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Information Systenls - II

I n this i~nit,you have learnt about the role of transaction processing in data retrieva!.
Two i~iiporta~it areas of the fi~nctionallnanageinent say marketing and liil~na~i
resource management. As each of tlie sub-systems perform specific operations1
tra~isactio~is to support tlie mail1 system, variorls illputs required for these subsystem
have been discussed in detail. By now you have come to know how the developnlerlt
of the system require to be assisted by the dieerelit subsystems in the transaction
process.

10.7 UNIT END EXERCISES

1) processing system in tile development


Identify tlie role of tra~isactio~l
information system.
2) Suggest few modules, you w o ~ ~like
l d to add to improve the Marketing
Infoc~mationSystem.
3 j List tlie a~ialyticalmethods, wliicli could be used effectively in the modules of
I ~ u ~ i ~resoilrce
an 1iia11age1nelitfor tlie clevelopme~atof subsystem.
4) Information systenls help in ~nanaginghuman
Haw does compalterized Perso~l~iel
resources inore efficiently?

10.8 REFERENCES AND SUGGESTED FUPQTHER


READINGS
Course material designed by lGNOU for the programs of Computer and lnforniation
Sciences.

Murdick, and Tlio~nasC. Fullel: "Subsyste~nsfor MIS". Journal of Systenis


i21~17~1gemenf.
June 1979.

Murdick, Robert G. M/S: Concepfs and Design. Englewood Cliffs, N.J.


Prentice-Hall, 1980

Robert G. Murdick, Joel E. Ross and James R Claggett. Infornzation Systems for
Modern Management, Prentice Hall of India, 1997
UNIT 11 T NSACTION PROCESSING
SYSTEMS-11: OPE IONS AND
FINANCIAL MANAGEMENT

Structure
I I .1 Introduction
1 1.2 0b.jectives
1 1.3 Transaction Processing Systems
11.4 ProductionIOperation Systems
11.5 Inventory Management Systems
11.6 Computerized Maintenance Management
11.7 Financial Info~~mation
Systems
11.8 Financial Management Software
11.9 Computes Aided Financial Planning
11.I 0 Sulllllla~]\'
1 1.I I Unit End Exercises
11.12 References and Suggested Furtlicr Readings

11.1 INTRODUCTION
I n the previous unit you have learnt about transaction processing systems in I-luman
Resource Management (I-IRM) wncl blarketing Management (MM). You have learnt
about sub systellls o.f I-ILIIIIS~II I~CSOIII-CC Information System (recruitment, retention1
service conditions and reti~~cment). Simi larly you have learnt about subsystems of
marlteting info!-mation systems (Sales ~nanagement,.fol-ecastingof sales, market
research and advertising).

Businesses today are .foitndecl asound information systems that have transaction
processing as tlleis ma.jor component e.g, sales ordel- processing, purchase order
processing, i~ccounting,pa>,roII, prodirction and stock (or inventory) control and
booking etc. Most of these systems \\:orli in co~iji~nctionwit11 other systems ta provide
management information to si!ppo~-tdecision-m:~king.

In this ~ ~ nyou
i t would learn about another set of fi~nctionalareas i.e. Operations
Management (OM) and Financial Me~~agenient (FM). You will learn about
sUbsYstemsof Operations Management ancl subsystems of Financial ll1forlnation
Systems. You will Icarn about methods oI:computerization of operations and financial
functions.

11.2 OBJECTIVES
After readins this wit. you should be able to:
Describe the subsystems ofoper.ations Management and their integration;
Identify the colnponents of Inventory Management Systems;
Zsplain the role of Computerized ~naintenancemanagement;
Define various aspects of financial systems: and
Iclentify problems associatecl with computerisation of financial systems,
111.3 TRANSACTION PROCESSING SYSTEMS
nnsnction processing is def71iedby on1 ine dictionary and search engine
t\ 41rpedia.cnmas a t>pe of computer processing in which the computer responds
.aT!:, ,linlcly IG ilzet' ; -quests. Each recluest is considered to be a tra17,suction.
"1 ::?intic te,!c~s;la:hines Ibr banks are an example of transaction processing. The
GP;',51t: ~ f r r a n s a c r i op~-occ-ssil~g
~~ i h batcli processing, in wliicli a batch of I-equestsis
:,;red aiid tl1el;r execuicd all at one time. Transaction processing requires interaction
\+lit!ia uscr, whereas batch prdcessing can take place without a user being present.
An exa~tipleof batcli processing is the way tliat credit card companies process
b~lling.'flie customer does not receive a bill for each separate credit card purcliase
bti\ one monthly bill for all of tliat nlontli's purcliases. Tlie bill is created through
bate11 processing, wlie~-eall of tlie data are collected and lheld i~rltilthe bill is
:~rcvessedas a bntcli at the end of the billing cycle.

'I'ransactions are tlie activities tliat are performed on daily basis by most businesses.
These could be of two types viz. co~iimercialtl-a~isactions(activities pertailling to
buying. selling, offering sc~.vicesorpaying bills etc.) and recorcli~?gorretrievingdata
(activities pertaining to booking a ticltet, registering a customer 011a or looking up
solne information etc). Many a times these transactions are lii~gein n1.1mbersand one
reqi~irescomputer assista~iccto deal with tliem. Also tlie speecl ancl accuracy with
wliicli tlie information is to be processed should be high level. 'This has led to
clevelop~iie~it of systems that could process transactions at Iiigl~erspeecl, lesser cost
and I1 iglier accuracy.

Businesses today are discovering applications that can benefit from a T~~ansaction
Processing System, mainly because tliese systeliis call now be made fi~nctionalon
personal co~nputers.'l'lius, transaction-processiiig systems are being used to liandle
Inany s i ~ i i ~ ~ l t a ~ iusers
e o i ~tliat
s work on tlie same set of data.

