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1 of 17
Chapter 7
Supporting Procurement with SAP
MIS InClass 7
1. Describe the order pattern from the customers to the retailer every week.
The order pattern from the customers to the retailer was random from week to week.
One week demand would be six bikes, and 12 the next. The following week demand
would be for only two bikes. Sometimes the demand would trend upward, steadily
increasing over a period of weeks. At other times, demand would slowly fall over a
period of time.
2. Why did the ordering pattern between the suppliers in the supply chain evolve
the way it did?
Initially, the ordering pattern between the stations was very erratic. A bullwhip effect
was created. As the game moved forward, product was able to work its way through
the supply chain, so orders were able to be met. This created a pattern of over-
ordering, which led to generally excessive inventory. As the randomness of the orders
was realized, the orders through the supply chain moved up and down as well.
3. What are the objectives and measures for each team’s procurement process?
The objectives for each station are to have less inventory and less backorders. To
measure this, stations use the total cost. The total cost is 0.5 (inventory) +1
(backorders).
4. Where is the IS? What would more data allow? What data are most needed?
There is not an IS present in the game. More data would allow materials planning
within the supply chain. Customer demand is most needed. It takes a long time to get
the customer data through the different stations. If the factory had a more direct view
of customer demand, the backorder and inventory problems would not be as
exaggerated downstream.
5. If you spent money on an IS, would it improve an activity, data flow, control,
automation, or procedure?
It would improve the linkage between the retailer and each of the stations in the
supply chain. Without an IS, each station can only know what the demand is one
station away, and there is an inherent lag. This lag can be reduced when every station
understands what the customer demand actually is.
Start
Enough
Record Back Log No inventory to
fulfill
Enough
Inventory
Inventory
Yes
No
Place Order
Update Inventory Fill the Order
Yes End
Phase
7-1. Two supply chain processes introduced in this chapter are Returns
Management and Supplier Evaluation.
a. Create a BPMN diagram of each of these processes.
Returns Managment
Start
Replacement
Product Received by
Product issued to
Retailer
Customer
Product Examined
for Defect
Correct Supplier
Supplier Charged
Charged for Defect
End
Phase
Supplier Evaluation
Start
Suppliers are
nominated
Information
Gathered
Supplier
Yes Update List
Approved
Approved
Supplier DB
End
Phase
b. Specify efficiency and effectiveness objectives for each process and identify
measures appropriate for CBI.
Potential efficiency objective examples for:
Returns Management: Fewer product returns.
Supplier Evaluation: Time to approve suppliers.
7-2. Which of the four nonroutine cognitive skills identified in Chapter 1 (i.e.,
abstract reasoning, systems thinking, collaboration, and experimentation) did
you use to answer the previous question?
Based on the example answer for question 1, the nonroutine cognitive skill of
systems thinking was used to determine what available technologies could be used
by CBI to help improve its processes and how the technologies could be leveraged
to help each other. Abstract reasoning was also utilized to determine in which step
of the process the technology could be used.
7-3. Which of the four skills in Exercise 7-2 would be most important for Wally’s
replacement?
Wally’s replacement will need to possess systems thinking in order to connect all of
the inputs and outputs produced by CBI into one big system. The three remaining
non-routine skills will also be important for Wally’s replacement. Technology
moves quickly and to remain an effective manager, Wally’s replacement will need
to move quickly as well. Over the course of ten or twenty years, the processes will
also change, creating more opportunities for CBI to improve and become an even
better business.
7-5. If a warehouse worker opens a box and the contents are broken, those items
will be returned to the supplier. Add this activity to the BPMN diagram of the
Procurement process (Figure 7-14).
Updated BPMN for Figure 7-12
Warehouse
Purchasing Manager SAP Application Accountant
Manager
End
Start
Yes
SAP DB
Consistent 3
Retrieve Three-Way Way Match
Match Data
Update DB
Receive Invoice
Receive Goods
Product in
Acceptable Yes
Condition
No
Return Product to
Supplier
Phase
7-6. For the Procurement process after SAP implementation, what are the triggers
for each activity to start? For example, what action (trigger) initiates the
Create PO activity?
