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Supply Chain, Enterprise

Resources Planning, andBusiness Processes Engineering

4-1

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Learning Objectives

Understand the concept of the supply chain, its

importance, and management.

Describe the problems of managing the supply chainand some innovative solutions.

Trace the evolution of software that support activities

along the supply chain.

Define business processing reengineering (BPR) and

understand its relationship with the supply chain.

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Learning Objectives

Describe the networked organization andidentify its benefits.

Demonstrate the role of IT in supporting BPR. Describe mass customization, cycle timereduction, self-directed teams, andempowerment.

Define business alliances and virtualcorporations.

Understand the relationships among enterpriseresources planning (ERP), supply chain

management (SCM), and electronic commerce.

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How Dell Reengineered and Managed

its Supply Chain to Become #1 The Problem

price war, and on the verge of bankruptcy

The Solution using just-in-time manufacturing using mass customization locating within 15 minutes of Dells suppliers doing most orders on the Web

shipping by UPS selling standard computers to large corporations testing new PC models at the same time as the

networks solutions are developed monitor productivity and rate of return on

investment, on all products

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What Role did IT Play?

electronic commerce with customers

extranet for suppliers

Using the Internet to create a community

around its supply chain

The Resultsbecome the number one PC seller

be considered one of the worlds best-

managed and profitable companies

How Dell Reengineered and Managed

its Supply Chain to Become #1

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Essentials of the Supply Chains

Dell case demonstrates that: by introducing a new business model one can change the

manner in which business is done and may even capture

the leadership in its industry by introducing major customer-related changes, one can

improve the communication and customer services

by improving logistics system along the entire supplychain, Dell integrated its own suppliers into its supply

chain, efficiently and effectively Dell created flexible and responsive manufacturing systems

the changes are considered to be a complete reengineering

Dell supports all of the above by extensive use of electroniccommerce, the Internet, extranet and intranets

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Supply Chainthe flow of material, information, and services

from raw material suppliers through factoriesand warehouses to the end customers

Supply Chain Management (SCM)to plan, organize, and coordinate all the supply

chains activities

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Benefits

reduce uncertainty and

risks in the supply chain

reduce uncertainty and

risks in the supply chain

positively affecting inventory

levels, cycle time, business

processes, and customer service

positively affecting inventory

levels, cycle time, business

processes, and customer service

increase profitability

and competitiveness

increase profitability

and competitiveness

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The Components of Supply ChainUpstream supply chain

includes the organizations first-tiersuppliers and their suppliers

Internal supply chain

includes all the processes used by an

organization in transforming the inputs ofthe suppliers to outputs

Downstream supply chain

includes all the processes involved in

delivering the products to final customers

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Supply Chain

2nd TierSuppliers2nd Tier

Suppliers

2nd Tier

Suppliers

2nd Tier

Suppliers

2nd TierSuppliers2nd Tier

Suppliers

1st TierSuppliers1st Tier

Suppliers

1st TierSuppliers1st Tier

Suppliers

Assembly/

Manufacturing andPackaging

Assembly/

Manufacturing andPackaging

DistributionCenters

Distribution

Centers RetailersRetailers CustomersCustomers

TheGen e

ricPro

cess

Upstream Internal Downstream

CorrugatePaper Co.CorrugatePaper Co.

LumberCompanyLumber

Company

Label

Manufacturing

LabelManufacturing

GrainProducer

Grain

ProducerProcessing

Facility

Processing

FacilityDistribution

Centers

Distribution

Centers StoresStores CustomersCustomers

TheCer e

al

M

anufacturingP

roc

ess

PackagingPackaging

Grain CerealPackagedCereal

Box

Paperboard

Labels

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Problems Along

the Supply Chains Uncertainties

demand forecast, which influenced by competition,prices, weather conditions, technological

development, and customers general confidencedelivery times, which depend on several factors

ranging from machine failures to road conditions andtraffic jams, that way interfere with shipments

Symptoms of poor SCMpoor customer service, which hinders people from

getting the product or service when and where neededor gives them a product of poor quality

High cost, low (or no) profit

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Some Solutions to

the Supply Chain Problems Vertical integration - building inventories

Coordination of all different activities

Use outsourcing rather than do-it-yourself during

demand peaks Buy rather than make production inputs whenever

appropriate

Configure optimal shipping plans

Create strategic partnerships with suppliers Use just-in-time approach to purchasing

Use fewer suppliers

Use IT to support the above

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The Evaluation of

Computerized AidsInventory

Purchasing

Production

schedulingMRP

1960 Production

Management+

MRP Finance,labor

MRP II1970

MajorManufacturingResources

+

MRP IIAll internal

resourcesERP

1980 Coordinated

Manufacturingand Service

Transactions

+

ERPInternal customers

and suppliers

Internal

SCM1990

ExtendedERP/SCM+

Internal

ERP/SCM

External suppliers

and customers

Extended

SCM20

00

Extreme/

Integration+

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Why Integration?

