Chapter 1 Information Technology and Supply Chain Management

SCM 614Dr. Huei Lee

Eastern Michigan University

Copyright© 2003-2007, Huei Lee

Supply Chain Management (SCM) Systems

SCM is the process of effectively managing the components of an extended value chain--from suppliers, through manufacturing and distribution chain, and to the consumers.

SCM information systems use technology to more effectively manage supply chains

I. What is SCM?

Why Supply Chain Management?

Parts $5,000

Labor 4000

Overhead 2000

Management  

Marketing 3000

Total Cost $14,000

1950-1980s Manufacturing

• 50 years ago, U.S. is the only country that can manufacture cars.

● You buy a car from GM, all the money will go to the GM.

1980-2000s Supply Chain Management

• Today, foreign parts and labors are much cheaper than that in US.

● You buy a car from GM, only a portion of money will go to the GM.

Value Chain Analysis

Benefits of Value Chain Analysis - Disintermediation to the Consumer

Manufacturer

Manufacturer

Manufacturer

Distributor Retailer

Retailer

Customer

Customer

Customer

Cost/

Sweater

$48.50

$40.34

$20.45

Service

The concept of Supply Chain Management is also applied to Service.

Business Process Management or Business Process Reengineering

Stockless Inventory Compared to Traditional and Just-in-time Supply Methods

Business Process Reengineering

From an article published in Harvard Business Review

Radical business redesign initiatives that attempt to achieve dramatic improvements in business processes by questioning the assumptions, or business rules of the company.

II. Information Systems for SCM

Information Technology for Supply Chain Management Software Systems

Electronic Data Interchange (EDI) Material Requirements Planning (MRP) Manufacturing Resource Planning (MRP II) Enterprise Resource Planning (ERP) Supply Chain Management Systems (SCM) Customer Relationship Management (CRM) Internet-based Software

Network Infrastructure Wide Area Network Internet (for E-commerce: B2B, B2C)

III. ERP

Enterprise Resource Planning (ERP) Systems

Enterprise resource planning (ERP) is a term used to refer to a system that links individual applications (for example, accounting and manufacturing applications) into a single application that integrates the data and business processes of the entire business.

Origins of ERP Systems ERP systems grew out of a function called

materials requirements planning (MRP) which was used to allocate resources for a manufacturing operation

MRP systems software ultimately became very complex allowing for efficiencies of scale not previously possible

Even more sophisticated MRP II systems began to replace MRP systems in the 1980s

By the early 1990s, other enterprise activities were being incorporated into ERP systems

Origins of ERP Systems Today, an ERP system can

encompass, but is not limited to, the following functions: Sales and order entry Raw materials, inventory, purchasing,

production scheduling, and shipping Accounting Human resources Resource and production planning

Major ERP Systems

SAP R/3 Oracle PeopleSoft (have been merged by

Oracle) Toyota uses PeopleSoft and SAP

Microsoft Dynamics (formerly Microsoft Business Solutions - Great Plains)

E-Business and ERP Systems An e-business must keep track of and process

a tremendous amount of information Businesses realized that much of the

information they needed to run an e-business — stock levels at various warehouses, cost of parts, projected shipping dates — could already be found in their ERP system databases

A major part of the online efforts of many e-businesses involved adding Web access to an existing ERP system

E-Business and ERP Systems

Many e-businesses want the same things from their business infrastructure

Thus, rather than custom build applications, many companies prefer to use prepackaged ERP system software, which is often more efficient and less expensive to implement

Cost of Implementing ERP Systems Most businesses need extensive help from

consultants to configure their ERP system software around their existing business practices, or to suggest changes in business practices in order to better fit the ERP system requirements

This process of mutual adaptation is called systems integration

The consultants who supervise the integration process are often referred to as systems integrators

Outsourcing ERP Systems

One response to the challenge of managing a complex ERP system is to outsource it

Some businesses choose to outsource not only the installation but also the ERP system software

IV. Supply Chain Systems

Supply Chain Management (SCM) Systems

A typical SCM system might address the following issues: Planning Vendor selection Manufacturing Logistics Customer relationship

