information technology for supply chain management designing & managing the supply chain chapter...

Information Technology for Supply Chain Management

Designing & Managing the Supply Chain

Chapter 11

Dang Quang Vinh

[email protected]

mailto:[email protected]

Outline

Case: Backup in the Espresso Lane

Case: ERP Brews Instant Success

Introduction

Goals of Supply Chain Information Technology

Standardization

Information Technology Infrastructure

Supply Chain Management System Components

Integrating Supply Chain Information Technology


Background Starbuck Corp. runs coffee business with 2,000 stores. Chose a best-of-breed approach over an integrated ERP Three years project is now slated to five years.

Recipe for growth Since 1992, the company opened 1235 retail locations. Starbuck Corp. can handle the growth because of “ambitious

and impassioned” employees. Initially, when the company had the problem with BOM, they

chose ERP package. Eventually, best-of-breed approach is selected due to the

functional flexibility.


Best-of-breed challenges Extend supply chain overhaul Overall length of the project is longer because they had to spend

more time selecting and integrating packages Create extra works, build “bridge” between applications

The upside Flexibility approach Reduction in overall inventory, overtime hours and emergency

orders Best-of-breed is working

Case: ERP Brews Instant Success

Background Small coffee roaster has the same double cappuccino-size

supply chain problems $47 million went with ERP compared with $700 million of

Starbuck Corp.

No more homegrown Now using homegrown system that integrated its financial,

manu-facturing and distribution systems. Finding a new suitable ERP systems because of growth. Purchased 17 modules of the Enterprise Solutions from People-

Soft Inc.

Introduction

Information technology (IT) is an important enabler of effective supply chain management.

IT for supply chains includes internal and external systems that facilitate information between various company and individuals.

For many firms, IT provides a competitive advantage.

In many cases, current IT that supports the components in the supply chain process is diverse and disconnected.

Various strategies are utilized by companies to overcome these problems and create systems that can use the multitude of data in the system effectively.

Introduction

What are the goals of IT from the perspective of supply chain management?

What IT components are needed to achieve the goals of supply chain management?

What are the supply chain component systems and how should they be approached?

What are the trends in IT and how do they affect supply chain management?

What are the stages I the development of enterprise IT?

Goals of Supply Chain Information Technology

Collect information on each product from production to delivery or purchase point and provide complete visibility for all parties involved.

Access any data in the system from a single point of contact.

Analyze, plane activities, and make trade-offs based on information from the entire supply chain.

Collaborate with supply chain partners.

Goals of supply chain information technology

The primary goal of IT in the supply chain is to link the point of delivery or purchase. The idea is to have an information trail that follows the product’s physical trail.

Suppliers Manufacturers Warehouses Retailers

Product flow

Information flow

Intrafirm

InterfirmInterfirm

Flow of information and goods in the supply chain


Collect information:

• The retailer needs to know the status of its orders and the suppliers need to be able to anticipate an incoming the manufacturer

• The availability of information regarding the status of products and material is the basic on which intelligent supply chain decisions can be made.

• This goal requires standardization of product identification (e.g. bar coding) across the companies and industries.


Access to data:

• The single-point-of-contact concept : all the available information, either information provided to a customer or required internally, can be access to the same , regardless of the mode of inquiry use or who is making the inquiry.

• Ideally, everyone who needs to use certain data should have access to the same real-time data through any interface device.


Sales representative

Sales/ marketing systems

Demand planner

Financial systems

Accountant

Logistic/ manufacturing systems

Operations

Customerservice


Current information systems


Single point of contact


Accountant

Service representative

Demand planner

Operations

New generation of information


Analyze based on supply chain data: Analyzing the data, especially in a way that takes into account

the global supply chain picture. The information system must be utilized to find the most efficient

ways to produce, assemble, warehouse and distribute.

Collaborate with supply chain partners: The ability to collaborate with supply chain partners is essential

to a company’s success. This requires not only sophisticated alignment of IT systems but also the integration of business processes.

Collaboration has become the focus supply chain systems: Supplier relationship management (SRM) and Customer relationship management (CRM).


