supply chain management: from vision to implementation chapter 12: information sharing
TRANSCRIPT
Supply Chain Management: From Vision to Implementation
Chapter 12: Information Sharing
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Chapter 12: Learning Objectives
1. Discuss how technology enables an information sharing capability to support SC collaboration.
2. Describe the various SC-related information technologies and information systems that have been developed over the past several decades.
3. Discuss the role of ERP systems as a collaboration enabler as well as the difficulties associated with their implementation.
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Chapter 12: Learning Objectives
4. Discuss the impact of the Internet and e-commerce on supply chain management.
5. Identify what information should be shared, who should be sharing this information along the supply chain, and the challenges involved in information sharing.
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The Importance of Information
Modern information technologies make supply chain integration possible.
Information technologies have facilitated business globalization.
Information technologies make differentiation along new vectors possible.
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We believe those companies that position themselves to take advantage of the Internet to build information partnerships with their suppliers and customers, have the potential to fundamentally change the face of global competition … and change our definition of the value we provide to our customers and constituents.
- Michael Dell
The Importance of Information
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The Importance of Information
1. Real-time information regarding availability, delivery, shipping, and invoices allows for improved customer satisfaction.
2. Substituting information for inventory or other resources reduces costs.
3. Information can be used to increase flexibility.
4. Information sharing is redefining supply chain relationships.
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Information Strategy
Information technology strategies are comprised of two components:
Connectivity – technology makes it possible for various people, teams, functions, and organizations to work together.
Willingness – information is power, sharing information means relinquishing some power.
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Information Strategy – A Warning
Information technology is an enabler, not a silver bullet.
Automating bad processes simply helps to make mistakes faster.
The wrong technology strategy adds neither real value or improves customer satisfaction.
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Information Systems – A History“Dark Ages”
1960s-1970s
Era of Material Management
1980 1985 1991
Era of Supply Chain Management
1995 2000 2006
EOQ ROP
MRP MPR II DRPFAX
JIT QR CPR ECR
TOC VMIARPRF
MESERP APS
XDM CPFR CRM
ERP II ECM
RFID
EDI
Adapted from Davis and Spekman “The Extended Enterprise”
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Information Systems – Interaction
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Enterprise Resource Planning (ERP)
ERP Systems – a single database surrounded by application programs that take data from the database and either conduct analysis or collect additional data for the firm.
During the 1990s, half of the Fortune 1000 began implementation of ERP systems.
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ERP versus Legacy Systems
ERP Systems Systems implemented
corporate wide
Single integrated system for all divisions and countries of operation
Single integrated database Data entered once Integrated, cross-functional
Legacy Systems Systems usually
implemented at the functional or department level
Different systems for different divisions or country operations
Multiple databases Data entered several times Standalone
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SCOR and ERP Systems
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SCOR and ERP Systems Plan
Strategic and tactical planning as well as accountability/reporting (overall management, administration, finance, accounting, and HRM)
Source Supplier’s point of view this process is the customer order
management process. Buyers’ point of view this is the purchasing/sourcing process
Make Production, manufacturing, assembly, or service delivery processes
Deliver/Return Organization’s logistics, warehousing, and transportation processes
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ERP – Implementation Process
1. Define the current process “as is” Cross functional implementation team of subject
matter experts document the current processes.
2. Define what the “best-in-class” business process should be Explicitly state the final objective of the process. Identify what the ERP system will replace Identify how the benefits are likely to occur
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ERP – Implementation Process
3. Develop the system Consultants work in conjunction with those
who are most familiar with the business processes in question.
4. Work through all final “bugs” and then “flip the switch.” A danger that often exists when flipping the
switch—switching over from the old system to the new system—is that the company may not be ready for the change, nor is the system completely configured to handle the specific activities that keep the business running.
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ERP – Competing Viewpoints
ERP systems are viewed with great optimism and serious skepticism.
Some companies have achieved seamless integration
Some managers claim ERP vendors “overpromise and underdeliver”
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ERP – Implementation Issues Never-ending implementation: Many firms adopt
ERP systems module by module extending the implementation period. Even simple implementations take a year or more. Complex implementations have taken close to a decade.
Importance of process mapping: Each application captures data for and about a process. Process mapping documents each process in detail helping managers gain a real understanding of how it works.
