Learning Objectives

By the end of this chapter, you will be able to:

  • Define a Transaction Processing System (TPS) and its purpose.
  • Identify the key characteristics of a TPS, such as high volume and reliability.
  • Differentiate between batch processing and Online Transaction Processing (OLTP).
  • Provide examples of common TPS in different industries.

Transaction Processing Systems (TPS): The Backbone of Business

A Transaction Processing System (TPS) is a type of information system that captures and processes the data from the day-to-day, routine business transactions of an organization. These systems are the operational backbone of a business, handling the high volume of activities that keep the company running.

TPS are the operational backbone of business Figure 1: Transaction Processing Systems Overview

TPS are critical because they are the primary source of data for all other types of information systems. The data collected by a TPS feeds into Management Information Systems (MIS) and Decision Support Systems (DSS) to help managers make tactical and strategic decisions.

flowchart LR
    subgraph TRANSACTIONS["Business Transactions"]
        T1["🛒 Sales"]
        T2["💳 Payments"]
        T3["📦 Orders"]
        T4["📝 Reservations"]
    end

    TRANSACTIONS --> TPS["⚙️ TPS\nHigh Volume\nHigh Speed\nReliable"]

    TPS --> DB[("🗃️ Central\nDatabase")]
    DB --> MIS["📊 MIS Reports"]
    DB --> DSS["📈 DSS Analysis"]

    style TPS fill:#1565c0,color:#fff

Figure 2: TPS as Foundation for Other Systems

Purpose and Key Characteristics

The main purpose of a TPS is to provide a fast, efficient, and reliable way to process transactions and record them accurately.

Key characteristics of a TPS include:

  • High Volume and High Speed: A TPS must be able to handle a large number of transactions in a short amount of time. For a large e-commerce site, this could be thousands of transactions per minute.

  • Reliability and Accuracy: The system must be highly reliable. A failure in a TPS can halt business operations (e.g., if a point-of-sale system goes down, a store cannot make sales). Data integrity is also paramount; the system must ensure that all transactions are recorded correctly and that the database remains consistent.

  • Structured Operations: Transactions are processed in a standardized and predefined way. For example, the steps for making an ATM withdrawal are the same every time.

How a TPS Processes Transactions

There are two primary methods for processing transactions:

flowchart TB
    subgraph BATCH["Batch Processing"]
        direction TB
        BT1["📝 Collect\nTransactions"]
        BT2["⏰ Wait for\nScheduled Time"]
        BT3["⚙️ Process\nEntire Batch"]
        BT1 --> BT2 --> BT3
    end

    subgraph OLTP["Online Transaction Processing"]
        direction TB
        OT1["📝 Transaction\nOccurs"]
        OT2["⚡ Process\nImmediately"]
        OT3["✅ Instant\nResult"]
        OT1 --> OT2 --> OT3
    end

    style BATCH fill:#6a1b9a,color:#fff
    style OLTP fill:#2e7d32,color:#fff

Figure 3: Batch Processing vs OLTP

  1. Batch Processing: In batch processing, transaction data is collected as a group, or batch, over a period of time. The entire batch is then processed together at a later time (e.g., at the end of the day or overnight). This approach is efficient for processing large amounts of non-critical data.
    • Example: A credit card company processes all of the day’s transactions in a single batch overnight to generate customer statements.
  2. Online Transaction Processing (OLTP): In OLTP, transactions are processed immediately, in real-time, as they occur. This method is required for time-sensitive transactions where an immediate response is needed.
    • Example: When you withdraw money from an ATM, the system immediately checks your balance, dispenses the cash, and updates your account. An e-commerce purchase is another example; the system must verify inventory and process the payment in real-time.

Examples of Transaction Processing Systems

TPS are found in almost every organization:

  • Point-of-Sale (POS) System: Used in retail stores to record sales, process payments, and update inventory levels.
  • Order Entry System: Used to capture customer orders and route them to the warehouse for fulfillment.
  • Payroll System: Processes employee hours, calculates pay and deductions, and generates paychecks.
  • Airline Reservation System: Manages flight bookings, seat assignments, and ticket issuance in real-time.
  • Stock Trading System: Executes buy and sell orders for stocks at high speed.

Summary

Transaction Processing Systems are the workhorses of an organization’s information systems, capturing and processing the high volume of daily business transactions with speed and reliability. They are the foundation upon which most other information systems are built, providing the raw data needed for managerial analysis. Whether processing data in batches or in real-time (OLTP), TPS are essential for the moment-to-moment operations of any modern business.

Key Takeaways

  • TPS captures and processes data from routine business transactions.
  • Key characteristics are high volume, high speed, reliability, and accuracy.
  • Batch processing collects data for later processing, while OLTP processes transactions immediately.
  • TPS are the primary source of data for higher-level systems like MIS and DSS.

Discussion Questions

  1. For each of the following, state whether batch processing or OLTP would be more appropriate and why: (a) processing university admissions applications, (b) booking a hotel room online, (c) generating monthly utility bills.
  2. What could happen to a business if its primary TPS failed for an entire day?
  3. How does the data from a POS system at a supermarket get used by other systems in the company?