Information Systems in the Corporate World: Part 3— Management Information Systems

Hello again, the theme of this blog is going to be Management Information Systems (MIS) in the corporate world and large-cap companies. Resuming from where I finished in the last installment of this discussion (which you can read here), the use of these systems is most commonly found in conjunction with transaction processing systems as previously discussed. However, the overarching purpose of these information systems is not to automate data processing actions such as payments and employee rostering. Instead MIS can be seen as a great aggregator of information, which in today’s world of big data is becoming more and more critical for the management of large companies.

At management level people generally carry out what is called ‘Knowledge Work’, to improve the productivity of the business. This involves the gathering, analysis and manipulation of data, both internally and externally, to infer insights and knowledge to optimise the operation of the business. Some systems used to achieve this include human resource management systems, sales and marketing systems and inventory control systems. These are all classified as management information systems but for this blog post I’m going to delve a little deeper into Enterprise Resource Planning (ERP) in particular, a broad system used in many large corporations to plan for future resource requirements.

What is ERP you ask?

Enterprise resource planning (ERP) refers to a type of software that organizations use to manage day-to-day business activities such as accounting, procurement, project management, risk management and compliance, and supply chain operations. A complete ERP suite also includes enterprise performance management, software that helps plan, budget, predict, and report on an organization’s financial results (Oracle Ireland).

As you can see, the scope for ERP is quite large, similar to transactional processing systems. However, the use cases are quite different. For one, ERP is very much an internal information system where data is passed from one unit/employee to another, and generally tends to work from a centralised database. As we’ll discuss later, this can have benefits as well as shortcomings. On top of this, ERP as well as other MIS provide the backbone for decision makers and subsequent Decision Support Systems further up the management hierarchy — we’ll talk about that in the next post. This is because MIS systems such as ERP are usually the first information systems to collect raw data straight from the work floor and carry out basic analysis and calculations to provide valuable information to both management and workers.

The First ERP System?

The evolution of ERP

Back-office enterprise software has its roots in the 1960s and 1970s, as computing power became affordable enough for companies to automate materials planning through MRP (Material Resource Planning) and financial processing through payroll and general ledger software (Mendelson, H. 2000). This was pioneered by IBM in the U.S. and allowed many manufacturing companies to forecast demand for their products and materials using computers rather than pen and paper. Now I wasn’t there in the 1960’s but as an engineering student currently learning about manufacturing management systems, this must’ve saved a ton of time!

The problem with MRP however is it was limited to the flow of materials and components but could not track the actual productivity of workshops. That’s were MRP II comes in. MRP II essentially allowed the management of manufacturing companies to track it’s most precious commodity — time. This brought about further functionality like capacity planning, demand management and production scheduling as manufacturers could accurately predict the effect of different operating parameters on the overall productivity of the plant.

Then came ERP. As manufacturing plants began to grow and become more complex, and other industries such as shipping and logistics began to utilise software as a means of tracking their productivity, efficiency and integration became the new parameters to optimise for.

These parameters are linked of course, the more integrated a system is the more efficient it becomes inevitably. So, starting in the 1990’s this was the new goal of enterprise resource planning.

Growth in Revenue of the top 5 ERP providers in the 90’s [1]

In the 1970’s 5 German engineers invented a systems analysis programme called R/1 which then eventually led to a very successful R/3 programme in 1991 and the company which we now know as SAP. R/3 was pretty much the invention of ERP as SAP pioneered it’s client-server concept, uniform graphical interface, dedicated use of relational databases, and support for servers from various manufacturers (SAP SE). This was a great success and led to almost exponential sales growth as the programme was incorporated into Microsoft’s Window’s NT Operating System and triggered competition from other ERP providers, including Oracle. But much to the annoyance of Larry Ellison, SAP continued to dominate the ERP space for all of the 90’s.

ERP as an industry is not a complete success story however, with growing complexity comes exponentially growing software issues leading to less than ideal results. For the rest of this article, I am going to take a deeper look at why this is the case. This quote from Ellison however is quite telling:

“We blew it in the 1990s. By running applications on the client, client/server was meant to put information at your fingertips. But all we did was to create distributed complexity and fragmented data… Burger King put an SQL Server database in every hamburger store, but they still couldn’t answer the question, “how many Whoppers are we selling each day?” ERP as an industry missed the boat. It focused on automating processes, not on getting information to key decision-makers”

Boeing 787 Manufacturing Plant

ERP Today

So where in Aircraft manufacturing is ERP software used, well I think this infographic sums it up quite well:

ERP Use Cases in Aircraft Manufacturing & Maintenance (Frank, B. 2020)

Just think about it, manufacturers like Airbus and Boeing must manage millions of components per airplane, as well as thousands of workers per plant and then satisfy hundreds of clients by delivering orders on time and on budget. I personally don’t know how hi-tech manufacturers of this scale operated before the introduction of management software but if one thing’s for sure, it must have been much slower, more expensive and probably a lot more frustrating.

