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Integration of ERP and others into SCM

Integration of ERP and others into SCM. 2004. 3. 26. MAI Lab. Joon Kim. Articles. The impact of ERP on supply chain management: Exploratory findings in a European Delphi study - Henk A. Akkermans, et al.(2003)

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Integration of ERP and others into SCM

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  1. Integration of ERP and others into SCM 2004. 3. 26. MAI Lab. Joon Kim

  2. Articles • The impact of ERP on supply chain management: Exploratory findings in a European Delphi study - Henk A. Akkermans, et al.(2003) • A general model for extended strategic supply chain management with emphasis on product life cycles including development and recycling - G. Fandel, et al.(2003) MAI Lab. Oct.

  3. The impact of ERPon supply chain management:Exploratory findings from a European Delphi study ∙ ∙ Henk A. Akkermansa, Paul Bogerdb, Enver Yucesanc, Luk N. van Wassenhovec aEindhoven University of Technology, Technology Management, The Netherlands bMinase, The Netherlands cINSEAD, Technology Management Area, France European Journal of Operational Research (2003)

  4. Contents • Introduction • SCM & ERP • Delphi Research: Method & Findings • SCM opportunities for ERP • SCM shortcomings for ERP • Conclusion MAI Lab. Oct.

  5. Introduction(1) • Reasons for the supply chain strategy initiative rise • Cost reduction from improving logistics performance • Europe, 6% to 15% of total turnover (AT Kearney, 1993) • US, $ 670 bil.(10.5% of GDP) on logistics (Kurt Salmon, 1993) • Advent of the network economy • Ever changing networks of organizations • More transparent market • Customizing for customer demands MAI Lab. Oct.

  6. Introduction(2) • ERP implementation vs. supply chain improvement • Less research on ERP than on SCM • Expected gain by integrating ERP into SCM • Independent management of ERP and supply chain • Strengths and weaknesses with respect to challenges in businesses and SCM • Need for understanding causal relations b/w ERP and SCM MAI Lab. Oct.

  7. SCM in the network economy(1) • Flows in the supply chain at operational level • Material flows • Information flows • Financial flows • Pillars supporting supply chain network • Processes • Organizational structures • Enabling technologies MAI Lab. Oct.

  8. SCM in the network economy(2) MAI Lab. Oct.

  9. SCM in the network economy(3) • Principal functions • Physical function • Transformation, storage and transportation • Production control, inventory management • Market mediation function • Matching demand and supply MAI Lab. Oct.

  10. SCM in the network economy(4) Market Mediation Supply Chain Design Supply Chain Coordination Information Deployment Channel Alignment Operational Flexibility • Contracts • VMI† • CPFR† † • POS data • Joint forecasting • Schedule sharing • Postponement • ATO*, MTO** †vendor-managed inventory ††collaborative planning, forecasting and replenishment *assemble-to-order **make-to-order MAI Lab. Oct.

  11. SCM in the network economy(5) • 3 perspectives of supply chain design • Organizational map • Shows entities and all value-adding activities • Technology map • Traces the lines of upstream and downstream • Capability map • Identifies the key business process capabilities MAI Lab. Oct.

  12. ERP systems(1) • 3 perspectives of ERP • Business perspective • Combination of business processes and IT • Technical perspective • Logical extension of MRP and MRP II • Functional perspective - Managing deployment of resources within a single organization • Transaction processing engine • Work flow management • Decision support MAI Lab. Oct.

  13. ERP systems(2) • Business functionality • Replace legacy systems with an integrated transaction processing system • Provide transaction backbone  best-of-breed solutions • Facilitate Business Process Reengineering MAI Lab. Oct.

  14. Research method • Delphi study • Requires at least 20 respondents • Enables feedback on comments and further elaboration MAI Lab. Oct.

  15. Delphi workshop(1) MAI Lab. Oct.

  16. Delphi workshop(2) • GDSS†-supported conference in plenary and subgroup mode • Goals • Identify key SCM trends • Assess the expected business impact of these trends • Assess the expected ERP support for these trends • Identify key limitations in current ERP systems for effective SCM support MAI Lab. Oct. †GDSS: group decision support systems

  17. Delphi workshop(3) • Step 1: Position and define SCM and ERP • Step 2: Generate SCM trends(22 items) • Step 3: Group SCM trends(12 items) • Step 4: Prioritize SCM trends • Step 5: Assess SCM trends on business impact and ERP support • Step 6: Select five SCM trends for subgroup discussion • Step 7: Identify ERP limitations(22 items) • Step 8: Cluster ERP limitations(5 items) MAI Lab. Oct.

  18. Key trends in SCM(1) MAI Lab. Oct.

  19. Key trends in SCM(2) MAI Lab. Oct.

  20. Expected impacts of ERP on SCM trends MAI Lab. Oct.

  21. SCM opportunities for ERP • Mass customization • Standardization • Global IT MAI Lab. Oct.

  22. SCM opportunities for ERP • Mass customization • “Configurator”: translate individual customer demands into feasible product spec • Integration of unique order generation, processing and storage • Standardization • Global IT MAI Lab. Oct.

  23. SCM opportunities for ERP • Mass customization • Standardization • Enterprise-internal perspective • Best practice templates • Consistent behavior among supply chain partners • Consistent performance measurement • Supply chain-wide perspective • Standardization of business processes and data models • Some industries e.g. SAP in Oil and Gas, Baan in Aerospace • Global IT MAI Lab. Oct.

  24. SCM opportunities for ERP • Mass customization • Standardization • Global IT • Technical architecture • Client/server computing • Functional architecture • Multi-lingual • Multi-currency • Time-zone capability MAI Lab. Oct.

