses • By the mid-1980s, telecommunications developments allowed users to share data and peripherals on local networks – Client-server architecture • By the end of the 1980s, the hardware needed to support development of ERP systems was in place • By the mid-1980s, database management system (DBMS) required to manage development of complex ERP software existed • Manufacturing software developed during the 1960s and 1970s – Evolved from simple inventory-tracking systems to material requirements planning (MRP) software • Electronic data interchange (EDI) – Direct computer-to-computer exchange of standard business documents – Allowed companies to handle the purchasing process electronically 1980-1990’s economic downturn was stimulus for ERP development MSMLF = Makreting supply manfucature logistic finance. Information and material flows in BUSINESS MODEL • Functional model led to top-heavy and overstaffed organizations incapable of reacting quickly to change • Process business model – Information flows between the operating levels without top management’s involvement • Further impetus for adopting ERP systems has come from compliance with the Sarbanes-Oxley Act of 2002 – Requires companies to substantiate internal controls on all information • 1972: five former IBM systems analysts in Mannheim, Germany formed Systemanalyse und Programmentwicklung (Systems Analysis and Program Development, or SAP) • SAP’s goals: – Develop a standard software product that could be configured to meet the needs of each company – Data available in real time – Users working on computer screens, rather than with voluminous printed output • Software modules: individual programs that can be purchased, installed, and run separately, but that all extract data from the common database • 1982: SAP released its R/2 mainframe ERP software package • 1980s: sales grew rapidly; SAP extended its software’s capabilities and expanded into international markets • By 1988, SAP had established subsidiaries in numerous foreign countries • 1988: SAP began development of its R/3 system to take advantage of client-server technology • 1992: first version of SAP R/3 released • SAP R/3 system was designed using an open architecture approach • Open architecture: third-party software companies encouraged to develop add-on software products that can be integrated with existing software • By 2000, SAP’s competition in the ERP market: – Oracle – PeopleSoft • Late 2004: Oracle succeeded in its bid to take over PeopleSoft In 2000 Y2k prompted people to switch to ERP systems. • PeopleSoft – Founded by David Duffield, a former IBM employee – Today, PeopleSoft, under Oracle, is a popular software choice for managing human resources and financial activities at universities • Oracle – SAP’s biggest competitor – Began in 1977 as Software Development Laboratories (SDL) – Founders: Larry Ellison, Bob Miner, and Ed Oates • SAP ERP – Latest versions of ERP systems by SAP and other companies allow: • All business areas to access the same database • Elimination of redundant data and communications lags • Data to be entered once and then used throughout the organization • Current SAP ERP system: SAP ECC 6.0 (Enterprise Central Component 6.0) – Sales and Distribution (SD) module – Materials Management (MM) module – Production Planning (PP) module – Quality Management (QM) module – Plant Maintenance (PM) module – Asset Management (AM) module – Human Resources (HR) module – Project System (PS) module – Financial Accounting (FI) module – Controlling (CO) module – Workflow (WF) module A large company, one with well over 1,000 employees, will likely spend $50 million to $500 million for an ERP system with operations involving multiple countries, currencies, languages, and tax laws. Such an installation might cost as much as $30 million in software license fees, $200 million in consulting fee A midsized company (one with fewer than 1,000 employees) might spend $10 million to $20 million in total implementation costs and have its ERP system up and running in about two years • Tolerance groups – Specific ranges that define transaction limits – SAP has defined the tolerance group methodology as its method for placing limits on an employee – Configuration allows the company to further tailor tolerance group methodology Tolerance group = you order 1000 jackets u only receive 995 but it is still complete. • Features of SAP ERP – First software that could deliver real-time ERP integration – Usability by large companies – High cost – Automation of data updates – Applicability of best practices • Best practices: SAP’s software designers choose the best, most efficient ways in which business processes should be handled By 1998 most fortune 500 companies run ERP • SAP All-in-One – Single package containing specific, preconfigured bundles of SAP ERP tailored for particular industries – Can be installed more quickly than the standard ERP product • Application hosting – Third-party company provides the hardware and software support – Makes ERP systems like SAP more appealing to midsized companies • SAP and Oracle are facing competition from smaller providers of ERP software • In mid-1990s, many companies complained about the difficulty of implementing SAP R/3 system • SAP responded by developing Accelerated SAP (ASAP) implementation methodology – Eases the implementation process Before choosing ERP system company should hire external software consultants to find what system is best for them. • Many people claim that ERP systems, especially the SAP ERP system, are rigid • Options for customization offered by SAP ERP – Numerous configuration options that help businesses customize the software to fit their needs – Programmers can write specific routines using Advanced Business Application Programming (ABAP) • Once an ERP system is in place, trying to reconfigure it while retaining data integrity is expensive and time-consuming • Return on investment (ROI): assessment of an investment project’s value • Peerstone Research study – 63 percent of companies that performed the calculation reported a positive ROI for ERP – Most companies felt that nonfinancial goals were the reason behind their ERP installations Must top down promote the ERP system or it will fail. Additional capabilities within ERP • Sales production – Customer Relationship Management (CRM) applications • Increase the efficiency of the sales force • Data analysis – Data mining: statistical and logical analysis of large sets of transaction data, looking for patterns that can aid decision making • Internet connectivity – Web services • Web services, or service-oriented architecture (SOA) • Shift from traditional ERP client-server system to service-oriented architecture is gaining momentum Chapter 5 • Areas of accounting: – Financial accounting – Managerial accounting • Financial accounting – Documenting all transactions of a company that have an impact on the financial state of the firm – Using documented transactions to create reports for external parties and agencies – Reports, or financial statements, must follow prescribed rules and guidelines of various agencies • Integrated information system simplifies the process of closing the books and preparing financial statements • Managerial accounting: determining costs and profitability of company’s activities • In the SAP ERP system, input to general ledger occurs simultaneously with business transactions • Many SAP ERP modules cause transaction data to be entered into general ledger, including: – Sales and Distribution (SD) – Materials Management (MM) – Financial Accounting (FI) – Controlling (CO) – Human Resources (HR) – Asset Management (AM) • FS sales clerk refers to a weekly printout of a customer’s current balance and credit limit to see if credit should be granted • Main reasons for inaccurate or incomplete data – Inconsistent recordkeeping – Inaccurate inventory costing systems – Problems consolidating data from subsidiaries • Inventory cost accounting background – Manufactured item’s cost has three elements: • Cost of raw materials • Cost of labor employed directly in production of item • Overhead: all other costs • Inventory cost accounting background (cont’d.) – Direct costs: materials and labor • Can be estimated fairly accurately – Indirect costs: overhead items • Difficult to associate with specific product(s) – Standard costs for a product are established by: • Studying historical direct and indirect cost patterns • Taking into account the effects of current manufacturing changes – Cost variances: differences between actual costs and standard costs • ERP and inventory cost accounting – Many companies with unintegrated accounting systems analyze their cost variances infrequently • Often, they do not know how much it actually costs to produce a unit of a product – If FS had an ERP system, employees throughout the company would have recorded costs in a company-wide database as they occurred • Product cost analysis in SAP ERP – Product cost variant: method for developing a product cost in an ERP system • Currency translation – Problems when currency translation is needed for a subsidiary’s accounts • Each transaction posted in SAP ERP gets its own unique document number – Allows quick access to the data • In SAP ERP, document numbers for related transactions are associated in the database – Provides an electronic audit trail • Advantage of using a database is the ability to query the records to: – Produce standard reports – Answer ad hoc questions An ad hoc question is one that is spontaneous • October 16, 2001: E
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