Supply Chain Management (SCM) Systems

Supply Chain Management (SCM) Systems With the advent of the Internet, e-

businesses began to demand different things from their SCM systems

Most importantly, SCM systems vendors (largely the same vendors that provide ERP systems software) had to modify their products to include a Web-based interface

The ultimate goal of a business ERP system is complete optimization of internal business processes

Supply Chain Management (SCM) Systems The two basic types of SCM system software

are: Supply Chain Planning software (SCP):

uses mathematical models to predict inventory levels based on the efficient flow of resources into the supply chain

Supply Chain Execution software (SCE): is used to automate different steps in the supply chain such as automatically sending purchase orders to vendors when inventories reach specified levels

Major Supply Chain Planning (SCP) Players

i2 Technologies i2’s strength began with its powerful

Advanced Planning and Scheduling (APS) Manugistics Oracle SAP

Advanced Planner and Optimizer (APO)

SAP Advanced Planner and Optimizer (APO)

Supply Network Design (SND)

The Supply Chain Cockpit (SCC)

Demand Planning (DP)

Supply Network Planning (SND)

Collaborative Planning, Forecasting, and Replenishment (CPFR)

…

Levels of SAP APO

SAP R/3

Oracle Supply Chain Planning Oracle Supply Chain Planning is part of

the Oracle E-Business Suite's family of Supply Chain Management solutions

It includes Demand Planning Collaborative Planning Inventory Optimization Manufacturing Scheduling, and Global Order Promising

Customer Relationship Management (CRM) Systems Customer relationship management

(CRM) systems, sometimes called e-CRM systems, use technology to help an e-business manage its customer base

CRM allows an e-business to match customer needs with product plans and offerings, remind customers of service requirements, and determine what products a customer has purchased

V. CRM

Salesforce.com

Muiti-channels CRM

Data Mining/Web Mining/Business Intelligence Data mining is the process of using

mathematical techniques to look for hidden patterns in groups of data, thereby discovering previously unknown relationships among the many pieces of information stored in a database

A data warehouse is a database that contains huge amounts of data, such as customer and sales data

What does Data Mining Do?

Explores Explores Your DataYour Data

Finds Finds PatternsPatterns

Performs Performs PredictioPredictio

nsnsQuery, Reporting,

AnalysisData Mining

Why

HowWhat

Data acquisition from Data acquisition from source systems and source systems and integrationintegration

Data transformation Data transformation and synthesisand synthesis

Data enrichment, Data enrichment, with business logic, with business logic, hierarchical viewshierarchical views

Data discovery via Data discovery via data miningdata mining

Data presentation Data presentation and distributionand distribution

Data access for Data access for the massesthe masses

IntegrateIntegrate AnalyzeAnalyze ReportReport

SQL Server 2005 Algorithms

Decision TreesDecision Trees ClusteringClustering Time SeriesTime Series

Sequence Sequence ClusteringClustering

AssociationAssociation Naïve BayesNaïve Bayes

Neural NetNeural NetPlus: Linear and Logistic Regression

Relationship among SCM, ERP, CRM

SCM ERP CRM

Broader SCM

V. SAP R/3

References: available on request

PARTIAL SAP CLIENT LIST

Spacenet

BEFORE SAP R/3

Systems didn’t talk to the extent processes required, in spite of 20 years of IS labor

Human glue was required: to fill-in where systems don’t talk to reconcile multiple views of data to arrive at an “answer”

to monitor “hold-points” to ensure procedures are followed amidst the disorganization of being part paper and part automated

