Lecture: Supply Chain Management and ERPn


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Lecture: Supply Chain Management and ERPn

  1. 1. MD240 Supply Chain Management (SCM) and Enterprise Resource Planning (ERP)
  2. 2. Overview <ul><li>Background </li></ul><ul><li>Essentials of Supply Chains </li></ul><ul><li>Enterprise Resource Planning and the Internal Supply Chain </li></ul><ul><li>Supply Chain Management </li></ul><ul><li>SCM for E-Commerce </li></ul>
  3. 3. Background <ul><li>Supply Chain Management is an Old Concept </li></ul><ul><ul><li>Clercus of Sparta (401 BC) </li></ul></ul><ul><ul><li>Napoleon vs. Russia </li></ul></ul><ul><ul><li>Germany vs. Russia (WWII) </li></ul></ul><ul><ul><li>Gulf War </li></ul></ul><ul><ul><ul><li>Supply chain consisted of strategically placed bases of soldiers and materiel (inventory) </li></ul></ul></ul><ul><ul><ul><li>Half of this supply chain was closed during the 1990s </li></ul></ul></ul><ul><ul><li>Present Day US Military </li></ul></ul><ul><ul><ul><li>“ Air Bridge” … a supply chain of transport planes continually refueled by strategically located gas tanker planes </li></ul></ul></ul>
  4. 4. Essentials of Supply Chains
  5. 5. Essentials of Supply Chains <ul><li>Supply Chain </li></ul><ul><ul><li>The flow of material, information, and services from raw material suppliers through factories and warehouses to the end customers </li></ul></ul><ul><li>Supply Chain Management (SCM) </li></ul><ul><ul><li>To plan, organize, and coordinate all the supply chain’s activities </li></ul></ul><ul><ul><li>A total systems approach for coordinating all of a supply chain’s activities </li></ul></ul>
  6. 6. Essentials of Supply Chains <ul><li>Demand Chains/Demand Chain Management </li></ul><ul><ul><li>Similar to SCM, but more of a focus on ... </li></ul></ul><ul><ul><ul><li>customer touchpoints </li></ul></ul></ul><ul><ul><ul><li>“ pull” orientation </li></ul></ul></ul><ul><ul><li>Tools </li></ul></ul><ul><ul><ul><li>Customer Relationship Management technologies </li></ul></ul></ul>
  7. 7. Essentials of Supply Chains <ul><li>The Components of Supply Chains </li></ul><ul><ul><li>Upstream supply chain </li></ul></ul><ul><ul><ul><li>includes the organization’s first-tier suppliers and their suppliers </li></ul></ul></ul><ul><ul><li>Internal supply chain </li></ul></ul><ul><ul><ul><li>includes all the processes used by an organization in transforming the inputs of the suppliers to outputs </li></ul></ul></ul><ul><ul><li>Downstream supply chain </li></ul></ul><ul><ul><ul><li>includes all the processes involved in delivering the products to final customers </li></ul></ul></ul>
  8. 8. Essentials of Supply Chains PUSH PULL Manufacturer Retail Distribution Center Retail Store Customers Purchase Merchandise Manufacturer Retail Distribution Center Retail Store Customers Purchase Merchandise
  9. 9. Essentials of Supply Chains <ul><li>Forward Supply Chain </li></ul><ul><ul><li>The supply chain that manufactures and delivers new products to end customers </li></ul></ul><ul><li>Reverse Supply Chain </li></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>Reverse logistics concerns the reverse flows of these items along the supply chain </li></ul></ul>
  10. 10. Essentials of Supply Chains <ul><li>Green Supply Chains/Green Manufacturing </li></ul><ul><ul><li>Designing environmentally friendly supply chains </li></ul></ul><ul><ul><li>Supports manufacturing stage, use of products, and disposal of products </li></ul></ul>
  11. 11. Essentials of Supply Chains A Generic Supply Chain 2 nd Tier Suppliers 2 nd Tier Suppliers 2 nd Tier Suppliers 1 st Tier Suppliers 1 st Tier Suppliers Assembly/ Manufacturing and Packaging Distribution Centers Retailers Customers The Generic Process Upstream Internal Downstream
  12. 12. Essentials of Supply Chains Typical “Push” Supply Chain Corrugate Paper Co. Lumber Company Label Manufacturing Grain Producer Processing Facility Distribution Centers Stores Customers The Cereal Manufacturing Process Packaging Grain Cereal Packaged Cereal Box Paperboard Labels Upstream Internal Downstream
  13. 13. Enterprise Resource Planning and the Internal Supply Chain
  14. 14. Internal Supply Chain Evolution of Manufacturing Info. Systems Inventory Purchasing Production scheduling MRP 1960 Production Management + MRP Finance, labor MRP II 1970 Major Manufacturing Resources + MRP II All internal resources ERP 1980 Coordinated Manufacturing and Service Transactions + ERP Internal customers and suppliers Internal SCM 1990 Internal ERP/SCM + Internal ERP/SCM External suppliers and customers Extended SCM 2000 Extended ERP/SCM +
