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DAM 382: INFORMATION SYSTEM MANAGEMENT 3.0 Main Content

3.1 Electronic Data Interchange 3.2 Integration with Back-end Systems 4.0 Conclusion

5.0 Summary

6.0 Tutor Marked Assignment 7.0 Reference/Further Reading

DAM 382: INFORMATION SYSTEM MANAGEMENT

1.0 INTRODUCTION

Business have long used information technology to reduce the cost and time of inter-organisational transactions, inter-organisational system (IOS) have become standard business tools for airlines, hotel, and rental car companies. A computer reservation system that links major business partners is essential.

2.0 OBJECTIVES

At the end of this unit, you should be able to • Explain Electronic Data Interchange • Discuss Integration

3.1 ELECTRONIC DATA EXCHANGE

Simply stated, EDI is the transmission, ion standard syntax, of dta for business transactions between computers of independent organisations. As soon as businesses began using computers, the amount of paper they generated began to expand. Soon most of the paper generated by one computer was used as input into another – not an efficient way to run a business. For example, purchasing orders, invoices, shipping notices, and payment verification notices.

Traditional EDI

The initial goal of EDI was to replace the paper document involved in business transactions this goal only required automating existing business processes; it did not involve redesigning processes. Although it sound like a modest undertaking today, two barriers to successful EDI system proved extremely challenging: technology and standards. The first barrier was the available technology. To link two computers, firms needed a telecommunications interface between them, which meant leasing a data line between the companies, sending data over standard phone lines using modems, or contracting with a third party to handle the

DAM 382: INFORMATION SYSTEM MANAGEMENT

transmission. Each of these three options had various advantages and disadvantages, but they all entailed costly, in flexible system.

The second barriers to EDI, standards, or more precisely, the lack of standards, includes both technical and business standards. To exchange data, the two computers, needed compatible communication protocols, and the messages or documents needed to be in a standard format. In an EDI transaction, a company- specific form needs to be translated into a generic form and transmitted to the business partner, who then translated the generic form into its own company- specific form. For EDI to be successful, firms needed to agree on these generic- form standards.

Completing “universal” standards were developed, such as X12 from the American National Standards |Institute (ANSI) and EDIFACT from the United Nations Economic Commission for Europe. In addition, Industry-specific standards were developed for document formats. The development of standards became, and still is a major task in facilitating EDI.

An entire industry has emerged to facilitate the user of EDI: value-added network providers, or VANs. A VAN is a third party company that provides communication links and EDI services to other companies. The services include translations between communication protocols and business standards, and message store-and-forward services. In eliminating the need for companies to work out all the details of implementing EDI systems, VANs provided valuable services and proved to be successful businesses.

Therefore because EDI provides an efficient and safe method of sending purchase orders, invoices, product information, shipping data, and other business documents, many large companies have adopted and continue to use EDI. However, the barriers to EDI have proven too expensive and difficult for most small and medium sized companies. E-business is changing that.

DAM 382: INFORMATION SYSTEM MANAGEMENT

The internet adds several important dimensions to IOS (see figure 3-7),. First it overcomes many of the technical barriers to EDI. Being an inexpensive public network that is widely available, it eliminates the need for expensive telecommunication networks. This wide access also provides for more flexible systems; trading partners can join the EDI system without high start-up costs, allowing small volume partners to participate. Next, the Internet provides a standard communication protocol. Finally, it provides the means to send multimedia documents, rather than simple integrate with other e-business systems.

3.2 SUPPLY CHAIN INTEGRATION

The supply chain covers all the processes involved in creating products and delivering them to customers. These activities include logistic, procurement, production, and distribution. Management and redesign of the supply chain has become a major strategic issue. Over the last dozen years firms such as Dell Computer and Procter & Gamble (P&G) have gained significant competitive advantage by streamlining their supply chains, reducing operational cost but, more importantly, allowing them to offer new and faster services to their customers. The use of e-business to integrate the supply chain has proven to be the e-business application with the highest payoff.

