Introduction to MIS 1

Copyright © 1998-2002 by Jerry Post

Introduction to MIS

Chapter 5

Operations and Transactions

Introduction to MIS 2

Central Computer

Sales ReportsPOS

Terminals/Registers

Customers

EDI

Supplier

Bank

AdditionalStores

Process Control

Transactions

Introduction to MIS 3

Outline Data Capture Electronic and Mobile Commerce Payment Mechanisms Data Quality Transactions The Role of Accounting HRM and Transaction Processing Cases: Retail Sales Appendix: Accounting Business Operations

TacticalManagement

Strategic

Mgt.

EIS

ESD

SSTr

ansa

ctio

n

Proc

essi

ng

Proc

ess

Con

trol

Introduction to MIS 4

Data Capture Point of Sale Process Control Electronic Data Interchange

Central Computer

Sales ReportsPOSCashRegisters

Customers

EDI

Supplier

Bank

Process Control

AdditionalStores Strategy

Tactics

Operations

Warehouse InventoryManagement

CEO Information

Introduction to MIS 5

Data Capture: Sales

Collecting transaction data at the point of sale ensures accurate data, speeds transactions, and provides up-to-the-minute data to managers.

Introduction to MIS 6

Process Control

Various Production machines: lathe, press, dryer, . ..

Control Terminal

Production data: Quantity Quality Time Machine status

Control settingsand commands

Introduction to MIS 7

Electronic Data Interchange The price of paper

$30 to $40 for each purchase order $24 to $28 for suppliers to handle

EDI $12 for orders 0.32 for suppliers

Proprietary EDI Commercial providers and standards

Introduction to MIS 8

EDI: Proprietary

Supplier

Customer 1

Queries &Orders

Invoices &confirmationProduction

Database& Accounts

OrderDatabase

& Accounts

Convert data

Convert

data

Differ

ent f

ormat

Customer 2

Firms must support multiple data formats and sometimes different computers for each contact.

Introduction to MIS 9

EDI: Standards

Supplier

Customer 1

ProductionDatabase

& Accounts

OrderDatabase

& Accounts

Customer 2

Bank/EDI consolidator

Convert t

o

Standard

RouteMessages

Messagesto/fromany customer

Convert t

o

Standard

Convert t

o

Standard

Introduction to MIS 10

EDI Standards

Message

SegmentComposite Data Element

Data Element

Code Lists

UN Edifact US ANSI X12 Segments for each area Detail data formats

Introduction to MIS 11

ANSI X12 Segments

Partial List of segments

Detailed specifications for each segment Data needed Format

104 - Air Shipment Information 110 - Air Freight Details and Invoice 125 - Multilevel Railcar Load Details 126 - Vehicle Application Advice 127 - Vehicle Buying Order 128 - Dealer Information 129 - Vehicle Carrier Rate Update 130 - Student Educational Record (Transcript) 131 - Student Educational Record (Transcript) Acknowledgment 135 - Student Loan Application 139 - Student Loan Guarantee Result 140 - Product Registration 141 - Product Service Claim Response 142 - Product Service Claim 143 - Product Service Notification 144 - Student Loan Transfer and Status Verification 146 - Request for Student Educational Record (Transcript) 147 - Response to Request for Student Ed. Record (Transcript) 148 - Report of Injury or Illness

Introduction to MIS 12

EDI On The Internet

The Internet

Advantages Low cost. Anyone can connect. Worldwide reach. Many tools and standards. Designed to be robust,

minimizes impact of network failures.

Drawbacks No service guarantee.

Delays might be unacceptable.

Questionable reliability. Security is challenging.

Introduction to MIS 13

Date & TimeValue

Item

Buyer

Seller

Item_IdDescriptionLocation. . .

