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IS 3315: Manufacturing Systems. Part 1: The organisation of Manufacturing firms Understand the basic business processes understand the basic flows of information know the basic systems / sub systems implemented understand their linkages. Basic business processes. Designing. Building.

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Is 3315 manufacturing systems l.jpg
IS 3315: Manufacturing Systems

Part 1: The organisation of Manufacturing firms

  • Understand the basic business processes

  • understand the basic flows of information

  • know the basic systems / sub systems implemented

  • understand their linkages


Basic business processes l.jpg
Basic business processes

Designing

Building

Selling

Buying

Processing orders

Getting paid

Paying

1 – Arrange these in sequence 2 – name proper departments


Basic flows of information l.jpg
Basic flows of information

  • Organisations are organised in a number of functional areas

  • They collect and organise data to support their complementary missions

  • they interact and collaborate in managing the organisation


Examples l.jpg
Examples

  • Finance: managing the cash flows, providing resources to the firm

  • Marketing: promoting the firm and its products

  • Sales: selling the products; dealing with customers

  • Production: manufacture goods

  • These are broken down further into sub areas

    Name some of these sub areas


Collaboration conflict between areas l.jpg
Collaboration / Conflict between areas

  • All areas of the firm must exchange info with the others (just like organisations must interact with the outside)

  • divergence of viewpoints means there are opportunities for conflict

  • managing same resources / using the same assets but with radically different goals

    Describe situations involving these conflicts


Examples6 l.jpg
Examples:

  • Quality control versus production

  • Procurement versus production

  • Dealing with customer returns

  • Sales and accounting

    Explain the underlying cause of these conflicts


Manufacturing organisations l.jpg
Manufacturing Organisations

  • Business Processes more complex

  • Lead time must be built into process of planning for demand

  • Scheduling of resource use is more complex

  • productivity is a composite indicator which measures many operators’ work together

  • the definition of productivity / the way it is measured affects the results


Illustration l.jpg

al 1

W3

Shipping

al 2

al 1

WP2

storage

W2

Stocks

Finished

Goods

al 2

Main Corridor

al 1

WP1

cooling

W1

al 2

Changing

Rooms

and Related

Facilities

Stocks

RM

Preparation ovens

Quality

Control

Illustration


Collaboration and information l.jpg
Collaboration and Information

  • Functional areas cannot collaborate if no information circulates

  • first stage: people talk to one another

  • then exchange of documents

  • then develop integrated systems shared by several functional areas / the whole firm

  • This requires the existence of common definitions and reliable / undisputed sources of data

  • Also people must have incentives to collaborate


Reliable common grammar examples l.jpg
Reliable Common Grammar: Examples

  • Sales statistics:

    • as per customer orders?

    • Goods sent?

    • what feed back time?

  • Production figures:

    • after rejects

    • adjusted for loss / destruction in finished goods storage

  • business analysts must talk to everyone to ensure existence of reliable common methods


Reliable undisputed sources of data l.jpg
Reliable / Undisputed sources of data

  • Reliable mechanisms for data collection

  • No room for controversy RE basic figures of the business

  • Robust externally oriented systems for invoicing / paying

  • Robust measures of individual / area performance for the purpose of assessment and rewarding

  • Reliable systems for storage / processing / retrieval of data

  • Archiving


Corresponding information systems l.jpg
Corresponding Information Systems

  • The basic sub-systems are (see diagram):

    • payroll

    • order entry

    • inventory (goods for sales, raw material...)

    • shipping

    • accounts receivable

    • purchasing

    • receiving

    • accounts payable

    • general ledger

      Describe each sub-system’s missions


Part 2 resources and constraints in manufacturing environments l.jpg
Part 2: Resources and constraints in Manufacturing environments

  • Goods are manufactured, not purchased

  • Demand must be counted or planned

  • Need RECIPES

  • activity must be planned for in advance

  • Resources must be allocated in advance

    • raw materials

    • Machine time

    • competent personnel (shift work)

}

limiting / constraining

factors


Organisational model l.jpg
Organisational Model environments

  • Driven by sales?

  • Driven by production?

  • Driven by marketing?

  • History of organisation and power structure determine which model is used

  • Plan dictates what volumes must be produced

  • Everything else follows from there

Product matrix


Recipe or formula l.jpg
Recipe or formula environments

  • How to produce our products

  • List of components including possible substitutes

  • How much of each

  • Special conditions of operation

  • Expected yields and labour productivity (i.e. standards)

  • Extrapolate a cost per unit

  • Stored in a Bill of Material (BOM)


Example bill of material for desk l.jpg
Example: Bill of Material for desk environments

1 – List out the components

2 – describe the steps required for assembly

3 – arrange them in a possible manufacturing

sequence


Slide17 l.jpg

Solution environments

Desk

Top (1)

Adjustable legs (4)

Screw Kit (1)

Frame (1)

3 way junctions (4)

Painted tubing (4)

Painted metal legs (4)

Leg Tubes (4)

Paint (0.6 dl)

Long Tubes (2)

Short Tubes (2)

Paint (1 dl)


Capacity l.jpg
Capacity environments

  • Have limited capacity

  • Each unit of product requires a set time for each operation

  • Planning for capacity means analysing the requirement of all production runs for all products on all machines

  • Also, machines must be manned by operators

  • and machines have down time


Scheduling manufacturing tasks l.jpg
Scheduling Manufacturing Tasks environments

Based on desired production

  • determine quantities of RM to commit

  • schedule production runs (including sub-assemblies)

  • line up workers to operate the machines

  • Purchase required supplies

    This is called the Master Schedule


Master schedule l.jpg
Master schedule environments

  • Issue for each week / day of production

  • aims at meeting the plan or the customers’ orders

  • allocate resources to all required activities

  • meeting of the key production people (end of week or Monday mornings).

