ERP by qingyunliuliu


									Notes of OAS, KBS, MRP, BRP, SCM, CRM,
Information Communication Technology, TP – Unit IV

Option-adjusted spread
Option adjusted spread (OAS) is the flat spread over the treasury yield curve required
to discount a security payment to match its market price. This concept can be applied to
mortgage-backed security (MBS), Options, Bonds and any other interest-rate Derivative.

In contrast to the simple "yield curve spread" measurement of bond premium over a pre-
determined cash-flow model, the OAS describes the market premium over a model
including two types of volatility:

       Variable interest rates
       Variable prepayment rates.

Designing such models in the first place is complicated because prepayment variations
are a behavioural function of the stochastic interest rate. (They tend to go up as interest
rates come down.)

OAS is an emerging term with fluid use across MBS finance. The definition here is based
on Lakhbir Hayre's Mortgage Backed Securities text book. Other definitions are rough

        Take the expected value (mean NPV) across the range of all possible rate
        scenarios when discounting each scenario's actual cash flows with the treasury
        yield curve plus a spread, X. The OAS is defined as the value of X equating the
        market price of the MBS to its value in this theoretical framework.

Treasury bonds may not be available with maturities exactly matching likely cash flow
payments so some interpolation may be necessary to make this calculation.

Knowledge-based systems
Knowledge-based systems are systems based on the methods and techniques of
Artificial Intelligence. Their core components are the knowledge base and the inference

While for some authors[who?] expert systems, case-based reasoning systems and neural
networks are all particular types of knowledge-based systems, there are others who
consider that neural networks are different, and exclude it from this category.[citation needed]

KBS is a frequently used abbreviation for knowledge-based system.
Material Requirements Planning
Material Requirements Planning (MRP) is a software based production planning and
inventory control system used to manage manufacturing processes. Although it is not
common nowadays, it is possible to conduct MRP by hand as well.

An MRP system is intended to simultaneously meet three objectives:

      Ensure materials and products are available for production and delivery to
      Maintain the lowest possible level of inventory.
      Plan manufacturing activities, delivery schedules and purchasing activities.
The scope of MRP in manufacturing
Manufacturing organizations, whatever their products, face the same daily practical
problem - that customers want products to be available in a shorter time than it takes to
make them. This means that some level of planning is required.

Companies need to control the types and quantities of materials they purchase, plan
which products are to be produced and in what quantities and ensure that they are able to
meet current and future customer demand, all at the lowest possible cost. Making a bad
decision in any of these areas will make the company lose money. A few examples are
given below:

      If a company purchases insufficient quantities of an item used in manufacturing,
       or the wrong item, they may be unable to meet contracts to supply products by the
       agreed date.

      If a company purchases excessive quantities of an item, money is being wasted -
       the excess quantity ties up cash while it remains as stock and may never even be
       used at all. However, some purchased items will have a minimum quantity that
       must be met, therefore, purchasing excess is necessary.

      Beginning production of an order at the wrong time can cause customer deadlines
       to be missed.

MRP is a tool to deal with these problems. It provides answers for several questions:

      What items are required?
      How many are required?
      When are they required?

MRP can be applied both to items that are purchased from outside suppliers and to sub-
assemblies, produced internally, that are components of more complex items.

The data that must be considered include:

      The end item (or items) being created. This is sometimes called Independent
       Demand, or Level "0" on BOM (Bill of materials).
      How much is required at a time.
      When the quantities are required to meet demand.
      Shelf life of stored materials.
      Inventory status records. Records of net materials available for use already in
       stock (on hand) and materials on order from suppliers.
      Bills of materials. Details of the materials, components and subassemblies
       required to make each product.
      Planning Data. This includes all the restraints and directions to produce the end
       items. This includes such items as: Routings, Labor and Machine Standards,
       Quality and Testing Standards, Pull/Work Cell and Push commands, Lot sizing
       techniques (i.e. Fixed Lot Size, Lot-For-Lot, Economic Order Quantity), Scrap
       Percentages, and other inputs.

