Chapter_15 Supply Chain Information Systems and Electronic Commerce

PURCHASING & SUPPLY CHAIN MANAGEMENT, 4e
Supply Chain Information

Systems and Electronic
Commerce
Chapter 15
CENGAGE LEARNING
Monczka – Handfield – Giunipero – Patterson
Chapter Overview
 Evolution of e-SCM systems

 An overview of the e-supply chain
 Drivers of new supply chain systems
and applications
 Enterprise resource planning systems
 Purchasing databases and data
warehouses
Purchasing & Supply Chain Management, 4e

2
Chapter Overview
 Technology for electronic

communication between buyers and
sellers
 E-sourcing suites
 E-sourcing basics
 Supplier relationship management
 E-sourcing and supply: fully integrated
systems
3
The Electronic Revolution in SCM
 Continued growth in web-based supply

chain tools and solutions
 Greater sophistication in e-SCM system
expenditures
 Fewer software providers
 Increasing capabilities
 Shorter project implementation life cycles
 Improved pricing and terms
4
Evolving e-SCM Tools
 Point-of-sale systems
 RFID
 Product life cycle software
 Bid optimization
 Computerized negotiation models
 E-mobile environment (laptops, PDAs,
and smart cell phones)

5
Supply Chain Information Flows
 Record and retrieve critical data
 Execute and control physical and
monetary flows
 Automate routine decisions
 Support planning activities
 Support higher-level tactical and
strategic decision making
 Move and share information cross
firms and between users
6
Decision Making
Internal
CRM SRM
SCM
Strategic Decision Making
Supply Chain Planning
Tactical Decision Making
Routine Decision Making
Transaction Processing
7
Transaction Processing
 Information flows record and retrieve

critical data
 Execute and control physical and
monetary flows
 Little or no human intervention
 Bar code system to track location

8
Routine Decision Making
 Oftentimes automated
 Exceptions dealt with manually
 Automated inventory management
systems
 Order quantities
 Reorder points

9
Supply Chain Planning
 Decide on technologies for next

generation of products or services
 Identify supply base requirements
 Forecasted demand
 Production decisions
 Projected cash flows

10
Strategic Decision Making
 Search for data patterns or

relationships
 Customer segment analysis
 Product life cycle forecasting
 “What if” analyses
 Need for flexibility for data
manipulation and presentation
 Decision support systems (DSS)
11
SCM Systems Map
Strategic Decision
Network
Decision Support
Design
Making Systems (DSS)
Supply Supplier Customer
Chain Relationship Relationship
Planning Management Management Warehouse
(SRM) (CRM) and
Tactical Applications Applications Transportation
Decision Planning
Making Enterprise
Resource
Planning
Routine Warehouse
(ERP)
Decision Management
Applications
Making and
Transaction Transportation
Processing Execution
Suppliers Internal Customers Logistics
Supply Chain 12
Enterprise Resource Planning
 Large, dedicated business transaction

processing and reporting systems
 Integrates all classic business
functions together
 Uses common database
 Best for routine decision making and
transaction processing

13
ERP System Overview
Finance Accounting Finance Sales Operations Purchasing
Central
Database

14
SRM/CRM Applications
SRM Applications CRM Applications
 Design collaboration  Market analysis
 Sourcing decisions  Sell process
 Negotiations  Order management
 Buy process  Call and service
 Supply collaboration center management

15
Network Design Applications
 Where should we locate warehouses?

 How large should our transportation
fleet be?
 Based on simulation and optimization
modeling

16
Transportation - Warehouse Planning
 Used to allocate fixed logistics capacity

 How many units should we ship from
each warehouse to each demand
point?
 Optimization modeling based on
warehouse capacities, customer demand
levels, and shipping costs

17
Execution Systems
 Kick off and control movement of

materials between supply chain
partners
 Where to store
 Where to go pick items up
 How many to pick
 Bar code systems
 Global positioning systems
18
Drivers of New SCM Systems
 Internal and external strategic

integration
 Globalization and communication
 Data information management
 New business processes
 Replacement of legacy systems
 Strategic cost management

19
Strategic Integration
 Internal
 Use of common information between
various sites and functional areas
 Enterprise resource planning systems
 External
 Need to link suppliers, distributors, and
customers
 Forecast demand
 Balance supply and demand
20
Globalization and Communication
 Differing cultures and geographies

 Need to:
 Manage global customers and suppliers
 Calculate total global logistics costs
 Increase leverage and component
standardization
 Improve communication of global
strategies

