Transaction processing systems capture and process the detailed information necessary to update data on the fundamental operations of an organization. Learn about the characteristics of different types of systems in this lesson.
Consider for a moment all the events that take place on a daily basis in an organization. Let's take an electronics store as an example. A single store can easily carry 10,000 different items. Throughout the day, customers come into the store, select a product and pay for it at the checkout counter. Staff is continuously taking items from the stock room and placing them on the shelves. When the stock runs low, new shipments are ordered. Other customers come in to exchange items and deal with warranty issues.
All of these events are referred to as transactions, and keeping track of them requires a transaction processing system. A transaction processing system, or TPS, is a system to capture and process the detailed information necessary to update data on the fundamental operations of an organization.
A transaction is essentially a single event that changes something. There are many different types of transactions. For example, customer orders, receipts, invoices, payments, etc. The actual processing of transactions includes the collection, editing, manipulation and storage of data. The result of processing a transaction is that the records of an organization are updated to reflect the new conditions at the time of the last processed transaction.
Consider the example of the electronics store. A customer buys a video game and pays for it with cash at the register. This event is recorded as a sale transaction. However, it also triggers other transactions.
First, the amount of cash at the register has just gone up. Second, the inventory of the particular video game has gone down by one. These transactions are logically linked - they occur on the same day at the same time and involve the same item. Linking the transactions provides improved data consistency since one cannot exist without the other. The amount of cash in the register cannot go up unless some transaction makes this happen.
There are many different types of transaction processing systems, such as payroll, inventory control, order entry, accounts payable, accounts receivable and others. Transaction processing produces valuable input into many other systems in an organization, such as management information systems and decision support systems. A TPS serves as the foundation for these other systems. A TPS tracks routine operations but does not provide much support for decision making.
For example, in the case of a bank account, a TPS keeps track of all the events associated with a single account: deposits, withdrawals, transfers, fees, interest paid, etc. This provides a good description of the account activity.
Now let's say the customer comes into the bank and requests a car loan. The account activity is useful information but not enough for the bank to make a decision on the car loan. This requires combining information from different sources and analyzing the financial profile of the customer.
Batch vs. Real-Time Processing
There are two ways to process transactions: using batches and in real time. In a batch processing system, transactions are accumulated over a period of time and processed as a single unit, or batch. For example, a store may update its sales records every day after the store closes. Or, a payroll system may process all the time cards every two weeks to determine employee earnings and produce paychecks. Whatever the time period in a batch system, there is some time delay between the actual event and the processing of the transaction to update the records of the organization.
In a real-time processing system, transactions are processed immediately as they occur without any delay to accumulate transactions. Real-time processing is also referred to as online transaction processing, or OLTP. In this case, the records in the system always reflect the current status.
A good example of a real-time processing system would be airline ticket reservations. When you book a ticket and select a seat, that booking is made right away, and nobody else can get that same seat even a second later. Any changes you make to your reservation are also updated in real time. Another example is the stock market. When you submit an order to buy a stock, that order is processed immediately and not at the end of the day.
While real-time processing is often more efficient and in some cases necessary, batch processing may be more effective. In the case of a payroll system, there is really no need to keep track of how much an employee has earned every minute of the day and doing this every two weeks is likely sufficient.
Types of Processing Systems
There are a few major types of transaction processing systems, including order processing, accounting and purchasing. Order processing systems are critical to many organizations. When a customer order is received, this puts into motion a series of actions within the company: check inventory, find the physical items in the warehouse, fill the order, create an invoice and ship the order. All these individual events are tracked by a TPS.
Accounting systems track the flow of data associated with all the cash flows in an organization. For example, when the invoice is created for the customer order, this is added to the customer's account. When the invoice is paid, this information is used to update the account information. Purchasing systems support functions such as inventory control, purchase order processing, receiving and accounts payable.
All transaction processing systems perform a common set of data-processing activities. Data collection includes capturing and gathering all the data necessary to process transactions. Increasingly, data collection is an automated process. For example, when a cashier at the electronics store of the supermarket scans the barcode of your purchases, the information is collected and stored automatically.
Data editing includes checking data for validity and completeness. Data that does not meet certain criteria may be rejected. For example, certain product codes may not be in the system and don't show up automatically. Data correction involves re-entering data that was not collected correctly. This could involve manually adding the correct product codes.
Data manipulation consists of basic calculations on the data to make it easier to work with - for example, summarizing sales records by product category. Data storage involves making sure the updated database is saved and stored securely so it can be used by other systems. Finally, document production involves generating output in the form of reports or documents. For example, a manager may want to review the sales reports on a daily basis.
A TPS typically does not contain very detailed analytical functions. If a manager wanted to analyze trends in the sales information, for example, the data would be exported to another information system for more detailed processing and analysis. However, a TPS is critical since it collects and organizes all the raw data necessary to support higher-level information systems.
A transaction processing system, or TPS, is a system to capture and process the detailed information necessary to update data on the fundamental operations of an organization. Transactions are single events that change something, such as customer orders, receipts, invoices, payments, etc.
In a batch processing system, transactions are accumulated over a period of time and processed as a single unit. In a real-time processing system, transactions are processed immediately as they occur.
After you've completed this lesson, you'll be able to:
- Define transaction processing system and transaction
- Explain the differences in batch processing systems and real-time processing systems
- Describe several types of processing systems