  15. 15. Enterprise Resource Planning (ERP) <ul><li>ERP </li></ul><ul><ul><li>A process of planning and managing all resources and their use in the entire enterprise </li></ul></ul><ul><li>Objective </li></ul><ul><ul><li>To integrate all departments and functions across a company onto a single computer system that can serve all of the enterprise’s needs </li></ul></ul><ul><li>Results </li></ul><ul><ul><li>productivity improvement </li></ul></ul><ul><ul><li>better profitability </li></ul></ul><ul><ul><li>increases customer satisfaction </li></ul></ul>
  16. 16. Enterprise Resource Planning (ERP) <ul><li>Pros </li></ul><ul><ul><li>provides a single interface for managing all the routine activities performed in manufacturing </li></ul></ul><ul><ul><li>can integrate several hundred applications </li></ul></ul><ul><ul><li>plays critical role in getting small- and medium-sized manufacturers to focus on business processes </li></ul></ul><ul><li>Cons </li></ul><ul><ul><li>may need to change existing business processes to fit SAP, PeopleSoft or other ERP vendor’s format </li></ul></ul><ul><ul><li>never meant to fully support supply chains (SCM) </li></ul></ul><ul><ul><li>never meant to support CRM </li></ul></ul><ul><ul><li>difficult to build, operate, change and maintain </li></ul></ul>
  17. 17. Enterprise Resource Planning (ERP) Generations of ERP <ul><li>First Generation ERP </li></ul><ul><ul><li>Supported routine transactional activities </li></ul></ul><ul><ul><li>Excelled in transaction management </li></ul></ul><ul><ul><li>Generated reports which provided a snapshot of the business at a point in time </li></ul></ul><ul><ul><li>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 </li></ul></ul><ul><li>Second Generation ERP </li></ul><ul><ul><li>Adds decision support and business intelligence capabilities </li></ul></ul><ul><ul><li>Integration of database management systems (DBMS) and spreadsheets in Excel or Lotus 1-2-3 </li></ul></ul><ul><ul><li>Web-based </li></ul></ul><ul><ul><li>Integrates CRM and EC </li></ul></ul>
  18. 18. Enterprise Resource Planning (ERP) ERP Technologies <ul><li>ERP Application Vendors </li></ul><ul><ul><li>SAP </li></ul></ul><ul><ul><li>Oracle </li></ul></ul><ul><ul><li>PeopleSoft </li></ul></ul><ul><li>ERP Integration Tools </li></ul><ul><ul><li>Message-oriented Middleware (e.g. IBM MQSeries, Microsoft MSMQ) </li></ul></ul><ul><ul><li>WWW technologies </li></ul></ul><ul><ul><li>Web Services technologies (.NET/J2EE) </li></ul></ul>
  19. 19. Enterprise Resource Planning (ERP) ERP Implementation <ul><li>ERP Implementation Approaches </li></ul><ul><ul><li>Vendor Specific </li></ul></ul><ul><ul><ul><li>Use ERP software components from a single vendor </li></ul></ul></ul><ul><ul><ul><li>Using a single vendor speeds up implementation times, reduces incompatibility problems, reduces the need for middleware to connect different vendors’ ERP components </li></ul></ul></ul><ul><ul><li>Best of Breed </li></ul></ul><ul><ul><ul><li>Pick and choose the best software components available for various ERP tasks </li></ul></ul></ul><ul><ul><ul><li>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 </li></ul></ul></ul>
  20. 20. Enterprise Resource Planning (ERP) ASPs and ERP Outsourcing <ul><li>Application Service Providers (ASP) </li></ul><ul><ul><li>Some ASPs offer to lease ERP-based applications to other businesses over long-term (>5 year) contracts </li></ul></ul><ul><ul><li>Offerings evident in ERP-added functions </li></ul></ul><ul><ul><ul><li>Electronic commerce </li></ul></ul></ul><ul><ul><ul><li>Customer relationship management (CRM) </li></ul></ul></ul><ul><ul><ul><li>Datamarts </li></ul></ul></ul><ul><ul><ul><li>Desktop productivity </li></ul></ul></ul><ul><ul><ul><li>Human resources information systems (HRMS) </li></ul></ul></ul><ul><ul><ul><li>Other supply chain-related applications </li></ul></ul></ul>
  21. 21. Supply Chain Problems
  22. 22. Supply Chain Problems Problems Along Supply Chains <ul><li>Uncertainties </li></ul><ul><ul><li>demand forecasts </li></ul></ul><ul><ul><ul><li>influenced by competition, prices, weather conditions, technological development, and customers’ general confidence </li></ul></ul></ul><ul><ul><li>delivery times </li></ul></ul><ul><ul><ul><li>depend on several factors ranging from machine failures to road conditions and traffic jams, that way interfere with shipments </li></ul></ul></ul><ul><li>Symptoms of poor SCM </li></ul><ul><ul><li>poor customer service, which hinders people from getting the product or service when and where needed, or gives them a product of poor quality </li></ul></ul><ul><ul><li>High cost, low (or no) profit </li></ul></ul><ul><ul><li>The “Bullwhip Effect” </li></ul></ul>
