Session Number: 2

1
Internet Supply Chain Management ECT 581
Winter 2003
Session Number 2

• Session Date January 14, 2003
• Session Objectives
• Administrative Items
• Course Topics, Prerequisites Student Survey
  Results
• Assignments
• Session Topics Supply-Chain Management ERP
• Brief note on B2B Marketplaces
• Supply Chain Considerations
• Enterprise Requirements Planning
• Architectural Considerations

2
Administrative Items

• Availability of Lab Resources
• Homework Assignments
• Project Notes

3
A Brief Note on Emerging Market Makers

• B2B e-commerce participants include
• Sellers and Buyers.
• Existing prominent, well-established firms that
  sell directly to business customers.
• Emerging Market Makers a new breed of
  intermediaries that serve as hubs creating new
  intra-organizational marketplaces. Further
  segmented as
• Vertical hubs industry-specific focus.
• Functional hubs business process focus.
• Catalog models demand/supply aggregation.
• Auction models spatial matching.
• Exchange models temporal matching.
• Barter models reciprocal value exchange.

4
Comparing B2B Models Catalogs, Auctions,
Exchanges
Business 2.0 - September -1999
5
SCM Concepts (continued) Five Basic SCM Steps

• Plan develop resource management strategy
  targeting meeting customer demand.
• Source decide on suppliers.
• Make manufacturer the good or service.
• Deliver mange the logistics of product
  delivery.
• Return manage product returns and post-sales
  customer support.

6
SCM Concepts (continued) Channel Integration

• SCM extends the concept of integration beyond the
  enterprise to all firms in the supply chain.
• SCM tightens integration info flow of various
  Marketing channels.
• Marketing channel viewed as interdependent
  organizations or business functions that produce
  specific end product or service.
• Marketing Channel includes the following
  channels
• Ownership channel.
• Negotiations channel.
• Financing channel.
• Promotions channel.
• Logistics channel.
• SCM focuses on coordination info flow between
  suppliers, buyers, and channel intermediaries.

7
Information and Technology Applications for SCM

• Internet-based Ecommerce
• Traditional Internet-based EDI
• Intranet/Extranet
• Intra- inter- organizational linkages
• Bar Coding and Scanning
• Production control
• Inventory control
• Data Warehouse
• Customer information systems
• Order processing
• Decision Support Systems

8
Supply Chain Performance Metrics

• Products services offered
• Sales
• Market share
• Cost
• Quality
• Delivery
• Cycle times
• Assets utilized
• Responsiveness
• Customer service

9
Role of Benchmarking

• process of identifying, understanding, and
  adapting outstanding, best-of-breed practices
  from within or outside an organization or
  business for the purpose of improving
  performance.
• Benchmarking Process Steps
• Form benchmarking team.
• Identify understand current processes.
• Decide on benchmark targets.
• Identify benchmarking partners.
• Internal partners.
• External partners.
• Collect data.
• Analyze performance gaps.
• Take actions to improve.
• Review results.
• Repeat steps 1-8 for continual improvement.

Benchmarkings Goal To quantify the operational
performance of similar companies and establish
internal targets based on best-in-class
results.
10
Cycle Time and Cycle Time Issues

• Cycle time is total elapsed time required to
  complete business process.
• SCM focuses on efficient use of time or reducing
  production time and effort.
• Pressure to reduce cycle times up down the
  supply chain.
• Business customers want to suppress inventories.
• Request is for shorter lead times.
• Timeliness and quality of information is the key.
  
• Cost and time can be drained from the chain if
  suppliers know the consumers rate of product
  usage or demand.

11
Some Reasons for Long Cycle Times

• Non-productive Waiting
• Non value-added Activities
• Serial versus Parallel Operations
• Repeating Process Activities
• Excessive Controls
• Lack of Synchronization in Materials Movement
• Ambiguous Goals and Objectives
• Poorly Designed Procedures and Forms
• Outdated Technology
• Lack of Info
• Poor Communication
• Limited Coordination
• Limited Cooperation
• Lack of/Ineffective Training

12
The Challenge of Implementing Supply Chain
Improvements

• Lack of experience.
• Difficulty identifying objectives.
• In-effective communication.
• Selecting correct, high-return options.
• Inability or lack of commitment to monitor
  continue improvement process.