There are two outputs and a variety of messages/reports:

      Output 1 is the "Recommended Production Schedule" which lays out a detailed
       schedule of the required minimum start and completion dates, with quantities, for
       each step of the Routing and Bill Of Material required to satisfy the demand from
       the Master Production Schedule (MPS).
      Output 2 is the "Recommended Purchasing Schedule". This lays out both the
       dates that the purchased items should be received into the facility AND the dates
       that the Purchase orders, or Blanket Order Release should occur to match the
       production schedules.

Messages and Reports:

      Purchase orders. An order to a supplier to provide materials.
      Reschedule notices. These recommend cancelling, increasing, delaying or
       speeding up existing orders.

Note that the outputs are recommended. Due to a variety of changing conditions in
companies, since the last MRP / ERP system Re-Generation, the recommended outputs
need to be reviewed by trained people to group orders for benefits in set-up or freight
savings. These actions are beyond the linear calculations of the MRP computer software.

The Barely Repeatable Process (BRP)

Typically exceptions to the ERPs, anything that involves people in non-rigid flows
through education, health, support, government, consulting or the daily unplanned issues
that happens in every organisation. The activities that employees spend most of their time
on every day.
Processes that often starts with an e-mail or a call. A process volume, measured by time
and resource spent at organisations, probably larger than for the Easily Repeatable
These are mostly handled and organised - frameworked - by systems like paper based
rules and policies, e-mail, meetings, calls and now in more modern organisations by
wikis and other collaboration systems and methods.

Known by extensive loss of information (e-mails residing on HDDs), little knowledge
acquired and reused (typical research says 70% of problems solved before without being
known) and most of all, untrustworthy processes (oops, forgot to send that mail). In other
words not an iota (well almost) of business process thinking or methodology applied to
this huge untapped area of business processes.

Supply chain management
Supply chain management (SCM) is the management of a network of interconnected
businesses involved in the ultimate provision of product and service packages required by
end customers (Harland, 1996). Supply Chain Management spans all movement and
storage of raw materials, work-in-process inventory, and finished goods from point-of-
origin to point-of-consumption (supply chain).
Supply chain management
Organizations increasingly find that they must rely on effective supply chains, or
networks, to successfully compete in the global market and networked economy.[2] In
Peter Drucker's (1998) new management paradigms, this concept of business
relationships extends beyond traditional enterprise boundaries and seeks to organize
entire business processes throughout a value chain of multiple companies.

During the past decades, globalization, outsourcing and information technology have
enabled many organizations, such as Dell and Hewlett Packard, to successfully operate
solid collaborative supply networks in which each specialized business partner focuses on
only a few key strategic activities (Scott, 1993). This inter-organizational supply network
can be acknowledged as a new form of organization. However, with the complicated
interactions among the players, the network structure fits neither "market" nor
"hierarchy" categories (Powell, 1990). It is not clear what kind of performance impacts
different supply network structures could have on firms, and little is known about the
coordination conditions and trade-offs that may exist among the players. From a systems
perspective, a complex network structure can be decomposed into individual component
firms (Zhang and Dilts, 2004). Traditionally, companies in a supply network concentrate
on the inputs and outputs of the processes, with little concern for the internal
management working of other individual players. Therefore, the choice of an internal
management control structure is known to impact local firm performance (Mintzberg,

In the 21st century, changes in the business environment have contributed to the
development of supply chain networks. First, as an outcome of globalization and the
proliferation of multinational companies, joint ventures, strategic alliances and business
partnerships, there were found to be significant success factors, following the earlier
"Just-In-Time", "Lean Manufacturing" and "Agile Manufacturing" practices.[3] Second,
technological changes, particularly the dramatic fall in information communication costs,
which are a significant component of transaction costs, have led to changes in
coordination among the members of the supply chain network (Coase, 1998).

Many researchers have recognized these kinds of supply network structures as a new
organization form, using terms such as "Keiretsu", "Extended Enterprise", "Virtual
Corporation", "Global Production Network", and "Next Generation Manufacturing
System".[4] In general, such a structure can be defined as "a group of semi-independent
organizations, each with their capabilities, which collaborate in ever-changing
constellations to serve one or more markets in order to achieve some business goal
specific to that collaboration" (Akkermans, 2001).

The security management system for supply chain is described in ISO/IEC 28000 and
ISO/IEC 28001 and related standards published jointly by ISO and IEC.