TRADITIONAL INTERNET

• Private networks • Public networks • High setup cost • Low setup cost • Specific groups • Large group

• Secure networks • Less secure networks • Value added services • Limited services Figure 3-7 Traditional versus Internet-based EDI

Integrating the supply chain require coordinating many activities across organisations and maintaining close communication with customers. As orders for

DAM 382: INFORMATION SYSTEM MANAGEMENT

products are placed, the company needs to know immediately whether the products are available for shipment, and if not, how long it will take to manufacture and deliver the products. The manufacturing plant needs to know what raw materials are on hand, which suppliers can supply the materials, and how long it will take to get the materials. The delivery department needs to track the status of all deliveries.

Support for the activities of the supply chain has long been in individual information systems, for example, scheduling, inventory, procurement, production planning, and demand forecasting systems. Business-to-business e-business aims to facilitate the integration of all these systems within a company and across business partners. Once integrated, the firms reap the cost reduction benefits of more efficient operations. They can then consider more strategic options.

The strategic options include shifting from mass production and selling from inventory to a build-to-order mode of operation. In the automotive industry, we expect to see consumers being able to custom-design their car over the Internet and have it manufactured and delivered in a matter of days.

Another strategic option is to eliminate intermediaries in the supply chain. For example, in the computer industry, manufacturers like Dell Computer, have been successful selling directly to customers.

A third strategic option is designing the procurement process by using electronic markets or auctions. General Electric (GE) uses an Internet-based system Trading Process Network, to do more than $1 billion in business per year with about 1, 500 suppliers. Using the system, GE purchasers specify their requirements and suppliers submit bids. The bids might contain a variety of information, including product drawings. The software also helps manage the proceeding of bids.

Movement in a number if industries is fuelling the creation of common e-business procurement systems. One of the most notable is in the automotive industry.

DAM 382: INFORMATION SYSTEM MANAGEMENT

3.3 INTEGRATION WITH BACK-END SYSTEMS

Most, if not all, business-to-business systems must integrate with existing back-end systems, which proven to be particularly challenging. Back-end systems cover a wide range of applications, including accounting, finance, sales, marketing, manufacturing, planning, and logistic. Most of these systems have been around for years, operate on a variety of platforms, and were not designed to integrate with other systems. Modifying these systems entails many risks, particularly when the integration must cross organisations. Luckily, most organisations have a head start on inter-organisational integration because they have been working for a number of years on internally integrating their systems.

Understanding the need for internal integration, many companies replaced, or are currently repaying, their old back-end systems with newer ones using database management systems (DBMS) and ERP systems. The benefits of DBMS and ERP systems have always stemmed from their ability to provide integration. Recognising the importance of e-business, DBMS and ERP vendors have modified their products to integrate with Internet-based applications. In doing so, the vendors provide platforms for building business-to-business systems.

Another approach to establishing B2B integration is to create an extranet. An extranet is a private network that uses Internet protocols and the public telecommunication system to securely share part of a business’s information or operations with supplier, vendors, partners, customers, or other businesses. An extranet is created by extending the company’s intranet to users outside the company. The same benefits that Internet technologies have brought to corporate intranets have accelerated business between businesses.

Whatever the approach, the goal is to extend the company’s back-end systems to reengineer business processes external to the company. Example activities include sharing product catalogs, exchanging news with trading partners, collaborating with other companies on joint development efforts, jointly developing and using training programs, and sharing software applications

DAM 382: INFORMATION SYSTEM MANAGEMENT

between companies. Initially, the benefits come in the form of greater cost and time efficiencies. Ultimately, the systems will change the structure of industries.

4.0 CONCLUSION

In banking and financial services, electronic funds transfer systems have been in use for decades. In manufacturing, electronic data inter-change systems (EOL) were developed in the 1960s and are now almost universally used.

Business to business e-business represents the next stage in the evolution of inter-organisational system.

5.0 SUMMARY

It is not clear what the future holds for e-business, but it is clear that e-business has made a permanent change in the nature of business.

6.0 TUTOR MARKED ASSIGNMENT

1. What are the major barriers to e-business?

7.0 REFERENCE/FURTHER READING

Microsoft Corporation, http://www.microsoft.com/technet/showcase, October 2000

UNIT 3: TECHNICAL CONSIDERATION