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ERP – Implementation Issues Process redesign: Combining a new ERP system
with a bad process usually leads to unsatisfactory results—the same old mistakes are made more rapidly. ERP implementation can drive the adoption of new business practices and processes.
Use of consultants: There is a learning curve inherent in any new technology, knowledgeable consultants can help. Relying solely on outside consultants can lead to
an expensive implementation that doesn’t meet the company’s needs.
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ERP – Implementation Issues Excessive cost: Without proper planning, costs and
timelines can quickly exceed the budget. The average total cost of ERP ownership ranged
from $400,000 to $300 million with an average cost of $15 million.
Implementation time estimates and financial budgets are often exceeded by 50 to 100 percent or more.
Resistance to change: Employees and managers often prefer the legacy systems and are resistant to change.
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ERP – Implementation Issues Errors during implementation: Glitches or errors in
new systems may become evident only after implementation. Hershey’s failed to capture orders for 5 weeks before
Halloween; Result - 19% drop in 3rdQ net income. To avoid this problem, companies can:
1. gradually phase in new systems while phasing out old ones
2. run both systems in parallel until the “bugs” have been worked out
3. utilize pilot projects at a limited number of divisions or locations.
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ERP – Implementation Issues Rapid technological change: Rapid technological
change can render new systems obsolete complicating cost-benefit analyses. Early adopters of a new technology have the benefit
of being ahead of the competition Early adopters run the risk of acquiring an untested
technology that could disrupt the firms’ entire operations
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ERP – The Future
ERP systems were designed to enhance internal firm communication thereby facilitating exchange with external parties.
Growing demand for collaboration among supply chain partners resulted in the proposal of two new systems: ERP II Enterprise Commerce Management (ECM)
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ERP and ERP II - Differences
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E-Commerce and the Internet
The use of Internet technology has reduce the cost of providing, collecting, and communicating information electronically. Internet – provides unlimited access Intranet – provides systems access to a limited
number of parties; avoids custom interfaces, incompatible hardware types, and special connection procedures
Extranet – allow limited access to certain applications and data to external users
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E-Commerce and the Internet
Electronic-commerce is the automation of commercial transactions using computers and networked communication technologies.
Electronic Data Interchange (EDI) Internet E-mail Electronic funds transfer Electronic bulletin boards
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E-Commerce and the Internet
E-commerce can reduce costs by allowing for: Centralization of inventory Centralization of shipping locations Reduction of safety stock Consolidation of inbound transportation Real-time capture and distribution of demand and
inventory information
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E-Commerce and the Internet
E-commerce can enhance revenue by: Removing time and location constraints Allowing direct to customer sales Allowing real-time access to demand in inventory
data facilitating better decision-making Allowing instantaneous and flexible introduction
of products and product mixes Allowing the customer to instantly pay for orders
reducing cash-to-cash cycle time
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Internet and the Efficient Frontier
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Electronic Marketplaces
E-marketplaces are defined as neutral Internet/Web enabled entities through which companies may conduct buying and selling transactions for goods or services. Neutrality – e-marketplaces do not represent a
single buyer or seller
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Electronic Marketplaces - TypesType of
E-marketplaceCharacteristics
Project/Specification
Managers
Primarily specialize in design and planning support. Provide tools to plan and manage complex projects/processes for customers. Provide collaboration tools to help customers increase speed to market and
improve decision-making on product development. Help reduce the invoice price of purchased goods and services by helping
buyers determine what to buy.
Supply Consolidators
Identify relevant supply base for customer, conduct purchasing transaction. Help customers design and plan the purchase, establish the terms of purchase. Bring together many suppliers product offerings to increase the buyer’s
options. Provide low cost and easy access to a fragmented base of suppliers that are
either difficult to reach off-line or are so numerous that individual online tools are ineffective.
Effectively help customers reduce the transaction costs associated with searching through multiple paper-based catalogs, compare parameters across products and manage accounts with numerous suppliers.
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Electronic Marketplaces - TypesType of
E-marketplaceCharacteristics
Liquidity Creators Establish the terms of purchase. Create liquid, dynamic markets for commodity products. Provide liquidity for products that were previously too low-volume or non-
standard to warrant off-line exchanges. Provide suppliers with a ready market for their product Provide buyers with a steady source of supply. Provide real-time price transparency across a wide base of suppliers.
