1 E-Business Supply Chain Management Michael J. Shaw
A Process View of the Supply Chain 2 Supply Chain Planning Information Flows Supplier Product Flows Manufacturing Product Flows Distribution Product Flows Retailer Product Flows Customer Payment Flows Supply Chain Execution
Definitions of SCM 3 SCM is the coordination of material, information, and financial flows between and among all the participating enterprises in a business transactions Material flows Involve physical product flowing from suppliers to customers through the chain, as well as reverse material flows, such as product returns, servicing, recycling, and disposal Information flows Involve demand forecasts, order transmissions, and delivery status reports Financial flows Involve credit card information, credit terms, payment schedules, and consignment and title ownership arrangements
Significance of SCM 4 Today, companies need rapid, cost-effective, flawlessly executed demand fulfillment in order to deliver value to the customer what they want, when and where they want it, and at the lowest possible cost With e-commerce, the process focus is shifting inexorably outside the organization s four walls. The next opportunity lies in the fusing of each company s internal systems to those of its suppliers, partners, and customers.
Examples 5 Leading companies have the most innovative supply chains and are pulling head of their competition at breakneck speed Dell Computer: built on a vision of customerresponsive order fulfillment P&G: manufacturers and suppliers jointly creating business plans to eliminate the source of wasteful practices across the entire supply chain.
The Evolution of ERP 6 Wave 4: Interenterprise Integration (XRP) Wave 3: Customer-Centric Integration (CRP) Wave 2: Enterprise Integration (ERP) Wave 1: Manufacturing Integration (MRP)
The Evolution of ERP (Cont.) 7 Wave 1: Manufacturing Integration (MRP) The 1970s saw the emergence of MRP, which focused on automating all aspects of production master scheduling and centralized inventory planning, respectively. During the 1980s, the MRP extends traditional focus on production processes into other business functions, including order processing, manufacturing, and distribution Wave 2: Enterprise Integration (ERP) The following key business drivers forcing migration from MRP to ERP Replacing legacy systems Gaining grater control Managing globalization Handling regulatory change Improving integration of functions across the enterprise
The Evolution of ERP (Cont.) 8 Wave 3: Customer-Centric Integration (CRP) Key CRP driver: traditional ERP solutions are ill-equipped to meet the business requirements of the build-to-order/fulfill-to-order business paradigm Companies are racing to find the right combination of bricks and clicks -> ERP s business requirement have evolved from their focus on cost cutting, efficiency, and productivity to a new focus on customer value, effectiveness, and enhanced service delivery Wave 4: Interenterprise Integration (XRP) XRP, known as extended resource planning, extends the organizational foundation of an ERP backbone beyond the four walls of the enterprise to its customers, suppliers, and trading partners. Examples of XRP are B2B marketplaces, providing better synchronization with trading partners in order to reduce inventories, foster strategic M. Shaw, pricing, UIUC improve cycle times, and increase customer satisfaction throughout the supply chain
The Next Wave of Integration: Extended Enterprise 9 Internal Focus Manufacturing External Focus Supply Chain Planning Information/ Supplier Centric Industrial Age Based Financials HR/Payroll Integration Supply Chain Execution Selling-Chain Management Information/ Customer Centric Integration of Core Functions Integration of Revenue Growth Functions
Supply Chain Investment Trends 10 Information is replacing inventory Supply chain capabilities are rapidly growing to manage external inventory that companies can t see and don t own. Companies that are adept at managing information are less likely to carry costly inventory Companies that don t understand how this trend lets them avoid inventory carrying costs will fail The competition will move from a model of company versus company to one of supply chain versus supply chain
Collaborative Supply Chains 11 SCM is evolving from the current enterprise-centric models, to more collaborative, partnership-oriented models, such as P&G and Wal-Mart s continuous-replenishment model in the consumer packaged-goods industry.
