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Supply Chain Information Systems and Electronic Commerce. Chapter 18. Chapter Overview. Evolution of e-SCM systems An overview of the e-supply chain Drivers of new supply chain systems and applications Enterprise resource planning systems Purchasing databases and data warehouses.

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supply chain information systems and electronic commerce

Supply Chain Information Systems and Electronic Commerce

Chapter 18

CENGAGE LEARNING

Monczka – Handfield – Giunipero – Patterson

chapter overview
Chapter Overview
  • Evolution of e-SCM systems
  • An overview of the e-supply chain
  • Drivers of new supply chain systems and applications
  • Enterprise resource planning systems
  • Purchasing databases and data warehouses

Purchasing & Supply Chain Management, 4e

chapter overview1
Chapter Overview
  • Technology for electronic communication between buyers and sellers
  • E-sourcing suites
  • E-sourcing basics
  • Supplier relationship management
  • E-sourcing and supply: fully integrated systems

Purchasing & Supply Chain Management, 4e

the electronic revolution in scm
The Electronic Revolution in SCM
  • Continued growth in web-based supply chain tools and solutions
  • Greater sophistication in e-SCM system expenditures
    • Fewer software providers
    • Increasing capabilities
    • Shorter project implementation life cycles
    • Improved pricing and terms

Purchasing & Supply Chain Management, 4e

evolving e scm tools
Evolving e-SCM Tools
  • Point-of-sale systems
  • RFID
  • Product life cycle software
  • Bid optimization
  • Computerized negotiation models
  • E-mobile environment (laptops, PDAs, and smart cell phones)

Purchasing & Supply Chain Management, 4e

supply chain information flows
Supply Chain Information Flows
  • Record and retrieve critical data
  • Execute and control physical and monetary flows
  • Automate routine decisions
  • Support planning activities
  • Support higher-level tactical and strategic decision making
  • Move and share information cross firms and between users

Purchasing & Supply Chain Management, 4e

decision making
Decision Making

CRM

Internal SCM

SRM

Strategic Decision Making

Supply Chain Planning

Tactical Decision Making

Routine Decision Making

Transaction Processing

transaction processing
Transaction Processing
  • Information flows record and retrieve critical data
  • Execute and control physical and monetary flows
  • Little or no human intervention
  • Bar code system to track location

Purchasing & Supply Chain Management, 4e

routine decision making
Routine Decision Making
  • Oftentimes automated
  • Exceptions dealt with manually
  • Automated inventory management systems
    • Order quantities
    • Reorder points

Purchasing & Supply Chain Management, 4e

supply chain planning
Supply Chain Planning
  • Decide on technologies for next generation of products or services
  • Identify supply base requirements
  • Forecasted demand
  • Production decisions
  • Projected cash flows

Purchasing & Supply Chain Management, 4e

strategic decision making
Strategic Decision Making
  • Search for data patterns or relationships
    • Customer segment analysis
    • Product life cycle forecasting
    • “What if” analyses
  • Need for flexibility for data manipulation and presentation
  • Decision support systems (DSS)

Purchasing & Supply Chain Management, 4e

enterprise resource planning
Enterprise Resource Planning
  • Large, dedicated business transaction processing and reporting systems
  • Integrates all classic business functions together
  • Uses common database
  • Best for routine decision making and transaction processing

Purchasing & Supply Chain Management, 4e

erp system overview
ERP System Overview

Finance

Accounting

Finance

Sales

Operations

Purchasing

Central

Database

Purchasing & Supply Chain Management, 4e

srm crm applications
SRM/CRM Applications

SRM Applications

CRM Applications

Market analysis

Sell process

Order management

Call and service center management

  • Design collaboration
  • Sourcing decisions
  • Negotiations
  • Buy process
  • Supply collaboration

Purchasing & Supply Chain Management, 4e

network design applications
Network Design Applications
  • Where should we locate warehouses?
  • How large should our transportation fleet be?
  • Based on simulation and optimization modeling

