The information System for the

Supply Chain and Procurement

Lecture 3 Supply Chain Management

Pia Bosma MSc

September, 2014

Information Exchange SCM1

Enterprise Resource Planning2

The role of Purchasing3

Make or Buy decisions4

10-3

E-business and Supply Chain

• Cost savings and price reductions

• Reduction or elimination of the role of intermediaries

• Shortening supply chain response and transaction times

• Gaining a wider presence and increased visibility for companies

• Greater choices and more information for customers

10-4

• Customer sales

• Production

• Distribution

• Customer relationship

Push—sell from

inventory stock

Goal of even and

stable production

Mass approach

Dealer-owned

E-Automotive

E-automotive Supply Chain

Pull—build-to-order

Focus on customer

demand, respond with

supply chain flexibility

Fast, reliable, and

customized to get cars

to specific customer

location

Shared by dealers and

manufacturers

Automotive

Past

Supply Chain

Processes

10-5

• Managing uncertainty

• Procurement

• Product design

Large car

inventory at

dealers

Batch-oriented;

dealers order

based on

allocations

Complex

products don’t

match customer

needs

E-Automotive

E-automotive Supply Chain (cont.)

Small inventories with

shared information and

strategically placed parts

inventories

Orders made in real time

based on available-to-

promise information

Simplified products based on

better information about

what customers want

Automotive

Past

Supply

Chain

Processes

Strategic decision making

Tactical planning

Routine decision making

Execution and transaction

processing

Customer Internal Supply Supplier

Relationship Chain Management Relationship

Management Management

Supply Chain Information Flows

Supply Chain Information Needs

Strategic decision making

long-range plans to meet

organization’s mission

• Focus on long-term decisions

• Least structured of all

• Greatest user discretion

• Flexibility

Tactical planning

plans to coordinate actions

across supply chain

• Focus is on tactical decisions

• Plans physical flows

• Greater user discretion

• Form

• Flexibility

Routine decision making

support rule-based decision

making

• Fairly short time frames

• Limited user discretion

• Accuracy

• Timeliness

• Limited flexibility

Execution and transaction

processing

record / retrieve data & control

physical / monetary flows

• Very short time frames, very high volumes

• Highly automated

• Standardized business practices

• Ideally no user intervention

• Accuracy

• Timeliness

Supply Chain Activity Characteristics Performance Dimensions

purpose for Information Flows

What is “perfect” Information?

• Perfect information is:

– Accurate

– Timely

– Correct in detail and form

– Shared

– Complete

Costs of “imperfect” Information

• What are some of the costs associated with

information that is:– Inaccurate? (e.g., inventory or order info.)

– Late? (e.g., forecast changes)

– Incomplete in detail / form? (e.g., quarterly

sales forecast)?

– Not shared? (e.g., engineering changes)

Diagnosing and Improving Supply Chain

Information Flows

1. Map the business process(es) containing the information

flows of interest

2. Develop an information flow profile that identifies

potential performance gaps in the information flows

3. Use continuous improvement techniques to identify the

causes of these gaps

4. Use the plan-do-check-act (PDCA) cycle to plan and

implement improvements aimed at closing these gaps

This figure illustrates the major entities in Nike’s supply chain and the flow of

information upstream and downstream to coordinate the activities involved in

buying, making, and moving a product. Shown here is a simplified supply chain,

with the upstream portion focusing only on the suppliers for sneakers and sneaker

soles.

Simplified Supply Chain

Upstream Internal Downstream

Suppliers

Organization’s

production processes,

including materials

handling, inventory

management,

manufacturing,

quality control

Distributors

material

information

money

Retailers

Customers

Extending Supply Chain through e-Commerce

• Upstream– Change procurement methods

• Internal– Use of intranet to enhance internal

processes

• Downstream– Alter (streamline) selling practices

through direct Web selling, auctions, or exchanges

Information Exchange SCM1

Enterprise Resource Planning2

The role of Purchasing3

Make or Buy decisions4

Enterprise Resource Planning (ERP)

• An extension of the MRP system to tie in

customers and suppliers

– Allows automation and integration of many business

processes

– Shares common data bases and business practices

– Produces information in real time

• Coordinates business from supplier evaluation to

customer invoicing

Enterprise Application Architecture

Source: Adapted from Mohan Sawhney and Jeff Zabin, Seven Steps to Nirvana: Strategic

Insights into e-Business Transformation (New York: McGraw-Hill,2001), p. 175.

