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Lecture 4

Ch.1 Enterprise Resource Planning

and Supply Chain Management &

p. 155, pp. 201-205

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Agenda

• 1. Defining ERP• 2. History and Evolution of ERP• 3. Defining SCM• 4. Managing the Supply Chain• 5. Supply Chain Strategies• 6. E-procurement• 7. Selecting an ERP System• 8. ERP and E-Commerce• 9. Successful Applications• 10. Supply Chain Capabilities• 11. Questions to Ponder

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1. Defining ERP

• ERP is the short form for Enterprise Resource Planning

• ERP is a packaged business software system

• SAP (System, Applications, and Products in data processing)SAP R/2 – Mainframe versionSAP R/3 – Client/Server version

• mySAP ERP 2005 (SAP’s new product)(to p4)

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ERP Products for Small Business

• Microsoft Dynamics GP (formerly Microsoft Business Solutions Great Plains)

• Quick Book Enterprise Solutions• Oracle’s ERP/e-business• SAP Business One

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The aim of ERP is twofold:

1. To maintain transaction information to initiate activities and track performance.

2. To develop an integrated enterprise.

ERP and its add on value in industrial software packages

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Popular ERP Modules and Add-ons• ModulesProduction PlanningMaterials

ManagementSales and DistributionFinancial and

Accounting Management

Human Resource

• Add-onsAdd-onsCustomer Relationship Mgmt (CRM) Supply Chain Mgmt (SCM) Product Lifecycle Mgmt (PLM)

Semantic view of ERP platform

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An Overview of an ERP System

Architecture

Industry Solutions

Planning and Decision Models

Data Base

ERP Modules

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Popular mySAP ERP Process Modules

Internet Assignment: Visit and explore the mySAP ERP Web site and see if you can identify its process modules.

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2. History and Evolution of ERP

• 1960s – Material Requirements Planning (MRP) (Planning and scheduling of materials)

• 1980s – MRP II (planning and controlling shop floor and distribution activities)

• 1990s – ERP (dealing with the entire range of company activities)

• Today – ERP/SCM/e-strategy (Synchronizing supply chain planning)

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3 Defining SCM

1. The Process View2. The Policy View

3. The Performance View4. The Problem View (to p20)

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3.1. The Process View

• SC = a sales-production-distribution network (see next slide)

• M = enabling conditions and enhancing trust for supply chain excellence

• The aim is to develop supply chain confidence.

• Example (to p12)

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Factory DC

Customer##

Customer##

Customer##Vendor

Supplier##

Supplier##

A sales-production-distribution network

Cash Flow

Information Flow

Material Flow

SC Processes and Activities

Different processes/activities involved (to p13)

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SC Processes and Activities

• Production (Parts Received, Goods Produced, Goods Packaged)

• Fulfillment (Order Received, Order Processed, Order Delivered)

• Replenishment (Order Submitted, Good Received, Invoice Paid)

Parties involved (to p14)

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Production Activities

Raw Materials Received

Goods Produced

Goods Packaged

Fulfillment Activities

Customer Orders Received

Inventory Status

Orders Processed

QC Person Production Planner

Sales Person

Inventory Manager

SC Actors and Activities

Replenishment Activities

Goods Received

Invoice Paid

Order Submitted

Suppliers

Accountant

System structure (to p15)

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Supply Chain Management – The SAP (Process) View

CustomersBusiness Partners

Suppliers

Employees

SAP R/3

Order to CashOrder to CashProcure to PayProcure to PayIdea to Project Idea to Project Hire to RetireHire to Retire

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3.2. The Policy View

• Strategic – Design of SC networks based on predefined parameters such as location, size, distribution center

• Tactical – Optimizing flow of goods across time horizon (monthly or daily)

• Operational – Labor, equipment, materials (daily, hourly basis)

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Chen and Paulraj (2004) create eight constructs for supply chain management and performance based on a literature review of four hundred articles.

Chen, I.J., Paulraj, A., 2004. Towards a theory of supply chain management: the constructs and measurements. Journal of Operations Management 22,

119-150.

3.3. The Performance View

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These constructs are:

1) environmental uncertainty,

2) customer focus,

3) top management support,

4) supply strategy,

5) information technology,

6) supply network structure,

7) managing buyer-supplier relationships, and

8) logistics integration.

How they are applied?(to p19)

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They need to be managed effectively to have positive impacts on supply chain performances.

The aim is to “create value and achieve satisfaction of intermediate and final customers in the market place.”

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Supply Chain Management (SCM) is about dealing with production and SC problems/concerns.

Examples

3.4. The Problem View

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Categories of Production and SC Problems

• Location

• Transportation and logistics

• Inventory and forecasting (example: Optional)

• Marketing and channel restructuring

• Sourcing and supplier management

• Information

• Product design and new product introduction

• Service and after sales support

• Reverse logistics and green issues

• Outsourcing and strategic alliances

• Metrics and incentives

• Global Issues

Source: Madu and Kuei 2004, Johnson and Pyke 2000 (to p10)

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4. Managing the Supply Chain

Samples of issuesSamples of issues included the following:– Selection of suppliers– Information sharing– Partnership– Establishing liaison with suppliers– Product life cycle– Total integration– Inventory management

When considering them in the system concept format ……(to p23)

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Managing the Supply Chain

Suppliers Customers

1. Demand/Create

Manufacturer’s and/or Customer’s DC

2. Buy

Factory

3. Make 4. Move

0. Plan/ Product ideas

6. Kaizen

5. Support

7. Return

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5. Supply Chain Strategies

• Many suppliers – conventional AVL failed to develop a long term

relationship

• Partnering with suppliers – from AVL to long term relationship

• Vertical integration – 2 forms: forward (making parts) & backward (buy

up parts suppliers)

• Keiretsu networks – maintains partnership with few vendors while

maintaining their vertically integrated

• Virtual companies – services rendered by suppliers by distance such

as hiring personnel for say operator calls

Exercise(to p25)

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Supply-Chain Operations Reference-Model

Internet Assignment: Visit and explore the Internet site for the supply chain council (www.supply-chain.org). Briefly describe the Supply-Chain Operations Reference-model (SCOR). Discuss the five building blocks of the SCOR model: Plan, Source, Make, Deliver, and Return.

