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Chapter 8

Information Technology For Management 4th EditionTurban, McLean, WetherbeLecture Slides by A. Lekacos, Stony Brook UniversityJohn Wiley & Sons, Inc.

Supply Chain Management and Enterprise Resource Planning

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Chapter Objectives Understand the concept of the supply chain, its importance,

and management. Describe the problems of managing the supply chain and some

innovative solutions. Trace the evolution of software that supports activities along

the supply chain and describe the need for software integration Describe ERP and understand the relationships between ERP

and SCM software. Describe order fulfillment problems and solutions in e-

commerce and how EC solves other supply chain problems. Describe the process and activities of partner relationship

management. Understand the process and issues of global supply chain

management.

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Supply and Value Chains

Supply Chain Flows Materials flows are all physical products, new materials, and

supplies that flow along the chain. Information flows relates to all data associated with

demand, shipments, orders, returns and schedules. Financial flows include all transfers of money, payments,

credit card information, payment schedules, e-payments and credit-related data.

Supply chain refers to the flow of materials, information, payments, and services from raw material suppliers, through factories and warehouses (Value Chain), to the final consumer (Demand Chain). It includes tasks such as purchasing, payment flow, materials handling, production planning & control, logistics & warehousing, inventory control, and distribution. When it is managed electronically it is referred to as an e-supply chain.

Supply Chains contribute to increased profitability and competitiveness

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Supply and Value ChainsAutomotive Supply Chain

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Supply Chains Components The supply chain involves three segments:

UpstreamUpstream, where sourcing or procurement from external suppliers occur

InternalInternal, where packaging, assembly, or manufacturing take place

DownstreamDownstream, where distribution or dispersal take place, frequently by external distributors.

It also includes the movement of information and money and the procedures that support the movement of a product or a service.

Organizations and individuals are also part of the chain.

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Supply Chains Classifications There are several major types of supply chain

Integrated make-to-stock Continuous replenishment Build-to-order Channel assembly.

Value ChainValue Chain

Demand ChainDemand Chain

““Supply” ChainSupply” Chain

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Adding value along the chain is essential for competitiveness, however problems exist especially in complex or long chains and in cases where many business partners are involved. These problems are due to uncertainties and the need to coordinate several activities, internal units, and business partners.

Demand forecasts are a major source of uncertainties Competition Prices Weather conditions Technological development Customer confidence

Uncertainties exist in delivery times Machine failures Road conditions Shipments

Quality problems may also create production delays

Supply Chain Problems

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The bullwhip effect refers to erratic shifts in orders up and down the supply chain because of poor demand forecasting, price fluctuation, order batching, and rationing within the chain.Even slight demand uncertainties and variability become magnified if each distinct entity, on the chain, makes ordering and inventory decisions with respect to its own interest above those of the chain. Distorted information can lead to tremendous inefficiencies, excessive inventories, poor customer service, lost revenues, ineffective shipments, and missed production schedules.

Supply Chain Problems continued

A common way to solve the bullwhip problem is by sharing information along the supply chain through EDI, extranets, and groupware technologies. For example employing a vendor-managed inventory (VMI) strategy, the vendor monitors inventory levels and when it falls below the threshold for each product this automatically triggers an immediate shipment.

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Information sharing among supply chain partners (c-commerce) sometimes referred to as the collaboration supply chain is one method to overcome problems in the flow. Others are:

Optimal Inventory Levels Supply Chain Coordination and Collaboration Supply Chain Teams Performance Measurement and Metrics Various IT-Assisted Solutions

wireless technology optimal shipping plans strategic partnerships with suppliers just-in-time

Supply Chain Solutions

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The supply chain process is intertwined with the computerization of its activities. People have wanted to automate the processes along the chain to reduce cost, expedite processing, and reduce errors.

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.

Integrations continues along several paths functional areas Combining transaction processing and decision support Business intelligence CRM software

Computerized Supply Chains

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Continued Computerized Supply Chains

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There are many benefits to integrating functional systems. Tangible benefits:

Inventory reduction Personnel reduction Productivity improvement Order management improvement Financial-close cycle improvements IT cost reduction Procurement cost reduction Cash management improvements Revenue/profit increases Transportation logistics cost reduction Maintenance reduction On-time delivery improvement.

Supply Chains Benefits

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Intangible benefits: Information visibility New/improved processes Customer responsiveness Standardization Flexibility Globalization Business performance Reduction in duplication of entries controls and reconciliation are enhanced rapid assimilation of data into the organization

Supply Chains Benefits Continued

Systems can be integrated internally and externally. Internal integration refers to integration between applications inside a company, whereas external integration refers to integration of applications among business partners.

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ERP and Supply Chains

It is comprised of a set of applications that automate routine back-end operations:

such as financial management inventory management Scheduling order fulfillment cost control accounts payable and receivable,

It includes front-end operations such as: POS Field Sales Service

It also increases efficiency, improves quality, productivity, and profitability.

ERP or enterprise systems control all major business processes with a single software architecture in real time.

Enterprise Resource PlanningEnterprise Resource Planning

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Integrating – ERP and SCMCreating an ERP/SCM integration model allows companies to quickly assess the impact of their actions on the entire supply chain, including customer demand. By providing intelligent decision support and business intelligence capabilities, the analytical SCM systems complement the ERP system.

