Supply Chains, Silos,
and Enterprise Systems
Cathy Dwyer
Fall 2012 IS617
1
What Is the Supply Chain?
 Also referred to as the logistics network
 Suppliers, manufacturers, warehouses, distribution centers
and retail outlets – “facilities”
Suppliers
Manufacturers
Warehouses &
Customers
Distribution Centers
and the
 Raw materials
 Work-in-process (WIP) inventory
Transportation
Costs
Material Costs
Transportation
Costs
Transportation
Manufacturing Costs
Inventory Costs
Costs
 Finished products
that flow between the facilities
2
The Supply Chain
Suppliers
Manufacturers
Transportation
Costs
Warehouses &
Distribution Centers
Transportation
Costs
Material Costs
Manufacturing Costs
Customers
Transportation
Costs
Inventory Costs
3
The Supply Chain – Another View
Plan
Source
Suppliers
Material Costs
Make
Manufacturers
Deliver
Warehouses &
Distribution Centers
Buy
Customers
Transportation
Transportation
Costs
Transportation
Costs
Manufacturing Costs
Inventory Costs Costs
4
What Is Supply Chain Management (SCM)?
Plan
Source
Make
Deliver
Buy
 A set of approaches used to efficiently integrate




Suppliers
Manufacturers
Warehouses
Distribution centers
 So that the product is produced and distributed



In the right quantities
To the right locations
And at the right time
 System-wide costs are minimized and
 Service level requirements are satisfied
5
Why Is SCM Difficult?
Plan
Source
Make
Deliver
Buy
 Uncertainty is inherent to every supply chain




Travel times
Breakdowns of machines and vehicles
Weather, natural catastrophe, war
Local politics, labor conditions, border issues
 The complexity of the problem to globally optimize a
supply chain is significant
 Minimize internal costs
 Minimize uncertainty
 Deal with remaining uncertainty
6
The Importance of Supply Chain Management
 Dealing with uncertain environments – matching supply
and demand
 Boeing announced a $2.6 billion write-off in 1997 due to



“raw materials shortages, internal and supplier parts
shortages and productivity inefficiencies”
U.S Surgical Corporation announced a $22 million loss in
1993 due to “larger than anticipated inventories on the
shelves of hospitals”
IBM sold out its supply of its new Aptiva PC in 1994 costing
it millions in potential revenue
Hewlett-Packard and Dell found it difficult to obtain
important components for its PC’s from Taiwanese
suppliers in 1999 due to a massive earthquake
 U.S. firms spent $898 billion (10% of GDP) on supplychain related activities in 1998
7
The Importance of Supply Chain Management
 Shorter product life cycles of high-technology products


Less opportunity to accumulate historical data on customer
demand
Wide choice of competing products makes it difficult to predict
demand
 The growth of technologies such as the Internet enable
greater collaboration between supply chain trading partners
 If you don’t do it, your competitor will
 Major buyers such as Wal-Mart demand a level of “supply
chain maturity” of its suppliers
 Availability of SCM technologies on the market

