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Lecture iii (september 2014)the information system and procurement

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Lecture iii (september 2014)the information system and procurement

  1. 1. The information System for the Supply Chain and Procurement Lecture 3 Supply Chain Management Pia Bosma MSc September, 2014
  2. 2. 1 Information Exchange SCM 2 Enterprise Resource Planning 3 The role of Purchasing 4 Make or Buy decisions
  3. 3. 10-3 E-business and Supply Chain • Cost savings and price reductions • Reduction or elimination of the role of intermediaries • Shortening supply chain response and transaction times • Gaining a wider presence and increased visibility for companies • Greater choices and more information for customers
  4. 4. 10-4 E-automotive Supply Chain • Customer sales • Production • Distribution • Customer relationship  Push—sell from inventory stock  Goal of even and stable production  Mass approach  Dealer-owned E-Automotive  Pull—build-to-order  Focus on customer demand, respond with supply chain flexibility  Fast, reliable, and customized to get cars to specific customer location  Shared by dealers and manufacturers Automotive Past Supply Chain Processes
  5. 5. 10-5 E-automotive Supply Chain (cont.) • Managing uncertainty • Procureme nt • Product design  Large car inventory at dealers  Batch-oriented; dealers order based on allocations  Complex products don’t match customer needs E-Automotive  Small inventories with shared information and strategically placed parts inventories  Orders made in real time based on available-to-promise information  Simplified products based on better information about what customers want Automotive Past Supply Chain Processes
  6. 6. Supply Chain Information Flows Customer Internal Supply Supplier Relationship Chain Management Relationship Management Management Strategic decision making Tactical planning Routine decision making Execution and transaction processing
  7. 7. Supply Chain Information Needs Supply Chain Activity Characteristics Performance Dimensions purpose for Information Flows Strategic decision making long-range plans to meet organization’s mission • Focus on long-term decisions • Least structured of all • Greatest user discretion • Flexibility Tactical planning plans to coordinate actions across supply chain • Focus is on tactical decisions • Plans physical flows • Greater user discretion • Form • Flexibility Routine decision making support rule-based decision making • Fairly short time frames • Limited user discretion • Accuracy • Timeliness • Limited flexibility Execution and transaction processing record / retrieve data & control physical / monetary flows • Very short time frames, very high volumes • Highly automated • Standardized business practices • Ideally no user intervention • Accuracy • Timeliness
  8. 8. What is “perfect” Information? • Perfect information is: – Accurate – Timely – Correct in detail and form – Shared – Complete
  9. 9. Costs of “imperfect” Information • What are some of the costs associated with information that is: – Inaccurate? (e.g., inventory or order info.) – Late? (e.g., forecast changes) – Incomplete in detail / form? (e.g., quarterly sales forecast)? – Not shared? (e.g., engineering changes)
  10. 10. Diagnosing and Improving Supply Chain Information Flows 1. Map the business process(es) containing the information flows of interest 2. Develop an information flow profile that identifies potential performance gaps in the information flows 3. Use continuous improvement techniques to identify the causes of these gaps 4. Use the plan-do-check-act (PDCA) cycle to plan and implement improvements aimed at closing these gaps
  11. 11. This figure illustrates the major entities in Nike’s supply chain and the flow of information upstream and downstream to coordinate the activities involved in buying, making, and moving a product. Shown here is a simplified supply chain, with the upstream portion focusing only on the suppliers for sneakers and sneaker soles.
  12. 12. Simplified Supply Chain Upstream Internal Downstream Suppliers Organization’s production processes, including materials handling, inventory management, manufacturing, quality control Distributors material information money Retailers Customers
  13. 13. Extending Supply Chain through e- Commerce • Upstream – Change procurement methods • Internal – Use of intranet to enhance internal processes • Downstream – Alter (streamline) selling practices through direct Web selling, auctions, or exchanges
  14. 14. 1 Information Exchange SCM 2 Enterprise Resource Planning 3 The role of Purchasing 4 Make or Buy decisions
  15. 15. Enterprise Resource Planning (ERP) • An extension of the MRP system to tie in customers and suppliers – Allows automation and integration of many business processes – Shares common data bases and business practices – Produces information in real time • Coordinates business from supplier evaluation to customer invoicing
  16. 16. Enterprise Application Architecture Source: Adapted from Mohan Sawhney and Jeff Zabin, Seven Steps to Nirvana: Strategic Insights into e-Business Transformation (New York: McGraw-Hill,2001), p. 175.