Aggregators Primarily combine demand within and across buying enterprises and then use this combined market power to achieve lower prices.
Primary role is to help customers reduce the price paid on a product or service by combining purchased volume across buyers and increasing competition among suppliers.
Transaction Facilitators
Primarily transact and execute the purchase. Transaction facilitators generally focus on reducing complex, paper-based transactions between buyers and sellers.
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Electronic Marketplaces - Limitations
1. E-marketplaces do not yield significant, repeatable price cuts
2. E-marketplaces are not the solution for all of a business’s purchasing needs
3. E-marketplaces are not a viable substitute for a company’s supply management department
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Radio Frequency Technology
1. Radio frequency transmissions between computer systems and mobile operators.
Used extensively in warehouse and distribution center operations
Improves picking efficiency and accuracy
2. Radio frequency identification tags (RFID) - coded electronic chips embedded in the product or in product packaging.
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Radio Frequency Identification (RFID)
Unlike barcodes, RFID does not require line of sight to be scanned.
RFID tags can hold much more information and bar codes.
RFID information can be unique to every product, not just a specific type of item or UPC code.
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Radio Frequency Identification (RFID)
Since January 2005, Wal-Mart has had 98 of its top 100 suppliers using RFID tags at the pallet level.
Technology is still immature and difficult to cost justify.
Global standards are still in development.
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Reverse Auctions
Reverse auctions are defined by suppliers bidding for a customer’s business. Results in downward price pressure
Supplier participants in reverse auctions should be prequalified, and winning bidders should have their capabilities verified before contracts are issued.
Focus on price and competitiveness contrary to supply chain principles of total cost of ownership and collaborative relationships.
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Information Sharing - Willingness
In a knowledge-based economy, information is power. Supply chain collaboration requires a willingness to relinquish some power.
1. Why should information be shared?
2. What information should be shared?
3. When should information be shared?
4. Who should be sharing the information?
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Information Sharing – Why?
Information sharing helps companies: Reduce costs Improve customer service levels Reduce lead times Improve profitability Increase quality levels Enhance innovation
Information sharing also enables: Process redesign and reengineering Constant improvement and learning
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Information Sharing – Why?Function or Department
Potential Benefits of Increased Information Sharing
Purchasing, Operations,
and Logistics
Better control over picking, shipping, and receiving Reduction in transaction costs Increased inventory accuracy Reduced variability in the supply chain Quicker reaction to supply chain problems Lower inventory levels Fewer missed production schedules Increased visibility into processes Reduction in the bullwhip effect Better forecasts Better coordination between manufacturing and distribution More responsive suppliers Better buyer/supplier relationships Reduction in fleet costs through better planning of needs Lead time reduction More effective transportation
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Information Sharing – Why?Function or Department
Potential Benefits of Increased Information Sharing
Sales Reduced costs by enabling higher sales productivity per salesperson Increased sales through better information about customers Higher customer service/satisfaction levels
Finance Improved profitability Increased invoice processing speed Improved market share
Engineering / R&D Enhanced diffusion of technology and innovation
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Information Sharing – What?
At a minimum, companies should share: Sales Data and Sales Forecast Inventory Levels Order Status for Tracking/Tracing Performance Metrics Capacity And Capability Information
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Information Sharing – When?
Most companies share information during the late growth and maturity phases of the product life cycle.
Increased information sharing during the design/introduction and decline phases could have a greater impact. Design – early supplier involvement Introduction – improved forecast accuracy Decline – avoidance of obsolete inventory
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Information Sharing – Who?
There are two approaches to information sharing: Bow- Tie Approach – allows sales and
purchasing to be the primary conduit of information with the external environment.
Diamond Approach – creates many points of contact and potential sources of integration and collaboration between organizations.
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Information Sharing - Bow-Tie Approach
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Information Sharing - Diamond Approach
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Information Sharing - Challenges
1. Weak or Counterproductive Relationships
2. People
3. Power
4. Trust
5. Security and Risk
6. Too Much Information
7. Lack of Standards
8. Inaccurate Information
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Information Irony
Most companies are now technologically adept at collecting and analyzing data.
Failure to adopt a culture based on a willingness to share information limits a company’s overall potential.
