MD240 Supply Chain Management (SCM) and Enterprise Resource

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MD240Supply Chain Management (SCM) and
Enterprise Resource Planning (ERP)
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Overview

• Background
• Essentials of Supply Chains
• Enterprise Resource Planning and the Internal
  Supply Chain
• Supply Chain Management
• Global Supply Chains
• SCM and E-Commerce

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Background

• Supply Chain Management is an Old Concept
• Clercus of Sparta (401 BC)
• Napoleon vs. Russia
• Germany vs. Russia (WWII)
• Gulf War
• Supply chain consisted of strategically placed
  bases of soldiers and materiel (inventory)
• Half of this supply chain was closed during the
  1990s
• Present Day US Military
• Air Bridge a supply chain of transport planes
  continually refueled by strategically located gas
  tanker planes

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Essentials of Supply Chains
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Essentials of Supply Chains

• Supply Chain
• The flow of material, information, and services
  from raw material suppliers through factories and
  warehouses to the end customers
• Supply Chain Management (SCM)
• To plan, organize, and coordinate all the supply
  chains activities
• A total systems approach for coordinating all of
  a supply chains activities

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Essentials of Supply Chains

• Demand Chains
• The segment of the supply chain involving the
  process of taking orders from customers
• Demand Chain Management
• Similar to SCM, but more of a focus on ...
• customer touchpoints
• pull orientation

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Essentials of Supply Chains

• The Components of Supply Chains
• Upstream supply chain
• includes the organizations first-tier suppliers
  and their suppliers
• Internal supply chain
• includes all the processes used by an
  organization in transforming the inputs of the
  suppliers to outputs
• Downstream supply chain
• includes all the processes involved in delivering
  the products to final customers

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Essentials of Supply ChainsA Generic Supply Chain
Upstream
Internal
Downstream
2nd Tier Suppliers
1st Tier Suppliers
Assembly/ Manufacturing and Packaging
2nd Tier Suppliers
Distribution Centers
Retailers
Customers
The Generic Process
1st Tier Suppliers
2nd Tier Suppliers
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Essentials of Supply ChainsPush vs. Pull
Orientation
PUSH
PULL
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Essentials of Supply ChainsTypical Push Supply
Chain
Upstream
Internal
Downstream
Packaged Cereal
Cereal
Grain
Grain Producer
Processing Facility
Distribution Centers
Stores
Customers
Packaging
The Cereal Manufacturing Process
Box Paperboard
Corrugate Paper Co.
Lumber Company
Label Manufacturing
Labels
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Essentials of Supply Chains

• Forward Supply Chain
• The supply chain that manufactures and delivers
  new products to end customers
• Reverse Supply Chain
• A supply chain for defective or returned products
  that are being sent from the customer back to the
  retailer/distributor/manufacturer to wherever
  they will be refurbished/junked
• Reverse logistics concerns the reverse flows of
  these items along the supply chain

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Essentials of Supply Chains

• Green Supply Chains/Green Manufacturing
• Designing environmentally friendly supply chains
• Supports manufacturing stage, use of products,
  and disposal of products

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Enterprise Resource Planning and the Internal
Supply Chain
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Internal Supply ChainEvolution of Manufacturing
Info. Systems
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Enterprise Resource Planning (ERP)

• ERP
• A process of planning and managing all resources
  and their use in the entire enterprise
• Objective
• To integrate all departments and functions across
  a company onto a single computer system that can
  serve all of the enterprises needs
• Results
• productivity improvement
• better profitability
• increases customer satisfaction

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Enterprise Resource Planning (ERP)

• Pros
• provides a single interface for managing all the
  routine activities performed in manufacturing
• can integrate several hundred applications
• plays critical role in getting small- and
  medium-sized manufacturers to focus on business
  processes
• Cons
• may need to change existing business processes to
  fit SAP, PeopleSoft or other ERP vendors format
• never meant to fully support supply chains (SCM)
• never meant to support CRM
• difficult to build, operate, change and maintain

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Enterprise Resource Planning (ERP) Generations
of ERP

• First Generation ERP
• Supported routine transactional activities
• Excelled in transaction management
• Generated reports which provided a snapshot of
  the business at a point in time
• Did not support the continuous refining and
  enhancing of plans as changes and events occur,
  up to the very last minute before executing the
  plan
• Second Generation ERP
• Adds decision support (DSS) and business
  intelligence (BI) capabilities
• Integration of database management systems (DBMS)
  and spreadsheets in Excel or Lotus 1-2-3
• Web-based
• Integrates CRM and EC

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Enterprise Resource Planning (ERP) ERP
Technologies

• ERP Application Vendors
• SAP
• Oracle
• PeopleSoft
• ERP Integration Tools
• Message-oriented Middleware (e.g. IBM MQSeries,
  Microsoft MSMQ)
• WWW technologies
• Web Services technologies (.NET/J2EE)

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Enterprise Resource Planning (ERP) ERP
Implementation

