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Chapter 8 Supply Chain Management & Enterprise Resource Planning. Benefits. reduce uncertainty and risks in the supply chain. positively affect inventory levels, cycle time, business processes, & customer service. increase profitability and competitiveness. Essentials of the Supply Chains.

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Chapter 8 supply chain management enterprise resource planning

Chapter 8Supply Chain Management& Enterprise Resource Planning

Essentials of the supply chains


reduce uncertainty and risks in the supply chain

positively affect inventory levels, cycle time, business processes, & customer service

increase profitability and competitiveness

Essentials of the Supply Chains

  • Supply Chain

    • the flow of material, information, payment, and services from raw material suppliers through factories and warehouses (Value Chain) to the end customers (Demand Chain)

    • Supply Chain Flows

      • Materials flows- all physical products, new materials, and supplies that flow along the chain

      • Information flows- all data associated with demand, shipments, orders, returns and schedules

      • Financial flows- all transfers of money, payments, credit card information, payment schedules, e-payments and credit-related data

    • E-supply chain

  • Supply Chain Management (SCM)

    • to plan, organize, & coordinate all the supply chain’s activities

Supply chain components types
Supply Chain - Components & Types

  • The Components of Supply Chain

    • Upstream supply chain

      • sourcing or procurement from external suppliers occur

    • Internal supply chain

      • where packaging, assembly, or manufacturing take place

    • Downstream supply chain

      • where distribution or dispersal take place, frequently by external distributors

  • Types of Supply Chain

    • Integrated make-to-stock

    • Continuous replenishment

    • Build-to-order

    • Channel assembly

Supply chain
Supply Chain

“Supply” Chain

Value Chain

Demand Chain

Supply chain problems
Supply Chain Problems


  • Demand forecast

  • Delivery times

  • Quality

  • The Bull Whip Effect - The most persistent SCM problem

    • Erratic shifts in orders up & down the supply chain

    • Distributor orders fluctuate because of poor demand forecast, price fluctuation, order batching & rationing with supply chain.

    • Example: P&G’s distortion in SCM for manufacturing of disposable diapers

  • Main Solutions

    • Vertical integration

    • Building inventories

      • It is difficult to correctly determine inventory level for each product & part. This can be costly.


  • With Internal units & business partners

  • Ineffective customer service

  • High inventory costs, loss of revenue & extra cost for expediting services

Solutions to supply chain problems
Solutions to Supply Chain Problems

  • Solution

    • Information sharing among supply chain partners (c-commerce) sometimes referred to as the collaboration supply chain

      • facilitated by EDI, Extranets & Groupware technology

      • Example: P&G and War-Mart (vendor-managed inventory,VMI)

    • Others

      • Optimal Inventory Levels

      • Supply Chain Coordination and Collaboration

      • Supply Chain Teams

      • Performance Measurement and Metrics

        • Use of IT for measuring areas in need of improvement

          • Delivery on time, Quality at unloading area, Cost performance & Lead time for procurement

      • Various IT-Assisted Solutions

        • wireless technology

        • optimal shipping plans

      • strategic partnerships with suppliers

      • just-in-time

Other it assisted solutions to scm problems
Other IT-assisted Solutions to SCM Problems

  • Other Solutions (Table 8.1, p. 365)

    • Use wireless technology to expedite certain tasks in the supply chain - SFA

    • Configure optimal shipping plans - Quantitative analysis, DSS, intelligent systems

    • Create strategic partnerships with suppliers - DSS

    • Use the just-in-time approach to purchasing

    • Use outsourcing rather than do-it-yourself - DSS

    • Buy” rather than “make” production inputs when appropriate - DSS

    • Reduce the lead time for buying and selling - BI

    • Use fewer suppliers - BI

    • Improve supplier-buyer relationships - CRM & PRM

    • Manufacture only after orders are in

    • Achieve accurate demand by working closely with suppliers - Online collaboration tools

    • Automate material flow, information flow, and partner relationship

Computerized supply chains
Computerized Supply Chains

  • Computerized systems

    • Material requirements planning (MRP)

