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TOPIC 2
TYPES OF INFORMATION
SYSTEM
(BUSINESS OPERATION)
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1. Introduction
Information is one of the main resources in a business operation. Information can be
managed just as any other resources, like employees, capital, bricks and mortar asset
(buildings) and so on. And, interest in this topic stems from two influences. First,
business has become more complex, and second, the computer has achieved
improved capabilities.
Workers at all levels, in all kinds of firms, and in all industries are using information
systems to improve their own effectiveness. And, at each of those levels, firms and
industries, there are Information Systems that were designed specifically to fulfill their
functions and needs. Types of Information Systems can be classified into 2 categories.
They are Information System for Business Operation and also Information System for
Business Management.
2. Level of Management
Levels of Management refers to a line of demarcation between various managerial
positions in an organization. The number of levels in management increases when the
size of the business and work force increases and vice versa. The level of management
determines a chain of command, the amount of authority & status enjoyed by any
managerial position. The levels of management can be classified in three broad
categories:
a. Strategic level / Top level / Administrative level
b. Tactical level / Middle level / Executive
c. Operational level / Low level / Supervisory / Operative / First-line managers
Level of management hierarchy
Managers at all these levels perform different functions. The role of managers at all the
three levels is discussed below:
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Strategic Level of Management
It consists of board of directors, chief executive or managing director. The
strategic level management is the ultimate source of authority and it manages
goals and policies for an enterprise. It devotes more time on planning and
coordinating functions. Require an extensive knowledge of management roles
and skills.
The role of the strategic level management can be summarized as follows
a. Strategic level lays down the objectives and broad policies of the enterprise.
b. It issues necessary instructions for preparation of department budgets,
procedures, schedules etc.
c. It prepares strategic plans & policies for the enterprise.
d. It appoints the executive for middle level i.e. departmental managers.
e. It controls & coordinates the activities of all the departments.
f. It is also responsible for maintaining a contact with the outside world.
g. It provides guidance and direction.
h. The strategic level is also responsible towards the shareholders for the
performance of the enterprise.
i. They have to be very aware of external factors such as markets.
j. Their decisions are generally of a long-term naturek. Their decisions are made using analytic, directive, conceptual and/or
behavioral/participative processes
l. They are responsible for strategic decisions.
m. They have to chalk out the plan and see that plan may be effective in the
future.
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Tactical Level of Management
Tactical level management have a specialized understanding of certain
managerial tasks. They are responsible for carrying out the decisions made by
strategic level management. They are responsible to the top management for
the functioning of their department. They devote more time to organizational anddirectional functions. In small organization, there is only one layer of tactical
level of management but in big enterprises, there may be senior and junior
tactical level management. Their role can be emphasized as
a. They execute the plans of the organization in accordance with the policies
and directives of the top management.
b. They make plans for the sub-units of the organization.
c. They participate in employment & training of operational level management.
d. They interpret and explain policies from strategic level management to
operational level.
e. They are responsible for coordinating the activities within the division or
department.
f. It also sends important reports and other important data to strategic level
management.
g. They evaluate performance of junior managers.
h. They are also responsible for inspiring operational level managers towards
better performance.
Operational Level of Management
This level of management ensures that the decisions and plans taken by the
other two are carried out. Operational level managers' decisions are generally
short-term ones. Operational level is also known as supervisory / operative level
of management. It consists of supervisors, foreman, section officers,
superintendent etc. They are concerned with direction and controlling function of
management. Their role can be emphasized as
a. Assigning of jobs and tasks to various workers.
b. They guide and instruct workers for day to day activities.
c. They are responsible for the quality as well as quantity of production.
d. They are also entrusted with the responsibility of maintaining good relation
in the organization.
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e. They communicate workers problems, suggestions, and recommendatory
appeals etc to the higher level and higher level goals and objectives to the
workers.
f. They help to solve the grievances of the workers.
g. They supervise & guide the sub-ordinates.
h. They are responsible for providing training to the workers.
i. They arrange necessary materials, machines, tools etc for getting the
things done.
j. They prepare periodical reports about the performance of the workers.
k. They ensure discipline in the enterprise.
l. They motivate workers.
m. They are the image builders of the enterprise because they are in direct
contact with the workers.
