Information management

1. Information management • What types of information flow through a supply chain? • Some technologies you should be aware of • E-commerce and new technology • This changes everything! • This changes nothing! • This changes something – but we are not sure what?

2. The Health care Supply Chain • Look at the first reading – Health care in the USA if fragmented, expensive and error prone. • Much of the waste and many of the errors could be eliminated if there were better system wide flows of data. • A good example of “quality is free” • Everything proposed here is already done in most other supply chains • Lots of resistance because of lots of local optimization and a massive lack of trust between chain members • Funny thing- we tried to do the same thing with cows when I was at KSU – for the same reasons and with similar issues

3. The fix is seemingly a technology one • Most of the changes will be in systems and processes • This is why so many people think IT systems are the key to SCM • And that is why we will talk about them today and maybe next week? • But – without the human elements the most elegant system is useless.

4. Information flows • Go back to the last class. What kind of data needs to flow in our model supply chain?

5. Operational information in a supply chain • Demand forecasts – aggregate and disaggregate (Volvo story in reading) • Inventory • How much / where / when / etcetera • Customer orders • Due date, design, pricing, etcetera • Production and delivery schedules • All members of the chain • Financial flows – who owes what to whom?

6. Strategic information flows • New product / service development. Design, materials choices and so on • Responding to exceptional events / crisis • Creating the plans for the above • Facility locations • Ecetera.

7. An operational example – demand forecasts • CFAR – collaborative forecasting and replenishment. In many retail settings (think Wal-Mart not The Gap) the retailer can not forecast on their own – create forecasts with suppliers based on • Real time sales data • Marketing plans – both tiers • Overall market forecasts – both tiers • Useless unless we also know • Production and shipping schedules for entire chain • Combined much more robust planning tools

8. Why is getting this data hard? • When you negotiate do you want to tell a customer that: • You have plenty of capacity and can get the job done fast? • You have had shipping delays from suppliers • Etcetera • Do you want to tell a supplier that: • You need as much of their product / service as you can get or that you have stock outs ? • Do you want a supplier to know you are having a great year?

9. A strategic example– new product / service development • Traditional design processes • Concurrent processes • DFM /DFE / DFX • What are the benefits of this increased involvement ? • What are the potential pitfalls / costs ? • What is it going to take to make this happen on a regular basis across your chain?

10. Increased information sharing • The foundation of most SCM improvement efforts is speeding and or increasing information flow. • Usually across functions and chain members • We have all sorts of cool new technologies to do this • None of that matters until the chain members have incentives to do this (and of course trust)

11. You should be aware of: • ERP / enterprise systems • EDI – electronic data interchange • CFAR • Concurrent design – ESI • The bar code scanner / reader • Considered by the some the most important technology of the 20th century – now it is RFID • CRM – customer relationship management • Auction technology – especially reverse auctions

12. What is happening right now? • Many experts on SCM claim that new information technologies (especially web based technologies) are the key to optimization. • Think hard about this • What is really new? • Can technology compensate for poor management • Would you rather have the best systems or the best strategy (properly executed)?

13. E-commerce – is this a revolution? • EDI has existed in some form for 30 years • The revolution – if there is one- comes from the web. • A typical non-web based EDI system was used to allow members of a supply chain communicate with each other in real time and without paper. It required: • A large investment in software – usually produced by the buyer and forced upon suppliers • Dedicated hardware to run the software

14. What is different today continued • EDI systems were then • Expensive • Proprietary – Wal-Mart’s system did not use the same technology as K-Mart’s- to supply to both required two investments. This was typical • It was a big deal when the automakers went to a standard EDI system – so a supplier only had to invest once. • Lower costs for suppliers • Increased number on system – note if much les than 100% value was very limited • EDI systems had very high start-up costs, high fixed costs, and were not generally adapted by all members of a supply chain.

15. So what has changed? • Almost all e-commerce is done using internet platforms – which means what? • First a number of companies who invested in proprietary systems in the middle 90’s wasted a lot of cash • The hardware a supplier needs is a PC with a modem • The only software they need is a browser • So the set-up costs for the supplier are almost nothing and they can be on multiple networks. • The buyer ends up with an entire supply base using the tools removing the need for a paper bound system (yet I still meet plenty of people placing orders via fax) – Note my gift certificate from Colorado Cyclist.

16. Other changes • From a supply chain perspective the Web is the big change but other technology matters as well • Processing speeds - yield management / Yellow Freight • Storage capabilities – this is huge for data mining and mass customization • ERP systems that actually work – often run on the web now • RFID, satellite links for trucks and ships and other real time communication • Flexibility of production systems because of computer controls • Nissan (most productive car plant in the world) can make 4 models on their Symrna Tennessee line with no set-up times to change models • Bottom line- more information flowing to more people at higher speeds

17. The “revolution” from a SCM perspective • From the articles I would ague there are 4 or 5 themes all based on the ubiquity of the net (note many of these themes were sounded over EDI and never happened) • Through exchanges and auctions the net gives us the power to lower prices • Lower purchasing costs are one of many ways we can reduce the costs of our present process • If we just improve the present process we will not be able to really leverage the net to its fullest • The new processes will create 2 classes of suppliers • You need a strategy - even more now than in the past