  17. 17. Enterprise Resource Planning (ERP) • Cross-functional enterprise system –with an integrated suite of software modules –that support the basic internal business processes of a company
  18. 18. ERP application components
  19. 19. Business benefits of ERP •Quality and efficiency • Decreased costs • Decision support • Enterprise agility
  20. 20. What is ERP? (Enterprise Resource Planning) www.youtube.com/watch?v=PVRg IXLWDHs http://www.youtube.com/watch?v= 8OvY63m-N1E http://www.youtube.com/watch?v= bnnS1fL5fT8
  21. 21. Costs of implementing a new ERP
  22. 22. Supply Chain Information Systems Strategic decision making Tactical planning Routine decision making Execution and transaction processing SRM applications DSS CRM applications Network design Warehouse & transportation planning Warehouse management & transportation execution ERP applications Suppliers Internal supply Customers Logistics chain
  23. 23. Supply Chain Information Systems Enterprise Resource Planning (ERP) Systems Strategic decision making Tactical planning Routine decision making Execution & transaction processing Suppliers Internal supply Customers Logistics chain SRM applications DSS CRM applications Network design Warehouse & transportation planning Warehouse management & transportation execution ERP applications Large, integrated computer-based business transaction processing and reporting systems. ERP systems pull together all of the classic business functions such as accounting, finance, sales, and operations into a single, tightly integrated package that uses a common database. Traditional strengths in routine decision making and in execution and transaction processing Captures data to support higher-level decision support systems (DSS)
  24. 24. Information Technology: A Supply Chain Enabler • Information links all aspects of supply chain • E-business – replacement of physical business processes with electronic ones • Electronic data interchange (EDI) – a computer-to-computer exchange of business documents • Bar code and point-of-sale – data creates an instantaneous computer record of a sale • Radio frequency identification (RFID) – technology can send product data from an item to a reader via radio waves • Internet – allows companies to communicate with suppliers, customers, shippers and other businesses around the world, instantaneously
  25. 25. 1 Information Exchange SCM 2 Enterprise Resource Planning 3 The Role of Purchasing 4 Make or Buy decisions
  26. 26. What is purchasing? Perspectives on purchasing – To perform specialised tasks – To achieve an output –With production and warehousing – Internal and external focus – Knowledge based – Demonstrable skills and knowledge As a function As a process As a link in the supply chain As a relationship As a discipline As a profession 1 2 3 4 5 6
  27. 27. What is purchasing? The classic definition Definitions To buy materials of the right quality , in the right quantity, from the right source, delivered to the right place, at the right time at the right price. Modern definition To be contrasted with The process undertaken by the organisational unit which, either as a function or a part of an integrated supply chain, is responsible for procuring or assisting users to procure in the most efficient manner required suppliers at the right time, quality, quantity and price and the management of suppliers, thereby contributing to the competitive advantage of the enterprise and the achievement of its corporate strategy.
  28. 28. What is purchasing? Definition of procurement Procurement is the process of acquiring goods, works and services, covering both acquisition from third parties and from in-house providers. The process spans the whole life cycle from identification of needs, through to the end of the useful life of an asset. It involves options appraisal and the critical ‘make or buy’ decision.
  29. 29. What is purchasing? Purchasing and change Globalisation impact Information technology impact Chasing production & management philosophies impact •Transgression of national boundaries •Advantage of cost •Specialised labour skills •Emerging economies •Slicker transactions •Quality of management data •Strategic link with suppliers •Paperless environment •Competitive advantage •Outsourcing •Supply chain management
  30. 30. What is purchasing? World-class purchasing TQM JIT Total cycle time reduction Long range planning Supplier relationship engineering Strategic cost management Performance accountability Professional flexibility and development Service excellence Corporate social responsibility Must accommodate http://www.loreal.com/who-you-can-be/ operations/purchasing.aspx
  31. 31. 1 Information Exchange SCM 2 Enterprise Resource Planning 3 The Role of Purchasing 4 Make or Buy decisions
  32. 32. Procurement and Outsourcing • Outsourcing components have increased progressively over the years • Some industries have been outsourcing for an extended time – Fashion Industry (Nike) (all manufacturing outsourced) – Electronics Industry • Cisco (major suppliers across the world) • Apple (over 70% of components outsourced)
  33. 33. Why do Companies Outsource?
