Month: February 2020

Inventory management, in simple terms, is the process of tracking the stock of various products. This may include finished products manufactured by your company or even the raw material which may be required for production on finished goods.

Inventory management is an extremely critical function for smooth fulfillment of orders received by the company. In this post, we will understand the objectives of inventory management in depth.

Objectives of Inventory Management

1. Smooth fulfillment of orders

This is one of the most important objectives of inventory management. A situation where you have an order for your finished products in hand but you cannot fulfill the order due to the shortage of inventory is not ideal. It not just puts the fulfillment of the order at risk but also harms the reputation of your company due to delay in committed fulfillment timelines.

To make sure such a situation doesn’t occur, inventory needs to be properly maintained at all times, and an inventory management system helps in doing the same. Let us understand this better with the help of an example. Suppose you are a book publisher.

You have an order in hand of supplying 100 books to a retailer in the city. When the sales representative takes the order from the retailer, he doesn’t know about the inventory available. He just takes the order and passes it to the warehouse for fulfillment.

At the warehouse, you realize that there are only 50 titles available against an order for 100. This will impact no just this single order but also your future business relationship with that retailer.

Such issues can be solved by using an inventory management system where there are multiple users with different roles assigned to each of them- working on the same system.

2. Reduce losses due to theft, wastage, etc.

This is another major objective of inventory management. In most organizations, the amount of inventory that is being managed in huge- right from procured raw material to the finished goods. All this inventory needs to be managed extra carefully so that there is minimal loss due to theft, wastage, etc.

If the inventory is not handled properly, incidents of theft and other undesired events will not come to anyone’s notice. Let us take an example. You run an eCommerce business of selling mobile accessories having an inventory of 1000+ unique SKU’s.

Also, at any given point of time, there are hundreds of products dispatched from your warehouse to the customers via courier. At the same time, there are many packages which are coming back to your warehouse as returns, undelivered shipments, etc. There has to be a proper inventory management system tracking all of them. In its absence,  even if any warehouse staff member doesn’t mark an inward entry in the system for a shipment received back from the customer and just steals it, it may be a loss to the company due to theft.

3. Know when to scale or shrink the production of goods

If you are a manufacturer of products, you would be already knowing that there times when you just need to scale the production to meet the market demand and reduce the production especially when the peak season ends. Inventory management can help you know exactly when to scale up or down your production as you get a precise picture of how many products are currently lying in your inventory at any point in time.

To illustrate this better, let us consider an example. You have a small business of manufacturing umbrellas. You cannot just keep producing umbrellas at full swing whole year round since the demand for umbrellas in only during certain months of the year.

Having an inventory tracking system in place tells you exactly how many manufactured umbrellas are available with you at any point of time on a real-time basis. This helps you take a call on scaling up the production or shrink it towards the end of the season.

4. Keep investment in inventory at minimum possible levels

Businesses, especially small businesses need adequate working capital for their day to day functioning. No business can afford to keep producing goods without having buyers for them and keep the working capital tied up in the stocks.

Inventory management helps you address this pain point & keep your investment in inventory at a minimum possible level. For this, you can use inventory management software to track the inventory levels at any given point of time. You can decide and keep a threshold for every product, like say ten units.

When the inventory count falls below this quantity, only then you take up the production activity for that product. This helps you keep your investments in inventory at minimum possible levels without hurting your top line.

5. Clear off the slow-moving goods

In many cases, not all the goods produced by you would be flying off the shelf. There would be quite a few goods which are slow moving in the market, but you already have lots of these in your inventory. Any kind of business cannot just keep their working capital blocked in such type of goods.

Clearing off such slow-moving goods is another objective of inventory management. Let us consider that you are a manufacturer of garments. You got a manufactured around 100 different styles as a part of your summer collection. As the season ends, you realize that around 10 of these styles have failed to get a response in the market and are not moving off the shelves.

Since you do not want to keep your investment in these items, you take a call to mark down the prices by 50% to sell them on no profit no loss basis. Taking such an informed decision is possible only when you have a proper inventory management system in place which analyzes sales patterns and tells you which are your slow-moving goods.

