Supply Chain Management (SCM) - An Overview

1. Supply Chain Management (SCM)- An Overview Paul Chen

2. Supply Chain Management (SCM)- An Overview • The Materials are extracted from the book below: • “Making Supply Chain Mgt Work: Design, Implementation, Partnerships, Technology and Profits” by James B. Ayers, Auerbach Publications 2002 (726 pages) ISSN: 0849312736

3. Contents • What Is SCM? • Supply Chain Paradigms • Electronic Commerce • E-Factory Technology Solution Sets • Hot Information Technology Issues • Supply Chain Strategies • Forging Supply Chain Partnerships

4. Topic 1. What Is SCM? • The definition of a supply chain can legitimately be broad or narrow, depending on the perspective of the “definer.” One speaker at a recent conference sponsored by the Council of Logistics Management (CLM) described it broadly. We paraphrase, “The supply chain is as all that happens to a product from dirt to dust.” The supply chain begins, in the speaker’s view, with mining ores and growing crops, extracting raw material from Mother Earth. The chain goes on to a multitude of conversion and distribution processes that deliver the product to the end user. It ends with ultimate disposal — presumably back to Mother Earth somewhere.

5. What Is SCM? A Brief Definition Supply chain: Life cycle processes supporting physical, information, financial, and knowledge flows for moving products and services from suppliers to end-users.

6. What Is SCM? 1. Life cycle refers to both the market life cycle and the usage life cycle. These are not the same for both durable goods and services. That computer, a product, and that 30-year mortgage, a service, must be supported long after newer products replace older ones.

7. What Is SCM? 2. Physical, information, and financial flows are frequently cited dimensions of the supply chain. The traditional viewpoint of supply chains as only physical distribution is too limiting. Less frequently mentioned is the role of knowledge input into supply chain processes.

8. What Is SCM? 3. Services also have supply chains. Production planning for the product development department, which produces designs, not products, can benefit from the same techniques used by product manufacturers. Federal Express operates a service business, but it is certainly also a complex supply chain. A software company is challenged to constantly improve its product through upgrades. Its process also is a supply chain.

10. Examples of Extended Product Factors Dealer quality • Dealers for most auto companies are the distribution backbone. How they operate, their facilities, their reputations are key factors in the buying decision.

11. Examples of Extended Product Factors Availability/delivery/selection • Having the right model at the right time for the right buyer often means a sale. Supply chain cycle times and information systems improve the chances of being successful.

12. Examples of Extended Product Factors After-sale service/warranty • Many buyers look to this important support network when buying. For many, this service is the most lucrative.

13. Examples of Extended Product Factors Financing • Except for those who pay cash, the convenience and speed of this closely related service can make or break a deal.

14. Examples of Extended Product Factors Resale • Many outlets for resale will raise the market value. So will all the factors that contribute to the car’s reputation.

15. Topic 2. Supply Chain Paradigms • Functional Paradigm • Procurement Paradigm • Logistics and Transportation Paradigm • Information Paradigm • Business Process Reengineering (BPR) Paradigm • Strategic Paradigm

16. Functional Paradigm • The functional supply chain paradigm is what exists in most companies today. It is the “base” state. Companies that do not think in supply chain terms fit the functional paradigm. In this view, companies are composed of individual departments. Manufacturing company examples are procurement, operations, engineering, and distribution. Each department has, to a large degree, its own agenda. Oversight of links between departments is weak within the company. Between companies in the supply chain, this oversight is practically non-existent.

17. Procurement Paradigm • Frequently, the move away from the functional paradigm begins with efforts to lower material cost. This viewpoint has given rise to the “supply” in supply chain. In many product-making organizations today, the cost of material is the major cost component. So, to paraphrase a famous bank robber, management goes “where the money is.” When talking about the supply chain, these companies think of suppliers and procurement.

