MD240

Supply Chain Management (SCM) and Enterprise Resource Planning (ERP)

Overview
Background
Essentials

of Supply Chains Enterprise Resource Planning and the Internal Supply Chain Supply Chain Management SCM for E-Commerce

Background

Supply Chain Management is an Old Concept

Clercus

of Sparta (401 BC) Napoleon vs. Russia Germany vs. Russia (WWII) Gulf War
Supply chain

consisted of strategically placed bases of soldiers and materiel (inventory) Half of this supply chain was closed during the 1990s
Present Day US Military Air Bridge a supply chain of transport planes continually refueled by strategically located gas tanker planes

Essentials of Supply Chains

Essentials of Supply Chains

Supply Chain
The

flow of material, information, and services from raw material suppliers through factories and warehouses to the end customers

Supply Chain Management (SCM)

To

plan, organize, and coordinate all the supply chains activities A total systems approach for coordinating all of a supply chains activities

Essentials of Supply Chains

Demand
Similar

Chains/Demand Chain Management

to SCM, but more of a focus on ...

customer

touchpoints pull orientation

Tools
Customer

Relationship Management technologies

Essentials of Supply Chains

The Components of Supply Chains

Upstream

supply chain includes the organizations first-tier suppliers and their suppliers Internal supply chain includes all the processes used by an organization in transforming the inputs of the suppliers to outputs Downstream supply chain includes all the processes involved in delivering the products to final customers

Essentials of Supply Chains

PUSH Manufacturer Retail Distribution Center Retail Store PULL Customers Purchase Merchandise

Retail Store
Retail Distribution Center

Customers Purchase Merchandise

Manufacturer

Essentials of Supply Chains

Forward Supply Chain

The

supply chain that manufactures and delivers new products to end customers

Reverse Supply Chain

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 Reverse logistics concerns the reverse flows of these items along the supply chain

Essentials of Supply Chains

Green Supply Chains/Green Manufacturing

Designing

environmentally friendly supply chains Supports manufacturing stage, use of products, and disposal of products

Essentials of Supply Chains

A Generic Supply Chain
Upstream
The Generic Process
2nd Tier Suppliers
2nd Tier Suppliers 2nd Tier Suppliers

Internal

Downstream

1st Tier Suppliers Tier Suppliers 1st

Assembly/ Manufacturing and Packaging

Distribution Centers

Retailers

Customers

Essentials of Supply Chains

Typical Push Supply Chain
Upstream Internal Downstream

The Cereal Manufacturing Process

Grain Producer

Grain

Cereal
Processing Facility

Packaged Cereal
Distribution Centers Stores Customers

Packaging

Lumber Company

Corrugate Paper Co.

Box Paperboard

Label Manufacturing

Labels

Enterprise Resource Planning and the Internal Supply Chain

Internal Supply Chain

Evolution of Manufacturing Info. Systems
2000 1990 1980 1970 1960
Inventory
Purchasing MRP

Production scheduling

MRP MRP II

Production Management Major Manufacturing Resources Coordinated Manufacturing and Service Transactions

+ +

Finance, labor All internal resources

MRP II ERP

ERP

Internal customers + and suppliers

Internal Internal SCM ERP/SCM Extended Extended SCM ERP/SCM

Internal External suppliers + and customers ERP/SCM

Enterprise Resource Planning (ERP)

ERP

A process of planning and managing all resources and their use in the entire enterprise To integrate all departments and functions across a company onto a single computer system that can serve all of the enterprises needs productivity improvement better profitability increases customer satisfaction

Objective

Results

Enterprise Resource Planning (ERP)

Pros
provides

a single interface for managing all the routine activities performed in manufacturing can integrate several hundred applications plays critical role in getting small- and medium-sized manufacturers to focus on business processes

Cons
may

need to change existing business processes to fit SAP, PeopleSoft or other ERP vendors format never meant to fully support supply chains (SCM) never meant to support CRM difficult to build, operate, change and maintain

Enterprise Resource Planning (ERP)

Generations of ERP

First Generation ERP

Supported routine transactional activities Excelled in transaction management Generated reports which provided a snapshot of the business at a point in time 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 Adds decision support and business intelligence capabilities Integration of database management systems (DBMS) and spreadsheets in Excel or Lotus 1-2-3 Web-based Integrates CRM and EC

Second Generation ERP

Enterprise Resource Planning (ERP)

ERP Technologies

ERP Application Vendors

SAP Oracle PeopleSoft

ERP Integration Tools

Message-oriented Middleware (e.g.

IBM MQSeries,

Microsoft MSMQ) WWW technologies Web Services technologies (.NET/J2EE)

Enterprise Resource Planning (ERP)

ERP Implementation

ERP Implementation Approaches

Vendor
Use

Specific

ERP software components from a single vendor Using a single vendor speeds up implementation times, reduces incompatibility problems, reduces the need for middleware to connect different vendors ERP components
Best

of Breed

Pick

and choose the best software components available for various ERP tasks 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

Enterprise Resource Planning (ERP)

ASPs and ERP Outsourcing

Application Service Providers (ASP)

Some

ASPs offer to lease ERP-based applications to other businesses over long-term (>5 year) contracts Offerings evident in ERP-added functions
Electronic commerce Customer Datamarts Desktop productivity Human

relationship management (CRM)

resources information systems (HRMS) Other supply chain-related applications

Supply Chain Problems

Supply Chain Problems

Problems Along Supply Chains
Uncertainties
demand

forecasts

influenced by

competition, prices, weather conditions, technological development, and customers general confidence several factors ranging from machine failures to road conditions and traffic jams, that way interfere with shipments

delivery times
depend on

Symptoms of
poor

poor SCM

customer service, which hinders people from getting the product or service when and where needed, or gives them a product of poor quality High cost, low (or no) profit The Bullwhip Effect

