Welcome Strategies of Network Companies Jonathan Wareham Jonathan.wareham@esade.edu.

Welcome

Strategies of Network Companies

Jonathan WarehamJonathan.wareham@esade.edu

1. What are Supply Chain Management Systems?

2. How do they work?3. What can they do?4. What can they not do?5. An economic model of virtual

organizations – The WS paradigm

TopicsTopics

Traditional supply chain obsolescence

Direction of flow of demand Direction of flow of product

Raw Material vendor

Tier-II Suppliers

Tier-I Suppliers

Manufacturers Distrib

ution Centers

Retailers Custo

mer Zones

Point of Point of differentiatiodifferentiatio

nnDistribution Distribution

costscostsMarket Market

mediation mediation costscosts

RFID Tags

Tags can be attached to almost anything:

pallets or cases of product vehicles company assets or personnel items such as apparel,

luggage, laundry people, livestock, or pets high value electronics such

as computers, TVs, camcorders

What is RFID? -- The TagsWhat is RFID? -- The Tags

Are All Tags The Same?Are All Tags The Same?

Basic Types:Active

Tag transmits radio signal Battery powered memory,

radio & circuitry High Read Range (100

meters)Passive

Tag reflects radio signal from reader

Reader powered Shorter Read Range

(10cm – 5 meters)

RFID the Supply Chain

Tag ReaderAntenna Middleware Supply chain execution- Coiled

antenna ofreader creates magnetic field with coiled antenna of tag

- Transmits identification data to a reader

-Transmit data tomiddleware

-Associates tag info with product info

-Process information from reader

-Filters data

-Sends data to backend servers

- Backend SCE or ERPsystems receives Information

How far, how fast, How far, how fast, how much, how many, attached to whathow much, how many, attached to what??

Low Frequency No regulation Penetrate materials (water, wood, tissue well) Slow read speed Small range No penetration of iron and steel

Medium Frequency Little data, small distance Thin tags Low cost High data rates Govt regulated Non mental penetrating

High Frequency Penetrate materials Small tag size High data transfer Long range Non-water or tissue penetrating Non-regulated in some regions expensive

Where can RFID add value?

From Manufacturing

Into a Store’s Back Room Inventory

On the Shelf At the Cash

Register

Through Distribution Transportation

Out the Door as an anti-theft device

Top 100 Suppliers: Suppliers will mark inbound cases and

pallets with RFID - 1 January 2005 - May, 2003 specification calls for ≈256 bit read/write tag

• 1 EPC tag per carton – 100% read on conveyor

• 1 EPC tag per pallet – 100% read at Inbound dock

• Conveyor speed of up to 600 feet per minute

• 3 Texas Distribution Centers

• January 2005

Why???

Stock management /perishables (field to fork)

In-stock levels Invoice reconciliation: damaged,

deductions, performance penalties, etc. Scan Based Trading or VMI Improved analytics & POS data All reads available to suppliers within

30 minutes

Guidelines for using RFID Bar codes cannot be used Counting versus identification (reverse

logistics) Use of 3Party logistics and suppliers Data collection is chaotic (battlefields,

hospitals, retails shops) Exact configuration of the good must be

maintained Counterfeit protection High Risk scenarios, drugs, hospitals Collecting data outside of retailer (smart

refrigerators, medicine cabinets, etc)

Traditional supply chain obsolescence

Direction of flow of demand Direction of flow of product

Raw Material vendor

Tier-II Suppliers

Tier-I Suppliers

Manufacturers Distrib

ution Centers

Retailers Custo

mer Zones

Point of Point of differentiatiodifferentiatio

nnDistribution Distribution

costscostsMarket Market

mediation mediation costscosts

Example Problem Space

ClientPO Service

Credit Service

Inventory Service

Purchase Order

Credit

Check

ReserveInventory

Credit

Response

InventoryResponse

InvoiceConsolidate

Results

Sell 50,000 computers with only 4 days of inventory

Keep few suppliers very close 30 suppliers 75% of materials When order is made, signal is sent to

supplier, 90 minutes later, supplies are delivered to Dell.

“We sell what we have, we don´t sell what we don´t have”

Dell From HBR

Have as few suppliers as possible In real time, communicate your

inventory levels and replenishment needs to them

Order from suppliers only when you receive demand from customers.

Example Problem Space

ClientPO Service

Credit Service

Inventory Service

Purchase Order

Credit

Check

ReserveInventory

Credit

Response

InventoryResponse

InvoiceConsolidate

Results

Example: Self-describing data

“ABC47-Z”, “100”, “STL”, “C”, “3”, “28”Data stream in a typical interface…

<INVENTORY><PART_NUM>ABC47-Z</PART_NUM><QUANTITY>100</QUANTITY><WAREHOUSE>STL</WAREHOUSE><ZONE>C</ZONE><AISLE>3</AISLE><BIN>28</BIN>

