Supply Chain Management Technologies

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Supply Chain ManagementTechnologies
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IT and the Supply Chain
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Goals of Supply Chain IT

• Collect information on each product from
  production to delivery (or point of purchase)
• Provide visibility for all parties involved in
  the transaction e.g., order status for retailers
  and suppliers and impact of delays
• Participants need to see data in terms of their
  own (e.g., supplier of cotton need to see demand
  for bandages in pounds of cotton) translation
  tables (Bills of Material) required through the
  system
• Standardized product identification across
  companies and industries
• Provide access to any data in the system from a
  single point of contact
• Information requested needs to be the same
  regardless of mode of inquiry (fax, cell phone,
  PC, etc.)
• Facilitate analysis, planning of activities and
  make trade-offs based on information from any
  part of the entire supply chain
• Strategic to tactical decision-making on how to
  operate the supply chain most efficiently to
  reduce uncertainty!
• Facilitate collaboration with supply chain
  partners
• Integration of business processes and IT with
  suppliers customers (SRM and CRM)

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Achieving Supply Chain IT Goals
Todays SCM Focus
Collect
Access
Analyze
Collaborate
Integration/Standards
Infrastructure
e-Commerce
Supply Chain Components
Internet capabilities/EDI/ XML
ERP/DSS/CRM/SRM/ Transportation Systems
Communications/ Databases
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Todays Supply Chain Applications

• Procurement/SRM
• ERP/Financials
• Order Management
• Production Planning Scheduling
• MRP, MPS, MES
• Warehouse Management
• Transportation management, Deployment
• EDI

Internally driven, fixed lead times, standard
costs, weekly cycles, local/functional decision
support
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IT and Sourcing
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Sourcing Challenges
"Mission Control"
Strategy
Organization
Processes
Technology

• Procurement Approach
• What should be the relative roles of business
  units and focused procurement units in the
  procurement process?
• How can my firm regularly reassess which
  functions are critical to its franchise?

• Skills
• What is the nature of these skills?
• How can my firm develop and transfer critical
  purchasing skills?
• Where should they reside in the organization?

• Demand Management
• How can my firm reach the right balance between
  user need fulfillment and cost control?

• Management Information
• What are the critical data required by each
  manager in my firm's procurement process
  (compliance, demand management, )?

• Vendor Management
• How can my firm institutionalize best practices
  in the vendor selection, negotiation and contract
  management processes?

• Systems Infrastructure
• How can my firm ensure that the A/P and G/L
  systems have the right level of codification and
  standardization across the organization to
  provide usable inputs to the sourcing process?
• How can the sourcing objectives and realized
  savings be fed into the budgeting systems?
• What are the tracking and monitoring tools
  required to support procurement operations and to
  provide the right management information?

• Make versus Buy
• What functions should my firm outsource and how
  can they be managed most effectively before,
  during and after the transition?

• Culture
• How does my firm establish a strong
  cost-conscious culture while maintaining
  flexibility?
• How can the importance of an effective
  procurement organization be communicated
  throughout my firm?

• Order and Payment Processing
• What is the most cost effective approach for
  order and payment processing?
• What authorization process would best achieve
  speed, effectiveness and transparency?

• Partnerships and Alliances
• Are there any partnerships and alliances my firm
  can form as an alternative to outsourcing
  options?
• How can my firm position itself to take advantage
  of fundamental changes to procurement that may
  result from the emergence of electronic commerce?
• What profit-making opportunities might be
  available to my firm from a rethought approach to
  procurement?

• Customer Service
• How can my firm ensure that the procurement
  process adds value to its customers?
• How can their level of satisfaction be monitored?

• Structure
• What is the most appropriate organization
  structure (i.e., centralized vs. decentralized,
  loose vs. tight control) for my firm and how can
  it be best implemented?

• Metrics
• What metrics are required to track the
  performance (cost, quality, timeliness) and
  compliance with my firm's procurement process?
• How can my firm monitor rate and volume as
  independent variables?

