Chapter 8 Supply Chain Management & Enterprise Resource Planning

1. Chapter 8Supply Chain Management& Enterprise Resource Planning

2. 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 • 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

3. An automotive Supply Chain

4. 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

5. Supply Chain “Supply” Chain Value Chain Demand Chain

6. Supply Chain Problems • UNCERTAINTY • 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. • POOR COORDINATION • With Internal units & business partners • Ineffective customer service • High inventory costs, loss of revenue & extra cost for expediting services

7. 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

8. 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

9. 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

10. Inventory Production scheduling MRP Production Management 1960 + Purchasing Finance, labor MRP MRP II Major Manufacturing Resources 1970 + Coordinated Manufacturing and Service Transactions MRP II All internal resources ERP 1980 + ERP Internal customers and suppliers Internal SCM 1990 Internal ERP/SCM + Internal ERP/SCM ERP/SCM External suppliers and customers BI, EC, CRM, KM Enterprise Integrated system Extended SCM/CRM 2000 Extended ERP/SCM Enterprise Systems 2005 + + The Evolution of Computerized Aids

11. 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

12. 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”.

13. Value Chain Integration

14. 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

15. 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)

16. 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?

17. 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

18. 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

19. 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

20. EC & SCM • Buying & Selling along the Supply Chain • UPSTREAM • improve the upstream supply chain through e-procurement • INTERNAL SCM • from entering purchase orders, to recording sales, to order fulfillment, to tracking shipments, are usually conducted over a corporate intranet • DOWNSTREAM • 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.

21. Web-based Supply Chain

22. 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

23. 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

24. 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.