Supply Chain Problems

Problems Along Supply Chains
Consumer Demand

Retailer

Distributor

Wholesaler

Manufacturer

Poor demand forecasts Demand fluctuations

Price fluctuations
Order batching Rationing of supply

Price fluctuations Order batching Rationing of supply

Rationing of supply

Special sales

Supply Chain Problems

The Bullwhip Effect
A Small Demand Shift Leads To Huge Variation in Orders and Inventories

Retailer

Distributor

Wholesaler

Huge Variation in On-Hand Inventory and Manufacturing

The Bullwhip Effect

Manufacturer

Supply Chain Management

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

Supply Chain Management

Potential Solutions to Problems

Vertical integration - building inventories Coordination of all different activities Use outsourcing rather than do-it-yourself during demand peaks Buy rather than make production inputs whenever appropriate Configure optimal shipping plans Create strategic partnerships with suppliers Use just-in-time approach to purchasing Use fewer suppliers

Use

IT to support the above, to integrate processes and to communicate better

Supply Chain Management

Integrate Information Along Supply Chain
Supply
After

Chain Integration

the introduction of computer-based information, companies started to integrate the links of the supply chain New forms of organizational relationships and the information revolution, especially the Internet and electronic commerce, have brought SCM to the forefront of management attention

Supply Chain Management

Benefits of Information Sharing
Tangible benefits inventory reduction personnel reduction productivity improvement order management improvement financial-close cycle improvements IT cost reduction procurement cost reduction cash management improvements revenue/profit increases transportation logistics cost reduction maintenance reduction on-time delivery improvement

Supply Chain Management

Benefits of Information Sharing
Intangible

benefits

information

visibility new/improved processes customer responsiveness standardization flexibility globalization business performance.

Supply Chain Management

Success Story: P&G and Wal-Mart
Wal-Mart

provides access to sales data for every item P&G makes for Wal-Mart P&G obtains similar data from other retailers By monitoring inventory position at all retailers, P&G can know what is selling, what to make, and how quickly to make it

Supply Chain Management

Failure Story: Cisco

Cisco supply chain was touted as an amazing feat in SCM When Cisco needed something, the order was sent out via the SCM system to all of the various vendors 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 What Cisco didnt realize was that their ordering system was flawed

Vendors could not communicate with each other The total SCM system didnt control the MRP process further down the supply chain 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 Ciscos supply chain

Eventually, Cisco had to re-write their SCM system and write off $1 Billion for inventories that they did not need

Supply Chain Management

IT Integrates Global Supply Chains

Integration
IT

provides EDI, communication options, online expertise in sometimes difficult and fast-changing regulations

Collaboration
IT

can be instrumental in helping businesses find trade partners

facilitates outsourcing of products and services, especially IT programming, to countries with plentiful supply of labor, at low cost

Outsourcing for Flexibility/Cost, etc.

IT

Supply Chain Management

IT Integrates Global Supply Chains

Example: Li & Fung, Hong Kong (lifung.com)

Supplies
Very

The GAP, many other US companies

competitive markets Now up to 7 different apparel seasons per year

Maintain a

huge network of manufacturers throughout Southeast Asia, Africa, Eastern Europe Have used IT -- built on top of existing supplier relationships -- to thoroughly integrate supply chain Can ship orders in very short times Have used the Internet to extend their capabilities to even small US clothing retailers

Supply Chain Management

Future Managerial Issues

SCM was necessitated/facilitated by past 10 years of globalization Uncertainty about future globalization (after 9/11/2001) will change SCM directions

Less willingness to take risk in foreign supply sources Longer time/costs for nations to inspect and accept goods from foreign sources More backup inventories will need to be held to hedge against supply variability Greater breadth of shipping channels will need to be used to ensure enough supplies can get to factories on time

Supply Chain Management

Trends

Integrating CRM to ERP and SCM Business Intelligence

Building knowledge about what is going on in your business by using DSS, EIS, data mining, intelligent support systems, and other knowledge-oriented IT Business intelligence technologies embedded in SCM applications A component architecture takes advantage of modularity the ability to mix-and-match different modules that work together seamlessly 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

Supply Chain Intelligence

Componentization

SCM for E-Commerce

SCM for E-Commerce

Digital Supply Chains

E-Commerce sites themselves are supply chains for digital services

When

you click on a URL, it is a request for a service 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
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)

SCM for E-Commerce

Issues

E-Commerce technologies can help to improve the functioning of traditional supply chains
Formalizes

(e.g. using XML) and speeds up supply chain communication Faster response to customer demands Better information about supply chain activities provided to customers and to supply chain partners Facilitate a hub structure for new supply chain designs Facilitate real-time knowledge about on-hand inventory positions and locations of inventories E-marketplaces can help clear markets, or dump inventories that were mistakenly produced by the supply chain

SCM for E-Commerce

Issues

E-Commerce also makes SCM more challenging

Customers expect faster response times 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 Customers are more knowledgeable about their rights by law, supply chains must react in certain manners to customer orders

companies can be fined if they do not customers can keep anything they did not order

A variety of IT has been employed to provide better information to customers about where their order is in the shipping process

Quick delivery (online) Integrated warehouses (bar coding) Order tracking and shipment tracking