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Sourcing Supplier Relationship Management (SRM)
Systems

• Studies show that companies that have
  collaborative relationships with their suppliers
  consistently outperform companies that do not
• The entire supply base needs to be managed to
  streamline procurement and sourcing processes,
  maintain the quality of supply and increases
  profitability and innovation
• A Supplier Relationship Management System (SRM)
  should
• Allow tracking of global spending by supplier,
  category or product across locations (Spend
  Analysis)
• Allow establishment of supplier metrics and
  benchmarks for comparison
• Allow sharing of global supplier contracts across
  local organizations (Contract Management)
• Allow establishment of consistent content
  standards for contracts, orders, etc.
• Allow establishment of a consistent master
  database for product/supplier IDs
• Allow web-enabled procurement processes to be
  established
• Allow for monitoring of supplier performance
  against established contracts
• Most vendors (e.g., SAP, SAS, Ariba) focus on
  Spend Management software

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Web-based Procurement

• Applications using work flow mechanisms and
  user-defined buying rules to move a purchase
  request through an organization and out to
  suppliers via the Web. Some e-procurement
  solutions have business intelligence software
  that analyzes purchasing trends and supplier
  performance.
• Example
• Xerox Corporation soon expects that 80 of its
  non-production purchasing will be conducted using
  a recently installed internet procurement system.
  Xerox expects the current purchase order cost of
  150 to drop by 80 to about 25 per purchase
  (they processed about 100,000 orders in 1999).
  Overall, the company anticipates cutting more
  than 1 of its total spending on non-production
  goods and services.

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The Potential of e-Procurement
Cintas Joins Commerce One MarketSite CINCINNATI-
Cintas Corporation, the leading supplier of
corporate identity uniform programs, today
announced it has joined the premier list of
featured suppliers for Commerce One, Inc., the
leader in global e-commerce solutions for
business.
Healtheon/WebMD To Create Web Site With
Mediabuy.com ATLANTA- Healtheon/WebMD Corp. and
Mediabuy.com Inc. agreed to create a Web site
where doctors can buy medical and nonmedical
supplies.
Billions
Toyota May Join Fords Online System TOYOTA CITY,
Japan - Toyota Motor Corp. has begun discussions
with Ford Motor Co. about joining the U.S. auto
makers newly formed Internet marketplace for
suppliers, a top Toyota executive said. The move
comes less than a month after General Motors
Corp. offered Toyota a similar invitation to
participate in its own Web-based marketplace
venture.
Chase and Intelisys Host Educational Forum for
Chase Suppliers on the Benefits of
Web-Enablement NEW YORK The Chase Manhattan
Bank, lead subsidiary of The Chase Manhattan
Corporation (NYSE CMB), and Intelisys
Electronic Commerce, Inc., a global leader in
electronic procurement, announced today that they
have taken the next step in building a Chase
online business-to-business
Chevron and Ariba To Form Web Market For Energy
Industry SAN FRANCISCO - Chevron Corp. and
electronic-commerce-software developer Ariba Inc.
said they plan to create an online marketplace to
link buyers and suppliers in the global energy
industry. The business-to-business portal, to be
called Petrocosm Marketplace, will run online
auctions and electronic procurement for companies
to buy and sell oil and gas products and
services, including drilling, engineering and
construction.
Source Wall Street Journal Business Wire
International Data Corporation, 1999
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The Benefits of e-Procurement
Source International Data Corporation MMG
analysis
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SCM Integration and ERP Systems
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The Role of ERP and SCM Imperatives

• Developed by software vendors to initially enable
  companies to optimize internal SC processes
  (STANDARDIZATION)
• Finance
• Manufacturing
• Procurement
• Production
• Distribution
• First generation systems tended to be closed
  (proprietary), monolithic and generally not
  focused on enabling collaboration with suppliers
  and distributors
• New ERP systems are Web-enabled, open and
  component-based
• ERPs become the facilitator, moving data from one
  function to another while managing the data
  centrally
• Improves visibility and consistency of
  information by holding all data about sales,
  purchases, inventory, production, customers,
  suppliers and accounts in one system

