Jae Kyu Lee

1
Supply Chain Management Models and Challenges

• September, 2001
• Jae Kyu Lee
• (jklee_at_kgsm.kaist.ac.kr)
• Graduate School of Management
• Korea Advanced Institute of Science and
  Technology
• Seoul, Korea

2
Order Fulfillment Process
Fig. 15.2
Figure 15.2
Fig. 15.2
 
3
Table of Contents

• SCM Definition, Goals, Process, Performance
  Prospects
• Challenges in SCM GE, Nike and SME
• Eight SCM Models with Cases
• SCM Solutions
• SCM Services Business Types
• Comprehensive Cases
• Intel
• Listerine in Warner-Lambert and CVS
• Dell for production and aftermarket
• Case Discussion

4
Definition of SCM

• Wider Definition
• Any types of SCM along the value chain of
  procurement, sales, and collaborations
• Solutions with this definition will include
  exchanges, e-procurement, e-marketing, and
  streamlined SCM.
• This definition encompasses the scope of intra-
  (ERP) and inter-organizational (B2B) supply
  chain.
• Focused Definition
• Focused on the management of streamlined SCM
• Commonly accepted Definition and Classification
  of Contingency important for SCM Planning

5
What about SCM?

• Why SCM Complex?
• Architectural Options
• What is the scope of SCM in practice?
• What is the evolution of SCM focus?
• Cost effective SCM Planning

6
Why SCM Complex?Many-to-Many Relationships
Consumer
Large Retail Customer
Design Partner
VAR/Reseller
Manufacturer
Distributor
Component Supplier
Small RetaiCustomer
VAR/Reseller
Distributor
Raw MaterialSupplier
CorporateCustomer
Contract Manufacturer
Distributor
Logistics
Logistics
Logistics
7
Architectural Options and Contingency
8
Linkage Architecture

• Streamlined Point-to-Point Connection
• Focus on important items and partners
• Direct Connections
• Implementable only by big buyer or seller
• Tight integration will be possible
• Electronic Trading Hub (e-Hub)
• Open and flexible to connect
• Tends to be loosely coupled
• Ownership Private or Public e-Hubs
• Integration with the role of exchange and ASP

9
Scope of SCM Activities i2 Perspective
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Processes and Plannings in SCM

• Order Entry
• Supply Planning
• Inventory Replenish
• Demand Forecasting
• Purchase Planning
• Warehousing and Inventory
• Delivery and Return
• Account payable
• Aftermarket
• SCM is a combination of Processing and Planning
  with Business Intelligence ((Mathematical Models
  and Data Warehouse)

11
SCM in e-Business Evolution
12
Evolution of SCM Focus
Inter-Hubs
Intelligent eBusiness Hub
Value Chain(End-to-End Supply Chain)
Scope
Entire Enterprise
Single Factory
Time
13
Supply Chain Performance (CIO Magazine, Feb 1,
2000)
14
SCM Spending

•  

• By Aberdeen Group (March 21, 2001)
• SCM software and hardware 20B by 2003
• 2 Trillion of transactions through the SC
• 50 of them through private or public net markets

15
Penetration of SCM

• Retail Industry Case (Feb 21, 2001)
• 80 of suppliers
• No electronic linkage
• Cover 20 of procurements.
• 80 of orders handled in traditional EDI platform
• E-Tailing Case (Jan 26, 2001)
• 55 linked with vendors and suppliers
• 20 will do so.
• 10 expect to implement warehouse or inventory
  management applications
• 39 Use third party software
• 27 Hybrid of in-house and third party S/W
• Penetration is slower than expected

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Contingency of SCM

• Items Contractual vs. Spot purchase
• Contractual Purchase
• needs complex negotiation,
• collaborative SCM, and
• deeper connection between the ERPs along the
  supply chain.
• Spot Purchase
• Price is more important
• Exchanges and Auctions are options
• Partners Big vs. Small company
• Big SCM among big buyers and sellers
• Vertical SCM
• Small How to handle with small suppliers?
• Exchanges and e-Hub service

17
Challenges in SCM

• GEs Progress of SCM
• Nike Fiasco
• The 21th Suppliers
• Challenge is always an opportunity

18
GE SCM Scales Back

• GE Scales Back, InternetWeek, May 10, 2001,
  http//www.internetweek.com/newslead01/lead051001.
  htm
• In June 2000, announced plan to cut the cost by
  10B by mid-2002. But now conceded to 1.6B.

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Why GE Scales Back?