All the 3 levels management decision can be summarize as below:
Characteristics Operational Tactical Strategic
Time horizon
affected by the
decision
Affect the business
for short term
Affect the business
for intermediate
term
Affect the business
for long term
Frequency of
repeating the same
decision
Frequently
(e.g.: Deciding
whether to order
more stock)
Less frequently
(e.g.: Decision of
whether to sell
running shoes next
winter is made only
once each year)
Infrequently
(e.g.: Deciding what
business to be in
may only make
every 10 to 20
years)
Degree of structure
in the decision
process
Decision tends to
be structured
Decisions are semi-
structured
Decisions are
unstructured
Source of
information
Internal Both internal and
external
External
Degree of detail ofinformation
Detailed Detailed andsummarized
Summarized
Made by Lower level
managers
Middle level
managers
Top level managers
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3. Information System for Business Operations
Computer information system can be used to increase the efficiency of business
operation. Efficiency has to do with how much a system produces relative to the
resources, such as people, money, and time. For example, if company A can process
20 customer orders per day by using a computer information system handled by 1 clerk,
it is more efficient as compared to the company B that can process the same number of
customer orders but using manual system handled by 5 clerks.
To be competitive today, most businesses require some form of computer information
system for their basic operations. Basically, the business operations are those activities
in which the business engages on a daily basis to function. These activities include:
Provide goods and services for the businesss customers
Ensure payment for those goods and services
Keep track of the businesss goods Acquire goods and services needed by the business
Pay the businesss obligations
Report on the businesss profits and losses.
Information systems support business operations by processing data related to these
activities and by providing information to assist in their management.
Structure of Information System for Business Operation
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3.1 Transaction Processing System (TPS)
The main type of information system used for operational support in a business
is the transaction processing system (TPS). A TPS collects and stores
information about transactions, and controls some aspects of transactions. A
transaction is an event of interest to the organization. e.g. a sale at a store. It
also a computerized system that performs and records the daily routine
transactions necessary to conduct the business.
There are three elements of a transaction processing system:
Keep records about the state of the organization.
Process transactions that affect these records.
Produce outputs that report on transactions that have occurred, that report
on the state of the organization, and that cause other transactions to
occur.
Two basic approaches to processing data in a transaction processing system:
Batch processing transactions to be processed are prepared in a form
understandable by the computer before actual processing begins.
On-Line Transaction Processing (OLTP) permits a person to use a
keyboard and screen at the time the processing is done.
Transaction Processing Systems ("TPS") are designed to process routine
transactions efficiently and accurately. A business will have several (sometimes
many) TPS; for example:
- Billing systems to send invoices to customers
- Systems to calculate the weekly and monthly payroll and tax payments
- Production and purchasing systems to calculate raw material requirements
- Stock control systems to process all movements into, within and out of the
business
The examples of TPS:
a. Online Banking System
Banking from home, booking a holiday on the net, shopping and working
from home are all now readily available and less time consuming, thanks
to transaction processing. For example, if an electronic payment is
made, the amount must be either both withdrawn from one account and
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added to the other or none at all. In case of a failure preventing
transaction completion, the partially executed transaction must be 'rolled
back' by the TPS. While this type of integrity must be provided also for
batch transaction processing, it is particularly important for online
processing.
b. Air-line Ticket Reservation System
An airline seat reservation system is accessed by multiple operators,
after an empty seat inquiry, the seat reservation data must be locked
until the reservation is made, otherwise another user may get the
impression a seat is still free while it is actually being booked at the time.
c. Inventory System
An inventory control system keeps a file of records about the stock of
goods that a business has on hand (the inventory) which is one aspect of
the state of the business. When items are shipped or received, the state
of the business is affected, and the inventory control system makes
changes about the inventory in the stored records. Periodically, the
system prints a list of the shipments and receipts - that is the
transactions that have occurred. Below is the real example of inventory
system in real world implementation.