Supply chain business process integration
Successful SCM requires a change from managing individual functions to integrating
activities into key supply chain processes. An example scenario: the purchasing
department places orders as requirements become appropriate. Marketing, responding to
customer demand, communicates with several distributors and retailers as it attempts to
satisfy this demand. Shared information between supply chain partners can only be fully
leveraged through process integration.

Supply chain business process integration involves collaborative work between buyers
and suppliers, joint product development, common systems and shared information.
According to Lambert and Cooper (2000) operating an integrated supply chain requires
continuous information flow. However, in many companies, management has reached the
conclusion that optimizing the product flows cannot be accomplished without
implementing a process approach to the business. The key supply chain processes stated
by Lambert (2004) [5] are:

       Customer relationship management
       Customer service management
       Demand management
       Order fulfillment
       Manufacturing flow management
       Supplier relationship management
       Product development and commercialization
       Returns management

Much has been written about demand management. Best in Class companies have similar
characteristics. They include the following: a) Internal and external collaboration b) Lead
time reduction initiatives c) Tighter feedback from customer and market demand d)
Customer level forecasting

One could suggest other key critical supply business processes combining these processes
stated by Lambert such as:

   a.   Customer service management
   b.   Procurement
   c.   Product development and commercialization
   d.   Manufacturing flow management/support
   e.   Physical distribution
   f.   Outsourcing/partnerships
   g.   Performance measurement

a) Customer service management process

Customer Relationship Management concerns the relationship between the organization
and its customers. Customer service provides the source of customer information. It also
provides the customer with real-time information on promising dates and product
availability through interfaces with the company's production and distribution operations.
Successful organizations use following steps to build customer relationships:

       determine mutually satisfying goals between organization and customers
       establish and maintain customer rapport
       produce positive feelings in the organization and the customers

b) Procurement process
Strategic plans are developed with suppliers to support the manufacturing flow
management process and development of new products. In firms where operations extend
globally, sourcing should be managed on a global basis. The desired outcome is a win-
win relationship, where both parties benefit, and reduction times in the design cycle and
product development are achieved. Also, the purchasing function develops rapid
communication systems, such as electronic data interchange (EDI) and Internet linkages
to transfer possible requirements more rapidly. Activities related to obtaining products
and materials from outside suppliers requires performing resource planning, supply
sourcing, negotiation, order placement, inbound transportation, storage, handling and
quality assurance, many of which include the responsibility to coordinate with suppliers
in scheduling, supply continuity, hedging, and research into new sources or programs.

c) Product development and commercialization

Here, customers and suppliers must be united into the product development process, thus
to reduce time to market. As product life cycles shorten, the appropriate products must be
developed and successfully launched in ever shorter time-schedules to remain
competitive. According to Lambert and Cooper (2000), managers of the product
development and commercialization process must:

   1. coordinate with customer relationship management to identify customer-
      articulated needs;
   2. select materials and suppliers in conjunction with procurement, and
   3. develop production technology in manufacturing flow to manufacture and
      integrate into the best supply chain flow for the product/market combination.

d) Manufacturing flow management process

The manufacturing process is produced and supplies products to the distribution channels
based on past forecasts. Manufacturing processes must be flexible to respond to market
changes, and must accommodate mass customization. Orders are processes operating on
a just-in-time (JIT) basis in minimum lot sizes. Also, changes in the manufacturing flow
process lead to shorter cycle times, meaning improved responsiveness and efficiency of
demand to customers. Activities related to planning, scheduling and supporting
manufacturing operations, such as work-in-process storage, handling, transportation, and
time phasing of components, inventory at manufacturing sites and maximum flexibility in
the coordination of geographic and final assemblies postponement of physical
distribution operations.

e) Physical distribution

This concerns movement of a finished product/service to customers. In physical
distribution, the customer is the final destination of a marketing channel, and the
availability of the product/service is a vital part of each channel participant's marketing
effort. It is also through the physical distribution process that the time and space of
customer service become an integral part of marketing, thus it links a marketing channel
with its customers (e.g. links manufacturers, wholesalers, retailers).