SAP, Manugistics, JD Edwards, Baan, PeopleSoft,
Oracle, SSA
Source Simchi-Levi, Gartner Group
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ERP Functionality

• Common information foundation
• Inventory Management
• Sales Order Processing
• Forecasting, Requirements Planning
• Procurement
• Capacity Planning
• Distribution/DRP/Warehouse Management
• Financials
• Data warehouse
• CRM (Customer Relationship Management)
• SRM (Supplier Relationship Management)
• Analytics/DSS

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ERP Market Leaders
Source Forrester Research
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ERP Considerations

• ERP systems are long-term investments (10-20
  years)
• Many firms lack internal implementation
  experience
• Horror stories abound
• They are very expensive from a TCO standpoint
  (250 million or more to just to implement for a
  division of a major firm)
• 1 billion SAP implementations are not unheard of
• Standardization on a single vendor and reducing
  the number of instances (installations) of the
  product across the enterprise is critical to
  reducing TCO
• Open systems vs. closed proprietary systems
• More productive software partnerships with
  vendors who market plug-in functionality
• Extend but do not customize

Source Forrester Research
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Supply Chain Collaboration

• The area of greatest interest and emphasis in SCM
  today
• Collaboration with suppliers
• Collaboration with customers/retailers
• Reliant on level of e-Commerce capabilities
  between trading partners (maturity)
• Partners must have matching maturity
• Collaboration means helping your key partners
• Many organizations cant take advantage of
• the tools available to them

Stage 4 Cross-Enterprise Collaboration

• A collaborative supply chain strategy is enabled
  by advanced IT
• Alignment of supply chain partners business
  objectives and associated processes
• Real-time planning, decision-making, and response
  to customer requirements

Stage 3 External Integration
Stage 2 Internal Integration

• Strategic partners throughout the global supply
  chain collaborate to
• Identify joint business objectives and action
  plans
• Enforce common processes and data sharing
• Define, monitor and react to performance metrics

• A company-wide process and data model exists and
  is measured at company, process and diagnostic
  level
• Resources are managed functionally and
  cross-functionally

Supply Chain Performance
Stage 1 Functional Focus

• Supply chain processes and data flows are
  well-documented and understood
• Resources are managed at the department level
  and performance is managed at the functional level

Source Cohen Roussel
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Current Dilemma

• To link Sales, Production, Delivery Processes
  and Systems into one seamless flow of
  information.
• Reality Check - How to get applications based on
  different technologies, business processes, and
  data models to work together in a common way in a
  value network with linked suppliers and customers
  ?

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Intelligent eBusiness
Customer processes linked to intelligent
fulfillment processes
Collaboration with suppliers
Intelligent demand fulfillment
Personalization, Valid configurations, real
availability, multi-enterprise fulfillment
Collaboration with design partners
Customer-driven product design
Collaboration with customers
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The e-Enabled Supply Chain
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Emerging e-Enabled SCM Applications

• Web-based procurement
• Customer/Supplier Relationship Management (CRM,
  CSUP)
• Collaborative planning, forecasting and
  replenishment (CPFR)
• Web-based Multi-location Advanced Planning
  Scheduling (APS)

• Product life cycle collaboration
• Web-enabled order management
• Virtual fulfillment networks
• Web-based service and support
• Commit to Promise (CTP)
• Web EDI, iVMI

Externally integrated, web-centric performance
monitoring, global decision support
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SCM Collaboration Processes Tools
Contracts,Forecasts

• Benefits
• Real-time, two-way communication
• Public or private network
• Small players included

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Collaborative Planning, Forecasting and
Replenishment (CPFR)

• Trading partners (manufacturers and retailers)
  cooperatively planning and communicating product
  initiatives and marketing strategies to jointly
  predict volume. They also collect and use retail
  store consumer data to forecast replenishment
  needs.
• Example
• Wal-Mart and Warner-Lambert (now Pfizer Consumer
  Products) piloted a program initially using
  spreadsheets to exchange information, now using
  Web-based collaboration software and back-end
  tools.

