CHAPTER 4 Supply Chain, Enterprise Resources Planning, and Business Processes Engineering

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IT for Management Prof. Efraim Turban

Learning Objectives
Understand the concept of the supply chain, its importance, and management. Describe the problems of managing the supply chain and some innovative solutions. Trace the evolution of software that support activities along the supply chain. Define business processing reengineering (BPR) and understand its relationship with the supply chain.

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Learning Objectives
Describe the networked organization and identify its benefits. Demonstrate the role of IT in supporting BPR. Describe mass customization, cycle time reduction, self-directed teams, and empowerment. Define business alliances and virtual corporations. Understand the relationships among enterprise resources planning (ERP), supply chain management (SCM), and electronic commerce.

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How Dell Reengineered and Managed its Supply Chain to Become #1

The Problem
price war, and on the verge of bankruptcy

The Solution
using just-in-time manufacturing using mass customization locating within 15 minutes of Dells suppliers doing most orders on the Web shipping by UPS selling standard computers to large corporations testing new PC models at the same time as the networks solutions are developed monitor productivity and rate of return on investment, on all products
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How Dell Reengineered and Managed its Supply Chain to Become #1

What Role did IT Play?
electronic commerce with customers extranet for suppliers Using the Internet to create a community around its supply chain

The Results
become the number one PC seller be considered one of the worlds bestmanaged and profitable companies
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Essentials of the Supply Chains

Dell case demonstrates that:
by introducing a new business model one can change the manner in which business is done and may even capture the leadership in its industry by introducing major customer-related changes, one can improve the communication and customer services by improving logistics system along the entire supply chain, Dell integrated its own suppliers into its supply chain, efficiently and effectively Dell created flexible and responsive manufacturing systems the changes are considered to be a complete reengineering Dell supports all of the above by extensive use of electronic commerce, the Internet, extranet and intranets
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Essentials of the Supply Chains

Supply Chain
the flow of material, information, and services from raw material suppliers through factories and warehouses to the end customers

Supply Chain Management (SCM)

to plan, organize, and coordinate all the supply chains activities
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Essentials of the Supply Chains

Benefits reduce uncertainty and risks in the supply chain
positively affecting inventory levels, cycle time, business processes, and customer service increase profitability and competitiveness
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Essentials of the Supply Chains

The Components of Supply Chain
Upstream supply chain includes the organizations first-tier suppliers and their suppliers Internal supply chain includes all the processes used by an organization in transforming the inputs of the suppliers to outputs Downstream supply chain includes all the processes involved in delivering the products to final customers

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Supply Chain
The Generic Process

Upstream
2nd Tier Suppliers

Internal
Assembly/ Manufacturing and Packaging

Downstream
Distribution Centers Retailers Customers

2nd Tier Suppliers

2nd Tier Suppliers

1st Tier Suppliers

Tier Suppliers

1st

The Cereal Manufacturing Process

Grain
Grain Producer Lumber Company Corrugate Paper Co.

Packaged Cereal Cereal

Processing Packaging Facility Distribution Centers Stores Customers

Box Paperboard Labels

Label Manufacturing

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Uncertainties

Problems Along the Supply Chains

demand forecast, which influenced by competition, prices, weather conditions, technological development, and customers general confidence delivery times, which depend on several factors ranging from machine failures to road conditions and traffic jams, that way interfere with shipments

Symptoms of poor SCM

poor customer service, which hinders people from getting the product or service when and where needed, or gives them a product of poor quality High cost, low (or no) profit

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Some Solutions to the Supply Chain Problems

Vertical integration - building inventories Coordination of all different activities Use outsourcing rather than do-it-yourself during demand peaks Buy rather than make production inputs whenever appropriate Configure optimal shipping plans Create strategic partnerships with suppliers Use just-in-time approach to purchasing Use fewer suppliers Use IT to support the above

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The Evaluation of Computerized Aids

2000 1990 1980 1970 1960
Inventory
Purchasing MRP

+ + +

Production scheduling

MRP MRP II

Production Management Major Manufacturing Resources Coordinated Manufacturing and Service Transactions

Finance, labor All internal resources

MRP II ERP

ERP

Internal customers + and suppliers

Internal Extended SCM ERP/SCM Extended Extreme/ SCM Integration

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Internal External suppliers + and customers ERP/SCM

IT for Management Prof. Efraim Turban

Why Integration?
Tangible benefits
Inventory reduction, personnel reduction, productivity improvement, order management improvement, financial-close cycle improvements, IT cost reduction, procurement cost reduction, cash management improvements, revenue/profit increases, transportation logistics cost reduction maintenance reduction, and ontime delivery improvement
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Why Integration?
Intangible benefits
Information visibility, new/improved processes, customer responsiveness, standardization, flexibility, globalization, and business performance.