6. Analyze product sales patterns

This can be one of the secondary objectives of inventory management. Analyzing product sales patterns is important so that you can make future sales assumptions and also see which are the fast and the slow moving goods. Inventory management helps you significantly in this since you exactly know the flow of products in and out of your warehouse.

You can even export data as per your requirements for any given timeframe. In fact, most of the modern inventory management already have the functionality of analyzing product sales patterns. All you need to do is only select the product category or individual products along with the time frame and generate reports at a click on the button.

We have all the major as well as minor objectives of inventory management in depth in this article. You would have understood by now how crucial is inventory management for any business and what are the effects it can cause in case inventory management is not done properly. Make sure you use a good inventory management software for the same and provide proper training to your staff members so that the whole inventory management activity can be done seamlessly in your organization.

7 most effective inventory management techniques are as follows:

There are various types of inventory management techniques which can help in efficient inventory management. They are as follows:

1. ABC Analysis

ABC analysis stands for Always Better Control Analysis. It is an inventory management technique where inventory items are classified into three categories namely: A, B, and C. The items in A category of inventory are closely controlled as it consists of high-priced inventory which may be less in number but are very expensive. The items in B category are relatively lesser expensive inventory as compared to A category and the number of items in B category is moderate so control level is also moderate. The C category consists of a high number of inventory items which require lesser investments so the control level is minimum.

2. Just In Time (JIT) Method

In Just in Time method of inventory control, the company keeps only as much inventory as it needs during the production process. With no excess inventory in hand, the company saves the cost of storage and insurance. The company orders further inventory when the old stock of inventory is close to replenishment. This is a little risky method of inventory management because a little delay in ordering new inventory can lead to stock out situation. Thus this method requires proper planning so that new orders can be timely placed.

3. Material Requirements Planning (MRP) Method

Material Requirements Planning is an inventory control method in which the manufacturers order the inventory after considering the sales forecast. MRP system integrates data from various areas of the business where inventory exists. Based on the data and demand in the market, the manager would carefully place the order for new inventory with the material suppliers.

4. Economic Order Quantity (EOQ) Model

Economic Order Quantity technique focuses on taking a decision regarding how much quantity of inventory should the company order at any point of time and when should they place the order. In this model, the store manager will reorder the inventory when it reaches the minimum level. EOQ model helps to save the ordering cost and carrying costs incurred while placing the order. With the EOQ model, the organization is able to place the right quantity of inventory.

5. Minimum Safety Stocks

The minimum safety stock is the level of inventory which an organization maintains to avoid the stock-out situation. It is the level when we place the new order before the existing inventory is over. Like for example, if the total inventory in an organization is 18,000 units, they place a new order when the inventory reaches 15,000 units. Therefore, the 3,000 units of inventory shall form part of the minimum safety stock level.

6. Ved Analysis

VED stands for Vital Essential and Desirable. Organizations mainly use this technique for controlling spare parts of inventory. Like, a higher level of inventory is required for vital parts that are very costly and essential for production. Others are essential spare parts, whose absence may slow down the production process, hence it is necessary to maintain such inventory. Similarly, an organization can maintain a low level of inventory for desirable parts, which are not often required for production.

7. Fast, Slow & Non-Moving (FSN) Method

This method of inventory control is very useful for controlling obsolescence. All the items of inventory are not used in the same order; some are required frequently, while some are not required at all. So this method classifies inventory into three categories, fast-moving inventory, slow-moving inventory, and non-moving inventory. The order for new inventory is placed based on the utilization of inventory.

Inventory management is an essential part of every business. With an effective inventory management system in place, the business can significantly reduce its various costs like warehousing cost, inventory carrying cost, ordering cost, cost of obsolescence, etc. It improves the supply chain of the business. Managers are able to forecast the level of production at which they need to place new orders for inventory. Hence, organizations should take all the necessary steps to maintain an effective inventory management and control system.

