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  1. ECT 589 ECT 589 E-Commerce Management Week #5 Supply Chain Management Source: Gartner, HBR, McKinsey Reports, Lee & Whang
  2. Agenda <ul><li>Market News </li></ul><ul><li>Supply Chain Management </li></ul><ul><li>Exploiting Virtual Value Chain </li></ul><ul><li>Integrated Supply Chain Management </li></ul><ul><li>Moore Medical Discussion </li></ul>
  3. e-Business Application Architecture Supply Chain Mgmt Selling Chain Mgmt Stakeholders Business Partners, Suppliers, Resellers Distributors, Customers, Resellers Employees HRMS/ E-Procurement Finance Auditing Mgmt Control BI EAI CRM ERP Logistics Production Distribution Marketing Sales Cust Svce
  4. Defining SCM <ul><li>A “process umbrella” under which products are created and delivered to customers. </li></ul><ul><li>The complex network of relationships that organizations maintain with trading partners to source, manufacture, and deliver products </li></ul><ul><li>A network of autonomous or semi-autonomous business entities collectively responsible for procurement, manufacturing, and distribution activities associated with one or more families of related products. </li></ul>
  5. Vendors Plants DCs Customers
  6. <ul><li>Stakeholders along the supply chain have different and frequently conflicting objectives. </li></ul><ul><li>Accordingly, they often operated independently, resulting in a phenomenon called the bullwhip effect on demand and supply . </li></ul>Bullwhip Effect
  7. Bullwhip Effect Source: Johnson & Pike, 1999
  8. Suppliers Europe DC Suppliers Suppliers Subassembly PC Board Suppliers ASIC Assembly Asia DC US DC Resellers Resellers Resellers Customers Customers Customers Source: Supplychain online ASIC: Application-Specific Integrated Circuit; An Example of SC for Computer Printers
  9. <ul><li>Globalization of business: Worldwide dispersion of manufacturing and distribution facilities. </li></ul><ul><li>Proliferation of product variety </li></ul><ul><li>Increasing complexity of supply networks </li></ul><ul><li>Shortening of the product life cycles </li></ul><ul><li>Responsiveness over efficiency. </li></ul><ul><li>Companies’ willingness to accept lower margins to maintain and increase market share. </li></ul>Trends Driving SCM Investments
  10. SCM: A Process View <ul><li>Material Flows involves physical product flowing from suppliers to customers through the chain and reverse material flows: product returns, servicing, recycling and disposal </li></ul><ul><li>Information Flows involves demand forecasts, order transmissions, and delivery status report </li></ul><ul><li>Financial Flows involves credit card information, credit terms, payment schedules, and consignment and title ownership arrangements </li></ul>
  11. Supplier Manufacturing Distribution Retailer Consumer A Process View of the Supply Chain Supply Chain Planning Supply Chain Execution Product Flows Product Flows Product Flows Product Flows Information Flows Payment Flows
  12. <ul><li>Strategic Decisions </li></ul><ul><ul><li>Long term, closely linked to coporate strategy and guide supply chain polices. </li></ul></ul><ul><li>Operational Decisions </li></ul><ul><ul><li>Short term, day-to-day activities </li></ul></ul><ul><li>Major Decision Areas </li></ul><ul><ul><li>Location </li></ul></ul><ul><ul><li>Production </li></ul></ul><ul><ul><li>Inventory </li></ul></ul><ul><ul><li>Transportation (distribution) </li></ul></ul>Supply Chain Decisions
  13. Supply Chain Planning Order Commitment Advanced Scheduling Demand Planning Transportation Planning Distribution Planning Customer Order
  14. Supply Chain Execution Order Entry Fulfillment Planning Order Confirm. Forecasting Aggregate Inventory Planning MPS/ Sourcing Inventory Availability Schedule Production Allocate inventory Production scheduling Distribution Scheduling Order Planning Process Distribution Process Pick & Load schedule delivery customer Service Replenishment Process Production Process