13
Supply Chain Operations Reference Model (SCOR)

• Consortium of managers chartered with SCM.
• Representatives of Dow Chemical, Merck, Texas
  Instruments, Compaq, FEDEX
• Developed model that offers improvement
  processes, opportunity areas, and discussion
  framework
• Link is www.supply-chain.org

14
Superior Performers Spend Less on SCM
Best-in-class companies have an advantage in
total supply-chain management costs (typically 5
6 less)
15
SCM Areas of Opportunity

• Material Requirements Planning (MRP)
• Purchase Order Cycle
• Inbound Transportation
• Material Receipt/Inspection
• Material Review Activities
• Manufacturing Processes
• Customer Order Processing
• Warehousing Operations
• Outbound Transportation
• Return Materials/Reverse Logistics

16
Two Basic Types of SCM Application Software

• Supply Chain Planning (SCP) software
• applications that help improve the flow and
  efficiency of the supply chain and reduce
  inventory.
• entirely dependent upon information for its
  accuracy.
• there are planning applications available for all
  five supply chain steps.
• most valuable is demand planning.
• Supply Chain Execution (SCE) software
• software intended to automate the different steps
  of the supply chain.

17
Enterprise Resource Planning

• What is Enterprise Resource Planning?
• Attempts to integrate enterprise through one
  computer system.
• Expected benefit more focused efficient
  business operations.
• Provides centralized repository for daily
  transactional detail.
• Systems are typically accounting-oriented.
• ERP Software Package providers include
• BAAN
• SAP
• Oracle
• PeopleSoft
• J. D. Edwards

18
Enterprise Resource Planning (continued)

• What is the connection between ERP and B2B
  Ecommerce extranet systems?
• ERP systems provide points of integration between
  B2B extranets and an enterprises core business
  information systems.
• Inside-out system integration approach.
• ERP vendors extend their systems capabilities
  outward by providing a B2B web presence.
• Typically outside-in system integration approach.
• Uses application server.
• May be better suited for highly complex
  e-businesses.
• Interesting metrics
• TCO (total cost of ownership) averaging 15
  million.
• Avg. implementation timeframe 24 months.
• Benefits begin to accrue 8 months after
  implementation.

19
Some Historical Context of ERP Systems

• Outgrowth of mainframe-based MRP software
• Material Requirements Planning (MRP) - early
  1970s
• APICS-driven (American Production and Inventory
  Control Society)
• From manual to computer-based inventory planning
• Manufacturing Resource Planning (MRP II) - early
  1980s
• Closed loop with financial, sales and operations
  planning .
• Examples are COPICS, MAPICS, MANMAN, MM II.
• Just in Time (JIT) - late 1980s / early 1990s
• Delivering products to customers when, where and
  how they wanted them beginning of mass
  customization.
• Focus shifts from improving labor productivity to
  optimizing material flows.
• MRP II software functionality expanded to include
  JIT capabilities

20

• Enterprise Resource Planning (ERP) - late 1980s
• Beyond manufacturing to other industries
• Broader spectrum of business processes than MRP
  II
• Runs on client/server technology in addition to
  host-based systems
• Prompted by complaints about MRP II software
  packages
• Poor user interface
• Non-RDMS
• Host orientation
• Hardware dependence
• Lack of integration with synergistic packages
• Boosted by 3 emergent trends
• Re-engineering
• Buy vs. Build
• Assumed death of mainframes

21
Anatomy of an ERP system
Managers and stakeholders
Reporting applications
Financial applications
Sales and Delivery applications
Manufacturing applications
Central Database
Back-office Administrators And workers
Sales force and customer service reps
Suppliers
Customers
Service applications
Inventory and supply applications
Human resource management applications
Employees
22
What is an ERP System? Some Major Characteristics

• Integration in Real-time
• seamless integration of all the information
  flowing through a company.
• Process an organizations transactions using a
  single database.
• Commercial Packages
• Implications for IS life cycle.
• configuring more than programming.
• mapping to best-of-breed practices.
• Long-term relationships with software vendors
  required.

23
How ERP Works

• ERP systems envision business cross-functionally.
  
• Support for data consolidation processes
• Example calculates monthly financial figures at
  a company comprising multiple locations
  worldwide.
• ERP packages usually provide a collection of
  applications covering six primary business
  functions
• Accounting and controlling.
• HR management.
• Production and materials management.
• Project management.
• Quality management and plant maintenance.
• Sales and distribution.
• ERP packages are branching into new areas (SCM,
  Decision support, SFA, CRM, etc).

