INN600 Advanced Readings and Special Topics on Supply Chain Management

ERPs and SCM SystemsFaculty of Science and Technology

Brisbane, Australia 2009

Overview Enterprise Resource Planning (ERP) systems

supported by various supply chain management (SCM) components are considered as an important contribution to the improvement of a business overall efficiency.

Research Question: Does an organization in fact gain substantial benefits by having a SCM system, in addition to an Enterprise System?

Research Methodology: Exploring different roles of ERPs and SCMs inside

organizations Reviewing different industrial based practices and showing

how the use of SCM technology added a competitive advantage

Enterprise Resource Planning (ERP)

ERP is one of the most important considerations for business organizations.

Streamlining of organizational processes and operations.

ERP investments are not necessarily advantageous Business Requirements misunderstanding.. Higher costs associated with ERP’s.. Time-schedule..

Go/NoGo ERP decision must be based on an “options thinking logic” Value Assessment

Examples : SAP, Oracle, Microsoft Dynamics..

Few case studies…Company Associated benefitsWestern Reserve University

Integrating payroll and finance functions along with some aspects of purchasing and accounts payable.

Streamlining and assist in updating the university’s business processes ( for example HR activities)

Improving communications among faculty, students and staff, with the primary aim of Increasing productivity and efficiency levels.

Fairmont Supply

Managing complex business functions. Highly utilizing GUI feature which is considered as a major factor that

determines the effectiveness of the ERP system. Providing support for improvements in the company’s supply chain.

Supply Chain Management (SCM) Managing supply chain plays an important role in

business. If carefully planned and deployed, it enables businesses to maintain competitive advantage and generate more profit. Technology (e.g. IT infrastructure, Internet) Globalization. Business/IT alignment. Organizational processes. Operation issues (e.g. Bullwhip effect, forecasting, distribution) SCM systems improve efficiency and effectiveness in The communication channels between a business and its

customers. Integrating communications among customers, suppliers and

business partners.

ERP to SCM

Unit of analysis Single organization Network of organizations

ERP to SCM Result of analysis SCM introduction Modern business operations require a mix of cross-

functional strategic planning and enterprise-wide corporate negotiation.

ERP is functionally tied to the integration, standardization, extension and assurance of future flexibility for corporate processes and failed to offer organization an extended business model.

ERP as a transactional system has limited capability of forecasting and planning.

Positive or negative influence of ERP on SCM?

ERP Benefits vs. Firm Competence of SCM

Operational Benefits

Business Process and Management

Benifts

Strategic IT Planning Benefits

Operational Process Integration

Customer and Relationship Integration

Planning and Control Process

Integration

ERP

Bene

fits

Firm

Com

pete

ncy

of S

CM

ERP Benefits vs. Firm Competence of SCMERP Benefit Type

Firm Competence of SCM

Organizational performance of SCM

Operational Benefits

Cost Reduction Cycle Time Reduction Productivity Improvement Quality Improvement Customer Service Improvement

Operational ProcessIntegration

Business Process Management Benefits

Better Resource Management Improved Decision Making and

Planning Performance Improvement

Planning and Control Process Integration

Strategic IT Planning Benefits

Building Business Flexibility IT Cost Reduction Increased IT infrastructure

capability

Customer andRelationship Integration

SAP SCM – Overview and Benefits Overview of current business environment Global Business Challenges

Meet a high levels of demand accuracy, visibility, increase variety and short product lifetimes, etc.

Companies’ solution SAP apps SAP SCM solution

Benefits of SAP SCM Solutions in practice Report and survey results Sample Activities and Benefits

The Benefits of SAP SCMActivity BenefitDemand and supply planning- Demand planning and forecasting

Use state-of-the-art forecasting algorithms for product life-cycle planning and trade promotion planning

Production planning and detailed scheduling

Generate optimized schedules for machine, labor, and overall capacity utilizationAddress problems of unequal allocation of constrained materials and capacity, due-date commitments, and sequencing of incoming orders without disrupting existing plans

Manufacturing-Manufacturing visibility, execution, and collaboration

Meet and deliver on your production plans by managing production processes and the deployment of the workforce and resources on the shop floorDocument, monitor, and dispatch inventory across the production life cycleShare information with partners to coordinate production and increase visibility and responsiveness on the shop floor

Transportation-Planning and dispatching

Optimize, create, and manage planning processes using best-in-class optimization, dynamic routing and scheduling, and continuous-move optimization

Supply chain visibility-Sales and operations planning

Align your company’s financial goals, marketing efforts, and inventory targets in one consolidated planGain access to relevant data, including aggregated, role-specific information about time, organization, product, geography, and units of measure

Supply network collaboration-Supplier collaboration

Connect to and collaborate with your suppliers by providing them easy and seamless access to supply chain information, which facilitates your ability to synchronize supply with demand

Marico – Results obtained from Implementation

The forecasting accuracy improved 80 percent in the first year of implementation and further reached to 90 percent in the next following year. The planning cycle time reduced to 10days from the initial indicative plan to production plan.

The stock outs associated at distributor level decreased by half due to which loss in sales to retailers also reduced by more than half.

The excess inventory which was initially forced to distributors to meet the sales targets (based on push strategy) was reduced by 50 percent because of effective demand forecasting and new planning process embedded within the company.