  23. 23. Supply Chain Problems Problems Along Supply Chains Retailer Distributor Wholesaler Manufacturer Consumer Demand Poor demand forecasts Demand fluctuations Special sales Price fluctuations Order batching Rationing of supply Price fluctuations Order batching Rationing of supply Rationing of supply
  24. 24. Retailer Distributor Wholesaler Manufacturer “ The Bullwhip Effect” Supply Chain Problems The Bullwhip Effect A Small Demand Shift Leads To Huge Variation in Orders and Inventories Huge Variation in On-Hand Inventory and Manufacturing
  25. 25. Supply Chain Management
  26. 26. Supply Chain Management Organizational Benefits reduce uncertainty and risks in the supply chain positively affecting inventory levels, cycle time, business processes, and customer service increase profitability and competitiveness
  27. 27. Supply Chain Management Potential Solutions to Problems <ul><li>Vertical integration - building inventories </li></ul><ul><li>Coordination of all different activities </li></ul><ul><li>Use outsourcing rather than do-it-yourself during demand peaks </li></ul><ul><li>‘ Buy’ rather than ‘make’ production inputs whenever appropriate </li></ul><ul><li>Configure optimal shipping plans </li></ul><ul><li>Create strategic partnerships with suppliers </li></ul><ul><li>Use just-in-time approach to purchasing </li></ul><ul><li>Use fewer suppliers </li></ul><ul><li>Use IT to support the above, to integrate processes and to communicate better </li></ul>
  28. 28. Supply Chain Management Integrate Information Along Supply Chain <ul><li>Supply Chain Integration </li></ul><ul><ul><li>After the introduction of computer-based information, companies started to integrate the links of the supply chain </li></ul></ul><ul><ul><li>New forms of organizational relationships and the information revolution, especially the Internet and electronic commerce, have brought SCM to the forefront of management attention </li></ul></ul>
  29. 29. Supply Chain Management Benefits of Information Sharing <ul><li>Tangible benefits </li></ul><ul><ul><li>inventory reduction </li></ul></ul><ul><ul><li>personnel reduction </li></ul></ul><ul><ul><li>productivity improvement </li></ul></ul><ul><ul><li>order management improvement </li></ul></ul><ul><ul><li>financial-close cycle improvements </li></ul></ul><ul><ul><li>IT cost reduction </li></ul></ul><ul><ul><li>procurement cost reduction </li></ul></ul><ul><ul><li>cash management improvements </li></ul></ul><ul><ul><li>revenue/profit increases </li></ul></ul><ul><ul><li>transportation logistics cost reduction </li></ul></ul><ul><ul><li>maintenance reduction </li></ul></ul><ul><ul><li>on-time delivery improvement </li></ul></ul>
  30. 30. Supply Chain Management Benefits of Information Sharing <ul><li>Intangible benefits </li></ul><ul><ul><li>information visibility </li></ul></ul><ul><ul><li>new/improved processes </li></ul></ul><ul><ul><li>customer responsiveness </li></ul></ul><ul><ul><li>standardization </li></ul></ul><ul><ul><li>flexibility </li></ul></ul><ul><ul><li>globalization </li></ul></ul><ul><ul><li>business performance. </li></ul></ul>
  31. 31. Supply Chain Management Success Story: P&G and Wal-Mart <ul><li>Wal-Mart provides access to sales data for every item P&G makes for Wal-Mart </li></ul><ul><li>P&G obtains similar data from other retailers </li></ul><ul><li>By monitoring inventory position at all retailers, P&G can know what is selling, what to make, and how quickly to make it </li></ul>
  32. 32. Supply Chain Management Failure Story: Cisco <ul><li>Cisco supply chain was touted as an amazing feat in SCM </li></ul><ul><li>When Cisco needed something, the order was sent out via the SCM system to all of the various vendors </li></ul><ul><li>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 </li></ul><ul><li>What Cisco didn’t realize was that their ordering system was flawed … </li></ul><ul><ul><li>Vendors could not communicate with each other </li></ul></ul><ul><ul><li>The total SCM system didn’t control the MRP process further down the supply chain </li></ul></ul><ul><ul><li>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 Cisco’s supply chain </li></ul></ul><ul><li>Eventually, Cisco had to re-write their SCM system and write off $1 Billion for inventories that they did not need </li></ul>