• ERP Implementation Approaches
• Vendor Specific
• Use ERP software components from a single vendor
• Using a single vendor speeds up implementation
  times, reduces incompatibility problems, reduces
  the need for middleware to connect different
  vendors ERP components
• Best of Breed
• Pick and choose the best software components
  available for various ERP tasks
• Picking best-of-breed components allow you to
  choose ERP processes that work better for your
  business, and to have the best available
  components, at the possible cost of additional
  implementation time and maintenance costs

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Enterprise Resource Planning (ERP) ASPs and ERP
Outsourcing

• Application Service Providers (ASP)
• Some ASPs offer to lease ERP-based applications
  to other businesses over long-term (gt5 year)
  contracts
• Offerings evident in ERP-added functions
• Electronic commerce
• Customer relationship management (CRM)
• Datamarts
• Desktop productivity
• Human resources information systems (HRMS)
• Other supply chain-related applications

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Enterprise Resource Planning (ERP)

• If a company installs an ERP system, how will it
  affect their management of their supply chain
  problems?

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Supply Chain Problems
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Supply Chain Problems

• History
• First industry to focus on rationalized
  management of the supply chain was the retail
  food industry
• Multi-tier supply chain structure causes
  difficulties in inventories and delivery times
• Manufacturers offer lots of temporary price cuts
  to move perishables
• Retailers hold lots of special sales
• Consumers are willing to stock up and hold
  inventories
• All of these together create chaos in this supply
  chain
• Efficient Consumer Response (ECR) is the food
  industrys version of SCM
• Developed by large food company consortia
• Large retailers forced all of their suppliers to
  adopt ECR, or lose their business

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Supply Chain ProblemsProblems Along Supply Chains
Consumer Demand
Retailer
Manufacturer
Wholesaler
Distributor
Price fluctuations Order batching Rationing of
supply
Poor demand forecasts Demand fluctuations Spec
ial sales
Rationing of supply
Price fluctuations Order batching Rationing
of supply
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Supply Chain ProblemsProblems Along Supply Chains

• Uncertainties
• demand forecasts
• influenced by competition, prices, weather
  conditions, technological development, and
  customers general confidence
• delivery times
• depend on several factors ranging from machine
  failures to road conditions and traffic jams,
  that way interfere with shipments
• Symptoms of poor SCM
• poor customer service, which hinders people from
  getting the product or service when and where
  needed, or gives them a product of poor quality
• High cost, low (or no) profit
• The Bullwhip Effect

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Supply Chain ProblemsThe Bullwhip Effect
Huge Variation in Orders and Inventories
A Small Demand Shift
Leads To
Retailer
Distributor
Wholesaler
Huge Variation in On-Hand Inventory and
Manufacturing
The Bullwhip Effect
Manufacturer
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Supply Chain Management
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Supply Chain ManagementOrganizational Benefits
reduce uncertainty and risks in the supply chain
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Supply Chain ManagementPotential Solutions to
Problems

• Vertical integration - building inventories
• Coordination of all different activities
• Use outsourcing rather than do-it-yourself during
  demand peaks
• Buy rather than make production inputs
  whenever appropriate
• Configure optimal shipping plans
• Create strategic partnerships with suppliers
• Use just-in-time approach to purchasing
• Use fewer suppliers
• Use IT to support the above, to integrate
  processes and to communicate better

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Supply Chain Management Integrate Information
Along Supply Chain

• Supply Chain Integration
• After the introduction of computer-based
  information, companies started to integrate the
  links of the supply chain
• New forms of organizational relationships and the
  information revolution, especially the Internet
  and electronic commerce, have brought SCM to the
  forefront of management attention

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Supply Chain Management CPFR

• Collaborative Planning, Forecasting, and
  Replenishment (CPFR)
• Retailing industry initiative that has become
  quite popular over the past couple of years
• Trading partners collaborate to determine product
  designs, demand forecasts, production levels, and
  replenishment amounts to minimize stockouts

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Supply Chain Management Benefits of Information
Sharing

• Tangible benefits
• inventory reduction
• personnel reduction
• productivity improvement
• order management improvement
• financial-close cycle improvements
• IT cost reduction
• procurement cost reduction
• cash management improvements
• revenue/profit increases
• transportation logistics cost reduction
• maintenance reduction
• on-time delivery improvement

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Supply Chain Management Benefits of Information
Sharing

• Intangible benefits
• information visibility
• new/improved processes
• customer responsiveness
• standardization
• flexibility
• globalization
• business performance.

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Supply Chain ManagementSuccess Story PG and
Wal-Mart

• Wal-Mart provides access to sales data for every
  item PG makes for Wal-Mart
• PG obtains similar data from other retailers
• By monitoring inventory positions at all
  retailers, PG can know what is selling, what to
  make, and how quickly to make it

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Supply Chain ManagementFailure Story Cisco

• Cisco supply chain was touted as an amazing feat
  in SCM
• When Cisco needed something, the order was sent
  out via the SCM system to all of the various
  vendors
• In order to get the vendors to work with the SCM
  system, Cisco guaranteed that they would pay for
  any unused inventories that vendors ended up with
• What Cisco didnt realize was that their ordering
  system was flawed
• Vendors could not communicate with each other
• The total SCM system didnt control the MRP
  process further down the supply chain
• When an order (say 100) was offered to the
  vendors, the vendors (say 25) would each place an
  order for 100 sets of required components,
  leading to 2500 units being moved into Ciscos
  supply chain
• Eventually, Cisco had to re-write their SCM
  system and write off 1 Billion for inventories
  that they did not need