</INVENTORY>

Same data stream in XML…

XML Auction Demo

Other Web Services

Partner Web Service

Partner Web Service

Data Access and Storage Tier

Application Business Logic Tier

YourCompany.com

Internet + XML

Web Services Overview Application Model

Other Applications

End Users

Mail

Calendar

News

Finance

Weather

Other

Svcs

Ads

Web Services Overview Portals

Web Service Demos

WebMethods.net http://www.webservicelist.com/ http://www.xmlwebservices.cc/

index_Samples.htm#Top http://www.asitis.co.uk/web-services/

Underlying Technologies Web Services Stack

Ubiquitous Communications: Internet

Universal Data Format: XML

Wire Format: Service Interactions: SOAP

Description: Formal Service Descriptions: WSDL

Simple, Open, Broad Industry Support

Directory: Publish & Find Services: UDDI

Inspection: Find Services on server: DISCO

Underlying Technologies Web Services Stack

Directoryhttp://www.uddi.org

UDDI

DISCO

WSDL

SOAP

Inspectionhttp://www.ibuyspy.com/ibuyspy.disco

Descriptionhttp://www.ibuyspy.com/ibuyspycs/InstantOrder.asmx?wsdl

Wire Format

Locate a Service

Link to Discovery Document (XML)

Request Discovery Document

Return Discovery Document (XML)

Return Service Description (XML)

Return Service Response (XML)

Request Service

Request Service Description

Web

Ser

vice

Clie

nt

UD

DI o

ro

ther

directo

ry service

Web

Service

SCM Software –Who?

What does SCM software do?

2 Main Functions: Tracking & Optimization

Factory Scheduling Bar Code Warehouse Management Transportation Routing and Scheduling Inter Organizational Systems Collaborative Planning & Optimization Multi – echelon optimization E-Procurement & Marketplaces Supplier Contract Management RFID Management Systems

The Bullwhip Effect

Customer Retailer Distributor Factory Tier 1 supplier Equipment

Upstream amplification of demand variationProgression of a brushfire to an inferno!

Machine Tools at Bullwhip Tip

-100%

-50%

0%

50%

100%

19

61

19

63

19

65

19

67

19

69

19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

Data from United States, 1961-1991 (GDP, vehicle production, and machine tool orders

% C

ha

ng

e, y

ea

r to

ye

ar

% change GDP

% change vehicle production index

% change net new orders machine tool industry

The Diaper Supply Chain!

010

203040

5060

7080

Week

Ord

er

Factory

Distributor

Wholesaler

Retailer

Customer

Ripples to tidal wavesStockpiles and stockoutsInsufficient or excessive capacitiesHigher costs

Interorganizational Systems: CRP

P&G

Warehouse 1

Warehouse 2

BIG RETAILER

< 3% stock outs

< 14days inventory

Before CRP

P&G

Warehouse 1

Warehouse 2

BIG RETAILERBudget

Actual

•Volume discounts•New product promos

•Here and now discounts•Trade marketing

•Bonuses….

Differences

Bringing vertical coordination to the network… but how?

3,500 modular parts30+ suppliers

Over 1,000,000 parts in just one car!

Ronald Coase (1937)

Why do we have firms?

there must be some cost in using the price mechanism.

• Price discovery/search costs• Contract negotiation• Long term stability of supply sources

(uncertainty)

Ergo, operation of the market costs something, and by forming and organization and letting some authority to allocate resources, some costs are saved

Basic attributes of transactions

Specificity Frequency Duration Complexity Uncertainty Difficulty of measuring performance Connectedness

Asset Specificity

Investments made to allow two parties to exchange but has little or no value outside of the exchange relationship

Site specificity Physical-asset specificity Dedicated assets Human capital Lead to higher transaction costs and

the problem of “hold-up”

Specificity & Frequency

Standard Medium High

Standard Equipment Customized Equipment Constructing a plantOccasional Machinery, PCs, Automobiles Machinery requiring some custom config. Turn-key projects

Markets Company to company negotiation Company to company negotiation

Frequency Once off negotiated transaction Semi-complex contracts Very complex contracts/government regulation

Standard Raw Material Customized Material Value adding processes as specific site

Frequent Sugar, RAM chips, Steel Raw mat. with special process unique to customerproduction processes within one or several

factories within same location/proximity

Markets Joint ventures, transfer of equity HierarchiesContracts short to medium term Long-term binding contracts with Internal integration/ vertical conglomerate

I year supplier: price based on index significant investment

Specificity

Market

Hierarchy

Asset specificityAsset specificity

Pro

du

ct C

om

ple

xit

yPro

du

ct C

om

ple

xit

y

IT, Complexity & Specificity

Example Problem Space

ClientPO Service

Credit Service

Inventory Service

Purchase Order

Credit

Check

ReserveInventory

Credit

Response

InventoryResponse

InvoiceConsolidate

Results

Traditional supply chain obsolescence

Direction of flow of demand Direction of flow of product

Raw Material vendor

Tier-II Suppliers

Tier-I Suppliers

Manufacturers Distrib

ution Centers

Retailers Custo

mer Zones

Point of Point of differentiatiodifferentiatio

nnDistribution Distribution

costscostsMarket Market

mediation mediation costscosts