  • Also review the problems with previous runs

  • Some computer systems are required for these tasks


Part 3 data collection in the factory l.jpg
Part 3: Data collection in the Factory environments

  • Computer Integrated Manufacturing (CIM) environments requires that companies:

    Know what they are doing

  • availability of data and quality of that data are key elements

  • many different types of data must be collected

  • procedures must be put in place

    • reliable

    • but not intrusive


Types of data l.jpg
Types of data environments

  • Volume data (production)

  • consumption data (raw material, packaging…)

  • personnel data

  • maintenance data

  • time related measurements

  • productivity data

  • All form the basis of the calculations used to monitor manufacturing activities


Type of data 2 l.jpg
Type of data (2) environments

  • Primary data:

  • Secondary data or calculated data:

  • High level data:


Data for monitoring activities l.jpg
Data for monitoring activities environments

  • Norm or budget is put together:

  • the more complete the model the more complete the monitoring

  • measurement methods and procedures are also put together

  • the structure of the budget tells you what data to collect


Data acquisition l.jpg
Data acquisition environments

  • Manual recording in a docket or other form (e.g. down time)

  • Sampling / testing of RM or products

  • collection and count of key part (e.g. shoulder blade)

  • scales for weight measurement- computerised or not

  • direct data entry in computer with infra-red beam (scanning) device (e.g. Dell)

  • remote electronic tracking

  • All these involve a trade-off between cost and accuracy and intrusiveness


Bad data recording l.jpg
Bad data recording environments

  • No data!

  • Too costly - e.g. in equipment or time

  • not timely – feed back too slow

  • inaccurate (e.g. procedure not well designed)

  • Lack of operator training / understanding

  • wrong incentive / instructions given

  • lack of control - open to dishonesty


Data storage l.jpg
Data storage environments

  • Series of ad-hoc systems manual and computer-based (spreadsheet, filed forms…)

  • Dedicated databases for manufacturing data (QC, shipping etc…)

  • Process Control Systems (technical parameters)

  • Other specialised proprietary systems

  • Entreprise Resource Planning (ERP) system


Using manufacturing data l.jpg
Using Manufacturing data environments

  • Operational data:

    • volumes - schedule / re-schedule runs

    • labour report - line up workers for next days

    • quality of output

  • Tactical data:

    • defect rates

    • productivity

    • Quality of RM

  • Strategic data:

    • product mix information

    • Market research

    • turnover of staff

Some soft information

is also required


Soft information l.jpg
Soft information environments

  • Data collection -

    • Grapevine

    • factory tours (talking and observing)

  • Data storage -

    • managers’ minds

    • special reports

  • Data usage:

    • ad-hoc basis

    • decision making


Part 4 developing the dashboard of information l.jpg
Part 4: Developing the Dashboard of information environments

  • Information cost

  • Information overload

  • Not all data can be / should be provided

  • Push versus pull model

  • For operational data => dashboard approach

    • Concept of control room

    • Analogy with process control or driving a car

    • Focus on most important factors


Csf theory l.jpg
CSF - Theory environments

  • Definition:

    Limited number of areas where satisfactory results will ensure successful competitive performance for the individual, the department or the firm

  • Monitored on the basis of a set of measures - specific standards that allow the calibration of performance

  • Measures can be soft or hard - ie: objective or subjective


Slide32 l.jpg

CSF method diagram environments

  • Identification of a hierarchy of performance measures that lead to identification of Critical Factors and Issues that will determine a business’ success

The business mission statement

The business vision statement

multiple business goals

multiple business objectives for each goal

multiple CSFs for each objective


Implications for is l.jpg
Implications for IS: environments

multiple business objectives for each goal

multiple CSFs for each objective

Central Database - Data Warehouse

Monitoring and Control Systems

Dashboard

Common Interface

Indicators

IS #1

IS #2

IS #3

IS #4


Sources of csfs l.jpg
Sources of CSFs environments

  • Industry

  • Competitive strategy and industry position (leader / follower; big / small…)

  • Environmental factors (eg: economic fluctuations and national government policies)

  • Temporal factors (temporary CSFs)

  • Managerial position (more specific to one manager)


Classification of csfs l.jpg
Classification of CSFs environments

  • Internal versus external

  • Monitoring versus Building / Adapting (eg: implementing of major corporate plan)

  • Evolution over time - eg: motor industry


Of the csf technique l.jpg
+ / - of the CSF technique environments

  • Small number of CSFs

  • Managers normally aware of them - make them explicit is possible

  • Specific to firm / dept / manager

  • But; not all CSFs are measurable at all (access to data)

  • Known CSFs may be trivial

  • Time consuming to go beyond the obvious

  • Will managers make time for CSF analysis?


Dashboards of information l.jpg
Dashboards of information environments

  • A CSF analysis can be turned into a dashboard of info

  • indication in real time of what is happening

  • Concentration on the most important + visual impact (e.g. colour coding)

  • But data has to be very reliable and design of interface must be good :

    • three mile island


Some problems with 3 mile island l.jpg
Some Problems with 3 mile Island environments

  • Layout of control not consistent with use of indicators

  • no consistency on where associated controls are situated or how they operated

  • layout of controls did not reflect layout of plant

  • indicators and alarms were not sorted by degree of importance

  • no consistency in use of colour

  • Cl: the layout of the dashboard and what indicators represent (+ how they do it) requires much attention


About dashboard development l.jpg
About dashboard development environments

  • Developing IS with decision making relevance is tricky

  • Nature of management work means difficult to imagine generic features

  • 1970 – 1980: focus on complex models borrowed from OR

  • Managers need simple systems that save them time


The control room l.jpg
The Control Room environments

  • Monitoring complex processes through technology mediated systems

  • Controlling without seeing directly

  • Not directly applicable to management (human interaction component missing)

  • But useful anyway to measure performance in a more complete fashion


Key issues for dashboard development l.jpg
Key issues for dashboard development environments

  • Limited attention - selection of indicators (CSF)

  • Accurate performance measurement - methods used

  • Operator / user training - consensus / awareness

  • Dashboard layout - avoid confusion / be consistent


Framework for dashboard development l.jpg
Framework for dashboard development environments

Question 1: Who will use this indicator?

Question 2: Can it be mapped out to a specific objective at a higher level?

Question 3: How frequently will managers need to monitor it?

Question 4: What calculation methods? What unit of measurement?

Question 5: What data source exists? What should be created?

Question 6: How detailed should the analysis be? How can the indicators be broken down?

Question 7: What threshold values should be used to differentiate between adequate and inadequate performance? What comparisons can be made to assess the company’s performance?

