TRANSACTION PROCESSING SYSTEMS

TRANSACTION PROCESSING SYSTEMS

Transaction processing systems (TPS) are the basic business systems that serve the operational level of the organization. A transaction processing system is a computerized system that performs and records the daily routine transactions necessary to conduct business. Examples are sales order entry, hotel reservation systems, payroll, employee record keeping, and shipping.

          At the operational level, tasks, resources, and goals are predefined and highly structured. The decision to grant credit to a customer, for instance, is made by a lower-level supervisor according to predefined criteria. All that must be determined is whether the customer meets the criteria.

          Figure 2-3 depicts a payroll TPS, which is a typical accounting transaction processing system found in most firms. A payroll system keeps track of the money paid to employees. The master file is composed of discrete pieces of information (such as a name, address, or employee number) called data elements. Data are keyed into the system, updating the data elements. The elements on the master file are combined in different ways to make up reports of interest to management and government agencies and to send paychecks to employees. These TPS can generate other report combinations of existing data elements.

FIGURE 2-3 A symbolic representation for a payroll TPS A payroll system is a typical accounting TPS that processes transactions such as employee time cards and changes in employee salaries and deductions. It keeps track of money paid to employees, withholding tax, and paychecks.

          Other typical TPS applications are identified in Figure 2-4. The figure shows that there are five functional categories of TPS: sales/marketing, manufacturing/production, finance/accounting, human resources, and other types of TPS that are unique to a particular industry. The United Parcel Service (UPS) package tracking system described in Chapter 1 is an example of a manufacturing TPS. UPS sells package delivery services; the TPS system keeps track of all of its package shipment transactions.

FIGURE 2-4 Typical applications of TPS There are five functional categories of TPS: sales/marketing, manufacturing/production, finance/accounting, human resources, and other types of systems specific to a particular industry. Within each of these major functions are subfunctions. For each of these subfunctions (e.g., sales management) there is a major application system.

          Transaction processing systems are often so central to a business that TPS failure for a few hours can lead to a firm’s demise and perhaps that of other firms linked to it. Imagine what would happen to UPS if its package tracking system were not working! What would the airlines do without their computerized reservation systems?

          Managers need TPS to monitor the status of internal operations and the firm’s relations with the external environment. TPS are also major producers of information for the other types of systems. (For example, the payroll system illustrated here, along with other accounting TPS, supplies data to the company’s general ledger system, which is responsible for maintaining records of the firm’s income and expenses and for producing reports such as income statements and balance sheets.)

MANAGEMENT INFORMATION SYSTEMS

In Chapter 1, we define management information systems as the study of information systems in business and management. The term management information systems (MIS) also designates a specific category of information systems serving management-level functions. Management information systems (MIS) serve the management level of the organization, providing managers with reports and often online access to the organization’s current performance and historical records. Typically, MIS are oriented almost exclusively to internal, not environmental or external, events. MIS primarily serve the functions of planning, controlling, and decision making at the management level. Generally, they depend on underlying transaction processing systems for their data.

          MIS summarize and report on the company’s basic operations. The basic transaction data from TPS are compressed and are usually presented in long reports that are produced on a regular schedule. Figure 2-5 shows how a typical MIS transforms transaction level data from inventory, production, and accounting into MIS files that are used to provide managers with reports. Figure 2-6 shows a sample report from this system.

FIGURE 2-5 How management information systems obtain their data from the organization’s TPS In the system illustrated by this diagram, three TPS supply summarized transaction data to the MIS reporting system at the end of the time period. Managers gain access to the organizational data through the MIS, which provides them with the appropriate reports.

FIGURE 2-6 A sample MIS report This report showing summarized annual sales data was produced by the MIS in Figure 2-5.

          MIS usually serve managers primarily interested in weekly, monthly, and yearly results, although some MIS enable managers to drill down to see daily or hourly data if required. MIS generally provide answers to routine questions that have been specified in advance and have a predefined procedure for answering them. For instance, MIS reports might list the total pounds of lettuce used this quarter by a fast-food chain or, as illustrated in Figure 2-6, compare total annual sales figures for specific products to planned targets. These systems are generally not flexible and have little analytical capability. Most MIS use simple routines such as summaries and comparisons, as opposed to sophisticated mathematical models or statistical techniques.

DECISION-SUPPORT SYSTEMS

Decision-support systems (DSS) also serve the management level of the organization. DSS help managers make decisions that are unique, rapidly changing, and not easily specified in advance. They address problems where the procedure for arriving at a solution may not be fully predefined in advance. Although DSS use internal information from TPS and MIS, they often bring in information from external sources, such as current stock prices or product prices of competitors.

          Clearly, by design, DSS have more analytical power than other systems. They use a variety of models to analyze data, or they condense large amounts of data into a form in which they can be analyzed by decision makers. DSS are designed so that users can work with them directly; these systems explicitly include user-friendly software. DSS are interactive; the user can change assumptions, ask new questions, and include new data.

