Supply Chains Silos and Enterprise Systems Cathy Dwyer

Supply Chains, Silos, and Enterprise Systems Cathy Dwyer Fall 2012 IS 617 1

What Is the Supply Chain? Also referred to as the logistics network Suppliers, manufacturers, warehouses, distribution centers and retail outlets – “facilities” Suppliers Manufacturers Warehouses & Customers Distribution Centers and the Raw materials Work-in-process (WIP) inventory Transportation Costs Material Costs Transportation Manufacturing Costs Inventory Costs Finished products that flow between the facilities 2

The Supply Chain Suppliers Manufacturers Transportation Costs Material Costs Warehouses & Distribution Centers Transportation Costs Manufacturing Costs Customers Transportation Costs Inventory Costs 3

The Supply Chain – Another View Plan Source Suppliers Material Costs Make Manufacturers Deliver Warehouses & Distribution Centers Buy Customers Transportation Costs Manufacturing Costs Inventory Costs 4

What Is Supply Chain Management (SCM)? Plan Source Make Deliver Buy A set of approaches used to efficiently integrate Suppliers Manufacturers Warehouses Distribution centers So that the product is produced and distributed In the right quantities To the right locations And at the right time System-wide costs are minimized and Service level requirements are satisfied 5

Why Is SCM Difficult? Plan Source Make Deliver Buy Uncertainty is inherent to every supply chain Travel times Breakdowns of machines and vehicles Weather, natural catastrophe, war Local politics, labor conditions, border issues The complexity of the problem to globally optimize a supply chain is significant Minimize internal costs Minimize uncertainty Deal with remaining uncertainty 6

The Importance of Supply Chain Management Dealing with uncertain environments – matching supply and demand Boeing announced a $2. 6 billion write-off in 1997 due to “raw materials shortages, internal and supplier parts shortages and productivity inefficiencies” U. S Surgical Corporation announced a $22 million loss in 1993 due to “larger than anticipated inventories on the shelves of hospitals” IBM sold out its supply of its new Aptiva PC in 1994 costing it millions in potential revenue Hewlett-Packard and Dell found it difficult to obtain important components for its PC’s from Taiwanese suppliers in 1999 due to a massive earthquake U. S. firms spent $898 billion (10% of GDP) on supplychain related activities in 1998 7

The Importance of Supply Chain Management Shorter product life cycles of high-technology products Less opportunity to accumulate historical data on customer demand Wide choice of competing products makes it difficult to predict demand The growth of technologies such as the Internet enable greater collaboration between supply chain trading partners If you don’t do it, your competitor will Major buyers such as Wal-Mart demand a level of “supply chain maturity” of its suppliers Availability of SCM technologies on the market Firms have access to multiple products (e. g. , SAP, Baan, Oracle, JD Edwards) with which to integrate internal processes 8

Today’s Marketplace Requires: Personalized content and services for their customers Collaborative planning with design partners, distributors, and suppliers Real-time commitments for design, production, inventory, and transportation capacity Flexible logistics options to ensure timely fulfillment Order tracking & reporting across multiple vendors and carriers Shared visibility for trading partners 9

Supply Chain Management – Benefits A 1997 PRTM Integrated Supply Chain Benchmarking Survey of 331 firms found significant benefits to integrating the supply chain Delivery Performance 16%-28% Improvement Inventory Reduction 25%-60% Improvement Fulfillment Cycle Time 30%-50% Improvement Forecast Accuracy 25%-80% Improvement Overall Productivity 10%-16% Improvement Lower Supply-Chain Costs 25%-50% Improvement Fill Rates 20%-30% Improvement Improved Capacity Realization 10%-20% Improvement Source: Cohen & Roussel 10

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Business processes Sequence of tasks or activities that take a set of inputs and convert them into desired inputs Key processes Procurement Fulfillment Production

Figure 1: A generic process

Business process - example Make skateboards What are some parts of a skateboard Buy parts What are some steps in the buying process Who performs these steps Sell skateboards What are some steps in the selling proces Who performs these steps

Procurement Process

Fulfillment Process

Functional structure Common functions Typical tasks in functional areas Review steps in procurement Who does what where? Characterize processes - who is responsible for the process? Why functional structure?

Functional organizational

Functions vs. processes

The Silo effect Communication and collaboration between functions What must be communicated? What information must be exchanged? How is this coordinated Paper based processes Processes supported by functional systems Processes supported by enterprise systems

Paper-based process

Consequences of delays Delays Increased lead times Increased cycle times Excess inventory “just in case” Lack of visibility across the process Status: “where is my order” How is the process doing Why accept these delays?

Delays are no longer acceptable Why? Globalization Increased competition Pressure to do better Reliance on technology!