To start, the raw material inventory for a given product must drop below a
predetermined level. This will cause a purchase requisition to be created. Once a PR
is created, the purchasing manager must approve it in order to create a purchase
order. Once a PO is created and the materials are delivered, a goods receipt is
created. Once the goods are added to the inventory, the goods receipt creates an
entry in accounts payable. Once CBI receives the invoice for the PO, the receive
invoice process is triggered. This allows the Pay supplier activity to begin. Before
the post outgoing payment activity can be completed, the data from the PO, goods
receipt, and invoice must all be correct (the three-way match).
7-7. What kinds of errors can Wally, Maria, and Ann make that are not captured
by SAP? One example is that Wally might count 20 bottles and 30 cages but
mistakenly enter 20 cages and 30 bottles. Describe a particularly harmful
mistake that each can make and how the process could be changed to prevent
that error.
Wally could accidentally miss clicking OK for one of the products in the Goods
Receipt Screen. Maria could select the wrong supplier for a particular material. Ann
could select the wrong supplier to which to issue a payment. A particularly harmful
mistake that Wally could make is to forget to create a good receipt altogether. To
improve this process, augmented reality and RFID tags could be used to identify
materials that have been shipped by the supplier but have yet to be entered into
inventory at CBI. Maria could mistype a part number to be ordered. To prevent this,
a check could be run to confirm that the part number ordered is below the minimum
stock on hand. Ann could pay the wrong vendor. To prevent this, checks could be
used to ensure that the vendor being paid has an unpaid invoice with CBI and that
the amount of payment is less than or equal to the amount of the accounts payable
for that particular vendor.
7-8. How does a pizza shop’s Procurement process differ from CBI’s? What do you
believe is the corporate strategy of your favorite pizza franchise? What are the
objectives and measures of its Procurement process to support this strategy?
A pizza shop’s procurement process would need to be more efficient than CBI’s.
Pizza shops carry perishable items on their inventory, which means inventory must
be turned over quickly. Pizza shops also generally have narrow margins. This
means that there is not as much room to carry excess inventory like CBI might be
able to. Papa John’s, with over 3,500 locations, aims to provide better pizzas by
using better ingredients. This can be particularly difficult due to the need for fresh
vegetables. Because of this, the chain has local suppliers for each location. To
support the strategy, Papa John’s should have relatively small amounts of raw
materials on hand to make sure that the ingredients are fresh. This can be measured
by the inventory turnover for each ingredient. Another measure is the response time
by suppliers to provide the fresh ingredients. This can be measured by the order
fulfillment time.
7-9. 3D printing has many benefits for businesses. Suggest three products that CBI
might print instead of procure with traditional means and three that your
university might print.
Suggested answers for CBI:
• Any plastic parts for its bicycles, ranging from wheel reflector shells to handle-
bar plugs and from tire filler caps to water bottles and helmet shells.
• Promotional materials such as key chains, custom signage for store display, etc.
• With the right technology and printer cartridges, metal parts may be part of the
process in the future. There are currently experiments with titanium printing that
would allow the printing of high-end gears, derailleurs, etc.
Suggested answers for a university:
• Athletic equipment (think football, hockey, etc.).
• Keys, most universities spend significant funds on key manufacture and control.
• Soft and hard goods with the university seal/logo for sale in the bookstore and at
events.
Students will certainly have a plethora of suggestions.
7-10. Augmented reality will help employees find items in a warehouse, but this IS
may also support many other processes. Name two and describe how AR will
improve them. Use Google Glass as one example of using AR, and use another
example of AR for your other process.
AR could assist with navigation though a large facility to locate an individual or
functional location. AR could also be used to help a person during a presentation by
presenting context sensitive information viewable only by the presenter regardless
of the presenter’s proximity to a computer (think Google Glass). In a more
traditional sense, AR could present 3D images of complex designs to assist in
product repair, virtual design interaction, etc. If AR is tied to GPS, which is
certainly a reality, your smartphone can present an AR view of your current
location to give you information about your surroundings, or possibly suggest
possibilities for a sales call close to you, for example.