Question 8: How can it be represented for maximum visual impact?

Question 9: What action must be taken when good or bad performance is measured? Question 10: How will it be monitored / archived in the long term

Question 11: Is there any potential bias with the methods and data used for calculations?

What incentives may be given to organizational actors?

See handout


Example 1 monitoring maintenance l.jpg
Example 1: Monitoring Maintenance environments

  • Imagine down time is increasing

  • don’t know enough to fix the problem

    (1) collect appropriate data on accidents:

    • maintenance staff time sheets

    • accident report for each problem - documented by operators

    • match both sources of data

      (2) store it in a suitable DB

      (3) analyse based on a number of CSF

      (4) present analysis in computer dashboard


Csf analysis for the maintenance l.jpg
CSF analysis for the maintenance environments

  • Number of accidents per run (per unit / product)

  • Nature of accident (several categories to be found)

  • Location of accidents

  • Average duration of repair (for each assembly line)

  • Average duration of repair for each staff?

  • Average duration of repair for each type of accident

  • Mapping of when accidents happen

  • establish thresholds


Location of all accidents l.jpg
Location (% of all accidents) environments

5%

al

1

10%

W3

W3

Shipping

10%

al

2

8%

al

1

WP2

W2

W2

35%

Stocks

storage

al

2

Main Corridor

Finished

3%

Goods

al

1

WP1

W1

W1

6%

cooling

al

2

Changing

3 - 3 - 15%

Other

Areas:

2 %

Rooms

Stocks

Preparation ovens

and Related

RM

Quality

Facilities

Control


Time spent of down time l.jpg
Time spent (% of down time) environments

5%

al

1

5%

W3

W3

Shipping

20%

al

2

41%

al

1

WP2

W2

W2

8%

Stocks

storage

al

2

Finished

Main Corridor

3%

Goods

al

1

WP1

W1

W1

4%

cooling

al

2

Changing

3 - 3 - 8%

Other

Areas:

2 %

Rooms

Stocks

Preparation ovens

and Related

RM

Quality

Facilities

Control


When accidents happen l.jpg
When accidents happen environments


Who does what l.jpg
Who does what? environments



Conclusion on maintenance l.jpg
Conclusion on Maintenance environments

  • Can’t show everything

  • Data should be collected, but choices must be made for dashboard

  • Choices can be made based on:

    • scope for improvement

    • development VS monitoring (hierarchy of CSFs)

    • preferences of managers

  • Archives will show whether targets are achieved => new threshold values can be set


Example 2 sales figures l.jpg
Example 2: sales figures environments

  • Sales dashboard is a key tool:

    • Allocate responsibility for poor performance with more accuracy

    • Break down per product / market

    • Present both volumes, gross revenues and contribution figures

  • Use colour coding to indicate where results are good or bad

  • Use sales maps for visual impact

  • Comparison with:

    • Budget figures (e.g. weekly figures)

    • Competitors

    • Previous period

    • Same period previous year in case of seasonality


Electronic products ltd l.jpg
Electronic Products Ltd. environments

  • Overall goal: Develop the dashboard for staff and management

  • Follow the guidelines spelt out in the paper

  • Carry out a CSF analysis based on the case notes

  • Use the framework in table 1 to verify that you have all angles covered


Computer based dashboard l.jpg
Computer-based dashboard environments

  • Select design targets based on the case and your own preferences

  • Develop a small data structure containing the data required for your dashboard (MS Access)

  • Design the interface in VB

  • Package you prototype including a small sample of dummy data

  • Submit your project on disk

    • Be economical with the size of the components

    • Be careful that you give me all the files


Reading the case l.jpg
Reading the case environments

Common goals of company (page 3):

  • Customers are essential to the success of the business

  • Survival of the business is paramount

    Keeping the pioneering spirit alive


Critical success factors l.jpg
Critical success factors environments

  • Price, quality, delivery and flexibility (page 3)

  • longer-term survival and success(page 3)

  • customer is king= can visit premices at any time (page 4)

  • everybody was responsible for his or her own work(page 4)

  • Reliance on Self-directed teams(page 4)

    • planned their own work, set production and performance goals, and assumed complete responsibility for their tasks

  • Reliance on free issuing’ of material to the company(page 4)

  • Responsiveness /flexibility in responding to customers queries (page5)


Critical success factors 2 l.jpg
Critical success factors (2) environments

  • Profitability target = 10% (page 6)

  • Turnover growth target = 32% per annum (page 6)

  • Product mix (page 7)

  • sourcing jobs (pages 6 and 7)

  • Move back to profitable position (page 7)


Example profitability l.jpg
Example: Profitability environments

Question 1: Who?

Question 2: Can it be mapped out ?

Question 3: How frequently

Question 4: What calculation methods? What unit of measurement?

Question 5: What data source exists? What should be created?

Question 6: How detailed should the analysis be?

Question 7: What threshold values

Question 8: How can it be represented

Question 9: What action must be taken when good or bad performance is measured?

Question 10: How will it be monitored / archived in the long term

Question 11: Is there any potential bias with the methods and data used for calculations? What incentives may be given?


Profitability l.jpg
Profitability environments

  • Q1: everyone but MD and key managers in priority

  • Q2: High level objective

  • Q3: 2 types – quarterly / annual – per job

  • Q4: revenues – costs : percentage of revenues

  • Q5: accounting systems have everything, but is there job accounting?

  • Q6: see Q2

  • Q7: case says 10% overall, but 30 – 50% per job

  • Q8: line overall and bar chart for jobs + pie chart for breakdown of costs (cost structure)

  • Q9: not an easy one – selection of jobs is key (see page 6)

  • Q10: Try to stick to target / review each job + overheads

  • Q11: tendency to eliminate marginal jobs => reduce turnover too much => overheads no absorbed + potential loss of customer good will?


Other csfs l.jpg
Other CSFs environments

  • Empowering work teams

  • Measuring marketing efficiency (number of customers approached VS contracts executed)

  • Monitoring the issue / use of goods

  • Measuring the speed and accuracy of response (quotes VS actual job costings)

  • Quality

  • Customer satisfaction

  • ……..