Process using functional systems

Processes using Enterprise Systems

Framework: Key process flows

Types of Enterprise Systems The ES Application Suite Enterprise Resource Planning (ERP) Supply Chain Management (SCM) Supplier Relationship Management (SRM) Product Lifecycle Management (PLM) Other classifications Best of breed vs. Niche applications Software as a service (Saa. S) Magal and Word ! Essentials of Business Processes and Information Systems | © 2009 27

The application suite Magal and Word ! Essentials of Business Processes and Information Systems | © 2009 28

SAP ERP Solution Map End-User Service Delivery Analytics Financials Product Development and Manufacturing Sales and Service Corporate Services Treasury Talent Management Financial Accounting Workforce Analytics Management Accounting Workforce Process Management Corporate Governance Workforce Deployment Procurement Inventory and Warehouse Management Inbound and Outbound Logistics Transportation Management Production Planning Manufacturing Execution Product Development Life-Cycle Data Management Sales Order Management Real Estate Management Enterprise Asset Management Aftermarket Sales and Service SAP Net. Weaver Procurement and Logistics Execution Financial Supply Chain Management Operations Analytics Shared Service Delivery Human Capital Management Financial Analytics Professional-Service Delivery Project and Environment, Health, Travel Quality Global Trade Portfolio and Safety Management Services Management Compliance Mgmt. Copyright SAP AG 2008 Magal and Word ! Essentials of Business Processes and Information Systems | © 2009 29

SAP Supply Chain Management Demand & Supply Planning Procurement Manufacturing Warehousing Transportation Real World Awareness Supply Chain Visibility Supply Network Collaboration Supply Chain Management with Duet Supply Network Planning Strategic Sourcing Purchase Order Processing Invoicing Production Planning & Detailed Scheduling Manufacturing Visibility & Execution & Collaboration MRP based Detailed Scheduling Inbound Processing & Outbound Processing Receipt Confirmation Sales Order Processing Freight Management Billing Planning & Dispatching Supplier Collaboration Physical Inventory Service Parts Order Fulfillment Rating & Billing & Settlement Supply Chain Event Management Strategic Supply Chain Design Warehousing & Storage Cross Docking Driver & Asset Management Network Collaboration Auto ID / RFID and Sensor Integration Supply Chain Analytics Supply Chain Risk Management Customer Collaboration Sales & Operations Planning Outsourced Manufacturing Demand Planning in MS Excel Copyright SAP AG 2008 and Word ! Essentials of Business Processes and Information Magal Systems | © 2009 Distribution Planning Service Parts Planning 30 SAP Net. Weaver Order Fulfillment Demand Planning & Safety Stock Planning Forecasting

SAP Supplier Relationship Management Purchasing Governance Global Spend Analysis Category Management Compliance Management Sourcing Central Sourcing Hub RFx / Auctioning Bid Evaluation & Awarding Collaborative Procurement Supplier Collaboration Supply Base Management Legal Contract Repository Contract Authoring Self-Service Procurement Contract Negotiation Services Procurement Contract Execution Direct / Plan-Driven Procurement Contract Monitoring Catalog Content Management Web-based Supplier Interaction Direct Document Exchange Supplier Network Supplier Identification & Onboarding Supplier Development & Performance Management Supplier Portfolio Management SAP Net. Weaver Contract Management Copyright SAP AG 2008 Magal and Word ! Essentials of Business Processes and Information Systems | © 2009 31

SAP Product Lifecycle Management Product Strategy and Planning Product Development and Collaboration Engineering, R&D Collaboration Product Data Management Service and Product Master and Specification and Maintenance Structure Management Recipe Management PLM Foundation Product Compliance Product Portfolio Management Supplier Collaboration Product Intelligence Innovation Management Manufacturing Collaboration Product Costing Requirements Management Service and Maintenance Collaboration Product Quality Management Visualization and Publications Tool and Workgroup Integration Project and Resource Management Market Launch Management Product Change Management Configuration Management SAP Net. Weaver Product Management Document Management Copyright SAP AG 2008 Magal and Word ! Essentials of Business Processes and Information Systems | © 2009 32

SAP Customer Relationship Management Segmentation & List Management Campaign Management Real-Time Offer Management Sales Quotation & Territory Accounts & Opportunity Planning & Performance Order Management Contacts Management Forecasting Management Service Order Complaints & Contract Management Returns Management In-House Repair Pricing & Contracts Lead Management Incentive & Commission Management Case Installed Base Warranty Management Time & Travel Resource Planning Business Communication Management Marketing Resource Management Trade Promotion Management Interaction Center Service Web Channel Sales Partner Channel Management Marketing Copyright SAP AG 2008 Magal and Word ! Essentials of Business Processes and Information Systems | © 2009 33

Risk/Rewards of ES Benefits of fully integrated information technology systems Increases speed, quality, accuracy – others? Risk? – dependency and changing expectations Changes in the business environment as companies move to supply chain/value chain systems (Changes in technology -> changes in org. Structure/social structure) 34

ES Risks NY Times news? — Hack of banks in retaliation for Muslim video (on Blackboard) (Risk - business continuity planning) (Security risk assessment - security audits, IT audits) 35

ES Risks cont. Internet has become platform for political protest and civil disobedience Anonymous on Scientology – http: //www. youtube. com/watch? v=JCb. Kv 9 yi. Li. Q Other actions http: //www. youtube. com/watch? v=Hr. Xy. Lr. TRXso 36

Green Supply Chain Use of ES have led to expectations that companies are responsible for who they select as suppliers Walmart, Starbucks set environmental standards on their suppliers 37