18. Logistics and Transportation Paradigm • The idea of companies linked together has roots in the logistics field. Of course physical movement of products along stages in the supply chain is an important part of most national economies. The previously mentioned CLM (Council of Logistics Management) defines “logistics” as “that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption in order to meet customers’ requirements.” Note that the CLM includes both goods and services in its definition. It also addresses “customers’ requirements” and the need to fulfill them.

19. Information Paradigm • The information paradigm seeks to improve the links both within the company and within the supply chain. New applications plus new ways of moving information around, make this an active area. Electronic data interchange (EDI) is an early example of ways to improve communications among companies. A barrier has been the lack of integrated software, both inside and outside the company. Efforts underway sponsored by organizations such as the Supply-Chain Council seek to standardize the definition of data elements and processes. This facilitates supply chain information sharing along the supply chain.

20. Business Process Reengineering (BPR) Paradigm • Business process reengineering (BPR) efforts call for “radical” restructuring of processes to eliminate waste and improve quality. Such efforts take many forms. For example, new systems and reengineering are closely linked in many minds. “Six Sigma” is a quality initiative that’s also a close cousin of BPR. Systems and technology designs should follow process design; this is the intent of BPR. Thus, the underlying process requirements, not the technology itself, are the dominant force behind the change. The technology becomes an “enabler.”

21. Strategic Paradigm • Some view supply chain design as integral to their strategies for competing. For them, competing focuses not only on products but also on the operations that make up the “extended product.” These operations put products into customers’ hands. Within this viewpoint, supplier relations, logistics, and information systems support customer satisfaction. This, in turn, leads to increased market share and profit. Costs, while important, are secondary.

22. Competitor’s Focused Supply Chain

23. E-Factory Technology Solution Sets-Definition of a Solution Set • E-factory solution sets are evolving from several directions. Very specialized software companies have been formed and have rapidly evolved over the last few years. They have been serving distinctive needs in separate areas in the factory as islands of automation were installed throughout the factory. Many of these small software companies have since been acquired by larger systems integration and hardware companies.

24. Topic 3. Electronic Commerce Different participants in the EC product chain have different requirements and roles. Each industry has its own slightly different model. The following model is sufficient for these purposes. From the creation of a product to its purchase, five participants are involved in the process. They are: • Supplier→Manufacturer→Distributor→Merchant→Consumer

25. The Electronic Commerce Process

26. The Electronic Commerce Process • Negotiating the product and relationships • Order fulfillment, shipping, and delivery of the product, physically or electronically • Paying — exchanging the value • The ordering process — exchanging the paperwork (e.g., PO, invoices, and shipping notices)

27. Electronic Commerce Technologies

28. Electronic Commerce Technologies

29. Merchant-Consumer Electronic Purchase Payment Process

30. Topic 4. E-Factory Technology Solution Sets Horizontal Solution Set Components • Customer Relationship Management • Supply Chain Planning • Electronic Procurement System • Supply Chain Integration • Logistics Management

31. Customer Relationship Management • Customer relationship management (CRM) is a term that has evolved to describe an entire industry of software vendors that serve the specific purpose of addressing the selling and marketing functions in a business enterprise.

32. Supply Chain Planning • Supply chain planning (SCP) for a manufacturing company generally refers to long-range planning of the design and operation of the supply chain to which the company belongs. Supply chain design refers to the number of plants, the capacity of the plants, transportation modes, outsourcing options, the number and type of suppliers, the types of contracts with the suppliers, the number of warehouses and distribution centers, and the flexibility in assignment of each component in the supply chain. Supply chain operation refers to the number of shifts in each plant, decision rules for shipments and transportation, replenishment rates, and cycle times of each component in the supply chain.

33. Electronic Procurement System • When the operations of a manufacturing company are analyzed from a supply chain perspective, the basic question that results is how much value is being added by the manufacturing company to the goods and services that it purchases to produce a product that is sold to its customers. For many industries, the amount of purchased goods and services used directly in the manufacture of a final product runs in the range of 60 percent to 90 percent of the final manufactured cost of the product. In gross terms, the cost of purchased goods and services can run in the range of 25 percent to 50 percent of total revenue.