The responsibilities for financial management are spread throughout the organisation in the sense that financial management is, to an extent, an integral part of the job for the .managers involved in planning, allocation of resources and control. For instance, the production manager (engineer) shapes the investment policy (proposal of a new plant) the marketing manager/analyst provides inputs in forecasting and planning the purchase manager influences the level of investment in inventories and the sales manager has a say in the determination of receivables policy. Nevertheless, financial management is highly specialized in nature and is handled by specialists. Financial decisions are of crucial importance. It is, therefore, essential to set up an efficient organisation for financial management functions.

Since finance is a major/critical functional area, the ultimate responsibility for carrying out financial management functions lies with the top management, that is, board of directors/managing director/chief executive or the cornerstone of the board. However, the exact nature of the organisation of the financial management function differs from firm to firm depending upon factors such as size of the firm, nature of its business type of financing operations, ability of financial officers and the financial philosophy, and so on. Similarly, the designation of the chief executive of the finance department also differs widely in case of different firms. In some cases, they are known as finance managers while in others as vice-president (finance), director (finance), and financial controller and so on. He reports directly to the top management. Various sections within the financial management area are headed by managers such as controller and treasurer.

Core Financial Management Decisions

In organizations, managers in an effort to minimize the costs of procuring finance and using it in the most profitable manner, take the following decisions:

Investment Decisions: Managers need to decide on the amount of investment available out of the existing finance, on a long-term and short-term basis. They are of two types:

• Long-term investment decisions or Capital Budgeting mean committing funds for a long period of time like fixed assets. These decisions are irreversible and usually include the ones pertaining to investing in a building and/or land, acquiring new plants/machinery or replacing the old ones, etc. These decisions determine the financial pursuits and performance of a business.
• Short-term investment decisions or Working Capital Management means committing funds for a short period of time like current assets. These involve decisions pertaining to the investment of funds in the inventory, cash, bank deposits, and other short-term investments. They directly affect the liquidity and performance of the business.

Financing Decisions: Managers also make decisions pertaining to raising finance from long-term sources (called Capital Structure) and short-term sources (called Working Capital). They are of two types:

• Financial Planning decisionswhich relate to estimating the sources and application of funds. It means pre-estimating financial needs of an organization to ensure the availability of adequate finance. The primary objective of financial planning is to plan and ensure that the funds are available as and when required.
• Capital Structure decisionswhich involve identifying sources of funds. They also involve decisions with respect to choosing external sources like issuing shares, bonds, borrowing from banks or internal sources like retained earnings for raising funds.

Dividend Decisions: These involve decisions related to the portion of profits that will be distributed as dividend. Shareholders always demand a higher dividend, while the management would want to retain profits for business needs. Hence, this is a complex managerial decision.

The chief financial officer often distributes the financial management responsibilities between the controller and the treasurer. The controller normally has responsibility for all accounting-related activities. These include such functions as

• Financial Accounting This function involves the preparation of the financial statements for the firm, such as the balance sheet, income statement, and the statement of cash flows.
• Cost Accounting This department often has responsibility for preparing the firm’s operating budgets and monitoring the performance of the departments and divisions within the firm.
• Taxes This unit prepares the reports that the company must file with the various government (local, state, and federal) agencies.
• Data Processing Given its responsibilities involving corporate accounting and payroll activities, the controller may also have management responsibility for the company’s data -processing operations.
• The treasurer is normally concerned with the acquisition, custody, and expenditure of funds. These duties often include
• Cash and Marketable Securities Management This group monitors the firm’s short -term finances forecasting its cash needs, obtaining funds from bankers and other sources when needed, and investing any excess funds in short-term interest -earning securities.
• Capital Budgeting Analysis This department is responsible for analyzing capital expenditures that is, the purchase of long -term assets, such as new facilities and equipment.
• Financial Planning This department is responsible for analyzing the alternative sources of long-term funds, such as the issuance of bonds or common stock, that the firm will need to maintain and expand its operations.
• Credit Analysis Most companies have a department that is responsible for determining the amount of credit that the firm will extend to each of its customers. Although this group is responsible for performing financial analysis, it may sometimes be located in the marketing area of the firm because of its close relationship to sales.
• Investor Relations Many large companies have a unit responsible for working with institutional investors (for example, mutual funds), bond rating agencies, stockholders, and the general financial community.
• Pension Fund Management The treasurer may also have responsibility for the investment of employee pension fund contributions. The investment analysis and portfolio management functions may be performed either within the firm or through outside investment advisors.

