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IT and Supply Chain Management

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1 IT and Supply Chain Management
IS6006 – second term

2 A bit of History… Management -> Internal focus
Administration of business processes Optimisation in the allocation of resources Management of inventory… “Competition” mode Focus turns to external considerations because processes don’t stop at the gate Many factors can only be fully optimised in collaboration with other firms

3 1950’s: unlimited demand Deliver Supplier Make Customer

4 1960’s : inventory costs money => reduce costs
Deliver Supplier Make Customer Plan Buy

5 1960’s : inventory costs money
Deliver Supplier Make Customer Plan MRP Buy

6 1970’s : first wave of integration
Deliver Supplier Make Customer Plan Sell MRP MRP II Buy

7 1980’s : sales order processing
SOP Deliver Supplier Make Customer Plan Sell MRP MRP II Buy

8 1990’s : back-office integration
Accounting & Finance Human Resources Deliver Supplier Make Customer Plan Sell MRP MRP II ERP Buy

9 2000’s : the extended enterprise
SCM Accounting & Finance Human Resources CRM Deliver Supplier Make Customer Plan Sell Service MRP MRP II ERP Buy

10 What’s next? SCM CRM ERP II MRP MRP II ERP Accounting & Finance
Human Resources CRM Deliver Supplier Make Customer ERP II Plan Design Sell Service MRP MRP II ERP Buy

11 The Great Acronym War PLM CRM Early 00’s Sales Force Automation
Contract Management Customer Service & Support Marketing Documentation SCM Logistics Electronic Invoicing Marketplaces Late 90’s Early 00’s ERP II Product Data Management Engineering Change Orders New Product Introduction Collaborative Product Design PLM

12 Concept of Supply Chain
Complex network of relationships that organisations maintain with trading partners to source, manufacture and deliver their products includes material, information and financial flows as shown below Information Flows Product Flow Product Flow Product Flow Product Flow Supplier Manufacturing Distribution Retailer Consumer Payment Flows

13 Transition to Supply Chain Management
sustainable competitive advantage has two fundamental requirements: a strategic orientation focussed on consumer value (not production capability) Different analyses value chains that are co-ordinated and responsive to consumer needs and wants Organisational design

14 Legacy of pre-SCM thinking
Focus on competition Supply Chains contain far more than the required inventory Products are handled too many times (5/6 average) Physical carriers struggle to maintain costly equipment on slim margins No player has enough info to synchronise / optimise the entire chain

15 Consequences Lack of knowledge of the end-to-end demand function – high levels of uncertainty Erratic variations in demand (Bull whip effect) inconsistent / out-of-date data about SC (poor decision making) Fragmentation of processes and operations lack of process integration with partners need for fundamental structural changes Need for integrated information systems

16 Supply Chain Management is…
an integrative philosophy to manage the flow of goods and information from the earliest supplier of raw materials to the ultimate customer through integration and collaboration of all channel partners” SCM aims to reduce costs and add value for the consumers through more efficient and effective supply chain linkages Operative across a range of industries Leverages new technologies to achieve these aims

17 Other names supply networks lean chain approach supplier integration
Buyer-Supplier partnerships value steam

18 A Definition ‘Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion and all logistics management activities. Importantly it also includes coordination and collaboration with the channel partners, which can be suppliers, intermediaries, the third party service providers, and customers. In essence the supply chain integrates supply and demand management within and across companies.’

19 Evolution Functional to integrated
Mass Production to Lean to agile and then leagile The Evolution of Manufacturing Technology and Management Techniques (Source: Jin Hai, Anderson and Harrison 2003)

20 Different Visions of SCM
Enterprise focus - traditional model characterised by fragmentation Frequent conflict between links in the chain Partner focus - modern vision characterised by collaborative idea Or provision of a SC related service Direct focus (e.g. Dell) - emerging vision characterised by customer-direct capability near zero inventories Domineering concept

21 Types of SCM Integrated Make-to-stock Continuous replenishment
smoothing demand in mass production industries linked to postponement in distribution channel Continuous replenishment customer-demand pull system across firms ECR, QR Build-to-order efficient SCM allows return to BTO model inventory substituted with information (Dell)

22 Understanding industry specificities
Type of product Complexity of production process Type(s) of customers Complexity of supply chain (eg: lead times) Complexity of demand function (eg: seasonality) These determine the strategies that are suitable

23 Selecting a SCM strategy
‘It is supply chains that compete, not companies’ (Christopher, 1992) success / failure of supply chain strategy is determined in the marketplace by the end consumer understand the external environment design an appropriate and effective supply chain strategy

24 Elements of consumer responsiveness
Product Availability Length of order cycle Time Consistency of Order Cycle Time Invoice/ Billing Procedure Accuracy Information Requests responsiveness Flexibility in resolving problems Distance to suppliers warehouse Special Customer Request Frequency of Damaged Goods Quality of Order Department On time Delivery A combination of there will add to customer satisfaction

