Supply chain information flows & technologies

1. Supply chain information flows& technologies Professor Cecil Bozarth College of Management North Carolina State University

2. Premise • All supply chains consist of: • Physical flows • Information flows • Monetary flows • There is a difference between the supply chain’s logical information flows and the information technologies (IT) used to support them • The technologies are constantly changing; the logical flows are not … • … with one major exception that we will discuss.

3. Sources –Supply chain information flows • Manufacturing Planning & Control for Supply Chain Management, by Vollmann, Berry, Whybark and Jacobs. McGraw-Hill / Irwin, 5th Edition, 2005. • Rigorous and comprehensive treatment of S&OP, master scheduling, MRP, etc. • Sales & Operations Planning: The How-To Handbook, by Thomas Wallace, T.F. Wallace & Company, 1999. • High-level workbook for understanding and implementing S&OP

4. Sources –Supply chain information technologies

5. Learning Objectives After completing this module you will be able to: • Discuss at a high level the different levels and types of supply chain information flows • Contrast the traditional top-down approach to supply chain planning and control with the emerging horizontal supply chain perspective.

6. Outline • Supply chain information flows • Supply chain information technologies • Managing individual information flows

7. 1. Supply Chain Information Flows

8. A map of supply chain information flows Supplier Internal Customer Linkages Production Logistics Linkages Strategic decision-making Planning systems Execution systems

9. A map of supply chain information flows Supplier Internal Customer Linkages Production Logistics Linkages Strategic decision-making Planning systems Execution systems Capture and control transactions

10. A map of supply chain information flows Supplier Internal Customer Linkages Production Logistics Linkages Strategic decision-making Planning systems Execution systems Set boundaries on what can be done Plan lower-level activities Capture and control transactions

11. A map of supply chain information flows Supplier Internal Customer Linkages Production Logistics Linkages Strategic decision-making Planning systems Execution systems Set boundaries on what can be done Plan lower-level activities Capture and control transactions

12. Suppliers? Sales & Operations Planning Master Scheduling Material Planning Detailed Scheduling Push & pull systems Shop Floor Control Customers? Perspective 1Classic top-down model Tactical Short-term Execution

13. Network Planning Sales & Operations Planning Master Scheduling Material Planning Detailed Scheduling Push & Pull systems Shop Floor Control Supplier Relationship Management Customer Relationship Management Perspective 2Horizontal supply chain flows

14. Key Points • Firms still need solid internal systems in place before they can interface well with supply chain partners • Perspective 2 emphasizes supply chain vs. firm-level performance (more on this later) • Impossible to evaluate specific IT solutions if you don’t have a solid understanding of Perspectives 1 and 2

15. Internal production planning flows:The traditional view

16. Sales & Operations Planning • “Provides the key communication links for top management to coordinate the various planning activities in the business” • Fundamentals: • Balancing supply & demand • Volume vs. precise mix • Operations plan <> forecast

17. Business-level plan Market plan Financial plan Resource planning Sales & operations planning (volume) Sales plan Operations plan Demand management Master scheduling & detailed material planning

18. Pay-offs • “Top-management’s handle on the business” • Clarifies interaction points between functions • Formalizes negotiations • Established clear functional-level goals • Planning vs. “organizational slack”

19. Run sales & Forecast reports Demand planning phase Supply planning phase Executive SOP meeting Pre-SOP meeting … present plan and bring forward any issues requiring top management resolution Starts with Marketing & Sales … … come to Agreement… …picked up By operations… This meeting should be short and very focused The monthly S&OP planning process

20. Other managerial issues • Top management • Commit to the process • Force resolution of trade-offs before approving plans • Functional managers • “Hit the plan” • Communicate when plan may be missed

21. Other managerial issues • Keep analysis level high -- no more than a dozen “families.” • Structure analysis around “how you go to market”, not how you make things: • Yes: product lines, cases of Product X, etc. • No: Manufacturing units, work cells, raw material costs, etc. • The operations and supply chain areas can later translate to production plans

22. Total company Business Unit Product family Product subfamily Model / brand Package size Stock keeping unit (SKU) SKU by customer SKU by customer location Sweet spot:Enough detail to make planning relevant, but not overwhelming