21
Data Information Management
 New IS technologies (servers, wireless

applications, and telecommunication)
 Need to effectively filter, analyze, and
mine huge amounts of data to support
managerial decision making
 Data warehouse systems
 Decision support systems

22
New Business Processes
 Constantly evolving and changing

technologies
 Reduce redundancies, delays, and
waste
 Need to create a rapid response
capability to adapt to changing
customer needs and controlling costs

23
Replacement of Legacy Systems
 Need to replace existing piecemeal

chains of unlinked data systems
 Eliminate hardware and software
incompatibilities and allow real time,
fluid communication
 Computer networking
 Telecommunications
 Web-based applications
24
Strategic Cost Management
 High volume of transactions to deal

with
 Need to automate data capture in a
single enterprise-wide data warehouse
accessible to all users
 Timely and accurate information
replaces inventory investments

25
ERP Systems
 Integrated transaction processing and

reporting system
 Tracks organizational resources,
including people, processes, and
technology
 Creates a process logic for functional
interaction

26
An ERP System Example
Financial and Resource Controlling
Logistics Controlling – Warehouse, Transportation

27
Basic Business Processes
Selling a product
Customer order management process
or service
Production planning and execution

Making a product
process
Buying a product Procurement process
Costing, paying Financial / management accounting

the bills, collecting and reporting process

28
ERP and Basic Business Processes
 Adopting a single customer, product,

and supplier database
 One master record with multiple views
 Common database
 Information is captured only once in
real time
 Highly visible transactions
 Linked with the work flow
29
Implementing ERP Systems
 Create a process map for every major
process
 May need to reengineer processes prior
to ERP to remove non-value-adding
steps
 Could result in major organizational
and culture change
 Need for well-defined processes before
implementing
30
Implementation Steps
1. Define the current process as is

2. Define what the best-in-class business
process should be
3. Develop the system
4. Work through all final bugs and then
flip the switch

31
ERP Implementation Cycle
Source: Premier International, Chicago

32
Purchasing Databases
 An integrated collection of computer

files capable of storing operational data
essential for managing a department
 Minimal overlapping of information
between files
 Allows different systems to use data
contained in the database
 Efficient cross-referencing of data

33
Purchasing Data Warehouses
 Type of decision support tool for
collecting data from different resources
and making it available to end users in
a consolidated, consistent manner
 Combines data all in one place
 Maintained separately from the
production system database
 Organized around informational
subjects rather than by process
34
Purchasing Data Warehouses
 Data is fed from multiple production
databases
 Time-dependent, historical data
 Oftentimes aggregated

35
Purchasing Database Examples
 Part files
 Supplier name and address files
 Historical usage files
 Open-order and past-due files
 Bill-of-material files
 Engineering requirements files
 Forecasted demand files
36
Communication Technology
 Electronic data interchange (EDI)

 Standard form (EDI standards)
 Translation capability (EDI software)
 Mail service (EDI network)
 EDI and the Internet

37
An Ideal EDI Transaction
1. Buyer’s computer monitors real-time

inventory status
2. If replenishment needed, application
program notifies translation software
3. EDI P.O. is created and released
against pre-negotiated blanket order
4. Supplier’s computer receives order
and translates into local format
38
5. Functional acknowledgement is
automatically generated and sent to
buyer
6. EDI P.O. creates additional electronic
transactions
 Buyer’s accounts payable application
 Buyer’s receiving file
 Supplier’s warehouse or factory file
 Supplier’s invoice file
39
7. When order is filled at supplier,

advance shipping notice is created
and transmitted to buyer
8. Upon receipt of goods, actual shipping
notice is entered into receipt file

40
9. Receipt notice is transmitted to

buyer’s accounts payable application
and to supplier’s invoicing system
10. Invoice received by buyer is
translated into buyer’s format and
invoice, receiving notice, and P.O. are
reconciled in a three-way match

41
11. Payment authorization is generated

and transmitted to accounts payable,
and payment is sent to supplier
electronically
12. Electronic remittance notice is sent to
supplier, and buyer is credited for
payment

42
EDI and the Internet
 Traditional EDI:
 Often requires a major investment due to
application-specific technology
 Also requires payment of fees to VAN
providers
 Different EDI standards
 Different customers have different EDI
systems
 Not considered interactive
43
Virtual Private Network
 Similar to a VAN but at much lower cost