The total operating costs and costs associated with distribution of supply to right places within the network reduced by having the visibility of inventory levels of various distributors.

SAP’ SCM Successful Practices… Successful stories:

Marico – Retail and consumer Telefonica, S.A – Telecommunication Parbury FHS- Manufacturing MG Industries - Gas producer Palm, Inc - Mobile and handheld computer Canada Post - Postal service provider

Business challenges Results obtained from Implementation

Marico - Overview Marico, Mumbai based , Indian manufacturing

company producing 9 major brands with leading market positions, mostly second and third place.

Product Range – Non durable consumer goods including coconut oil, fabric, refined edible oil, nature care and health care

Company’s supply chain 20 production units 32 warehouses and 1000 distribution centres 1.6 million retail outlets ( less than 2% organized

retailers spanning across rural area consisting of 70% of population)

Plants

Rural consumer

Stockist

Distributor

Retailer

Super Distributor

Depots

Retailer

Urban consumer

Marico – Business Challenge Poor forecasting and planning Disintegrated Internal operations – Due to stand-alone

application and lack of integration, data used for forecasting is quite inadequate

Excel sheet to maintain sales data at various ends of supply chain has increased the length of planning horizon and change in market dynamics is not being captured

Lack of visibility in the Sales data – causing high stocks, poor service level and wastage of inventory

Distribution - Due to non – availability of the stock information at various depots wrong shipment decisions are caused resulted in extra storage space hire, inter depot stock transfer, increasing transportation cost, inventory build-ups and expired products

Factory

Offtakes

Distributor/ Super Distributor

Stock Transfer

Depot

Consumer

Primary Sales

Secondary Sales Retailer

Ideal Info Flow

Marico – Results obtained from Implementation

The forecasting accuracy improved 80 percent in the first year of implementation and further reached to 90 percent in the next following year. The planning cycle time reduced to 10days from the initial indicative plan to production plan.

The stock outs associated at distributor level decreased by half due to which loss in sales to retailers also reduced by more than half.

The excess inventory which was initially forced to distributors to meet the sales targets (based on push strategy) was reduced by 50 percent because of effective demand forecasting and new planning process embedded within the company.

The total operating costs and costs associated with distribution of supply to right places within the network reduced by having the visibility of inventory levels of various distributors.

Telefonica - Overview Telefonica, S.A., is a Spanish telecommunication company operating

globally in 25 countries. Third largest in its industry in terms of number of clients only behind

China Mobile and Vodafone and holds a top five position in market value

Product Range – Fixed lines, Broadband internet connectivity, Mobile telephony, Internet content services

Its customer base exceeds 260 million globally, with annual sales of more than 27.5 Billion Euros.

The company’s growth strategy is focused on the markets where they have the strong foothold especially Spain, Latin America and Europe.

Telefonica – Business Challenge Demand and Supply Planning: When considering the planning aspect, the company needed to capture detailed

market insights and historical trends. The planning horizon currently spans across three months due to which any real changes in the Market dynamics during the time is not included into the plan.

The internal departments within the company follows their own plan for and there is no joint execution.

The order placed to suppliers is adhoc and manual. Company requires a system in place to process robust algorithms to calculate procurement needs based on forecast demand, ADSL bandwidth inventory, ADSL disconnect rates, supplier lead times, safety stock and lead time for network implementation.

There exists a lack of collaborative demand and supply planning between supplier, company and customers and thus lot of infrastructure is being built to meet customer demands before even receiving the customer requests yielding to additional cost of capital and assets.

Telefonica – Business Challenge

Telefonica – Business Challenge Collaborative Engineering Design: while establishing the network node during

infrastructure implementation – the company and the supplier does not contribute to collaborative work and information such as product configuration, bill of materials and exchanging the required data is done manually and leads to long procurement lead times.

System Integration: the suppliers usually the manufacturers of network equipments have high operational expenses including high inventory carrying cost, logistics and obsolescence cost. The costs at suppliers end can be minimised when processes gets integrated with company’s business systems. Cost efficiency can be also achieved at organisation level when new technology enables process change to add specific value.

Telefonica – Results obtained from Implement.

Telefonica has reduced its investment in unused ADSL network inventory by 20% to 40%

Increased in the productivity of employees by 30% to 40% due to elimination of various manual communications

Telefonica reduced its operating costs by receiving reduction in the range of 5% on products from their main supplier Alcatel. Alcatel has transferred some of their savings to the company because of the new business process of collaborative supply and demand planning implemented.

Telefonica achieved on –time installation for 90% of its customers while maintaining the service level agreement of having a lead time of 10 days.

Conclusion ERP systems poses limited

capability in collaborative demand and supply planning, and lack of visibility into supply chain events.

ERP systems are transactional based systems while SCM systems primarily used for planning and provide visibility, collaboration, and control across and beyond the enterprise.

SCM systems are suitable for accurate demand forecasting and supply network planning, ERPs have limited decision-making over these functionalities.

SCM systems capture various market constraints and risk elements simultaneously to develop a collaborative plan where ERP can handle supply and demand constraints individually.

Our research of ERP and SCM roles inside organisations, its linkage and associated benefits, and various industry-based reviews found that SCM can provide substantial benefits to the organisation in addition to its ERP system.