A transaction processing system receives tlie data fro111all input source lilic a
customer and or a barcode or ally otlier data-capturing device. Tlie systeln tile11
performs tlie transaction, cliecks it validity and report it In tlie for111of summary or
esecutivc report to the management.

Tlie Figure given below shows tlie typical fi~nctioningof a transaction processing

-
system.

Transaction
Sumn~ary

Input Transaction Data Output


Processing

Figure 11.1: A Typical Transaction Processing System

11 1.4 PRODUCTION/OPERATIONSYSTEMS
Tlie operations management discipli~ieconsists of a range of areas dealing with the
design, operation and control of production syste~ilsand si~bsystems.Operations
Management is responsible for tlie translation of resources into prodi~ctsor services
tliat custo~iierswill buy. It is interconnected with the otlier company fi~lictiouslike
Hu~iianResources, Fi~laliceand Marketing. A systems approach takes into account Trr~lsactionProcessing
all parts of the system. A system is defined as a collection of persons, ob-jectsand Systems-11: Operations and
procedures for operating w itliin an environment. Every organisation can be Financial Mtanagcment
considered as a system consisting of interacting sub-systems. A system gathers tlie
input and co~ivertsit in solnc ilseful output by tlie means of a conversion process.
Figtn.e 11.2 illustrates this.

ADJUSTMENT
Needal

labour
Capital
Managcrncnt

INPUT

COMPARISON
Fig~lre11.2: Conceotual Model of a Production/Operations System
: f c / ( ~ / ~ ~ c ~ IA,lL5'-j:
Sou~~ce: , / i . o ~A/l(117(igc~n7cnl
ir ufAd(icl7ine~niid M(i/erinl,s

I-lowever; the foci~sof operations ~iianagementhas experie~iceda clia~ige.There has


been increased attention given to t;he custo~iiernow. Operation managers are now
c.ustomizing their \vorl<progress. '~Iieyare working to convert raw ~iiaterialillto
iinished pl.ndi~crsarid sim i~ltaneouslydelivering services to make customers satisfied.
The rdc of tlie operations mannger vnl-ics in every industry. I n general terms, all
operations manager looks at every process i n the business, breaks it down, analyses
it, and makes tlie fi~ialproduct better with a custo~nercentric view. Figure 11.3
Iligliliglits tlie new .Tocus.

Rcquiren~cnts
on Suppliel-s

l l i p ~from
~t
-+

L
-
Conversion~ransforniation
Process

Process Priniarily Adds Value to


-t Customer
Requirements

output to
Suppliers F Inp$ to ProvidcOu tputs to A
r
Customers Customer

Requirements
on Management

3
I
Effective & Efficient
Use of all Factors of
Conversionl
T~~ansforrna tion
Figlire 11.3: New Focus of a ProductionlOperations System
SOL1l.c~::~C/(IIJ/LY!
11.0111A4,5'-53. Pro~/t~~ti011/Ope1~uli017.1'
Mc~nngel~lenl
I
I

Information Systems - II Let 11sdiscl~sssome of the processes that are linked to production1 operatio~is
I management. Suppose your company wants to launch a new product then it will be
I the duty of the operatio~isnianagers to manage the logistics, tlie costs, the skills, and
I
elie equipnleiit necessary for the pl.oduction of tlle new product. He would then have
works concerning the manr~factl~ring and production processes of tliat product.
St~pplycllai~land logistics activities like purcliasing prices and levels, storage of raw
niaterials and itivento~ycomes at tlie next level. After that, the operations manager
becomes busy with a~~alysing and improving quality of the product. The operations
illatlager also providcs costs for each phase of tlie operation. Tlie operations
manager also covers issl~eslike replacement and repair of equipment, which comes
u~iderthe d o ~ i ~ aofi ~maintenance.
i Finally there are facility lnanagelnent issues like
e~ivit-onmentalregulations, waste ~nanagement,site locations and employee security
that are managed by tlie operations manager.