34. Supply Chain Integration • One of the rapidly evolving horizontal applications in the E-factory is the area of integration between the internal and external business processes. This area is known under several names (e.g., enterprise application integration (EAI) or cross-applications), but the term “supply chain integration” (SCI) will be used herein. This area includes generic software services for security management, protocol management, data mapping, and software connector modules that let internal process software communicate with external process software.

35. Logistics Management • Logistics management is the management of the warehousing, storage, transportation, and material tracking activities. The general area of logistics management has actually evolved independently from each of these specific areas and is merging into a unified solution set component. The trends in the E factory are causing fundamental changes in the way logistics is managed and in the way companies think about logistics in their strategic structure.

36. E-Factory Technology Solution Sets Vertical Components • Enterprise Resources Planning Systems • Supply Chain Execution Systems • Manufacturing Execution Systems • Warehouse Management Systems • Factory Automation Systems • Factory Floor Control • Maintenance Management Systems • Product Data Management Systems

37. Topic 5. Hot Information Technology Issues • Issue 1: The Value Chain is Back • Issue 2: IT Infrastructure • Issue 3: Electronic Commerce • Issue 4: Knowledge Management • Issue 5: Aligning IT Strategy with Business Strategy

38. Issue 1: The Value Chain is Back • Understanding the fundamental processes a product goes through from raw material, to manufacturing, to inventory, and then to the ultimate buyer was clearly delineated in Porter’s concept of competitive advantage. Porter also recognized the importance of the supporting functions such as accounting and human resources. However, the playing field has been significantly widened with the value chain enablement provided by today’s technology.

39. Issue 2: IT Infrastructure • Infrastructure is becoming the limiting or “gating” factor in everything we do and has new meaning in the world of alliances, mergers, and the integration of functions. Infrastructure can be likened to the building of a house. It provides for the electricity, the water, the heating, the foundation, and the walls that create the floor plan, rooms, and facilities. The architect and builder must take all of this into account when designing a house with future expansion in mind. Without proper attention, expansion, will be difficult, expensive and time-consuming. The parallel holds for the IT infrastructure designer. A series of events have made this a critical and difficult undertaking. Here are several situations that have caused severe problems for companies facing inevitable business and technology changes.

40. Issue 3: Electronic Commerce • The new electronic commerce (E-commerce) way of conducting business is changing company strategy and the competitive marketplace. It covers both tangible and intangible products and provides a new look at the combination of the two. E-commerce and the Internet together represent the driving force in today’s economy.

41. Issue 4: Knowledge Management • Knowledge management can be viewed as turning data (raw material) into information (finished goods) and from there into knowledge (actionable finished goods). The implication is that knowledge gives one the power to act, to make decisions that are value producing to the company. It is usually the tacit information that actually drives the transformation. The goal should be to discover the managers and workers who possess the proven tacit knowledge, and to then work with them to determine the combination of information they use and the thought processes they go through to turn that information into knowledge (value).

42. Issue 5: Aligning IT Strategy with Business Strategy • In an article in the Harvard Business Review, Bensaou and Earl studied 20 leading companies in Japan, focusing on how they manage IT. Research found that IT planning is not considered a separate activity and that Japanese executives would never consider developing a special IT strategy. Japanese companies preferred what they termed strategic instinct rather than strategic alignment, the former concentrating on meeting operational goals and supporting major business initiatives. This seems to be more in line with responding to the volatile business conditions that exist and will intensify in the coming years. Traditional long-term IT planning may just not be responsive enough.

43. Topic 6. Supply Chain Strategies • Thinking in terms of supply chains instead of individual operations or departments leads to more competitive strategies. These strategies, in turn, have fallout throughout the operation. In the case of Acme, the addition of new linked activities will bring the new need for new thinking, a shifting of organization roles, and new information systems. • The strategy is a vital first step to improvement. The implementation phase shifts from a “right brain” to a “left brain” exercise. There is an unprecedented need for cross-functional cooperation. Implementing Acme’s new activity system will draw on skills from marketing, engineering, production, and finance. The devil lies in the details. Competent execution of the remaining four management tasks is mandatory.