• Sales
• 130B total revenue
• Will sell 16B online in 2001 (50 of plan)
• Internet Auction
• Will buy 16B material through 2,000 private
  auctions (conducted each month)
• This is 35 of 40 B spent now on goods and
  services
• Trouble in connecting customers and suppliers
• 7,500 on the Web 7,500 on EDI 15,000 manual
• Ultimate expectation 60 of connection
• Because of too heavy price cut cost and
  complexity of integration with GE and other big
  manufacturers

20
Nike Fiasco

• Report of March 7, 2001 http//www.internetweek.c
  om/transtoday01/ttoday030701.htm
• Nike implemented i2 at the cost of 400M
• Sales in 3Q dropped more than 100M
• Nikes View
• Demand and supply planning module caused serious
  inventory problem
• I2s View
• Nike failed to follow the vendors implementation
  methodology
• Whose fault?

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Lessons from Nike Case

• Whose fault? (Online polls on 350 responds)
• 27 Nike 15 i2
• 55 Both 1 Neither
• Possible Reasons
• Nike did not explained the manufacturing process
  clearly to i2
• Probably mismatched solution
• Nike did not monitor the system development
  process precisely
• Rush implementation without verification
• No pilot/parallel run stages
• Lesson
• Solution is Stove Cooking should be done by
  Chef.

22
Poor Readiness of SME

• SME Weak Link Feb 21, 2001
• 44 of US businesses with fewer than 100
  employees has no Internet connection
• 37 no web site.
• SMEs need training
• SMEs need the support of inventory management
  systems
• SMEs need intermediate e-Hub service Example
  SPS Commerce

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Sears through SPS Commerce

• Sears has 3,000 small and mid size suppliers.
• 80 of suppliers has no electronic linkage
• SPS Commerce provides the linkage service between
  Sears and SME.

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SPS Commerce for SME
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Eight SCM Models with Cases

• Forecasting and Collaborative Forecasting
• Solutions by Commerce One and SAP
• Replenishing Inventory
• Optimization Models Vendor Managed Inventory
  (VMI)
• Collaborative Planning, Forecasting, and
  Replenishment
• WL and Wal-mart / CVS Cases
• Factory Planning Copperweld Case
• Warehousing WL-CVS Case
• Trucking General Mills Case
• Collaborative Design AviationX Case
• Carriers Logistics
• UPS Solutions FedEx with Ariba HP with FedEx.
• Aftermarket Hub Toyota Case

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1. Forecasting and Collaboration

• Forecasting Models
• Statistical models
• Neural network models
• Time serious and causal models with uncertainty
• Collaborative Forecasting and Planning
• Reduce uncertainty by collaborating and sharing
  information about the demand and inventory
• Solution by Commerce One and SAP
• MarketSet 2.0 and Enterprise Buyer 2.0
• Enable trading partners to swap product plans,
  streamline e-procurement, content management, and
  related buying and selling functions

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2. Replenishing Inventory

• Optimization Models under Uncertainties
• EOQ, Lot Sizing, Reordering points, etc
• Continuous Replenishment Policy
• Vendor Managed Inventory
• Collaborative Planning, Forecasting and
  Replenishment (CPFR)
• Warner-Lambert and Wal-Mart Retail Link
• Warner-Lambert and CVS
• www.cio.com/archive/enterprise/081598_jour_content
  .html

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Collaborative Planning, Forecasting and
Replenishment Retail Link
Wal-Mart
SupplierWarner-Lambert
Operational System
EDI
ERP
Data warehouse
Internet
Manufacturing Plan
RetailLink
Sales data about W-L Products
WWW
Review and Comments
Inventory Plan
Forecast
Planner
Planner
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Retailers Perspective Wal-Mart Case

• Wal-Mart Worlds largest discount retailer
• (sales 224 bil/year as of 1999)
• 2,400 stores and 450 Sams Club in the U.S.A.
• 720 units internationally.
• 7,000 suppliers
• Traditionally, retailers and suppliers forecasted
  separately
• ? Excessive inventory, out-of-stock, lost
  opportunity to suppliers
• RetailLink Data Warehouse
• Largest data warehouse in the world
• 101 terabytes (stared with 10 terabytes in 1996,
  44 terabytes till this August)
• NCRs Teradata Relational Database
• NCRs World Mark Parallel Computer

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Wal-Mart Case (Continued)

• Capacity of Data Warehouse
• Stores 2 years of sales history with 101
  terabytes
• 1.25 years of sales history with 44
  terabytes
• 120,000 data mining questions per week
• Open the access to suppliers
• Collaborative Forecasting and Replenishment
  (CFAR) become possible
• Accurate sales and inventory data available to
  suppliers replacing inaccurate forecasts
• Inventory management shifted to suppliers
• Real time monitoring of inventory and quick
  response to market fluctuation
• Long range trend analysis possible
• Right product in the right store at the right
  price
• Retail industrys savings are projected to be
  150-250 billion per year

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Implication of CFAR and Data Warehouse

• Communication with many partners has become
  possible
• Large scale business planning and control
  possible
• Large scale model
• Realtime control to market fluctuation
• Long range analysis
• Longer period of data supported
• Eliminate uncertainty by collaboration, data
  sharing, and inexpensive communication over the
  Internet.
• Make the suppliers happy, and get the price
  reduced.