Integration/ Standards

Collect Access Analyze Collaborate

Infrastructure Electroniccommerce

Supply chain components

Goals and means of supply chain

Standardization

It is hard to predict in an ever-changing field such as information technology. Primary is the push toward IT standards. The IT field is evolving to a high level of standardization for the following reasons:

o Market forces

o Interconnectivity

o New software models

o Economies of scale

Standardization

Standardization of IT has 4 major phases:

o Proprietary: There was little communication between systems and that was performed through private networks or physical media.

o Stand alone: For business networks, some standard were developed, but mostly private networks were used for filed transfers. Electronic data interchange (EDI), a common transaction format, was introduced at this time. A future development, client/serve technology, integrated the Pc capabilities and standards with business systems.

o Communications: The Internet provided the missing link in communications and display standards beyond the local networks.

Standardization

o Collaboration: The major issue is specifying a common language format that will enable diverse systems to understand each other.A new phase of collaboration increases the important of ERP systems that are involving into the so-called ERP II:

Role

Domain

Function

Process

Architecture

Data

Standardization

One of the cornerstones of all new IT standards development in the eXtensible Markup Language (XML), which is the language description format that is the fast becoming the standard for Internet transactions.

The Web services architecture is based on standards such as XML, UDDI, a directory service for applications and communication protocols such as SOAP.

Web services are offered as components, companies can purchase only the functionality they need, possibly in the form of services purchase over the Internet.

Web service applications will make collaboration easier by deploying a loose-coupling approach to integration since the integr-ation methods are the part of the service and do not need to be tailored for each two applications that are being integrated.

Standardization

For all the obvious advantages of standardization, a few of its drawbacks and challenges.

Availability: Problem surround the cost of creating a standard and the power of those who hold standards, especially if these standards are proprietary.

Security: The easy access to the Internet exposes systems that are connected to attacks by hackers and conceivably industrial spies.

Scalability: Standards that work in a certain context or size of problem may not be adequate for a for a different set of industries or for a large number of users.

Information technology infrastructure

The information technology (IT) infrastructure is a critical factor in the success or failure of any system implementation. The infrastructure forms the base for data collection transactions, system access and communications.

IT infrastructure consists of: Interface/presentation devices Communications Databases System architecture


Interface devices: Personal computers, voice mail, terminals, Internet devices, bar-

code scanners and personal digital assistants (PADs) are some of the interface devices most commonly utilized.

A key trend in IT is toward uniform access capability anytime and anywhere and the interface devices clearly play a major role in this area.

Auto-ID technology will embed intelligence in physical objects that will allow them to communicate with each other and with businesses and customers.

• Electronic Product Code (ePC)

• Product Markup Language (PML)

• Object Naming Service (ONS)


Communications

There are two major trends in communication: wireless communication, and the single point of contact for communications.

Electronic mail (e-mail)

Data exchange

Groupware

Transportation product tracking

Supply Chain Event Management (SCEM)

Exchange platforms

Information technology infrastructure Databases

Data need to be organized in some form of a database including transaction information, status information, general information, forms and group work. Legacy databases: These systems are used to built around a hierarchical or net-work database. Relational databases: These databases allow the storage of related data in such a way that standardized reporting and querying of

related data are facilitated. Object databases: These can hold not only numeric and character data but more sophisticated objects such as pictures graphic

structures. Data warehouse: These databases combine data from other systems databases to allow query by sophisticated analysis tools.

0


Datamarts: These are smaller versions of data warehouses. Groupware databases: These are specialized databases

designed to accommodate group functions, such as keeping track of updates, allowing multiple-users access and so forth.


System Architecture Systems architecture encompasses the way the components-

databases, interface devices and communication- are configured.

Mainframe

Terminals Minicomputer

Personal computers Printer

Legacy system architecture


Electronic Commerce Replacing of physical processes with electronic one and the

creation of new models for collaboration with customer and supplier.

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

Companies use Internet standards : intranets, extranets and exchanges

Also, companies develop the portal : a role-based entry into a company’s systems that aggregates all the applications and sources of information employees need in order to perform their job into a single desktop environment.