Problems in the case l.jpg
Problems in the case environments

  • RM consumption at various stages

    • price of RM

    • comparison with budget = recipe

  • labour cost on factory floor

    • where do they actually work?

    • What are the tasks where productivity is lost?

  • Packaging cost

  • Quality of products

    • why are volumes not growing as fast anymore?

  • Maintenance is not working


Overall method l.jpg
Overall method environments

  • More rigorous procedures for reporting and monitoring

  • Set up a complete Budget framework

  • Budget broken down per responsibility - e.g. buyers give prices, production gives productivity

  • once a year = > budget put together

    • expected levels are put proposed by each area

    • full report compiled (p/l for the year ahead)

    • negotiated with top management

    • final budget

    • used to measure up everything that happens


General indicators monitoring the business l.jpg
General Indicators - monitoring the business environments

  • Focus on three key indicators in comparison with budget to make it easier to analyse responsibilities:

    • volume V (Vb for budget and Va for actuals)

    • price P

    • formula F

  • total variance = Va Pa Fa - Vb Pb Fb

  • volume variance = Va Pb Fb - Vb Pb Fb

    = (Va-Vb) Pb Fb

  • Price variance = Va Pa Fa - Va Pb Fa

    = (Pa - Pb) Va Fa

  • Formula variance = Va Pb Fa - Va Pb Fb

    = (Fa - Fb) Va Pb

Applies to the cost side

E.g. Pb Fb

note that total = tot var


Analysing the general indicators l.jpg
Analysing the general indicators environments

  • Volume variance :

    • breakdown per product / market / week

    • also per rep?

    • source: budget / weekly sales

    • who? Sales Director and reps + regional supervisors + MD

    • colour maps showing areas / markets

    • threshold values determine colour

    • volume and £ figure


Analysing the general indicators64 l.jpg
Analysing the general indicators environments

  • Price variance:

    • breakdown per RM / component + labour (for each category) [focus on most expensive]

    • buyers / production director + supervisors +personnel director

    • source: budget figures + account payable / payroll

    • Monthly probably enough (changes don’t occur that often)

    • tables for detail + exception reporting using shape of RM that is causing the variance to be negative


Analysing the general indicators65 l.jpg
Analysing the general indicators environments

  • Formula variance:

    • per product / per RM + labout

    • source: stock out sheets + production sheets (sales too late) + personnel hours

    • some figures cannot be known exactly => use surrogate or estimate

    • target: foremen, production staff and director

    • gauges, colour map of the factory, colour coded £ signs


Specific indicators l.jpg
Specific indicators environments

  • Read in the case

  • do the same job as on the previous slides

  • try to find indicators of specific interest to some of the managers described in the case

  • e.g. maintenance problem:

    • collect data on all accidents (foremen)

    • store in db

    • provide statistics on how long it takes to re-start, how often certain accidents occur, where...

    • ask maintenance staff to fill out time sheets

    • compare the two data sets

    • how would you present this?


Example 1 monitoring maintenance67 l.jpg
Example 1: Monitoring Maintenance environments

  • Imagine down time is increasing

  • don’t know enough to fix the problem

    (1) collect appropriate data on accidents:

    • maintenance staff time sheets

    • accident report for each problem - documented by operators

    • match both sources of data

      (2) store it in a suitable DB

      (3) analyse based on a number of CSF

      (4) present analysis in computer dashboard


Csf analysis for the maintenance68 l.jpg
CSF analysis for the maintenance environments

  • Number of accidents per run (per unit / product)

  • Nature of accident (several categories to be found)

  • Location of accidents

  • Average duration of repair (for each assembly line)

  • Average duration of repair for each staff?

  • Average duration of repair for each type of accident

  • Mapping of when accidents happen

  • establish thresholds


Location of all accidents69 l.jpg
Location (% of all accidents) environments

5%

al

1

10%

W3

W3

Shipping

10%

al

2

8%

al

1

WP2

W2

W2

35%

Stocks

storage

al

2

Main Corridor

Finished

3%

Goods

al

1

WP1

W1

W1

6%

cooling

al

2

Changing

3 - 3 - 15%

Other

Areas:

2 %

Rooms

Stocks

Preparation ovens

and Related

RM

Quality

Facilities

Control


Time spent of down time70 l.jpg
Time spent (% of down time) environments

5%

al

1

5%

W3

W3

Shipping

20%

al

2

41%

al

1

WP2

W2

W2

8%

Stocks

storage

al

2

Finished

Main Corridor

3%

Goods

al

1

WP1

W1

W1

4%

cooling

al

2

Changing

3 - 3 - 8%

Other

Areas:

2 %

Rooms

Stocks

Preparation ovens

and Related

RM

Quality

Facilities

Control


When accidents happen71 l.jpg
When accidents happen environments


Who does what72 l.jpg
Who does what? environments



Conclusion on maintenance74 l.jpg
Conclusion on Maintenance environments

  • Can’t show everything

  • Data should be collected, but choices must be made for dashboard

  • Choices can be made based on:

    • scope for improvement

    • development VS monitoring (hierarchy of CSFs)

    • preferences of managers

  • Archives will show whether targets are achieved => new threshold values can be set


Other specific indicators l.jpg
Other specific indicators environments

  • Fat content in paste (line graph per hour)

  • Fat content in paste (same)

  • average weight of goods VS target

  • loss at various stages of production

  • Appearance of the product

  • taste of the product

  • physical resistance of product

  • returns


Assignment l.jpg
Assignment environments

  • Report on the CSF analysis that we have done in class + your analysis

  • your report on the three general indicators

  • your analysis of specific needs (based on the list on previous slide)

  • develop a small dashboard using Access + VB concentrating on two indicators of your choice


Slide78 l.jpg

Load the new control environments

Create the graph object


Guidelines l.jpg
Guidelines environments

  • for each indicator document:

    • who will use it?

    • How frequently will they need it?

    • How detailed should it be?

    • What unit of measure will be used?

    • What data source exists? What should be created?

    • How can it be broken down to be more meaningful?

    • How can it be represented for maximum visual impact?

    • How will it be monitored in the long term?

