McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15 Technology Standards.

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 15

Technology Standards

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15.1 Introduction

Technology standards are important in supply chain management

Review IT related standardsNew technology platformsEvolving technology standards

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New Developments

Radio Frequency Identification Devices (RFID)

Consolidation of market to a few playersNew approaches to system design

Service Oriented Architecture (SOA)

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15.2 IT Standards High level of standards evolving due to following

reasons: Market forces

Standards reduce cost of system development and maintenance.

InterconnectivityConnecting different systems and work across networks has pushed the development of standards

New software modelsInternet has produced the need for software that has new development and deployment characteristics.

Economies of scaleStandards reduce the price of system components, development, integration, and maintenance.

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Software Standards and the Next Inflection Point

FIGURE 15-1: Software standards and the next inflection point

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Four PhasesProprietary

Until the early 80s Mostly mainframe computers accessed

through key punches and dumb terminalsLittle communication between systems

with few options such as private networks or physical media.

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Four PhasesStand Alone

IBM PC software and hardware introduced the first standard platform called Wintel Microsoft Windows and Intel standard

Eventually created a large user base and a large market for applications

Communication standards developed mostly for local networks Ethernet and IBM token ring

For business networks private networks were mostly used for file transfers Electronic data interchange (EDI)

Client/server was developed

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Four PhasesConnected

Missing link in communications provided by the internet Expanded the connection across organizations and

beyond the local network Forms of communication enabled:

Electronic mail File and information transfer Electronic commerce from shopping, bidding, and exchanges Shipment tracking Extended collaboration between companies on joint forecasts,

transportation and other activities. Year 2000 fears

Legacy systems replaced by client/server-based enterprise resource planning (ERP) systems

ERP Systems: 1st generation systems: finance and human resource applications Subsequent: Manufacturing and distribution More recent: Adding supply chain capabilities

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Four PhasesCollaboration

Next phase of standardsCurrently being developedAddresses collaborationSupporting technology built around SOA and

BPM technologiesHas further increased the importance of ERP

systems

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15.3 IT Infrastructure

Critical in the success or failure of any system implementation

Forms the base for data collection, transactions, system access, and communications.

Infrastructure components: Interface/presentation devices Communications Databases System architecture

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Interface Devices Common devices:

Personal computers, voice mail, terminals, Internet devices, bar-code scanners, PDA

Uniform access capability anytime and anywhere Standard way to track products in order to provide

participants with the information they need to perform efficiently

Uniform Code Council Created the bar code system, Universal Product Code (UPC), in

1973 Scanning and recording information about products Automatic data capture interfaces, bar-code readers and radio

frequency (RF) tags RF tags used to locate items, particularly in large warehouses. Together with GPS capabilities, enables tracking of tagged

cargo while in shipment. RFID tag a replacement for the RF tag

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System Architecture

Encompasses the way the components are configured

Components imply:Databases, interface devices,

communicationsTwo main categories:

Legacy system architectureClient/Server architecture

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Legacy System Architecture

Evolved as departmental solutions using mainframe or minicomputers that were accessed through “dumb” terminals

Company’s main systems for special applications such as word processing or spreadsheets.

PCs Connecting PCs by means of local area

networks (LANs) LANs extended across companies with wide

area networks (WANs)

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Legacy System Architecture

FIGURE 15-2: Legacy system architecture

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Client/Server Architecture

Systems take advantage of the PC’s computing power and friendly graphic interface.

PC is typically called the “client” Main processor is the “server.” Client/server computing

a form of distributed processing some processes are performed centrally for many

users while others are performed locally on a user’s PC

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Most current system design use this architecture Variations in:

Sophistication and price of the client Number and type of servers Other design parameters

Internet a form of client/server Local PC browser processes the HTML (hypertext

markup language) pages and Java applets (i.e., small applications)

These are retrieved from servers Evolving towards a Web-centric model where the

client is a Web browser connected to a Web server.