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3. Factory Planning

• Sourcing
• From whom to buy, what to buy
• Purchasing
• What to buy, How much, When?
• Copperweld Case
• Copper tubing parts manufacturer
• Sell to Ford Motor, Catepillar, etc.
• On-time-delivery rate hovered at 62
• Adopt i2s Factory Planning Module
• Organize factory design, manage suppliers, set
  production schedule
• 95 of on-time-delivery

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4. Warehousing

• Check the shipping in
• Assign storage site
• Route to store and pick
• Assigning the gate
• Loading to the right trucks
• Example Solution
• EXE Exceed eFulfillment System
• Example Case
• WL-CVS case

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5. Trucking

• General Mills (Jan 30, 2001)
• Cheerio cereal, Betty Crokers desserts
• 40 Distribution centers and manufacturing plants
  across USA.
• Shipping alone takes 400M
• 60 of cost of goods
• Empty truck 12-18 (30B a year in the USA)
• Share shipping information over the web with 19
  partners and 200 carriers.
• Development software Nistevo Corp.
• Seek to fill thousand trucks, match with 4 M
  routes
• Eliminated empty backhauls
• Save 700K by sharing with Fort James Corp
  (cereal box paper)
• Load 97 full (from 85 full before)
• With 19 partners expects 6 (24M) annually
• Integration between ERP via XML

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6. Collaborative Design

• AviationX (Feb 17, 2000)
• Aftermarket for aircraft
• From ordering parts (trading hub) to
  collaborating designs
• Collaboration for inventory (40B) reduction
• For manufacturers, suppliers, and other
  participants
• Access information about parts, services,
  technical manuals and other data needed to keep
  planes in the air

36
7. Carriers Logistics Support

• UPS IT infra and e-Logistic Group
• PriceWaterhouseCoopers Integration Consulting
• Oracle ERP for order management ASP service
• EXE Exceed eFulfillment System
• Global fulfillment and distribution network
• Warehouse management system
• UPS serves SCM and Collaborative Planning
• Along with order management, warehouse, pick,
  pack and ship, value added services (minor
  assembly, configuration of products)

37
HPShopping and FedEx

• The HPShopping retail site transmits order
  directly via EDI from its site to FedExs
  fulfillment operation in Memphis, every 5-10
  minutes
• FedEx manage clients inventory
• 24 hours delivery possible
• Charge monthly fee based on space required and
  how complicated the products are.

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8. Aftermarket Hub

• Toyota (March 5, 2001) with 1,500 US dealers
• Spend billions a year on service parts
• Required more accurate ordering and inventory
  management
• Top 25-30 suppliers represents about 80 of
  product flow
• Joint venture with i2 made e-Hub iStar-Xchange
• Expect to save 100M over three years.
• US Automakers working for the similar projects

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SCM Solutions

• i2 SCM, SRM
• mySAP SCM
• Oracle
• Manugistics
• Logility
• E3
• Escalate
• Optum
• Provia Software

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i2 Technology

• Solutions
• SCM
• SRM
• CRM
• Content
• SCM
• Strategic planning, demand management, supply
  management, fulfillment, service
• SRM
• Strategic design, strategic sourcing,
  negotiation, design/manufacturing collaboration

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i2 Solutions
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mySAP

• mySAP Workplace
• mySAP Supply Chain Mgmt.
• mySAP Customer Relationship Mgmt.
• mySAP E-Procurement
• mySAP Product Lifecycle Mgmt.
• mySAP Business Intelligence
• mySAP Financials
• mySAP Human Resources
• mySAP Mobile Business
• mySAP Marketplace
• Industry Solutions

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Manugistics

• Supply Chain Optimization
• Bstreamz
• Monitor upcoming product demand
• Check available parts inventory
• Web Works
• Tie hubs in different industries
• Jointly bid from a range of customers

44
Logility

• July 25, 2000
• Statistical Models and Planning Tools
• Voyager Commerce Server
• Empower the CPFR solution to e-MP
• Supply Chain planning
• Logistic Management
• Strategic Direct Procurement

45
Logility
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Xelus.com

• Demand forecast, cost of needed inventory, and
  days of supply of inventory
• Compare the actual with forecasts
• Count reusable parts for manufacturing component
  substitution
• Forecast multiple lead times (e.g., for old
  parts, new parts)
• Chaining parts together
• Optimize service level and inventory levels

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Xelus.com (II)