New Product
Development

Facility
Management
PROCESSES LlNKED TO
PRODUCTION1

Supply Chain Quality


& Logistics Management

Figure 11.4 : Processes Linked to Production/Operations Manager

1 . 5 INVENTORY MANAGEMENT SYSTEMS


In any rlia~i~~facti~ring
set-up, generally a bigger chunk of ~nan~~facturing costs are
incurred on the raw materials used to produce a product. Inventories are maintained
to stock idle resources for f'i~tureuse. Manufacturing organisations keep i~~ve~ltories
of raw materials, components tools and eqt~ipmentsand finislied goods. Inventories
are maintained to avoid the stock out of a product tliat results in stoppiiig of tlie
progress of the production process. Both low and high level of inventory has its ow11
demerits.
Here are basically two types of inventory ~lianagementsystems: Independent demand
ancl dependent demand. Dependent demand inventory is defined as tlie inventory of
items that are unfinished goods s ~ ~ casl icomponents, parts 01- subassemblies wliile
iudependent demand inventory is defined as tlie inventory of finished goods.
Independent demand inventory ~ i i ~be ~ sforecasted
t wliile dependent demand
inve~itorymilst be calculated.
Figz~re11.5 shows that dependent demand inventory management syste~nscan be of
~~~~~ee types, namely material requirement planning system (MRP), Just in time systelii
(./IT) or a Iiybrid of both. Independent demand inventory systems are classified in
two liiodels, ~~amely, production economic order quantity model for tlie manufacti~rers
alld basic EOQ model. TIie basic EOQ model is fi~rtherclassified depending on tlie
Transaction Processing
WENTORY Systems-11: Operations and
MANAGEMENT Financia! Management
SYSTEMS

I Material Requirement 1

EOQ Model with EOQ Model wit11


intentional Shortages Differential Discounting

Figure 11.5: Types of Inventory Management Systems

Source: Adapred~jbowKanishka Bedi (2001) Pi.o~lz~crion


& O~~eratior~s
Monngenienr,
Prass, Dclhi
O ~ j o r dUnii~er.~i[)!

Tlie economic order quantity ~i~odels helps in tlie optimal level of invelito~y.
Tlie production ~iiodelof i~ive~itory helps in determining tlie optimal size of a
population lot wlie~isales and production takes p l ~ c esin~ultaneously,Now tliere are
software prograliis that a1low accurate pinpoiuting of process tlows and tjmiug of
supply needs. Tlie benefits of JlT model are tliat tlie order comes in when one need it
so long tern1 storage of supplies is not necessary, It refers to producing or obtaining
olily what is needed, wlreli it is needed and in just tlie aliioulit needed. Tliere is no or
low cost incurred in holding the inventory. Material Requirement Planning (MRP)
systems call help in pla~ini~ig and dete1.1nini11gtlie supply ~iecdsand timelines for new
hlallllfact~lrilipprocesses. They Iielp in predictingdelivery times, respondi~igto
clianges, and have better- colitrol over tlie varioirs plinses of production. MRP is
basical Iy process for deteminirrg material, labour and mncliine t.equire~nentsin a
~nan~~facturing environment. MRPII (Manufacturing Resources 131anning)is tlie
cornbination of material requirements plannirig (MIIP), Capacity Requirements
i'lanning (CRP), atid Master Production Scheduling (MI'S). MRP was origi~ially
designed for materinls planning only. Wllen labour and machine plnnning were
incorporated it became ktiow~ias MRPJI. Todny tlie de.finition of MRPII is generally
associated with MRP systems. One can combine tlie master production scliedule, tlie
bill of ~iiaterialsand tlie vendor lead times to prod~~ce a new schedule of raw
materials purchases with tlie help of MRP. Tlie ~.esultis that the riiaterials are
produced on time and t l l ~ the
~ s cost of raw ~naterialsirive~itoryis reduced.
t

Wllen h/lKPJandJIT are co~iibi~ied tlien tlie details of tlie j?roduction scliedules are
shared with tlie vendors so that they call also plan tlieir prod t1cti011sclied~~les
?inii~ltaneot~slywith the nianuTacturer. Tlie coiiibi~iatioliof the two reduces two
ilive~itorymanagement 131-oblenis(finislied goods at the vendorQand raw tilaterials at
the manufacturer) into one (finislied goods at llic vendor). 'l'liere is one safety stock
problem not two (Mnrthy*2002).
-
S y s t c ~ ~ ~11s
Irll'ur~natru~t Tlie~eare two inore subsystems that support the maill system n-~anufactizri~~g. Tliese
are Comp~~ter-Aided Design1 Computer-Aided Manufacturing (CADICAM) and
Computer-Integrated Manufacruring (CIM). Computer-Aided Design (CAD) is the
use of a computer in industrial design applications such as arctiitecture, engil~eering
. and ~nanufacti~ring while Computer-Aided Mani~facturing(CAM) is the use of
c o ~ ~ ~ p iaids
i t e r(hardware and software) in planning, tracking, analysing, and
implementing the co~istructionof manufactured items. It is basically tliat part of
Computer Integrated Manufacturing (CIM) that is restricted to the operation and
control of ~t~siiufacturing fi~nctions.Computer Integrated Mal~i~facti~ri~ig (CIM) is
thus an integrated use of compute^.-aided techniques in manufacturing. This includes
CAD and CAM. Tlie ~nainprerequisite f ~ CIM r is a database that accessible by all
the d iscipl i~iesi~~volved in tlie manufacturing process, si~clias design, developme~~t,
manufactrrre, distribution, billing etc. CIM is an integration of MKP, JI'T, CAD and
CAM. It brings all these manufactul.ing systeliis into one.
Activity A
of tlie inventory system in your organization. In which type
Prepare a flow diagra~~i
does it fall?

-
1.6 COMPUTERIZED MAINTENANCE
MANAGEMENT
You will read about this is 1iiot.edetail in the course MS-57: Maintenance
Ma~~agement. We have taken sollie excerpts fro171tlie illlit IT-based maintenance
management to give you an idea of role of co~npirtersin ~nairite~iance functions.
Though tlie use of IT lias beer1 adopted quite lately for maintenance functions
comparecl to other f~~nctions like finance, personnel, materials etc., trernendous
progress has been ac1iie;ed in tlie use of IT in both tlie maintenance management
and engineering fi~nctions.Use of I?' in Inany organizations has resulted in Inany
benetits over tlie coliventional manual systems. So~neof these benefits Iiave been
indicated in tlie table given below:

It should be recognized that co~nputersare basically tools in the hands of managers to


achieve their objectives. As tlie famous saying regarding colnputers 'Garbage in,
Garbage out' signifies, sufficient a111oi111tof preparatory and systematic analysis
would be I-equil-ed,if co~~~puterization efforts are to succeed. Indeed, there liave also
bee11 number of cases where improper use of con~putersliave added to tile misery of
~ i ~ a i ~ ~ t e n~nanagers.
ance Sonie of tlie benefits mentioned above liave not accrued but
exactly the opposite has liappcned ill those companies. Hence tlie necessity to
completely visi~alizetlie maintenance f~~nction in a systc~naticfasliio~iand then go for
ilse of computers to achieve tlie pre cu~lceivedbenefits.
'lhble 11.1: Henefits of IT Enabled Mainteniar~cc T L ~ r s ~ ~ c t iPrsccssi~ig
on
Sy~tems-Ill:Operntions ~ n d
Fln~ncinlMrnogement
I
I
Reduction in clowr~timecosts
1 Reduction ill ~iisintcna~ice
costs
I Reduction in ~iiaterialscosts
I Reduction in 1ife cycle costs of rnaclii~iery
Increased availability of plant and equipment
I Redi~ctionin tlie breakdowns
Increased atid este~tdedusage life of plant a~ideqi~iptnent
Improved diagnosis of 11iacliineproblenis
Availability of inacliine, operation and ~iiaintennnceinfor~nationin right
time and in right perspective
I'roper plannlrig. sclieclitlirig nr~dcolitrol of preventive, predictive o11d
corrective nlilintenance
Lfiicietit control of backlogs
Better utilization of ~iiaintenanceresources, men, inaterials and logistics
Availability of t-listory of ~nacliinestoenable decisio~llllakirig
Ensi~reefi'icacy allti efficiency of reportirlg systems
Better interface anlongst mai~itenanceancl utlier fi~nctionslike operation,
materials, quality, safety etc.
Recli~ction in irnnecessary paper wol.ks, il-t essence, i~nprovemetitin the
overall pl-oductivity and profitability of the organisation,
Source: !\//.$-jA,if~it.t1entr17c
?: Adcn7cgei11enl

The Figtrre 11.6 explains tlre conceptual model tllroi~ghwhich the ~i~aintenar~ce
ftl~lctioncan achieve its o?jectives on a sitstairled basis

lnfori~i~tion

MAINTENANCE

Contlition Rnsetl

Figure 11.6 : Input-Maintenance-Output Model


Source: hi?-j 7: hd~rinlc-17ar1cci
Mur7a,ge111ot?t
We slial'l now study tlie common ~nodt~les
present in the computerized maintenance
Inanagenient system (CWIMS) software.

Machinery Itiformation and Preventive Maintenance Module: This {nodule


normally contains tlie following facilities:
e Enable que~yi~ig
and printing static equipment information,
0 PM work order scheduling by calendar or ~iieteredusage & printing of PM work
orders.
@ of mil [ticrafts fol..performi~igtlie I'M,
Scliedi~li~ig
e Scliedi~lingPM based on prior completion of PM, request of Maintenance
Planning, predictive nlaintenance results etc.
Balance PM work load over tlie scheduling period,
0 Forward planning to infor~nproduction function in advance in case PM requires
eqi~ipmentshutdown.
-l-Ile preventive maintenance work orders would basically track maintenance labour
and 11iatel.ialsl~tilizedso that these costs can be calculated and monitored, In addition,
the downtime due to preventive maintenance and tlie corrective ~naintenance
requirement also collected for cornpilati011and a~ialysis.

Normally tlie PM software module has the ability to print the work orclers in a
specific sorted order, the key For wliicli could be tile craft, department, priority, etc.
illdependently 01-in combination. The module also produces various types of reports
and queries, some of wliicli are, past due work orders, back log of non-completed
work orders, eqr~ipment Iiistory, eqi~ipmentwise down time, cost of preventive
maintenance, type a11d number of derects observed and corrected etc.

Correctivc Maintenance and Work Order Module: The execution of corrective


maintenance activities tliroougli a well-structured work order system helps a
maintenance department with higher availability and reduced costs. Ideally, tlie work
order system should produce enough information to enable tlie maintenance manager
take proper decisio~iregarding allocation of tlie resources to achieve overall
i ~npsoveme~lt in the productivity. NorniaIly tlie corrective ~naintenanceand work
order ! n ~ d u l has
e tlie followi~igfeatures:
Traclc labour a~iclmaterial utilization and costs thereof,
e Assign different crafts tor different works,
6 Identify work orders separately for eqi~ipmentunder warranty,
0 Tracli contracted out ~iiaintenanceseparately,
e Facilitate llse ofspecial tools and materials,
@ Enable obtaining special permits like safety I electrical lock out etc.,
Enable sclieduling based on val.ious logics like priority ofequip~nent,priority of
jobs, ~iiaterialavailability, craft etc.,
Permit input of infor~iiationrelated eliiergency maintenance, which are not
scl~eduled, after tiley are conipleted.
Just like tlie PM module. the corrective maintenance nodule is also capable of
produci~igvarious types of I-epurts. tlie most i~iiportantof wliicl~are:
@ Active and P e n d i ~ gwork orders report,

@ Cost of Corrective Maintenancr.


Spare Parts Control, Module: Tliis module is very similar to a materials Transaction Processing
management module, which helps in classifying maintenance materials, purchase, Systems-11: Operations and
Fininncia1 Management
inward goods
- inspection, issue and receipt. It also tracks consumption and coiitrols
inventory. The main difference between a materials management co~nputerized
software and a spare parts control module would be that of difference in numbers
and types and the logics and models used for inventory controls. There could also be
renewable spares (also called rotable spares) whose position needs to be tracked
separately in tlie spare parts control module. Some of the features of a computerized
spare parts module are give11below:
Predictable materials are included in tlie work orders and their need
communicated to stores,
0 Matching of parts required to availability automatically,
Automatic reordering based on inventory control/ p~~rcliase
logic,
0 Acc~~mulation
ormaterial costs in the history ofequipment,
Linking of equipment data to spare parts data,
I
0 Performance reporting on cons~~mption,