Collaboration Exercise 7
1. Figure 7-8 lists problems with the Procurement process at CBI. Which of these
would apply to the university? Which would not? What are some procurement
problems that might be unique to an athletics department?
In the Accounting role, three-way match discrepancies and the lack of real time
accounting data would apply at university. Purchasing agents could be spread across
many departments and colleges. Internal controls could also be weak in the
Purchasing role. The problems with finished goods inventory and raw materials
inventory would not apply to the university. The athletics department, on the other
hand, may face issues with procurement due to the need for a very specialized piece
of athletic equipment that is only offered by a limited number of suppliers. An
athletics department might also face issues with increased procurement costs because
of low order volumes. It might be difficult to obtain economies of scale when there
are only 25 hockey players who need hockey skates ordered for the season.
2. Figure 7-12 lists objectives and measures that the managers at CBI determined
for the Procurement process. What objectives and measures would you suggest
for the university? What objectives and measures would you expect the athletics
director to suggest (do not use the objectives and measures from Chapter 6)?
For the university, an objective should be to reduce inventory. Another objective
could be to reduce costs. Measures for these objectives would be decreasing
inventory costs from 25% of sales to 15% and to reduce product costs by 5%. The
athletics department should use objectives like reduce cost and increase the volume of
cross-selling. Measures could include reducing product costs by 10% and increasing
cross-selling revenues by 25%.
3. Figure 7-28 lists the impacts of SAP on an organization. Which of these impacts
would affect the athletics department?
Of the four items listed, new skills needed and process focus would affect the
athletics department. The department will need to train employees to be proficient
with the supply chain management system, and to utilize employees’ abstract
reasoning and analytical skills. The athletics department will also need to focus on
processes. The inputs and outputs into the system will provide more data for the
department’s customers and suppliers.
7-13. Create a screen capture of an SAP screen. Underneath the image, provide an
answer to each of the following questions:
The Post Outgoing Payments screen is used as an example.
c. What is the name of the screen that precedes it? What screen comes after
it?
The screen that precedes the Post Payment Header screen is the Outgoing
Payment screen. The screen that follows the Post Payment Header screen is the
Post Outgoing Payments process open items screen.
e. Describe an error that this actor may do on this screen that SAP will
prevent.
Without SAP, Ann could enter the wrong amount for payment. While SAP does
not outright prevent this action, it does provide a check figure in the “Not
assigned” box. If the value for the not assigned box is not zero, Ann will know
that there is an error.
7-14. Make an informal diagram of the four main actors: Supplier (Composite
Bikes), Purchasing (Maria), Warehouse (Wally), and Accounting (Ann). Draw
arrows that show the data that flows among the actors during this process.
Number the arrows and include on each arrow what data are included in the
message.
Case 7 Question 4
Start
Receive Purchase
1. Purchase Requisition Request
Request
2. Required Material
Create Purchase
Order
5. Invoicing Information
8. AP Information
End
7-15. Using the same four main actors as in question 7-14, this time show with the
arrows how the material (the water bottles and cages) moves.
Case 7 Question 5
Start
Receive Order /
Receive PO / Ship
1. Order Contents Create Goods
Order
Receipt
End
Phase
7-16. One concern of a business is fraud. One fraud technique is to create suppliers
who are not suppliers but are co-conspirators. The conspirator inside the
business accepts invoices for nonexistent deliveries. For this fraud scheme to
work, who at CBI has to take part? How can SAP processes decrease the
chance of this type of fraud?
For this scheme to be used, Wally, Maria, and Ann would all need to take part.
Maria would play a central role as the purchasing manager because she would
create both the fictitious vendor and the fraudulent purchase orders. Wally would
also play a role in the warehouse by creating the goods receipt document. By
creating the document, Wally would open up an account payable as well. In
accounting, Ann would be CBI’s last line of defense. Ann would post the payment
to the fictitious vendor, completing the fraud.