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Supply Chain ManagementTrends

• Integrating CRM to ERP and SCM
• Business Intelligence
• Building knowledge about what is going on in your
  business by using DSS, EIS, data mining,
  intelligent support systems, and other
  knowledge-oriented IT
• Supply Chain Intelligence
• Business intelligence technologies embedded in
  SCM applications
• Componentization
• A component architecture takes advantage of
  modularity the ability to mix-and-match
  different modules that work together seamlessly
• Componentization saves money on maintenance and
  upgrading, since each module/component/object can
  be upgraded individually, in a manner that does
  not affect other modules

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Global Supply Chains
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Global Supply Chains

• Global supply chains exhibit their own unique
  challenges
• Local regulations
• Different labor laws
• Regional customs (business, religious, etc.)
• Difficulties of sourcing materials

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Global Supply Chain Management IT Integrates
Global Supply Chains

• Integration
• IT provides EDI, communication options, online
  expertise in sometimes difficult and
  fast-changing regulations
• Collaboration
• IT can be instrumental in helping businesses find
  trade partners
• Outsourcing for Flexibility/Cost, etc.
• IT facilitates outsourcing of products and
  services, especially IT programming, to countries
  with plentiful supply of labor, at low cost

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Global Supply Chain ManagementSuccess Story Li
Fung

• Li Fung, Hong Kong (lifung.com)
• Supplies The GAP, many other US companies
• Very competitive markets
• Now up to 7 different apparel seasons per year
• Maintain a huge network of manufacturers
  throughout Southeast Asia, Africa, Eastern Europe
• Have used IT -- built on top of existing supplier
  relationships -- to thoroughly integrate supply
  chain
• Can ship orders in very short times
• Have used the Internet to extend their
  capabilities to even small US clothing retailers

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Global Supply Chain ManagementFuture Managerial
Issues

• SCM was necessitated/facilitated by past 10 years
  of globalization
• Uncertainty about future globalization (after
  9/11/2001) will change SCM directions
• Less willingness to take risk in foreign supply
  sources
• Longer time/costs for nations to inspect and
  accept goods from foreign sources
• More backup inventories will need to be held to
  hedge against supply variability
• Greater breadth of shipping channels will need to
  be used to ensure enough supplies can get to
  factories on time

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SCM and E-Commerce
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SCM and E-CommerceDigital Supply Chains

• E-Commerce sites themselves are supply chains for
  digital services
• When you click on a URL, it is a request for a
  service
• When you get a page in your browser as a response
  to a click on a URL, it is the result of an
  N-Tier architecture that serves as a supply chain
  for digital content
• The process by which the digital content is
  generated can span one organization (an internal
  supply chain) or several organizations (an
  upstream supply chain for content)

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SCM and E-CommerceEC Facilitates SCM

• E-Commerce technologies can help to improve the
  functioning of traditional supply chains
• Formalizes (e.g. using XML) and speeds up supply
  chain communication
• Faster response to customer demands
• Better information about supply chain activities
  provided to customers and to supply chain
  partners
• Facilitate a hub structure for new supply chain
  designs
• Facilitate real-time knowledge about on-hand
  inventory positions and locations of inventories
• E-marketplaces can help clear markets, or dump
  inventories that were mistakenly produced by the
  supply chain

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SCM and E-CommerceEC Makes SCM More Competitive

• E-Commerce also makes SCM more challenging
• Customers expect faster response times
• Order fulfillment problems have been rampant in
  E-Commerce due to lack of knowledge of historical
  demands, and inability to ramp up capacity to
  serve actual demands
• Customers are more knowledgeable about their
  rights by law, supply chains must react in
  certain manners to customer orders
• companies can be fined if they do not
• customers can keep anything they did not order
• A variety of IT has been employed to provide
  better information to customers about where their
  order is in the shipping process
• Quick delivery (online)
• Integrated warehouses (bar coding)
• Order tracking and shipment tracking

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SCM and E-CommerceEC Necessitates New Supply
Chain Types

• New promises are made to customers at the point
  of order procurement
• Same day delivery/Same hour delivery
• Customized goods/service
• Order Fulfillment need to create new supply
  chains that can fulfill on the above promises
• Processes for mass customization
• Automated warehouses for quickly picking and
  packing orders
• New delivery processes between warehouse and
  customer

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SCM and E-CommerceSome EC Supply Chains Dont
Work

• Some industries just arent made for EC, due to
  the nature of their supply chain
• Yes Books
• Lightweight, easy to transport long distances
• Can get dinged a bit, and people still will read
  them
• People typically buy them and dont return them
• No Furniture
• Heavy, difficult and expensive to transport long
  distances
• Furniture is usually shipped by the truckload
  not by the piece
• Furniture defects typically make people send the
  items back
• Furniture showrooms typically employ many people
  who can touch up furniture defects so that
  customers wont notice