Internet-Enabled SCM 12 Three types of high-performance supply chains: Responsive supply chains Quickly and accurately respond to customer needs. ATP (available to promise) is one important feature of their responsiveness Adaptive supply chains Rapidly reconfigured to adapt to changing consumer demand. They help companies to compete by accelerating the rate at which the companies identify and respond to changing business conditions and consumer requirement Intelligent supply chains Dynamic and continuously fine-tuned as companies seek a slight edge over the performance of other chains. The chains are formed and reformed in an attempt to strengthen the weak links in the chain
An Application View of the Supply Chain 13 Complete Order Life Cycle Partial Functional Solutions Complete Integrated Solutions Commit Schedule Make Deliver Order Commitment Advanced Scheduling Demand Planning Transportation Planning Integrated Selling Chain Application Manufacturing Planning Distribution Planning Cross-Functional Processes Breaking Down Enterprise Walls
Build-to-Order 14 Make-to-stock model V.S. Build-to-order model make-to-stock model Supply plans are implemented to match the profile of the demand forecast while meeting the customer service targets, such as order-fill rate. Revenue is a given, so only costs are minimized Changes in demand stemming from unforeseen circumstances often cause severe disruptions to the demand plan, resulting in lost sales, reduced market share, and unprofitable operations Build-to-order (BTO) model The concept behind BTO is matching supply with demand in real time As customer demand becomes unpredictable, companies must enter BTO to integrate their supply plans with demand plans, in order to best achieve corporate goals and maximized profitability
Build-to-Order: Intel, Solectron, and Ingram Micro 15 Ingram-Solectron supply chain Ingram receives a PC order from one of its reseller customers. The order is transferred electronically to one of nine worldwide manufacturing locations owned by either Solectron or Ingram. The PC is produced to specification at the manufacturing facility probably married at some point with the associated peripherals and drop shipped to either the reseller or the end user customer The entire process takes less M. Shaw, than UIUC 7 days
Build-to-Order Supply Chain with Zero Inventory 16 Suppliers Transportation Company (FedEx, UPS) Solectron Ingram Micro Ingram s Web Site Reseller/ Customer
Demand variability in the supply chain 17 Material plans Materials planner Materials requirement production planner Production requirement Inventory planner Account plans Account management Customer Batch size Truck load Minimum run lengths Promotions Deals, price rises Bulk buys
Supplier relationships 18 Critical Vendor managed inventory Importance (of customer) to supplier Major One of many Irrelevant Forecasted ordering Random ordering Joint replenishment Capacity reservation Requirements planning Synchronized for normal demand Plan for events Effective demand management Synchronized supply/ demand capability Regular dialogue Effective forecasting aligned with order placing Joint planning periodically EDI Annual account planning Full commodity One of many Major Critical Importance (of supplier) to customers
information sharing in the supply chain 19 80 70 60 50 40 30 20 10 80 70 60 50 40 30 20 10 0 Inventory 0 Demand Order and Project Financial history status capacity and design information forecasts and specs Percentage of 50 fortune 1,00 companies interviewed and asked: What information are you sharing together with your supply chain partners? M. And Shaw, what UIUC information will you share?
How Much Inventory Should be Carried? 20 POS Store Warehouse 140000 120000 100000 80000 60000 40000 20000 0 Dec- 98 Dec- 98 Notice the Variation! Jan-99 Feb- 99 Mar- 99 Mar- 99 WHY? Apr-99 Apr-99 May- 99
CRP Results 21 POS Store 140000 120000 100000 80000 60000 40000 20000 0 Dec- 98 Dec- 98 Jan-99Feb- 99 Mar- 99 Mar- 99 Old Inventory Level New Inventory Level New Warehouse Same POS Apr-99Apr-99May- 99
Recasting the Value Chain Reduced costs on direct and indirect spend and streamlined processes Enterprise eprocurement Efficient vertical markets that increase supply chain visibility and velocity Vertical Marketplaces Buyers Distributor Tier 1 Manufacturer Tier 2 Manufacturer Raw Goods Internet Buying Group Logistics Banking Communications Horizontal Marketplaces Commerce Service Providers Increased value proposition by extending procurement and value added services to customers, suppliers and partners.
The Coming Wireless Opportunities Improve process compliance by extending solutions to wireless Enterprise eprocurement Wireless will further increase supply chain visibility and velocity Vertical Marketplaces Buyers Distributor Tier 1 Manufacturer Tier 2 Manufacturer Raw Goods Internet Buying Group Horizontal Marketplaces Logistics Banking Communications Commerce Service Providers Increased value proposition by wirelessly extending procurement and value added services to customers, employees, suppliers and partners.