Organizational Applications and Solutions SCM and ERP Dr Sherif Kamel Department of Management School of Business, Economics and Communication

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Outline  Supply chain and value chain definitions  Components, benefits and problems of a supply chain  Sources and solutions of SCM problems  Computerization and SCM  Enterprise resource planning  ERP functions and implementation  Managerial issues  Case: How did Dell re-engineer its SC

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Supply chain and value chain definitions  Supply chain o Flow of materials, information, payments, and services from raw material suppliers, through factories and warehouses, to end customers  Demand chain o Process of taking orders  Supply chain management (SCM) o To plan, organize, and coordinate all the supply chain’s activities

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe …contributes to overall increase in profitability and competitive advantage …which positively affects inventory levels, cycle time, business processes and customer service…and… Reduces uncertainty and risks in the supply chain… Benefits of supply chain

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Components of a supply chain  Upstream Supply Chain o Organization’s first tier suppliers and their suppliers  Internal Supply Chain o Processes used by an organization to transform their inputs to outputs  Downstream Supply Chain o Processes involved in delivering the product to the final customers

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Supply chain  Involves the life of a product from  Involves movement of tangible and intangible inputs  Can come in all shapes and sizes and may be fairly complex  Can be bi-directional and involve the return of products (reverse logistics)  The flow of goods, services, information and financial resources must be followed with an increase in value

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe In 1999, ToysRus had problems supplying to holiday shoppers and lost business In WWII, Germany encountered problems supplying troops in Russia, which contributed to their collapse Supply chain problems  Problems with the supply chain could cause companies to go out of business…

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe UNCERTAINTY  In demand forecast  In delivery times and production delays POOR COORDINATION  With internal units and business partners  Ineffective customer service  High inventory costs, loss of revenue and extra cost for expediting services Sources of SCM problems

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Bull-whip effect  Most persistent SCM problem o Continuous shifts in orders up and down the supply chain o Distributor orders fluctuate because of poor demand forecast, price fluctuation, and order batching o Avoidable with proper inter-organizational Intranet ­ Use of EDI, extranets and groupware technology

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Solutions to supply chain problems  Vertical Integration o Purchasing and managing the supply source  Building Inventories o Insurance against supply chain shortages o Difficulty to correctly determine inventory level for each product and part – a costly process  Other solutions include o During peak times, outsource rather than do-it-yourself o Configure optimal shipping plans o Create strategic partnerships with suppliers o Use the just-in-time approach to purchasing o Manufacture only after orders are in o Achieve accurate demand by working closely with suppliers

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Case: How Littlewoods improved its SCM  Problem o Littlewoods Large British clothing retailer with 136 stores in the UK and Ireland o Overstocking problems in the supply chain management  Solution o Introduced web-based performance reporting system o Enabled merchandising personnel to make more accurate stock, sales and supplier decisions  Outcome o In 1997, Littlewoods saved 1.2 million US dollars as a direct result

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Computerized systems and SCM

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Systems integration Tangible Benefits  Inventory reduction  Personnel reduction  Productivity improvement  Order management improvement  Financial-close cycle improvements  IT cost reduction  Procurement cost reduction  Revenue/profit increases, etc. Intangible Benefits  Information visibility  New/improved processes  Customer responsiveness  Standardization  Flexibility  Globalization and business performance

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Value chain integration  The process by which multiple enterprises within a shared market channel collaboratively plan, implement, and manage (electronically as well as physically) the flow of goods, services, and information along the entire chain in a manner that increases customer-perceived value…added- value realized

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Integrating both chains supply and value  A supply chain transforms into an integrated value chain when it… o Extends the chain all the way from sub-suppliers to customers o Integrates the back-office operations with those of the front office o Becomes highly customer-centric, focusing on demand generation and customer service o Is proactively designed by chain members to compete as an “extended enterprise” o Seeks to optimize the value added by information and utility- enhancing services

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Value chain integration

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Enterprise resource planning (ERP)  ERP is the process of planning and managing all resources and their use in the entire enterprise o Leading ERP software producers include ­ SAP, Oracle, JD Edwards, Computer Associates, PeopleSoft  ERP is there to integrate all departments and functions across a company onto a single computer system

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe ERP functions  Provides a single interface for managing routine manufacturing activities  Facilitates customer interaction and manages relationships with suppliers and vendors  Forces discipline and organization around business  Supports administrative activities  Starting 1990s – 2 nd generation ERP penetrated the marketplace  Emergence of SCM systems that complement ERP systems o Provide intelligent decision support capabilities  Overlay existing system and pull data from every step of the supply chain

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe ERP implementation  Identify customer’s expectations  Determine ERP product capabilities, and gaps  Level of change the customer has to go through to make the system fit  Level of commitment within the customer organization to see the project through  Customer’s organization and culture  Risks presented by politics within the customer organization  Consultant’s capabilities, responsibilities and role (if applicable)

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe eCommerce and SCM  Replaces all paper documents with electronic documents  Replaces faxes, phone and telegrams with electronic messaging system  Enhances collaboration and information sharing  Results in shorter supply chain and minimum inventories  Facilitates customer service  Introduces efficiencies in buying and selling through the creation of eMarketplaces

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Managerial issues  Ethical issues o Conducting a supply chain management project may result in the need to lay off, retrain, or transfer employees o Sharing of personal information and computer programs  How much to integrate? o While companies should consider extreme integration projects, including ERP, SCM, and electronic commerce, they should recognize that integrating sometimes results in failure  Role of IT o Almost all major SCM projects use IT – however it is important to remember that technology plays a supportive role to organizational and managerial issues

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Case: How did Dell re-engineer its SC  Problem o Dell pioneered the mail order approach to selling PCs o In 1993, Compaq cuts prices to drive Dell out of the market and Dell experiences $65 million in losses  Solution o Dell implements the following re-engineering strategies ­ Mass customization ­ Just-in-time marketing ­ Electronic orders and shipments ­ eCollaboration with major buyers  Results o In 2001, Dell made over $4 million in computer web sales/ day o Becomes leader in Customer Relationship Management (CRM) o Online tracking of orders and shipments o Viewer approved configurations and pricing o Customized home pages for clients

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Lessons from dell.com  By introducing a new business model, one can change the manner in which business is done  To implement this model on a large scale, one needs to build superb supply chain management  Dell made an improved logistics system along the entire supply chain  Improved communications and customer service, which are part of Dell’s CRM program, are the cornerstones of its success