It should be emphasized that the specific functions of the controller and treasurer shown in Figure are illustrative only and that the actual functions performed vary from company to company. For example, in some companies, the treasurer may have responsibility for tax matters. Also, the board of directors of the company may establish a finance committee, consisting of a number of directors and officers of the firm with substantial financial expertise, to make recommendations on broad financial policy issues.

A budget helps an organization allocate the resources of the company to different departments and activities and manage the cash flows of the business in an effective way. There are many types of budgets. One of them is a financial budget.

A financial budget in budgeting means predicting the income and expenses of the business on a long-term and short-term basis. Accurate projections of cash flow help the business achieve its targets in the right way.

Financial budget preparation includes a detailed budget balance sheet, cash flow budget, the sources of incomes and expenses of the business, etc. The evaluation of incomes and expenses is done on a monthly, quarterly, half-yearly or annual basis, depending on the suitability of the organization. A financial budget is a very powerful tool to achieve the long-term goals of any business. Importantly, it also keeps the shareholders and other members of the organization updated about the functioning of the business.

Organizations prepare a financial budget to manage the cash flows in a better way. This budget gives the business better control and provides a more efficient planning mechanism to manage the inflows and outflows. To prepare a financial budget, it is important to prepare the operating budget first. With the help of the operating budget, the organization can predict the sales and production expenses. Therefore, the organizations prepares a financial budget only after planning the different financing activities in the operating budget.

Different sections of a financial budget

Cash budget

The cash budget contains information on the inflows and outflows of the business. On the other hand, the cash flow of the business continues changing and with that, the cash budget should also change. Making a cash budget is a dynamic process, not a static one. There must be an immediate reflection of any change in the cash flow in the cash budget of the business.

Budgeted balance sheet

The budgeted balance sheet comprises many other budgets. The major component of this budget includes the production budget and its associated budgets.

Capital expenditure budget

As the name suggests, the capital expenditure budget relates to expenses related to plant and machinery or any capital asset of the business. This budget determines the expenses that would be incurred if an existing plant is replaced or any new machinery is bought. Factors like depreciation, cost of the plant, life of the machinery, etc. are taken into account when preparing the capital expenditure budget.

Let’s take a closer look at the financial budget preparation.

Financial budget plan

The financial budget plan is comprised of the following steps:

• Calculate the expected inflow
• Calculate the expected outflow
• Set the targets
• Divide the expenses into different categories
• Keep track of components in the budget
• Set up the ledger

The above points give some idea of how a financial budget plan is set. Different organizations may take different factors into consideration while preparing the budget. However, the above points will form part of any budget plan.

The financial budget provides a blueprint for the business to move forward. It addresses not only the financial aspects of the business, but also checks the operational efficiency. The extra expenses are cut by emphasizing cost reduction and improving the market share. In terms of financial budgets, the organization is well prepared to meet the long-term and short-term expenses. A good financial budget helps in achieving the goals and objectives of the business in the shortest possible span of time.

Information system, an integrated set of components for collecting, storing, and processing data and for providing information, knowledge, and digital products. Business firms and other organizations rely on information systems to carry out and manage their operations, interact with their customers and suppliers, and compete in the marketplace. Information systems are used to run interorganizational supply chains and electronic markets. For instance, corporations use information systems to process financial accounts, to manage their human resources, and to reach their potential customers with online promotions. Many major companies are built entirely around information systems. These include eBay, a largely auction marketplace; Amazon, an expanding electronic mall and provider of cloud computing services; Alibaba, a business-to-business e-marketplace; and Google, a search engine company that derives most of its revenue from keyword advertising on Internet searches. Governments deploy information systems to provide services cost-effectively to citizens. Digital goods—such as electronic books, video products, and software—and online services, such as gaming and social networking, are delivered with information systems. Individuals rely on information systems, generally Internet-based, for conducting much of their personal lives: for socializing, study, shopping, banking, and entertainment.

