EXAMPLES OF IT ENABLEMENT (STUDY OBJECTIVE 6)

As described earlier, computers and IT can be used to enable business processes, and applying IT to business processes offers companies the opportunity to do business process reengineering. The manner in which companies complete their processes can be changed to take advantage of the efficiency, effectiveness, or cost savings inherent in IT systems. The examples that follow are systems applied by companies today that use IT-enabled business processes.

E-BUSINESS

E-business is the use of electronic means to enhance business processes. E-business encompasses all forms of online electronic trading—consumer-based e-commerce and business-to-business transactions, as well as the use of IT for process integration inside organizations. E-business is therefore a very broad concept that includes not only electronic trading with customers, but also servicing customers and vendors, swapping information with customers and vendors, and electronic recording and control of internal processes. IT systems, Internet and websites, as well as wireless networks, are the common means of enabling e-business to occur. E-commerce is the type of e-business that we are familiar with as consumers. Buying a book at Amazon.com and clothes at LandsEnd.com are examples of engaging in e-commerce. E-business has so many other forms that it is difficult to explain its entire breadth. Chapter 14 describes e-business in more detail.

ELECTRONIC DATA INTERCHANGE

Electronic data interchange (EDI) is the intercompany, computer-to-computer transfer of business documents in a standard business format. Three parts of this definition highlight the important characteristics of EDI: (1) “Intercompany” refers to two or more companies conducting business electronically. For example, a buyer of parts may use EDI to purchase parts from its supplier. (2) The computer-to-computer aspect of the definition indicates that each company's computers are connected via a network. (3) A standard business format is necessary so that various companies, vendors, and sellers can interact and trade electronically by means of EDI software. EDI is used to transmit purchase orders, invoices, and payments electronically between trading partners.

POINT OF SALE SYSTEM

A point of sale system (POS) is a system of hardware and software that captures retail sales transactions by standard bar coding. Nearly all large retail and grocery stores use POS systems that are integrated into the cash register. As a customer checks out through the cash register, the bar codes are scanned on the items purchased, prices are determined by access to inventory and price list data, sales revenue is recorded, and inventory values are updated. All of these processes occur in real time, and through POS-captured data the store can provide to its managers or home office daily summaries of sales by cash register or by product. Many companies adopt POS systems because they enhance customer satisfaction by enabling faster and more accurate sales processing.

AUTOMATED MATCHING

Automated matching is a computer hardware and software system in which the software matches an invoice to its related purchase order and receiving report. Traditional systems rely on a person to do this matching, whereas an automated matching system does not. To institute an automated matching system, all of the relevant files must be online and constantly ready for processing; the purchase order and receiving files and records must be in online files or databases. When an invoice is received from a vendor, an employee enters the details into the accounting system by completing the fields in the invoice entry screen, including the purchase order number that usually appears on the invoice. The system can then access the online purchase order and receiving files and verify that the items, quantities, and prices match. The system will not approve an invoice for payment unless the items and quantities match with the packing slip and the prices match the purchase order prices. This ensures that the vendor has billed for the correct items, quantities, and prices. Automated matching reduces the time and cost of processing vendor payments. The real-world example of Ford Motor Company described earlier illustrated an automated matching system.

EVALUATED RECEIPT SETTLEMENT

Evaluated receipt settlement (ERS) is an invoice-less system in which computer hardware and software complete an invoice-less match comparing the purchase order with the goods received. If the online purchase order matches the goods, payment is made to the vendor. This eliminates the need for the vendor to send an invoice, since payment is approved as soon as goods are received (when they match a purchase order). The name ERS signifies that the receipt of goods is carefully evaluated and, if it matches the purchase order, settlement of the obligation occurs through this system. This IT-enabled system reduces the time and cost of processing vendor payments.

E-PAYABLES AND ELECTRONIC INVOICE PRESENTMENT AND PAYMENT

E-payables and electronic invoice presentment and payment (EIPP) are both terms that refer to Web-enabled receipt and payment of vendor invoices. EIPP enables a vendor to present an invoice to its trading partner via the Internet, eliminating the paper, printing, and postage costs of traditional paper invoicing.

ENTERPRISE RESOURCE PLANNING SYSTEMS

Enterprise resource planning (ERP) is a multi-module software system designed to manage all aspects of an enterprise. ERP systems are usually broken down into modules such as financials, sales, purchasing, inventory management, manufacturing, and human resources. The modules are designed to work seamlessly with the rest of the system and to provide a consistent user interface between modules. These systems usually have extensive set-up options that allow some flexibility in the customizing of functionality to specific business needs. ERP systems are based on a relational database system.

An ERP software system is much more comprehensive and encompassing than traditional accounting software. ERP systems include modules to handle accounting functions, but, as previously mentioned, they also incorporate modules for manufacturing, marketing, logistics, and human resources. Before ERP, these types of modules usually were in separate software systems and were not well integrated with accounting software. This caused the need for some data requests to be answered by the accessing of data or reports from several different systems. If a customer asked whether a particular product was in stock, the accounting system could be accessed to answer that request. If it was not in stock, the customer might ask when it is scheduled to be manufactured. To answer that request, a completely separate software system, the production planning and control system, would need to be accessed. Under this kind of operation, with separate and nonintegrated software systems, a single employee usually did not have access to the separate systems to answer such requests. Customers might have been bounced from department to department to get answers to questions that should be answered by one person. The integration of all modules and business processes into a single ERP system is intended to be a solution to these types of problems. (Chapter 15 provides more details about ERP systems.)