Aircraft Maintenance, Repairs, and Operations (MRO) companies are especially reliant on ERP systems because frequent, but unforeseen, repairs place a large strain on supply chain management and operations (Frank, B. 2020).

In terms of managing sales, there is mutual benefit between manufacturers and clients as requests for quotes can be automated and once the data is initially entered into the system, there is far less scope for human error and costly misquotes. Real-time inventory can also be assessed to provide accurate pricing and delivery times, critical to the profitable operation of a large industry like this. Perhaps the largest weakness I can imagine is cybersecurity. The more employees and managers integrated into a company-wide, centralised ERP system, the greater the risk is of personal information and intellectual property being hacked.

ERP in Action

AMOS is considered to be an end-to-end solution as it is designed to manage the planning of aircraft maintenance right up to the final delivery of the aircraft back to the carrier for operation. This is achieved by ‘tracking’ and utilising a centralised database so that all necessary information can be accessed on demand like the display shown:

ERP for Aircraft MRO (Pierobon, M. 2019)

As useful as this software appears, the main drawback is the cost of getting it implemented in the first place. In large companies costs can easily range rom $1M to $10M and that’s not even considering the cost of human resources and database management fees amongst other things (Hutchison, C. 2015). On top of this, ERP can be a nightmare to manage and maintain as training is required for employees and human error within the system can lead to catastrophic failures. An example of this is Boeing’s production meltdown in 1997 when a human error in he company’s ERP system resulted in a 3 week delay in the assembly line and cost the company a huge $2.6 Bn. A review of the failures of ERP in company settings like this mainly cites that lack of skills is the primary challenge facing organizations in the adoption and implementation of ERP systems (Ramadhan, S. 2019) and so it is not surprising that we now see companies across the board invest extensively in upskilling of their employees.

In Boeing’s case, they have taken even more drastic action by replacing their ERP system with a brand new expanded one called Systems Applications Projects (SAP) in 2018. The jury is still out in terms of the efficacy of this new system however limited word from inside Boeing again underlines just how complex ERP can become and it’s inherent shortcomings. Firstly, it is not believed that this new system will be fully rolled out until at least 2021 given the transfer in data and protocols that must take place without obstructing the day-to-day manufacturing process of the aircraft (I suspect this will now take even longer with COVID). And secondly, according to one insider with knowledge of the situation, one of Boeing’s ERP system is that too many systems don’t talk to each other — a problem moving to SAP is supposed to solve (Leeham News, 2018).

This circles us back nicely to the start of the post, integration is key for efficient and successful implementation of management information systems yet clearly is so difficult to obtain. From an industrial standpoint, ERP has been a mixed success. Internet searches reveal lawsuits and even on bankruptcy tied to failed ERP integration and since Boeing’s commercial unit handles more than 1 Bn parts a year, I think implementing this new SAP system is a massive undertaking. I guess we will find out in due course.

To Conclude..

Looking towards the future, I’m optimistic that we’ll see improvements in MIS design and reliability eventually. No doubt this is a major headache for large companies but perhaps one that could be disrupted by new technology and start-ups in the near future. 😮

References

  1. What Is ERP?, Oracle Ireland, www.oracle.com/ie/erp/what-is-erp/.
  2. Mendelson, H. (2000) ERP Overview, Graduate School of Business, Stanford University, https://faculty.ist.psu.edu/yen/421/erp.pdf
  3. SAP: A 49-year history of success, SAP SE, https://www.sap.com/about/company/history.html
  4. Frank, B. (2020) Enterprise Resource Planning (ERP) Software in Aviation, https://rotabull.com/blog/erp-for-aviation#:~:text=In%20aviation%2C%20ERP%20stands%20for,record%22%20for%20your%20business%20data.
  5. Pierobon, M. (2019) The importance of enterprise resource planning in aircraft maintenance, https://www.aviationbusinessnews.com/mro/enterprise-resource-planning/
  6. Hutchison, C. (2015) How Much Does an ERP Implementation Cost?, https://blog.cfbs-us.com/blog-1/how-much-is-erp#:~:text=Here%20is%20an%20estimation%20of,%3A%20%241%20million%20-%20%2410%2B%20million
  7. Ramadhan, S., Hassan, K. and Ali, K. (2019) ‘The Significance of Enterprise Resource Planning (ERP) Systems in Aviation Industry’, European Scientific Journal, 15(10)
  8. Anon. (2018) ‘Boeing’s transition in supply chain management aims to save hundreds of millions of dollars’, Leeham News and Analysis, [Online], https://leehamnews.com/2018/10/08/boeings-transition-in-supply-chain-management-aims-to-save-hundreds-of-millions-of-dollars/

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Wilsons Warriors

A Group of TCD College students investigating how information systems have changed the business decision making landscape