As major new technologies for recording and processing information were invented over the millennia, new capabilities appeared, and people became empowered. The invention of the printing press by Johannes Gutenberg in the mid-15th century and the invention of a mechanical calculator by Blaise Pascal in the 17th century are but two examples. These inventions led to a profound revolution in the ability to record, process, disseminate, and reach for information and knowledge. This led, in turn, to even deeper changes in individual lives, business organization, and human governance.

The first large-scale mechanical information system was Herman Hollerith’s census tabulator. Invented in time to process the 1890 U.S. census, Hollerith’s machine represented a major step in automation, as well as an inspiration to develop computerized information systems.

One of the first computers used for such information processing was the UNIVAC I, installed at the U.S. Bureau of the Census in 1951 for administrative use and at General Electric in 1954 for commercial use. Beginning in the late 1970s, personal computers brought some of the advantages of information systems to small businesses and to individuals. Early in the same decade the Internet began its expansion as the global network of networks. In 1991 the World Wide Web, invented by Tim Berners-Lee as a means to access the interlinked information stored in the globally dispersed computers connected by the Internet, began operation and became the principal service delivered on the network. The global penetration of the Internet and the Web has enabled access to information and other resources and facilitated the forming of relationships among people and organizations on an unprecedented scale. The progress of electronic commerce over the Internet has resulted in a dramatic growth in digital interpersonal communications (via e-mail and social networks), distribution of products (software, music, e-books, and movies), and business transactions (buying, selling, and advertising on the Web). With the worldwide spread of smartphones, tablets, laptops, and other computer-based mobile devices, all of which are connected by wireless communication networks, information systems have been extended to support mobility as the natural human condition.

As information systems enabled more diverse human activities, they exerted a profound influence over society. These systems quickened the pace of daily activities, enabled people to develop and maintain new and often more-rewarding relationships, affected the structure and mix of organizations, changed the type of products bought, and influenced the nature of work. Information and knowledge became vital economic resources. Yet, along with new opportunities, the dependence on information systems brought new threats. Intensive industry innovation and academic research continually develop new opportunities while aiming to contain the threats.

Components of Information Systems

The main components of information systems are computer hardware and software, telecommunications, databases and data warehouses, human resources, and procedures. The hardware, software, and telecommunications constitute information technology (IT), which is now ingrained in the operations and management of organizations.

1. Computer hardware

Today throughout the world even the smallest firms, as well as many households, own or lease computers. Individuals may own multiple computers in the form of smartphones, tablets, and other wearable devices. Large organizations typically employ distributed computer systems, from powerful parallel-processing servers located in data centres to widely dispersed personal computers and mobile devices, integrated into the organizational information systems. Sensors are becoming ever more widely distributed throughout the physical and biological environment to gather data and, in many cases, to effect control via devices known as actuators. Together with the peripheral equipment—such as magnetic or solid-state storage disks, input-output devices, and telecommunications gear—these constitute the hardware of information systems. The cost of hardware has steadily and rapidly decreased, while processing speed and storage capacity have increased vastly. This development has been occurring under Moore’s law: the power of the microprocessors at the heart of computing devices has been doubling approximately every 18 to 24 months. However, hardware’s use of electric power and its environmental impact are concerns being addressed by designers. Increasingly, computer and storage services are delivered from the cloud—from shared facilities accessed over telecommunications networks.

2. Computer software

Computer software falls into two broad classes: system software and application software. The principal system software is the operating system. It manages the hardware, data and program files, and other system resources and provides means for the user to control the computer, generally via a graphical user interface (GUI). Application software is programs designed to handle specific tasks for users. Smartphone apps became a common way for individuals to access information systems. Other examples include general-purpose application suites with their spreadsheet and word-processing programs, as well as “vertical” applications that serve a specific industry segment—for instance, an application that schedules, routes, and tracks package deliveries for an overnight carrier. Larger firms use licensed applications developed and maintained by specialized software companies, customizing them to meet their specific needs, and develop other applications in-house or on an outsourced basis. Companies may also use applications delivered as software-as-a-service (SaaS) from the cloud over the Web. Proprietary software, available from and supported by its vendors, is being challenged by open-source software available on the Web for free use and modification under a license that protects its future availability.