Transactions Items

Buyer_IdAddressPhone

Seller_IdAddressPhone

Buyers

Sellers

Transaction Objects Example Attributes

Date & time Price Quantity Item Number Buyer Seller

Example Methods Store Print Verify

Introduction to MIS 14

Transaction Risks

payment

products or services

Vendor

Customer

Government

1. Receive payment.

2. Legitimate payment.

3. Customer not repudiate sale.

4. Government not invalidate sale.

1. Receive product.

2. Charged only as agreed.

3. Legal transaction.

1. Transaction record.

2. Tax records.

3. Identify fraud.

4. Track money for other cases (drugs).

Credit card company accepts risks for a fee.

Introduction to MIS 15

E-Commerce Risk Mitigation

products or services

Vendor

Customer

Encrypt(credit card data)

Verify vendor identity.

Encrypt(Database)

Consumer is protected by credit card company.

Vendor is not protected by credit card and has only weak methods to verify customer identity.

Encryption protects transmission of data and verifies identity of vendor.

It is critical that vendors protect their databases.

Introduction to MIS 16

Shopping on the Internet Advantages

Search and compare. More tailored information. Wider selection. More competition. Speed: especially if you can

download the product. Comparison databases:

What did others buy?

Drawbacks Availability: requires a

computer and an ISP. Slow speed limits graphics

and video. Limited portability. Trust: vendors and

consumers. Taxation.

Introduction to MIS 17

Electronic Commerce Pre-Purchase

Static data sites. Promotion. Product specifications. Pictures. Schematics. Pricing. FAQs.

Interactive sites. Configuration. Compatibility. Complex pricing.

Purchase (requires interactive). Transmission security. User identification. Product selection. Payment validation. Order confirmation.

Introduction to MIS 18

Electronic Commerce Post-Purchase

Service. Revenue generation. Problem tracking. Sales leads.

Resolve problems. Answer questions. Product evaluation.

Modifications. Tracking customers.

Digital content. Software. News and data. Books. Music. Video.

Copyrights and piracy. World intellectual property

rights organization (WIPO) U.S. 1998 law making it a

crime to circumvent protection schemes.

Open distribution and publishing--reduces control of existing publishers.

Introduction to MIS 19

E-Commerce and Taxes Governor’s association.

Led by Leavitt from Utah. Currently over 30,000 tax

districts (state/county/local). Could simplify to 50. Currently, unfair advantage

to out-of-state firms. Japan and United States.

1998 agreement to no taxes on Internet sales.

Goal of increased international trade.

U.S. Constitution. Forbids taxation of interstate

commerce. States currently ask

residents to pay a “use” tax on purchases made out-of-state.

Supreme court ruled that states cannot require out-of-state vendors to collect tax.

If a firm has a “presence” in the state, it must collect the tax.

Introduction to MIS 20

Security and Trust Security

Each transmission is encrypted.

Prevent interception. Keys generated by

certificate authority (e.g., Verisign).

Security on individual servers is the responsibility of vendor.

There have been some thefts of data (e.g., credit-card numbers.)

Vendor is motivated to secure the server.

Commercial software exists to provide secure sites.

Trust Is the vendor legitimate?

Consider: Internet gambling. What if offshore vendor

refuses to pay off a bet? As long as Internet

gambling is illegal (in the U.S.) consumer has no recourse.

Otherwise, use credit cards and rely on banks.

Secure certificates. Is the customer legitimate?

Rely on credit card data. Some vendors will ship only

to billing address. Certificate authority.

Introduction to MIS 21

Internet International Issues Jurisdiction questions for disputes.

Collection and payment for sales. Currently rely on credit cards. Many people do not use credit cards. Does not protect vendor.

Coordinate and stop fraud. Control harassment, spamming, and denial of service attacks.

Encryption restrictions. U.S. classifies as munitions. France does not allow citizens to use encryption at all.

Different privacy rules. Nations have differing perspectives of “offensive”

content.

Introduction to MIS 22

B2B Auction Markets

Buyers and sellers connected through a Web site.