25 Understanding the concept of value

26 Fisher’s Classification
ASPECTS OF DEMAND FUCTIONAL (PREDICATABLE DEMAND) INNOVATIVE (UNPREDICTABLE DEMAND) Product Life Cycle More than 2 years 3 months-1 year Contribution* Margin 5%-20% 20%-60% Product Variety Low(10-20variants per category) High (often million of variants per category) Average margin of error in the forecast at the time production is committed 10% 40%-100% Average Stock out rate 1%-2% 10%-40% Average forced end of season markdown as percentage of full price 0% 10-25% Lead time required for made to order products 6 months to 1year 1 day to 2 weeks Objective is to match efficient process strategy for functional products and responsive process strategy for innovative products

27 Hill’s manufacturing strategy matrix

28 Christopher and Towill (2002)

29 Examples Wal-Mart stands out on price
McDonalds on access, availability, consistency and speed Nike and Reebok on brand recognition American Express on services Dell on timely deliveries Dominant in one attribute and efficient in others choosing the right product attribute to create the right customer value Select the best-fit strategy but use segmentation as generic supply chains don’t work Dichotomy between efficient and responsive strategies

30 Lean production techniques
Toyota-ism result of resource scarcity and intense domestic competition achieving cost improvements focus on reducing waste (‘muda’) and continuous improvements Origins: JIT, Kanban and respect for employees

31 Core concept simplify and reduce variance within complex and dynamic systems more predictable and controllable behaviour

32 Elimination Non Value added activities
Waste from Irregular Flow Waste from Inaccurate Supply Waste from Inflexible response Waste from Variability Inventory is main source of inefficiency Storage adds no value to the product Idle time due to break down or set up Preventative maintenance, reduction of lot size, use of common parts across product lines Reduction in within-firm movements Cell manufacturing

33 Continuous Improvement
Improvements in material handling systems involvement of all production employees organised in teams support of top management

34 Benefits and Constraints of Lean
Ample literature indicating that many companies benefit from lean Reduction in lead-time, in inventories, in the cost of quality and in process changeovers Increases in labour productivity Equally ample literature on problems Inability to cope with variability narrow operational focus on the shop floor Inflexibility particularly outside the high volume repetitive manufacturing

35 Case Study - Delphi Modelled after the principles of the Toyota Production System, Delphi Management Systems has enabled the company to be a lean manufacturer focused on customer needs. DMS addresses everything from how supplies are delivered to employee movement in the plant, with the goal of continuously increasing efficiency and eliminating waste in a cost-effective manner, DMS focuses on six specific but interdependent elements aimed at eliminating waste and improving product flow; Employee environment and involvement: Creating a team based work organization with joint efforts between workers and management, with shared goals and a commitment to continuous improvement. Workplace organisation: Paying attention to how employees, equipment, and materials arc coordinated, providing a safe, clean work environment. Quality: Focusing on variation reduction, waste elimination, and first-time-through customer satisfaction. Operational availability: Minimizing non productive time for operations. Material movement: Assuring on-time delivery of required materials. Flow manufacturing: Responding quickly, safely, and efficiently to customer demand .with high quality, high-value products

36 Agile Manufacturing Agility is a business-wide capability that embraces organisational structures, logistics processes, information systems and, in particular, mind-sets’ (Christopher) flexible manufacturing systems mass customisation leagile supply chain market sensitive and demand driven Virtual arrangements information sharing between upstream and downstream partners process alignments and collaborative approach

37 Cted ability of the firm to reconfigure itself
In the face of dynamic and competitive environment continuous and unanticipated changes outside the firm government policies international trade agreements changing customer expectations

38 Core Concepts (Gunasekaran et al. 1999)

39 Core Competence Management
Specific factor that a business sees as being central to the way it works It provides consumer benefits It is not easy for competitors to imitate It can be leveraged widely to many products and markets Exist at two levels: the firm and its employees It should be exploited It should be further developed

40 Virtual organisation integration of core competencies distributed among a number of carefully chosen but real organisations Solution to a wide range of problems improve product and process design reduce manufacturing risks enhance product service and repair high levels of cooperation - Agile teams work across organisational boundaries Temporary arrangement – need to be able to reconfigure rapidly

41 Example IBM - strategic partnerships to work jointly on research and development, product conceptualization, product development, and distribution as well as operations HITACHI - advanced storage technologies Tree Data - storage networking products for mid-sized customers UPS - distribution network

42 Capability for re-configuration
Track windows of opportunities Pre-empt competition Develop a strategic architecture based on a corporate-wide map of core skills Invest in technologies to achieve flexibility in both organisation and operations

43 Knowledge-driven enterprise
Well-trained and motivated workforce Focus on knowledge Creation, acquisition, codification, storage, maintenance and transfer Multi-path agility as a factor of speed IT for coordination, communication and ebusiness

44 Knowledge activities at firm level
Knowledge Activity (KA) Definition Acquire Identify and capture knowledge from source to a company. Sources include written form, physical objects, people, courses, cooperation between source and recipient, and outsourcing Codify Assess the value of knowledge, distil, refine and assemble into comprehensive format Store Store knowledge in an artefact e.g. system, document Maintain Update on continuous basis, as a result of additional acquisition activities Transfer Identify receiver, organize channel of communication and send Create New knowledge cultivated through knowledge transfer. Acquisition activities come into play as new knowledge is acquired