f) Outsourcing/partnerships

This is not just outsourcing the procurement of materials and components, but also
outsourcing of services that traditionally have been provided in-house. The logic of this
trend is that the company will increasingly focus on those activities in the value chain
where it has a distinctive advantage and everything else it will outsource. This movement
has been particularly evident in logistics where the provision of transport, warehousing
and inventory control is increasingly subcontracted to specialists or logistics partners.
Also, to manage and control this network of partners and suppliers requires a blend of
both central and local involvement. Hence, strategic decisions need to be taken centrally
with the monitoring and control of supplier performance and day-to-day liaison with
logistics partners being best managed at a local level.

g) Performance measurement

Experts found a strong relationship from the largest arcs of supplier and customer
integration to market share and profitability. By taking advantage of supplier capabilities
and emphasizing a long-term supply chain perspective in customer relationships can be
both correlated with firm performance. As logistics competency becomes a more critical
factor in creating and maintaining competitive advantage, logistics measurement becomes
increasingly important because the difference between profitable and unprofitable
operations becomes more narrow. A.T. Kearney Consultants (1985) noted that firms
engaging in comprehensive performance measurement realized improvements in overall
productivity. According to experts internal measures are generally collected and analyzed
by the firm including

   1.   Cost
   2.   Customer Service
   3.   Productivity measures
   4.   Asset measurement, and
   5.   Quality.

External performance measurement is examined through customer perception measures
and "best practice" benchmarking, and includes 1) customer perception measurement,
and 2) best practice benchmarking. Components of Supply Chain Management are 1.
Standardization 2. Postponement 3. Customization

Customer relationship management
Customer relationship management (CRM) consists of the processes a company uses
to track and organize its contacts with its current and prospective customers. CRM
software is used to support these processes; information about customers and customer
interactions can be entered, stored and accessed by employees in different company
departments. Typical CRM goals are to improve services provided to customers, and to
use customer contact information for targeted marketing.

While the term CRM generally refers to a software-based approach to handling customer
relationships, most CRM software vendors stress that a successful CRM effort requires a
holistic approach.[1] CRM initiatives often fail because implementation was limited to
software installation, without providing the context, support and understanding for
employees to learn, and take full advantage of the information systems.[2] CRM can be
implemented without major investments in software, but software is often necessary to
explore the full benefits of a CRM strategy.
Other problems occur[3] when failing to think of sales as the output of a process that itself
needs to be studied and taken into account when planning automation[4].

From the outside, customers interacting with a company perceive the business as a single
entity, despite often interacting with a number of employees in different roles and
departments. CRM is a combination of policies, processes, and strategies implemented by
an organization to unify its customer interactions and provide a means to track customer
information. It involves the use of technology in attracting new and profitable customers,
while forming tighter bonds with existing ones.

CRM includes many aspects which relate directly to one another:

      Front office operations — Direct interaction with customers, e.g. face to face
       meetings, phone calls, e-mail, online services etc.
      Back office operations — Operations that ultimately affect the activities of the
       front office (e.g., billing, maintenance, planning, marketing, advertising, finance,
       manufacturing, etc.)
      Business relationships — Interaction with other companies and partners, such as
       suppliers/vendors and retail outlets/distributors, industry networks (lobbying
       groups, trade associations). This external network supports front and back office
      Analysis — Key CRM data can be analyzed in order to plan target-marketing
       campaigns, conceive business strategies, and judge the success of CRM activities
       (e.g., market share, number and types of customers, revenue, profitability).

Perhaps it is important to note that while most consumers of CRM view it as a software
"solution", there is a growing realization in the corporate world that CRM is really a
customer-centric strategy for doing business; supported by software. Along these lines,
CRM thought leaders like Dick Lee of High Yield Methods define CRM as "CRM adds
value to customers in ways that add value back to the company"

Types/variations of CRM
There are several different approaches to CRM, with different software packages
focusing on different aspects. In general, Customer Service, Campaign Management and
Sales Force Automation form the core of the system (with SFA being the most
popular[citation needed]).

[edit] Operational CRM

Operational CRM provides support to "front office" business processes, e.g. to sales,
marketing and service staff. Interactions with customers are generally stored in
customers' contact histories, and staff can retrieve customer information as necessary.