      • essentially integrates production, purchasing, and inventory management of interrelated products

    • Manufacturing resource planning (MRP II)

      • enhanced MRP methodology by adding labor requirements and financial planning

    • Enterprise resource planning (ERP)

      • further integrates the transaction processing as well as other routine activities in the entire enterprise

    • Integration continues along several paths

      • functional areas

      • Combining transaction processing and decision support

      • Business intelligence

      • CRM software

The evolution of computerized aids





Production Management








Major Manufacturing Resources



Coordinated Manufacturing and Service Transactions


All internal






Internal customers

and suppliers










External suppliers

and customers















The Evolution of Computerized Aids

Why integration
Why Integration?

  • Benefits

    • 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, and on-time delivery improvement

    • Intangible benefits

      • Information visibility, new/improved processes, customer responsiveness, standardization, flexibility, globalization, and business performance.

  • Integrating the Supply Chain

    • After 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 EC, have brought SCM to the forefront of management attention

Types of integration from supply to value chain
Types of Integration: From Supply to Value Chain

  • Types

    • Internal integration - to integration between applications inside a company

    • External integration - to integration of applications among business partners

    • Value Chain Integration

      • The process by which multiple enterprises within a shared market channel collaboratively plan, implement, and manage the flow of goods, services, and information along the entire chain in a manner that increases customer-perceived value.

      • A process of collaboration

        • A Supply Chain transforms into an integrated Value Chain

          • Extends the chain all the way from sub-suppliers to customers

          • Integrates back-office operations with those of the front office

          • Becomes highly customer-centric, focusing on demand generation and customer service

          • Seeks to optimize the value added by information and utility-enhancing services

          • Is proactively designed by chain members to compete as an “extended enterprise”.

Enterprise resources planning erp
Enterprise Resources Planning (ERP)

  • ERP = Process of planning & managing all resources & their use in the entire enterprise

  • Objective

    • to integrate all departments and functions across a company onto a single computer system

    • control all major business processes with a single software architecture in real time

  • Leading ERP software producers

    • SAP, Oracle, J.D. Edwards, Computer Associates, PeopleSoft

  • Functions

    • Provides a single interface for managing routine manufacturing activities

    • Facilitates customer interaction & manages relationships with suppliers & vendors

    • Forces discipline & organization around business

    • Supports administrative activities

1 st generation erp
1st Generation ERP

  • Objectives

    • Automate key office processes

    • Support routine transactional activities

  • Advantages

    • Excelled in transaction management

    • Generated reports which provided a snapshot of the business at a point in time

  • Disadvantage

    • not support the continues refining and enhancing of plans as changes and events occur, up to the very last minute before executing the plan

  • SCM Integration

    • Work with different software products from different vendors (i.e. one for ERP & one for SCM)

Post erp 2nd generation erp
Post- ERP: 2nd Generation ERP

  • Objectives

    • leverage existing systems in order to increase efficiency in handling transactions, improve decision making, further transform ways of doing business

    • A need for planning systems oriented towards decision-making

  • Integration

    • Web-based

    • DBMS, spreadsheets in Excel or Lotus 1-2-3, CRM & EC

  • ERP/SCM integration model

    • companies to quickly assess the impact of their actions on the entire supply chain, including customer demand

    • By providing intelligent decision support and BI capabilities, the analytical SCM systems complement the ERP system.

    • Alternative ways

      • Emergence of SCM systems that complement ERP systems

        • ERP vendors add decision support & BI (Business Intelligence)capabilities

      • To work with different SW products from different vendors

        How can I best take or fulfill your order? Vs. Should I take your order?

Supply chain intelligence sci componentization
Supply Chain Intelligence (SCI) & Componentization

  • SCI - the inclusion of BI in supply chain SW solutions

    • 3 Ways to provide SCI

      • Use an enhanced ERP package that includes BI capabilities

      • Integrate the ERP with business intelligence software from a specialized vendor such as Brio, Cognus, or Comshare.

      • Use Web services

      • Create a “best of breed” system by using components from several vendors that will provide the required capabilities.

  • Componentization

    • Breaking large ERP systems into individual components that work together.