Firms have access to multiple products (e.g., SAP, Baan,
Oracle, JD Edwards) with which to integrate internal processes
8
Today’s Marketplace Requires:
 Personalized content and services for their
customers
 Collaborative planning with design partners,
distributors, and suppliers
 Real-time commitments for design, production,
inventory, and transportation capacity
 Flexible logistics options to ensure timely fulfillment
 Order tracking & reporting across multiple vendors
and carriers
Shared visibility for
trading partners
9
Supply Chain Management – Benefits
 A 1997 PRTM Integrated Supply Chain Benchmarking
Survey of 331 firms found significant benefits to integrating
the supply chain
Delivery Performance
16%-28% Improvement
Inventory Reduction
25%-60% Improvement
Fulfillment Cycle Time
30%-50% Improvement
Forecast Accuracy
25%-80% Improvement
Overall Productivity
10%-16% Improvement
Lower Supply-Chain Costs
25%-50% Improvement
Fill Rates
20%-30% Improvement
Improved Capacity Realization
10%-20% Improvement
Source: Cohen & Roussel
10
11
Business processes
 Sequence of tasks or activities that take a set of inputs
and convert them into desired inputs
 Key processes
 Procurement
 Fulfillment
 Production
Figure 1: A generic process
Process Steps
Input
Step 1
Step 2
Step 3
Output
Business process - example
 Make skateboards
 What are some parts of a skateboard
 Buy parts
 What are some steps in the buying process
 Who performs these steps
 Sell skateboards
 What are some steps in the selling proces
 Who performs these steps
Procurement Process
Create Purchase
Requisition
Create & Send
Purchase Order
(PO)
Receive
Goods
Receive Invoice
From Supplier
Send Payment
To Supplier
Fulfillment Process
Receive
Customer Order
Prepare
Shipment
Send
Shipment
Send Invoice
To Customer
Receive
Payment
Functional structure
 Common functions
 Typical tasks in functional areas
 Review steps in procurement
 Who does what where?
 Characterize processes - who is responsible for the
process?
 Why functional structure?
Information Technology
Human Resources
Finance & Accounting
Research & Development
Sales & Marketing
Warehouse
Operations
Purchasing
Functional organizational
Functions vs. processes
The Silo effect
 Communication and collaboration between functions
 What must be communicated?
 What information must be exchanged?
 How is this coordinated
 Paper based processes
 Processes supported by functional systems
 Processes supported by enterprise systems
Paper-based process
Sales
Warehouse
Receive
Customer
Order
Create/
Update
Paperwork
Delay!
Prepare
Shipment
Send Paperwork
Delay!
Accounting
Send
Shipment
Create/
Update
Paperwork
Delay!
Send
Invoice
Send Paperwork
Delay!
Receive
Payment
Create/
Update
Paperwork
Delay!
Consequences of delays
 Delays
 Increased lead times
 Increased cycle times
 Excess inventory
 “just in case”
 Lack of visibility across the process
 Status: “where is my order”
 How is the process doing
 Why accept these delays?
Delays are no longer
acceptable
 Why?
 Globalization
 Increased competition
 Pressure to do better
 Reliance on technology!
Process using functional
systems
Processes using Enterprise Systems
Framework: Key process
flows
Information Flow
Enterprise
Information
System
Data & Document Flow
Physical Flow
Types of Enterprise Systems
 The ES Application Suite




