CHAPTER 4 Supply Chain, Enterprise Resources Planning, and Business Processes Engineering 4-1.

CHAPTER 4Supply Chain, EnterpriseResources Planning, and

Business Processes Engineering

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IT for ManagementProf. Efraim Turban

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Learning 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 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 and identify its benefits.

• Demonstrate the role of IT in supporting BPR.• Describe mass customization, cycle time

reduction, self-directed teams, and empowerment.

• Define business alliances and virtual corporations.

• Understand the relationships among enterprise resources planning (ERP), supply chain management (SCM), and electronic commerce.


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How Dell Reengineered and Managedits 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 Dell’s 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 Results– become the number one PC seller– be considered one of the world’s best-

managed and profitable companies

How Dell Reengineered and Managedits 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 supply chain, 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 electronic

commerce, the Internet, extranet and intranets


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• Supply Chain– the flow of material, information, and services

from raw material suppliers through factories and warehouses to the end customers

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

chain’s 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 profitabilityand competitiveness

increase profitabilityand competitiveness


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• The Components of Supply Chain– Upstream supply chain

• includes the organization’s first-tier suppliers and their suppliers

– Internal supply chain• includes all the processes used by an

organization in transforming the inputs of the 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


Suppliers


Suppliers

1st TierSuppliers1st Tier

Suppliers

1st TierSuppliers1st Tier

Suppliers

Assembly/Manufacturing and

Packaging

Assembly/Manufacturing and

PackagingDistribution

CentersDistribution

Centers RetailersRetailers CustomersCustomers

The

Gen

eric

Pro

cess

Upstream Internal Downstream

CorrugatePaper Co.CorrugatePaper Co.

LumberCompanyLumber

Company

LabelManufacturing

LabelManufacturing

GrainProducerGrain

ProducerProcessing

FacilityProcessing

FacilityDistribution

CentersDistribution

Centers StoresStores CustomersCustomers

The

Cer

eal

Man

ufac

turi

ng P

roce

ss

PackagingPackaging

Grain CerealPackagedCereal

BoxPaperboard

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 confidence

– delivery times, which depend on several factors ranging from machine failures to road conditions and traffic jams, that way interfere with shipments

• Symptoms of poor SCM– poor customer service, which hinders people from

getting the product or service when and where needed, or 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 Aids

Inventory

Purchasing

Productionscheduling

MRP

1960 Production

Management+

MRPFinance,

laborMRP II

1970 Major

Manufacturing Resources

+

MRP IIAll internalresources

ERP

1980

Coordinated Manufacturing and Service Transactions

+

ERPInternal customers

and suppliersInternal

SCM1990 Extended

ERP/SCM+

InternalERP/SCM

External suppliersand customers

ExtendedSCM20

00 Extreme/Integration+


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Why Integration?

• 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, and on-time delivery improvement


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Why Integration?

• Intangible benefits– Information visibility, new/improved

processes, customer responsiveness, standardization, flexibility, globalization, and business performance.


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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, have brought SCM to the forefront of management attention


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Enterprise Resources Planning (ERP)

• Objective– to integrate all departments and

functions across a company onto a single computer system that can serve all of the enterprise’s needs

• Results– productivity 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/3’s ordering module, R/3 checks the retailer credit, price, etc. The order is approved.

• Step 2 : Simultaneously R/3’s inventory module checks the stocks and notifies the rep that half the order can be filled immediately from stock. The other half will be manufactured and delivered in 5 days directly from the factory in Taiwan.


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Example of How R/3 Work• Step 3 : R/3’s 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/3’s human resources module calculates labor requirements. Due to a shortage, the personnel manager in Taiwan is instructed to get temporary workers.

• Step 5 : R/3’s material planning module notifies the purchasing manager about a shortage of purple dye. A purchase order is automatically issued.


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Example of How R/3 Work

• Step 6 : The customer logs on via the extranet to the company’s sneakers division. He can see that 500 shoes were shipped from the regional warehouse. This is done with R/3 tracing capabilities.

• Step 7 : Based on data from R/3’s forecasting and financial modules, the CEO can determine both demand 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 routine activities performed in manufacturing

– can integrate several hundred applications– plays critical role in getting small- and medium-sized

manufacturers to focus on business processes• Cons

– need to change existing business processes to fit SAP’s the format

– 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 events occur, up to the very last minute before executing the plan


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Second Generation ERP

• Adds decision support and business intelligence capabilities

• Integration of database management systems (DBMS) and spreadsheets 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 business processes, 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

willing to 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 keep changing, frequently in an unpredictable and significant manner.


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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, integrates information 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 process– a simple DSS provides the deal structurer with

the guidance needed– the program guides the generalist in finding

information in the databases, plugging numbers into an evaluation model, and pulling standardized clauses - ‘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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Ford’s Process Redesign

Pay

men

t

OLD PROCESSOLD PROCESS

Purchasing

Ford receiving

Accounts payable

SupplierPurchase

orderCopy of purchase order

Goods

Receiving document Invo

ice

500 Employees

NEW PROCESSNEW PROCESS

Purchasing

Ford receiving

Accounts payable

SupplierPurchase

order

Goods

Pay

men

t

125 Employees

Data-base


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From Mass Productionto 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 Chain

PUSH PULL

ManufacturerManufacturer

Retail Distribution Center


Retail StoreRetail Store

CustomersPurchase Merchandise ManufacturerManufacturer



Retail StoreRetail Store

CustomersPurchase 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 EDI and 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 account

manager– Account manager is responsible for all bank services, and

provides all services to the customer, who receives a single statement for all accounts

– IT provides account manager with expert advice on specialized topics, such as loans

– By allowing easy access to the different databases, the account manager can answer queries, plan, and organize the work with customers


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Networked vs. Hierarchical Organization

Hierarchical Organization Networked Organization

FormalHighly structured

ManageControlDirect

Employees a costInformation management -owned

Hierarchical OrganizationsRisk avoidance

Individual contributions

InformalLoosely structured

Delegate/leadOwnership/participation

EmpowerEmployees an asset

Information shared ownership

Flatter OrganizationsRisk management

Team contributions


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From Hierarchy to a Network

Hierarchical Organization

FlattenedOrganization

NetworkOrganization


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Empowerment

• The vesting of decision-making or approval authority in employees

• Giving permission to the workforce to unleash, develop, and utilize their skills and knowledge to their fullest potential, for the good of the organization as well as for themselves, and providing the framework in which this can be done


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Empowerment’s 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 and productivity of employees, so they can make self-decisions, as well s the quality of their work

• IT provides online training, uses multimedia, and even apply intelligent computer-aided instruction to employees who need more skills and higher levels of skills


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Teams

• Types of teams– permanent or work group teams– problem-solving teams– quality circles, participating teams– management teams– virtual teams

• IT plays a critical role in empowering team members and providing the necessary communication links among teams


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Virtual Corporations

• Virtual corporation is an organization composed of several business partners sharing costs and resources for the purpose of producing a product or service

• Major attributes– excellence – full utilization– opportunism – lack of borders– trust – 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 other’s databases

• ERP software is extensively used to support standard transactions among business partners


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Buying and SellingAlong the Supply Chain

• Upstream activities– Bidding– Consolidation of vendors’ catalogues in buyer’s site– Onsite specialty stores– Other purchases– Buying knowledge– Internal SCM activities

• Downstream activities– Selling 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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CHAPTER 4 Supply Chain, Enterprise Resources Planning, and Business Processes Engineering 4-1.

Documents

supply chains supply

entire supply chain

supply chain management

supply chains benefits

supply chains activities

supply chains dell case

efraim turban

business alliances