  • Be creative:

    • add details to the case if they are not there

    • design methods to collect the required data

    • answer the questions above

    • come up with a nice, simple dashboard that works

    • reports to be brief (bullet points)


Computer integrated manufacturing cim l.jpg
Computer Integrated Manufacturing (CIM) environments

  • Overall computerisation process which started a long time ago

  • Encompasses many different types of applications

  • basis was the application of the Materials Requirements Planning (MRP) principles (early 70s)

  • APICS (American Production/Inventory Control Society)

  • All major software houses developed and marketed MRP systems

See handout


Proven benefits of cim l.jpg
Proven benefits of CIM environments

  • Reduction in design costs: 15 - 30 %

  • reduction of in-shop time of parts: 30 - 60 %

  • increase in productivity: 40 - 70 %

  • better product quality: 20 - 50 %

  • Improved product design: up to 30 times more design variants investigated


Different applications of cim l.jpg
Different Applications of CIM environments

  • Increased flexibility in design / production in order to serve niche markets (focus on small output) - more Europe

  • Better organisation of mass production - more Japan

  • Better utilisation of the capacity, optimisation of performance - more US


Materials requirement planning mrp l.jpg
Materials Requirement Planning (MRP) environments

  • Snowball effect as companies moving to MRP imposed business changes to their partners

  • MRP logic was always around, but switching costs in manufacturing made it worthwhile:

    • data processing costs decreasing

    • inventory costs rising

  • Sophisticated CIM systems easier to justify

  • Other external pressures mean that tighter control is required


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Where does MRP work best? environments

  • Universally applicable principles but…works best if there is a need for:

  • stronger linkage between purchasing, manufacturing and distribution

  • better shop floor control

  • sorting out buffer stocks and work centre priorities (e.g. fabrication and assembly)


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Principles of MRP environments

  • System to plan and control production and material flows

  • core principle:

    demand for material, parts and components depends upon the demand for finished product

  • Chain of causality from finished goods back to inventories:

    • possible to reduce inventory to the minimum

    • plan for procurement based on actual needs

    • able to cater for “lumpy” (i.e. dependent) demand

See diagram


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How MRP works environments

  • Master production schedule: drives the system based on customer orders

  • Bill of material (dependent demand)

  • Inventory status file

  • MRP package - contains the logic

See handout


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Integration of design and manufacturing environments

  • integration of operations with upstream design activities and downstream sales activity

  • downstream: e.g. by integrating CAD with Bill of Material

  • new designs go on-line immediately

  • no production of obsolete products / assemblies

  • shorter time to market for new pdts


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Core of MRP: Inventory Control environments

  • Recording of all flows in and out of stock

  • comparison with physical count (once in a while)

  • Quantities of items on hand, on order (based on delivery date) and committed to production

  • Requirements for parts and material as in BOM

  • Management of location and bin numbers (e.g. Musgrave)


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Inventory Control - Key factors environments

  • Lead times (purchasing, manufacturing)

  • Cost of components and material (valuation)

  • Carrying costs

  • Order costs

  • Economic Order Quantity (EOQ)

  • Lot tracking


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Conclusion: Determining the value of MRP environments

  • Difficult to establish off-hand = Depends on many organisational factors

  • Degree of preparedness depends on:

    • human relations on factory floor and with other areas

    • tightness of current procedures

    • availability of accurate data

    • formalised process / recipe

    • level of skills available

    • quality of existing support systems

  • Proper expectation should be that benefits can be significant, but road can be long as well


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Enterprise Resource Planning (ERP) environments

  • Large applications geared towards integrating the essential internal processes of an organisation

  • A k a enterprise-wide systems

  • e.g. SAP R/3, MFG/PRO, Baan, JD Edwards, Oracle

  • 70% of fortune 500 companies have or are implementing ERP systems

  • SAP and Oracle have become the second largest software producers in the world

Extended enterprise


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Enterprise Resource Planning Systems (ERP) environments

  • Support for key areas of the firm – operational excellence

  • Very dynamic market worldwide (+ 40% per year)

  • SAP: 30,000 implementations, 10 million users and more than 1000 partners

  • Software typically bought from a vendor

  • Difficulties in selecting and implementing ERP


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ERP stories environments

  • Whirlpool: hundreds of distributors receive no deliveries after the update of the SAP software.

  • Hershey: Despite $112 million spent on SAP R/3 all shops empty on Halloween week.

  • Allied Waste Industries: ERP project stopped after $130 million investment

  • Waste Management Inc.: same after $45 million investment

  • Unisource Worldwide and Dell also cancelled their projects

  • Foxmeyer: after three years of unsuccessful implementation, company sues SAP and AA before going bankrupt……………


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Case for ERP environments

  • Managerial goals of standardising / integrating systems

  • ERP = common grammar and common pool of data

  • Also supposed to reflect best practice (optimised business processes)

  • Intense vendor / consultant push

  • Microsoft case ($18 millions saved annually)


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The case against ERP environments

  • High risk projects

  • Full implementation means 80% of existing systems must go

  • Some re-engineering may also be needed

  • Political pressure > managerial rationale?

  • Low success rates reported


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Managerial rationale environments

  • Search for operational excellence using “best practice” models

  • cost cutting / rationalisation

  • standardisation / compatibility of disparate IT infrastructures (e.g. mergers)

  • Year 2000?

  • By extension, platform for ECommerce

  • e.g. Ericsson reported following improvements:

    • SOP 1 hour to 10 minutes

    • PO 4 hours to 5 minutes

    • production scheduling: 18 hours to 30 minutes

    • 98% of orders delivered on time


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Reality of ERP environments

  • Too many times reported that ERP implemented under instruction from HQ

  • No business case ever built at local level at least

  • Some stories of sites having to implement 3 different ERP software within a few years

  • Cost justification / disruption to everyday business not sufficiently taken into account


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Content of ERP systems environments

  • ERPs are not single systems: series of modules supporting specific areas

    • admin functions

    • HR

    • manufacturing / MRP

    • order processing etc…

  • single point of entry for each item of data: sits on top of a single database of shared data

  • data is released from one module into the relevant modules once it has been checked

  • ERPs have the potential to solve many back end headaches

  • Build upon earlier generation of CIM systems – e.g. MRP


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E.g. DELL environments

  • three plants are located close to their suppliers and operate in JIT

  • Orders follow machines across the floor

  • Automated customer requests mean operators are shown by flashing colours what type of PC to assemble)

  • no finished goods inventory (cost, obsolescence)

  • outsourcing of non-critical components (e.g. screen)

  • acceleration of payment cycle (goods paid for before they are built!)