3. Telecommunications

Telecommunications are used to connect, or network, computer systems and portable and wearable devices and to transmit information. Connections are established via wired or wireless media. Wired technologies include coaxial cable and fibre optics. Wireless technologies, predominantly based on the transmission of microwaves and radio waves, support mobile computing. Pervasive information systems have arisen with the computing devices embedded in many different physical objects. For example, sensors such as radio frequency identification devices (RFIDs) can be attached to products moving through the supply chain to enable the tracking of their location and the monitoring of their condition. Wireless sensor networks that are integrated into the Internet can produce massive amounts of data that can be used in seeking higher productivity or in monitoring the environment.

Various computer network configurations are possible, depending on the needs of an organization. Local area networks (LANs) join computers at a particular site, such as an office building or an academic campus. Metropolitan area networks (MANs) cover a limited densely populated area and are the electronic infrastructure of “smart cities.” Wide area networks (WANs) connect widely distributed data centres, frequently run by different organizations. Peer-to-peer networks, without a centralized control, enable broad sharing of content. The Internet is a network of networks, connecting billions of computers located on every continent. Through networking, users gain access to information resources, such as large databases, and to other individuals, such as coworkers, clients, friends, or people who share their professional or private interests. Internet-type services can be provided within an organization and for its exclusive use by various intranets that are accessible through a browser; for example, an intranet may be deployed as an access portal to a shared corporate document base. To connect with business partners over the Internet in a private and secure manner, extranets are established as so-called virtual private networks (VPNs) by encrypting the messages.

A massive “Internet of things” has emerged, as sensors and actuators have been widely distributed in the physical environment and are supplying data, such as acidity of a square yard of soil, the speed of a driving vehicle, or the blood pressure of an individual. The availability of such information enables a rapid reaction when necessary as well as sustained decision making based on processing of the massive accumulated data.

Extensive networking infrastructure supports the growing move to cloud computing, with the information-system resources shared among multiple companies, leading to utilization efficiencies and freedom in localization of the data centres. Software-defined networking affords flexible control of telecommunications networks with algorithms that are responsive to real-time demands and resource availabilities.

4. Databases and data warehouses

Many information systems are primarily delivery vehicles for data stored in databases. A database is a collection of interrelated data organized so that individual records or groups of records can be retrieved to satisfy various criteria. Typical examples of databases include employee records and product catalogs. Databases support the operations and management functions of an enterprise. Data warehouses contain the archival data, collected over time, that can be mined for information in order to develop and market new products, serve the existing customers better, or reach out to potential new customers. Anyone who has ever purchased something with a credit card—in person, by mail order, or over the Web—is included within such data collections.

Massive collection and processing of the quantitative, or structured, data, as well as of the textual data often gathered on the Web, has developed into a broad initiative known as “big data.” Many benefits can arise from decisions based on the facts reflected by big data. Examples include evidence-based medicine, economy of resources as a result of avoiding waste, and recommendations of new products (such as books or movies) based on a user’s interests. Big data enables innovative business models. For example, a commercial firm collects the prices of goods by crowdsourcing (collecting from numerous independent individuals) via smartphones around the world. The aggregated data supplies early information on price movements, enabling more responsive decision making than was previously possible.

The processing of textual data—such as reviews and opinions articulated by individuals on social networks, blogs, and discussion boards—permits automated sentiment analysis for marketing, competitive intelligence, new product development, and other decision-making purposes.

5. Human resources and procedures

Qualified people are a vital component of any information system. Technical personnel include development and operations managers, business analysts, systems analysts and designers, database administrators, programmers, computer security specialists, and computer operators. In addition, all workers in an organization must be trained to utilize the capabilities of information systems as fully as possible. Billions of people around the world are learning about information systems as they use the Web.

