Reshapes corporate structures around business processes.
Main objective of BE is to optimize business processes.
A business process is a set of logically related tasks performed to achieve a
defined business outcome.
Supply Chain Management
Enables the integration of all business processes and areas into coherent and
well structured supply chain management. Involves the planning and
control of all tasks along the business value chain—from production
planning to capital asset management.
1. Reduce inventory levels
2. Lower costs
3. Hasten time to market
4. Provide better customer satisfaction
Enterprise Resource Planning (ERP)
A set of applications that automate/integrate finance, manufacturing,
distribution, and human resource departments and help manufacturers handle
jobs such as order processing and production scheduling.
Handles the majority of an enterprise’s information systems requirements
Sits on a common database
• General ledger—chart of accounts and corporate financial
• Accounts Receivable—tracks payments due from customers
• Accounts payable—schedules bill payments
• Fixed assets--depreciation
• Treasury management--cash holdings
• Cost control—costs related to overhead, products and
• Human resources administration—recruitment, travel, vacation
• Payroll—salaries, wages, bonuses
Manufacturing and logistics:
• Production planning—production schedules
• Materials management—purchases of raw materials, manages
• Order entry and processing—automates entry of customer
orders and tracks them
• Warehouse management—processes movement of products
• Transportation management—schedules and monitors delivery
• Project management—monitors costs and work schedules on
• Plant maintenance
Integrating Backward: Extending the supply chain
Value is created in an enterprise through the production process
and external logistics process of a good or service. In the production
process, value is add through the effective management of the
enterprises internal supply chain. The external logistics process adds
value through the efficient management of the supply chains external
to the enterprise.
The typical supply chain involves the following:
1. The acquisition of raw materials, supplies, and services for the
production process (procurement).
2. The conversion of those items into a good or service (production).
3. The internal distribution and storage of the final good or service
4. The distribution to and ultimate consumption of the good or service
by the customer (order fulfillment).
So applying the concept of internal and external supply chains,
the internal supply chain includes the production and materials
management processes and the external supply chain includes the
procurement and order fulfillment processes.
However, the supply chain is more than just flows of materials,
supplies, and services. It also involves the flow of information, both
logistical and financial. It is the efficient coordination of these two
flows. (physical and informational) that provide the enterprise a
competitive advantage. An example of this is Wal-Mart and the
process through which it replenishes some of its store shelf stock.
When an item is sold at the cash register that information is then
relayed to the supplier so that they have real-time information on sales
of the products at Wal-Mart. The supplier then uses that information
to determine what and how much stock to ship to Wal-Mart. The
supplier of the product also uses the information to determine how
much, when, and where to procure raw materials to produce the
product they supply to Wal-Mart. So the flow of information impacts
the flow of physical goods, and the coordination of these two flows
leads to cost savings over the entire supply chain. This process is
called supply chain management.
Supply chain management is the application of methodologies
and techniques to integrate to processes of vendors, producer,
distributors, and sellers. Through the application of these
methodologies and techniques the right product, at the right time, in
the right quantity, and the right quality is delivered to the right place.
The goal and challenge of supply chain management is to achieve this
at the lowest “total system” cost.
Dell Computers is best known for its application of the build-
to-order supply chain model. In this model products are built after
they are ordered, and in a just-in-time fashion. The concept is to
almost immediately begin assembly of the customer’s order upon
receipt of the order. This requires careful management of the
component inventories and supply chain.
One of the primary benefits to this type of supply chain model
is the perception that each customer is receiving a custom product. In
addition, they are receiving it rapidly. This type of supply chain
model supports the idea of mass customization.
A slight modification to the build-to-order supply chain model
is channel assembly. In this model the product is assembled as it
moves through the distribution channel. This is accomplished by
strategic alliances with third party logistics (3PL) firms. Companies
like Federal Express and UPS provide 3PL services to customers.
These services sometimes involve physical assembly of a product at a
3PL facility or collection of finished components for delivery to the
customer. For example, a computer company would have items such
as the monitor shipped directly from their vendor to a 3PL facility.
The customer’s order would only come together then once all items
were placed on a vehicle for delivery.
New Rules for the New Game: e-Commerce
E-commerce is the hottest game in town right now. Companies
are spending large amounts of money to get “online.” People with e-
commerce technology experience are in high demand and demanding
large salaries and often a piece of the action. The dot.com stories of
instant millionaires are fueling the fire, but the pile of failures is
growing as fast if not faster than the pile of successes. How does one
make sense of all this commotion? Let us first examine the different
levels of e-commerce.
Some describe the “six levels of e-commerce development.”
The six levels are:
Level 1: Minimal Online Presence – This is the “corporate
website.” An organization takes this first step because they feel that
have to be on the “net.” This is a low risk step. Small and medium
size firms may wish to stay at this level for a long period of time. The
reasons for this are varied. The firm may believe that it is too
expensive to move to the next level. There may be conflicts internally
on what should be the next, so going slow appears to be the best
alternative to upper management. However, in the long run the
survival of the firm may depend on moving to the next level.
