Supply Chain Management: From Vision to Implementation

1. Supply Chain Management: From Vision to Implementation Chapter 12: Information Sharing

2. Chapter 12: Learning Objectives • Discuss how technology enables an information sharing capability to support SC collaboration. • Describe the various SC-related information technologies and information systems that have been developed over the past several decades. • Discuss the role of ERP systems as a collaboration enabler as well as the difficulties associated with their implementation.

3. Chapter 12: Learning Objectives • Discuss the impact of the Internet and e-commerce on supply chain management. • Identify what information should be shared, who should be sharing this information along the supply chain, and the challenges involved in information sharing.

4. The Importance of Information • Modern information technologies make supply chain integration possible. • Information technologies have facilitated business globalization. • Information technologies make differentiation along new vectors possible.

5. The Importance of Information We believe those companies that position themselves to take advantage of the Internet to build information partnerships with their suppliers and customers, have the potential to fundamentally change the face of global competition … and change our definition of the value we provide to our customers and constituents. - Michael Dell

6. The Importance of Information • Real-time information regarding availability, delivery, shipping, and invoices allows for improved customer satisfaction. • Substituting information for inventory or other resources reduces costs. • Information can be used to increase flexibility. • Information sharing is redefining supply chain relationships.

7. Information Strategy Information technology strategies are comprised of two components: • Connectivity – technology makes it possible for various people, teams, functions, and organizations to work together. • Willingness – information is power, sharing information means relinquishing some power.

8. Information Strategy – A Warning • Information technology is an enabler, not a silver bullet. • Automating bad processes simply helps to make mistakes faster. • The wrong technology strategy adds neither real value or improves customer satisfaction.

9. Information Systems – A History “Dark Ages” Era of Material Management Era of Supply Chain Management 1960s-1970s 1980 1985 1991 1995 2000 2006 RFID MRP MPR II DRP FAX EOQ ROP JIT QR CPR ECR TOC VMI ARP RF ERP APS XDM CPFR CRM EDI ERP II ECM MES Adapted from Davis and Spekman “The Extended Enterprise”

10. Information Systems – Interaction

11. Enterprise Resource Planning (ERP) • ERP Systems – a single database surrounded by application programs that take data from the database and either conduct analysis or collect additional data for the firm. • During the 1990s, half of the Fortune 1000 began implementation of ERP systems.

12. ERP Systems Systems implemented corporate wide Single integrated system for all divisions and countries of operation Single integrated database Data entered once Integrated, cross-functional Legacy Systems Systems usually implemented at the functional or department level Different systems for different divisions or country operations Multiple databases Data entered several times Standalone ERP versus Legacy Systems

13. SCOR and ERP Systems

14. SCOR and ERP Systems • Plan • Strategic and tactical planning as well as accountability/reporting (overall management, administration, finance, accounting, and HRM) • Source • Supplier’s point of view this process is the customer order management process. • Buyers’ point of view this is the purchasing/sourcing process • Make • Production, manufacturing, assembly, or service delivery processes • Deliver/Return • Organization’s logistics, warehousing, and transportation processes

15. ERP – Implementation Process • Define the current process “as is” • Cross functional implementation team of subject matter experts document the current processes. • Define what the “best-in-class”business process should be • Explicitly state the final objective of the process. • Identify what the ERP system will replace • Identify how the benefits are likely to occur

16. ERP – Implementation Process • Develop the system • Consultants work in conjunction with those who are most familiar with the business processes in question. • Work through all final “bugs” and then “flip the switch.” • A danger that often exists when flipping the switch—switching over from the old system to the new system—is that the company may not be ready for the change, nor is the system completely configured to handle the specific activities that keep the business running.

17. ERP – Competing Viewpoints • ERP systems are viewed with great optimism and serious skepticism. • Some companies have achieved seamless integration • Some managers claim ERP vendors “overpromise and underdeliver”

18. ERP – Implementation Issues • Never-ending implementation: Many firms adopt ERP systems module by module extending the implementation period. Even simple implementations take a year or more. Complex implementations have taken close to a decade. • Importance of process mapping: Each application captures data for and about a process. Process mapping documents each process in detail helping managers gain a real understanding of how it works.

19. ERP – Implementation Issues • Process redesign:Combining a new ERP system with a bad process usually leads to unsatisfactory results—the same old mistakes are made more rapidly. ERP implementation can drive the adoption of new business practices and processes. • Use of consultants: There is a learning curve inherent in any new technology, knowledgeable consultants can help. • Relying solely on outside consultants can lead to an expensive implementation that doesn’t meet the company’s needs.

20. ERP – Implementation Issues • Excessive cost: Without proper planning, costs and timelines can quickly exceed the budget. • The average total cost of ERP ownership ranged from $400,000 to $300 million with an average cost of $15 million. • Implementation time estimates and financial budgets are often exceeded by 50 to 100 percent or more. • Resistance to change: Employees and managers often prefer the legacy systems and are resistant to change.

21. ERP – Implementation Issues • Errors during implementation: Glitches or errors in new systems may become evident only after implementation. • Hershey’s failed to capture orders for 5 weeks before Halloween; Result - 19% drop in 3rdQ net income. • To avoid this problem, companies can: • gradually phase in new systems while phasing out old ones • run both systems in parallel until the “bugs” have been worked out • utilize pilot projects at a limited number of divisions or locations.

