mgt682week10.ppt

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Supply Chain ManagementTechnologies

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IT and the Supply Chain

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Goals of Supply Chain IT• Collect information on each product from production to delivery (or

point of purchase)– Provide visibility for all parties involved in the transaction; e.g., order

status for retailers and suppliers and impact of delays– Participants need to see data in terms of their own (e.g., supplier of

cotton need to see demand for bandages in pounds of cotton) – translation tables (Bills of Material) required through the system

– Standardized product identification across companies and industries

• Provide access to any data in the system from a single point of contact

– Information requested needs to be the same regardless of mode of inquiry (fax, cell phone, PC, etc.)

• Facilitate analysis, planning of activities and make trade-offs based on information from any part of the entire supply chain

– Strategic to tactical decision-making on how to operate the supply chain most efficiently to reduce uncertainty!

• Facilitate collaboration with supply chain partners – Integration of business processes and IT with suppliers & customers

(SRM and CRM)

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Integration/Standards

Achieving Supply Chain IT Goals

Collect Access Analyze Collaborate

Infrastructure e-CommerceSupplyChain

Components

Communications/Databases

Internet capabilities/EDI/XML

ERP/DSS/CRM/SRM/Transportation

Systems

Today’s SCM Focus

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Procurement/SRM

ERP/Financials

Order Management

Production Planning & Scheduling

MRP, MPS, MES

Warehouse Management

Transportation management, Deployment

EDI

Today’s Supply Chain Applications

Internally driven, fixed lead times, standard costs, weekly cycles, local/functional decision support

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IT and Sourcing

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Sourcing Challenges

Procurement Approach• What should be the relative

roles of business units and focused procurement units in the procurement process?

• How can my firm regularly reassess which functions are critical to its franchise?

Make versus Buy• What functions should my firm

outsource and how can they be managed most effectively before, during and after the transition?

Partnerships and Alliances• Are there any partnerships and

alliances my firm can form as an alternative to outsourcing options?

• How can my firm position itself to take advantage of fundamental changes to procurement that may result from the emergence of electronic commerce?

• What profit-making opportunities might be available to my firm from a rethought approach to procurement?

Systems Infrastructure• How can my firm ensure that

the A/P and G/L systems have the right level of codification and standardization across the organization to provide usable inputs to the sourcing process?

• How can the sourcing objectives and realized savings be fed into the budgeting systems?

• What are the tracking and monitoring tools required to support procurement operations and to provide the right management information?

Skills• What is the nature of these

skills? • How can my firm develop and

transfer critical purchasing skills?

• Where should they reside in the organization?

Culture• How does my firm establish a

strong cost-conscious culture while maintaining flexibility?

• How can the importance of an effective procurement organization be communicated throughout my firm?

Structure• What is the most appropriate

organization structure (i.e., centralized vs. decentralized, loose vs. tight control) for my firm and how can it be best implemented?

Demand Management• How can my firm reach the right

balance between user need fulfillment and cost control?

Vendor Management• How can my firm institutionalize

best practices in the vendor selection, negotiation and contract management processes?

Order and Payment Processing• What is the most cost effective

approach for order and payment processing?

• What authorization process would best achieve speed, effectiveness and transparency?

Customer Service• How can my firm ensure that the

procurement process adds value to its customers?

• How can their level of satisfaction be monitored?

Metrics• What metrics are required to track

the performance (cost, quality, timeliness) and compliance with my firm's procurement process?

• How can my firm monitor rate and volume as independent variables?

StrategyStrategy OrganizationOrganization ProcessesProcesses TechnologyTechnology

Management Information• What are the critical data

required by each manager in my firm's procurement process (compliance, demand management, …)?

"Mission Control""Mission Control"

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Studies show that companies that have collaborative relationships with their suppliers consistently outperform companies that do not

The entire supply base needs to be managed to streamline procurement and sourcing processes, maintain the quality of supply and increases profitability and innovation

A Supplier Relationship Management System (SRM) should:

Allow tracking of global spending by supplier, category or product across locations (Spend Analysis)

Allow establishment of supplier metrics and benchmarks for comparison

Allow sharing of global supplier contracts across local organizations (Contract Management)

Allow establishment of consistent content standards for contracts, orders, etc.

Allow establishment of a consistent master database for product/supplier ID’s

Allow web-enabled procurement processes to be established

Allow for monitoring of supplier performance against established contracts

Most vendors (e.g., SAP, SAS, Ariba) focus on Spend Management software

Sourcing – Supplier RelationshipManagement (SRM) Systems

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Applications using work flow mechanisms and user-defined buying rules to move a purchase request through an organization and out to suppliers via the Web. Some e-procurement solutions have business intelligence software that analyzes purchasing trends and supplier performance.