Enterprise Resource Planning (ERP)

• Cross-functional enterprise system

–with an integrated suite of software modules

–that support the basic internal business processes

of a company

ERP application components

Business benefits of ERP

• Quality and efficiency

• Decreased costs

• Decision support

• Enterprise agility

www.youtube.com/watch?v=PVRg

IXLWDHs

http://www.youtube.com/watch?v=

8OvY63m-N1E

http://www.youtube.com/watch?v=

bnnS1fL5fT8

What is ERP? (Enterprise

Resource Planning)

Costs of implementing a new ERP

Supply Chain Information Systems

Strategic

decision

making

Tactical

planning

Routine

decision

making

Execution and

transaction

processing

SRMapplications

DSS

CRMapplications

Networkdesign

Warehouse &transportation

planning

Warehousemanagement &transportation

execution

Suppliers Internal supply Customers Logistics

chain

ERPapplications

Supply Chain Information SystemsEnterprise Resource Planning (ERP) Systems

Strategic decision

making

Tactical

planning

Routine

decision

making

Execution &

transaction

processing

Suppliers Internal supply Customers Logistics

chain

SRM

applications

DSS

CRM

applications

Networkdesign

Warehouse &transportation

planning

Warehousemanagement &

transportation

execution

ERP

applications

Large, integrated computer-based

business transaction processing

and reporting systems. ERP

systems pull together all of the

classic business functions such

as accounting, finance, sales, and

operations into a single, tightly

integrated package that uses a

common database.

Traditional strengths in routine

decision making and in execution

and transaction processing

Captures data to support higher-

level decision support systems

(DSS)

Information Technology: A Supply Chain

Enabler

• Information links all aspects of supply chain

• E-business– replacement of physical

business processes with electronic ones

• Electronic data interchange (EDI)– a computer-to-computer

exchange of business documents

• Bar code and point-of-sale– data creates an

instantaneous computer record of a sale

• Radio frequency identification (RFID)– technology can send

product data from an item to a reader via radio waves

• Internet– allows companies to

communicate with suppliers, customers, shippers and other businesses around the world, instantaneously

Information Exchange SCM1

Enterprise Resource Planning2

The Role of Purchasing3

Make or Buy decisions4

– To perform specialised tasks

– To achieve an output

– With production and warehousing

– Internal and external focus

– Knowledge based

– Demonstrable skills and knowledge

As a function

As a process

As a link in the supply chain

As a relationship

As a discipline

As a profession

What is purchasing?

Perspectives on purchasing

1

2

3

4

5

6

To buy materials of the right quality , in the right quantity,

from the right source, delivered to the right place, at the

right time at the right price.

The process undertaken by the organisational unit which, either as a

function or a part of an integrated supply chain, is responsible for

procuring or assisting users to procure in the most efficient manner

required suppliers at the right time, quality, quantity and price and

the management of suppliers, thereby contributing to the competitive

advantage of the enterprise and the achievement of its corporate strategy.

The classic definition

Modern definition

What is purchasing?

Definitions

To be contrasted with

Procurement is the process of acquiring goods, works and services,

covering both acquisition from third parties and from in-house providers.

The process spans the whole life cycle from identification of needs,

through to the end of the useful life of an asset. It involves options

appraisal and the critical ‘make or buy’ decision.

What is purchasing?

Definition of procurement

What is purchasing?

Purchasing and change

Globalisation impact

Information

technology

impact

Chasing production &

management

philosophies impact

•Transgression of

national boundaries

•Advantage of cost

•Specialised labour skills

•Emerging economies

•Slicker transactions

•Quality of management

data

•Strategic link with

suppliers

•Paperless environment

•Competitive advantage

•Outsourcing

•Supply chain

management

What is purchasing?

