Business and IS Performance(IS 6010)

MBS BIS 2010 / 2011

28th October 2010

Fergal Carton (f.carton@ucc.ie)Accounting Finance and Information Systems

Last week• Information sharing

– Latency issues with technical infrastructure

• Basic flows of information

– Finance focused on revenue (sales) and costs (mfg)

• Integration of demand and supply

– ERP systems came from MRP: focus on materials and inventory

– IT is used to provide visibility and control of demand and supply

– Does integration model only work for manufacturing?

– Can this model be applied to iTunes / Gift cards?

• Closed loop pre-paid cards

• Business model for Apple gift card

– Need to include recognition rules regarding sold, shipped, …)

– Apple contract out fulfilment processing

– Returns policy (unused, lost, …)

– Registration process with card leads to account creation

This week• Latency

• Apple questions

• Types of data

• Production planning

• How do managers do their work

• Virtualisation

• Integration framework

• “One version of the truth”

• Integration benefits and downsides

• Control objective is undermined by lack of flexibility

Latency in performance reporting

• Refresh rates can create latency across four levels

– ERP to DW eg. every 8 hours DW updated with fresh sales transactions

– The time it takes for the refresh to execute can lengthen eg. 2/3 hours

– Running a query on the DW can take some time to complete eg. 10

mins

– Report display on user machine can slow down eg. 10 minutes

– Total latency of 11/12 hours can be critical at quarter end

– Decision making not supported in information cannot be trusted

Business model for Apple gift card• Need to include recognition rules regarding

– sold

– shipped

– returned (unused, lost, …

– redeemed

– float

• Apple contract out fulfilment processing

– Stored values per card, packaging, logistics

– Where are cards delivered to?

• Registration process with card leads to account creation

– Cards obsolescent once account created

Cards as promotional tool only?

• Access customers not normally accessible via on-line

store

• Carry promotional message?

• Cards used to increase brand awareness or loyalty?

• Pay retailer to stock card?

• Retailer gains % of sales?

What level of performance detail is required?

• Sales of gift cards by denomination for HMV Cork?

• Sales of gift cards by denomination for HMV Ireland?

• Sales of gift cards by denomination for HMV UK and Ireland?

• Sales of gift cards by denomination for HMV versus other music stores (Virgin,

Tower, …)?

• Unit sales or total revenue?

• Redeemed value and float?

• Apple Store sales from gift card redemption by region?

• Apple Store sales from gift card redemption by product?

• …

What level of integration is required?

• Should Apple have access to

HMV point of sale data?

• Do they simply want to access

more customers?

Possible exam questions• Latency issues in reporting

• Case study: Apple revenue reporting for gift cards

– Performance reporting relies on a detailed understanding of business

objectives and business models. Using the Apple case, discuss how the

complexity of the real world demand and supply models influences

reporting mechanisms.

– Suggest a suitable reporting mechanism for the Apple case

Apple exam question 08• The Apple plant in Holyhill Cork is the only remaining in-house

manufacturing facility in the corporation, the other facilities being

operated by third parties. SAP is used by Apple to centralise the

burgeoning demand for new products such as the iPhone, as well

as existing desktop and software products. Using Apple as an

example, desribe the main elements of the sales order and

fulfillment processes for a manufacturing business. In your answer,

comment on the role of ERP systems such as SAP in supporting

these processes.

Apple exam question 09• Increasingly, demand for Apple products is derived from a wide

range of channels (for example, Apple Stores, Distributors,

Retailers, Apple.com, …). Furthermore, pressure from the financial

markets means management have to produce sales figures quickly

and consistently. Describe a framework for representing the

diversity of this business, and use this framework to describe the

sales order fulfillment process for Apple. Discuss the role of

Enterprise Resource Planning (ERP) systems in facilitating revenue

reporting for Apple.

Types of data 1

• Volume data (production)• consumption data (raw material, packaging…)• personnel data• maintenance data• time related measurements• productivity data• …

• All form the basis of the calculations used to monitor manufacturing activities

Type of data 2• Primary data:

– taken straight from the floor (input and output)– e.g. production, consumption, labour, maintenance– ad-hoc reports - e.g. accidents, defects

• Secondary data or calculated data:– allocated costs– productivity– pay bonuses– variances

• High level data:– investigations of variances– soft information about staff morale etc...

Type of data: soft information

• Data collection - – Grapevine– factory tours (talking and observing)

• Data storage -– managers’ minds– special reports

• Data usage:– ad-hoc basis– decision making

Production planning and forecastIn theory, it’s simple– Sales forecast future demand for products– Production plan to meet forecast sales

But, in real life, there are many contingencies:

– Sales tend to be optimistic– Most businesses exhibit seasonality– Customers are unpredictable– Forecasts are based on average prices– Yield may be poor due to quality issues– …

How managers do their work

• What is happening? Actual

• What should be happening? Plan

• What therefore would happen if? What-if?

• Adjust plan and/or change actual Manage

Virtualisation

• Virtualisation: capturing & storing data relating to changes in the physical environment in an information system

• A measure of the degree to which information systems can reflect business reality

• Pre-supposes a structure (database), as data captured is related to a logical entity

Integration framework

Execute Schedule

Measure

Performance control

Supply Demand

Resourcevisibility

Physical

VirtualPlan

PlanPlan

Why is “one truth” so hard?

• Eg. Up to date picture of revenue?

– Easy bit: • all product shipped to date

– Hard bit:• Spares, loaners, replacement machines, …• Deduct any current credit notes• Add any outstanding debts from previous invoices• Apportion revenue from service contract (12 months)• Allow for discount to be applied if paid on time• Currency exchange rate fluctuations …• …

– Revenue recognition “rules”

What does integration mean?• Dearden 72

– As computer use expands, control is vital– Single group of experts design a completely integrated

supersystem = absurd– Specialist expertise is functional by nature– Finance, logistics, sales = different expertise– Centralisation of control of systems = dangerous – Examine the interfaces

• Vizard 06– Data used to be in disparate databases– Data now in databases, file systems, applications, …– “One truth” concerning the state of a business process– Interdependent business processes (eg. sales & service)– Meta-data structures– Enterprise Application Integration vs. BI tools

Who benefits?

• Finance gain greater visibility

• Manufacturing?– Demand may be too unstable for MRP– Production planning needs more “nuance”– ERP is too literal– Much planning still done on Spreadsheets

• Sales: need of integration

Integration downsides• Response times• Vulnerability: single point of failure• Limitations on expansion• Dependence on single vendor• Flexibility to change system• …• …• Access to basic information is complicated

Control objectives of integration undermined

Control

Centralisation Co - ordination

Integration

Granularity Accuracy / consistency

Inflexibility

Latency Manual

More analysis potential

Deteriorating data integrity

Technical skills required for reporting