d. Hotel Reservation System
A booking process determines how the user navigates through a series
of sequential phases in an online hotel reservation. For example, a user
might enter required city and stay-date, review options from available
hotels, rooms, and rates, select a suitable hotel, room, and rate, enter
guest and payment details and confirm reservation
e. Point of Sale (POS)
POS is the system that is in place for purchases involving EFTPOS
(electronic funds transfer at point of sale). POS is just an abbreviation of
the full name of EFTPOS. POS systems are found in many businesses
now from major outlets such as Coles or Woolworths to many mixed
businesses and petrol stations. The POS system is what allows the
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convenience of an ATM at midnight. When a transaction takes place,
goods are scanned from barcodes or details are typed in, any required
credit card checks are made, a receipt is sent to the customer (displayed
on the screen or printed on a receipt), coded inventory data is sent
through to update the database and the inventory or bank balance is
updated. It will also work out the change required and any receipt will
normally itemize items.
f. Library Loans
The borrower will normally have a library membership card which will be
scanned and checked for overdue books and fines, the borrowed items
will be scanned and each item will then be placed under the borrowers
name. The details about available books will then be updated on the
database. The system will also allow reservations to be placed on thebooks.
Level of management for TPS
Level of
Management
Activities
Operational Data entry process
Tactical Review daily business operations
Strategic Review monthly business operations for future
planning and coordinating function.
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3.2 Accounting Information System (AIS)
Accounting information system (AIS) is all of the policies, rules, procedures, and
practices as well as the physical elements that are used to record, process, and
communicate the financial information of a firm. An accounting information
system is the system of records a business keeps maintaining its accounting
system. This includes the purchase, sales, and other financial processes of the
business. AIS is subset of management information system (MIS), AIS is
responsible for providing timely and accurate financial and statistical reports for
internal management decision making, and for external parties such
as creditors, investors, and regulatory and taxation authorities. The purpose of
AIS also is to accumulate data and provide decision makers (investors,
creditors, and managers) with information.
Events that occur in a business can be grouped in few groups: acquisition of
materials, labor, and capital assets and the disbursement of payment; exchangeof materials into goods and services using labor and assets; and sales of goods
and services and the payment.
Expenditure cycle - that can be considered subsystem for purchasing,
accounts payables and cash disbursements.
Conversion cycle - which is also a subsystem, for production planning and
control cost accounting.
Revenue cycle - for sales order processing and cash receipts for orders are
processed. All these transactions must be recorded and posted in the
information system. Understanding the accounting cycle will enhance the
understanding of what occurs within the accounting information system. In
accounting information system there are three primary transactions cycles.
Once transactions are processed and posted in the correct areas, the
information system allows for an audit trail. Audits trails allow an individual like
a manager to make sure corrective actions are taken when entering data into
the system. An audit trail will allow a manager to be able to go from the originalsource document to the journal than to the general ledger and finally to the
financial statements. This is an example of internal control system in an
accounting information system.
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The data structure of a particular accounting information system allows records
to be located, stored and movement throughout the database. There are two
components in a data structure. First, organization of a file, which is the
physical arrangement of the records. Second, access method that is used to
locate the records or navigate in the database.
Evolution of AIS
a. Manual Book-Keeping
The usage of document books and filing of accounting such as
transactions journals, T-ledger books and others. The input data comes
from receipts, invoices and others.
b. Computer-based accounting systemsComputer-based accounting systems record and report the flow of funds
through an organization on a historical basis and produced important
statements such as balance sheets and income statements. A firms
financial performance is measured against such forecast by other
analytical accounting reports.
Operational accounting systems emphasize legal and historical record-
keeping and the production of accurate financial statements. Typically,
these systems include transaction processing systems such as order
processing, inventory control, accounts receivable, account payable,
payroll and general ledger systems. They emphasize cost accounting
reports. The development of financial budgets and projected financial
statements and analytical reports comparing actual to forecasted
performance.
Figure below illustrate the interrelationship of several important
accounting information systems commonly computerized by both largeand small businesses. Many accounting software packages are available
for these applications.
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Relation of AIS with TPS and HRIS
c. Online accounting systems
Table below summarized the essential purpose of six common, but
important, accounting information systems used by both large and small
business firms. From the figure and table, it is no surprise that the
accounting information systems illustrated are being transformed by
Internet technologies. Using the internet and other networks changes
how AIS monitor and track business activities. The online, interactive
nature of such networks calls for new forms of transaction documents,
procedures and controls. This particularly applies to systems like order
processing, inventory control, accounts receivable and accounts
payable. Now, these systems are directly involved in the processing of
transactions between a business and its customers and suppliers. So,
naturally many companies are using Internet and other network links to
these trading partners for such online TPS, for example an online
accounting report.