inventory, stock outs etc.
Condition Monitoring Modulc: The modern day computerized software systems
for maintenance have a condition ~no~iitoring module wliicli can receive equipment
performance characteristics like vi bration signals, temperature, pressure, Iubricatiori
oil condition etc. directly from tlie sensors mounted on tlie critical equipment. These
information w o ~ ~ be
l d suitably trended and various corrective action like issue of
alarms. tripping of tlie equipment, carlying out diag~iosticsto suggest preventive /
corrective maintenance elc. call be performed by tlie software. Since tliis type of
011-linecondition motiitoring wo~ildbe q ~ ~ iexpensive
te and may not be feasiblc for all
types ofequiplnent, there are also alternative portable data collector and analyser
systems which can be ~ ~ s independently
ed to manually collect tlie condition monitoring
data and analyser tlil-ougli a dedicated software.

11.7 FINANCIAL INFORMATION SYSTEMS


Historically, operations such as accounts payable, cost acco~intingand fitlancial
statement preparation were among the first to be automated, via pul~cliedcards
systems in tlie 1930s and 1940s and on computers in tlie 1950s and 1960s as in pay-
roll procedures. Tliese functions are largely routine, relatively easy to automate. The
benefits offered by such applicatio~istraditionally liave been in tlie for111ofclerical
cost reduction, and although they liave not normally led to dramatic increases ia
pl.ofitabiIity. they liave prod~~ced
sufficiently large savings to more than justify their
comp~lterisation.

I n spite of tlie traditional nature oraccounting and firia~iceapplications,several


sophisticated. liigli benefit syste~iisare being implemented in this ad~ni~iistrativeand
business area. ash management, financial modelling apd advanced purchasing
systems are three examples of tlie new intel-est in accounting and finance
I ' applications.

In large, diversified. or widely dispersed organisations, tlie management of cash


resou~~ces is a diffici~ltjob,yet one that lias a large i~iipacton profitability. Failure to
invest teliiporarily available cash, prematul-e payment ofobligations, or short-sighted
investnie~itprogrammes that force an organization to borrow at high rates, all result in
less than optil~ialuse of financial I-esources. 111an attempt to avoid these problems,
many large organizations are using computers to help collect, analyse and report data
about cash requirements and reserves. The benefits of such systems include less
frequent and smaller short-term loans, lower rates of interest. and higher returns on
short-term i~ivest~~ients,
Pnfor~nrtionSystems - 11 Financial analysis of proposals is the second area where colnputers are playing an
increasingly important role. Relatively straightfonvard simulation models enable the
financial manager or analyst to generate pro forrna statements that show the financial
irnpact of different proposals, such as adding a new product to a current line or
opening a new warehouse. The advantage of such models is that many possible
. outcomes call be evnl~~ated in the time that one or twci could be calculated by hand.
1 -
Advanced purcliasing systems are tlie third area of current interest. Computer-based
systems monitor the data aboutprice and quantity discounts, product quality and
reliability, and speed of delivery. On the basis of these data, computer programme
can calc~llatcvendor rankings and economic purchase quantities for individual items
and store product infor~nationthat helps buyers evaluate vendor performance and
negotiate favourable contracts with suppliers. be

Table 11.2 lists marly oftlie traditional accounting and finance applications as well as
those of high c ~ ~ r rinteiest.
e~~t

Table 11.2: Finance Systems : Computer Applications


7
......... ,................................ ..,.....,........ . ......... Most Complex
, .......................
Applications
C Lenst Complcx
- -

I
I

General 0 Cost Record ICecping 1 Cost Accounting * Cost Estimating


Accounting 1 Comparison to Standards
or Projected Amounts
0 Budgetary Accounting

Accou~~ts Q 1)reparnrion of A/P


Payable (Alp) Registers
* Cllcck Reco~lciliation
* ,411' Distribution
Vendor Analysis - Vendor Analysis 0 Make or buy
Volumc Purchase - Quality Annlyzis .
I'urchase Order Knowing Economic * Analysis of
Purchasing l'reparation and Follow-up Purchase Quantities Finnncial Proposals
Financial State~nent s Requirement Planning
Preperntion c.g. Cnsh Menagerne111
. , System
* Mainienance of
Shareholders Records

systems are primarily concerned with recordiqg business transactions in


Fi~~ajicjal
respect of wages.and salaries, purchases, sale sand other aspects of income and
expenditure, both capital and revenue. Records of such tra~isactionsprovide basis for I
it
the preparkion of periodic or annual profit and loss accounts and balance shersts.
[
As can be seen, the financial systems of a business are, effectively, accounting
'i
systems, which are often, stri~cturedas separate systems to the null-financial
systems. When systenrs are computerised, the separately structured systems arc a

often integrated for economy of data processing and administrative efficiency.

Functions of Financial Systems


One of tlie most important functions of financial systems is to ensure that all business
tra~~sactions are recorded in proper books of account, on the basis of recognised
.accounting pactice. Such accounting tra~isactionsare largely for purposes of
ci~stodiansiiip,as a public limited company is responsible to the shareholders - the
owners of the business -.and accordingly it is essential that the business records
portray a t r ~ and
~ e accurate record of profits and losses, assets and I iabilities.
I

Other function of financial system are summarised below: Transaction Processing


Systems-11: 0.perations and .
Planning and controlling all expenditure, both capital and revenue, Financial Management
'
Controlling the receipt and payment ofcheques, etc. relGing to business
transactions and relevant banking transactions,
Safeguarding the assets of the business in respect of plant arid machinery, stocks,
debtors and cash.