  33. 33. Supply Chain Management IT Integrates Global Supply Chains <ul><li>Integration </li></ul><ul><ul><li>IT provides EDI, communication options, online expertise in sometimes difficult and fast-changing regulations </li></ul></ul><ul><li>Collaboration </li></ul><ul><ul><li>IT can be instrumental in helping businesses find trade partners </li></ul></ul><ul><li>Outsourcing for Flexibility/Cost, etc. </li></ul><ul><ul><li>IT facilitates outsourcing of products and services, especially IT programming, to countries with plentiful supply of labor, at low cost </li></ul></ul>
  34. 34. Supply Chain Management IT Integrates Global Supply Chains <ul><li>Example: Li & Fung, Hong Kong (lifung.com) </li></ul><ul><ul><li>Supplies The GAP, many other US companies </li></ul></ul><ul><ul><ul><li>Very competitive markets </li></ul></ul></ul><ul><ul><ul><li>Now up to 7 different apparel seasons per year </li></ul></ul></ul><ul><ul><li>Maintain a huge network of manufacturers throughout Southeast Asia, Africa, Eastern Europe </li></ul></ul><ul><ul><li>Have used IT -- built on top of existing supplier relationships -- to thoroughly integrate supply chain </li></ul></ul><ul><ul><li>Can ship orders in very short times </li></ul></ul><ul><ul><li>Have used the Internet to extend their capabilities to even small US clothing retailers </li></ul></ul>
  35. 35. Supply Chain Management Future Managerial Issues <ul><li>SCM was necessitated/facilitated by past 10 years of “globalization” </li></ul><ul><li>Uncertainty about future globalization (after 9/11/2001) will change SCM directions </li></ul><ul><ul><li>Less willingness to take risk in foreign supply sources </li></ul></ul><ul><ul><li>Longer time/costs for nations to inspect and accept goods from foreign sources </li></ul></ul><ul><ul><li>More backup inventories will need to be held to hedge against supply variability </li></ul></ul><ul><ul><li>Greater breadth of shipping channels will need to be used to ensure enough supplies can get to factories on time </li></ul></ul>
  36. 36. Supply Chain Management Trends <ul><li>Integrating CRM to ERP and SCM </li></ul><ul><li>Business Intelligence </li></ul><ul><ul><li>Building knowledge about what is going on in your business by using DSS, EIS, data mining, intelligent support systems, and other knowledge-oriented IT </li></ul></ul><ul><li>Supply Chain Intelligence </li></ul><ul><ul><li>Business intelligence technologies embedded in SCM applications </li></ul></ul><ul><li>Componentization </li></ul><ul><ul><li>A component architecture takes advantage of modularity … the ability to mix-and-match different modules that work together seamlessly </li></ul></ul><ul><ul><li>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 </li></ul></ul>
  37. 37. SCM for E-Commerce
  38. 38. SCM for E-Commerce Digital Supply Chains <ul><li>E-Commerce sites themselves are supply chains for digital services </li></ul><ul><ul><li>When you click on a URL, it is a request for a service </li></ul></ul><ul><ul><li>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 </li></ul></ul><ul><ul><ul><li>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) </li></ul></ul></ul>
  39. 39. SCM for E-Commerce Issues <ul><li>E-Commerce technologies can help to improve the functioning of traditional supply chains </li></ul><ul><ul><li>Formalizes (e.g. using XML) and speeds up supply chain communication </li></ul></ul><ul><ul><li>Faster response to customer demands </li></ul></ul><ul><ul><li>Better information about supply chain activities provided to customers and to supply chain partners </li></ul></ul><ul><ul><li>Facilitate a hub structure for new supply chain designs </li></ul></ul><ul><ul><li>Facilitate real-time knowledge about on-hand inventory positions and locations of inventories </li></ul></ul><ul><ul><li>E-marketplaces can help clear markets, or dump inventories that were mistakenly produced by the supply chain </li></ul></ul>
  40. 40. SCM for E-Commerce Issues <ul><li>E-Commerce also makes SCM more challenging </li></ul><ul><ul><li>Customers expect faster response times </li></ul></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>Customers are more knowledgeable about their rights … by law, supply chains must react in certain manners to customer orders </li></ul></ul><ul><ul><ul><li>companies can be fined if they do not </li></ul></ul></ul><ul><ul><ul><li>customers can keep anything they did not order </li></ul></ul></ul><ul><ul><li>A variety of IT has been employed to provide better information to customers about where their order is in the shipping process </li></ul></ul><ul><ul><ul><li>Quick delivery (online) </li></ul></ul></ul><ul><ul><ul><li>Integrated warehouses (bar coding) </li></ul></ul></ul><ul><ul><ul><li>Order tracking and shipment tracking </li></ul></ul></ul>