 Hosted on a third party’s website and
server
 Involves tunneling protocols for security
 May require a T1 line for large volumes
of data
 Typically requires a common ERP
platform at each end
44
Internet-Based EDI
Internet
Virtual Private Network
Router at HQ
Local ISP
Remote Client Corporate HQ – Local LAN

45
E-Sourcing Basics
 Sell-side systems
 Contain products or services from one or
more suppliers
 Buy-side systems
 Controlled by buyers and tied into their
intranets and extranets
 Third-party marketplaces
 Facilitate electronic purchasing process
without buying or selling
46
Sell-Side Systems
 Typically free registration to users

 Supplier guarantees site security
 No investment by buyer
 Ease of access to many suppliers
 Inability to track expenditures or to
control expenditures
 Offer varying degrees of security

47
Buy-Side Systems
 May be either self-designed or provided

by e-sourcing suite suppliers
 Allow supply manager to manage the
sourcing cycle, track spend, and exert
control of contract management
 Requires initial investment and periodic
updates

48
Third-Party Marketplaces
 Independent firms who neither buy nor

sell goods and services
 Vertical portals
 Narrow range of commodities
 Horizontal portals
 Broader range goods or services

49
SRM Systems
 Focused on decision support around a

broad group of transactions
 Using both data and structured
mathematical modeling
 Interactive system to assist in:
 Supplier selection
 Contract management
 Contract compliance
50
Characteristics of SRM Systems
 Spend analysis  Contract

 Sourcing management and
 RFQ processing compliance
 Reverse auctions  Supplier
 Bid optimization performance
 Negotiation and total measurement and
cost support control
 P.O. issuance  Total cost reporting
 Receiving and  Price forecasting
inspection
51
Spend Analysis
 Determination of the dollar amount and

volume of expenditures
 What goods and services purchased
 Which suppliers purchased from
 Where internal demand originates
 Spending reduction

52
Spending Reduction
 Consolidation of similar purchases

 Reduction in the number of suppliers
 Reduction of maverick spend
 Reduction of spend by other departments
 Increased use of more efficient
contracting methods
 Development of methods to reduce risk
and increase supply assurance
53
Spend Analysis Data
 Minimum of one year of spend data

 Develop similar categories of spend
 Assign spend to the categories
 Develop appropriate spend strategies

54
Request for Quotation
 A request to submit a proposal based

on a set of specifications provided by a
buyer
 Also known as the eRFx module
 Request for information (RFI)
 Request for proposal (RFP)
 Request for quotation (RFQ)

55
Reverse Auctions
 Electronics processes where multiple

sellers vie for the business of a single
buyer
 Results in price reductions
 Regular reverse auctions vs. rank
reverse auctions
 Can often alienate suppliers by focus
on price only
56
Steps in a Reverse Auction
 Buyer decides which commodities are
to be considered for a reverse auction
 Suppliers are initially evaluated and
invited to participate
 Buyer writes RFQ and sends to all
qualified suppliers
 Bidding process is conducted
 Buyer analyzes results and rewards
business to chosen supplier
57
How to Conduct a Reverse Auction
 Self-service
 Full-service third party provider
 Selection of commodity
 Supplier qualification
 Provide training
 Conducts auction

58
Reverse Auctions
 Buyer-initiated bidding event

 Utilizes electronic software that allows
price or rank visibility to sellers
 Secure, online environment within a
specified timeframe
 Goal is rational market price for the
chosen commodity
 Reduces bidding time
59
Concerns of Reverse Auctions
 Price reductions without regard to

existing or future relationship
 May breed mistrust or lack of
cooperation
 Realized price reductions may
decrease over time
 Tactical, not strategic in nature

60
Phases of A Reverse Auction
 Before the reverse auction

 Determine strategic importance of
relationship
 Importance of price vs. other variables
 Offer phase
 Explaining the rules
 Execution phase
 Select appropriate form of contract
61
Considerations in Reverse Auctions
 Price – most controversial

 Strategic importance of relationship
 Tradeoff between price and opportunity
cost of not choosing suppliers who can
contribute in non-price areas
 Market-based (bid-and-buy) approach
vs. need for relationship and
cooperation
62
E-Bid Optimization
 Permits suppliers to configure bids in

any number of alternative ways
 Flexible bidding or expressive bidding
 Increases buyer’s ability to analyze and
review bids optimally
 Uses mathematical algorithms in
evaluating different supply and cost
scenarios
63
Estimating Total Costs
 Shipping
 Freight
 Duties
 Imports and tariffs
 Inventory costs
 Quality costs