SAP processes can decrease this type of fraud by splitting the various processes up
between functional departments and actors within those departments. Access can be
restricted so that no single individual could complete each step necessary for the
fraud. By requiring more actors to take part, the likelihood of a coworker noticing
something is amiss increases. Another measure that can be taken is to utilize an
approved supplier list. This would allow purchase orders to only be placed to
vendors who meet certain requirements. One possible requirement is to undergo a
site visit by members of CBI’s management.
7-17. Select any of the main activities or subactivities in the Procurement process.
The activity used in this example is Create Purchase Order.
a. What event triggers this activity?
The activity is triggered by the purchasing manager approving a purchase
requisition. The purchase requisition may have been automatically generated by
the stock levels of a particular product dropping below a predetermined point.
The purchase requisition may have also been created for a product that CBI
does not normally stock, but needs for a special order or even a new product
line.
c. For one data entry item for this activity, describe what would happen in the
rest of the process if that entry was erroneous.
One potential error would be ordering the wrong quantity of an item. This error
can cause problems if not enough are ordered, creating a stock-out, or if too
many are ordered, creating excess inventory. When the warehouse manager
goes to create the goods receipt, the items will be added to the inventory. Once
Ann receives the invoice for the order, a payment will be posted and CBI will
not have the product quantity it needs.
d. For one data entry item for this activity, describe what limits (controls) you
would put in place on the data to prevent the type of error described in
item c.
To prevent an error like the one described above, CBI could implement a
reasonableness check for the create purchase order activity. For example, a
maximum order quantity of 25 could be set for a common component like a
popular road bike frame. On the other hand, the maximum order quantity might
only be five for a less popular specialty product like a cyclocross bike frame. In
the case of the road bike frame, this control would prevent 52 frames from being
ordered. In the case of the cyclocross bike, the smaller maximum order quantity
could prevent CBI from having a large quantity on-hand going into the off-peak
season.
writes a poet of note, teaching us that the ancient lyre was seven-
toned. The organs of the senses situated on our face are also seven
—two eyes, two passages of hearing, two nostrils, and the seventh
the mouth.
And that the changes in the periods of life take place by sevens,
the Elegies of Solon teach thus:
“The child, while still an infant, in seven years,
Produces and puts forth its fence of teeth;
And when God seven years more completes,
He shows of puberty’s approach the signs;
And in the third, the beard on growing cheek
With down o’erspreads the bloom of changing skin;
And in the fourth septenniad, at his best
In strength, of manliness he shows the signs;
And in the fifth, of marriage, now mature,
And of posterity, the man bethinks;
Nor does he yet desire vain works to see.
The seventh and eighth septenniads see him now
In mind and speech mature, till fifty years;
And in the ninth he still has vigour left,
But strength and body are for virtue great
Less than of yore; when, seven years more, God brings
To end, then not too soon may he submit to die.”
Again, in diseases the seventh day is that of the crisis; and the
fourteenth, in which nature struggles against the causes of the
diseases. And a myriad such instances are adduced by Hermippus
of Berytus, in his book On the Number Seven, regarding it as holy.
And the blessed David delivers clearly to those who know the mystic
account of seven and eight, praising thus: “Our years were exercised
like a spider. The days of our years in them are seventy years; but if
in strength, eighty years. And that will be to reign.”[1158] That, then,
we may be taught that the world was originated, and not suppose
that God made it in time, prophecy adds: “This is the book of the
generation: also of the things in them, when they were created in the
day that God made heaven and earth.”[1159] For the expression
“when they were created” intimates an indefinite and dateless
production. But the expression “in the day that God made,” that is, in
and by which God made “all things,” and “without which not even
one thing was made,” points out the activity exerted by the Son. As
David says, “This is the day which the Lord hath made; let us be glad
and rejoice in it;”[1160] that is, in consequence of the knowledge
imparted by Him, let us celebrate the divine festival; for the Word
that throws light on things hidden, and by whom each created thing
came into life and being, is called day.
And, in fine, the Decalogue, by the letter Iota,[1161] signifies the
blessed name, presenting Jesus, who is the Word.