@ Mairitaiiiing statutory records ad per Government's regulations,
Preparation of periodic report for statistics, performance and results for iilter~ial
control and audit.

Activity B
I-low are tlie above functions being performed in your organisation? Record your
perception about them, function-wise, choosingone of tlie alternatives given below
1 regarding tlie~rperformance. .

( i ) Satisfactori'ly (ii)To some extent satisfactorily (iii)Not satisfactorily

Activity C
W)iat would yo11suggest to make tlie system more efficient?

11.8 FINANCIAL MANAGEMENT SOFTWARE

The microcomputei-can provide a new and very efficient tool to improve the service,
For example, it can transform efficie~icyby replacing a large amount of manual
record keeping and, perhaps more significantly, it can extend the quality of the service
being offered. After introduciri'g a co~nputerisedsales ledger, the regular balancing of
tlie ledger (itself a considerably easier task using a co~itrolledcomputer system) will
be accompanied by the printing of an 'aged' list of balances. From tli~sreport the
accoitntant can initiate atid ~no~iitora follow-up routine to recover any overdue .
amounts. In this and similar situations the firm will be offering a much more powerful
financial control system that combines the interpretative skills of the accountant with
the routine efficiency and a~ialyticalcapabilities of co~nputerisedledger systems.
Informrtion Syste~ns- I 1
ILluch of the software available for the practicing accountant wil I, of course, also be '
of use of his clierlts a s well as to other professional firms. Although some features
Inay be: required specifically for the accountant, his management control needs will be
very similar to tliose of o ~ l l e busi~iesses
r or practices so most programmes offered
ale described in their. publicity material i n ways that illustrate their widest possible
use, i~icludingsues for whicli they [nay be only ~narginallysuited. Some of the most
\-videlyused financial management software call be listed as:

@ General Leclger Stand alone or integrated,


Sales ledger Incorporating budgetary
@
-- Control and management
@ Purchase ledger
accounting.
@ lnvoici~~g
Stock col~trol
@ CCA adjusted clccou~its
@. Pay-rol l
@ Model ling tecl~niques

Budgets
Statements

Profit and

Account
L Balance
Sheet

Figure 11.7: The General Ledger


I
I

General Ledger Transaction Processing


Systems-11: Operations nnd
Tlie local point of lir~ancialaccounting systems in tlie general ledger is so~neti~nes Financial Management ' 3

~zferredto as tlie ~ionli~ial


ledger. The nomi~ialledger consists of accounts in \vhicll
transactions are recorded from tlie point of view of business and these are classified
.as 'impe~.sonalaccounts'. Impersonal accounts are sub-divided illto 'real accounts'
and 'nominal accounts'. Real accounts are concerned with the tangible assets such
as plant, ~ilacliineryand buildings, whereas nomina I accourits atid concerned with
cspensps, inco~iie,PI-ofitsand losses. Financial accounting sub-systems are directly
related to the general ledger by way of double entry co~ive~itio~i for recording of
bl~sinesstransactions. I n respect of tlie purchase accounting system, tlie general
Icdger contains tlie purcliase ledger control accoi111
t and a c c o nts
~ ~ from different
classes of purcliases. Tlie Sales accounting system lias accounts in tlie general
ledger by way of Sales Ledger control account. Similarly, the wages and salaries
accounting systelil have tlie wages and salaries control account in tlie general ledge,:

Cash t~~an~actions, in respect of tlie sub-systems indicated abr~veare affccted in the


general ledger: for cash receipts f'rom customers, ?hey are recorded in tlie Bank
account and tlie Sales ledger control account (t;~gzn*ell.7).

Compute~*isetlGer~eri~l
Ledger Systerils

Tlie Genel-al ledger system on cotnputer call be i~iiple~iiented


as an integrated system
lo fo'onii a total system - by combini~iga ~ii~nlber
of related sub-systen~sfro rlie
purpose of inil~rovingad~ninistrativeefficiency. Iklgtwe 11.8 describes tlie system
run chart for orie ofthe general leclger systems.

o ~ i~nailifeatures of a cc.)mputerisedgeneral ledger system,


We sliall briefly ~ i l e ~ i t itlie
which i1l.e easily available i l l tlie niarlcet:
6 Ailtonlatic double entry accounting
Accruals and prepaynients are automatically reversed in rile next accounting
period
@ Tlie general ledger is ~nai~itai~ied
as a database and tllc Al~alysisPrinting.
1'1.og1.ammecall report in any sort. seqLlelice and in illally reporting forlnats, which
call be sturctl o n conipllter.
@ posti~igscall be made
!Q,I.!en linked witli tlie purchase ledger, standard ~iio~~tlily
aulomatical ly,
A history lile uf all tlie transaction records can be ~liai~itai~ied
so that a~ialysisand
scl~eclulcsc,an be produced at tlie year end,
B~tdgetarycontrol call be exercised procl~ici~ig
V ~ I ~ ~ ~ I Ifro111
C C S Budget,
*
@ Budget llesi~ige~iablesbuclgets lo be altered by Ilercetitage clianges, and
produce financial prqiectio~isas result ofthe change,
@ No~ninalaccounts call be reanalyseci into cost or profit centres, producil~greports
in up to seven dit'ferent types of'sorl keys,
@
A year-end report procll~cessulnnlnry of each nonii~ialaccount for each
accounting period, conipared to budget and or previous years. I

. Figure 1l.h' illustrates compute^^ runs for. a ge~ie~*iiI ledger syste~n,which is based on
t 1 is derived from dnla produced by l.lie
{lieoutline, Figu1.r~ 11.7. 'Tllc i ~ i pto~ ~1.~111
separate co~tl(~uter applicatiulls in respect of'transactions rclating to stocks, pay-roll,
sales, purcllases. plan1 and niacliinery inclrrding depreciation, accruals and prc-
payments, accounting i ~ ~ ! j ~ s t ~ iand i t ~ 'The transactions datas in respect of
i e ~cash.
eacli applicati.011 is assu~nedto be stored on magnetic tapc. liun 1 is concerned wit11
colisolidating all ~ i o ~ n i ~leclgel-data
ial and tl~isis achieved by niergiog all tlie relevant
. ,
Infarrthtiarr Systems - 11 transactions o n tile general ledger codes. Tlte output from Run 1 is a co~lsolidated
file of transactions, which is input to Run 2 for updating the general ledger file. This