  15. Three Supply Chain Strategies <ul><li>Current: Enterprise Focus (Nabisco) </li></ul><ul><ul><li>Create stores of inventory to address bullwhip effect </li></ul></ul><ul><li>Near Term: Partner Focus (P&G) </li></ul><ul><ul><li>Collaborative Systems </li></ul></ul><ul><li>Emerging: Direct Focus (Dell) </li></ul><ul><ul><li>Build to Order direct supply chain </li></ul></ul><ul><ul><li>Adaptive supply change </li></ul></ul><ul><ul><li>Intelligent supply chain </li></ul></ul>
  16. Internet’s Impact on SCM <ul><li>Supply Chain Integration </li></ul><ul><ul><li>Coordination and collaboration among supply chain partners through “supply chain integration.” </li></ul></ul><ul><ul><li>Product design and development, procurement, production, inventory, distribution. Post-sales service support, and marketing through supply networks, services, and business models </li></ul></ul><ul><li>Information is replacing inventory. </li></ul><ul><li>Industry Structure </li></ul><ul><ul><li>Competition between firms vs. competition between supply chains </li></ul></ul><ul><ul><li>E-Business Webs </li></ul></ul>
  17. SCI: Four Key Dimensions Lee & Whang 2001 )
  18. Information Integration <ul><li>Sharing of information among members of the supply chain </li></ul><ul><li>For example: </li></ul><ul><ul><li>Sharing demand data, inventory status, capacity plan, production schedules, promotion plan and shipment schedules in real-time and online basis can increase efficiency and responsiveness </li></ul></ul>
  19. Electronic Information Integration <ul><li>Companies, across a supply chain, coordinate their product, financial and information flows using the electronic technology and the Internet </li></ul><ul><li>Internet Info Hubs: </li></ul><ul><li>Open standards, permitting easy, universal, secure, and access to a wide audience at a low cost </li></ul><ul><li>Instantly process and forward all relevant information to appropriate parties </li></ul><ul><li>Hub is a node in the data network where multiple organizations interact in pursuit of information integration, data storage, and information processing </li></ul>
  20. Important factors for electronic business integrations <ul><li>Well defined channels of communication </li></ul><ul><li>- well defined with roles and responsibilities </li></ul><ul><li>Performance measures </li></ul><ul><li>- measure and monitored performance of all member of the supply chain </li></ul><ul><li>Incentives </li></ul><ul><li>- aligned incentive for all members in order for supply chain integration to work </li></ul>
  21. Planning Synchronization <ul><li>Joint design and execution of plans for product introduction, forecasting and replenishment through sharing information </li></ul><ul><ul><li>All member in the supply chain synchronize their order fulfillment plans so that the replenishment are made to meet the same objective. </li></ul></ul><ul><li>Collaborative Planning, Forecasting and Replenishment initiative (CPFR ) </li></ul><ul><ul><ul><ul><li>Both buyer and seller use the Internet to establish a forecast and replenishment plan </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Share ground rules </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Agree on critical actions </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Share forecasts </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Detect major variances </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Exchange ideas </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Collaborate to reconcile differences </li></ul></ul></ul></ul></ul>
  22. Internet Planning Synchronization <ul><li>The Internet delivery – Internet-based collaboration </li></ul><ul><ul><li>Share demand data </li></ul></ul><ul><ul><li>Collaborate closely on promotions and replenishment </li></ul></ul><ul><ul><li>Facilitate the geographically dispersed company’s ability to check demand and supply levels and respond quickly to potential mismatch problem </li></ul></ul><ul><ul><li>Shorten the new product development times </li></ul></ul><ul><li>IP and Knowledge Sharing </li></ul><ul><ul><ul><li>Create Universal data network for design data </li></ul></ul></ul><ul><ul><ul><li>Sharing intellectual properties </li></ul></ul></ul><ul><ul><ul><li>Speed up design and introduction process </li></ul></ul></ul><ul><ul><ul><li>Leverage knowledge capital critical and design process </li></ul></ul></ul>
