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Role Of ERP in Supply Chain Management

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A Production-Distribution System

raw materialsinventory

finished goodsinventory

work in process

inventory

FACTORY A

FACTORY B

(raw matl delivery:road, rail,sea, air orpipeline)

(customer serviceby wholesale andretail outlets)

small industries

rapid tech.innovation increasing

global comptn

globalisationof markets

Just-in-timeinventory

pressures onpricing

pressures ontime-to-mkt

shorter pdt. life cycles

stress on quality

Demandingdelivery sched.

rapid responsetime-to-market

Individual customized prodn.

Challenges faced by the Indian Manufacturing Sector

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Supply Chain Definitions• Flow of materials, information, payments,

and services, from suppliers through factories and warehouses, to end customers

• Includes all organizations and processes that create and deliver products, information, and services to the end customers

• Supply chain management - planning, organizing, coordinating, and controlling all activities in the supply chain

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The Integrated Supply ChainStage One: BaselineMaterialflow

Customerservice

MaterialControl

Purchasing Production Sales Distribution

Stage Three: Internal IntegrationMaterialflow

Customerservice

ManufacturingManagement

MaterialsManagement Distribution

Stage Two: Functional IntegrationMaterialflow

Customerservice

ManufacturingManagement

MaterialsManagement

Distribution

Stage Four: External IntegrationMaterialflow

Customerservice

Internal SupplyChain

Suppliers Customers

“The management of u

pstream and downstre

am relatio

nships

with suppliers and customers to

deliver superio

r customer v

alue

at less cost to

the supply chain as a whole.”

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Tiered Suppliers

Intra-Company Fabrication

Assembly

Retailers

Distributors

Consumers

Commercial Buyers

Information Flow

Material Flow

Features:• Independent systems to manage the interaction between players in the supply chain.• Great operational flexibility -• Problems - hedging, forecasting uncertainty, visibility limited.. Beer Game type dynamics.

Conventional Multi-EchelonSupply Chain

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Process View of a ConventionalMulti-Echelon Supply Chain

Assembly

Receive orders fromVendors

Place orderswith Vendors

Forecast demandand plan production

Receive orders fromdistribution, retail andcommercial customers

Ship orders to distribution,retail and commercial customers

Distribution

Place orderswith assembly

Forecast demandand plan distribution

Receive orders fromcustomers

Ship orders tocustomers

Update localsystem accordingto changes - new products, prices,customers, etc.

Update localsystem accordingto changes - new products, costs,distribution centers, customers, etc.

Roles with decentralized system: • Change Planning and Implementation• Sales and Operations Planning• Product and Service Delivery

Receive ordersfrom assembly,etc.

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Tiered Suppliers

Intra-Company Fabrication

Assembly

Retailers

Distributors

Consumers

Commercial Buyers

Information Flow

Material Flow

Web Order Processor

ERP System

Features:• Integrated information• System optimization possible• Problems - inflexible - need a much more formal infrastructure to support the system.

Multi-EchelonSupply Chain withERP System

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Execute Business Strategy- Global Business- Change Project Scheduling

Secure Suppliers forServices, Materials, and Contract Manufacturing

Change Informationin Systems

ChangeProductionFacilities

Sales and OperationsPlanning (Global) - SAP-APO

Order, Receive, and StorePurchased Material

ManageProduction

Receive andCommit to Order

Move, Store, andDeliver Product

Receive andProcess Payment

Roles when using centralized ERP: • Change Planning and Implementation• Sales and Operations Planning• Product and Service Delivery

Process View of ERP

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Types of Supply Chains• Integrated Make-to-Stock

– Real-time demand tracking triggers production to restock finished goods

• Continuous Replenishment– Constant inventory replenishment based on expected

stable demand• Build-to-Order

– Customer order triggers production of specific item(s) requested

• Channel Assembly– Build-to-order with some assembly performed within

the distribution channel

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Problems in the Supply Chain• How much are we going to sell? (demand

forecasts)• How long will it take? (for supplies to

arrive; shipments to be received)• What if the supplies are defective? (quality

control)• What if my order gets lost or

miscommunicated?

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Problems in the Supply Chain• Bullwhip Effect

– Wild swings in orders due to lack of coordination and trust among supply chain members

– Information sharing is essential• Phantom Stockouts

– Inventory is reportedly not available, when in fact it is on hand

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Overcoming Supply Chain Problems

• Vertical Integration– Own everything upstream and downstream

• Stockpile Inventory– Eliminate risk and uncertainty by hoarding

massive inventories; very expensive• Improve Supply Chain Management

– Build trust and coordination through IT enabled supply chain support

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Supply chain management (SCM) holds promise for not just improving productivity

but also competitiveness.

SCM has to be leveraged for corporate India’s gain without delay

In consumer durables, the entry of MNCs has increased competition and SCM is

perceived as the vital factor, which differentiates failure from success.

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Customer service

Competitiveness

Integration: Coordination:

Choice of partners Use of information and communication

technologyNetwork organization and inter-organizational

collaboration Process orientation

Leadership Advanced planning

Foundations:

Logistics, marketing, operations research, organizational theory,

purchasing and supply…

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• What is new in SCM?– Two dimensions which differentiate SCM

from traditional concepts:• Organizational Integration and

• Flow Coordination

Stated simply, a supply chain is a network of entities that starts with the suppliers’ suppliers and ends with the customers’ customers for production and delivery of goods and services.