45 Strengths and weaknesses of Agile
effective only if physical set-ups made flexible machineries, buildings, storage facilities Business processes, empowerment… Without compromising control HR issues are important Flexible employment Unclear boundaries of responsibility Team based organisation

46 Example Zarra – Benetton
Manage the 3 lead times of the fashion industry: time to market, time to serve and time to react team of fashion scouts seeking new ideas and trends across the market and analyse the Point of Sale Data Ideas quickly converted into tangible products Time to market is a matter of weeks working closely with small manufacturers, specialising in production process and garment types Admin can provide flexible technological, financial and logistical support Key to success: creating virtual technology enabled teams with a high degree of information sharing

47 Lean + Agile? Leagility is being discussed
a system in which the advantages of leanness and agility are combined strategic use of decoupling point lean concept upstream from the decoupling point to achieve economies of scale agility concept downstream to achieve consumer responsiveness

48 Forrester effect

49 Does it make sense?

50 Decoupling points “decoupling points : The locations in the product structure or distribution network where inventory is placed to create independence between processes or entities. Selection of decoupling points is a strategic decision that determines customer lead times and inventory investment. Information decoupling point (IDP) and other is material decoupling point (MDP)

51 Material decoupling point
strategic point for buffer stock position changes depending on the variability in demand and product mix increase in product mix and fluctuating volume decoupling point move upstream -> supply chain more agile Reduced variability in demand or product mix decoupling point move downstream -> supply chain leaner Product differentiation must occur at or beyond the decoupling point

52 Information Decoupling point

53 Order penetration “order penetration point : The key variable in a logistics configuration; the point (in time) at which a product becomes earmarked for a particular customer. Downstream from this point, the system is driven by customer orders; upstream processes are driven by forecasts and plans. “postponement : A product design strategy that shifts product differentiation closer to the consumer by postponing identity changes, such as assembly or packaging, to the last possible supply chain location.”

54 Towards hybrid strategies
upstream from postponement applications and the information decoupling point, supply chains should be lean downstream from that point they should be agile

55 Some configurations I – basic
T – few products – many packaging variants V – few raw materials, many end products A – Many raw materials, few end products

56 Understanding SCM Strategies

57 Another one

58 Example – who is this?

59 LeaAgile in action

60 BT: a service case study
telephony and provision service for residential and small business customers, from call centre reception of orders/faults through to the field engineering workforce new customer services division optimisation of whole process, rather than sub-optimisation of individual functions such as sales or operations Break departmental barriers and allows process measures from a customer perspective field engineering workforce given local autonomy -> formation of customer service teams with multi-skilling Automated proactive maintenance scanning network at night -> schedule maintenance automated software controlled systems delivering agile service (eg: callminder) ``Plug and Play‘’ equipment and mass customisation (eg: billing)

61 Some pointers Lean = centralise production of a standard product with few variants -> economies of scale Globalisation =serving different markets from one manufacturing site Compromised by increasing demand for product variability Agile = re=organise firms so they leverage temporary alliances to allow for closer focus on customers (virtual arrangements) Merging of the two strategies on either side of a differentiation point Postponment

62 HP: global leagile case study
Primary production in the States - > generic product Shipped to national distribution centres (push system) Each centre performs regionalisation on demand (pull system) Only one level of forecast: global demand for the generic product Unexpected demand can be covered by transfer from one distribution hub to another

63 Comparison of lean, agile and leagile supply chains (Source: Agarwal, A. 2006)

64 Case study: food industry
globalization and technological advancements in the past decade Supply chain evolved from simple to very complex Challenges: Increased Consumer demand (and dominance) Specialisation of products (organic…) Increasing product variety (SKUs, recipes, packaging…) Extensive new EU legislation Increased retailer power (size effect) Inherent Nature of Food Manufacturing (seasonal, disjointed, variable supply and quality…)


66 Key issues for food industry
Process Efficiency mixing, processing, packaging and preservation large number of routings Activities labour intensive and dedicated Consumer Responsiveness Especially at later stages (post-decoupling point) All inventory retained in semi-processed state Postponement until customer order (not final customer) Innovation as a mode of market entry Demand Management More attention to customer induced variations Many misconceptions – eg: promotional policies and Supply-side effects Collaboration and Integration of Supply Chain Size effect

67 Customer profile in the UK over 50 per cent of all food and drink consumed outside the home (2003) 33 per cent in 1992 significant increase in the number of single-person households demand for smaller package sizes and convenience logistics of supplying such a customer base can be daunting

68 Ireland Traditional agrarian country turned into a specialised producer Location disadvantage (cost and dependence on transport channels) Therefore SCM very important one in four businesses have taken on board SCM 9% of Irish firms have a specialized SCM or logistics manager Aware of SCM issues but not measuring them 46 % of companies do not have KPIs for customer service 59 % of companies do not know their total supply chain costs 41 % of firms do not know their transport costs 82 % of companies do not formally measure warehousing in terms of key performance indicators.

69 Perceived Integration of Supply chain activities in Irish Companies

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