Level 2: Online Catalog – At this level the firm is often
responding to requests from customers for more online information.
The reasons for moving to this level include better customer service, a
chance for increased revenues, a method to reduce costs of handling
customer inquiries, and higher productivity. The amount of
information on the firm’s website at this level expands to include
detailed product and service information. This allows customers to
view the product and service offerings of the firm before initiating the
buying process. In addition, customers can locate after-sales support
information quickly and more efficiently. The technology requires for
this level at not much greater than level 1. The biggest issue here is
maintaining current and accurate information on the website. The
next step is to allow online ordering of products and services.
However, if the firm does not have the information technology
backbone to process online orders, they may remain stuck at Level 2
Level 3: Online Order Entry – This level allows the customer to
not only view product and service information, but to order those
products and services online. Features included at this level are
customer accounts, order tracking, shipping information, and return
processing. The primary issue at this level is order fulfillment.
Firms have discovered that they need to integrate their online order
fulfillment process with their back office information system (ERP).
This integration is critical if the firm is going to be able to provide
real-time information to the customer on product availability, shipping
status, and financial data. The time and cost of implementing the
required back office systems (ERP) and integrating them with the
online sales process can be significant
Level 4: Automated Value Chain – The firm now has the online
order entry process fully integrated with the ERP system. Things are
running as smoothly as one can expect until the next requirement
surfaces. This requirement involves integrating with the external
supply chains (value chain). To continually reduce cycle times in the
supply chain, real-time information needs to be shared with suppliers
so they can more effectively support the supply chain. This requires
integration across the entire supply chain. When an order is received
online or offline, processes in other parts of the supply chain receive
this real-time information so that these processes are updated. For
example, an online order for a product signals manufacturing that
product needs to be scheduled for production. A signal then goes to
purchasing that a production order has been created and raw materials
are needed to support the production order. The next step is signaling
the supplier that raw materials are needed. At this point the supplier’s
information system takes over and potentially follows the same
process. This process can be automated to whatever level the firm
desires. However, initially top management needs to assure all parties
that the process functions properly, it is secure (privacy), channel
conflict can be managed (online versus offline systems), and the
information is accurate and timely.
Level 5: Market Site – At this level a third party has integrated
the automated value chains of competitors. The customer can now
view and compare products across a particular market. The value here
is that customers don’t have to spend all their time accessing multiple
web sites for online ordering. However, the issue becomes on of how
can a firm differentiate itself. The customer can now view the firm’s
products and services in direct comparison to other firms’ products
Data at the core of the enterprise
ERP systems represent, in software, the business
processes and state of an enterprise. The programs define and
implement the processes, but processes without data are empty shells
Obviously, it requires a great deal of data to describe all
of the ongoing processes in even a small enterprise. The ERP must be
capable of manipulating immense quantities of data in an efficient and
timely manner. Of all of the technologies that needed to reach
maturity in order to enable ERPs, data management technology is
arguably the most important.
A proper understanding of Database Management
Systems (DBMS) requires at least a semester course. An adequate
understanding of ERP systems, however, requires exposure to the
main DBMS characteristics and capabilities.
ERPs create new challenges for database administrators.
As we shall see, the size of an ERP database is overwhelming, orders
of magnitude larger than has been seen before. The sheer volume of
data requires that Data Base Administrators (DBAs) develop new
administration techniques to control the database.
Database as foundation for ERP
It can be argued that a database management system is
the single most necessary component in creating an ERP system. The
DBMS must support a data model that is expressive enough to
represent all of the transactions that a business enterprise must
participate in. The model must be flexible enough to span the
boundaries of functional areas, and to be able to correctly reflect the
consequences of a transaction in one functional area within a totally
distinct functional area.
Innovation in Distribution
Moving the product to the end customer (retailer, another
manufacturer, or consumer) is part of the distribution function of the
supply chain. There are a variety of distribution strategies available to
the supply chain. These include:
a. Private Warehousing – warehouses owned by the producer that
keeps stock and provides it when requested by the end customer.
Often used in a supply chain strategy of having regional
b. Retail Distribution Centers – similar to supplier private warehouse
but often owned by the customer in retail operation.
c. Public Warehouse – warehouse owned by a third party that keep
stock from a variety of manufacturers and distributes the stock to
the end customer. Can be combined with logistic services. These
firms are known as third party logistics (3PL) operations.
d. Direct Shipment – items are shipped directly to the end customer.
This supply chain distribution strategy is used for make-to-order
and assemble-to-order items. This can also include many Internet
and mail order companies.
e. Cross-docking – a techniques used extensively in the retail
industry where product arrives into a end customers
warehouse/distribution center and is quickly processed (often less
than 8 hours) and shipped to a retail store. This distribution
strategy, made famous by Wal-Mart, allows the retailer to combine
products from a variety of suppliers and make single full load truck
shipments to the stores.