Introduction to MIS 23

Payment Mechanisms Credit card drawbacks

High transaction costs. Not feasible for small payments. Do not protect the merchant.

Characteristics needed Low enough costs to support payments less than $1. Secure transmission. Secure storage. Authentication mechanism. Easy translation to traditional money.

Alternatives Mobile phone bill. Smart cards.

Introduction to MIS 24

Digital Cash Payment

Consumer

Vendor

Trusted Party

Conversion toreal money.

Bank

(A) Consumer purchases a cash value that can be used only once.

(B) Customer choose product, sends ID or digital cash number.

(C) Cash amount is verified and added to vendor account.

Introduction to MIS 25

Data Quality Integrity

Errors in data entry. Missing data. Failure to make updates.

Multitasking/Concurrency Changes by two people at

same time gives bad data. Volume

Cost Errors harder to spot. Transmission costs. Difficulty of searching. System overload.

Summaries Too much detail. Hard to get detail.

Time Report and decision

deadlines. Departments get data at

different times. Sequencing problems.

Introduction to MIS 26

Concurrency and Data Integrity

Customer Accounts

Sanchez 500

Transaction A Transaction B

1) receive 300 payment2) read balance (500)

5) subtract payment6) store new result (200)

Sanchez 200

3) new purchase (350)4) read balance (500)

7) add purchase8) store new result (850)

Sanchez 850

Multitasking and Concurrency Data Integrity Multitasking & concurrency Data volume Data summaries Time

Introduction to MIS 27

Accounting Financial data and reports What do things really cost? The accounting cycle Inventory Checks and balances

Double-entry Separation of duties Audit trails

Introduction to MIS 28

Accounting Software General Ledger

Sample chart of accounts Automatic posting Automatic entry of vendors Fiscal years Keep past data books open Post to prior years Allocate department expenses

Accounts Receivable Automatic early discounts Interest on late payments Multiple shipping addresses Sales tax Automatic reminder notices Automatic monthly fees Keep monthly details

Accounts payable Check reconciliation Automatic recurring entries Monitor payment discounts Select bills from screen Pay by item, not just total bill

General Features Printer support Use of preprinted forms Custom reports Custom queries Security controls Technical support costs

Introduction to MIS 29

Accounting

Suppliers

Customers

Management

Shareholders

Banksand

Creditors

Departments& Employees

Sales &Accounts

Receivable

ProduceManagementAccounting

Reports

ProduceShareholder

Reports

Sales & Receivables

Inventory ChangesPurchases &Payables

Loans & Notes

Expenses Equity

ShareholderReports

ManagementReports

ProductInventory

Orders &Accounts Payable

InventoryManagement,& Fixed Asset& Cost Acct.

Payroll &EmployeeBenefits

CashManagement,Investments,

ForeignExchange

Supply &In-processInventory

Governments

TaxFiling &

Planning

Strategic& TacticalPlanning

Inventory Changes

Payables

Capital Acct

Sales Tax

Tax Filings

Tax data

ReceivablesInventory &Assets

Payroll

Planning Reports

PlanningData

Introduction to MIS 30

The Role of Accounting Transaction Data Purchases, Sales, Loans, and Investments Inventory Control Process and Controls

Double-Entry Systems Separation of Duties Audit Trails

Introduction to MIS 31

HRMManagement

Managers

Employees

Customers

Government

ProcessPayrollBenefitsVacation

CompileMerit

Evaluations& SalaryChanges

JobApplicants

ProduceManagement

EmployeeReports

ScreenJobs &

Applications

ProduceGovernment

Reports

Employee Data Files

EmployeeData

Evaluations

Salary

Merit &Salary

Sales Data &Commission

EmployeeData

Merit

Applicant Data

EmployeeSummaries

Job &ApplicantData

EEO Data

GovernmentReports

Management Reports

Introduction to MIS 32

Cases: Retail Sales

Introduction to MIS 33

Cases: Home Depot Toys R UsWalgreens

What is the company’s current status?