to bridge systems and paper processes

Pump/Motor RunTime

Work OrderSystem

Catalog

Accounts Payable

Disbursements

Real Property

DOE FIMS

DOE DISCAS

Purchasing

General Ledger

Bench StockControl

Bar Coding

Fixed Assets

Inventory ControlSystem

Off-site VendorCustody

PayrollPersonnel

Paper

JournalEntry

RequestPaper

Paperreceivers

PaperInvoices

Paperpartsorder

PaperPurchaseRequisition

Legacy System

Legend

Centra EDM/PDM

EngineeringChange Control

Log

PaperECP

PaperContract

MRP Models

batch file

batch filebatch file

batch file

PaperStocklevel

decision

Security

Training

Paperchecks

Artemis ProjectFund Accounting

PrimaveraSchedules

Papermilestonedefinitions

Logistics SupportAnalysis

Logistics SupportAnalysis

Pump/Motor RunTime

Work OrderSystem

Catalog

Accounts Payable

DisbursementsSecurity

Real Property

DOE FIMS

DOE DISCAS

Purchasing

General Ledger

Bench StockControl

Bar Coding

Fixed Assets

Inventory ControlSystem

Off-site VendorCustody

PayrollPersonnel

PaperRecords

JournalEntry

RequestPaper

Paperreceivers

PaperInvoices

Paperpartsorder

PaperPurchaseRequisition

Legacy System

Legend

Centra EDM/PDM

EngineeringChange Control

Log

PaperECP

PaperContract

MRP Models

batch file

batch filebatch file

batch file

PaperStocklevel

decision

Training

Paperchecks

Artemis ProjectFund Accounting

PrimaveraSchedules

Papermilestonedefnitions

HumanGlue

PROCESS EFFICIENCY

Realized through ability to reduce the personnel requirements to perform the process

Transfer into processes that were able to meet customer requirements

11

SAP R/3SAP R/3 Omni-functionalOmni-functional Fully integratedFully integrated Process-orientedProcess-oriented Off-the-shelfOff-the-shelf

THE KEY ENABLER: ONE SYSTEM

SAP R/3SAP R/3Single CentralSingle Central

DatabaseDatabase

FinancialFinancialAccountingAccounting

ControllingControlling

FixedFixedAssetsAssetsMgt.Mgt.

WorkflowWorkflow

Exec.Exec.InformationInformation& Report& Report

WriterWriter

MaterialsMaterialsMgt.Mgt.

Sales &Sales &DistributionDistribution

ProductionProductionPlanningPlanning

QualityQualityMgt.Mgt.

ProjectProjectSystemSystem

PlantPlantMaintenanceMaintenance

HumanHumanResourcesResources

FIFI

COCO

AMAM

PSPS

MMMM

PMPM

HRHR

WFWF

PPPP

SDSD

QMQM

Some SAP Products

R/3 APO Customer Relationship Management

(CRM) Business process improvement (BPI) Strategic Enterprise Management

(SEM) Business Warehouse (BW)

VI. SCM/ERP for Small Businesses – Microsoft Dynamics

Microsoft Dynamics Screenshot

Microsoft Dynamics Formerly Microsoft Business Solutions –

Great Plains With Microsoft Dynamics, you can bring supply-

chain functions online and make information available for team collaboration—wherever your employees, vendors, partners and suppliers are.

Business portal functionality lets you provide supply-chain functions, documents, and information to people across the chain, both inside and outside of the organization.

And you can use the same portal technology to let your executives review and augment performance—when, where, and how they need to.

Why Microsoft Dynamics is for small businesses?

Hardware considerations Database requirements

VI. Information Technology for for E-Business

TOOLS FOR WEB PAGE DEVELOPMENT & SITE MAINTENANCE

Languages: HTML CGI (Common Gateway Interface) CSS (Cascading Style Sheets) Javascript Java (Java Applet) XML/XSL

Software: Front Page Microsoft Word Macromedia Flash Player

http://www.macromedia.com/software/flash/ Macromedia Dreamweaver

V. Hardware Considerations for SCM systems

Intranet vs. Extranet

Intranet is to use Internet technology and protocol (TCP/IP) for the internal communications

Extranet is to use Internet technology and protocol for the internal and suppliers’ communications

Network Infrastructure: Wide Area Networks (WANs)

WAN Technologies

Ordinary telephone line and telephone modem.

Point-to-Point Leased lines (such as T1 line)

Public switched data network (PSDN)

Such as ATM, Frame Relay

Send your data over the Internet securely, using Virtual Private Network (VPN) technology

PSDN

VPN

Global Considerations in Using SCM/ERP Systems

Time differences Language issues Currency exchange rates Tax Different accounting systems Internet and security restrictions Culture and religion holidays