One of the most widely known uses of the Internet is
online retailing. While business to consumer (B2C) represents only
10% of the total e-business market, it is the one that gets a lot of
attention. Almost everyone in America has heard of Amazon.
However, many of these B2C online retailing businesses make little if
any profits. The current trend appears to be the brick-and-mortar
retailers moving online. This will create an interesting dynamic since
the online retailing business is different is many aspects than the store
in the mall. For example, many bookstores that sell books to
customers both through the Web and through retail stores do not allow
a customer who purchased a book online to return it to their stores.
The end result may be losing that customer from both.
The solution to this and other issues in online retailing is the
development of an integrated supply chain strategy that allows access
to information anywhere and anytime. This supply chain strategy for
online retailing must focus on the order fulfillment process and
integrating with the back-end ERP system.
Key Issues for e-Business
There are a large number of key issues in the e-business area at
any given time. The issues range from transaction security to web site
design. In the supply chain management area some of the more
important issues include order fulfillment, back-end integration, and
The issue of order fulfillment was in the spotlight during the
Christmas period of 1999. Many customers were extremely unhappy
with the fact that items they had ordered were not going to reach them
in time to be “put under the tree.” Instead many received notices of
back ordered products or late shipment. The faster a company can
process an order, the more likely that customer will order again. In
addition, the accuracy of the order and order fulfillment schedules
promised to the customer are just as important. Companies have spent
billions on developing sexy web sites and marketing, but forgot about
the nuts and bolts of the operation until it was too late for some. The
problems of Christmas 1999 have caused many online retailers to
rethink their approach to order fulfillment. They are the lucky ones,
since some won’t have the opportunity to rethink this issue.
Back-end integration of a company’s e-business
implementation to their ERP system is critical for an efficient supply
chain. “Some 85 percent of CIO respondents to a survey conducted
by Collaborative Research pointed to back-end integration as their
greatest implementation challenge.” (CIO, 1999) Companies struggle
with integration of their ERP systems into their e-business
implementations. However, they learn that this integration is essential
if your e-business initiative is going to be successful. When these
systems are not integrated customers cannot view real-time order
status, product availability information, and account information.
This lack of integration creates an environment of multiple databases
rather than a single source of real-time, complete and consistent
customer and operational knowledge.
Another key issue in the e-business supply chain area is the
ability to know and communicate real-time inventory information.
Customers want to know if the item listed on your web site is
available now or when. There is nothing more frustrating than
ordering an item with the expectation of receiving it in several days,
but instead receiving an email stating that the item is not available and
your order has been cancelled. This ability to display real-time
inventory information is related to the second issue of back-end ERP
system, your customers will never receive accurate inventory
One company, Streamline an online grocery and household
items retailer, checked inventory only after the order was placed. If
the item was not in stock an employee would select a substitute was
selected. Many times these substitutes were not acceptable to the
customer, the result was unhappy customers. These unhappy
customers complain or leave, which ultimately cost Streamline
money. The solution was to actually reserve a product when the
customer placed an order. This was accomplished through the
building real-time links between the website and the company’s ERP
system (SAP R/3). The company used the functionality of the SAP R/
3 system to link receiving, picking and other warehouse functions
with the inventory control system, and SAP’s online store module,
which interfaces with order management, accounting and inventory
control. The result is satisfied customers who can trust the company
when they say an item is in stock and when it will be delivered.
The need to move the company’s ERP system to the web and
information from the web to the ERP system is critical. Unfortunately
the information from the back end ERP system doesn’t find its way
into the web and vice versa. Often an organization ends up with a
separate web and ERP applications with no integration. Information
that would allow the organization to more effectively manage the
supply change is not shared.
What is SAP?
Founded in 1972 in Waldorf Germany.
Commands a significant share of the worldwide client/server enterprise
application software market
#1 vendor of standard business application software
Fourth largest independent software supplied in the world.
Client—software that can request a service
Server—software that can provide a service
Three-Tier design of client/server software
Presentation server—allows human-to-computer interaction by means of
keyboard, mouse, and monitor. Systems users deal directly with this first
level only. The software includes a GUI that takes requests from the user
and passes them to the application server.
Application server—The second tier. Using UNIX® or Windows NT®. Can
run on one or more computers. Prepares, formats and processes incoming
data. May connect with databases or on-line services to provide information
that users request to make changes to the database.
Database server—Stores information servers can use. Controls processing.
Hides the complexity of the system from users.
If networked, allows many different people in different locations to see and
edit the same information in real time.
SAP’s R/s system is designed to integrate all business functions of an
What is R/3
An integrated enterprise software system that runs in open system
A three-tier client/server
Expandable in stages, thus adaptable to the specific requirements of
For Cisco systems, roughly 90% of orders come to the company
without ever being touched by human hands. 52% of them are
fulfilled without a Cisco employee being involved.
Internet volume by 2002 estimated to be approximately
Graphical User Interfaces (GUIs)—the user friendly pictures and tools an
the computer screen