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CPFR Concepts
Information

Supplier
Manufacturer
Distributor
Retailer
Consumer
Product
Internet
Manufacturer
Retailer
Forecast (Base and Promo) POS On-hand data
Forecast (Base and Promo)
Collaboration Tool
Outputs
Collaboration triggers Exception based warnings
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CPFR Information Flow
Collaboration Among Partners
Information
Manufacturer/Retailer Distribution Center
Manufacturer
Customer
Product
Product

• P.O.S. Information
• Promotion and Event
• Information

• Manufacturing
• Constraints
• Sales Projections
• Promotions

• Inventory Levels
• Inventory Turns
• Inventory Strategy

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Web-enabled Order Management

• Web based Extranet integrated with a
  manufacturers or distributors ERP system.
  Functionality can include on-line catalogs,
  product availability, pricing, order placement
  and order status .
• Example
• Life Fitness, a manufacturer of fitness
  equipment, implemented an Internet based solution
  which is enabling it to eliminate more than 600
  phone calls per day. Customers can now buy parts,
  check order status and view an on-line catalog.
  They now have real time information about part
  availability, price and orders status.
• NOTE Extranet and Intranets both use Internet-
  based technology and limit access to authorized
  users. However, only internal employees can use
  an intranet while authorized external users, such
  as suppliers can access an Extranet.

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Virtual Fulfillment Networks

• Suppliers using the internet have visibility
  upstream in the supply chain to determine
  manufacturers requirements and automatically
  replenish inventory (Supplier/Vendor Managed
  Inventory)
• Example
• Shell Chemical Company is one of the first
  chemical companies in the industry to adopt
  supplier-managed inventory (SMI). Many
  manufacturers supplied by Shell Chemical no
  longer place orders. Shell Services developed
  SIMON to allow both supplier and customer to
  share necessary information. SIMON also can be
  accessed remotely via the Internet. The SMI
  process reduces the total inventory carried by
  the customer and supplier, which means lower
  costs for everyone. Savings estimates between
  one-half to one cent per pound of product the
  customers consume. More significant, Shell has
  gained millions of dollars in additional revenues
  since first offering SMI to its customers.

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Web-based Service and Support

• Using the web to offer value added services to
  customers and/or suppliers.
• Examples
• ChemicalDesk is an online exchange for the water
  treatment chemicals market. It offers its users
  resources including Chemical products and
  related monitoring equipment, custom logistics
  and distribution services, technical support and
  consulting services, and material safety data
  sheets (MSDS)
• The BASF Web site connects to technical data
  sheets and related information on products
  available in the U.S., Mexico, and Canada, and
  lets registered buyers check inventory, analyze
  use, and calculate forecasts

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Product Life Cycle Collaboration

• Using Web based tools for managing product
  changes through a companys network of
  manufacturing partners to reduce inventory
  shortages, rework and procurement errors. All
  engineering or supplier changes reside in one
  place.
• Example
• Fujifilm Electronic Imaging Ltd (FFEI) designs
  and manufactures scanners, recorders and imaging
  software. FFEI recognized that it could improve
  its time to market by streamlining the design and
  manufacture process. They decided they needed a
  system that could encompass the entire
  development, introduction and change management
  process. FFEI bought an off the shelf web based
  system that is now available across their
  Intranet. The engineering change process, product
  configuration management and document vaults are
  now fully automated and the system integrates
  information from CAD and MRP systems as well

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SCM Distribution Technologies
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Distribute - Advanced Bar Coding

• November 2004 - the FDA published a compliance
  policy guide for industry on implementing RFID
  studies and pilot programs
• An electronic safety net for establishing drug
  pedigrees as they move through the supply chain
  from manufacturing through distribution
• Track and trace capability
• Johnson Johnson has taken the lead in
  establishing standards for RFID technology
• Pfizer announced its plans to place RFID tags on
  all bottles of Viagra intended for sale in the
  United States in 2005
• GlaxoSmithKline has announced that it intends to
  begin using RFID tags on at least one product
  deemed susceptible to counterfeiting
• Purdue Pharma announced that it is placing RFID
  tags on bottles of the pain reliever OxyContin to
  make it easier to authenticate, as well as to
  track and trace the medication

