ERP and Supply Chain Management

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ERP and Supply Chain Management
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Case Dell Reengineering Supply Chain

• 1993, Compaq cuts prices to drive Dell out of
  market. Dell experiences 65 million loss.
• business process reengineering
• pioneered mail order approach to selling PCs
• re-engineering strategies
• mass customisation
• JIT e-orders shipments
• e-collaboration with major buyers
• reduction in testing period
• monitoring of productivity returns on
  investments

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Dell and Reengineering Supply Chain

• Results
• 2001, gt 4 million in computer web sales/ day.
• leader in Customer Relationship Management (CRM)
• online tracking of orders shipments
• user approved configurations pricing
• customized home pages for clients
• Intelligent Agents used in production process
• increased communication with suppliers.
• 1999, Dell becomes No. 2 PC seller

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Lessons

• new business model
• change how business is done.
• large scale implementation
• improved logistics system along entire supply
  chain.
• improved communications and customer service
• CRM programme
• B2B e-Comm with business partners

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Aims of SCM
increased competitive advantage profitability
positive affect on inventory levels,
response/cycle times, business processes
customer service quality
collaborate, analyse, develop systems, reduce
uncertainty risks in supply chain.
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Components of Supply Chain
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The Supply Chain

• life of a product from birth to death.
• movement of tangible intangible inputs.
• all shapes and sizes
• can be
• complex bi-directional i.e. return of products
  (reverse logistics)
• flow of goods/services, info. investment must
  ? added-value
• Michael Porter - value-added analysis
• Problems with SCM ? military re-supply,
  litigation company losses e.g. ?????

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Supply Chain Problems

• UNCERTAINTY
• in demand forecast
• in delivery times production delays

• POOR COORDINATION
• with internal units business partners
• poor customer service
• high inventory costs,
• loss of revenue
• extra cost for expediting services.

• Bull Whip Effect
• persistent SCM problem.
• erratic orders up/down supply chain.
• distributor orders fluctuate poor demand
  forecast, price changes, order batching
  rationing e.g. Porter Gambles distortion in
  SCM for disposable diapers.
• avoidable with Intranet/Extranet eComm groupware

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Traditional Solutions

• Vertical Integration
• acquire own suppliers - the supply source
• problem - not "sticking to the knitting"
• Stock holding
• Insurance against shortages.
• difficult to determine inventory level for each
  product part
• holdling costs and ordering costs

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CASE Littlewoods improved its SCM

• clothing retailer - 136 stores in UK Ireland.
• overstocking problems in SCM
• Solution
• data-mining
• WWW-based reporting system.
• merchandising staff better stock, sales
  supplier decisions.
• 1997 1.2 million saved with strategic price
  merchandising

• Use IT for measuring working on e.g.
• delivery on time
• quality at unloading area
• cost performance
• lead time for procurement

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Other Solutions

• peak times, outsource rather than DIY
• Buy gt make production when appropriate.
• configure optimal shipping plans.
• strategic partnerships with suppliers.
• just-in-time approach to purchasing.
• reduce the lead time for buying and selling.
• fewer suppliers.
• improve supplier-buyer relationships.
• manufacture only after orders are in.
• accurate demand - work closely with suppliers.

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IT Systems SCM

• 1950s - 60s the first software to support supply
  chain
• 1970s
• Material Requirement Protocol (MRP) enhanced to
  become MRP - Material Resource Planning
• local area networks integrated systems sales
  order processing, stock control, purchase order
  processing etc
• 1990s
• systems interconnectivity through accessible
  databases
• Enterprise Resource Planning (ERP) integrate
  transaction processing activities
• WWW and eCommerce
• Extended ERP/SCM software.

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IT Systems SCM
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Systems Integration - Sandoe Saharia (2001)

• Other
• unformation visibility
• customer satisfaction
• modularisation standardization
• lean and flexibility
• globalization business performance

• Tangibles
• reduced
• inventory
• staff
• procurement cost
• improved
• productivity business processes
• order mgt
• financial cycle
• innovation
• IT cost? Increase?
• Revenue/profit increases etc
• sourcing of requirements

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Value Chain Integration
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Warner-Lambert - Integrated Supply Chain

• Problem
• WL needs to improve demand forecast of products.
• How
• bought a Demand Planning Information System
• to analyse manufacturing, distribution, sales
  data.
• anticipate seasonal or production line problems
• increases shelf fill rate from 87 to 98
• 8 million/year additional sales.

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Enterprise Resource Planning

• ERP Process of planning managing all
  resources their use in the entire enterprise.
• Software producers
• SAP, Oracle, J.D. Edwards, Computer Associates,
  People Soft

• single interface for managing routine
  manufacturing logistics activities.
• aid customer interaction manage supplier
  relationships
• force business coordination discipline
• support admin. activities.

• ?
• integrate all company departments functions
  onto one computer system with accessible,
  "mine-able" databases and reporting

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2nd Generation ERP

• late 1990s, some benefits of ERPs being
  exploited.
• need for planning systems oriented towards
  decision-making.
• SCM systems start to complement ERP systems.
• intelligent decision support capabilities.
• overlay existing system pull data from every
  step of supply chain.