Example:

Xerox Corporation soon expects that 80% of its non-production purchasing will be conducted using a recently installed internet procurement system. Xerox expects the current purchase order cost of $150 to drop by 80% to about $25 per purchase (they processed about 100,000 orders in 1999). Overall, the company anticipates cutting more than 1% of its total spending on non-production goods and services.

Web-based Procurement

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The Potential of e-Procurement

Source: Wall Street Journal; Business Wire; International Data Corporation, 1999

Worldwide Expenditures Processed by E-Procurement

Applications

Worldwide Expenditures Processed by E-Procurement

Applications

1,375

600

210

413.60.03

1998 1999 2000 2001 2002 2003

$ Billions

Cintas Joins Commerce One

MarketSite

CINCINNATI- Cintas Corporation, the

leading supplier of corporate identity

uniform programs, today announced it

has joined the premier list of featured

suppliers for Commerce One, Inc., the

leader in global e-commerce solutions

for business.

Cintas Joins Commerce One

MarketSite

CINCINNATI- Cintas Corporation, the

leading supplier of corporate identity

uniform programs, today announced it

has joined the premier list of featured

suppliers for Commerce One, Inc., the

leader in global e-commerce solutions

for business.

Healtheon/WebMD To Create

Web Site With Mediabuy.com

ATLANTA- Healtheon/WebMD Corp.

and Mediabuy.com Inc. agreed to

create a Web site where doctors can

buy medical and nonmedical supplies.

Healtheon/WebMD To Create

Web Site With Mediabuy.com

ATLANTA- Healtheon/WebMD Corp.

and Mediabuy.com Inc. agreed to

create a Web site where doctors can

buy medical and nonmedical supplies.

Chase and Intelisys Host

Educational Forum for Chase

Suppliers on the Benefits of Web-

Enablement

NEW YORK – The Chase Manhattan

Bank, lead subsidiary of The Chase

Manhattan Corporation (NYSE: CMB),

and Intelisys Electronic Commerce, Inc., a

global leader in electronic procurement,

announced today that they have taken the

next step in building a Chase online

business-to-business…

Chase and Intelisys Host

Educational Forum for Chase

Suppliers on the Benefits of Web-

Enablement

NEW YORK – The Chase Manhattan

Bank, lead subsidiary of The Chase

Manhattan Corporation (NYSE: CMB),

and Intelisys Electronic Commerce, Inc., a

global leader in electronic procurement,

announced today that they have taken the

next step in building a Chase online

business-to-business…

Toyota May Join Ford’s Online

SystemTOYOTA CITY, Japan - Toyota Motor Corp.

has begun discussions with Ford Motor Co.

about joining the U.S. auto maker’s newly

formed Internet marketplace for suppliers, a

top Toyota executive said. The move comes

less than a month after General Motors Corp.

offered Toyota a similar invitation to

participate in its own Web-based marketplace

venture.

Toyota May Join Ford’s Online

SystemTOYOTA CITY, Japan - Toyota Motor Corp.

has begun discussions with Ford Motor Co.

about joining the U.S. auto maker’s newly

formed Internet marketplace for suppliers, a

top Toyota executive said. The move comes

less than a month after General Motors Corp.

offered Toyota a similar invitation to

participate in its own Web-based marketplace

venture.

Chevron and Ariba To Form Web Market For Energy IndustrySAN FRANCISCO - Chevron Corp. and electronic-commerce-software developer Ariba Inc. said they plan to create an online marketplace to link buyers and suppliers in the global energy industry. The business-to-business portal, to be called Petrocosm Marketplace, will run online auctions and electronic procurement for companies to buy and sell oil and gas products and services, including drilling, engineering and construction.

Chevron and Ariba To Form Web Market For Energy IndustrySAN FRANCISCO - Chevron Corp. and electronic-commerce-software developer Ariba Inc. said they plan to create an online marketplace to link buyers and suppliers in the global energy industry. The business-to-business portal, to be called Petrocosm Marketplace, will run online auctions and electronic procurement for companies to buy and sell oil and gas products and services, including drilling, engineering and construction.

