The impact of ERP on supply The impact of ERP on supply chain managementchain management

• Exploratory findings from a European Exploratory findings from a European Delphi study.Delphi study.

AbstractAbstract• The study was conducted with 23 dutch supply chain The study was conducted with 23 dutch supply chain

executives of European multi-nationals.executives of European multi-nationals.

• The object was:Further integration of activities between The object was:Further integration of activities between suppliers and customers across the entire supply chain.suppliers and customers across the entire supply chain.

• On-going changes in supply chain needs and requiered On-going changes in supply chain needs and requiered flexibility from ITflexibility from IT

• More mass customization of products and services leading More mass customization of products and services leading increasing assortment while decreasing cycle times and increasing assortment while decreasing cycle times and inventoriesinventories

• Locus of the drivers seat of the entire supply chain Locus of the drivers seat of the entire supply chain

• Need for worldwide IT systemsNeed for worldwide IT systems

• Greater transparency of the marketplaceGreater transparency of the marketplace

• Their insufficient extended enterprise functionality in Their insufficient extended enterprise functionality in crossing organizational boundariescrossing organizational boundaries

introductionintroduction• One reason for these initiatives may be the substantial cost One reason for these initiatives may be the substantial cost

reductions to be achieved from improving logistics performances.reductions to be achieved from improving logistics performances.• In Europe, logistics cost range from 6% to 15% of total turnover In Europe, logistics cost range from 6% to 15% of total turnover • In the USA, american companies spent $670 billion on logistics In the USA, american companies spent $670 billion on logistics

and supply cahin-related activities in 1993, corresponding to and supply cahin-related activities in 1993, corresponding to 10.5% of GDF.10.5% of GDF.

• Another reason appears to be the advent of the network economy Another reason appears to be the advent of the network economy , which is triggering profund changes in the scope and impact of , which is triggering profund changes in the scope and impact of supply chain management.supply chain management.

• Market are becoming more transparent, customer demands are Market are becoming more transparent, customer demands are being met in a more customized manner and, in general, the rate being met in a more customized manner and, in general, the rate of change in the business world keeps increasingof change in the business world keeps increasing

• All these developments are habing a profound impact on the ways All these developments are habing a profound impact on the ways im which supply chains of enterprises are to be managed.im which supply chains of enterprises are to be managed.

• The new business models for the internet age is growing rapidly, The new business models for the internet age is growing rapidly, in particular is emphasizing that, as the business environment in particular is emphasizing that, as the business environment changes, supply changes, supply chain designchain design as opposed to supply as opposed to supply chain chain coordinationcoordination is becoming a core competency. is becoming a core competency.

MRP ExplosionMRP Explosion

MRP explosion

Action notices-releasing new orders-Adjusting due dates

Priority reports-dispatch lists-suppliers schedules

Capacity reports-capacity requierement planning-finite capacity scheduling

Routing and Time

standards

Manufacturing resources planPerformance reports Cost and

Price data

supply chain managemet in supply chain managemet in the network economythe network economy

• We view a supply chain as a network consisting of We view a supply chain as a network consisting of suppliers, manufacturers, disrributors, retailers, and suppliers, manufacturers, disrributors, retailers, and customers.customers.

• The network, in turn, is supported by three pillars:The network, in turn, is supported by three pillars:

Financial flow

Information flow

Material flow

Suppliers=>Manufactures=>Distributors=>Customers

ProcessesOrganizational

StructuresEnabling

Technologies

•Fig.1 An integrated model of the supply chain

• Supply chain design is concerned not only with the specification Supply chain design is concerned not only with the specification of customer zones, selection of manufacturing and distribution of customer zones, selection of manufacturing and distribution facilities, and allocation of product families to these sites, but facilities, and allocation of product families to these sites, but also with the prioritization of the capabilities to be developed also with the prioritization of the capabilities to be developed and retained internally, and the forging of new partnerships and retained internally, and the forging of new partnerships with other entities along a supply network.with other entities along a supply network.

• This dynamic view is particulary important in a fast-evolving This dynamic view is particulary important in a fast-evolving world where new products and emerging distribution channels world where new products and emerging distribution channels necessitate a contiunuous review of supply chain design necessitate a contiunuous review of supply chain design decisions.decisions.