World-class purchasing

TQM

JIT

Total cycle time reduction

Long range planning

Supplier relationship engineering

Strategic cost management

Performance accountability

Professional flexibility and development

Service excellence

Corporate social responsibility

Must accommodate

http://www.loreal.com/who-you-can-

be/operations/purchasing.aspx

Information Exchange SCM1

Enterprise Resource Planning2

The Role of Purchasing 3

Make or Buy decisions4

Procurement and Outsourcing

• Outsourcing components have increased progressively over the years

• Some industries have been outsourcing for an extended time

– Fashion Industry (Nike) (all manufacturing outsourced)

– Electronics Industry

• Cisco (major suppliers across the world)

• Apple (over 70% of components outsourced)

Why do Companies Outsource?

Outsourcing Benefits and Risks

Benefits

• Economies of scale

– Aggregation of multiple orders reduces costs, both in purchasing and in manufacturing

• Risk pooling

– Demand uncertainty transferred to the suppliers

– Suppliers reduce uncertainty through the risk-pooling effect

• Reduce capital investment

– Capital investment transferred to suppliers.

– Suppliers’ higher investment shared between customers.

Outsourcing Benefits

• Focus on core competency

– Buyer can focus on its core strength

– Allows buyer to differentiate from its competitors

• Increased flexibility

– The ability to better react to changes in customer demand

– The ability to use the supplier’s technical knowledge to accelerate product development cycle time

– The ability to gain access to new technologies and innovation.

– Critical in certain industries:

• High tech where technologies change very frequently

• Fashion where products have a short life cycle

Outsourcing Risks

Loss of Competitive Knowledge

• Outsourcing critical components to suppliers may open up opportunities for competitors

• Outsourcing implies that companies lose their ability to introduce new designs based on their own agenda rather than the supplier’s agenda

• Outsourcing the manufacturing of various components to different suppliers may prevent the development of new insights, innovations, and solutions that typically require cross-functional teamwork

Trends

• Outsourcing of non-core activities to suppliers

• Focusing of operations

• A reduction in supply base as companies shift from multiple to single sourcing

• Long-term buyer supplier relationships.

• Partnerships rather than adversarial trading

The outcome of these changes are that companies are establishing new relationships with their suppliers.

Supply Chain Collaboration – What Is It?

• Many different definitions depending on perspective

• The means by which companies within the supply chain work

together towards mutual goals by sharing

– Ideas

– Information

– Processes

– Knowledge

– Information

– Risks

– Rewards

• Why collaborate?

– Accelerate entry into new markets

– Changes the relationship between cost/value/profit equation

Supply Chain Collaboration

• Cornerstone of effective SCM

• The focus of many of today’s SCM initiatives

Manufacturer

Distributors/

Wholesalers

Suppliers

Retailers

Collaborative Demand Planning

Collaborative Logistics Planning•Transportation services•Distribution center services

Synchronized Production Scheduling

Collaborative Product Development

Logistics Providers

Benefits of Supply Chain Collaboration

CUSTOMERS MATERIAL SUPPLIERS SERVICE

SUPPLIERS

• Reduced inventory

• Increased revenue

• Lower order management costs

• Higher Gross Margin

• Better forecast accuracy

• Better allocation of promotional

budgets

• Reduced inventory

• Lower warehousing costs

• Lower material acquisition costs

• Fewer stockout conditions

• Lower freight costs

• Faster and more reliable delivery

• Lower capital costs

• Reduced depreciation

• Lower fixed costs

• Improved customer service

• More efficient use of human resources

http://www.loreal.com/profiles/suppliers/promoti

ng-collaborative-innovation.aspx

Supply Chain Collaboration Spectrum

Number of Relationships

Ex

ten

t o

f C

oll

ab

ora

tio

n

Many Few

Limited

Extensive

TransactionalCollaboration

SynchronizedCollaboration

CooperativeCollaboration

CoordinatedCollaboration

Not Viable

Low Return

• The green arrow describes increasing complexity and sophistication of:

– Information systems

– Systems infrastructure

– Decision support systems

– Planning mechanisms

– Information sharing

– Process understanding

• Higher levels of collaboration imply the need for both trading partners to have equivalent (or close) levels of supply chain maturity

• Synchronized collaboration demands joint planning, R&D and sharing of information and processing models

– Movement to real-time customer demand information throughout the supply chain

Studying and preparing

Assignments

• Questions case Nike

• Search for a brand

– Make a summary of 2 pages apply the

subjects of the lectures

– Articles

– Video’s

Final Presentation week 7

• Consultation hours week 5 and 6

• Presentation week 7