Sales
transaction
processing
systems (TPS)
Cash receipts and
disbursements
transaction
rocessin s stems
General ledger
processing and
reporting system
Purchase
transaction
rocessin s stem
Payroll transaction
processing system
(HRIS & AIS)
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COMMON BUSINESS ACCOUNTING SYSTEMS
Order processing
Captures and processes customer orders and produced data for
inventory control and accounts receivable.
Inventory control
Processes data reflecting changes in inventory and provides
shipping and reorder information.
Accounts receivables
Records amounts owed by customers and produces customer
invoices, monthly customer statements and credit management
reports.
Accounts payable
Records purchases from amounts owed to, and payment to
suppliers, and produces cash management reports
Payroll
Records employee word and compensation data and produces
paychecks and other payroll documents and reports.
General ledger
Consolidates data from other accounting systems and produces the
periodic financial statements and reports of the business.
Level of management for AIS
Level of
Management
Activities
Operational Clerical work (data entry)
- Capture and process order
Tactical Validate the accounting report
Strategic Review for business planning
- Investment
- Expanding the business
- Growing up capital
- Budget
- etc
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3.3 Human Resource Information System(HRIS)
Human resource information system (HRIS) is defined as a computer based
application for assembling and processing data related to the human resource
management (HRM) function. HRIS is a management system which is designed
specifically to provide managers with information to make Human Resource
decisions.
HRIS deals with all aspects human resource management staff planning,
selection & recruitment, training & skills assessment, job placement,
performance appraisal and compensation administration.
The need for this kind of information has increased in the last few years,
especially in large and/or diverse companies, where decision-making has been
moved to lower levels. Large companies generally have the advantage when
they come to HRIS. The cost to develop an HRIS for 200 people is usually closeto that for 2000 people. So it is a better investment for the large companies.
HRIS (Human Resource Information System) or HRM (Human Resource
Management System) help managers track their work force. Major activities
include:
a. Recruiting employees
Applicant tracking, interviewing, and selection.
Management of all employee information.
b. Reporting and analysis of employee information.
disciplinary action received,
personal employee information, and occasionally,
management and key employee succession plans,
high potential employee identification
c. Evaluating applicants and employees
d. Selecting, placing, promoting, terminating, transferring employees
e. Analyzing and designing jobs
f. Training and developing employeesg. Producing required governmental reports
h. Managing employee wage/benefit plans (tied to payroll system)
i. Planning for short and long-term staffing need
j. Company-related documents such as employee handbooks,
emergency evacuation procedures, and safety guidelines.
k. Benefits administration including enrollment, status changes, and
personal information updating.
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attendance and PTO use,
pay raises and history,
pay grades and positions held,
performance development plans,
training received,
HRIS sub system
a. Staff planning
This function is strategic in nature and is concerned with determining the
future manpower needs of an organization as well as information on the
labor market. It forecasts the number of people required to perform the
various tasks as well as the skills that they must have.
b. Recruitment and staffing
This function is concerned with advertising for staff, interviewing and
recruiting suitable candidates, and adding them to the personnel
database. It keeps track of all employee details. It also maintains skills
inventory so that right people are assigned to the right projects.
c. Training & career development
This function is concerned with providing initial training as well as
continual training. The training may take the form of short courses,
seminars or it can be computer-based training. It also concerned with
defining career paths for employees.
d. Performance appraisal
Evaluates the performance of employees, rewarding those whodemonstrate initiative and excellence and firing those who are
unproductive.
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e. Compensation administration
Deals with rewarding employees for the work they perform. Takes the
form of wages and salaries, bonuses and incentive payments.
The software used to support HRIS includes:
Human Resources Information System (HRIS)
HRMIS
HRMS
Level of management for HRIS
Level of
Management
Activities
Operational Managing of all employee information
records information for operational management
- manpower planning
- compensation analysis / management system
- performance management system
- promotions
Tactical Manage employee training
Analyzing and designing jobs and recruitment
Evaluate employee performance
Managing employee wage
records information for first line
managers/supervisors
- jobs descriptions
- job evaluations
- staff appraisals
Strategic manpower planning
Review for human resource planning
- Promotions
- Bonus
- Benefit
- Etc
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3.3 Marketing Information System
A marketing information system is a continuing and interacting structure of
people, equipment and procedures to gather, sort, analyze, evaluate, and
distribute pertinent, timely and accurate information for use by marketing
decision makers to improve their marketing planning, implementation, and
control.
