Organizational Applications and Solutions SCM and ERP

Organizational Applications and Solutions SCM and ERP

Dr Sherif KamelDepartment of Management

School of Business, Economics and Communication

Copyright © 2005 Sherif KamelCopyright © 2002 Turban, McLean and Wetherbe

Outline

Supply chain and value chain definitions Components, benefits and problems of a supply chain Sources and solutions of SCM problems Computerization and SCM Enterprise resource planning ERP functions and implementation Managerial issues Case: How did Dell re-engineer its SC


Supply chain and value chain definitions

Supply chaino Flow of materials, information, payments, and services

from raw material suppliers, through factories and warehouses, to end customers

Demand chaino Process of taking orders

Supply chain management (SCM)o To plan, organize, and coordinate all the supply chain’s

activities


…contributes to overall

increase in profitability

and competitive advantage

…which positively affects inventory levels,

cycle time, business

processes and customer

service…and…

Reduces uncertainty and risks in the supply

chain…

Benefits of supply chain


Components of a supply chain

Upstream Supply Chaino Organization’s first tier suppliers and their suppliers

Internal Supply Chaino Processes used by an organization to transform their

inputs to outputs

Downstream Supply Chaino Processes involved in delivering the product to the final

customers


Supply chain

Involves the life of a product from Involves movement of tangible and intangible

inputs Can come in all shapes and sizes and may be

fairly complex Can be bi-directional and involve the return of

products (reverse logistics) The flow of goods, services, information and

financial resources must be followed with an increase in value


In 1999, ToysRus had problems supplying to

holiday shoppers and lost business

In WWII, Germany encountered

problems supplying troops in Russia, which contributed to their collapse

Supply chain problems

Problems with the supply chain could cause companies to go out of business…


UNCERTAINTY

In demand forecast In delivery times and production delays

POOR COORDINATION

With internal units and business partners Ineffective customer service High inventory costs, loss of revenue and extra cost for expediting services

Sources of SCM problems


Bull-whip effect

Most persistent SCM problemo Continuous shifts in orders up and down the supply

chaino Distributor orders fluctuate because of poor demand

forecast, price fluctuation, and order batchingo Avoidable with proper inter-organizational Intranet

Use of EDI, extranets and groupware technology


Solutions to supply chain problems

Vertical Integrationo Purchasing and managing the supply source

Building Inventorieso Insurance against supply chain shortageso Difficulty to correctly determine inventory level for each product and

part – a costly process

Other solutions includeo During peak times, outsource rather than do-it-yourselfo Configure optimal shipping planso Create strategic partnerships with supplierso Use the just-in-time approach to purchasingo Manufacture only after orders are ino Achieve accurate demand by working closely with suppliers


Case: How Littlewoods improved its SCM

Problemo Littlewoods Large British clothing retailer with 136 stores in the UK

and Irelando Overstocking problems in the supply chain management

Solutiono Introduced web-based performance reporting systemo Enabled merchandising personnel to make more accurate stock,

sales and supplier decisions

Outcomeo In 1997, Littlewoods saved 1.2 million US dollars as a direct result


Computerized systems and SCM


Systems integration

Tangible Benefits Inventory reduction Personnel reduction Productivity improvement Order management

improvement Financial-close cycle

improvements IT cost reduction Procurement cost reduction Revenue/profit increases, etc.

Intangible Benefits Information visibility New/improved processes Customer responsiveness Standardization Flexibility Globalization and business

performance


Value chain integration

The process by which multiple enterprises within a shared market channel collaboratively plan, implement, and manage (electronically as well as physically) the flow of goods, services, and information along the entire chain in a manner that increases customer-perceived value…added-value realized


Integrating both chainssupply and value A supply chain transforms into an integrated value chain

when it…o Extends the chain all the way from sub-suppliers to customerso Integrates the back-office operations with those of the front officeo Becomes highly customer-centric, focusing on demand generation

and customer serviceo Is proactively designed by chain members to compete as an

“extended enterprise”o Seeks to optimize the value added by information and utility-

enhancing services


Value chain integration


Enterprise resource planning (ERP)

ERP is the process of planning and managing all resources and their use in the entire enterprise

o Leading ERP software producers include SAP, Oracle, JD Edwards, Computer Associates, PeopleSoft

ERP is there to integrate all departments and functions across a company onto a single computer system


ERP functions

Provides a single interface for managing routine manufacturing activities

Facilitates customer interaction and manages relationships with suppliers and vendors

Forces discipline and organization around business Supports administrative activities Starting 1990s – 2nd generation ERP penetrated the

marketplace Emergence of SCM systems that complement ERP

systemso Provide intelligent decision support capabilities Overlay existing system and pull data from every step of the supply

chain


ERP implementation

Identify customer’s expectations Determine ERP product capabilities, and gaps Level of change the customer has to go through to make

the system fit Level of commitment within the customer organization to

see the project through Customer’s organization and culture Risks presented by politics within the customer

organization Consultant’s capabilities, responsibilities and role (if

applicable)


eCommerce and SCM

Replaces all paper documents with electronic documents Replaces faxes, phone and telegrams with electronic

messaging system Enhances collaboration and information sharing Results in shorter supply chain and minimum inventories Facilitates customer service Introduces efficiencies in buying and selling through the

creation of eMarketplaces


Managerial issues

Ethical issueso Conducting a supply chain management project may result in the

need to lay off, retrain, or transfer employeeso Sharing of personal information and computer programs

How much to integrate?o While companies should consider extreme integration projects,

including ERP, SCM, and electronic commerce, they should recognize that integrating sometimes results in failure

Role of ITo Almost all major SCM projects use IT – however it is important to

remember that technology plays a supportive role to organizational and managerial issues


Case: How did Dell re-engineer its SC

Problemo Dell pioneered the mail order approach to selling PCso In 1993, Compaq cuts prices to drive Dell out of the market and Dell experiences

$65 million in losses Solution

o Dell implements the following re-engineering strategies Mass customization Just-in-time marketing Electronic orders and shipments eCollaboration with major buyers

Resultso In 2001, Dell made over $4 million in computer web sales/ dayo Becomes leader in Customer Relationship Management (CRM)o Online tracking of orders and shipmentso Viewer approved configurations and pricingo Customized home pages for clients


Lessons from dell.com

By introducing a new business model, one can change the manner in which business is done

To implement this model on a large scale, one needs to build superb supply chain management

Dell made an improved logistics system along the entire supply chain

Improved communications and customer service, which are part of Dell’s CRM program, are the cornerstones of its success

Organizational Applications and Solutions SCM and ERP

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