  25. SCM shortcomings for current ERP • Lack of extended enterprise functionality • Lack of flexibility in adapting to changing supply chain needs • Lack of advanced decision support capabilities • Lack of open, modular system architecture MAI Lab. Oct.

  26. SCM shortcomings for current ERP • Lack of extended enterprise functionality • ERP systems focus on managing internal resources  add-ons: connectivity software, processware, data warehousing tools, supply chain execution system • Lack of flexibility in adapting to changing supply chain needs • Lack of advanced decision support capabilities • Lack of open, modular system architecture MAI Lab. Oct.

  27. SCM shortcomings for current ERP • Lack of extended enterprise functionality • Lack of flexibility in adapting to changing supply chain needs • Problematic flexibility in supply chain design • Difficulties in redesigning business processes • Business process templates • Reengineering initiatives  “big bang” approach • Lack of advanced decision support capabilities • Lack of open, modular system architecture One logistics manager remarked… • ‘‘All our efforts in continuous • improvement on the production floor have first • been frozen for a year and a half by our ERP • package implementation. Now we are still struggling • to get it operating properly. And from then • on, any change that is to be supported by our IT • system will have long delays and high costs because • of the difficulties in making changes to the • system.’’ MAI Lab. Oct.

  28. SCM shortcomings for current ERP • Lack of extended enterprise functionality • Lack of flexibility in adapting to changing supply chain needs • Lack of advanced decision support capabilities • APS solutions by ERP vendors • Lower functionality than APS vendors • ATP/CTP check capability • Lack of open, modular system architecture MAI Lab. Oct.

  29. ATP/CTP capability development • ATP check on the inventory level • “Yes, I can accept your order because I have inventory available, or it fits within my MPS.” • CTP check: technical feasibility • “Yes, I can accept your order, because I have spare capacity that I can use to produce your order.” • + profitability • “Yes, I will accept your order because I have capacity available, and it is profitable (enough) for me to allocate this capacity to meet your requirements.” • CTP check in engineer-to-order environment • ‘‘Yes, I can design a new product for you, and yes, it is profitable for me to do so.” MAI Lab. Oct.

  30. Extended ATP/CTP capability development • ATP check on the inventory level • “Yes, I can accept your order, because throughout the supply chain products and materials are available.’’ • CTP check: technical feasibility & profitability • ‘‘Yes, I can accept your order because I have spare capacity, my suppliers have capacity to produce subassemblies, my logistic service provider is able to deliver the product at the moment you need it, and the overall landed cost does make this order commercially attractive.’’ • CTP check in engineer-to-order environment • ‘‘Yes, I can accept your order because I as wellas my supply chain partners have developmentcapacity available.’’ MAI Lab. Oct.

  31. Ultimate level of ATP/CTP capability • ‘‘Yes, I can accept your customer order; I will design a new supply chain specifically for you.’’ MAI Lab. Oct.

  32. SCM shortcomings for current ERP • Lack of extended enterprise functionality • Lack of flexibility in adapting to changing supply chain needs • Lack of advanced decision support capabilities • Lack of open, modular system architecture • Originally emphasized on integrated architecture MAI Lab. Oct.

  33. A general model for extended strategic supply chain management with emphasis on product life cycles including development and recycling G. Fandela, M. Stammenb aDepartment for Production Economics, Fern University, Germany bAIP-Institut, Germany International Journal of Production Economics(2003)

  34. Contents • Introduction • Strategic supply chain management • Extended supply chain model • Implications and limitations • Future study MAI Lab. Oct. *MAERP: Multi-Agent based ERP

  35. Introduction • Long-term strategic supply chain • Objective • Extending supply chain - Procurement, production, distribution and sales • Model: mixed integer optimization model + development and recycling process MAI Lab. Oct.

  36. Strategic supply chain management • Main elements of business processes • Development centers • Suppliers • Plants • Distribution centers • Retail outlets • Customers • Recycling centers MAI Lab. Oct.

  37. Extended supply chain model(1) • Assumptions • Business processes are planned centrally by one company • Goal: maximizing the operating result of one company • Expected net prices & all transfer prices fixed • Variable & fixed costs given for all elements • Relevant taxes simplified into a single variable • Material flow restrictions: BOM, volume & capacity • 2 time horizon: macro & micro • Stock at plants, distribution centers, retail outlets and recycling centers • The amount of materials into the recycling process are determined based on the historical sales • Prices and costs are standardized to one uniform evaluation base or currency MAI Lab. Oct.

  38. Extended supply chain model(2) • Objective function: Maximize sum over the time periods of global after-tax profit in a standardized currency MAI Lab. Oct.

  39. Extended supply chain model(3) • Constraints • Development restrictions on capacity of development centers & projects • Production restrictions on single sourcing, volume restrictions for suppliers and plants, BOM and material flow conservation • Distribution restrictions on single sourcing, volume restrictions, capacity restrictions and material flow conservation • Retail and sales restrictions on volume restrictions, customer demand satisfaction for each product, material flow conservation, single sourcing • Recycling restrictions on recycling: volume, capacity, reverse BOM • Bounds on decision variables MAI Lab. Oct.

  40. MAI Lab. Oct.

  41. Implications & limitations • Implication • Investment decisions b/w alternative products and development projects • Limitations • Wide range of company’s logistic and cost data needed • Operations research algorithm for such a large scale problem MAI Lab. Oct.

  42. Future study • Inclusion of stochastic variables for the forecast of customer demand and exchange rates • More components of the model • Detailed modeling of taxes, customs duties and transport systems • Sales-policy decision • Risk issues • Exchange rate risk • Real price risk MAI Lab. Oct.

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