Source FDA Consumer Magazine, March-April 2005
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Distribute RFID Tagging

• November 2004 - the FDA published a compliance
  policy guide for industry on implementing RFID
  studies and pilot programs
• An electronic safety net for establishing drug
  pedigrees as they move through the supply chain
  from manufacturing through distribution
• Track and trace capability
• Johnson Johnson has taken the lead in
  establishing standards for RFID technology
• Pfizer announced its plans to place RFID tags on
  all bottles of Viagra intended for sale in the
  United States in 2005
• GlaxoSmithKline has announced that it intends to
  begin using RFID tags on at least one product
  deemed susceptible to counterfeiting
• Purdue Pharma announced that it is placing RFID
  tags on bottles of the pain reliever OxyContin to
  make it easier to authenticate, as well as to
  track and trace the medication

Source FDA Consumer Magazine, March-April 2005
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Distribute RFID Technology Basics

• Uses the radio frequency part of the
  electromagnetic spectrum to transmit information
  about a physical object, animal or person
• Location
• Temperature
• Humidity
• Light
• Can be passive (read through a sensor) or
  active (transmits continuously)
• Uses Electronic Product Code (EPC) to uniquely
  identify each object the tag is attached to
• Manufacturer
• Product
• Version
• Serial number
• Core technology for use with EPCs

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Distribute RFID Technology Basics
Tags
Host Computer
Antenna
Reader

• Device made up of an electronic circuit and an
  integrated antenna
• RF used to transfer data between the tag and the
  antenna
• Portable memory
• Read-only or read/write
• Active or passive
• Usually attached to specific items

• Receives and transmits the radio frequency
  signals
• Wireless data transfer
• May be integrated in the reader for short range
  applications or structural for warehouse
  applications

• Communicates with the tag via antenna
• Receives commands from application software
• Interprets radio waves into digital information
• Provides power supply to passive tags

• Reads/writes data from/to the tags through the
  reader
• Stores and evaluates obtained data
• Links the transceiver to an applications, e.g. ERP

Source Cardinal Health
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Distribute RFID Implementation Timelines

• RFID tags must be attached to pallets, cases and
  individual packages
• Ensure instant verification and rapid location
  of every item in the supply chain
• 2005 RFID on pallets, cases and packages of
  high-risk drugs
• 2006 RFID on most pallets, cases and packages
  of high-risk drugs and some pallets and cases of
  selected products
• 2007 RFID on all pallets and cases of all
  products and most packages of all drugs
• All manufacturers
• All wholesalers
• All chain drug stores
• All hospitals
• Most smart retailers

Source Unisys
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Distribute RFID Tagging Implications

• Since bar codes and RFID tags can be duplicated,
  serialization and authenticated uniqueness will
  be required to completely stop counterfeiting
• Serialization with one-way lookup is likely to be
  the initial approach
• Access detailed product info from the
  manufacturer using the product serial number over
  the web
• Read only access, chain of custody will not be
  tracked
• Counterfeiting will be more difficult but not
  impossible
• True chain of custody will require 2-way
  transactional updates
• Verify uniqueness and possession of each serial
  number
• Each change of custody will require a transaction
  between the current owner and the master database
• Counterfeiting will be immediately identified
  since each serial number can be in only one
  location at a time
• Big question Who will pay for and maintain the
  master database?

Source Cardinal Health
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Distribute SCM Benefits of RFID Tagging

• Better stock accuracy
• Reduced stock-outs (a critical issue for
  pharmacies, physicians and hospitals)
• Reduced safety stock (lower cost)
• Improved understanding of where variability
  exists and insights on its control (improved
  forecasts)
• Improved supplier materials ordering
• Compliance with customer demands for RFID
  tagging
• DoD
• Wal-Mart
• Target
• 15-20 reduction in inventory levels
• 7-10 reduction in supply-chain costs
• 4-6 improvement in physician retention

Source Cardinal Health