44. Results-Based IT in an ERP of Process • The development and automation of new processes seem to hold dominant focus. Some suggest following the mantra of first designing the new processes, then automating them. Others suggest automating first with ERP templates, and then reengineering further after the new system is installed. There are more than enough true believers, bigots, and demigods for any and all alternatives. The key point this writer has been trying to raise is that processes — in whatever sequences — are secondary. It is the results that count. Focus first and foremost on the overall business result that is needed. Insist that all actions contribute directly to achieving the significant economic outcome — the result! Then, following process best practices will get you where you need to be.

45. The Enterprise Resource Planning System as a Strategic Solution The Challenges of ERP Implementation • Obviously, many implementation problems relate to situations or processes that are unique to a particular company. The most frequent problem cited in the FoxMeyer experience described earlier was the inability of its enterprise software to handle the sheer volume of transactions required. In the Monsanto case, training its staff of some 18,000 employees to use the software after installation has turned out to be a significant problem. The lack of employees trained in the installation and use of ERP software is currently a global problem. With so much interest and movement toward such solutions in the past couple of years, there is a shortage of knowledgeable, experienced people to assist with the adoptions. Many, if not most, World Wide Web sites of ERP partners have a section dealing with systems-related employment opportunities.

46. Supply Chain Information Systems: Putting the Process First • Supply chains have a profound affect on the way companies are organized. The traditional organization structure, the one that continues in most companies today, divides people according to their functions. Separate departments perform each function. The supply chain in a manufacturing company, for example, has the procurement department, the manufacturing department, and the distribution department. Decision-making becomes a functional mission, with too little overview of the total supply chain process.

47. Strategy and Supply Chain Design • SGML, Standard Generalized Markup Language, is an enabling technology used in applications such as HTML. • XML customizes SGML in a number of significant ways. First, a specific choice of syntax characters was made so that everyone using XML will use the same concrete syntax. For ex., all start tags must begin with “<“ and end with “>”.

48. Web-Based Data Warehousing: Fundamentals, Challenges, and Solutions • Billions of bytes of business-critical data are being created by organizations’ computer systems daily, yet only a small portion of them will ever be used in business-related analysis. Most companies today are “data rich” and “information poor,” as their ability to manipulate data and deliver information lags far behind the growth rate of the data. An organization’s competitiveness lies in its ability to utilize information. Data warehousing and the Internet are the two key technologies that offer potential solutions for managing corporate data. Data warehousing liberates information, and the Internet makes it easy and less costly to access information from anywhere at anytime. The combination of the two technologies makes the processing and distributing of key information more efficient and economical.

49. Web-Based Data Warehousing: Fundamentals, Challenges, and Solutions • The marriage of these two technologies produces Web-based data warehousing. Web-based data warehousing involves accessing, analyzing and distributing the information extracted from a data warehouse through the Internet, intranet, or extranet using a Web browser as the user interface. As a result of the explosive development in the data warehousing and Web- related technology available today, Web-based data warehousing is starting to gain more and more popularity among organizations. It was estimated that by 2001, the Internet serves as the primary decision-support delivery platform for intra- and extra-enterprise applications (Ladley, 1998).

50. The Limitations of Data Warehousing in Its Current Form • William Inmon defined the data warehouse as “a subject-oriented, integrated, nonvolatile, time-variant collection of data organized to support management needs.” (Castelluccio, 1996) The purpose of a data warehouse, as stated in the definition, is to facilitate managerial decisionmaking. The market segment for this technology is estimated currently at over $15 billion (Reinaner, 1998). A data warehouse differs from operational databases, which mainly support the daily business transactions, and management information systems, which supply information to managers in the form of periodical reports.