Dr Sherif Kamel
Department of Management
School of Business, Economics and
Communication
Organizational Applications and Solutions
SCM and ERP
Outline
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Supply chain and value chain definitions
Components, benefits and problems of a supply chain
Sources and solutions of SCM problems
Computerization and SCM
Enterprise resource planning
ERP functions and implementation
Managerial issues
Case: How did Dell re-engineer its SC
Copyright © 2002 Turban, McLean and Wetherbe
Copyright © 2005 Sherif Kamel
Supply chain and value chain definitions
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Supply chain
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Demand chain
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Flow of materials, information, payments, and services
from raw material suppliers, through factories and
warehouses, to end customers
Process of taking orders
Supply chain management (SCM)
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To plan, organize, and coordinate all the supply chain’s
activities
Copyright © 2002 Turban, McLean and Wetherbe
Copyright © 2005 Sherif Kamel
Benefits of supply chain
Reduces
uncertainty
and risks in
the supply
chain…
…which
positively affects
inventory levels,
cycle time,
business
processes and
customer
service…and…
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…contributes
to overall
increase in
profitability
and
competitive
advantage
Copyright © 2005 Sherif Kamel
Components of a supply chain
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Upstream Supply Chain
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Internal Supply Chain
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Organization’s first tier suppliers and their suppliers
Processes used by an organization to transform their
inputs to outputs
Downstream Supply Chain
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Processes involved in delivering the product to the final
customers
Copyright © 2002 Turban, McLean and Wetherbe
Copyright © 2005 Sherif Kamel
Supply chain
Involves the life of a product from
 Involves movement of tangible and intangible
inputs
 Can come in all shapes and sizes and may be
fairly complex
 Can be bi-directional and involve the return of
products (reverse logistics)
 The flow of goods, services, information and
financial resources must be followed with an
increase in value
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Copyright © 2002 Turban, McLean and Wetherbe
Copyright © 2005 Sherif Kamel
Supply chain problems
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Problems with the supply chain could cause
companies to go out of business…
In WWII, Germany
encountered
problems supplying
troops in Russia,
which contributed
to their collapse
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In 1999, ToysRus
had problems
supplying to
holiday shoppers
and lost business
Copyright © 2005 Sherif Kamel
Sources of SCM problems
UNCERTAINTY
 In demand forecast
 In delivery times and
production delays
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POOR
COORDINATION
 With internal units and
business partners
 Ineffective customer
service
 High inventory costs,
loss of revenue and extra
cost for expediting
services
Copyright © 2005 Sherif Kamel
Bull-whip effect
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Most persistent SCM problem
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Continuous shifts in orders up and down the supply
chain
Distributor orders fluctuate because of poor demand
forecast, price fluctuation, and order batching
Avoidable with proper inter-organizational Intranet
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Use of EDI, extranets and groupware technology
Copyright © 2002 Turban, McLean and Wetherbe
Copyright © 2005 Sherif Kamel
Solutions to supply chain problems
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Vertical Integration
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Building Inventories
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Purchasing and managing the supply source
Insurance against supply chain shortages
Difficulty to correctly determine inventory level for each product and
part – a costly process
Other solutions include
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During peak times, outsource rather than do-it-yourself
Configure optimal shipping plans
Create strategic partnerships with suppliers
Use the just-in-time approach to purchasing
Manufacture only after orders are in
Achieve accurate demand by working closely with suppliers
Copyright © 2002 Turban, McLean and Wetherbe
Copyright © 2005 Sherif Kamel
Case: How Littlewoods improved its SCM
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Problem
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Solution
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Littlewoods Large British clothing retailer with 136 stores in the UK
and Ireland
Overstocking problems in the supply chain management
Introduced web-based performance reporting system
Enabled merchandising personnel to make more accurate stock,
sales and supplier decisions
Outcome
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In 1997, Littlewoods saved 1.2 million US dollars as a direct result
Copyright © 2002 Turban, McLean and Wetherbe
Copyright © 2005 Sherif Kamel
Computerized systems and SCM
Copyright © 2002 Turban, McLean and Wetherbe
Copyright © 2005 Sherif Kamel
Systems integration
Tangible Benefits
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Inventory reduction
Personnel reduction
Productivity improvement
Order management
improvement
Financial-close cycle
improvements
IT cost reduction
Procurement cost reduction
Revenue/profit increases, etc.