  23. Workflow Coordination <ul><li>Streamlines the automated workflow activities between supply chain partners </li></ul><ul><li>Workflow coordination also means what and how we can do with the shared information </li></ul><ul><li>For example: </li></ul><ul><ul><li>Procurement activities from a manufacturer to a supplier can be tightly coupled to increase efficiencies of time, accuracy, and cost </li></ul></ul>
  24. Electronic Workflow Coordination <ul><li>The Internet permit companies to automate the critical business processes </li></ul><ul><ul><li>E-workflow coordination includes </li></ul></ul><ul><ul><ul><li>Procurement - dynamically link the buyer into real-time trading communities to reduce operational cost and increase efficiency </li></ul></ul></ul><ul><ul><ul><li>Order execution - Internet-based service to facilitate and process orders, coordinate rebates, discounts </li></ul></ul></ul><ul><ul><ul><li>Engineering change - handle the quick change in product rollover in a timely fashion </li></ul></ul></ul><ul><ul><ul><li>Design Optimization </li></ul></ul></ul><ul><ul><ul><li>Financial Exchanges – Internet link to process financial exchanges </li></ul></ul></ul>
  25. New Business Models <ul><li>Redefine logistics flows of business partners </li></ul><ul><li>The roles and responsibilities of members may changes to improve overall supply chain efficiency </li></ul><ul><li>For example: </li></ul><ul><ul><li>Apply new rules between partners, who may join to create new products, pursue mass customization, and penetrate new market and customer segment </li></ul></ul>
  26. New Electronic Business Models <ul><li>With the new concept of Internet integrated supply chain, new developing strategies and business models are adopted by companies </li></ul><ul><ul><li>Virtual Resource – Internet based secondary markets handles the excess inventory and reduce cost </li></ul></ul><ul><ul><li>Supply Chain Restructuring – Use information technologies to restructure the logistic flows of product to gain efficiencies </li></ul></ul><ul><ul><li>Product Upgrades – Use the Internet to upgrade hardware product, including onsite upgrade or physical replacement by installing software over the Internet </li></ul></ul><ul><ul><li>Mass Customization – Use Internet to allow customer configure specific order options tailored to their taste and preferences </li></ul></ul>
  27. New Electronic Business Models - cont <ul><ul><li>Service and Support – Perform PC support – check viruses, alert customer and provide online fixes. Data is gathered remotely using the Internet </li></ul></ul><ul><ul><li>From Products to Services – Internet-based services for personal finance, tax preparation and financial tools. Services are hooked up from backend financial Institutes to end-users </li></ul></ul><ul><ul><li>Multi-channel Click-and Mortar Fulfillment – Use the Internet to capture online order, use local store to fulfill order and delivery </li></ul></ul>
  28. The next wave <ul><ul><li>Demand management – e-business provide enough demand data. Using the extensive data, companies proprietary scientific methods, sophistical statistical analyses and optimization techniques,business can help companies to optimize their demand management decisions </li></ul></ul><ul><ul><ul><li>Provide up-to-the-minute capacity and resource data </li></ul></ul></ul><ul><ul><ul><li>Companies can target demand creation program – discount, rebates, regional or niche marketing to stimulate demand </li></ul></ul></ul><ul><ul><li>Market Intelligent – By using the above data, data mining and data analysis can properly derive business intelligent </li></ul></ul><ul><ul><ul><li>Use the business intelligent to plan merchandise decision, promotion plans, and new product development decisions </li></ul></ul></ul><ul><ul><ul><li>Business can use this data and perform this function as a service to customers for profitability and market positions </li></ul></ul></ul>
  29. Source: Henry Co
  30. Extended-enterprise SCM solutions
