Chapter 7 Supporting the Procurement Process with SAP Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7-1

Administrivia Mid-term course status Project 2 – finished updating – Will be up tonight / tomorrow 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 2

Agenda This week we start discussing procurement – Traditionally this is thought of as a brick and mortar business application – Ultimately it is essential in information services as well 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 3

Procurement What is procurement? Procurement is the acquisition of goods and services from an external source – It is not interesting – Jim “Iron Face” Wilson – It is, however, essential Consider our bicycle example… 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 4

8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 5

Also, consider our industries 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 6

Where might we see this in IS industries? 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 7

What are the fundamentals of a procurement process? Three activities – Order; Receive; Pay Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 8 Figure 7-1 Main Procurement Process Activities and Roles

What are the fundamentals of a procurement process? Supporting the Inbound Logistics Process in the Value Chain – Procurement of raw materials needed for production Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 9 Figure 7-2 Procurement Process within the Value Chain of CBI

What are the fundamentals of a procurement process? Linking the fundamentals of the procurement process with Inbound Logistics in the Value Chain Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 10

8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall People 4 Information Silos Do I pay the supplier right away?

8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Three-Way Match done by accounting after goods received before the invoice is paid

What were the problems with the Procurement process before SAP? Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 13

In Class Exercise - United States Department of Defense Consider the case of the Pentagon 5 Military Branches – Active personnel – 1.369mm – Reserve – 851k At present procurement for these branches is done semi-independently Why might integration be good? Why might integration be bad? 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 14

Chapter 7 Supporting the Procurement Process with SAP Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7-1

Administrivia Project 1 – Gone forever Project 2 - Posted Project 3 Phase 2 – Due 11/4 via Common Exam #2 – Psuedo-finalized 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 16

Where we are… Two sections ago we covered the fundamental concepts of procurement Last section we tried to motivate the uncanny difficulty of managing supply chain procurement In this section we will discuss the explicit examples of Chuck’s bikes 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 17

Recall the Game What procurement problems did your teams run into? How could these have been avoided with an ERP system? 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 18

How did procurement at CBI work before SAP? Wally ran the whole show Objectives – Avoid running out of raw materials – Use reliable suppliers – Stay within budget How would you describe these objectives? Good? Bad? Middling? Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 19

What were the problems with this setup? Warehouse Problems – Excess raw and finished goods (storage issue) – Price blindness (reason for spike) Accounting – Non synchronized inventory and ordering – Lagged accounting data Purchasing – No purchasing department – Audit Trails and financial control 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 20

How does CBI implement SAP? CBI had to reexamine and refocus their strategy Involved three activities – Determine industry structure – Commit to a specific competitive strategy – Develop objectives and measures for processes What tool would help them do this? Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 21

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Strong rivalry with low switching costs – Porter’s 5 Forces Adopt differentiation strategy Create objectives and measures for their processes Porter’s Puzzle Returns Triumphant!

How does the Procurement process work at CBI after SAP? Maintained same three major activities – Order; Receive; and Pay Single shared database Solutions to prior problems – Purchasing – Warehouse – Accounting Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 23

How does the Procurement process work at CBI after SAP? Benefits of SAP for CBI’s procurement process – Single database – Shared information in real time – Reduction of errors – Improved financial controls – Increased responsiveness Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 24

An Open Ended Thought Exercise What is likely the biggest loss to the organization as a result of SAP? 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 25

8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall How many accountants does it take to … How many errors are eliminated? Where’s Wally when the system orders stuff?

How might SAP be further improved upon at CBI? Other IS That Improve Supply Chain Processes – Augmented reality – RFID RFID – Sensors – Robotics Robotics – 3D printing 3D printing Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 27

How does the Use of SAP Change CBI? New skills are needed Process focus More data sharing Outsourcing Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 28

LAC+USC Medical Center One of the largest hospitals in the United States One million ambulatory care/ 39k inpatient visits per year ED – 150k per year Home of the “circle of death” during the late 80s LA crack epidemic and the gang wars of the early 1990s (i.e. Bloods and Crips) Take five minutes, how would ERP improve their performance? 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 29

Recap Today we discussed the specific challenges faced by CBI during their SAP implementation – Motivation for adopting SAP – Benefits – Further improvements 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 30

Reminders Project 2 – Due 11/13 Project 3 Phase 2 – Due 11/4 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7- 31

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7-32