• Control of computerized returnes for repairs
• Assemble parts together in a kit format.
• Flag problem conditions such as parts out of
  stock
• Flag order changes and cancellation in real time
• Flag discrepancies between forecast and actual
  demand as they occur
• Evaluate trade-offs between service levels and
  inventory cost

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Other Solutions

• Supply Solutions
• Support e-procurement and design collaboration
• E3
• Inventory tracking and forecasting
• Inventory level determination
• Escalate
• Enterprise EC application provider
• Acquired Managize (SCM technology provider)
• Manage orders and shipments for a large number of
  warehouse and distribution center in real time
• SupplyWorks

49
SCM Services

• Point-to-Point Connection
• Private Exchanges
• SCM in Public Exchanges
• SCEM Service
• Front-end Linkage Hub for SME
• Delivered initiated SCM service
• Auction merges SCM

50
SCM in Exchanges

• Add the SCM function in the Exchange Hubs
• Covisints SupplyConnect
• Scope Auction, Catalogs, Quote Management for
  Procurement, SupplyConnect.
• Used SupplySolutions I-Supply
• Support e-procurement and design collaboration
• Subscription basis

51
SCEM Service

• Supply Chain Event Management
• Solutions for Web based on-demand service on
• ship notice, cycle times, and score cards of a
  suppliers performance
• Players i2, Optum, Manugistic, Provia Software,
  SAP
• Example Case Trilion Inc.
• Customer Peregrine Systems (e-Biz SW developer)
• SCEM service to Peregrines Get2Connect.net
  brokerage service for 22,000 customers and 1.2 M
  transactions per day.
• Built using Java and XML
• Annual plat-rate subscription fee 400K with
  20-30 suppliers, 700K for 100 suppliers

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The 21st Supplier for SMEs

• Ingersoll-Rand Co.
• 8B maker of industrial equipment
• 4B of direct material purchase
• Most manufacturers use electronic trading tools
  with only their top 20 suppliers
• Business unit The 21st Supplier (April 9, 2001)
• Technology SupplyWorks (Another Primix
  Solution)
• Logistic Service Roberson Transportation
• Service to 9,300 suppliers
• SME suppliers use the web site to tap into the
  manufacturers MRP
• Check the expected shipments from them
• Process orders, dispatch trucks and payment
• Market potential predicted 140B by 2004

53
Logistic Service Provider Initiative on SCM

• See UPS Case
• Survey on more than 100 LSP (April 9, 2000)
• LSP offer shipping and warehouse services
• 75 of shippers use planning and scheduling
  software of ERP and warehouse management system
• 80 of even low performing LSPs use tracking and
  tracing systems
• 80 (30) of top (laggard) LSPs use
• Prescheduled and dynamic dock scheduling
• Realtime routing of trucks and folklifts
• Assignment of gates in warehouse
• 80 (20) of too (low) LSPs use automatic picking.

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Auction Merges with SCM?

• Freemarket Reverse auctions for e-procurement
• DirectSource, FullSource, QuickSource
• Freemarket acquired Adexa (Feb 8, 2001)
• iCollaboration SCM solution
• Implication
• Portfolio of service auction and SCM?
• Integration of Auction with SCM?

55
Intel Case

• Case written in August 15, 1998
• Demanded JIT delivery
• Customer in build-to-order manufacturing
• Zero inventory Avoid obsolete inventory
• Demanded JIT delivery
• Intels Internal system
• ERP for inventory control, product delivery, and
  business integration
• Intranet to speed up procurement cycle
• Network and Platform
• Link Extranet
• Web Share inventory levels and demand

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Intel (Conti.)

• For Suppliers
• Allow restricted suppliers to study product
  drawings and specifications as Intel draft them
• Help to improve the inventory and demand
  forecasting methods
• Material Suppliers continuously replenish the
  stock
• Order via Internet, EDI, and fax
• For Customers
• Customized Web page report order processing,
  product pricing, and availability
• A handful of large customer use EDI
• Support checking the status of order and shipping
  
• Confirm delivery date as orders are placed

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Conclusion

• Contingent Planning of SCM under the current
  situation is essential for success.
• Consider the cost effectiveness in planning
  possibly focusing on streamlined supply chains
• Understand the challenges of connecting SMEs and
  a business opportunity.
• Apply right SCM models
• Get familiar with the capabilities of SCM
  solutions and scrutinize the providers strategic
  moves
• Try with cases and plan for your own

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Extra Materials

• Electronic Supply Chains and Distribution
  Channels in EB Strategy and Management
• Buy Side MS Market
• Sell Side Tech Connect Solution (customer
  support)
• Supply Chain Management in IT based
  Organizational Transformation
• WebVan Grocery Works Mini-warehouse
• Cisco ERP, Internet
• Vanity Fair (Italian Cloth) Dynamic forecasting
• MaGraw Hill Order Penetration Point, Value
  Offering Point