• break large ERP systems into individual
  components that work together.
• easier for ERP vendors to enhance solutions and
  for customers to upgrade software.
• vendors extend core ERP with supply chain, sales
  automation customer relationship management
  (CRM)

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ERP Implementation

• To avoid failure consider
• customer expectations.
• ERP product capabilities, and gaps.
• level of change the customer has face to make the
  system fit.
• level of commitment within customer organization
  to see the project thru

• customer organization culture.
• risks politics within customer organization
• consultants capabilities, responsibilities and
  role

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Application Service Providers ERP Outsourcing

• option for businesses wanting ERP functions is to
  lease applications gt build
• ASP software vendor that leases ERP-based
  applications to other businesses
• ERP projects are
• expensive to install
• take long time to implement
• staffing is a major problem

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Global Supply Chains

• Issues
• legal regulation, customs fees, taxes
• language cultural differences
• exchange rates fluctuations
• political instabilities

• Global Supply Chains involve suppliers and/or
  customers in other countries.

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LEGO Case

• rushed to get its "e-product to market
• Inexperience ? problems with
• supporting distribution service system
• merging offline online operations
• warehouses could not handle distribution to
  individuals
• handling returns from overseas
• invoicing must comply "national" regulations
• Outcome
• Lego closed WWW site.
• One year to solve global eComm-related issues

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How EC contributes to SCM

• digital products (software) - flow of materials
  is expedited
• replaces paper documents with e-documents e.g.
  order copies, invoices
• replaces fax, phone with e-messaging
• support network organisations collaboration
  information sharing e.g. seller and distributor

• nature and structure of supply chain moves from
  linear to hub.
• shorter supply chain and minimum stock
• aids sales response customer service
• buying sales efficiencies thru. e-marketplaces.

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Buying Selling along the Supply Chain

• aim of eComm is to facilitate buying and selling
  along the supply chain. Activities are
• upstream
• internal SCM
• downstream
• combined upstream / downstream

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Integration of eComm with ERP

• most medium/large companies have ERP systems
• eComm needs to interface with ERP so -
  interconnect them
• extending existing ERP to support e-Comm means
• more investment in ERP
• rapid development of eComm applications.
• but ERP software is complex to construct/modify
• need expertise or to buy it in .... expensive
• easy, smooth integration easily hits problems

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Order Fulfillment in eComm

• When selling direct to customers - note
• pick pack the products to be shipped quickly
• arrange for prompt and relable delivering to the
  door
• process payment, in advance (money transfer), COD
  or invoice
• handle returns - unwanted or defective goods
• knotty operational activities that require
  effective, efficient systems. They bring problems
  to supply chains.

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Online Order Fulfilment Logistics

• order fulfillment is part of back-office
  operations but strongly related to front-office
  operations
• e-Tailors faced problems in order fulfillment,
  especially at holiday periods
• Amazon needed physical warehouses to expedite
  deliveries and reduce order fulfillment costs.
• eComm relies on JIT pull operations - the order
  (even a customised order) pulls the stuff from
  the supply change
• reliance on pull involves difficult
  forecasting and stocks to meet demand.
• in B2C pull, goods need be delivered to
  customers door.

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Innovation and Supply Chain

• Galleryfurniture.com
• Webcams to demonstrate product inventory

• Garden.com proprietary software to
  collaborate with suppliers efficiently/effectively
  .

Porter - product differenitation and cost
leadeship
Mail Boxes Etc. Return.com logistics system
that determines whether a customer is entitled to
a return refund.
Rightfreight.com Manages a
marketplace. Helps companies with goods to find
"forwarders" who prepare goods for shipping.
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Automated order processing and despatch

• Traditional warehouses
• deliver large quantities to a stores and plants.
• B2C eComm
• send small quantities to many individuals.
• large-volume eComm fulfillment
• needs special automated warehouses with robots
  "pick and pack" devices
• Most B2C is shipped via
• outsourcers who handle the logistics mail orders
  (incl. online orders).

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Dealing with Returns

• Return items to where they were bought
• works for a small number of returns.
• Customer returns go to an independent unit
  (within the company or outsourced) that handles
  matters separately
• more efficient, but buyer still unhappy.
• customer physically drops the returned items at
  collection points
• e.g. a local shop/Post Office

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Managerial Issues

• Ethical SCM project may ? lay-offs transfers
  of work to other countries - matters of
  employment contracts. Are they ethical matters?
• Data sharing data programs - intellectual
  property - may be shared - a matter of trust
• Do we integrate or hold ourselves in reserve?
  Total integration thru. ERP, SCM, and
  e-commerce, makes us vulnerable to partner
  failure - big risk. Do we keeping matters under
  our own control?
• IT complexity major SCM projects exploit
  advanced IT. We need to know that
• we have the capability (expertise)
• the systems are reliable and there is a fail-safe
• we can sustain the systems and up-grade them