The contact history provides staff members with immediate access to important
information on the customer (products owned, prior support calls etc.), eliminating the
need to individually obtain this information directly from the customer. Reaching to the
customer at right time at right place is preferable.

Operational CRM processes customer data for a variety of purposes:

      Managing campaigns
      Enterprise Marketing Automation
      Sales Force Automation
      Sales Management System

[edit] Analytical CRM

Analytical CRM analyzes customer data for a variety of purposes:

      Designing and executing targeted marketing campaigns
      Designing and executing campaigns, e.g. customer acquisition, cross-selling, up-
      Analysing customer behavior in order to make decisions relating to products and
       services (e.g. pricing, product development)
      Management information system (e.g. financial forecasting and customer
       profitability analysis)

Analytical CRM generally makes heavy use of data mining and other techniques to
produce useful results for decision-making

[edit] Sales Intelligence CRM

Sales Intelligence CRM is similar to Analytical CRM, but is intended as a more direct
sales tool. Features include alerts sent to sales staff regarding:

      Cross-selling/Up-selling/Switch-selling opportunities
      Customer drift
      Sales performance
      Customer trends
      Customer margins
      Customer alignment

[edit] Campaign Management

Campaign management combines elements of Operational and Analytical CRM.
Campaign management functions include:

      Target groups formed from the client base according to selected criteria
      Sending campaign-related material (e.g. on special offers) to selected recipients
       using various channels (e.g. e-mail, telephone, SMS, post)
      Tracking, storing, and analyzing campaign statistics, including tracking responses
       and analyzing trends
[edit] Collaborative CRM

Collaborative CRM covers aspects of a company's dealings with customers that are
handled by various departments within a company, such as sales, technical support and
marketing. Staff members from different departments can share information collected
when interacting with customers. For example, feedback received by customer support
agents can provide other staff members with information on the services and features
requested by customers. Collaborative CRM's ultimate goal is to use information
collected by all departments to improve the quality of services provided by the

[edit] Consumer Relationship CRM

Consumer Relationship System (CRS) covers aspects of a company's dealing with
customers handled by the Consumer Affairs and Customer Relations contact centers
within a company.[1] Representatives handle in-bound contact from anonymous
consumers and customers. Early warnings can be issued regarding product issues (e.g.
item recalls) and current consumer sentiment can be tracked (voice of the customer).

Information and communication
Information and Communications Technology - or technologies (ICT) is an umbrella
term that includes all technologies for the manipulation and communication of
information. The term is sometimes used in preference to Information Technology (IT),
particularly in two communities: education and government. In the common usage it is
often assumed that ICT is synonymous with IT; ICT in fact encompasses any medium to
record information (magnetic disk/tape, optical disks (CD/DVD), flash memory etc. and
arguably also paper records); technology for broadcasting information - radio, television;
and technology for communicating through voice and sound or images - microphone,
camera, loudspeaker, telephone to cellular phones. It includes the wide variety of
computing hardware (PCs, servers, mainframes, networked storage), the rapidly
developing personal hardware market comprising mobile phones, personal devices, MP3
players, and much more; the full gamut of application software from the smallest home-
developed spreadsheet to the largest enterprise packages and online software services;
and the hardware and software needed to operate networks for transmission of
information, again ranging from a home network to the largest global private networks
operated by major commercial enterprises and, of course, the Internet. Thus, "ICT"
makes more explicit that technologies such as broadcasting and wireless mobile
telecommunications are included.

It should be noted that "ICT" by this English definition is different in nuance and scope
than under "ICT" in Japanese, which is more technical and narrow in scope.

ICT capabilities vary widely from the sophistication of major western economies to lesser
provision in the developing world. But the latter are catching up fast, often leapfrogging
older generations of technology and developing new solutions that match their specific

Transaction processing
In computer science, transaction processing is information processing that is divided
into individual, indivisible operations, called transactions. Each transaction must succeed
or fail as a complete unit; it cannot remain in an intermediate state.

Transaction processing is designed to maintain a computer system (typically, but not
limited to, a database or some modern filesystems) in a known, consistent state, by
ensuring that any operations carried out on the system that are interdependent are either
all completed successfully or all canceled successfully.