22. ERP – Implementation Issues • Rapid technological change: Rapid technological change can render new systems obsolete complicating cost-benefit analyses. • Early adopters of a new technology have the benefit of being ahead of the competition • Early adopters run the risk of acquiring an untested technology that could disrupt the firms’ entire operations

23. ERP – The Future • ERP systems were designed to enhance internal firm communication thereby facilitating exchange with external parties. • Growing demand for collaboration among supply chain partners resulted in the proposal of two new systems: • ERP II • Enterprise Commerce Management (ECM)

24. ERP and ERP II - Differences

25. E-Commerce and the Internet • The use of Internet technology has reduce the cost of providing, collecting, and communicating information electronically. • Internet – provides unlimited access • Intranet – provides systems access to a limited number of parties; avoids custom interfaces, incompatible hardware types, and special connection procedures • Extranet – allow limited access to certain applications and data to external users

26. E-Commerce and the Internet Electronic-commerce is the automation of commercial transactions using computers and networked communication technologies. • Electronic Data Interchange (EDI) • Internet • E-mail • Electronic funds transfer • Electronic bulletin boards

27. E-Commerce and the Internet • E-commerce can reduce costs by allowing for: • Centralization of inventory • Centralization of shipping locations • Reduction of safety stock • Consolidation of inbound transportation • Real-time capture and distribution of demand and inventory information

28. E-Commerce and the Internet • E-commerce can enhance revenue by: • Removing time and location constraints • Allowing direct to customer sales • Allowing real-time access to demand in inventory data facilitating better decision-making • Allowing instantaneous and flexible introduction of products and product mixes • Allowing the customer to instantly pay for orders reducing cash-to-cash cycle time

29. Internet and the Efficient Frontier

30. Electronic Marketplaces • E-marketplaces are defined as neutral Internet/Web enabled entities through which companies may conduct buying and selling transactions for goods or services. • Neutrality – e-marketplaces do not represent a single buyer or seller

31. Electronic Marketplaces - Types

32. Electronic Marketplaces - Types

33. Electronic Marketplaces - Limitations • E-marketplaces do not yield significant, repeatable price cuts • E-marketplaces are not the solution for all of a business’s purchasing needs • E-marketplaces are not a viable substitute for a company’s supply management department

34. Radio Frequency Technology • Radio frequency transmissions between computer systems and mobile operators. • Used extensively in warehouse and distribution center operations • Improves picking efficiency and accuracy • Radio frequency identification tags (RFID) - coded electronic chips embedded in the product or in product packaging.

35. Radio Frequency Identification (RFID) • Unlike barcodes, RFID does not require line of sight to be scanned. • RFID tags can hold much more information and bar codes. • RFID information can be unique to every product, not just a specific type of item or UPC code.

36. Radio Frequency Identification (RFID) • Since January 2005, Wal-Mart has had 98 of its top 100 suppliers using RFID tags at the pallet level. • Technology is still immature and difficult to cost justify. • Global standards are still in development.

37. Reverse Auctions • Reverse auctions are defined by suppliers bidding for a customer’s business. • Results in downward price pressure • Supplier participants in reverse auctions should be prequalified, and winning bidders should have their capabilities verified before contracts are issued. • Focus on price and competitiveness contrary to supply chain principles of total cost of ownership and collaborative relationships.

38. Information Sharing - Willingness In a knowledge-based economy, information is power. Supply chain collaboration requires a willingness to relinquish some power. • Why should information be shared? • What information should be shared? • When should information be shared? • Who should be sharing the information?

39. Information Sharing – Why? • Information sharing helps companies: • Reduce costs • Improve customer service levels • Reduce lead times • Improve profitability • Increase quality levels • Enhance innovation • Information sharing also enables: • Process redesign and reengineering • Constant improvement and learning

40. Information Sharing – Why?

41. Information Sharing – Why?

42. Information Sharing – What? At a minimum, companies should share: • Sales Data and Sales Forecast • Inventory Levels • Order Status for Tracking/Tracing • Performance Metrics • Capacity And Capability Information

43. Information Sharing – When? • Most companies share information during the late growth and maturity phases of the product life cycle. • Increased information sharing during the design/introduction and decline phases could have a greater impact. • Design – early supplier involvement • Introduction – improved forecast accuracy • Decline – avoidance of obsolete inventory

44. Information Sharing – Who? • There are two approaches to information sharing: • Bow- Tie Approach – allows sales and purchasing to be the primary conduit of information with the external environment. • Diamond Approach – creates many points of contact and potential sources of integration and collaboration between organizations.

45. Information Sharing - Bow-Tie Approach

46. Information Sharing - Diamond Approach

47. Information Sharing - Challenges • Weak or Counterproductive Relationships • People • Power • Trust • Security and Risk • Too Much Information • Lack of Standards • Inaccurate Information

48. Information Irony • Most companies are now technologically adept at collecting and analyzing data. • Failure to adopt a culture based on a willingness to share information limits a company’s overall potential. • Knowledge and wisdom are enabled by technology but are dependent upon people.

49. Information-Capability Hierarchy

50. Future of E-Commerce Most likely to occur: • Increased demand for online technical information • Increased integration role for the purchasing functions of organizations • Elimination of human intervention in the procurement through payables transaction process • Improvement in efficiencies as a result of Web-based systems • Continued use of Internet/Web-based links with suppliers