Procedures for using, operating, and maintaining an information system are part of its documentation. For example, procedures need to be established to run a payroll program, including when to run it, who is authorized to run it, and who has access to the output. In the autonomous computing initiative, data centres are increasingly run automatically, with the procedures embedded in the software that controls those centres.

Types of Information Systems

Information systems support operations, knowledge work, and management in organizations. (The overall structure of organizational information systems is shown in the figure.

1. Operational Support and Enterprise Systems

Transaction processing systems support the operations through which products are designed, marketed, produced, and delivered. In larger organizations, transaction processing is frequently accomplished with large integrated systems known as enterprise systems. In this case, the information systems that support various functional units—sales and marketing, production, finance, and human resources—are integrated into an enterprise resource planning (ERP) system, the principal kind of enterprise system. ERP systems support the value chain—that is, the entire sequence of activities or processes through which a firm adds value to its products. For example, an individual or another business may submit a custom order over the Web that automatically initiates just-in-time production to the customer’s specifications through an approach known as mass customization. This involves sending orders from the customers to the firm’s warehouses and perhaps to suppliers to deliver input materials just in time for a batched custom production run. Financial accounts are updated accordingly, and delivery logistics and billing are initiated.

Along with helping to integrate a firm’s own value chain, transaction processing systems can also serve to integrate the overall supply chain of which the organization is a part. This includes all firms involved in designing, producing, marketing, and delivering the goods and services—from raw materials to the final delivery of the product. A supply chain management (SCM) system manages the flow of products, data, money, and information throughout the entire supply chain, which starts with the suppliers of raw materials, runs through the intermediate tiers of the processing companies, and ends with the distributors and retailers. For example, purchasing an item at a major retail store generates more than a cash register receipt: it also automatically sends a restocking order to the appropriate supplier, which in turn may call for orders to the supplier’s suppliers. With an SCM system, suppliers can also access a retailer’s inventory database over the Web to schedule efficient and timely deliveries in appropriate quantities.

The third type of enterprise system, customer relationship management (CRM), supports dealing with the company’s customers in marketing, sales, service, and new product development. A CRM system gives a business a unified view of each customer and its dealings with that customer, enabling a consistent and proactive relationship. In cocreation initiatives, the customers may be involved in the development of the company’s new products.

Many transaction processing systems support electronic commerce over the Internet. Among these are systems for online shopping, banking, and securities trading. Other systems deliver information, educational services, and entertainment on demand. Yet other systems serve to support the search for products with desired attributes (for example, keyword search on search engines), price discovery and delivery of digital products (such as software, music, movies, or greeting cards). Social network sites, such as Facebook and LinkedIn, are a powerful tool for supporting customer communities and individuals as they articulate opinions, evolve new ideas, and are exposed to promotional messages. A growing array of specialized services and information-based products are offered by various organizations on the Web, as an infrastructure for electronic commerce has emerged on a global scale.

Transaction processing systems accumulate the data in databases and data warehouses that are necessary for the higher-level information systems. Enterprise systems also provide software modules needed to perform many of these higher-level functions.

2. Support of knowledge work

A large proportion of work in an information society involves manipulating abstract information and knowledge (understood in this context as an organized and comprehensive structure of facts, relationships, theories, and insights) rather than directly processing, manufacturing, or delivering tangible materials. Such work is called knowledge work. Three general categories of information systems support such knowledge work: professional support systems, collaboration systems, and knowledge management systems.

Professional support systems

Professional support systems offer the facilities needed to perform tasks specific to a given profession. For example, automotive engineers use computer-aided engineering (CAE) software together with virtual reality systems to design and test new models as electronic prototypes for fuel efficiency, handling, and passenger protection before producing physical prototypes, and later they use CAE in the design and analysis of physical tests. Biochemists use specialized three-dimensional modeling software to visualize the molecular structure and probable effect of new drugs before investing in lengthy clinical tests. Investment bankers often employ financial software to calculate the expected rewards and potential risks of various investment strategies. Indeed, specialized support systems are now available for most professions.