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• First Dimension: Integration of Organizations– Companies seeking opportunities to break

organizational boundaries to work closely with their suppliers and customers

– Companies also overcoming functional boundaries, so that different disciplines and functions are better integrated (such as manufacturing, distribution, marketing, accounting, information, and engineering)

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• Second Dimension: Coordination of multiple flows in a supply chain

• Materials

• Information and

• Finance

These three flows are interdependent and, in some cases, are substitutes of one another.

It is through the coordination of these flows that tremendous gains in overall efficiency of the supply chain can be achieved.

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Supply Chains in India

• Sony India managed to reduce its inventories by 70% just six months after it began its SCM initiative

• Maruti has wired all its suppliers together and 60% of business transactions are now happening online

Source: “Pulling Power”, DATAQUEST; 31 October 2001.

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Supply Chains in India

• Samsung manages a 5,000-dealers' online network with just 15 employees

• Mahindra & Mahindra's tractor division aims for a reduction of 48% in inventories, 30% in logistics costs and a cutback in production cycle from a month to a week

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• Three major developments in global markets and technologies which have brought SCM to the forefront:– The information revolution– Customer demands in areas of product and

service cost, quality, delivery, technology, and cycle time brought about by increased global competition

– The emergence of new forms of inter-organizational relationships

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Information Technology and the Supply Chain

“Information technology (IT) is an inseparable part of supply chain

management, harnessing information flows for decision making.”

INDIA: ERP is no longer a hype

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• The four stages of development

Integrate>Optimize>Connect>Coordinate

• Basic IT Building blocks:

•MRP/ERP>APS>EDI>SCM/CRM

• 85% of the companies are still in stage 1

• A manufacturing supply chain example

Supply Chain from an IT Perspective

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New Internet-Based Processes

Planning Procurement

AP

Production

CustomerServices

OrderMgmt

AR

Production

Exchangesrequisition

e-invoice

confirmationauction

bid

debitnotification

creditnotification

FinancialInstitutions

Vendor Information

P.O. Tracking / History

Bidding & RFQ Process

Vendor Performance

Product Data Mgmt

Blanket Agreements

Production Requirements, Schedules,Delivery Dates, Status

Customer Information

Order Mgmt

Quotation Process

Performance Info

Product Data Mgmt

Blanket Agreements

Production Requirements, Schedules, Delivery Dates, Status

• Business Directory with Content

ERP ERP

• On-line Tracking, History, & Audit

• Reverse Auction

• Multi-user Aggregate Performance

• Product Design Collaboration

• Multi-user Buying Power

?

Supplier Custmer

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What are the future trends? Information Technology in a Supply Chain: Legacy

Systems

Supplier CustomerRetailerDistributorManufacturer

Strategic

Planning

Operational

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Information Technology in a Supply Chain: ERP Systems

Supplier CustomerRetailerDistributorManufacturer

Strategic

Planning

OperationalERPPotential

ERPPotential

ERP

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Information Technology in a Supply Chain: Analytical Applications

Supplier CustomerRetailerDistributorManufacturer

Strategic

Planning

Operational

SupplierApps

SCM

MES

Dem Plan

Transport execution &WMS

APS Transport & InventoryPlanning

CRM

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Mapping of SAP functions into roles of centralized ERP

• Execute Business Strategy– Product strategy

– Project management

• Change information in systems– Codes, specifications, bills of

material, prices terms, customers

• Secure suppliers for services, materials, and contract manufacturing– Select suppliers

– Negotiate contracts

– Monitor performance

• Change production facilities– Build and modify plant

– Improve plant

• Sales and Operations Planning– In line with the business strategy,

manage supply of product against expected demand

– Decide what to make and when to make it

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Mapping of SAP functions into roles of centralized ERP

• Receive and commit to order– Determine capability to meet

customer order requirements

– Agree to delivery date and quantity and commit to customer order

– Process order

• Order receive, and store purchased materials– Schedule and order materials

– receive and manage purchased materials inventories

– Manage required documentation for customs, EPA, etc.

– Pay purchased materials suppliers

• Manage production– Operate plant

– Produce to plan

– Record production data

– Manage product quality

• Move, store, and deliver product– Arrange transportation

– Load product for shipment

– ensure proper documentation

– Monitor delivery

• Receive and process payment– receive customer payments

– Collect past-due payments

– Resolve invoicing discrepancies

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SAP - Advanced Planner and Optimizer (SAP APO) - Major Functions

• Supply Chain Cockpit - model, monitor and manage the supply chain with a graphical “bird’s eye” view of activities.

• Demand Planning - analyze patterns, etc. to create demand forecasts.

• Supply Network Planning & Deployment - load balancing - match purchasing, production and transportation processes to demand

• Production Planning & Detailed Scheduling - plant-by-plant production scheduling.

• Global Available-to-Promise - match supply to demand for reliable delivery commitments using real-time checks and simulation.

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• ERP growth has slowed down• CRM & Transportation Mgmt Systems poised for

high growth rates• Impact of ERP [not very impressive!!]• Beyond ERP: Advanced Planning and Scheduling

(APS) for better Supply Chain Performance• APS Uses dynamic planners and optimizers

acting on real time data• Bright future for APS vendors (or ERP vendors

who offer plug-ins)

A Few Highlights