Purchasing & Supply Chain Management, 4e

transportation warehouse planning
Transportation - Warehouse Planning
  • Used to allocate fixed logistics capacity
  • How many units should we ship from each warehouse to each demand point?
    • Optimization modeling based on warehouse capacities, customer demand levels, and shipping costs

Purchasing & Supply Chain Management, 4e

execution systems
Execution Systems
  • Kick off and control movement of materials between supply chain partners
    • Where to store
    • Where to go pick items up
    • How many to pick
  • Bar code systems
  • Global positioning systems

Purchasing & Supply Chain Management, 4e

drivers of new scm systems
Drivers of New SCM Systems
  • Internal and external strategic integration
  • Globalization and communication
  • Data information management
  • New business processes
  • Replacement of legacy systems
  • Strategic cost management

Purchasing & Supply Chain Management, 4e

strategic integration
Strategic Integration
  • Internal
    • Use of common information between various sites and functional areas
    • Enterprise resource planning systems
  • External
    • Need to link suppliers, distributors, and customers
    • Forecast demand
    • Balance supply and demand

Purchasing & Supply Chain Management, 4e

globalization and communication
Globalization and Communication
  • Differing cultures and geographies
  • Need to:
    • Manage global customers and suppliers
    • Calculate total global logistics costs
    • Increase leverage and component standardization
    • Improve communication of global strategies

Purchasing & Supply Chain Management, 4e

data information management
Data Information Management
  • New IS technologies (servers, wireless applications, and telecommunication)
  • Need to effectively filter, analyze, and mine huge amounts of data to support managerial decision making
  • Data warehouse systems
  • Decision support systems

Purchasing & Supply Chain Management, 4e

new business processes
New Business Processes
  • Constantly evolving and changing technologies
  • Reduce redundancies, delays, and waste
  • Need to create a rapid response capability to adapt to changing customer needs and controlling costs

Purchasing & Supply Chain Management, 4e

replacement of legacy systems
Replacement of Legacy Systems
  • Need to replace existing piecemeal chains of unlinked data systems
  • Eliminate hardware and software incompatibilities and allow real time, fluid communication
    • Computer networking
    • Telecommunications
    • Web-based applications

Purchasing & Supply Chain Management, 4e

strategic cost management
Strategic Cost Management
  • High volume of transactions to deal with
  • Need to automate data capture in a single enterprise-wide data warehouse accessible to all users
  • Timely and accurate information replaces inventory investments

Purchasing & Supply Chain Management, 4e

erp systems
ERP Systems
  • Integrated transaction processing and reporting system
  • Tracks organizational resources, including people, processes, and technology
  • Creates a process logic for functional interaction

Purchasing & Supply Chain Management, 4e

an erp system example
An ERP System Example

Financial and Resource Controlling

Logistics Controlling – Warehouse, Transportation

Purchasing & Supply Chain Management, 4e

basic business processes
Basic Business Processes

Purchasing & Supply Chain Management, 4e

erp and basic business processes
ERP and Basic Business Processes
  • Adopting a single customer, product, and supplier database
  • One master record with multiple views
  • Common database
  • Information is captured only once in real time
  • Highly visible transactions
  • Linked with the work flow

Purchasing & Supply Chain Management, 4e

implementing erp systems
Implementing ERP Systems
  • Create a process map for every major process
  • May need to reengineer processes prior to ERP to remove non-value-adding steps
  • Could result in major organizational and culture change
  • Need for well-defined processes before implementing

Purchasing & Supply Chain Management, 4e

implementation steps
Implementation Steps
  • Define the current process as is
  • Define what the best-in-class business process should be
  • Develop the system
  • Work through all final bugs and then flip the switch

Purchasing & Supply Chain Management, 4e

erp implementation cycle
ERP Implementation Cycle

Source: Premier International, Chicago

Purchasing & Supply Chain Management, 4e

purchasing databases
Purchasing Databases
  • An integrated collection of computer files capable of storing operational data essential for managing a department
    • Minimal overlapping of information between files
    • Allows different systems to use data contained in the database
    • Efficient cross-referencing of data