Copyright © 2002 Turban, McLean and Wetherbe
Intangible Benefits
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Information visibility
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New/improved processes
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Customer responsiveness
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Standardization
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Flexibility
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Globalization and business
performance
Copyright © 2005 Sherif Kamel
Value chain integration
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The process by which multiple enterprises within a shared
market channel collaboratively plan, implement, and
manage (electronically as well as physically) the flow of
goods, services, and information along the entire chain in a
manner that increases customer-perceived value…addedvalue realized
Copyright © 2002 Turban, McLean and Wetherbe
Copyright © 2005 Sherif Kamel
Integrating both chains
supply and value
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A supply chain transforms into an integrated value chain
when it…
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Extends the chain all the way from sub-suppliers to customers
Integrates the back-office operations with those of the front office
Becomes highly customer-centric, focusing on demand generation
and customer service
Is proactively designed by chain members to compete as an
“extended enterprise”
Seeks to optimize the value added by information and utilityenhancing services
Copyright © 2002 Turban, McLean and Wetherbe
Copyright © 2005 Sherif Kamel
Value chain integration
Copyright © 2002 Turban, McLean and Wetherbe
Copyright © 2005 Sherif Kamel
Enterprise resource planning (ERP)
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ERP is the process of planning and managing all resources
and their use in the entire enterprise
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Leading ERP software producers include
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SAP, Oracle, JD Edwards, Computer Associates, PeopleSoft
ERP is there to integrate all departments and functions
across a company onto a single computer system
Copyright © 2002 Turban, McLean and Wetherbe
Copyright © 2005 Sherif Kamel
ERP functions
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Provides a single interface for managing routine
manufacturing activities
Facilitates customer interaction and manages relationships
with suppliers and vendors
Forces discipline and organization around business
Supports administrative activities
Starting 1990s – 2nd generation ERP penetrated the
marketplace
Emergence of SCM systems that complement ERP
systems
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Provide intelligent decision support capabilities
Overlay existing system and pull data from every step of the supply
chain
Copyright © 2002 Turban, McLean and Wetherbe
Copyright © 2005 Sherif Kamel
ERP implementation
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Identify customer’s expectations
Determine ERP product capabilities, and gaps
Level of change the customer has to go through to make
the system fit
Level of commitment within the customer organization to
see the project through
Customer’s organization and culture
Risks presented by politics within the customer
organization
Consultant’s capabilities, responsibilities and role (if
applicable)
Copyright © 2002 Turban, McLean and Wetherbe
Copyright © 2005 Sherif Kamel
eCommerce and SCM
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Replaces all paper documents with electronic documents
Replaces faxes, phone and telegrams with electronic
messaging system
Enhances collaboration and information sharing
Results in shorter supply chain and minimum inventories
Facilitates customer service
Introduces efficiencies in buying and selling through the
creation of eMarketplaces
Copyright © 2002 Turban, McLean and Wetherbe
Copyright © 2005 Sherif Kamel
Managerial issues
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Ethical issues
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How much to integrate?
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Conducting a supply chain management project may result in the
need to lay off, retrain, or transfer employees
Sharing of personal information and computer programs
While companies should consider extreme integration projects,
including ERP, SCM, and electronic commerce, they should
recognize that integrating sometimes results in failure
Role of IT
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Almost all major SCM projects use IT – however it is important to
remember that technology plays a supportive role to organizational
and managerial issues
Copyright © 2002 Turban, McLean and Wetherbe
Copyright © 2005 Sherif Kamel
Case: How did Dell re-engineer its SC
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Problem
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Solution
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Dell pioneered the mail order approach to selling PCs
In 1993, Compaq cuts prices to drive Dell out of the market and Dell experiences
$65 million in losses
Dell implements the following re-engineering strategies
- Mass customization
- Just-in-time marketing
- Electronic orders and shipments
- eCollaboration with major buyers
Results
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In 2001, Dell made over $4 million in computer web sales/ day
Becomes leader in Customer Relationship Management (CRM)
Online tracking of orders and shipments
Viewer approved configurations and pricing
Customized home pages for clients
Copyright © 2002 Turban, McLean and Wetherbe
Copyright © 2005 Sherif Kamel
Lessons from dell.com
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By introducing a new business model, one can change the
manner in which business is done
To implement this model on a large scale, one needs to
build superb supply chain management
Dell made an improved logistics system along the entire
supply chain
Improved communications and customer service, which
are part of Dell’s CRM program, are the cornerstones of its
success
Copyright © 2002 Turban, McLean and Wetherbe
Copyright © 2005 Sherif Kamel