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Introduction to MFG/PRO environments

  • Each student get their own version of the training database – Quality Pencil company

  • Create a new product and sell it: Packaged Pen

  • Not so easy to go around the menus:

    • Codes are used to help users find their way – e.g.: 1.2.1 is product line maintenance

    • Users must learn which screens to use to do things


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Reasons for ERP systems environments

  • Search for operational excellence using “best practice” models

  • cost cutting / rationalisation

  • standardisation / compatibility of disparate IT infrastructures (e.g. mergers)

  • Year 2000?

  • e.g. Ericsson reported following improvements:

    • SOP 1 hour to 10 minutes

    • PO 4 hours to 5 minutes

    • production scheduling: 18 hours to 30 minutes

    • 98% of orders delivered on time


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Example (2) Dell case study environments

  • No stocks (RM not paid for until in the factory)

  • Tracking of WIP on the floor

  • Testing fully automated

  • Impressive AGV for temporary storage of large orders

  • 95 fully automated loading bays:

    • main sorting point of output for shipping

    • scanner operated

    • straight from assembly line to trucks


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Example: Colgate Palmolive environments

  • Large corporation with many products:

    Goal: streamlining the business while offering increasing flexibility to customers

  • SAP R/3 to address manufacturing / logistical complexity

  • 1996 - 2001 to equip the whole corporation

    75 data centres 2 centres with 40 staff

    1 to 5 days for orders acquisition combined acquisition

    + 1 or 2 days to process them and processing in 4 hours!

    on-time deliveries = 91.5% = 97.5%

    Also accounts payable and HRM consolidated in one location

Before:

After:


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How to get an ERP environments

  • No real build or buy decision

  • try to minimise the high levels of risk:

    • Foxmeyer ($5 billion pharmaceutical comp.) went bankrupt in 1996

    • sued SAP’s US subsidiary and Andersen Consult. for a combined $1 billion

    • 3 years of implementation destroyed the company

    • bought by McKesson Drugs - 1997

  • Try to get best fit between ERP functionalities and business model


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Critical issues in ERP implementation environments

  • High cost and high stakes

  • Misguided belief that there is an ERP that “does it all”

  • difficulty in making a transition from an old model to an ERP model

  • overestimation of the pace of change of some stakeholders (technical change is not sufficient)

  • difficulty in obtaining any direct ROI


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Buying ERPs environments

  • Many suppliers: SAP / Baan / JD Edwards / QAD

  • always implemented through a distributor

  • advantages are numerous (as against building)

    • integrate best practice

    • insurance against obsolescence

    • cheaper !!??

    • Software development is not core competency for most firms

  • but, selection process is difficult at best:

    • site visits

    • presentation

    • discussion groups

    • Magazines and newspapers


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Alternative: The Application Service Provider model environments

  • Over the last two years - Pressure from Y2K?

  • "An ASP manages and delivers application capabilities to multiple entities from a data centre across a wide area network.”

  • different types of ASP:

    • horizontal: enterprise / volume or regional ASP

    • vertical model: task-specific or industry-specific ASP

  • solution offered through a Best-of-breed or One-stop-shopping model


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ERP and ASP environments

  • As with all ecom systems, service has two parts:

    • interface (web) or client

    • back end functionality on a server

  • opportunity to differentiate service for ASP + offer additional software in the package

  • opportunity for customer to pay far less and to implement far quicker (c.f. SMEs)

  • Also, traditional ERP market is contracting

  • expertise is in short supply


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Mechanics of ERP / ASP Services environments

  • 24 to 36 months contracts

  • 400-500 euros per workstation per month + subscription fee at start

  • service includes: technical setup / implementation + software licences + on-going support + upgrade

  • some ASPs offer differentiated services for different industries

  • others develop interfaces that allow some degree of customisation without touching the software

  • SAP claim the same margins can be obtain


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Critical Success Factors in ASP model environments

  • Security of the data and application

  • performance and reliability of application

    • at least 98% uptime

  • flexibility of the service offered

  • adaptation of the software

  • relationship between supplier and customer / user


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Potential partners environments

  • Pure play ASPs - 100% new

  • ISP and Telecom companies - own the infrastructure

  • Software vendors - own the licences

  • Hardware vendors - own the platform

  • Distributors - own the customers

  • No one has all the required competence


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ERP Capabilities - SAP environments

  • Accounting / finance:

    • Asset management, cash management, product cost accounting, A/R and A/P…

  • Production planning and materials planning

    • purchasing, inventory management, MRP, production planning

  • HR management

    • travel expenses, payroll, personnel planning

  • sales and distribution

    • sales planning, order management, quality management

  • e.g. Microsoft spent 10 months and $25 ms replacing 33 different systems in 26 sites with SAP


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ERP capability - MFG/PRO environments

  • meant to deal with requirements throughout the entire product supply chain

  • multi-location / multi-factory / multi-products etc…

  • Includes Inventory control Distribution / Manufacturing / Financial / Field services support / Planning

  • Based on a large Progress® relational database and developed in 4th GL


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Future trends environments

  • A bit of a jungle - needs for standards

  • Risk element is great for all partners involves - especially customers

  • Application Service Provider Industry Consortium created end of 1999

  • Code of good practice ready in January 2000

  • creation of a certification that guarantees service and gives protection to customer (Ernst / Young and Deloite / Touche)


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Next steps on this market environments

  • Inclusion of Customer Relationship Management

  • Platform provider for ASP solutions

  • HP willing to enter into the capital of any venture if they provide the hardware

  • Business Process Outsourcing (BPO)

  • eXtended Resource Planning (XRP) - support decision making as well

    • e.g. business intelligence

    • e.g. balanced scorecard


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Computer Integrated Manufacturing (CIM) environments

  • Overall computerisation process which started a long time ago

  • Encompasses many different types of applications

  • basis was the application of the Materials Requirements Planning (MRP) principles (early 70s)