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The Benefits of e-Procurement

TransactionCost

Cycle Time Compliance Inventory Cost of Goods

Traditional /Manual

$107 per orderrequisition

7.3 days 70% 100% 100%

E-Procurement $30 per orderrequisition

2 days 95% -20% to -50% -5% to -10%

Source: International Data Corporation; MMG analysis

35155550250

2,230

2,525

2,470

Total PurchasedExpense

TransactionCost

Current SystemCost

TotalProcurement

Cost

E-ProcurementSystem Costs

ReducedInventory Cost

Reduction ofTransaction

Cost

Savings fromPurchased

Goods

Final Spend

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SCM Integration and ERP Systems

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The Role of ERP and SCM Imperatives

Source: Simchi-Levi, Gartner Group

• Developed by software vendors to initially enable companies to optimize internal SC processes (STANDARDIZATION)

– Finance

– Manufacturing • Procurement

• Production

– Distribution

• First generation systems tended to be closed (proprietary), monolithic and generally not focused on enabling collaboration with suppliers and distributors

– New ERP systems are Web-enabled, open and component-based• ERPs become the facilitator, moving data from one function to another

while managing the data centrally• Improves visibility and consistency of information by holding

all data about sales, purchases, inventory, production, customers, suppliers and accounts in one system

SAP, Manugistics, JD Edwards, Baan, PeopleSoft, Oracle, SSA

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ERP Functionality

• Common information foundation– Inventory Management

– Sales Order Processing

– Forecasting, Requirements Planning

– Procurement

– Capacity Planning

– Distribution/DRP/Warehouse Management

– Financials

• Data warehouse

• CRM (Customer Relationship Management)

• SRM (Supplier Relationship Management)

• Analytics/DSS

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ERP Market Leaders

Source: Forrester Research

  #1 #2 #3 #4 #5

1994 SAP Oracle SSA J.D. Edwards Baan

1995 SAP Oracle SSA J.D. Edwards PeopleSoft

1996 SAP Oracle J.D. Edwards PeopleSoft Baan

1997 SAP Oracle PeopleSoft J.D. Edwards Baan

1998 SAP Oracle PeopleSoft Baan J.D. Edwards

1999 SAP Oracle PeopleSoft J.D. Edwards Baan

2000 SAP Oracle PeopleSoft J.D. Edwards The Sage Group

2001 SAP Oracle PeopleSoft J.D. Edwards The Sage Group

2002 SAP Oracle PeopleSoft J.D. Edwards The Sage Group

2003 SAP PeopleSoft Oracle The Sage Group Microsoft

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ERP Considerations

Source: Forrester Research

• ERP systems are long-term investments (10-20 years)– Many firms lack internal implementation experience– “Horror stories” abound

• They are very expensive from a TCO standpoint ($250 million or more to just to implement for a division of a major firm)

– $1 billion SAP implementations are not unheard of

• Standardization on a single vendor and reducing the number of instances (installations) of the product across the enterprise is critical to reducing TCO

• Open systems vs. closed proprietary systems– More productive software partnerships with vendors who market

plug-in functionality

• Extend but do not customize

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Supply Chain Collaboration

• The area of greatest interest and emphasis in SCM today– Collaboration with suppliers

– Collaboration with customers/retailers

• Reliant on level of e-Commerce capabilities between trading partners (“maturity”)– Partners must have matching maturity

– Collaboration means helping your key partners

– Many organizations can’t take advantage of

the tools available to them

•Supply chain processes and data flows are well-documented and understood

• Resources are managed at the department level and performance is managed at the functional level

Stage 1:Functional Focus

•A company-wide process and data model exists and is measured at company, process and diagnostic level

•Resources are managed functionally and cross-functionally

Stage 2:Internal Integration

•Strategic partners throughout the global supply chain collaborate to:

– Identify joint business objectives and action plans

– Enforce common processes and data sharing

– Define, monitor and react to performance metrics

Stage 3:External Integration

•A collaborative supply chain strategy is enabled by advanced IT:

– Alignment of supply chain partners’ business objectives and associated processes

– Real-time planning, decision-making, and response to customer requirements

Stage 4:Cross-Enterprise Collaboration

Su

pply

Chain

Perf

orm

ance

Source: Cohen & Roussel

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Current Dilemma

To link Sales, Production, Delivery Processes and Systems

into one seamless flow of information.

Reality Check - How to get applications based on different technologies, business processes, and data models to work together in a common way in a value network with linked suppliers and customers ?