Marketing information system also is a set of procedures and practices
employed in analyzing and assessing marketing information, gathered
continuously from sources inside and outside of a firm. Timely marketing
information provides basis for decisions, distribution, media selection , and
promotion such as product development or improvement, pricing, packaging.
This system supports the operation / production function of a typical
manufacturing firm
Marketing information systems are found predominantly at the tactical level,
although other systems such as order entry systems and systems associated
with product sales activities such as telemarketing are also marketing
information systems. These latter systems are at the operational level.
The Marketing Function
Basic Goal: Satisfy the needs of existing and potential customers. To meet
this goal, marketing must: (These activities are referred to as the marketing
mix)
Sell goods.
Advertise and promote goods/services.
Identify potential customers.
Determine customer needs and wants.
Plan and develop products and/or services.
Price products/services appropriately.
A marketing information system is a continuing and interacting structure of
people, equipment and procedure to gather, sort, analyze, evaluate and
distribute pertinent, timely and accurate information for use by marketing
decision makers to improve their marketing planning, implementation and
control.
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Marketing information systems are found predominantly at the tactical level,
although other systems such as order entry systems and systems
associated with product sales activities such as telemarketing are also
marketing information systems. These latter systems are at the operational
level.
Figure below illustrates how marketing information system provides
information technologies that support major components of the marketing
function. For example, Internet/intranet websites and services make an
interactive marketing process possible where customers can become
partners in creating, marketing, purchasing and improving products and
services. Sales force automation systems use mobile computing and
Internet technologies to automate many information processing activities for
sales support and management. Other marketing information systems assist
marketing managers in customer relationship management, productplanning, pricing and other product management decisions, advertising,
sales promotion, and targeted marketing strategies, and market research
and forecasting.
Content of Marketing Information System
a. Interactive marketing
The term interactive marketing has been coined to describe a customer-
focused marketing process that is based on using the Internet, intranet
and extranet to establish two-way transactions between a business and
its customers or potential customer.
Marketing
Information
System
Sales force
automation
Interactive
marketing
Customer
relationship
management
Sales
management
Market research &
forecasting
Advertising &
promotion
Product
management
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The goal of interacting marketing is to enable a company to profitably
use those networks to attract and keep customers who will become
partners with the business in creating, purchasing and improving
products and services.
In interacting marketing, customers are not just passive participants who
receive media advertising prior to purchase, but are actively engaged in
network-enabled proactive and interactive processes. Interactive
marketing encourages customers to become involve in product
development, delivery and services issues. This is enabled by various
Internet technologies, including chat and discussing groups, web forms
and questionnaires, instant messaging and e-mail correspondence.
Finally, the expected outcomes of interactive marketing are a rich
mixture of vital marketing data, new productive ideas, volume sales and
strong customer relationship.
b. Sales force automation (SFA)
Sales force management systems are information systems used in
marketing and management that help automate some sales and sales
force management functions. They are frequently combined with a
Marketing Information System, in which case they are often called
Customer Relationship Management (CRM) systems.
Sales Force Automation Systems (SFA), typically a part of a companys
customer relationship management system, is a system that
automatically records all the stages in a sales process. SFA includes a
contact management system which tracks all contact that has been
made with a given customer, the purpose of the contact, and any follow
up that might be required. This ensures that sales efforts are not
duplicated, reducing the risk of irritating customers. SFA also includes a
sales lead tracking system, which lists potential customers through paidphone lists, or customers of related products.
Other elements of an SFA system can include sales forecasting, order
management and product knowledge. More developed SFA systems
have features where customers can actually model the product to meet
their required needs through online product building systems.
Advantages to the sales manager
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Sales Force.com interface
c. Customer Relationship Management (CRM)
Customer relationship management (CRM) consists of the processes a
company uses to track and organize its contacts with its current and
prospective customers. CRM software is used to support these
processes; information about customers and customer interactions can
be entered, stored and accessed by employees in different company
departments. Typical CRM goals are to improve services provided tocustomers, and to use customer contact information for targeted
marketing. Managing the full range of the customer relationship involves
two related involves two related objectives:
To provide the organization and all of its customer-facing
employees with a single, complete view of every customer at every
touch point and across all channels
To provide the customer with a single, complete view and its
extended channels.