Purchasing & Supply Chain Management, 4e

purchasing data warehouses
Purchasing Data Warehouses
  • Type of decision support tool for collecting data from different resources and making it available to end users in a consolidated, consistent manner
  • Combines data all in one place
  • Maintained separately from the production system database
  • Organized around informational subjects rather than by process

Purchasing & Supply Chain Management, 4e

purchasing data warehouses1
Purchasing Data Warehouses
  • Data is fed from multiple production databases
  • Time-dependent, historical data
  • Oftentimes aggregated

Purchasing & Supply Chain Management, 4e

purchasing database examples
Purchasing Database Examples
  • Part files
  • Supplier name and address files
  • Historical usage files
  • Open-order and past-due files
  • Bill-of-material files
  • Engineering requirements files
  • Forecasted demand files

Purchasing & Supply Chain Management, 4e

communication technology
Communication Technology
  • Electronic data interchange (EDI)
    • Standard form (EDI standards)
    • Translation capability (EDI software)
    • Mail service (EDI network)
  • EDI and the Internet

Purchasing & Supply Chain Management, 4e

an ideal edi transaction
An Ideal EDI Transaction
  • Buyer’s computer monitors real-time inventory status
  • If replenishment needed, application program notifies translation software
  • EDI P.O. is created and released against pre-negotiated blanket order
  • Supplier’s computer receives order and translates into local format

Purchasing & Supply Chain Management, 4e

an ideal edi transaction1
An Ideal EDI Transaction
  • Functional acknowledgement is automatically generated and sent to buyer
  • EDI P.O. creates additional electronic transactions
    • Buyer’s accounts payable application
    • Buyer’s receiving file
    • Supplier’s warehouse or factory file
    • Supplier’s invoice file

Purchasing & Supply Chain Management, 4e

an ideal edi transaction2
An Ideal EDI Transaction
  • When order is filled at supplier, advance shipping notice is created and transmitted to buyer
  • Upon receipt of goods, actual shipping notice is entered into receipt file

Purchasing & Supply Chain Management, 4e

an ideal edi transaction3
An Ideal EDI Transaction
  • Receipt notice is transmitted to buyer’s accounts payable application and to supplier’s invoicing system
  • Invoice received by buyer is translated into buyer’s format and invoice, receiving notice, and P.O. are reconciledin a three-way match

Purchasing & Supply Chain Management, 4e

an ideal edi transaction4
An Ideal EDI Transaction
  • Payment authorization is generated and transmitted to accounts payable, and payment is sent to supplier electronically
  • Electronic remittance notice is sent to supplier, and buyer is credited for payment

Purchasing & Supply Chain Management, 4e

edi and the internet
EDI and the Internet
  • Traditional EDI:
    • Often requires a major investment due to application-specific technology
    • Also requires payment of fees to VAN providers
    • Different EDI standards
    • Different customers have different EDI systems
    • Not considered interactive

Purchasing & Supply Chain Management, 4e

virtual private network
Virtual Private Network
  • Similar to a VAN but at much lower cost
  • Hosted on a third party’s website and server
  • Involves tunneling protocols for security
  • May require a T1 line for large volumes of data
  • Typically requires a common ERP platform at each end

Purchasing & Supply Chain Management, 4e

internet based edi
Internet-Based EDI

Internet

Virtual Private Network

Local ISP

Router at HQ

Remote Client

Corporate HQ – Local LAN

Purchasing & Supply Chain Management, 4e

e sourcing basics
E-Sourcing Basics
  • Sell-side systems
    • Contain products or services from one or more suppliers
  • Buy-side systems
    • Controlled by buyers and tied into their intranets and extranets
  • Third-party marketplaces
    • Facilitate electronic purchasing process without buying or selling

Purchasing & Supply Chain Management, 4e

sell side systems
Sell-Side Systems
  • Typically free registration to users
  • Supplier guarantees site security
  • No investment by buyer
  • Ease of access to many suppliers
  • Inability to track expenditures or to control expenditures
  • Offer varying degrees of security