Client/Server Architecture

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Client/Server Architecture

FIGURE 15-3: Client/server system architecture

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Can distribute functions among specialist servers that perform them efficiently

Easier to add new modules and functions Disadvantages:

Complexity of navigating between servers Making sure that data are processed correctly and

updated across the network. T Trend toward standardization

Called interoperabilityTwo systems capable of interacting in a sophisticated

way that is a built-in feature of their design

Client/Server ArchitecturePros and Cons

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Middleware Applications that reside between the server and

the client Facilitate communication between different

system architectures, communication protocols, hardware architectures

Important in the implementation of supply chain systems Can collect the data from various databases and

systems Format the data in a way that can be used by various

planning tools Enterprise Application Integration (EAI)

Above process applied between companies over the Internet

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Electronic Commerce

Replacement of physical processes with electronic ones

Creation of new models for collaboration with customers and suppliers

Facilitates interaction between different companies as well as the interaction of individuals within companies.

Examples: Purchasing over the Internet/Exchanges/Order

tracking/E-mail

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Standards and e-commerce

Has been in existence for many yearsPrivate networks for corporations (e.g.,

WANs) Public networks at universities and

government agencies. Internet standards

IntranetsExtranets and Exchanges

Differences in who is allowed access to the system

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Portals

Role-based entry into a company’s systems Aggregates all the applications and sources of

information employees need in order to perform their job into a single desktop environment, typically through the Web browser.

Require integration technology for structured and unstructured data sources, including databases, Java classes, Web services, and XML.

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E-commerce Several levels of sophistication

One way communication such as web browsing Direct data base access for retrieving personal data

or creating transactions such as on-line purchases or managing a bank account.

Advanced applications use: Electronic Data Exchange (EDI) XML-based processes

General standard that does not address the issue of terminology in a specific industry

RosettaNet in High-Tech industry

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Rosetta Net

Views itself as an e-business equivalent of the Rosetta stone,

Carried the same message in three different languages, enabling translation from hieroglyphics.

Aimed at producing a flexible standard governing on-line business collaboration between manufacturers and suppliers.

Defines dictionaries and Partner Interface Processes, which handle multiple data transactions among partners.

Being used by some high-tech vendors Has been expensive to implement.

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Cross-Company ApplicationCPFR

Web-based standard Enhances vendor-managed inventory and continuous

replenishment Joint forecasting Electronic exchange a series of written comments and

supporting data Past sales trends Scheduled promotions Forecasts

Allows the participants to coordinate joint forecasts by concentrating on differences in forecast numbers Sharing of forecast information

Tends to reduce bullwhip effect May lead to a significant decrease in inventory levels

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CPFR Development Developed by Voluntary Interindustry Commerce

Standards Association (VICS) committee Retailers, manufacturers, and solution providers. Mission to create collaborative relationships between

buyers and sellers Improve efficiencies, increase sales, reduce fixed

assets and working capital, and reduce inventory for the entire supply chain while satisfying consumer needs

Created the CPFR Voluntary Guidelines in 1998 Published the CPFR Roadmap in November

1999 Roadmap explains how manufacturers and retailers

can implement a CPFR partnership.

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CPFR Roadmap Stepswww.cpfr.org

Develop guidelines for the relationships. Develop a joint business plan. Create a sales forecast. Identify exceptions for the sales forecast. Collaborate on exception items. Create an order forecast. Identify exceptions for the order forecast. Resolve/collaborate on exception items. Generate orders.

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15.4 Service Oriented Architecture (SOA)

Standards based approach to managing services Different software packages Business process orchestration Delivers flexible use and configuration

Adopted by all the major business software vendors basis of their development tools and platforms widely by systems integrators to develop custom

applications

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SOA Contributions

SOA-based integration Uses standards and the business process execution

language Makes maintenance much simpler and is easier to

learn. Improvement over traditional integration

Point to point using Enterprise Application Integration (EAI). Hard to maintain Uses proprietary technology with a separate infrastructure

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SOA-based integration Composite application developmentTop down approach to application

development Composition of ready made components

which are reusable Built in integration (services) make them easy

to use and maintain

SOA Contributions

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Modernizing Legacy applicationsMany IT departments spend 70% to 80% of

their budget maintaining mainframe or other legacy applications.