Now days, companies are turning to customer relationship management
(CRM) to improve their customer focus. CRM uses information
technology to create a cross-functional enterprise system that integrates
and automates many of the customer-serving process in sales,
marketing and customer services that interact with a companys
customer. CRM systems also create an IT framework of Web-enabled
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Fax E-Mail
Telephone web
software and databases that integrates these processes with the rest of
a companys business operations. CRM systems include a family of
software modules that provides the tools that enable a business and its
employees to provide fast, convenient, dependable, and consistent
service to its customers.
The major application clusters in CRM
Marketing Information System Subsystems
a. Planning
Helps sales executive to plan, monitor and support sales. It includes
information on new markets and products, sales forecasting, distribution
channels, pricing, advertising and promotion
b. Advertising & promotion
Deals with selecting the media mix and promotional strategies and
allocation of funds for these
c. Sales management
Is concerned with planning and monitoring sales personnel, analyzing
sales by customers, products and regions. Information on these will help
improve sales
Prospect or
Customer
Sales (cross-
sale, up-sell)
Contact & Account
Management
Marketing &
fulfillment
Customer
service and
support
Retention and
loyalty
program
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d. Sales forecasting
These uses statistical forecasting models to provide information on
short-term and long-term demand for a firms product
Level of management for MS
Level of
Management
Marketing Information System examples
Operational Contact Information System, Prospect Information
System, Telemarketing System, Inquiry Information
System, Sales Order Processing Systems
Tactical Sales Force Management Systems, Advertising and
Promotion Systems, Product Pricing Information
Systems
Strategic Sales Forecasting Information Systems
3.4 Manufacturing Information System
Manufacturing systems are concerned with supporting the production of physical
products; however, services may also be produced. As such, they focus on
managing raw materials purchasing, machine and labor usage and schedule,
and productivity measurement. They also seek to provide competitive
advantages.
A typical Manufacturing and Production Decisions includes:
University decisions on courses to offer, number of Instructors needed,
sections, etc., for next year.
Word Processing Supervisor deciding on number of WP clerks, editors,
and typists needed for a shift next week.
Retail store planner selecting criteria for new retail store sites.
Inventory manager/production planner deciding numbers of units of raw
materials needed for production to ensure assembly line stoppages do not
occur.
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PURPOSE of Manufacturing and Production Systems
Manufacturing Systems encompass all activities necessary to ensure
production including:
a. Evaluate Site
includes planning, developing, and maintaining production facilities.
b. Set Production Goal
these systems provide answers to questions about the quantity to be
produced and the timing of the production process.
c. Produce Goods
Goods are produced by Production Systems. Production Systems are
concerned with activities such as: Raw Material Acquisition, Storage, and Availability.
Scheduling Equipment, Facilities, Workforce to meet production
goals set by the marketing system..
Design and Testing of Products - engineering & geometric data.
Producing the correct quantity at a set level of quality within
projected cost parameters at the times required by production
goals.
Example Of Software Used In Manufacturing Information System
Material Requirements Planning (MRP) is software based production
planning and inventory control system used to manage manufacturing
processes. Although it is not common nowadays, it is possible to conduct
MRP by hand as well. An MRP system is intended to simultaneously meet
three objectives:
a. Ensure materials and products are available for production and deliveryto customers.
b. Maintain the lowest possible level of inventory.
c. Plan manufacturing activities, delivery schedules and purchasing
activities.
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Level of management for Manufacturing And Production Information
Systems
Level of
Management
Activities
Operational Purchasing raw materials from suppliers (making
orders)
Receiving ordered items- with receipt, inspection &
verification slip. (All slips will be passed to Accounts
Payable, Inventory & Production Subsystems)
Quality control- makes sure that the status of raw
materials, goods-in-process, finished goods inventory
in good quality.
Shipping- Finished goods are placed in inventory or
shipped to customer.
Cost Accounting- monitors cost of personnel,
materials and equipment & facilities used in
production.
Tactical Includes decisions like capacity planning and
production scheduling.
Usage of the Material Requirement Planning (MRP)
Strategic Includes decisions like plant design or plan site
selection