Information Technology in Supply Chains

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Information Technology in Supply Chains

• David L. Olson
• University of Nebraska

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Vertical Integration

• OLD THINKING
• Vertical integration provides better control
• John D. Rockefeller can get all the profit
• NEW THINKING
• Link the most efficient sources
• The bigger the pool, the greater the efficiency
• 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

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Supply Chain Advantages

• Competitive advantage
• Cost
• Production efficiencies
• Value
• Logistic efficiencies
• Coordinated advertising
• Large scale service

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ZaraFerdows, Lewis Machuca, HBR, 2004

• Spanish clothier
• Went to Web to avoid reliance on single customer
• Became a global supplier
• Bar-coding, robotics
• AGILE
• Large variety of clothing
• Only make limited stock until demand develops
• Inventory vastly reduced
• Design, warehousing, distribution, logistics
  in-house
• Can ramp up if demand develops
• Deliver world-wide in 15 days

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ERP Tools in Supply ChainsKelle Akbulut, Int.
J. Prod. Econ. 93-94 (2005) 41-52

• Supply chain integration valuable
• Buyers improve production plans delivery
  schedules
• Suppliers use buyer inventory info to plan their
  production inventory control
• Improve customer service quality
• Speed payment cycle
• Cost savings
• Identify overcome bottlenecks

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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

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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)
• Need middleware

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ERP Vendor Response to Post Y2K Demand Drop

• 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
• Oracles 11i Advanced Planning Scheduling

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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

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Advanced Planning System Providers
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Advanced Planning Scheduling Systems

• Software tools aiding supply chain decision
  making
• Market leader i2 Technologies
• Three levels
• DEMAND PLANNER
• Forecasts by product
• MASTER PLANNER
• Common plan for all participants
• Reflects capacities, resources
• FACTORY PLANNER
• Specific production assignments by time

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On-Line MarketplacesManetti 2001
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RFID

• Wal-mart, Metro AG, Dept. of Defense
• Mandates to supply chain participants
• Wal-mart wont allow cost pass-throughs
• BENEFITS
• Improved theft protection
• Reduced shrinkage
• Security (medicine, food)

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RFID Problems

• Costs
• Tags readers (tags 24 to 45 cents/target 5)
• System integration
• Changes to processes
• Data storage analytics
• Not cost-effective for low-cost consumer products
  now
• Physics
• Reading range about 25 feet
• Metals reflect signal
• Liquids absorb

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ERP Vendor Trends Michel, www.msimag.com, July
2004, 24-25

• Core ERP market decreased 2 in 2002, decreased
  1 in 2003
• Core ERP growth in small companies, international
  sales (China)
• Bigger growth in add-ons
• Lean Manufacturing
• Level production to meet actual demand (JIT)
• Better prediction
• Better quality control

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Shifts in Vendor SalesMichel, www.msimag.com,
July 2004, 24-25
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Agility - upstreamHelo, Industrial Management
Data Systems 1047, 2004, 567-577

• Electronics manufacturing
• Highly dynamic demand
• Many zero demands
• If overstock, stuck
• If understock, lose sale
• Need ERP to cope

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To be Agile, need electronic systems

• Price dynamics make inventory management systems
  mandatory
• Financial systems a must
• Continuous updating of lot sizes in ERP from
  production needed
• Sales needs product configurator
• Need overall MIS integration

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The Toyota System - downstreamMika, G. (2001).
Eliminate all Muda. Manufacturing Engineering

• Toyota eliminate waste from
• Overproducing
• Wasting time
• Transporting
• Over-processing
• WIP
• Excess operator worker motion
• Scrap rework

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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

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Requirements for Lean

• Production smoothing to adapt to changing demand
• Pull scheduling to determine sequencing
• Need shared information technology
• General purpose machines to adapt to product
  variety
• Shorten set-up
• Robotic technology
• Autonomous defect control
• dont allow defects
• Process layout for fast flow multi-function
  workers
• Standardization of operations for workforce
  balancing

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Organizational Openness
23

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Typical Inventory Costs Kelle Akbulut, Int. J.
Prod. Econ. 93-94 (2005) 41-52
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Supply Chain Coordination Effects

• Joint optimal policy will always save total
  system cost
• 1-30 for supplier
• 25-60 for buyer
• NEED TO NEGOTIATE

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Christiaanse, E. and Kumar, K. (2000).
ICT-enabled coordination of dynamic supply webs.
International Journal of Physical Distribution
Logistics Management

• Benefits from ICT-enabled flexible supply chains
• Internet cost savings available from the
  Internet
• On-line bidding processes for supplies
• more choices (I2)
• no bullwhip
• Time to market reduced
• could shift production to alternative plants
• Transaction cost argument from economics
• reduce coordination costs
• Yield pricing tools
• flexible pricing
• Allows mass-individualization (mass customization)

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Conclusions

• Supply chains require IT
• Shared information
• Linked ERP systems
• Advanced planning systems
• Technologies like RFID
• Agility respond
• Need integrated real time data
• Lean pull
• Joint planning
• Variety of inventory control systems