Using SOA, companies can define the business processes and start separating the business logic from the application.

SOA Contributions

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SOA and BPM

Strongly linked SOA drives a layered approach

Business process tools use business services or composites to design the application

Lower levels provide orchestration, implementation services and the actual applications

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SOA Layered Architecture

FIGURE 15-4: SOA layers

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SOA Strategies of Major Software Companies

Vendor SOA Strategy Composite Platform Repository Ecosystem

IBM Focus on platform for applications custom and ISVs

IBM SOA Framework Websphere registry PartnerWorld Industry Networks

Microsoft Focus on platform and some Service interfaces for current applications

.NET Framework + WinFX + Biztalk server

None .NET Partner program

Oracle Fusion platform Oracle Fusion middleware

Part of fusion architecture

Generic partner program

SAP Enterprise service applications on the Netweaver platform

Netweaver composite applications

Part of Netweaver architecture

.NET Partner program

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Technology Base: IBM and Microsoft

Microsoft Focused on development platforms for SOA software

development. Major platforms:

Java 2 Enterprise Edition (J2EE) Microsoft .NET

IBM Focused on the technology platform Less on the applications. Middleware technology called Websphere

Positioned as a supplier of components and services for the creation of custom applications.

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J2EE and .Net Platforms eXtensible markup language (XML)

Facilitates direct communication among computers on the Internet

XML tags give instructions to a Web browser about the category of information

Universal description, discovery, and integration (UDDI) Web-based distributed directory Enables businesses to list themselves on the Internet

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Web services description language (WDSL) XML-formatted language that UDDI uses Developed jointly by Microsoft and IBM Describea a Web service's capabilities as collections of

communication endpoints capable of exchanging messages

Simple object access protocol (SOAP) XML-based messaging protocol Used to encode the information in Web service request

and response messages before sending them over a network.

Business Process Execution Language (BPEL) specification that defines how Web services can be

combined to orchestrate long-lasting business processes

Has been submitted for standardization by a group led by IBM and Microsoft.

J2EE and .Net Platforms

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ERP Vendor Platform:SAP & Oracle

Both competing on their own SOA platforms

SAP strategyTie developers to its platformCreate innovation around it that will drive

adoption. Oracle strategy

Focused on integrating the many software vendor packages it has acquired in the last few years under one platform.

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SAP

Enterprise-services architecture (ESA)Blueprint for services-based, enterprise-scale

business solutions that offer increased levels of adaptability, flexibility, and openness.

Based on SAP Netweaver

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NetWeaver Collection of infrastructure and integration technologies Basis for SAP's applications like mySAP ERP, SRM,

CRM, etc., Flexibly interoperate with one another and with pieces of

applications from other software vendors. Elements of NetWeaver

Application server Integration server Web portal Business intelligence software Master data management system

Plan to replace the three-tier client/server architecture used by the current ERP suite.

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Oracle Traditional application development vendor Several acquisitions from 2005

Peoplesoft (which already included JD Edwards) CRM vendor Siebel SCM vendors such as Demantra for demand planning and

G-log for transportation. Platform called Oracle Fusion around which all

applications will eventually standardize. Middleware applications include JDeveloper, BPEL

Process Manager, Enterprise Service Bus, Oracle Web Services Manager, Business Rules and Oracle Business Activity Monitoring.

Impact beyond installed base not strong Strength with traditional technology-based developers

Supporting developers/Does not fully address the business user’s needs

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SOA Summary SOA changes the method and possibilities of

designing application software An application architecture with standard ways

to integrate services. Services defined using a standard description

language and have evocable interfaces Services can be part of business processes Processes, transactions, and special functional

components all have to be exposed as services allowing composite, diverse applications to be exposed as well.

Each interaction should be independent of each and every other interaction and the interconnect protocols of the communicating devices.

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15.5 RFID Technology that deploys tags emitting radio

signals and devices, called readers, which pick up the signal.

Tags: Active (broadcast information) Passive (respond when queried by a reader) Read-only or read/write and one-time or reusable.