  • APICS (American Production/Inventory Control Society)

  • All major software houses developed and marketed MRP systems


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Reasons for MRP environments

  • Snowball effect as companies moving to MRP imposed business changes to their partners

  • MRP logic was always around, but switching costs in manufacturing made it worthwhile:

    • data processing costs decreasing

    • inventory costs rising

  • Sophisticated CIM systems easier to justify

  • Other external pressures (eg financial / legal) mean that tighter control is required


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Where does MRP work best? environments

  • Universally applicable principles but…works best if there is a need for:

  • stronger linkage between purchasing, manufacturing and distribution

  • better shop floor control

  • sorting out buffer stocks and work centre priorities (e.g. fabrication and assembly)


Core of mrp inventory control124 l.jpg
Core of MRP: Inventory Control environments

  • Recording of all flows in and out of stock

  • comparison with physical count

  • Quantities of items on hand, on order (based on delivery date) and committed to production

  • Requirements for parts and material as per BOM

  • Management of location and bin numbers (e.g. Musgrave)


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Conclusion on ERP environments

  • Whether traditional or ASP - matching the business processes to the functionality

  • obtain agreement from all organisational actors

  • be ready for fundamental change

  • don’t lose sight of the specificity of the firm

  • try an incremental implementation rather than a culture shock

  • leave the door open for change after the ERP implementation


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Case Study of SAP implementation environments

  • Vandelay Industries Inc. (95 - 97)

  • SAP R/3 ERP

  • Goals:

    • end the fragmentation of systems

    • allow process standardisation

    • give more visibility on data across entire corporation

    • give competitive advantage

  • much enthusiasm especially amongst plant managers

  • high expectations / low level of understanding what ERPs are


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Company background environments

  • Manufacture and distribute industrial process equipment

  • $8 billion turnover

  • rapid expansion from 1945 to 1985 by opening new sites and buying smaller firms

  • 30,000 staff on four continents

  • find themselves too expensive and too slow

  • three plant closures and 10,000 staff lost

  • return to profitability but fear that it may not be enough


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Information Systems environments

  • Each plant had own systems (MRP, planning, scheduling…)

  • corporate finance IS only integrated one

  • problems resulting:

    • integration often impossible

    • scheduling incompatible => no end-to-end vision of processes as soon as more than 1 plant involved

    • no overall planning

    • order acquisition entirely manual (faxes and phones)

    • no integration of key functions - e.g. HR

    • also, processes complex on factory floors


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The Team and the Project environments

  • SAP - the market leader at the time (6000 sites 400,000 users in 1995)

  • Deloitte and Touche / ICS subsidiary - favourite SAP implementer

    • general management consultants

    • SAP specialists

  • 18 months planned with 50 f/t staff

  • budget $20 million

  • 50/50 split: designing “to be” processes / implementing SAP

  • target sites:

    • 8 manufacturing

    • 4 order entry

    • headquarters


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Key issues in the project environments

  • Steering committee made up of high level, highly committed managers - monthly meetings

  • Pluridisciplinary project team - IS + key functional areas - full time

  • centralisation vs autonomy (involvement of users)

  • standardisation of practices (e.g. part numbers)

  • Suitability of SAP

    • change business to match SAP

    • interface SAP with other system

    • extent SAP system to match current practices

  • Persuading key change agents


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Customer Relationship Management environments

  • Cost of selling to a new customer is six times as high as to existing customer

  • Each dissatisfied customer tells 8 to 10 people

  • 1 extra % of customer retention can boost turnover by as much as 15%

  • Odds of selling to a new customer = 1/7 to an existing customer = 1/2

  • 70% of dissatisfied customers will do business again if they feel their complains are handled well

  • Many companies don’t have proper customer support


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Why CRM? environments

  • Customers don’t care about their suppliers’ internal difficulties

  • They want to be able to access product and services at the least cost

  • They want a single point of entry

  • Existing loyalty programmes don’t go far enough


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The 3 phases of CRM environments

  • Acquiring new customers

    • by promotion

    • leading edge product backed by superior service

  • Enhancing profitability of existing customers

    • cross-selling and up-selling (one stop shopping)

    • additional services

  • Retaining most profitable customers

    • best customer list

    • customer profitability analysis

    • make best offer to best customer


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Supply Chain Management environments

  • Increasingly common type of application

  • e.g. Bergen Brunswig (pharmaceutical medical product distributor):

    • no longer see themselves as a distribution company but as managing the medical supply channel on behalf of others

    • not merely moving products but also managing information and the ultimate efficiency of the channel

  • e.g. Dell

  • anti e.g.: Boeing wrote off $2.6 billion in Oct. 1997:

    • raw material and internal assembly shortages

    • unhappy customers


Definition l.jpg

Product environments

Flow

Product

Flow

Product

Flow

Product

Flow

Definition

Complex network of relationships that organisations maintain with trading partners to source, manufacture and deliver its products

  • includes material, information and financial flows as shown below

Information Flows

Distribution

Retailer

Consumer

Supplier

Manufacturing

Payment Flows


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Goal of SCM environments

Delivering the best value proposition: what the customer want, how and when it’s wanted, at the lowest possible price

  • to achieve this companies need rapid, cost effective and flawless demand fulfilment

  • Involves taking responsibility for what happens outside the walls of the organisation

  • linkage with suppliers

  • minimising the cost of order delivery process by trading off cost of inventory, transport, handling etc...