“Intelligent” eBusiness

Collaboration with Collaboration with supplierssuppliers

Personalization, Valid Personalization, Valid configurations, real configurations, real availability, multi-availability, multi-

enterprise fulfillmententerprise fulfillment

Collaboration with Collaboration with customerscustomers

Intelligent demand fulfillmentIntelligent demand fulfillment

Collaboration with Collaboration with design partnersdesign partners

Customer processes Customer processes linked to intelligent linked to intelligent

fulfillment processesfulfillment processes

Customer-driven Customer-driven product designproduct design

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The e-Enabled Supply Chain

Manufacturers

Wholesale Distributors

Suppliers

Customers

Information Flows

Goods Flow

Supplier Exchanges

Customer Exchanges

LogisticsExchanges

Contract Manufacturers

Logistics Providers

Virtual Manufacturers

Retailers

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Web-based procurement

Customer/Supplier Relationship Management (CRM, CSUP)

Collaborative planning, forecasting and replenishment (CPFR)

Web-based Multi-location Advanced Planning & Scheduling (APS)

Emerging e-Enabled SCM Applications

Externally integrated, web-centric performance monitoring, global decision support

Product life cycle collaboration

Web-enabled order management

Virtual fulfillment networks

Web-based service and support

Commit to Promise (CTP)

Web EDI, iVMI

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• Benefits– Real-time, two-way communication– Public or private network– Small players included

SCM Collaboration Processes &Tools

Manufacturer

Contracts,ForecastsSupplier

Supplier

Supplier

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Trading partners (manufacturers and retailers) cooperatively planning and communicating product initiatives and marketing strategies to jointly predict volume. They also collect and use retail store consumer data to forecast replenishment needs.

Example:

Wal-Mart and Warner-Lambert (now Pfizer Consumer Products) piloted a program initially using spreadsheets to exchange information, now using Web-based collaboration software and back-end tools.

Collaborative Planning, Forecastingand Replenishment (CPFR)

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CPFR Concepts

Information

Product

Supplier Manufacturer Distributor Retailer Consumer

InternetInternetForecast (Base and Promo)POSOn-hand data

ManufacturerManufacturer RetailerRetailer

Collaboration ToolCollaboration Tool

OutputsOutputsCollaboration triggersException based warnings

Forecast (Base and Promo)

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Collaboration Among Partners

Manufacturer Manufacturer/RetailerDistribution Center Customer

Information

•Manufacturing Constraints•Sales Projections•Promotions

•Inventory Levels•Inventory Turns•Inventory Strategy

•P.O.S. Information•Promotion and Event Information

Product Product

CPFR Information Flow

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Web based Extranet integrated with a manufacturer’s or distributors’ ERP system. Functionality can include on-line catalogs, product availability, pricing, order placement and order status .

Example:

– Life Fitness, a manufacturer of fitness equipment, implemented an Internet based solution which is enabling it to eliminate more than 600 phone calls per day. Customers can now buy parts, check order status and view an on-line catalog. They now have real time information about part availability, price and orders status.

NOTE: Extranet and Intranets both use Internet- based technology and limit access to authorized users. However, only internal employees can use an intranet while authorized external users, such as suppliers can access an Extranet.

Web-enabled Order Management

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Suppliers using the internet have visibility upstream in the supply chain to determine manufacturers requirements and automatically replenish inventory (Supplier/Vendor Managed Inventory)

Example:

– Shell Chemical Company is one of the first chemical companies in the industry to adopt supplier-managed inventory (SMI). Many manufacturers supplied by Shell Chemical no longer place orders. Shell Services developed SIMON to allow both supplier and customer to share necessary information. SIMON also can be accessed remotely via the Internet. The SMI process reduces the total inventory carried by the customer and supplier, which means lower costs for everyone. Savings estimates between one-half to one cent per pound of product the customers consume. More significant, Shell has gained millions of dollars in additional revenues since first offering SMI to its customers.

Virtual Fulfillment Networks

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Using the web to offer value added services to customers and/or suppliers.

Examples:

– ChemicalDesk is an online exchange for the water treatment chemicals market. It offers its users resources including: Chemical products and related monitoring equipment, custom logistics and distribution services, technical support and consulting services, and material safety data sheets (MSDS)

– The BASF Web site connects to technical data sheets and related information on products available in the U.S., Mexico, and Canada, and lets registered buyers check inventory, analyze use, and calculate forecasts

Web-based Service and Support

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Using Web based tools for managing product changes through a company’s network of manufacturing partners to reduce inventory shortages, rework and procurement errors. All engineering or supplier changes reside in one place.