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Integrating the Supply Chain

After the introduction of computer-based information, companies started to integrate the links of the supply chain New forms of organizational relationships and the information revolution, especially the Internet and electronic commerce, have brought SCM to the forefront of management attention
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Enterprise Resources Planning (ERP)

Objective
to integrate all departments and functions across a company onto a single computer system that can serve all of the enterprises needs

Results
productivity improvement increases customer satisfaction
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SAP - The Complete Solution

SAP R/3 is comprised of four major application categories - accounting, manufacturing, sales, and human resources containing more than 70 modules SAP R/3 allows companies to automate or eliminate many costly and error-prone manual communication procedures SAP implementation is very complex and consequently very expensive
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Example of How R/3 Work

Step 1 : Brazilian retailer orders, via the Internet, 1,000 shoes from International Shoe Co. A sales rep takes the order, routes it to R/3s ordering module, R/3 checks the retailer credit, price, etc. The order is approved. Step 2 : Simultaneously R/3s inventory module checks the stocks and notifies the rep that half the order can be filled immediately from stock. The other half will be manufactured and delivered in 5 days directly from the factory in Taiwan.
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Example of How R/3 Work

Step 3 : R/3s manufacturing module schedules the production in Taiwan and instructs the warehouse (in Chinese) to ship the shoes to Brazil and print up an invoice (in Portuguese). Step 4 : R/3s human resources module calculates labor requirements. Due to a shortage, the personnel manager in Taiwan is instructed to get temporary workers. Step 5 : R/3s material planning module notifies the purchasing manager about a shortage of purple dye. A purchase order is automatically issued.

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Example of How R/3 Work

Step 6 : The customer logs on via the extranet to the companys sneakers division. He can see that 500 shoes were shipped from the regional warehouse. This is done with R/3 tracing capabilities. Step 7 : Based on data from R/3s forecasting and financial modules, the CEO can determine both demand and profitability per product. The financial module also converts all foreign moneys to $U.S., whenever needed
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ERP
Pros
provides a single interface for managing all the routine activities performed in manufacturing can integrate several hundred applications plays critical role in getting small- and mediumsized manufacturers to focus on business processes

Cons
need to change existing business processes to fit SAPs the format never meant to fully support supply chains difficult to build, operate, change and maintain

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First Generation ERP

Supported routine transactional activities Excelled in transaction management Generated reports which provided a snapshot of the business at a point in time Did not support the continues refining and enhancing of plans as changes and events occur, up to the very last minute before executing the plan
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Second Generation ERP

Adds decision support and business intelligence capabilities Integration of database management systems (DBMS) and spreadsheets in Excel or Lotus 1-2-3 It is Web-based Integrates CRM and EC
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Application Service Providers and ERP Outsourcing

Application service providers (ASP)
a software vendor that offers to lease ERPbased applications to other businesses offerings are evident in ERP-added functions such as electronic commerce, customer relationship management (CRM), datamarts, desktop productivity, human resources information systems (HRMS), and other supply chain-related applications
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Global Supply Chains

IT provides EDI, communication options, online expertise in sometimes difficult and fast-changing regulations IT can be instrumental in helping businesses find trade partners IT facilitates outsourcing of products and services, especially IT programming, to countries with plentiful supply of labor, at low cost

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Business Process Reengineering (BPR)

Fundamentally rethinking and radically redesigning business processes, in order to achieve dramatic improvements in quality, cost, speed and service
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The Need for BPR

Three Cs
Customers today know what they want, what they are willing to pay, and how to get products and services on their own terms. Competition is continuously increasing with respect to price, quality, selection, service, and promptness of delivery. Change continues to occur. Markets, products, services, technology, the business environment, and people keep changing, frequently in an unpredictable and significant manner.

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Problem of the Stovepipe

Stovepipe because of lack of cooperation between functional areas (vertical dimension) Business process reengineering (BPR), which undertakes a fundamental change in specific business processes, integrates information required for good decision making
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Need for Information Integration

Vendors, Suppliers
Distribution

Organization
Purchasing Finance R&D Production Sales Distribution

Customers
Logistics, Services

Product development

Order fulfillment

Planning, resourcing, and control

Customer service

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Business processes across functional areas and organizational boundaries.