Electronic Commerce Levels

SUMMARY OF ELECTRONIC COMMERCE LEVELS

Level number Description Example

1One-way

communication E-mail, FPT, browsing

2 Database accessInquiries, forms, purchases,

tracking

3 Data exchange EDI, clearinghouse

4 Sharing processes CPFR, exchanges


Electronic Commerce Levels Supplier relationship management (SRM) : drives the

optimization goods and materials for manufactures.• Strategic supply management

• Supply Chain Collaboration

• Direct materials procurement execution

Customer relationship management (CRM) : aim to drive and optimize the interaction with clients.

• Sales-force automation

• Sales-pitch customization

• Managing and using customer information

CPFR : sharing process of collaboration planning, forecasting, and replenishment.


The DSS that various companies and industries employ depends, among other things, on manufacturing charact-eristics, demand fluctuation, transportation costs and inventory costs.

The DSS will support the strategic, tactical and operation-al levels.

The main IT capabilities required for supply chain excellence as well as relationships between the different capabilities. Strategic network design Supply chain master planning Operational planning : demand planning, production scheduling,

inventory management and transportation planning


Operational execution: enterprise resource planning, customer relationship management, supplier relationship management, supply chain management, transportation systems

Planning horizon Return on investment Implementation complexity


The key is to analyze what each component can contribute to the enterprise and then plan the investment according to the specific needs of the company and the demands of the industry.

SAP’s “Stages of Excellence” model: designed for evaluating a company’s stage of development in IT and its impact on SCM.

Stages of Development : Stage 1: Disconnected systems

• Companies : functions and tasks.

• Organization : internal process standardization & address Internet readiness.


Stage 2: Internal and external interfaces• Companies : e-business solutions, disparate information systems,

“flow through” of data, decentralized external links

• Organization : transaction-focused on both buy-side and sell-side

Stage 3: Internal integration and limited external integration efficiency

• Companies: cross-functionally organized, integrated systems within the enterprise, limited external value chain integration.

• Organization: link supplier to their back-end systems and buyer front-end systems.

Stage 4: Multi-enterprise integration• Companies: cross-functionally organized, maximum external value

chain integration.

• Organization: link trading partners.


SAP STAGES OF EXCELLENCE

Stage Capital I: Disconnected II: Interfaces III: Intergrated

internallyIV: Multienterprise

integrated

Internet Visibility Catalogs Exchanges Unattended trading

Integration None Batch Interrenterprise Supply chain networks

Supply chain planning None Informal demand

planningFormat global

demand planningIntegrated global

planning

Production sheduling None Basic MRP Constraint-based Advanced planning

systems(APS)

Integration with suppliers FAX/ phone EDI/FAX/phone EDI with all large

suppliers VMI, online RFQ

Customer delivery Research Local inventory Available to

promise (ATP)Capable to promise

(CTP)


ERP AND DSS FOR SUPPLY CHAIN MANAGEMENT

Implementation issue ERP DSS

Length 18-48 months 6-12 months

Value Operational Strategic, tactical, operational, operational

ROI 2-5 year payback 1 year payback

Users All end users Small group

Training Simple Complex

Implementation of ERP and DSS


PRIORITIES WHEN IMPLEMENTING DSS

Industry DSS

Soft drink distributor Network and transportation

Computer manufacturer Demand and manufactoring

Comnsumer products Demand and distribution

Apparel Demand, capacity, and

distribution


“Best-of-Breed” versus Single-Vendor ERP Solutions

Implementation issue

Best of breed Single vendor Proprietary

Length 2-4 years 12-24 months Not known

Cost Higher LowerDepends on

expertise

Flexibility Higher Lower Highest

Complexity Higher Lower Highest

Quality of solution Higher Lower Not sure

Fit to enterprise Higher Lower Highest

Staff training Longer Shorter Shortest

Summary

Standardization of processes, communications, data and interfaces bring about cheaper and easier methods to implement the basic infrastructure.

Data display and access in various forms are becoming more integrated in systems that do not require any specialized knowledge.

Various systems will interact in a way that will blur the current boundaries.

Electronic commerce is changing the way we work, interact, and do business.

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