24
Reasons for Adopting ERP Systems

• Five simple reasons
• Integration of financial info.
• Integration of customer order info.
• Standardization and speed-up of manufacturing
  process. Improvement of key SCM component
• Reduction in inventory.
• Standardization of HR info.

25
Reasons for Adopting ERP Systems (continued)
Large Companies /Complex Structures
Small Companies / Simple Structures

• Integrate applications cross-functionally.
• Replace hard-to-maintain interfaces.
• Reduce software maintenance burden through
  outsourcing.
• Eliminate redundant data entry and concomitant
  errors and difficulty in analyzing data.
• Improve IT architecture.
• Ease technology capacity constraints.
• Decrease computer operating costs.

• Most small / simple companies reasons plus
• Consolidate multiple different systems of the
  same type (e.g.., general ledger packages).

Technical Motivations
26
Reasons for Adopting ERP Systems (continued)

Small Companies / Simple Structures
Large Companies /Complex Structures

• Accommodate business growth.
• Acquire multi-language and multi-currency
  support.
• Improve informal and/or inefficient business
  processes.
• Clean up data and records through
  standardization.
• Reduce business operating and administrative
  expenses.
• Reduce inventory carrying costs and stockouts.
• Eliminate delays and errors in filling customers
  orders for merged businesses.

• Most small / simple companies reasons plus
• Provide integrated IT support.
• Standardize different numbering, naming and
  coding schemes.
• Standardize procedures across different
  locations.
• Present a single face to the customer.
• Acquire worldwide available to promise
  capability.
• Streamline financial consolidations.
• Improve company-wide decision support.

Business Motivation
27
Reasons for Adopting ERP Systems Anticipated
Benefits

• Tangible Benefits achieved
• Reduction in inventory and personnel
• Reduction in IT, procurement, and logistics costs
• Increased productivity, revenue and profits
• Improved order / cash management and on-time
  delivery performance
• More rapid closing of financial cycles
• Intangible Benefits achieved
• Increased visibility of corporate data and into
  SCM processes
• New or improved business processes
• Improved responsiveness to customers
• Improved business performance
• Tighter integration between systems, and
  standardization of computing platforms
• Global sharing of information
• Y2K compliance (remember this issue?)
• (Source Benchmarking Partners, 1998)

28
Challenges Associated with ERP Implementation

• Select appropriate ERP software provider
• Specifically suited to industry
• Type of support
• Financial stability and long-term viability
• Software performance, functions and features
• Meets business requirements
• Customizing the software vs. default settings
• Projects are lengthy, involve large teams of
  people and encompass all major parts of the
  business
• Detailing of all business processes to understand
  integration
• Re-engineering of business processes

29
The Costs and Hidden Costs of ERP

• Expensive ERP software licenses.
• Must include hardware, databases,
  telecommunications and ongoing support.
• Consultancy costs.
• ratio of consulting costs to software costs can
  reach up to 31.
• In-house project team costs.
• System integration costs.
• End-user training and change management costs.
• Gartner suggests 15 of total ERP budgets.

30
Some Criticisms of ERP Systems

• Inflexibility
• ERP is like cement highly flexible in the
  beginning but very rigid later.
• Trade-off between comprehensiveness and breadth
  of an ERP package and the ease with which it can
  be configured and modified.
• Long implementation periods
• True, but building ones own system from scratch
  would take longer.
• Overly hierarchical organizations
• Command and control perspective.
• Each business unit in a large decentralized
  organization to have its own choice of ERP
  system?

31
ERP Market Overview

• Tier 1 - includes the five JBOPS (J D
  Edwards, Baan, Oracle, PeopleSoft, SAP)
  companies. This group often sells to companies
  with annual revenues of above US250 million.
• Tier 2 - includes ERP software vendors
  (e.g.. QAD, Intentia, Ramco, etc) that
  generally sell to companies with annual revenues
  of approx. US10m to US500m.
• Tier 3 - includes ERP software vendors (e.g..
  AccPac for Windows, SunSystems, etc) that
  generally sell to companies with annual revenues
  of less than US10m.
• Above are loosely defined categories that
  overlap. Tier 1 vendors are now aggressively
  pursuing companies in the mid-range market and
  even SMEs. Likewise, many Tier 2 vendors sell
  to independent divisions of very large companies.
  