Internal integrationExternal integration

Enhances the Supply Enhances the Supply ChainChain

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E-Commerce and Supply Chains

E-commercecan digitize some productscan replace all paper documents can replace faxes and telephone calls with electronic messaging Enhances collaboration and information sharingtypically shortens the supply chain and minimizes inventoriesfacilitates customer serviceintroduces efficiencies into buying and sellingenables faster, cheaper, and better communication, collaboration, and discovery of information

E-commerce is emerging as a superb tool for providing solutions to problems along the supply chain. Many supply chain activities, from taking customers' orders to procurement, can be conducted electronically.

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E-Commerce and Supply Chains

Upstream Activities improve the upstream supply chain through e-procurement

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

Downstream Activities enhance the activity downstream activities by providing online ordering

Vertical exchanges combine upstream and downstream EC supply chain activities. These B2B exchanges, provide a medium where buyers and sellers can meet.

A major role of EC is to facilitate buying and selling along all segments of the supply chain.

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E-Commerce and Supply ChainsContinued

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Partner Relationship Management

Manual methods include; phone, fax, and mail EDI is typically used by large corporations EC PRM functions include:

partner profilespartner communicationslead management (of clients)targeted information distributionconnecting the extended enterprisepartner planningcentralized forecastinggroup planninge-mail price lists

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.

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Partner Relationship Management Continued

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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.

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

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

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Evolution Is Continuing

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MANAGERIAL ISSUES Ethical issues. Conducting a supply chain management project may result in the

need to lay off, retrain, or transfer employees. Should management notify the employees in advance regarding such possibilities? And what about those older employees who are difficult to retrain? Other ethical issues may involve sharing of personnel information, which may be required for a collaborative organizational culture.

How much to integrate? While companies should consider extreme integration projects, including ERP, SCM, and e-commerce, they should recognize that integrating long and complex supply chain segments may result in failure. Therefore, many times companies tightly integrate the upstream, inside-company, and downstream activities, each part by itself, and loosely connect the three.

Role of IT. Almost all major SCM projects use IT. However, it is important to remember that in most cases the technology plays a supportive role, and the primary role is organizational and managerial in nature. On the other hand, without IT, most SCM efforts do not succeed.

Organizational adaptability. To adopt ERP, organization processes must, unfortunately conform to the software, not the other way around. When the software is changed, in a later version for example, the organizational processes must change also. Some organizations are able and willing to do so; others are not.

Going global. EC provides an opportunity to expand markets globally. However, it may create long and complex supply chains. Therefore, it is necessary to first check the logistics along the supply chain as well regulations and payment issues.

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Chapter 8

Copyright © 2004 John Wiley & Sons, Inc.  All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful.  Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc.  The purchaser may make back-up copies for his/her own use only and not for distribution or resale.  The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.

Question for Review Page:389

1. Define supply chain and supply chain management (SCM).

2. Describe the component of supply chain.

3. What is e-supply chain?4. Define bullwhip effect.5. Define some solutions to supply

chain problems.

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Question for Review Page:389

6. Define MRP and MRP II.7. Describe SCM software.8. Define ERP and describe its major

characteristics.9. How can integration solve supply

chain problems?10. Define order-fulfillment in EC.

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Question for Review Page:38911. List the major difficulties in order fulfillment

EC.12. Define reverse logistics.13. Describe some solutions to order fulfillment

problems.14. Define PRM and SRM15. Describe major SRM activities according to

the PeopleSoft model.16. Describe a global supply chain and some

difficulties in going global.

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Chapter 8Internet Resources

http://www.quickmba.com/ops/bullwhip-effect/ A discussion of the bullwhip effect problem,

including its causes andsome countermeasures... ... service. Causes of the Bullwhip Effect.

http://rmdonovan.com/pdf/SCM_PartIII.pdf Supply Chain Management: Supply Chain

Management: Supply Chain Management: Cracking The Bullwhip Effect

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Chapter 8Internet Resources

http://www.mce.be/knowledge/268/17 The e-Supply Chain is coming ... and fast By R.

Michael Donovan Publication date: 2000 Never ... clear ... the e-Supply Chain is coming, and fast.

http://www.research.ibm.com/iac/cc2000/Sairamesh.pdf

Vertical eXchanges Vertical eXchanges Institute for Advanced Commerce IBM TJ Watson Research Center Yorktown Heights, NY Jakka Sairamesh, Marta Eso, Jayant…

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Chapter 8Internet Resources

http://www.erpfans.com/erpfans/erpdefinition/erp001.html

Enterprise Resource planning

http://www.epiqtech.com/supply_chain-Global-Management.htm

Global Supply Chain Management. With increased globalization and offshore sourcing, global supply chain management is becoming an important issue for many

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Chapter 8Internet Resources http://www.yantra.com/downloads/whitepapers/7x/

Reverse_Logistics.pdf Increased flexibility and control results in shorter reverse

logistics cycle times, thereby reducing replacement inventory levels.

  http://slevi1.mit.edu/~levi/docs/Inbound.pdf The celebrated Vendor Managed Inventory (VMI) strategy, in

which the supplierman- ages the re tailer ’s inventory, allows suppliers and retailers to ...

  http://www.sap.com/solutions/r3/ SAP R/3 Enterprise. ... Furthermore, SAP R/3 Enterprise is based

on the SAP Web Application Server

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