Hour 8: Open Systems
Supply Chain support
Lean Manufacturing
Supply Chains
• Collections of organizations working
together
–
–
–
–
Raw materials – products – retail
Old manufacturing: vertical integration
Military logistics
Now appropriate for e-business
Vertical Integration
• Closely coordinate supply chain internally
– Steel, petroleum
• Open form: not one owner group
– Automobiles
• Can tie computer systems together in
similar manner
– ERP provides detailed data needed for close
coordination
Supply Chain Advantages
• Competitive advantage
– Cost
• Production efficiencies
– Value
• Logistic efficiencies
• Coordinated advertising
• Large scale service
ERP Motivations
• Supply chain relationships provide
– Improved interactions & communications
– With suppliers & customers
• Mabert et al. [2000]:
– 20% of manufacturers surveyed had supply
chain extensions to ERP
– 25% more planned to
ERP Restrictions
• Internally focused ERP can constrain supply
chain coordination (Davenport [2000])
– Long-run ERP need for supply chain
– In short-run, ERP a hindrance to supply chain
(Bowersox et al. [1999])
• ERP systems provide integrated information
– Unless all units use the same system, a barrier
to communication
System Openness
• Supply chains require open systems
• Original ERP assumed a small number of
users accessing system
– Seat pricing mechanism encouraged
Organizational Openness
Extended
Enterprise
Cooperative
Enterprise
Traditional
Company
Profile
Agile
Lean
Profit focus
Strategy
Adaptive
Value maximizing
Cost minimizing
Goal Emphasis
Flexibility
Effectiveness
Efficiency
Operations
Collaborative,
open
Selective sharing
Limited sharing
Planning
Joint performance
measure
From push to pull
Push
Relationships
Extended alliances Qualified
relationships
Limited sharing
Technology
Linked
No ERP link
Selected SCM
Advanced Planning Systems
• Computer technology makes supply chain capable
of dealing with demand uncertainty
– Forecasting
– Inventory reduction
– Optimized transportation costs
• Advanced planning systems use operational data
to analyze material flows in supply chain
– Use historical demand for forecasts
– Easy to collect data
– Dynamic nature makes long-range forecasting difficult
Advanced Planning System
Providers
i2
Manugistics
Numetrix
CAPS logistics
BAAN
J.D. Edwards
Oracle
PeopleSoft
SAP
SCM components
SCM components
11i
Enterprise Performance Management
SAP APO
ERP Vendor Response
• mySAP.com an open, collaborative system
– Integrates SAP & non-SAP software
• SAP APO
– supports forecasting, scheduling, other logistics
activities
• PeopleSoft: Enterprise Performance Management
• JDEdwards
– products for planning & execution
• Oracle’s 11i Advanced Planning & Scheduling
On-Line Marketplaces
Manetti [2001]
TARGET MARKET
Vertical
Deep & narrow product access
Multivertical
Multiple vertical sites
Horizontal
Broader, more extensive linkage
TRANSACTION METHOD
Auction based
Exchange for simultaneous bids
Future contract variants
For risk reduction
Pure auction systems
To establish prices for buyers
Reverse auctions
To establish prices for sellers
Metacatalogs
Reduce search costs
Mall-based
Access multiple suppliers at single site
Lean Manufacturing
• Toyota bundle of techniques from 1950s
• Common supply chain philosophy
– Cut waste by eliminating activities that don’t add value
• Continuous product flows without bottlenecks
– Produce to order
• (demand pull, not supply push)
– Emphasize quality
ERP & Lean Manufacturing
• Initial ERP applications did little for efficiency
– Complex bills of material
– Inefficient workflows
– Unnecessary data collection
• Efforts by ERP vendors to support lean
manufacturing
– Not all manufacturers were convinced
• Lean manufacturing features
– Demand smoothing
– Kanban replenishment calculation
– Exception reporting
Discrete Manufacturing Lean
Business Strategies
Bradford et al. [2001]
Build-to-stock
Customer orders filled from existing
finished goods inventory
Configure-to-order
Products assembled to order from
pre-built components
Assemble-to-order
Batch formulated to fill specific
order from pre-built components
Engineer-to-order
Each order designed to customer
specifications
Continuous Manufacturing Lean
Business Strategies
Bradford et al. [2001]
Make-to-Stock
Customer orders filled from
existing inventory
Configure-toOrder
Batches mixed in common,
packaged & processed for
specific orders
Batch formulated to specific
order
Make-to-Order
Key Trends
Akkermans et al. (2003)
1. Further integration of suppliers &
customers
2. Focus on ERP system flexibility
3. Mass customization
•
Standard interfaces across chain
ERP & Hershey’s Supply Chain
Stedman [1999]
Osterland [2000]
Songini [2000]
History
• 1997 Hershey’s adopted a $110 million ERP
system
– SAP R/3
– Siebel CRM
– Manugistics logistics package
• To replace many legacy systems
• Original 4 year project
– Compressed to 30 months to precede Y2K
– July 1999 three months behind schedule
– Adopted big-bang approach to beat deadline
Hershey Business
• Very seasonal
– Halloween, Thanksgiving
• Sept 1997 serious order processing & shipping
problems
–
–
–
–
–
Shipping delays
Sent incomplete deliveries
Delivery time formerly 5 days, with ERP 12 days
Sales revenue dropped 12% from prior year
Inventory piled up at Hershey warehouses
Problem Diagnosis
• Attempted ERP implementation in supply
chain environment
– That can be done
– Confounding factors
• During peak season
• Tried to do too much as once
• Complexity from CRM & Logistics Planning addons
• Time pressure
Supply Chain & ERP
• Can be done
• Hershey’s was a bleeding edge pioneer
• Hershey’s seems to have solved problems
Trends in ERP
Expected benefits
Conclusions
Expected Benefits from ERP
Mabert et al. (2000); Olhager & Selldin (2003)
1-not at all; 5-to a great extent
ERP Performance
US
Sweden
Quicker information response time
3.51
3.81
Increased interaction across enterprise
3.49
3.55
Improved order management
3.25
3.37
Decreased financial close cycle
3.17
3.36
Improved customer interaction
2.92
2.87
Improved on-time delivery
2.83
2.82
Improved supplier interaction
2.81
2.78
Lowered inventories
2.70
2.60
Improved cash management
2.64
2.57
Reduced operating costs
2.32
2.74
Benefits from ERP
Mabert et al. (2000); Olhager & Selldin (2003)
1-not at all; 5-to a great extent
Area Benefitting
Information availability
Integration of operations/processes
Information quality
US
3.77
3.61
3.37
Sweden
3.74
3.42
3.31
Inventory management
Financial management
Supplier management/procurement
3.18
3.11
2.99
2.99
2.98
2.94
Customer responsiveness/flexibility
Decreased IT cost
Personnel management
2.67
2.06
1.94
2.95
2.05
2.06
Lessons Learned
•
•
•
•
ERP implementation projects problematic
Variety of ways to implement
Benefit assessment problematic
Different ways to design ERP
– Customization of vendors popular
• Many enhancements available
• Supply chain opportunities
– Requires open systems
Summary
• Vertical integration historically used to make supply chains
efficient
• Today supply chain efficiency gained by linking specialists
across organizations
• ERP initially focused on integrating internal operations
– High investment, rigid procedures barriers to supply chains
– Trends more supportive
• Advanced Planning Systems
• Vendor software
• Lean manufacturing support