What is the Internet strategy?

How does the company use information technology?

What are the prospects for the industry?

www.homedepot.com

www.toysrus.com

www.walgreens.com

Introduction to MIS 34

Appendix: Balance Sheet

Assets

Current Assets

Plant and Equipment

Liabilities and Owner’s Equity

Current liabilities

Long-term liabilities

Owner’s equity

Total liabilities and owner’s equity

Albertson’s, 2000Numbers in thousands.

AssetsCurrent Assets Cash and equivalent $57 Accounts and notes receivable, net 547 Inventories 3,364 Prepaid expenses 155 Property held for sale 71 Refundable income taxes 36 Deferred income taxes 70 Total Current Assets 4,300

Land, Buildings, and Equipment, net 9,622Goodwill and Intangibles, net 1,705Other Assets 451

Total Assets 16,078

Liabilities and Stockholders' EquityCurrent Liabilities Accounts payable 2,163 Salaries 561 Taxes other than income taxes 141 Income taxes Self-insurance 218 Unearned income 112 Merger-related reserves 13 Current portion of lease obligations 20 Current maturities of long-term debt 62 Other 105 Total current liabilities 3,395

Long-term debt 5,715Capitalized lease obligations 227Self-insurance 216Deferred income taxes 116Other long-term liabilities 715 Total long-term liabilities 6,989

Stockholders' Equity: Preferred + common stock 405 Capital in excess of par 48 Retained earnings 5,241 Total Stockholders' Equity 5,694Total Liabilities and Stockholders' Equity $16,078

Introduction to MIS 35

Appendix: EarningsSales

Cost of merch. sold

Gross profit

Operating and admin. exp.

Operating profit

Interest income

Interest expense

Earnings before taxes

Federal and state taxes

Net earnings

Shares

Earnings per share

Sales $36,762Cost of sales 26,336Gross profit 10,426

Selling, general and admin expenses 8,740Merger-related costs 24Operating profit 1,662Interest expense, net (385)Other (expense) income, net (3)Earnings before income taxes 1,274Income taxes 509Net earnings $765

Introduction to MIS 36

Appendix: Cash FlowNet earningsCash flow from operations Depreciation and amortization (Gain) or loss on asset sales(Increase) decrease in current assets Receivables InventoriesIncrease (decrease) in cur. liabilities Accounts payable Accrued payroll and benefits Income taxes payableChange from investing Property, plant, equipment Proceeds from sales of assets Cash used in investingChange from financing Proceeds from long-term borrowing Payments of long-term borrowingStock changesCash dividends

Cash flows from operationsNet earnings $765Adjustments Depreciation and amortization 944 Goodwill 57 Merger-related charges 21 Net gain on asset sales (4) Net deferred income taxes 11 Other decrease (increase) (14) Net cash provided by operations 1,780

Cash flows from investments Capital expenditures (1,771) Disposal of land, buildings, equipment 189 Decrease (increase) in other assets 33 Net cash used in investing (1,549)

Cash flows from financing Proceeds from long-term borrowing 1,232 Payments on long-term borrowing (417) Commercial paper and bank loans (475) Proceeds from stock options exercised 7 Cash dividends paid (315) Stock purchases and retirements (451) Net case (used) provided by financing (419)

Net (decrease) increase in cash (188)

Cash at beginning of year 245Cash at end of year $57

Introduction to MIS 37

Appendix: Equity

Beginning balanceNet earnings/retained earningsNew stockDividendsStock repurchaseEnding balance

Common Capital over Retained TotalStock Par value Earnings

Balance at start 424 145 5133 5702Net earnings 765 765Deferred tax adj. on options (12) (12)Exercise of stock options 6 6Stock purchase and retirement (19) (92) (340) (451)Deferred stock unit plan 1 1Dividends (317) (317)Balance at end 405$ 48$ 5,241$ 5,694$