For example, consider a typical banking transaction that involves moving £500 from a
customer's savings account to a customer's checking account. This transaction is a single
operation in the eyes of the bank, but it involves at least two separate operations in
computer terms: debiting the savings account by £500, and crediting the checking
account by £500. If the debit operation succeeds but the credit does not (or vice versa),
the books of the bank will not balance at the end of the day. There must therefore be a
way to ensure that either both operations succeed or both fail, so that there is never any
inconsistency in the bank's database as a whole. Transaction processing is designed to
provide this.

Transaction processing allows multiple individual operations to be linked together
automatically as a single, indivisible transaction. The transaction-processing system
ensures that either all operations in a transaction are completed without error, or none of
them are. If some of the operations are completed but errors occur when the others are
attempted, the transaction-processing system “rolls back” all of the operations of the
transaction (including the successful ones), thereby erasing all traces of the transaction
and restoring the system to the consistent, known state that it was in before processing of
the transaction began. If all operations of a transaction are completed successfully, the
transaction is committed by the system, and all changes to the database are made
permanent; the transaction cannot be rolled back once this is done.

Transaction processing guards against hardware and software errors that might leave a
transaction partially completed, with the system left in an unknown, inconsistent state. If
the computer system crashes in the middle of a transaction, the transaction processing
system guarantees that all operations in any uncommitted (i.e., not completely processed)
transactions are cancelled.

Transactions are processed in a strict chronological order. If transaction n+1 intends to
touch the same portion of the database as transaction n, transaction n+1 does not begin
until transaction n is committed. Before any transaction is committed, all other
transactions affecting the same part of the system must also be committed; there can be
no “holes” in the sequence of preceding transactions.
The basic principles of all transaction-processing systems are the same. However, the
terminology may vary from one transaction-processing system to another, and the terms
used below are not necessarily universal.

[edit] Rollback

Transaction-processing systems ensure database integrity by recording intermediate states
of the database as it is modified, then using these records to restore the database to a
known state if a transaction cannot be committed. For example, copies of information on
the database prior to its modification by a transaction are set aside by the system before
the transaction can make any modifications (this is sometimes called a before image). If
any part of the transaction fails before it is committed, these copies are used to restore the
database to the state it was in before the transaction began (rollback).

[edit] Rollforward

It is also possible to keep a separate journal of all modifications to a database (sometimes
called after images); this is not required for rollback of failed transactions, but it is useful
for updating the database in the event of a database failure, so some transaction-
processing systems provide it. If the database fails entirely, it must be restored from the
most recent back-up. The back-up will not reflect transactions committed since the back-
up was made. However, once the database is restored, the journal of after images can be
applied to the database (rollforward) to bring the database up to date. Any transactions in
progress at the time of the failure can then be rolled back. The result is a database in a
consistent, known state that includes the results of all transactions committed up to the
moment of failure.

[edit] Deadlocks

In some cases, two transactions may, in the course of their processing, attempt to access
the same portion of a database at the same time, in a way that prevents them from
proceeding. For example, transaction A may access portion X of the database, and
transaction B may access portion Y of the database. If, at that point, transaction A then
tries to access portion Y of the database while transaction B tries to access portion X, a
deadlock occurs, and neither transaction can move forward. Transaction-processing
systems are designed to detect these deadlocks when they occur. Typically both
transactions will be cancelled and rolled back, and then they will be started again in a
different order, automatically, so that the deadlock doesn't occur again. Or sometimes,
just one of the deadlocked transactions will be cancelled, rolled back, and automatically
re-started after a short delay.

Deadlocks can also occur between three or more transactions. The more transactions
involved, the more difficult they are to detect, to the point that transaction processing
systems find there is a practical limit to the deadlocks they can detect.

[edit] ACID criteria (Atomicity, Consistency, Isolation, Durability)
Main article: ACID

Transaction processing has these benefits:
   It allows sharing of computer resources among many users
   It shifts the time of job processing to when the computing resources are less busy
   It avoids idling the computing resources without minute-by-minute human
    interaction and supervision
   It is used on expensive classes of computers to help amortize the cost by keeping
    high rates of utilization of those expensive resources
   A transaction is an atomic unit of processing.

To top