  34. 34. Outsourcing Benefits and Risks Benefits • Economies of scale – Aggregation of multiple orders reduces costs, both in purchasing and in manufacturing • Risk pooling – Demand uncertainty transferred to the suppliers – Suppliers reduce uncertainty through the risk-pooling effect • Reduce capital investment – Capital investment transferred to suppliers. – Suppliers’ higher investment shared between customers.
  35. 35. Outsourcing Benefits • Focus on core competency – Buyer can focus on its core strength – Allows buyer to differentiate from its competitors • Increased flexibility – The ability to better react to changes in customer demand – The ability to use the supplier’s technical knowledge to accelerate product development cycle time – The ability to gain access to new technologies and innovation. – Critical in certain industries: • High tech where technologies change very frequently • Fashion where products have a short life cycle
  36. 36. Outsourcing Risks Loss of Competitive Knowledge • Outsourcing critical components to suppliers may open up opportunities for competitors • Outsourcing implies that companies lose their ability to introduce new designs based on their own agenda rather than the supplier’s agenda • Outsourcing the manufacturing of various components to different suppliers may prevent the development of new insights, innovations, and solutions that typically require cross-functional teamwork
  37. 37. Trends • Outsourcing of non-core activities to suppliers • Focusing of operations • A reduction in supply base as companies shift from multiple to single sourcing • Long-term buyer supplier relationships. • Partnerships rather than adversarial trading The outcome of these changes are that companies are establishing new relationships with their suppliers.
  38. 38. Supply Chain Collaboration – What Is It? • Many different definitions depending on perspective • The means by which companies within the supply chain work together towards mutual goals by sharing – Ideas – Information – Processes – Knowledge – Information – Risks – Rewards • Why collaborate? – Accelerate entry into new markets – Changes the relationship between cost/value/profit equation
  39. 39. Supply Chain Collaboration • Cornerstone of effective SCM • The focus of many of today’s SCM initiatives Manufacturer Distributors/ Wholesalers Suppliers Retailers Collaborative Demand Planning Synchronized Production Scheduling Collaborative Product Development Collaborative Logistics Planning •Transportation services •Distribution center services Logistics Providers
  40. 40. Benefits of Supply Chain Collaboration CUSTOMERS MATERIAL SUPPLIERS SERVICE SUPPLIERS • Reduced inventory • Increased revenue • Lower order management costs • Higher Gross Margin • Better forecast accuracy • Better allocation of promotional budgets • Reduced inventory • Lower warehousing costs • Lower material acquisition costs • Fewer stockout conditions • Lower freight costs • Faster and more reliable delivery • Lower capital costs • Reduced depreciation • Lower fixed costs • Improved customer service • More efficient use of human resources http://www.loreal.com/profiles/suppliers/promoti ng-collaborative-innovation.aspx
  41. 41. Supply Chain Collaboration Spectrum Number of Relationships Extensive Extent of Collaboration Many Few Limited Transactional Collaboration Synchronized Collaboration Cooperative Collaboration Coordinated Collaboration Not Viable Low Return • The green arrow describes increasing complexity and sophistication of: – Information systems – Systems infrastructure – Decision support systems – Planning mechanisms – Information sharing – Process understanding • Higher levels of collaboration imply the need for both trading partners to have equivalent (or close) levels of supply chain maturity • Synchronized collaboration demands joint planning, R&D and sharing of information and processing models – Movement to real-time customer demand information throughout the supply chain
  42. 42. Studying and preparing
  43. 43. Assignments • Questions case Nike • Search for a brand – Make a summary of 2 pages  apply the subjects of the lectures – Articles – Video’s
  44. 44. Final Presentation week 7 • Consultation hours week 5 and 6 • Presentation week 7

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