32
Major ERP Vendors

• J D Edwards
• Historically, JDE has been leading supplier of
  AS/400 systems
• OneWorld now runs on Windows NT, Unix and AS/400
• Oracle
• Best known for database system --- ERP reputation
  is catching up
• First to promote Internet orientation of ERP
  software
• Baan
• Initial focus was on manufacturing software
• Boeing deal thrust Baan into the spotlight in
  1994
• PeopleSoft
• Traditional strength is in HR software
  functionality
• Later built its own financial / manufacturing
  software and bought over Red Pepper logistics
  software
• SAP
• Fourth largest supplier of software (in general),
  after Microsoft, Oracle and CA

33
ERP Market Share by Vendor
Percentage of Market Share
34
Why is ERP a particularly important issue today?

• Globalization
• Overcapacity and reengineering
• Laying the foundation for electronic commerce
• Need for operational flexibility

35
Should ERP software be installed before supply
chain software?

• May need ERP if you plan to install SCP (supply
  chain planning) apps.
• ERP can source necessary up-to-date info.
• SCP applications benefit from having one
  up-to-date info source.
• SCE (supply chain execution) applications are
  less dependent upon gathering information from
  around the company, thus ERP.
• Important to pay attention to SCE software's
  ability to integrate with
• the Internet
• ERP or
• SCP applications.

36
Mission Critical Terminology

• Architecture
• In information technology, architecture refers to
  the process and the outcome of thinking out and
  specifying the overall structure, logical
  components, and the logical interrelationships of
  a computer, its operating system, a network, or
  other conception.
• Return-on-Investment (ROI)
• A measure of the net income a firm's management
  is able to earn with its total assets. Return on
  investment is calculated by dividing net profits
  after taxes by total assets. Compare
  profitability ratio. Also called rate of return,
  return on assets.
• Critical Success Factors (CSFs)
• CSF's are defined as indispensable business,
  technology, and human factors that help to
  achieve the desired level of organizational goals.

37
Initial Step Toward SCM Business Justification
The Cost-Benefit Assessment

• Determine initial investment
• Estimate ongoing cost-of-operating/TCO
• Training
• Maintenance System Enhancements
• Customer Equipment Support
• Connectivity Communications
• System Enhancements, etc.
• Determine prospective cost savings and/or revenue
  accretion
• Define project using familiar company investment
  metrics
• Break-even
• Net Present Value (NPV)
• Internal Rate of Return (IRR)

38
SCM Architecture Design Process Fundamental
Questions

• Who - Determine the target audience or market.
• What - Define the services to be delivered.
• Where - Determine the location where services
  will emanate (i.e., processing location).
• How Describe the means by which the services
  will be delivered (i.e., system features and
  functions).

39
Business Requirements Definition

• Define scope of operation.
• Define business objectives and goals.
• Identify CSFs.
• Define risk areas risk mitigation plan.
• Business risks.
• Technology risks.
• Define constraints.
• Time, budget, organizational.
• Identify High-level business process
  requirements.
• Define current data, application, technology,
  and support architecture.
• Identify architectural and process gaps.

40
Design Development Process Philosophy

• Spiral development preferred vs. Waterfall
  development process
• Process refinement will more than likely be
  required.
• Buy vs. Build decision affects time to market.

41
Design Development Philosophy
Initial Iteration
Verification Loop
Subsequent Iterations
Validation Loop
B2B Solution Development Life Cycle Spiral
Method
42
Determine Applications

• Core Applications
• Email
• File Archiving
• Newsgroup Access
• Advanced Applications
• Forms Processing
• Site Search
• Database Search/Indexed Information Retrieval
• Advanced Email Capabilities Inbound and Outbound
  Email Management
• Leading Edge Applications
• Media Streaming Audio Video Streaming
• Internet Telephony Videoconferencing
• Calendaring Scheduling
• Workflow Management
• Internet Transaction Processing/Internet-based EDI

43
Establish the Technology Baseline

• Determine necessary building blocks
• Hardware
• Software
• Policies
• Procedures

44
Fundamental B2B Extranet Technology Components

• Network (i.e., connection to the Internet
  backbone)
• Connectivity Hardware Software
• Internet/Web Server Hardware Software
• E-mail Gateway
• Application Server
• Database System
• Firewall
• Authoring/Web Development Hardware Software
• Browsers

45
Next Session Highlights

• Continue Reading Assignment covering first 3
  sessions
• Introduction to Supply Chain Management
  Handfield Nichols Chapters 1 5
• Building B2B Applications with XML Fitzgerald
  Chapters 1
• Topics
• Architectural Considerations (continued)
• Design Development Processes
• Key Technology
• XML
• Middleware
• VPNs