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6. E-procurement

• E-procurement is an Internet-based purchasing system that offers electronic purchase order processing and improved administrative functions for both the buyer and the seller.

• The use of e-procurement ensures that the best value is obtained for each product or service.

• The effect onto SCM (to p27)

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E-procurement and SCM

• Suppliers do not only compete on the basis of price but also on the basis of speed, quality, and the environmental content of the product.

• Supply chain management and e-procurement are closely linked and both the buyer and the seller should work together.

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7. Selecting an ERP System

Sample Issues:• Does the cost fit with the budget for ERP?• Will the organization readily adapt to the ERP

system?• Does the ERP system adequately address the

functional needs of the organization and the different needs of the business units and functional departments?

• Is the ERP system flexible and can it be adapted to the changing business environment? (to p29)

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• What is the learning curve for the ERP system?

• Is it feasible and cost effective to integrate the ERP with other third party software?

• Does the ERP software cover the needs of the particular industry your organization is in?

• Does the software come with the requisite materials such as training manuals, guarantees, consultant services, and ongoing technical support? (to p30)

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• What assistance is offered by the vendor to get the program running and at what cost?

• Does the program run through the different application system providers ?

• How user friendly is the system?• Can the system be easily customized to meet

specific needs?• How long will it take to fully implement the ERP

system?(to p2)

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8. ERP and E-Commerce

• ERP aims to integrate the firm's back office processes and information flows.

• E-commerce is the use of computer systems and packaged software applications protected by network security measures to conduct online transactions.

• There is a challenge to ensure that ERP and e-commerce systems are fully integrated so information can flow directly and freely to the different application areas.

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Enterprise Vendor Applications Organization

Cisco Systems, Inc.

Oracle Manufacturing, Financial, Order Entry

Supply Chain Networks

Pace U. SCT Banner

Student, Human Resource, Finance

Multi - Campus

Atofina Chemicals

SAP R/3 Material Mgt., Production Planning, Order Mgt., Financial Reporting

12 Business Units

Starwood Hotels

Oracle Payroll, Accounts Payable, General Ledger

750 Hotels

9. Successful Applications

Example (to p33)

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Order Fulfillment Process Before and After the ERP/SCM Implementation

Time

Before ERP/SCM

After ERP/SCM

ERP

PC

PC SC Applications

Credit Checking

Order Entry Order Confirmed

Inventory

Local/Distributed Information Systems

Order Entry

Credit Checking

Inventory

Order Confirmed

Delivery Arrangement

Produce/Price Enquiry

Produce/Price Enquiry

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Supply Chain Capabilities (p155)

The abilities to:1. Manage supply chain inventory2. Meet promised delivery date3. Fulfill orders with improved accuracy4. Forecast sales with greater accuracy5. Issue advanced shipping notice on shipping delays6. Respond to requests in a timely manner7. Make high quality products8. Deliver high quality services9. Respond to the needs of key customers10. Work with key suppliers11. Design environmentally conscious processes12. Have better asset utilization13. Enhance supply chain’s position in terms of integrity and

social responsibility (to p2)

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10. Questions to Ponder

What are the key objectives of ERP/SCM in the new economy? How does ERP/SCM help an organization? How can an organization successfully adopt ERP/SCM? Discuss the costs and benefits associated with ERP/SCM?

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5. Descriptive Model

Eddie is considering three early-sales inventory policies, namely, ordering 65, 80, or 95 notebooks daily.

Eddie is eager to know, in general, what impact the adoption of these early-sales inventory policies would have on the supply chain’s inventory behavior

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Eddie can follow the following solution steps

• Identifying variables and parameters of interest,• Gathering data and establishing the probability

distribution for each variable,• Building flow diagrams for simulation model,• Determining or specifying the value(s) of

parameters,• Implementing the model in Excel, and• Analyzing the results.

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To facilitate the analysis procedure, discrete distributions and inventory process steps are implemented directly in Microsoft Excel.

Figures 12.10 and 12.11 (in our Text) illustrate an Excel simulation model for Eddie’s inventory example. Specific formula and values used in the spreadsheets are presented in table 12.20 for quick references.

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The results show that the overstocking policy (e.g. ordering 95 notebook computers daily) would result in higher ending inventory levels, while the under-stocking policy (e.g. ordering 65 notebook computers) would lead to higher levels of lost sales.

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Interfaces

For the applications of the advanced descriptive models in a real life setting, see the following article published by Interfaces: Saltzman, R.M., and Mehrotra, V., “A Call Center Uses Simulation to Drive Strategic Change,” Interfaces, 31(3), 2001, pp.87-101

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How to Conduct a Successful Simulation Study?

Internet Assignment: Go to the Winter Simulation Conference site’s tutorial section (http://www.informs-cs.org/wscpapers.html) and find the following conference papers:

How to Conduct a Successful Simulation Study?

Introduction to Modeling and Simulation(to p21)