Knowledge and wisdom are enabled by technology but are dependent upon people.
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Information-Capability Hierarchy
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Future of E-Commerce
Most likely to occur:1. Increased demand for online technical information2. Increased integration role for the purchasing
functions of organizations3. Elimination of human intervention in the
procurement through payables transaction process4. Improvement in efficiencies as a result of Web-
based systems5. Continued use of Internet/Web-based links with
suppliers
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Future of E-Commerce
Least likely to occur:1. Web-based tools will not erode the leverage
advantages of large buyers2. Industry-sponsored e-markets will not become
primary sourcing tools3. Reverse auctions will not account for more than 20
percent of spend4. Neutral e-markets are less likely to be utilized than
industry sponsored e-marketplaces5. Strategic alliances/relationships will not become less
important as a result of e-commerce
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Future of E-Commerce – Likely1
Buyers within your business unit will increasingly demand online access to technical information, such as product specification/configuration data.
2As e-purchasing expands, your business unit's purchasing organization increasingly will play the role of supply chain integrator.
3E-purchasing tools will enable your business unit's procurement-through-payables transaction process/cycle to be accomplished with minimal human intervention.
4Web-based purchasing systems will drive purchasing/supply chain inefficiencies out of the system, allowing your business unit to reallocate resources to other, more critical areas.
5The majority of your business unit's non-production/indirect material and services purchases will be done through direct internet/web-based links with your suppliers.
6E-purchasing will facilitate the development of standard metrics, processes, and systems that will help integrate firms in your business unit's supply chain.
7Easier access to firms via the internet/WWW will help your business unit find and develop non-traditional, lower total-cost sources of supply around the world.
8Consumption signals and orders from several levels down the supply chain will feed directly into the production planning systems of significant firms in your business unit's supply chain via web-based systems.
9 Your business unit's buyers will increasingly rely on e-markets for information about potential suppliers.
10Many e-markets that could potentially be used by your business unit will fail due to a lack of industry standards for commercial and technical information/data.
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Future of E-Commerce – Possible11 Your business unit will participate in web-based electronic consortiums to leverage your purchases.
12The majority of your business unit's production/direct material purchases will be done through direct internet/web-based links with your suppliers.
13E-commerce will encourage and facilitate the removal of vertical/functional links from supply/value chains (e.g., distributors, retailers, etc.) within your business unit's supply chain.
14E-purchasing will revolutionize your business unit's purchasing" function to the point it no longer exists in the traditional sense. "
15The use of internet/web-based reverse auctions will increase the emphasis on price rather than focusing on the total cost of ownership within your business unit.
16 E-markets will drive industry standardization of goods and services in your industry.
17Electronic reverse auctions, using third party providers, will be the basis for supplier selection and price paid for at least 20% of your business unit's annual spend for non-production/indirect materials and services.
18 Electronic commerce will lead to increased outsourcing throughout your business unit.
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Future of E-Commerce – Unlikely19 Your business unit will mainly use e-markets for spot and low volume purchases.
20Many of your business unit's suppliers will resist e-purchasing, and the associated technological integration, because of security/privacy concerns.
21In the long run, internet/web-based reverse auctions will reduce the number of qualified suppliers in your business unit's supply chain.
22Pricing/leveraging advantages of large buyers will be eroded due to the greater price discovery/knowledge that web-based tools provide to smaller organizations within your industry.
23 Industry sponsored e-markets (e.g., Covisint, etc.) will be your business unit's primary sourcing and supply tool.
24Electronic reverse auctions, using third party providers, will be the basis for supplier selection and price paid for at least 20% of your business unit's annual spend for production/direct materials.
25Neutral e-markets (e.g., E-Steel, Chemdex, FastParts, etc.) will be your business unit's primary sourcing and supply tool.
26Strategic alliance/relationships will become less important to your business unit as e-commerce increases the number of suppliers and product/service offerings.
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A Return to the Opening Story
Based on what you have now read and discussed:
1. How is IT an enabler of SC collaboration? What keeps companies from using it successfully in this role?
2. What is the missing piece of the puzzle Doug has identified? Can you explain it? Why does a company need to make it safe to share information? Why does a company need to inspire people to want to connect?
3. How are IT and choreography related? What does the task force need to do to enable better SC choreography.