IT for Management Prof. Efraim Turban

IBM Credit Corporation Reduced Cycle Time by 90%

The old process
took an average of seven days

The reengineered process

a simple DSS provides the deal structurer with the guidance needed the program guides the generalist in finding information in the databases, plugging numbers into an evaluation model, and pulling standardized clauses - boilerplate-from a file electronic communication and collaboration
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The Enabling Role of Information Technology in BPR

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Shared databases, Internet client/server architecture, intranet Expert systems, neural computing Telecommunication and networks: client/server intranet Decision support systems, enterprise support systems, expert systems Wireless communication and portable computers, the web, electronic mail Interactive videodisk, desktop teleconferencing,electronic mail Tracking technology, groupware, workflow software, search engines High-performance computing systems, intelligent agents Groupware and group support systems,telecommunication, electronic mail, client/server CAD/CAM, CASE tools, online systems for JIT decision making, expert systems CAD/CAM, electronic data interchange, imaging processing Artificial intelligence, expert systems Robots, imaging technologies, object-oriented programming, expert systems, geographical information systems (GIS)

IT for Management Prof. Efraim Turban

Retooling of IT for BPR

Get a good understanding of the current installed base of information systems applications and databases Understand the existing infrastructure in terms of computing equipment, networks, and the like, and their relationships to the current available software, procedures, and data
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Tools for BPR

Simulation and visual simulation tools Flow diagrams Work analysis Rapid application development Other tools (e.g. CAD/CAM, imaging technologies, EDI, interorganizational systems and expert systems) Integrated tool kits Workflow software The Web

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Fords Process Redesign

OLD PROCESS
Supplier Purchase Purchasing order Copy of Goods purchase order

NEW PROCESS
Purchase Supplier

Purchasing
Database

order Goods

Payment

Ford receiving
Receiving document

Ford receiving

Accounts payable
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Accounts payable
125 Employees

500 Employees

Payment

Invoice

IT for Management Prof. Efraim Turban

From Mass Production to Mass Customization

Mass production
a company produces a large quantity of an identical standard product

Mass customization
a company produces large volumes, yet customizes each product to the specifications of individual customers

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Push-based Supply Chain vs. Pull-based Supply Chain

PUSH
Manufacturer Retail Distribution Center Retail Store Customers Purchase Merchandise

PULL Customers Purchase Merchandise

Retail Store Retail Distribution Center Manufacturer

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Cycle Time Reduction

IT allows the combination or elimination of steps, and the expedition of various activities in the process Telecommunications and especially the Internet and intranets cut communications time through the use of e-mail and EDI and allows collaboration in design and operations of products and services
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Reengineering Organizations
An Example - Bank
Customer deals with a single point of contact, the account manager Account manager is responsible for all bank services, and provides all services to the customer, who receives a single statement for all accounts IT provides account manager with expert advice on specialized topics, such as loans By allowing easy access to the different databases, the account manager can answer queries, plan, and organize the work with customers

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Networked vs. Hierarchical Organization

Hierarchical Organization
Formal Highly structured Manage Control Direct Employees a cost
Information management -owned

Networked Organization

Informal Loosely structured Delegate/lead Ownership/participation Empower Employees an asset

Information shared ownership

Hierarchical Organizations Risk avoidance Individual contributions

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Flatter Organizations Risk management Team contributions

IT for Management Prof. Efraim Turban

From Hierarchy to a Network

Hierarchical Organization
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Flattened Organization

Network Organization

IT for Management Prof. Efraim Turban

Empowerment
The vesting of decision-making or approval authority in employees Giving permission to the workforce to unleash, develop, and utilize their skills and knowledge to their fullest potential, for the good of the organization as well as for themselves, and providing the framework in which this can be done
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Empowerments Relationship to Information Technology

IT provides the right information, at the right time, at the right quality, and at the right cost IT provides tools that will enhance the creativity and productivity of employees, so they can make self-decisions, as well s the quality of their work IT provides online training, uses multimedia, and even apply intelligent computer-aided instruction to employees who need more skills and higher levels of skills
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Teams
Types of teams
permanent or work group teams problem-solving teams quality circles, participating teams management teams virtual teams

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IT plays a critical role in empowering team members and providing the necessary communication links among teams

IT for Management Prof. Efraim Turban

Virtual Corporations
Virtual corporation is an organization composed of several business partners sharing costs and resources for the purpose of producing a product or service Major attributes

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excellence opportunism trust technology

full utilization lack of borders adaptability to change

IT for Management Prof. Efraim Turban

How IT Supports Virtual Corporation

IT allows communication and collaboration among the dispersed business partners Standard transactions in the interorganizational IS are supported by EDI and EFT The Internet is the infrastructure for these and other technologies Modern database technologies and networking permit business partners to access each others databases ERP software is extensively used to support standard transactions among business partners

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Upstream activities

Buying and Selling Along the Supply Chain

Bidding Consolidation of vendors catalogues in buyers site Onsite specialty stores Other purchases Buying knowledge Internal SCM activities

Downstream activities
Selling on your own web site Auctions on your web site
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Upstream and Downstream combined

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Implementing EC Solutions Along the Supply Chain

Build in yourself, in house Outsource the job

Integrate EC with ERP

Integration with CRM and DSS

Componentization
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