Enterprise Resource Planning (ERP)
Supply Chain Management (SCM)
Supplier Relationship Management (SRM)
Product Lifecycle Management (PLM)
 Other classifications
 Best of breed vs. Niche applications
 Software as a service (SaaS)
Magal and Word ! Essentials of Business Processes and Information
Systems | © 2009
27
The application suite
Magal and Word ! Essentials of Business Processes and Information
Systems | © 2009
28
SAP ERP Solution Map
End-User Service Delivery
Analytics
Financials
Product Development
and Manufacturing
Sales and Service
Corporate Services
Treasury
Talent Management
Financial Accounting
Workforce Analytics
Management
Accounting
Workforce Process Management
Corporate
Governance
Workforce Deployment
Procurement
Inventory and Warehouse
Management
Inbound and Outbound
Logistics
Transportation
Management
Production Planning
Manufacturing Execution
Product Development
Life-Cycle Data
Management
Sales Order Management
Real Estate
Management
Enterprise
Asset
Management
Aftermarket Sales and Service
Professional-Service Delivery
Project and
Environment, Health,
Travel
Quality
Global Trade
Portfolio
and Safety
Management
Management Services
Management
Compliance Mgmt.
Copyright SAP AG
2008
Magal and Word ! Essentials of Business Processes and Information
Systems | © 2009
29
SAP NetWeaver
Procurement and
Logistics Execution
Financial Supply
Chain Management
Operations Analytics
Shared Service Delivery
Human Capital
Management
Financial Analytics
SAP Supply Chain
Management
Demand & Supply
Planning
Procurement
Manufacturing
Warehousing
Transportation
Real World Awareness
Supply Chain Visibility
Supply Network
Collaboration
Supply Chain
Management with Duet
Supply Network
Planning
Strategic Sourcing
Purchase Order Processing
Invoicing
Production Planning & Detailed
Scheduling
Manufacturing Visibility & Execution
& Collaboration
MRP based Detailed Scheduling
Inbound Processing &
Outbound Processing
Receipt Confirmation
Sales Order Processing
Freight Management
Billing
Planning &
Dispatching
Supplier Collaboration
Physical Inventory
Service Parts Order Fulfillment
Rating & Billing &
Settlement
Supply Chain Event Management
Strategic Supply Chain
Design
Warehousing &
Storage
Cross Docking
Driver & Asset
Management
Network Collaboration
Auto ID / RFID and Sensor Integration
Supply Chain Analytics
Supply Chain Risk
Management
Customer Collaboration
Sales & Operations Planning
Outsourced Manufacturing
Demand Planning in MS Excel
Copyright SAP AG
2008 and Word ! Essentials of Business Processes and Information
Magal
Systems | © 2009
Distribution Planning Service Parts Planning
30
SAP NetWeaver
Order Fulfillment
Demand Planning &
Safety Stock Planning
Forecasting
SAP Supplier Relationship
Management
Purchasing Governance
Global Spend Analysis
Category Management
Compliance Management
Sourcing
Central Sourcing Hub
RFx / Auctioning
Bid Evaluation & Awarding
Collaborative
Procurement
Supplier Collaboration
Supply Base
Management
Legal Contract
Repository
Contract Authoring
Self-Service Procurement
Contract Negotiation
Services Procurement
Contract Execution
Direct / Plan-Driven
Procurement
Contract Monitoring
Catalog Content
Management
Web-based Supplier Interaction
Direct Document Exchange
Supplier Network
Supplier Identification & Onboarding
Supplier Development & Performance
Management
Supplier Portfolio Management
Copyright SAP AG
2008
Magal and Word ! Essentials of Business Processes and Information
Systems | © 2009
31
SAP NetWeaver
Contract Management
SAP Product Lifecycle
Management
Product Strategy and
Planning
Product Development
and Collaboration
Engineering, R&D
Collaboration
Product Data
Management
Service and
Product Master and
Specification and
Maintenance Structure
Structure Management Recipe Management
Management
PLM Foundation
Product
Compliance
Product Portfolio
Management
Supplier
Collaboration
Product
Intelligence
Innovation
Management
Manufacturing
Collaboration
Product Costing
Requirements
Management
Service and
Maintenance
Collaboration
Product Quality
Management
Visualization and
Publications
Tool and
Workgroup
Integration
Project and
Resource
Management
Market Launch
Management
Product Change
Management
Configuration
Management
Document
Management
Copyright SAP AG
2008
Magal and Word ! Essentials of Business Processes and Information
Systems | © 2009
32
SAP NetWeaver
Product Management
SAP Customer Relationship
Management
Segmentation & List
Management
Campaign Management
Real-Time Offer
Management
Sales
Sales
Quotation &
Territory
Accounts & Opportunity
Planning & Performance
Order
Management Contacts
Management
Forecasting Management
Management
Service
Service Order
Complaints &
Contract
Management
Returns
Management
In-House
Repair
Pricing &
Contracts
Lead Management
Incentive &
Commission
Management
Case
Installed Base Warranty
Management Management Management
Time &
Travel
Resource
Planning
Business Communication
Management
Marketing Resource
Management
Trade Promotion Management
Interaction Center
Service
Web Channel
Sales
Partner Channel Management
Marketing
Copyright SAP AG
2008
Magal and Word ! Essentials of Business Processes and Information
Systems | © 2009
33
Risk/Rewards of ES
 Benefits of fully integrated information technology
systems
 Increases speed, quality, accuracy – others?
 Risk? – dependency and changing expectations
 Changes in the business environment as companies
move to supply chain/value chain systems
 (Changes in technology -> changes in org.
Structure/social structure)
34
ES Risks
 NY Times news? — Hack of banks in retaliation for
Muslim video (on Blackboard)
 (Risk - business continuity planning)
 (Security risk assessment - security audits, IT audits)
35
ES Risks cont.
 Internet has become platform for political protest and
civil disobedience
 Anonymous on Scientology –
http://www.youtube.com/watch?v=JCbKv9yiLiQ
 Other actions
http://www.youtube.com/watch?v=HrXyLrTRXso
36
Green Supply Chain
 Use of ES have led to expectations that companies are
responsible for who they select as suppliers
 Walmart, Starbucks set environmental standards on
their suppliers
37