• This dynamic view may neseccitate different perspectives for This dynamic view may neseccitate different perspectives for supply chain design. These perspectives include: organizational supply chain design. These perspectives include: organizational supply chain, capability supply chain, and technology supply supply chain, capability supply chain, and technology supply chain.chain.

• The validity of a particular supply chain solutions is therefore The validity of a particular supply chain solutions is therefore determined by the determined by the clockspeedclockspeed

Market Market mediationmediation

Market Mediation

Supply Chain DesignCapability Building

Supply Chain Coordination

Information deployment-POS data-Joint forecasting-Schedule sharing

Channel Alignment-Contracts-VMI-CPFR

Operational Flexibililty-Postponement-ATO, MTO

There are different ways of definnig ERP: a business There are different ways of definnig ERP: a business perspective, a technical perspective or a funtional perspective, a technical perspective or a funtional perspective.perspective.One way of looking at ERP is as a combination of business One way of looking at ERP is as a combination of business processes and information technology.processes and information technology.Worldwide sales of ERP packages together with Worldwide sales of ERP packages together with implemetantion support, on the other hand, have esceeded 50 implemetantion support, on the other hand, have esceeded 50 billion dollars at the turn of the century with annual growth billion dollars at the turn of the century with annual growth rates of over 30%.rates of over 30%.In spite of the significandt slowdown in IT spending, ERP is In spite of the significandt slowdown in IT spending, ERP is expected to become a 10 billion dollar industry by 2004.expected to become a 10 billion dollar industry by 2004.A recent survey by fortune magazine revealed that seven out A recent survey by fortune magazine revealed that seven out of the top tehn global pharmaceutical and petroleum of the top tehn global pharmaceutical and petroleum companies, and all of the top ten global chemical companies companies, and all of the top ten global chemical companies are SAP´s R/3.are SAP´s R/3.the number of local IT system to be replaced by an intefrated the number of local IT system to be replaced by an intefrated ERP system usually runs into the dozens up to a hundred or ERP system usually runs into the dozens up to a hundred or more in multinational companies.more in multinational companies.

ERP SystemERP System

How Companies Benefit from How Companies Benefit from Improving ERP SystemImproving ERP System

• As the world economy reaccelerates, Ventana Research As the world economy reaccelerates, Ventana Research sees companies investing selectively in information sees companies investing selectively in information technology. Ventana Research advises our clients to assess technology. Ventana Research advises our clients to assess their major IT system to determine if there are cost savings their major IT system to determine if there are cost savings that can be achieved, and determine how well their that can be achieved, and determine how well their software/hardware infrastructure supports existings software/hardware infrastructure supports existings strategy and business processes.strategy and business processes.

• We find that companies that evolve their ERP solutions We find that companies that evolve their ERP solutions usually do so for any combination of the fallowing reasons:usually do so for any combination of the fallowing reasons:-Increase productivity-Increase productivity-address performance management needs-address performance management needs-Implement business process imprvements -Implement business process imprvements -Leverage technology-Leverage technology-Address organizational changes-Address organizational changes-Enhance adaptability-Enhance adaptability-Avoid absolescence-Avoid absolescence-consolidate instances-consolidate instances

Delphi study findingsDelphi study findingsThis section describes the main empirical results from the This section describes the main empirical results from the Delphi workshop.Delphi workshop.

• Key trends in supply chain management for the coming Key trends in supply chain management for the coming years.years.

-Just about every panel expert sees futther integration of -Just about every panel expert sees futther integration of activites between suppliers and customer across the activites between suppliers and customer across the entire chain os one of the three biggest trends in SCMentire chain os one of the three biggest trends in SCM

• Expected impacts of ERP on SCM trends.Expected impacts of ERP on SCM trends.

• SCM limitations of current ERP systemsSCM limitations of current ERP systems

-EE funtionality -EE funtionality

-Flexibility in adapting to changing supply chain needs-Flexibility in adapting to changing supply chain needs

-beyond transactions- more advanced supporting -beyond transactions- more advanced supporting funtionalityfuntionality