Tangible benefits

Inventory reduction, personnel reduction,

productivity improvement, order managementimprovement, financial-close cycle

improvements, IT cost reduction, procurement

cost reduction, cash management improvements,

revenue/profit increases, transportation logisticscost reduction maintenance reduction, and on-

time delivery improvement

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Why Integration?

Intangible benefits

Information visibility, new/improved

processes, customer responsiveness,

standardization, flexibility,

globalization, and businessperformance.

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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 electronic commerce, havebrought SCM to the forefront of management

attention

f

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Enterprise Resources Planning

(ERP)

Objective

to integrate all departments andfunctions across a company onto asingle computer system that canserve all of the enterprises needs

Resultsproductivity improvement

increases customer satisfaction

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SAP - The Complete Solution

SAP R/3 is comprised of four major application

categories - accounting, manufacturing, sales, and

human resources - containing more than 70 modules SAP R/3 allows companies to automate or eliminate

many costly and error-prone manual communication

procedures

SAP implementation is very complex and

consequently very expensive

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Example of How R/3 Work

Step 1 : Brazilian retailer orders, via the Internet, 1,000

shoes from International Shoe Co. A sales rep takes the

order, routes it to R/3s ordering module, R/3 checks theretailer credit, price, etc. The order is approved.

Step 2 : Simultaneously R/3s inventory module checks

the stocks and notifies the rep that half the order can be

filled immediately from stock. The other half will bemanufactured and delivered in 5 days directly from the

factory in Taiwan.

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Step 3 : R/3s manufacturing module schedules the production in

Taiwan and instructs the warehouse (in Chinese) to ship the shoes

to Brazil and print up an invoice (in Portuguese).

Step 4 : R/3s human resources module calculates laborrequirements. Due to a shortage, the personnel manager in

Taiwan is instructed to get temporary workers.

Step 5 : R/3s material planning module notifies the purchasing

manager about a shortage of purple dye. A purchase order isautomatically issued.

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Step 6 : The customer logs on via the extranet to

the companys sneakers division. He can see that

500 shoes were shipped from the regionalwarehouse. This is done with R/3 tracing

capabilities.

Step 7 : Based on data from R/3s forecasting and

financial modules, the CEO can determine bothdemand and profitability per product. The

financial module also converts all foreign moneys

to $U.S., whenever needed

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ERP

Pros

provides a single interface for managing all the routineactivities performed in manufacturing

can integrate several hundred applicationsplays critical role in getting small- and medium-sized

manufacturers to focus on business processes

Cons

need to change existing business processes to fit SAPs theformat

never meant to fully support supply chains

difficult to build, operate, change and maintain

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First Generation ERP

Supported routine transactional activities

Excelled in transaction management

Generated reports which provided a snapshot

of the business at a point in time

Did not support the continues refining and

enhancing of plans as changes and eventsoccur, up to the very last minute before

executing the plan

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Second Generation ERP

Adds decision support andbusiness intelligence capabilities

Integration of databasemanagement systems (DBMS) andspreadsheets in Excel or Lotus 1-2-

3 It is Web-based

Integrates CRM and EC

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Application Service Providers

and ERP Outsourcing Application service providers (ASP)

a software vendor that offers to lease ERP-based

applications to other businesses

offerings are evident in ERP-added functions such as

electronic commerce, customer relationship

management (CRM), datamarts, desktop

productivity, human resources information systems(HRMS), and other supply chain-related applications

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Global Supply Chains

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

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Business Process

Reengineering (BPR)

Fundamentally rethinking and

radically redesigning businessprocesses, in order to achieve

dramatic improvements in

quality, cost, speed and service

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The Need for BPR

Three Cs

Customers today know what they want, what they are willingto pay, and how to get products and services on their own

terms.Competition is continuously increasing with respect to price,

quality, selection, service, and promptness of delivery.

Change continues to occur. Markets, products, services,

technology, the business environment, and people keepchanging, frequently in an unpredictable and significantmanner.

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Problem of the Stovepipe

Stovepipe because of lack of

cooperation between functional areas

(vertical dimension)

Business process reengineering (BPR),

which undertakes a fundamental change

in specific business processes, integratesinformation required for good decision

making

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Need for

Information Integration

Business processes across functional areas andorganizational boundaries.

DistributionLogistics,

ServicesPurchasing Finance R & D Production Sales Distribution

Vendors,

Suppliers Organization Customers

Product developmentProduct development

Order fulfillmentOrder fulfillment

Planning, resourcing, and controlPlanning, resourcing, and control

Customer serviceCustomer service

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IBM Credit Corporation

Reduced Cycle Time by 90% The old process

took an average of seven days

The reengineered processa simple DSS provides the deal structurer with the

guidance needed

the program guides the generalist in finding

information in the databases, plugging numbersinto an evaluation model, and pulling standardizedclauses - boilerplate-from a file

electronic communication and collaboration

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The Enabling Role of

Information Technology in BPR Shared databases, Internet client/server architecture, intranet