          An interesting, small, but powerful DSS is the voyage-estimating system of a subsidiary of a large American metals company that exists primarily to carry bulk cargoes of coal, oil, ores, and finished products for its parent company. The firm owns some vessels, charters others, and bids for shipping contracts in the open market to carry general cargo. A voyage-estimating system calculates financial and technical voyage details. Financial calculations include ship/time costs (fuel, labor, capital), freight rates for various types of cargo, and port expenses. Technical details include a myriad of factors, such as ship cargo capacity, speed, port distances, fuel and water consumption, and loading patterns (location of cargo for different ports).

        The system can answer questions such as the following: Given a customer delivery schedule and an offered freight rate, which vessel should be assigned at what rate to maximize profits? What is the optimal speed at which a particular vessel can optimize its profit and still meet its delivery schedule? What is the optimal loading pattern for a ship bound for the U.S. West Coast from Malaysia? Figure 2-7 illustrates the DSS built for this company. The system operates on a powerful desktop personal computer, providing a system of menus that makes it easy for users to enter data or obtain information. 

FIGURE 2-7 Voyage-estimating decision-support system This DSS operates on a powerful PC. It is used daily by managers who must develop bids on shipping contracts.

          This voyage-estimating DSS draws heavily on analytical models. Other types of DSS are less model-driven, focusing instead on extracting useful information to support decision making from massive quantities of data. For example, Intrawest—the largest ski operator in North America—collects and stores vast amounts of customer data from its Web site, call center, lodging reservations, ski schools, and ski equipment rental stores. It uses special software to analyze these data to determine the value, revenue potential, and loyalty of each customer so managers can make better decisions on how to target their marketing programs. The system segments customers into seven categories based on needs, attitudes, and behaviors, ranging from “passionate experts” to “value-minded family vacationers.” The company then e-mails video clips that would appeal to each segment to encourage more visits to its resorts. 

          Sometimes you’ll hear DSS systems referred to as business intelligence systems because they focus on helping users make better business decisions. You’ll learn more about them in Chapter 13. 

Executive Support Systems

Senior managers use executive support systems (ESS) to help them make decisions. ESS serve the strategic level of the organization. They address nonroutine decisions requiring judgment, evaluation, and insight because there is no agreed-on procedure for arriving at a solution.

           ESS are designed to incorporate data about external events, such as new tax laws or competitors, but they also draw summarized information from internal MIS and DSS. They filter, compress, and track critical data, displaying the data of greatest importance to senior managers. For example, the CEO of Leiner Health Products, the largest manufacturer of private-label vitamins and supplements in the United States, has an ESS that provides on his desktop a minute-to-minute view of the firm’s financial performance as measured by working capital, accounts receivable, accounts payable, cash flow, and inventory.

          ESS employ the most advanced graphics software and can present graphs and data from many sources. Often the information is delivered to senior executives through a portal, which uses a Web interface to present integrated personalized business content from a variety of sources. You will learn more about other applications of portals in Chapters 4, 11, and 12.

          Unlike the other types of information systems, ESS are not designed primarily to solve specific problems. Instead, ESS provide a generalized computing and communications capacity that can be applied to a changing array of problems. Although many DSS are designed to be highly analytical, ESS tend to make less use of analytical models.

          Questions ESS assist in answering include the following: In what business should we be? What are the competitors doing? What new acquisitions would protect us from cyclical business swings? Which units should we sell to raise cash for acquisitions? Figure 2-8 illustrates a model of an ESS. It consists of workstations with menus, interactive graphics, and communications capabilities that can be used to access historical and competitive data from internal corporate systems and external databases such as Dow Jones News/Retrieval or Standard & Poor’s. Because ESS are designed to be used by senior managers who often have little, if any, direct contact or experience with computer-based information systems, they incorporate easy-to-use graphic interfaces. More details on leading-edge applications of DSS and ESS can be found in Chapter 13.

FIGURE 2-8 Model of a typical executive support system This system pools data from diverse internal and external sources and makes them available to executives in an easy-to-use form.

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Relationship of Systems to One Another

Figure 2-9 illustrates how the systems serving different levels in the organization are related to one another. TPS are typically a major source of data for other systems, whereas ESS are primarily a recipient of data from lower-level systems. The other types of systems may exchange data with each other as well. Data may also be exchanged among systems serving different functional areas. For example, an order captured by a sales system may be transmitted to a manufacturing system as a transaction for producing or delivering the product specified in the order or to a MIS for financial reporting.

FIGURE 2-9 Interrelationships among systems The various types of systems in the organization have interdependencies. TPS are major producers of information that is required by the other systems, which, in turn, produce information for other systems. These different types of systems have been loosely coupled in most organizations.

         It is definitely advantageous to integrate these systems so that information can flow easily between different parts of the organization and provide management with an enterprise-wide view of how the organization is performing as a whole. But integration costs money, and integrating many different systems is extremely time consuming and complex. This is a major challenge for large organizations, which are typically saddled with hundreds, even thousands of different applications serving different levels and business functions. Each organization must weigh its needs for integrating systems against the difficulties of mounting a large-scale systems integration effort