23. Creating the “habit” of S&OP 3-step process

24. 1. Developing the foundation • Education • Developing appropriate planning families & information support • Establishing the S&OP process

25. 2. Integrating / streamlining the process • Integrate financials into the analysis • Revamp organization / info. gathering as needed • Emerging SOP database • “What if” analyses

26. 3. Gaining a competitive advantage • You know you are here when: • Well-integrated demand planning process • Proactive vs. reactive approach to capital equipment planning • CI tied to S&OP process • Simulation commonplace • S&OP database easily accessible

27. Master scheduling • Controls the timing and quantity of production-related activities • Coordinates forecasted demand or actual orders with actual production-related activity • Serves as tool for agreement between production and other functional areas (most notably, sales) • Feeds more detailed planning

28. Link between the Master Scheduleand Sales & Operations Planning Month January February March Output 200 300 400 January (weeks) 1 2 3 4 Push Mowers 25 25 25 25 Self-propelled 35 40 Riding 12 13

29. Typical master schedule record

30. Key points: • Master scheduling serves as a coordinating mechanism for sales, production, and other functional areas • There are a variety of ways to carry out master scheduling, depending on the nature of the product and the level of customization • Vollmann, Berry, Whybark, and Jacobs, 2005 • As we will see, changes driven by the supply chain perspective are changing how master scheduling works

31. “Engine” & “Back end” activities … Vary greatly from one environment to the next, but there are some general truths …

32. General truths about “engine” and “back-end” processes 1. These processes are constrained by resource decisions made at higher levels (S&OP, master scheduling, etc.) 2. The longer our lead times are in comparison to customers’ requirements, the more we will need to execute from a plan (“push” systems)

33. General truths (cont’d) 3. The further downstream customization occurs, the easier “engine” and “back-end” processes become: Before: After:

34. General truths (cont’d) • The “lumpier” and more unstable downstream requirements are, the more we will need to depend on downstream signals – NOT plans – to control activities What kind of signals do I mean? 5. As information systems improve, firms will depend more on these systems – rather than excess production resources or inventory – to respond to market dynamics

35. Horizontal information flowsvs.“Up-over-and-down” The major change to supply chain information flows I mentioned earlier

36. Two supply chain partners, both with *traditional* production planning systems

37. *Traditional* information flowsbetween the partners … … What is the problem here? Can you think of an example? What is the solution?

38. 2. Supply ChainInformation Technologies

39. A map of supply chaininformation technologies – current view • Where do such technologies as RFID go? Executive dashboard applications?

40. Demand Management Financial Reporting Periodic reconciliation Sales & Ops Planning Master Scheduling Material Planning Scheduling Batch transfer Distribution Purchasing Periodic reconciliation Up to the 1990sIslands and loose links

41. Demand Management Financial Reporting Sales & Ops Planning Master Scheduling (+ rough-cut capacity) MRP (+ CRP) (Finite) Scheduling Periodic reconciliation Batch transfer Distribution Purchasing Tighter Links & Feedback

42. Financial Reporting Demand Management Production Planning & Control Purchasing HRM A/R, A/P Distribution MRP IIManufacturing Resource Planning

43. “Piecemeal” Enterprise PlanningTypical Problems • “Add-on,” customized approach • Multiple hardware / platform considerations • Maintenance nightmares • Awkward data movement • Functional vs. business process perspective

44. The State of the Art, c. 2005ERP systems

45. Linking ERP with other applications

46. Customer relationship management (CRM) Example:

47. Supplier relationship management (SRM) Examples: www.matrixone.com www.ariba.com

48. How has IT evolved over the past few years? Consider the view in 1999...

49. Strategic Management Strategic Trans. Content Demand Content Transp. Planning Component Supplier Management APS Demand Planning Planning / Tactical Invent. Planning Prod. Data Mgmt. Order Mgmt. MES ERP Trans. Execution Execution Wareh. Mgmt. OPERATIONS LOGISTICS DEMAND SUPPLY From Bozarth’s 1999 lecture notes …

50. Managerial perspectives on the relationship between IT investments and supply chain management