Collaboration systems

The main objectives of collaboration systems are to facilitate communication and teamwork among the members of an organization and across organizations. One type of collaboration system, known as a workflow system, is used to route relevant documents automatically to all appropriate individuals for their contributions.

Development, pricing, and approval of a commercial insurance policy is a process that can benefit from such a system. Another category of collaboration systems allows different individuals to work simultaneously on a shared project. Known as groupware, such systems accomplish this by allowing controlled shared access, often over an intranet, to the work objects, such as business proposals, new designs, or digital products in progress. The collaborators can be located anywhere in the world, and, in some multinational companies, work on a project continues 24 hours a day.

Other types of collaboration systems include enhanced e-mail and videoconferencing systems, sometimes with telepresence using avatars of the participants. Yet another type of collaboration software, known as wiki, enables multiple participants to add and edit content. Collaboration systems can also be established on social network platforms or virtual life systems. In the open innovation initiative, members of the public, as well as existing and potential customers, can be drawn in, if desired, to enable the cocreation of new products or projection of future outcomes.

3. Knowledge management systems

Knowledge management systems provide a means to assemble and act on the knowledge accumulated throughout an organization. Such knowledge may include the texts and images contained in patents, design methods, best practices, competitor intelligence, and similar sources, with the elaboration and commentary included. Placing the organization’s documents and communications in an indexed and cross-referenced form enables rich search capabilities. Numerous application programs, such as Microsoft’s SharePoint, exist to facilitate the implementation of such systems. Organizational knowledge is often tacit, rather than explicit, so these systems must also direct users to members of the organization with special expertise.

Management support

A large category of information systems comprises those designed to support the management of an organization. These systems rely on the data obtained by transaction processing systems, as well as on data and information acquired outside the organization (on the Web, for example) and provided by business partners, suppliers, and customers.

Management reporting systems

Information systems support all levels of management, from those in charge of short-term schedules and budgets for small work groups to those concerned with long-term plans and budgets for the entire organization. Management reporting systems provide routine, detailed, and voluminous information reports specific to each manager’s areas of responsibility. These systems are typically used by first-level supervisors. Generally, such reports focus on past and present activities, rather than projecting future performance. To prevent information overload, reports may be automatically sent only under exceptional circumstances or at the specific request of a manager.

Resources of Information System

An Information System is generally integrated and co-ordinate a network of components, which combine together to convert data into information. The information system provides access of information when it is required. The information system is a set of the component which generally helps a system.

Resources of Information System

There are 5 resources of information system which are given below:

1. Hardware

The system components which can physically touch – the system unit (tower, desktop, laptop), internal devices and peripheral devices (keyboards and monitors) – are called hardware and it is important to remember that basic definition: The hardware are the parts of the computer that are tangible and can be touched.

Peripheral devices are provided in many other ways, but think of them as hardware that surrounds the system unit. These peripherals devices may be connected by wired or wireless technology to the system unit. Generally peripherals devices communicate with the interior components of the system unit via installed software. The software itself is intangible and can’t be touched physically.

2. Software

We know that, the hardware needs to know what to do, and that is the role of software. The software may be divided into two types: first system software and second application software. Primary piece of system software is the operating system, such as Windows or iOS, which manages the hardware’s operation. Application software is perform for specific tasks, such as handling a spreadsheet, creating a document, or designing a Web page.

3. People

The human element is the most important component of information system and the people that are needed to run the system and the procedures they follow so that the knowledge in the huge databases and data warehouses can be turned into learning that can interpret what has happened in the past and guide future action.

4. Data

Data is one of the most important component which is generally store in form of information in a database system and a database is a place where data is collected and from which it can be retrieved by querying it using one or more specific criteria.All types of data store in warehouse without knowing whatever form that an organization needs. The databases and data warehouses have assumed even greater importance in information systems with the emergence of “big data, ” a term for the truly massive amounts of data that can be collected and analyzed.

5. Network

The network is defined as a system in which more than the system is connected through a transmission media. It provides an interface to receive a piece of information or send an information. It is also one of the best resources in the information system.