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Obstacles to good SCM environments

  • No player has enough info to synchronise the entire channel

  • most SCc contain more than double the required inventory

  • products are handled too many times (5/6 average)

  • Physical carriers struggle to maintain costly equipment on slim margins


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Novelty in SCM - eSCM environments

  • Better techniques and software: e.g. SAP’s Advanced Planning and Optimisation

  • Supply Chain planning => for the entire channel

  • Web-based applications shared by all partners involved including consumers help both planning and execution + provide greater visibility

  • e.g. complex product with fragmented supply in many different countries


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Supply Chain Trends environments

  • Increased worldwide dispersion of manufacturing and distribution facilities

  • increased channel unpredictability

  • responsiveness before efficiency: need to be quick and flexible disrupts existing paradigms

  • Market share before profit margin (.com)


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Key Areas of Investment in SCM environments

  • Inter-enterprise co-ordination of design, manufacturing and business process

  • Effective distribution and channel partnership

  • customer responsiveness and accountability


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Different stages in SCM environments

  • Enterprise focus - traditional model

    • characterised by fragmentation

    • sometimes semi-conflict between links in the chain

  • Partner focus - modern vision

    • characterised by collaborative idea

  • Direct focus (e.g. Dell) - emerging vision

    • characterised by customer-direct capability

    • near zero inventories


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Service through SCM integration environments

Inferior integration of SCM results in:

  • erratic level of service

  • no vision of future demand

  • bad/inefficient production planning and scheduling

  • rising inventory costs

  • Good SCM leads to:

    • Responsive SC (quick and accurate)

    • Enterprising SC (adaptable)

    • Intelligent SC (dynamic and visionary)


  • Elements of scm l.jpg
    Elements of SCM environments

    Two key elements are

    • planning

      • forecast of demand,

      • inventory simulation

      • manufacturing planning...

    • Execution

      • procurement

      • manufacturing

      • distribution...

    • Specific software exist to enable those


    Sc planning l.jpg
    SC Planning environments

    • Two types of software:

      • Order commitment (available-to-promise)

      • Advanced scheduling and manufacturing planning

      • Demand planning

      • Distribution planning

      • Transportation planning

    • Understanding the impact of taking additional orders / changing current orders

    • Integration with ERP required


    Sc execution l.jpg
    SC Execution environments

    • Key differentiator in today’s markets

    • Planning can help to cut costs, be more efficient

    • Execution is what truly satisfies customers’ needs

    • key stages:

      • order acquisition

      • production / purchase of goods

      • replenishment

      • distribution

      • reverse logistics (dealing with returns - up to 14%)


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    Problems with SC environments

    • Lack of knowledge of the end-to-end demand function

    • inconsistent / out-of-date data about SC (poor decision making)

    • lack of process integration with partners

    • need for fundamental structural changes


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    Solutions environments

    • Enable information sharing

      • robust communication process

    • create joint performance measurement systems

    • create joint collaborative planning processes

    • exchange responsibilities / redesign across firms

    • redesign products and services to facilitate work and satisfaction of customers

    • All these are stages of the total solution


    Key questions in sorting out the scm l.jpg
    Key Questions in sorting out the SCM environments

    • SCM is a business design issue

      What is the right e-chain structure?

      Does the chain enable us to differentiate ourselves?

      Does it facilitate effective order fulfilment?

      Is it matched by proper infrastructure / internal processes?


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    Amazon.com – key facts environments

    • Begin July 1995

    • Revenues: 150 m in 1997 up to 2.8 b in 2000

    • Customer accounts: 1.5 m in 1997 to 17 m in 2000

    • Repeat customers: 65% in 1998 to 78% in 2000

    • Truly global business: 150 countries

    • 200,000 associates signed up

    • Not successful in all areas of activity

    • Unprofitable overall


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    Traditional business model environments

    • Concentration at all levels of supply chain

    • But no dominant force on the retail side (very small companies)

    • Return policy with approx 30% return rate across the board

    • Characterised with huge fluctuations – very few titles really successful – e.g. academic titles

    • But publishers bear all the costs

    • Display costs are enormous in view of value of products


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    New business model environments

    • New way of selling books means return rate down to 3% (potential saving = 50% of industry margin)

    • Quicker turnaround of stock (stock only big titles)

    • 15 days of inventory + credit card payments = huge positive cash flow

    • Reduction in costs are shared with customers = lowest prices

    • Elimination of “critical mass principle” in industry


    Key to competitive advantage l.jpg
    Key to competitive advantage environments

    • Trade real estate for technology

    • Keyword in business = location, location, location

    • Real estate gets expensive / technology gests cheaper

    • Large volumes of transactions / items + main problem of customer is classification / search problem means computer is the winner

    • Initial product tailor made for Internet sales

      • Someone else does the hard work of creating the material

      • Easy to ship

      • Low value = low risk

      • Informational => easy to demonstrate + sell on-line

      • E.g. sample chapters, revues etc…

    • Not all products are like that!!


    In the case of amazon l.jpg
    In the case of Amazon environments

    • Move away from duplicating physical buying experience

      • 3D walk

      • Computing concept – database etc…

    • Introduce switching costs by adding features not replicable (e.g. customer history)

    • 1-click technology patent!

    • Reviews

    • Purchasing circles (Meta-information)

    • Email alerts

    • Etc….


    Competition l.jpg
    competition environments

    • Traditional competitors not in same dimension (largest stores 175,000 titles in stock against 4.5 m)

    • Barnes and Nobles failed despite size and expertise

    • Booksense.com and booksite.com have failed to make a impact at the same level as Amazon

    • In CD market – elimination of CDNow.com in one quarter (means that trust can be migrated to other activities)

    • It seems that the main expertise carried by Amazon is SELLING on the NET, not what they sell


    Types of scm l.jpg
    Types of SCM environments

    • Integrated Make-to-stock

      • smoothing demand in mass production industries

      • linked to postponement in distribution channel

    • Continuous replenishment

      • customer-demand pull system across firms

      • ECR, QR

    • Build-to-order

      • efficient SCM allows return to BTO model

      • inventory substituted with information (Dell)


    Example cvs mckesson scm l.jpg
    Example: CVS-McKesson SCM environments

    • McKesson occupied key position

      • 35000 customers / 60000 orders (1.6 m lines) daily

      • all orders in electronic forms

      • target: become the world leader

    • CVS has acquired many prime locations on the market

      • US drug wholesalers down from 180 to 45

      • top 5 = 57% of market and growing

    • Market evolution

      • market is growing

      • wholesalers are best distribution channel

      • manufacturers can concentrate on R&D

      • wholesalers are transforming their offering into information-based services

    • Moves to greater integration between CVS & McKesson

      • McKesson takes over responsibility for stock levels

      • measures consumption / plan for demand

      • replenishes stocks to meet agreed upon levels

      • High level of inter-firm integration

    Continuous replenishment


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