file is stored on magnetic disc to facilitate direct access to relevant general ledger
account codes, Run 2 also produce a list of detailed postings to each account.

At the end oftlie month, the general ledger file is input to Run 3 to produce a Profit
and Loss Account and Balance Sheet. The general ledger file i s also input to Run 4
together with a budget file, wl~ichis updated with actual expenditure providing the
cumulative expenditure to date for comparison with budgeted expenditure.
A variance report is then printed for analysis by respective cost centres.

ACCOU N'1'ING
ACCOUNT1NG. ADJUS1 MEN'I'S
SYSTEM AND PRE-I'AY MEN'I'S

'rransi~ctions

TRANSACTIONS BY
GENERAL LEDCiER

MERGE D
TRANSACTIONS

LEDGER
MASTER
UPDATE
( GENERAL LEDGER. k > I TRANSACTIONS
APPLIED /
LOSS ACCOUNT
.- AND LOSS
ACCOUNT AND
BALANCE SHEET

VAklhNCE
KCPORTS .

bp& hb&in
e".:urnpusrisedIntegrated GeneralLedger Systems
3 .
rrrcomplete records: 'I'his complex area has been a prime target for the Tra~rsactisnProcessiag I
development of computer programmes and these are available on most of the popular S~aLdR'sf operHtioRg "'"
Finsncinl Managenrent
microco~nputers.A typical package will hold between 250 to YO0 nominal accau. ;
headings and between 2,500 to 4,000 transactions. The routines for posting the
transactions will be so structured that each prime entry source will be postid
automatically to the respective nominal account.

Nominal account coding can be defined to suit each client. The for~riatof the
accounts can be used to provide an outline sequence within which to create tlie
accounts code list. It is advisable to allocate the coding in blocks that wilt allow
additional accounts to be opened without destroying this sequence. It is impossible to
define this structure without knowing tlie coding facility of a particular package or the
requirements of the client.

One exarnple using a four-digit structure could be as follows:

Witlii~ieach group LIPto 999 accounts might be available to allow for'the dctailed
analysis. With the'leserv& group (in the illi~strationtile 5000 series), more numbors
are available to be allocated to revequc and expenses items to be identified in the
profit and loss account. In this latter case, the series numbered GOOU onwards could
1
be used to create a profit or cost centre analysis within the profit and loss account.

A common featlire of many of these packages will be the automatic calculatiot~of


deprecation using preset depreciation parameters. Reports generated will usually
include:
@ Trial Balance
@ Bank a~idcash Reconciliation
0 Acijust~nentsAnalysis
@ Fixed Assets Schedule
Nominal Ledger Accoil~~ts
in Detail
Profit and Loss Accoi~rit
Balance Slleet
@ Source atid Application of Funds,
Most prograinlnes now offer perhaps Ilie most useful facility of all, n;arnsly the
preparation of a fuli set of tinal accounts, including notes to tlie accounts und the
director's ~~epol-t.However, it niust be said that some systems will not print to a
, particularly l~iglistandard and you may be unable to use ille printout from the
' ~nachhie for pl.esentition.

l~ltegrrrtedPurchase/Sales/Gerrersl Ledger: There are several packages


available which offer the above reports either as inclividunl nodules or as oc3
integrated system, One of these has bee11already discussed earlier Ixl ~ ~ i b l i t i t r t ~ ,
systems are now offered which link tlie sales and pt~rcl~ase ledgers to a stack cotirrol
Information Systems - 11 programme, and the sales ledger to an invoicing programme. Most systems offer
eitlier 'open item' or 'balance brought forward' on each account. Naturally, the oper.
item system offers a more cotnprehensive service - balance brought forward being
ideal for smaller businesses whose accounts is cleared monthly.

The system will create the double entry within the general for all postings through the
sales and purchase ledgers. Journal entries to the general ledger will only be
accepted if tlie debits and credits equate to zero, as will input through tlie purchase
and sales ledger, thereby ensuring that the trail balance must always balance.
Additionally, pay roll and job costing may be linked to the general ledger to produce
final accoilnts and other management i~~formation.

Other Financial Systems


A typical system will offer around 800 accounts and 4,000 to 6,000 postings per
month. It will hold details of custon~er'saccou~itsand register all sales transactions.
Initially, the user will be pl.ese~itedwitla a 'menu' ofthe various routines available
from which the required routine is chosen, as shown in Figure 11.9

Sales Ledger Menu


SALES LEDGER
Press the required number
I . Master file update
2. Master file print
3 . Batch posti~ig
4. Account enquiry
5. Cash allocation
6. Montli end routine

Figure 11.9: A Typical Menu

The customer master file will hold tlie name, address and the telephone nurnber,
credit limit account balance 3 to 4 months old, turnover statistics, sales territory codes
etc. The transaction file will hold details entered into the system together with all
invoices, credits, adjustments and cash items posted during the current financial
periods.

COMPUTER AIDED FINANCIAL PLANNING


f
Plans have a central role to play in a company's decision-making process. 'I'o do this
effectively they often need to present a number of alternative evaluationr, based on I
different ass~lmptionsand different ideas for new projects, product introduction and I

tlie like. Mere, then is the fundamental defect oFmanual planning and budgeting ,
I

methods, a defect. wliicli can often be overcome by the use of computcrised


methods. The plans, to be of any use, must be easy to produce answers in a number
1
of 'what if?' formats: I
t

'What happens if we give: an extra discount of 5 per cent for orders over Rs. 1000 I

resulting in increased sales volume of 2 per cent?' I


'Wliat happens if it only gives 1 per cent extra?' i
'Wliat if we keep the old version going lbr a furtller year and llold tlie price, at the
j
same time deferring its replacement and putting in Rs. 1,00,000 more for i
/I

development?' tI
'What if we open a new warehouse in Bhopal in two years' time which takes 10 Transaction Processing