Expert systems, neural computing

Telecommunication and networks: client/server intranet

Decision support systems, enterprise support systems, expert systems

Wireless communication and portable computers, the web, electronic mail Interactive videodisk, desktop teleconferencing,electronic mail

Tracking technology, groupware, workflow software, search engines

High-performance computing systems, intelligent agents

Groupware and group support systems,telecommunication, electronic mail, client/server

CAD/CAM, CASE tools, online systems for JIT decision making, expert systems

CAD/CAM, electronic data interchange, imaging processing

Artificial intelligence, expert systems

Robots, imaging technologies, object-oriented programming, expert systems,geographical information systems (GIS)

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Retooling of IT for BPR

Get a good understanding of the current

installed base of information systems

applications and databases

Understand the existing infrastructure in

terms of computing equipment,

networks, and the like, and their

relationships to the current available

software, procedures, and data

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Tools for BPR

Simulation and visual simulation tools

Flow diagrams

Work analysis

Rapid application development

Other tools (e.g. CAD/CAM, imaging technologies,EDI, interorganizational systems and expert systems)

Integrated tool kits

Workflow software

The Web

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fo anagement

Prof. Efraim Turban

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Fords Process Redesign

Paym

ent

OLD PROCESSOLD PROCESS

Purchasing

Ford receiving

Accounts payable

SupplierPurchase

order

Copy ofpurchaseorder

Goods

Receiving document Invoic

e

500 Employees

NEW PROCESSNEW PROCESS

Purchasing

Ford receiving

Accounts payable

SupplierPurchase

order

Goods

Paym

ent

125 Employees

Data-base

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From Mass Production

to Mass Customization Mass production

a company produces a large quantity of

an identical standard product

Mass customization

a company produces large volumes, yet

customizes each product to the

specifications of individual customers

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Push-based Supply Chain vs.

Pull-based Supply ChainPUSH PULLManufacturerManufacturer

Retail Distribution

Center

Retail Distribution

Center

Retail StoreRetail Store

Customers

Purchase Merchandise ManufacturerManufacturer

Retail Distribution

Center

Retail DistributionCenter

Retail StoreRetail Store

Customers

Purchase Merchandise

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Cycle Time Reduction

IT allows the combination or elimination

of steps, and the expedition of various

activities in the process

Telecommunications and especially the

Internet and intranets cut communications

time through the use of e-mail and EDIand allows collaboration in design and

operations of products and services

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Reengineering Organizations

An Example - Bank

Customer deals with a single point of contact, the accountmanager

Account manager is responsible for all bank services, andprovides all services to the customer, who receives a singlestatement for all accounts

IT provides account manager with expert advice on

specialized topics, such as loansBy allowing easy access to the different databases, the

account manager can answer queries, plan, and organize thework with customers

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Networked vs. Hierarchical

OrganizationHierarchical Organization Networked Organization

Formal

Highly structured

Manage

Control

Direct

Employees a costInformation management -owned

Hierarchical Organizations

Risk avoidance

Individual contributions

Informal

Loosely structured

Delegate/lead

Ownership/participation

Empower

Employees an asset

Information shared ownership

Flatter Organizations

Risk management

Team contributions

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From Hierarchy to a Network

Hierarchical

Organization

Flattened

Organization

Network

Organization

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Empowerment

The vesting of decision-making or

approval authority in employees

Giving permission to the workforce tounleash, develop, and utilize their skills

and knowledge to their fullest potential,

for the good of the organization as wellas for themselves, and providing the

framework in which this can be done

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Empowerments Relationship

to Information Technology IT provides the right information, at the right time, at

the right quality, and at the right cost

IT provides tools that will enhance the creativity andproductivity of employees, so they can make self-decisions, as well s the quality of their work

IT provides online training, uses multimedia, andeven apply intelligent computer-aided instruction toemployees who need more skills and higher levels ofskills

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Teams

Types of teams

permanent or work group teams

problem-solving teamsquality circles, participating teams

management teams

virtual teams

IT plays a critical role in empowering teammembers and providing the necessary

communication links among teams

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Virtual Corporations

Virtual corporation is an organizationcomposed of several business partnerssharing costs and resources for the purposeof producing a product or service

Major attributesexcellence full utilization

opportunism lack of borderstrust adaptability to change

technology

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How IT Supports

Virtual Corporation IT allows communication and collaboration among the

dispersed business partners

Standard transactions in the interorganizational IS are

supported by EDI and EFT

The Internet is the infrastructure for these and other

technologies

Modern database technologies and networking permit

business partners to access each others databases

ERP software is extensively used to support standard

transactions among business partners

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Buying and Selling

Along the Supply Chain Upstream activitiesBidding

Consolidation of vendors catalogues in buyers site

Onsite specialty storesOther purchases

Buying knowledge

Internal SCM activities

Downstream activitiesSelling on your own web site

Auctions on your web site

Upstream and Downstream combined

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Implementing EC Solutions

Along the Supply Chain Build in yourself, in house

Outsource the job

Integrate EC with ERP

Integration with CRM and DSS

Componentization

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Documents