    • Makes it easier for ERP vendors to enhance their solutions and for customers to upgrade their software.

    • Helps vendors extend the core ERP system with supply chain, sales force automation solutions, and CRM

Erp implementation
ERP Implementation

  • To avoid failures, the following factors should be considered

    • The customer’s expectations

    • The ERP product capabilities and gaps

    • The level of change the customer has to go through to make the system fit

    • The level of commitment within the customer organization to see the project through

    • The customer’s organization and culture

    • The risks presented by politics within the customer organization

    • The consultant’s capabilities, responsibilities and role (if applicable)

  • Application service providers (ASP) & ERP Outsourcing

    • “ASP alternative” - a SW vendor that offers to lease ERP-based applications to other businesses

      • A popular option today for businesses that want ERP functions but lease applications rather than building systems

        • offerings are evident in ERP -added functions such as EC, CRM, datamarts, desktop productivity, human resources information systems (HRMS), and other supply chain-related applications

      • Concept - especially useful in ERP projects, which are expensive to install and take a long time to implement, and for which staffing is a major problem

Global supply chains
Global Supply Chains

  • Global Supply Chains = Supply chains that involve suppliers and/or customers in other countries

    • Driver - IT

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

      • IT can be instrumental in helping businesses find trade partners

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

  • The issues

    • legal issues, customs fees and taxes

    • language and cultural differences

    • fast changes in currency exchange rates

    • political instabilities

Ec scm

  • Buying & Selling along the Supply Chain


      • improve the upstream supply chain through e-procurement


      • from entering purchase orders, to recording sales, to order fulfillment, to tracking shipments, are usually conducted over a corporate intranet


      • enhance the activity downstream activities by providing online ordering

      • Selling on your own web site, Auctions & Exchange

    • Vertical exchanges

      • combine upstream and downstream EC supply chain activities

  • Supply chains in EC

    • Order fulfillment

    • Integration of EC with ERP

      • Since most middle-sized and large companies already have an ERP system, and since EC needs to interface with ERP, it makes sense to interconnect the two.

      • The problem is that the ERP SW is very complex and inflexible (difficult to change), so it is difficult to achieve easy, smooth, and effective integration.

Order fulfillment in ec
Order Fulfillment in EC

  • Online Order Fulfillment & Logistics

    • While order fulfillment is a part of the back-office operations, it is strongly related to front-office operations.

    • Recently, e-Tailors have faced continuous problems in order fulfillment, especially during the holiday season.

    • EC is based on the concept of “pull” operations, which begin with an order, frequently a customized one.

      • In the “pull” case it is more difficult to forecast demand.

      • In a B2C pull model, the goods need be delivered to the customer’s door.

    • Deliver small quantities to a very large number of customers

  • Innovative Solutions to Supply Chain Problems

  • Outsourcing order fulfillment

  • Same-day, even same-hour delivery

  • Automated Warehouses

    • Large-volume EC fulfillment requires special automated warehouses.

    • Most B2C is shipped via outsourcers.

  • Options for Dealing with Returns

Partner relationship management prm
Partner Relationship Management(PRM)

  • PRM

    • refers to all of the efforts made to apply CRM to all types of business partners

    • Every company that has business partners has to manage the relationships with them. Information needs to flow between the firms and constantly updated and shared.

  • EC PRM functions

    • partner profiles

    • partner communications

    • lead management (of clients)

    • targeted information distribution

    • connecting the extended enterprise

    • partner planning

    • centralized forecasting

    • group planning

    • e-mail

    • price lists

Global supply chains1
Global Supply Chains

  • Supply chains that involve suppliers and/or customers in other countries are referred to as global supply chains.

  • Companies go global (disperse the value chain) for a variety of reasons.

    • lower costs of materials, products, services and labor

    • availability of products that are unavailable domestically

    • the firm's global strategy

    • technology available in other countries

    • high quality of products

    • intensification of global competition

    • the need to develop a foreign presence to increase sales

    • fulfillment of counter trade.

    • Global supply chains are usually longer than domestic ones, and more complex. Therefore, additional uncertainties are likely.