64
Contract Management / Compliance
 Oversight of the back end of the

sourcing process
 Ensure that suppliers and users are in
compliance with contract terms
 Other considerations

65
Other Considerations
 Price compliance
 Changes in terms
 Volume discount thresholds
 Payment schedules
 Due dates
 Contingencies for nonperformance

66
Performance Measurement
 Visibility to open-item status

 Measures and analyzes supplier
performance
 Use of electronic scorecards
 Automatic inquiry of item status
 Monitoring of order due dates
 Analysis of supplier performance

67
Performance Measurement
 Capability to monitor planned receipts

against due dates
 Provide immediate visibility to past-due
items
 Flag those items likely to become past
due
 Generate summary reports and
compare to predetermined criteria
68
Benefits of Measurement
 Input into supplier selection

considering total cost, not just price
 Isolating supplier process
inefficiencies
 Improving total cycle times
 Providing suppliers with reliable
feedback on historical performance

69
Total Cost Reporting
 Generate timely management reports

 Provide visibility to entire materials
process
 Use of data warehouses
 Frequency of reporting
 Real-time updating
 Data buckets
 Batch updating
70
Price Forecasting
 Length of item’s product life cycle

 Current life cycle phase
 Item’s price history

71
Integrated E-Sourcing and Supply
 ERP systems
 Sourcing strategy module
 Supply chain planning module
 Distribution planning module
 Demand planning module
 Supplier collaboration module

72
Information Visibility
 Sharing critical data required to

manage the flow of products, services,
and information in real time between
suppliers and customers
 Share forecasts
 Manage inventories
 Schedule labor
 Optimize deliveries

73
Benefits of Information Visibility
 Suppliers are aware of buyer’s needs in

a timely manner
 Buyer is assured that shipments are
received on time, every tome
 Allows problems to become more
visible earlier
 Improved processes

74
Benefits of Information Visibility
 Breaks down organization barriers

 Builds in supply chain visibility
 Manages by metrics
 Reduces decision cycle time
 Encourages decision making
collaboration
 Reduces opportunity and problem
resolution latency
75

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PURCHASING & SUPPLY CHAIN MANAGEMENT, 4e

Supply Chain Information

 Evolution of e-SCM systems

Purchasing & Supply Chain Management, 4e

 Technology for electronic

 Continued growth in web-based supply

Purchasing & Supply Chain Management, 4e

Supply Chain Planning

Tactical Decision Making

Routine Decision Making

 Information flows record and retrieve

Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e

 Decide on technologies for next

Purchasing & Supply Chain Management, 4e

 Search for data patterns or

 Large, dedicated business transaction

Purchasing & Supply Chain Management, 4e

Finance Accounting Finance Sales Operations Purchasing

Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e

 Where should we locate warehouses?

Purchasing & Supply Chain Management, 4e

 Used to allocate fixed logistics capacity

Purchasing & Supply Chain Management, 4e

 Kick off and control movement of

 Internal and external strategic

Purchasing & Supply Chain Management, 4e

 Differing cultures and geographies

Purchasing & Supply Chain Management, 4e

 New IS technologies (servers, wireless

Purchasing & Supply Chain Management, 4e

 Constantly evolving and changing

Purchasing & Supply Chain Management, 4e

 Need to replace existing piecemeal

 High volume of transactions to deal

Purchasing & Supply Chain Management, 4e

 Integrated transaction processing and

Purchasing & Supply Chain Management, 4e

Financial and Resource Controlling

Logistics Controlling – Warehouse, Transportation

Purchasing & Supply Chain Management, 4e

Production planning and execution

Buying a product Procurement process

Costing, paying Financial / management accounting

Purchasing & Supply Chain Management, 4e

 Adopting a single customer, product,

1. Define the current process as is

Purchasing & Supply Chain Management, 4e

Source: Premier International, Chicago

Purchasing & Supply Chain Management, 4e

 An integrated collection of computer

Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e

 Electronic data interchange (EDI)

Purchasing & Supply Chain Management, 4e

1. Buyer’s computer monitors real-time

7. When order is filled at supplier,

Purchasing & Supply Chain Management, 4e

9. Receipt notice is transmitted to

Purchasing & Supply Chain Management, 4e

11. Payment authorization is generated

Purchasing & Supply Chain Management, 4e

 Similar to a VAN but at much lower cost