Can be used to read an Electronic Product Code (EPC)

EPC: unique ID number for a specific item in the supply

chain EPCglobal network

allow password protected access to the internet of RFID data anywhere in the supply chain.

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RFID Development Proliferation and full implementation of the

technology will take many years EPCglobal network has not yet even been

accepted as the standard. Other Challenges:

Lack of common international standards for tags, technical problems with tag scanning accuracy, and reduction in the cost of tags.

Reliability of tags Problems reading tags through metal or liquids and

interference from nylon conveyor belts. Policy issues related to privacy concerns.

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RFID ApplicationsTwo important drivers

Mandate by some major channel masters and procurement agencies

Immediate benefits that can be gained from implementing the technology.

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Level of ImplementationPallet/case or Individual Item

Item level tagging Required to achieve many of the benefits of

RFID such as preventing counterfeiting and theft.

Cost of the tags prevents widespread useNew IT systems would be required to track

individual items

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RFID Mandated Applications Wal-Mart Department of Defense Food and Drug Administration In-Use Applications

Package Tracking Product Tracking Storing Manufacturing Warehouse Management Product Launch

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RFID and POSPOS as historical data used by many

demand planning tools to forecast demand. Does not measure real demand because of

lost sales due to out-of-stock itemsConservative estimate of 7% of salesNo one knows real value

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Current Store and DC Execution Problems

Scanning errors Items not moved from storage to shelf Wrong item picked at the DC Items from the DC not verified in the store. Maintaining accuracy and replenishing shelves

difficult due to: Large product variety Cramped storage High inventory

Results: Misplaced SKUs Significant discrepancies between physical inventory

levels and information system inventory records

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RFID Provides More Detailed Information

Much beyond POS: Received at Wal-Mart DC Departed DC Received at store Departed store stock room (arrived on shelf) Case (or tag) destroyed

Immediate benefits: Better control over Overage, Shortage and Damage

claims Management and ability to better assign responsibility

to the supplier, the carrier or Wal-Mart Better control over product recall; Use the data to improve processes through

collaboration

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True Advantage For the first time lost sales can be quantified. Retailer knows:

what is sold what is in inventory when the shelves are not stocked

It will be possible to determine realized demand based on actual sales plus lost sales

Analysis will require new statistical and forecasting techniques that will take advantage of the new information.

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RFID Benefits to Retailers

Reduced inventory one time cash savings of about 5% of total

system inventory Store and warehouse labor reduction

annual reduction of store and warehouse labor expenses of 7.5%

Reduction in out of stock yearly recurring gain of 7 cents per dollar

sales

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RFID Benefits to Manufacturers Inventory Visibility

Better tracking of inventory throughout its facilities.

Labor efficiency Reduced cycle counting, bar code scanning

and manual recording Improved fulfillment

Reduced shrinkage, improved dock and truck utilization and improved product traceability.

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RFID Implementation Costs Tagging

Recurring cost incurred by manufacturers Most companies that sell RFID tags do not quote

prices because pricing is based on volume, the amount of memory on the tag and the packaging of the tag

Readers Fixed cost that retailers and manufacturers will incur. Large retailers: $400,000 for a distribution center and

$100,000 per store Information Systems

Handle the type of real-time, item-level information that RFID provides.

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Differential Benefits High benefits for manufacturing companies

selling a low volume of expensive goods, such as drugs and general merchandise

Benefits not clear for manufacturers of high volume-low cost products, such as food and grocery, the benefits from RFID are not as clear. These industries already have efficient supply chains

through the implementation of a variety of technologies and processes;

Uncertainty in these industries is relatively small and hence demand is highly predictable.

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Supply Chain Benefits

Conceptually RFID implies perfect information through the supply chain

Movement of goods can be triggered by a sale of a single item

Not practical for many supply chains because of costs/scale economies/other managerial issues

Needs a balance between pull chains and push chains built on lead times and economies of scale

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SUMMARY

1990s evolution of the internet has been a major factor in supply chain changes.

SOA provides the backbone for building more adaptable systems that can operate across different technology infrastructures.

RFID is a revolutionary technology that will significantly impact the way supply chains are managed and lead to greater efficiency.