percent of the volun~efrom Delhi and 25 percent from Bombay while sales go up by 'perations and 1
Financial lvlanage~nent
15 per cent in each region and how f ~ ~will
l l the three warehouses be?' 1

'Wllat does the picture look like if we run all three ideas (above) together next year?'
'What will change if we defer tlie new warehouse for a further year?'
'What if we put on a second shift with a 30 per cent premiurn on wages but at the
same time stop all production overtime?'
Given a calculatol; large slieets of paper, the basic information and peace and quiet,
any one of tlie above questions could be evaluated by most accountants or managers.
The work is quite straiglitfonvard. It would not be so easy to find the time to work
through all ofthem. But this is a scenario familiar enough in most companies, and
often it results in decisions llaving to be taken without an adequate evaluation being
completed. This is not so because there is, as is so often alleged, 'a lack of
information on which to base the decision' but rather because there is ilisufficient
time to work through all the options with pen and paper.

16, Other Overheads

24. Total Receipts 0 0 0 0 0 0 0 0 0 0 0 0 , 0


25. Total Payments 0 0 0 0 0 0 0 0 0 0 0 0 0
26. Closing Rank '0' DA 1400 1400 1400 1400 1400 1400 1400 1400 I400 1400 1400 1400 1400

Figure 11 ,I 0: Computerised Spreadsheet: An Example


Information Systems - II Othel-difficilltieswit11 ~nanualsystems, wllicli admittedly can be partially alleviated by
use of the Inore sopl~isticatedtypes of calculator, include working out discounted casll
flows and other types of evaluation of returns on hvestrnent. A computer, however,
wi I I drastically reduce the time taken.
Lastly, once a range of options has been worked out, tliey need to be looked at from
a variety of points ofview, nor~nallycovering their i~npacton:
a) Profitability
b) Cash flow
C) Capital requirelne~its
d) Balance sheet

, Tliis in turn brings a b o ~a, need for a great deal of further work if the full picture is to
be collated each time tlie plans are in any way changed, and further underlines the
fact that such an exercise is ~lnlikelyto be colnpleted adequately, if at all, with annual
methods alone.

Solutions Offered by Computers: Colnputers offer a variety of solutions to


planning p~*oblems.Tliey are often referred to as 'number cruncliers', and this is
very lnucli the job they do when used in any plannilig application. But the use of
co~nputersin planni~igstill leaves a number of otlier proble~nsunchanged. The
relevant information for input to tlie plan~liligactivitystill has to be available in a
suitable form, Chaotic accounting and control systems will not be of m ~ ~use c lin~
providing it. Tlie onus is still on management to think up new projects, ideas and
products to bring the plans to life. Assumptions still have to be made about
everything from the likely rate of inflation to tlie possible markets.

Without innovative thinking, there can be no plans, computerised or otherwise.


Befare they can form part of the plans, projects and ideas have to be investigated and
coasted. There is still a great deal oftliis and other preliminary work to be done
manually. Tlie computer's role is to take over the calculations, and allow a very large
number of options to be evaluated in a very sliort time.

Tliis Uliit lias attempted to introduce various concepts related to Production1


Operations and Finance.

We have retouched upon definition of transaction processing systems and discussed


about the new focus of a Production/Operatio~isSystem. We have discussed about I
two types of inventory management systems: Independent demand and dependent
demand. The unit lias further disci~ssedthe tretnendous progress that has been
acliieved in tlie use of IT in both tlie ~nainteliancemanage~nentand engineering
functions.

We have identified various computer based application systems and discussed in


detail about general ledger systems. We have also identified some problems
encountered with their implementation, We have also examined computerised
financial planning software.
Transaction Processing
11.11 UNIT END EXERCISES Systems-11: Operations and
Financial Manrgement

1) Wliat is change in tlie focus of operations management? Is this change in tlie


focus is due to tlie increase of competitiveness in Business? Elaborate.

3) What are the types of inventoty management systems? Define them and
partition them into fi~rtlierclasses. Also, briefly explain each subdivision.

3) Wliat is comp~~terized~naintenancemanagement? Explain tlie conceptual model


tlirough which the maintenance fi~nctioncan achieve its objectives on a sustained
basis.

4) How the financial systems, facilitated by coniputer software, are important for
economy of data processing and administrative efficiency?

5) Compilters are often referred to as 'n~trnbercruncliers'. Evaluate the statement


in tlie context of financial planning.

6) What are tlie main features of a cotnpirterised General Ledger System?

11 .I2 REFERENCES AND SUGGESTED


FURTHER READINGS
Best. P and Barrett, 1 984, Auditing Computer Based Accounting System,
Prentice-Hall: Englewood-Cliffs.

Clifton, H. D., 1986, Bztsines,~DataSystems, Prentice-Hall: Englewood-Cliffs.

littp://www.weboped ia.com/TERM for definitions. Site accessed on 22/5/04

Kan is11ka Bed i (2004), Production &Operations Manugement,


Oxford University Press, New Dellii

MS-5: Management of Machines and Materials, School of Management Studies,


Ind ira Gandlii National Open University.

MS-53: Production/Operations Management, School of Management Studies,


lndira Gandlii National Open University.

MS-57: Maintenance Management, School of Managetnent Studies,


lndira Gandhi National Open university.

Murthy CSR (2002). Manugem~entInformation Systenu: Texl and Applications,


Third Edition, Himalaya Publislling House, Mumbai

Paul Beynon-Davies (2000), Database Systenis, Mac~nillanPub Ltd; 2nd edition

Pocock, M. A. and A.M. Taylor, 1984, Handbook of Financial Planning and


Control, Gower Publishing Co: London

Walker D.(1 989), Computer Bused Information Systems, Eisevier Science Pub Co;
2nd edition.

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