  31. Extended-Enterprise SCM Applications <ul><li>Targeted at providing a single enterprise (usually the channel master) with a solution that enables it to better manage its supply chain processes and integrates itself into the processes and application architectures of its trading partners. </li></ul><ul><li>Distributed order management. </li></ul><ul><li>Supplier relationship management execution. </li></ul><ul><li>E-sourcing </li></ul><ul><li>Supply chain inventory visibility </li></ul><ul><li>Reverse logistics support </li></ul><ul><li>Adaptive demand management </li></ul>
  32. B2B C-Commerce Solutions <ul><li>Not owned by a single enterprise, but are used to manage the multi-enterprise interactions within a value chain. The participants in a particular ecosystem will engage these services to collaborate and transact. </li></ul><ul><li>Example: Uniform Code Council (UCC) for participants in the retail and consumer goods value chain to access product data. </li></ul>
  33. UCCNet: A B2B C-Commerce Solution
  34. Competitive Advantages through SC Integration <ul><li>Dramatic returns through efficiency improvements </li></ul><ul><li>Better asset utilization </li></ul><ul><li>Faster time to market </li></ul><ul><li>Reduction in total order fulfillment times </li></ul><ul><li>Enhanced customer service and responsiveness </li></ul><ul><li>Penetrating new markets </li></ul><ul><li>Higher return on assets </li></ul><ul><li>Higher share order value </li></ul>
  35. 2004 Hype Cycle for SCM
  36. Classifying B2B Hubs How business buy systematic sourcing spot sourcing What business buy operating input manufacturing inputs MRO Hubs Aggregation Catalog Hubs aggregation Yield Managers Matching Exchanges Aggregation Matching Source: E-Hubs 2000
  37. How Companies Conduct Purchases <ul><li>Strategic sourcing </li></ul><ul><ul><li>Long-term contracts based on negotiation between the sellers and buyers </li></ul></ul><ul><ul><li>Can be supported more effectively and efficiently through a streamlined supply chain </li></ul></ul><ul><li>Spot buying </li></ul><ul><ul><li>Purchasing of goods and services at market prices, as determined by supply and demand in a dynamic manner. Buyers and sellers do not know each other. Eg. Stock exchanges, or commodity exchanges (oil, sugar, corn) </li></ul></ul><ul><ul><li>Can be more economically supported by the 3 rd party exchange </li></ul></ul>
  38. E-Procurement <ul><li>Procurement management: the coordination of all the activities pertaining to purchasing goods and services for an organization </li></ul><ul><li>Inefficiencies in procurement management of indirect materials – MRO – aggregation of catalogues </li></ul><ul><li>Reverse Auction for procurement of direct materials, e.g.. GE, GM, RFP process </li></ul>
  39. Value Propositions <ul><li>MRO Hubs </li></ul><ul><ul><li>Consolidated MRO catalog </li></ul></ul><ul><ul><li>Efficiency, low cost, disintermediate fulfillment </li></ul></ul><ul><li>Catalog Hubs </li></ul><ul><ul><li>Automate the sourcing, reducing transaction cost </li></ul></ul><ul><li>Yield Mangers Hubs </li></ul><ul><ul><li>a high degree of price and demand volatility </li></ul></ul><ul><ul><li>High fixed cost asset </li></ul></ul><ul><li>Exchange Hubs </li></ul><ul><ul><li>Relationship management </li></ul></ul><ul><ul><li>Easier trading </li></ul></ul>
  40. Aggregation & Matching – Value Mechanism <ul><li>Aggregation: Large # of sellers and buyers, reduced transaction, static pricing , one-stop shopping </li></ul><ul><ul><li>Benefits: purchasing cost is high, specialized products, large SKU, fragmented supplier chain, buyers not sophisticated, pre-negotiated contracts, meta catalog </li></ul></ul><ul><li>Matching : Dynamic pricing, bid, auction, player’s role is fluid </li></ul><ul><ul><li>Benefits: products are commodities or near-commodities and can be traded sight unseen; massive trading volumes to transaction costs; buyers and sellers are sophisticated; use spot sourcing to smooth the peaks and valleys of supply and demand, logistics and fulfillment can be conducted by third parties, demand and prices and volatile </li></ul></ul>
  41. Next Week <ul><li>Next Session: Eastman Chemical Case </li></ul><ul><li>E-Procurement Issues </li></ul>

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