Purchasing & Supply Chain Management, 4e

buy side systems
Buy-Side Systems
  • May be either self-designed or provided by e-sourcing suite suppliers
  • Allow supply manager to manage the sourcing cycle, track spend, and exert control of contract management
  • Requires initial investment and periodic updates

Purchasing & Supply Chain Management, 4e

third party marketplaces
Third-Party Marketplaces
  • Independent firms who neither buy nor sell goods and services
  • Vertical portals
    • Narrow range of commodities
  • Horizontal portals
    • Broader range goods or services

Purchasing & Supply Chain Management, 4e

srm systems
SRM Systems
  • Focused on decision support around a broad group of transactions
    • Using both data and structured mathematical modeling
  • Interactive system to assist in:
    • Supplier selection
    • Contract management
    • Contract compliance

Purchasing & Supply Chain Management, 4e

characteristics of srm systems
Characteristics of SRM Systems
  • Spend analysis
  • Sourcing
    • RFQ processing
    • Reverse auctions
    • Bid optimization
    • Negotiation and total cost support
    • P.O. issuance
    • Receiving and inspection
  • Contract management and compliance
  • Supplier performance measurement and control
  • Total cost reporting
    • Price forecasting

Purchasing & Supply Chain Management, 4e

spend analysis
Spend Analysis
  • Determination of the dollar amount and volume of expenditures
    • What goods and services purchased
    • Which suppliers purchased from
    • Where internal demand originates
  • Spending reduction

Purchasing & Supply Chain Management, 4e

spending reduction
Spending Reduction
  • Consolidation of similar purchases
  • Reduction in the number of suppliers
  • Reduction of maverick spend
  • Reduction of spend by other departments
  • Increased use of more efficient contracting methods
  • Development of methods to reduce risk and increase supply assurance

Purchasing & Supply Chain Management, 4e

spend analysis data
Spend Analysis Data
  • Minimum of one year of spend data
  • Develop similar categories of spend
  • Assign spend to the categories
  • Develop appropriate spend strategies

Purchasing & Supply Chain Management, 4e

request for quotation
Request for Quotation
  • A request to submit a proposal based on a set of specifications provided by a buyer
  • Also known as the eRFx module
    • Request for information (RFI)
    • Request for proposal (RFP)
    • Request for quotation (RFQ)

Purchasing & Supply Chain Management, 4e

reverse auctions
Reverse Auctions
  • Electronics processes where multiple sellers vie for the business of a single buyer
  • Results in price reductions
  • Regular reverse auctions vs. rank reverse auctions
  • Can often alienate suppliers by focus on price only

Purchasing & Supply Chain Management, 4e

steps in a reverse auction
Steps in a Reverse Auction
  • Buyer decides which commodities are to be considered for a reverse auction
  • Suppliers are initially evaluated and invited to participate
  • Buyer writes RFQ and sends to all qualified suppliers
  • Bidding process is conducted
  • Buyer analyzes results and rewards business to chosen supplier

Purchasing & Supply Chain Management, 4e

how to conduct a reverse auction
How to Conduct a Reverse Auction
  • Self-service
  • Full-service third party provider
    • Selection of commodity
    • Supplier qualification
    • Provide training
    • Conducts auction

Purchasing & Supply Chain Management, 4e

reverse auctions1
Reverse Auctions
  • Buyer-initiated bidding event
  • Utilizes electronic software that allows price or rank visibility to sellers
  • Secure, online environment within a specified timeframe
  • Goal is rational market price for the chosen commodity
  • Reduces bidding time

Purchasing & Supply Chain Management, 4e

concerns of reverse auctions
Concerns of Reverse Auctions
  • Price reductions without regard to existing or future relationship
  • May breed mistrust or lack of cooperation
  • Realized price reductions may decrease over time
  • Tactical, not strategic in nature