Example:

– Fujifilm Electronic Imaging Ltd (FFEI) designs and manufactures scanners, recorders and imaging software. FFEI recognized that it could improve its time to market by streamlining the design and manufacture process. They decided they needed a system that could encompass the entire development, introduction and change management process. FFEI bought an off the shelf web based system that is now available across their Intranet. The engineering change process, product configuration management and document vaults are now fully automated and the system integrates information from CAD and MRP systems as well

Product Life Cycle Collaboration

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SCM Distribution Technologies

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Distribute - Advanced Bar Coding

• November 2004 - the FDA published a compliance policy guide for industry on implementing RFID studies and pilot programs– An ‘electronic safety net’ for establishing drug pedigrees as they

move through the supply chain from manufacturing through distribution

• “Track and trace” capability• Johnson & Johnson has taken the lead in establishing standards

for RFID technology– Pfizer announced its plans to place RFID tags on all bottles of

Viagra intended for sale in the United States in 2005– GlaxoSmithKline has announced that it intends to begin using

RFID tags on at least one product deemed susceptible to counterfeiting

– Purdue Pharma announced that it is placing RFID tags on bottles of the pain reliever OxyContin to make it easier to authenticate, as well as to track and trace the medication

Source: FDA Consumer Magazine, March-April 2005

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Distribute – RFID Tagging

• November 2004 - the FDA published a compliance policy guide for industry on implementing RFID studies and pilot programs– An ‘electronic safety net’ for establishing drug pedigrees as they

move through the supply chain from manufacturing through distribution

• “Track and trace” capability• Johnson & Johnson has taken the lead in establishing standards

for RFID technology– Pfizer announced its plans to place RFID tags on all bottles of

Viagra intended for sale in the United States in 2005– GlaxoSmithKline has announced that it intends to begin using

RFID tags on at least one product deemed susceptible to counterfeiting

– Purdue Pharma announced that it is placing RFID tags on bottles of the pain reliever OxyContin to make it easier to authenticate, as well as to track and trace the medication

Source: FDA Consumer Magazine, March-April 2005

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Distribute – RFID Technology Basics

• Uses the radio frequency part of the electromagnetic spectrum to transmit information about a physical object, animal or person– Location– Temperature– Humidity– Light

• Can be “passive” (read through a sensor) or “active” (transmits continuously)

• Uses Electronic Product Code (EPC) to uniquely identify each object the tag is attached to– Manufacturer– Product– Version– Serial number

• Core technology for use with EPCs

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Distribute – RFID Technology Basics

Tags Host ComputerAntenna Reader

• Device made up of an electronic circuit and an integrated antenna

• RF used to transfer data between the tag and the antenna

• Portable memory

• Read-only or read/write

• Active or passive

• Usually attached to specific items

• Receives and transmits the radio frequency signals

• Wireless data transfer

• May be integrated in the reader for short range applications or structural for warehouse applications

• Communicates with the tag via antenna

• Receives commands from application software

• Interprets radio waves into digital information

• Provides power supply to passive tags

• Reads/writes data from/to the tags through the reader

• Stores and evaluates obtained data

• Links the transceiver to an applications, e.g. ERP

Source: Cardinal Health

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Distribute – RFID Implementation Timelines

• RFID tags must be attached to pallets, cases and individual packages

• Ensure “instant verification” and rapid location of every item in the supply chain

• 2005 – RFID on pallets, cases and packages of high-risk drugs

• 2006 – RFID on most pallets, cases and packages of high-risk drugs and some pallets and cases of selected products

• 2007 – RFID on all pallets and cases of all products and most packages of all drugs– All manufacturers

– All wholesalers

– All chain drug stores

– All hospitals

– Most smart retailers

Source: Unisys

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Distribute –RFID Tagging Implications

• Since bar codes and RFID tags can be duplicated, serialization and authenticated uniqueness will be required to completely stop counterfeiting

• Serialization with one-way lookup is likely to be the initial approach– Access detailed product info from the manufacturer using the

product serial number over the web– Read only access, chain of custody will not be tracked– Counterfeiting will be more difficult but not impossible

• True chain of custody will require 2-way transactional updates– Verify uniqueness and possession of each serial number– Each change of custody will require a transaction between the

current owner and the master database– Counterfeiting will be immediately identified since each serial

number can be in only one location at a time

• Big question: Who will pay for and maintain the master database?

Source: Cardinal Health

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Distribute – SCM Benefits of RFID Tagging

• Better stock accuracy– Reduced stock-outs (a critical issue for pharmacies, physicians

and hospitals)

– Reduced safety stock (lower cost)

– Improved understanding of where variability exists and insights on its control (improved forecasts)

– Improved supplier materials ordering

• Compliance with customer demands for RFID tagging:– DoD

– Wal-Mart

– Target

• 15-20% reduction in inventory levels

• 7-10% reduction in supply-chain costs

• 4-6% improvement in physician retention

Source: Cardinal Health