18. Lets start with the most hyped stuff • The internet is going to lower prices • B to B exchanges and auction sites • How do auction cites work? • Savings are often 20-30% • Are they universal? • Requires a very precise RFQ • Requires many available suppliers • Requires a willingness to have a transaction based relationship

19. Can new technology do more than just lower prices? • Krispy Kreme • Electronic ordering system • If order quantities change dramatically it queries the manager • Did you mean 50 or 5? • When bad items are shipped managers can place orders for instant replenishment • Far fewer errors

20. Jet Blue • Paperless cockpit • All pilots have a laptop with • Most up to date flight manuals • Faster searches – no out of date information • Faster turn time on the ground

21. Lower costs • These example are typical e-commerce information sharing examples. • They involve the reduction of non-value adding tasks – all of them would make a JIT / Lean proponent happy • Reducing wasted resources in the supply chain. • None of this will lead to a long term competitive advantage.

22. Competitive advantage • All of the previous examples showed ways to: • Reduce prices and hopefully costs • Decrease lead times • Increase the likelihood that the right inventory is being held • Teach customers more about a product (or service) or how to service it • Etc. • So why doesn’t this create competitive advantage?

23. Long term CA continued • Is auction technology available to everyone? • Is web based communication available to everyone? • Is the expertise to make this work becoming easier to access? • I would argue the answer to all of these questions is yes.

24. To gain a CA from information technology • So far most of the processes we have talked about changing using e-commerce / IT are the non-core parts of our supply chain. • We improve communication • We reduce inventory • Etc. • But we do not fundamentally change what we make or how we do it- we are making an existing process as good as it can be.

25. Key point • The internet and other investments in IT can make our existing processes more efficient • But to gain a real long term competitive advantage ala Dell (15 years?) you need to change processes as well.

26. One area of real promise from e-commerce is • Creating all new process to allow for true “mass customization” • Mass customizers reap the benefits of economies of scale while giving customers some level of customization- lower cost linked with higher prices • This is limited- recent research – full customization increases production costs and lead times – ATO no trade-off. • Note level of customization has no statistical influence on cost or time in marketing or service. • Dell is probably the best example of this – note they were doing it before the web- that just made it easier for them • Taco Bell is Mark’s favorite example

27. Lets examine a specific supply chain - cars • The auto industry has had EDI for 20 years. They have moved suppliers to the web. They are using web auctions. They have an average of a 60 day supply of cars in the USA – yet they rarely have the car you want on a lot • Most let you search dealers inventory to see if you can find what you want • This is still a push system • The costs of this inventory are humongous – and the costs are also inflated because people will not pay as much for a car that is close to what they want as a car that is exactly what they want.

28. What has to change? • The real problem is not finding out what consumers want- it is making it. • But car makers are JIT what is the problem? • Harley is JIT and does mass customization. • Lead time is measured in many months • Customers willing to wait • Car companies have a much more complex product • Customers less willing to wait • Still the real issue is the way a car is made • Smart Car concept. • BMW – 12 days Europe- 24 days USA

29. Examples of leveraging new technology • Some companies who have changed their processes or created all new processes • ChemStation.com – rapidly commoditizing as VMI • Dell • E-bay • Plagerism.com • Amazon.com • Text book publishing? • Education without a campus?

30. Lets step back - a supplier perspective • Prices reduced – and buyers have full access to pricing information • If your product or service can be described by a RFQ with no uncertainty everything but price becomes an order qualifier. • So companies are going to end up in 1 of 2 categories- things bought on price and things bought for other reasons. • It does not take a genius to figure out that if you are in the price only category that competition will be brutal and margins will be minimal

31. Edison’s Curse • Gary Hamel’s article is perhaps the best thing on new information technologies I have read. • Starts with electrification at the start of the 20th century. • Consumers- lower prices • Makers of generation equipment – large profits • Electricity distributors – lots of cash at first and then competition increased and they made less • Industrial companies – much more efficient but no more profitable

32. E- commerce equivalents • Consumers – lower prices • Makers of internet hardware (routers, servers and the like) – think Cisco • Until every company has this stuff they are going to continue to grow – the last few years created expectations that were too high - but in the long term someone is going to make this stuff – but eventually they will become GE power systems • Distributors – ASP’s, Portals and the like – already starting to look less attractive • Industrial companies- more efficient but not more profitable

33. Electricity to e-commerce • Most companies became much more efficient with the advent of electric power – but no more profitable- why? • Hamel predicts the same thing with e-commerce • Costs will go down considerably due to increased efficiency • Increased information will also lower costs - he notes that many industries are premised on imperfect information – this is bad for me • But for most companies these two things do not equal increased profits

34. Hamel’s key point • “Any company that plans to make money from “e” must have a web strategy that creates unique value for customers, confers unique advantages in delivering that value, and is tough to copy” • This changes nothing.

35. Conclusions • The web is EDI for everyone • Prices will fall – probably a great deal • Suppliers of commodities will get caught in a low price trap –with prices constantly falling. This will reduce the costs of all goods and services. • From a supply chain perspective our chain will be much more efficient – but so will all other chains • Competitive advantage will come from • Using the web to create a new product or service (or creating a new way of delivering an existing product or service) • Having a way to create a long term competitive advantage.