Purchasing & Supply Chain Management, 4e

phases of a reverse auction
Phases of A Reverse Auction
  • Before the reverse auction
    • Determine strategic importance of relationship
    • Importance of price vs. other variables
  • Offer phase
    • Explaining the rules
  • Execution phase
    • Select appropriate form of contract

Purchasing & Supply Chain Management, 4e

considerations in reverse auctions
Considerations in Reverse Auctions
  • Price – most controversial
  • Strategic importance of relationship
  • Tradeoff between price and opportunity cost of not choosing suppliers who can contribute in non-price areas
  • Market-based (bid-and-buy) approach vs. need for relationship and cooperation

Purchasing & Supply Chain Management, 4e

e bid optimization
E-Bid Optimization
  • Permits suppliers to configure bids in any number of alternative ways
  • Flexible bidding or expressive bidding
  • Increases buyer’s ability to analyze and review bids optimally
  • Uses mathematical algorithms in evaluating different supply and cost scenarios

Purchasing & Supply Chain Management, 4e

estimating total costs
Estimating Total Costs
  • Shipping
  • Freight
  • Duties
  • Imports and tariffs
  • Inventory costs
  • Quality costs

Purchasing & Supply Chain Management, 4e

contract management compliance
Contract Management / Compliance
  • Oversight of the back end of the sourcing process
  • Ensure that suppliers and users are in compliance with contract terms
  • Other considerations

Purchasing & Supply Chain Management, 4e

other considerations
Other Considerations
  • Price compliance
  • Changes in terms
  • Volume discount thresholds
  • Payment schedules
  • Due dates
  • Contingencies for nonperformance

Purchasing & Supply Chain Management, 4e

performance measurement
Performance Measurement
  • Visibility to open-item status
  • Measures and analyzes supplier performance
  • Use of electronic scorecards
    • Automatic inquiry of item status
    • Monitoring of order due dates
    • Analysis of supplier performance

Purchasing & Supply Chain Management, 4e

performance measurement1
Performance Measurement
  • Capability to monitor planned receipts against due dates
  • Provide immediate visibility to past-due items
  • Flag those items likely to become past due
  • Generate summary reports and compare to predetermined criteria

Purchasing & Supply Chain Management, 4e

benefits of measurement
Benefits of Measurement
  • Input into supplier selection considering total cost, not just price
  • Isolating supplier process inefficiencies
  • Improving total cycle times
  • Providing suppliers with reliable feedback on historical performance

Purchasing & Supply Chain Management, 4e

total cost reporting
Total Cost Reporting
  • Generate timely management reports
  • Provide visibility to entire materials process
  • Use of data warehouses
  • Frequency of reporting
    • Real-time updating
    • Data buckets
    • Batch updating

Purchasing & Supply Chain Management, 4e

price forecasting
Price Forecasting
  • Length of item’s product life cycle
  • Current life cycle phase
  • Item’s price history

Purchasing & Supply Chain Management, 4e

integrated e sourcing and supply
Integrated E-Sourcing and Supply
  • ERP systems
  • Sourcing strategy module
  • Supply chain planning module
  • Distribution planning module
  • Demand planning module
  • Supplier collaboration module

Purchasing & Supply Chain Management, 4e

information visibility
Information Visibility
  • Sharing critical data required to manage the flow of products, services, and information in real time between suppliers and customers
    • Share forecasts
    • Manage inventories
    • Schedule labor
    • Optimize deliveries

Purchasing & Supply Chain Management, 4e

benefits of information visibility
Benefits of Information Visibility
  • Suppliers are aware of buyer’s needs in a timely manner
  • Buyer is assured that shipments are received on time, every tome
  • Allows problems to become more visible earlier
  • Improved processes

Purchasing & Supply Chain Management, 4e

benefits of information visibility1
Benefits of Information Visibility
  • Breaks down organization barriers
  • Builds in supply chain visibility
  • Manages by metrics
  • Reduces decision cycle time
  • Encourages decision making collaboration
  • Reduces opportunity and problem resolution latency

Purchasing & Supply Chain Management, 4e