Diploma in Integrated Logistics Mgt I.T. Applications in Logistics (ITAL)

Diploma in Integrated Logistics Mgt I.T. Applications in Logistics (ITAL) Chapter 7: e-SCM Systems EE Khong Kie, Max B. Business Admin (2nd Upp) Hons, M.Sc (Logistics) Graduate Diploma in Systems Analysis (NUS)

Lesson Structure 1 Typical Business Problems 2 Enterprise Resource Planning (ERP) 3 Supply Chain Mgt (SCM) 4 Video and Discussion 5 Sample Questions

Supply Chain

Traditional Business Problems Flow Dis-Synchronization Mis-Production

#1 : Islands of Information

#2 Manual Data Entry Data is required to re-enter or re-processed if application software are not integrated.

#3 Mismatch of Flows There are three flows in any enterprise, namely material, information and financial flows. If they do not move in step, such mis-match may cause errors. For instance, if the physical item has arrived in the warehouse but the WMS is not updated, the salesperson cannot create the order.

Mis-Production Producing too much or too little inventory is no good!

Bullwhip Effect The Beer Game is designed by MIT to illustrate the bullwhip effect. There are four players in a beer supply chain. Orders move upwards from retailer to factory, while materials (beer) moves downwards from factory to retailer. In between each player, there is a delay (order lead time and transport lead time).

Bullwhip Effect The further an organization is from the consumer, the greater is the inventory fluctuations.

Outcomes of Bullwhip Effect Consumer Wholesaler Factory Retailer Distributor

Causes of Bullwhip Effect Lead Time Human Psychology The underlying cause is lead time. Information needs time to move, and materials needs time to move too! Long lead time increases chance of stock-outs. This is compounded by human psychology (panic) which increases ordering when stock is short, creating a vicious cycle!

Solutions? To synchronize information, material and financial flow, we need to adopt supply chain management – a holistic and strategic way of viewing the industry’s inter-dependence.

Enterprise Resource Planning (ERP) The key feature of an ERP is it is integrated. The software links all departments together using one central database and common platform.

Three-Tier Architecture

Evolution of ERP = Materials+ Production Plan MRP = MRP + Financial Mgt + Resource Plan MRP II = MRPII + Communication and Integration ERP

Case Study : SAP R/3 1.A Hong Kong retailer faxes an order for 1,000 pairs of sports shoes 5.SAP Manufacturing Module alerts the Thailand factory to start a production plan for 500 pairs 2. Salesperson enters order into the Ordering Module 6.SAP Materials Module indicates a component (dye) needs to be purchased. A PO is sent to the supplier 3.SAPFinancial Module checks the credit status of the retailer 7.SAP Transport Module forecasts the date of completion and notifies the sales person and / or the retailer on the expected time of arrival 4.SAP Inventory Module checks the Balance-On-Hand of the required shoes. Only 500 pairs are available

Benefits

Limitations Acceleration of Mistakes Inter-organization Systems Human resistance

Supply Chain Strategies Collaborative Planning, Forecasting and Replenishment Just In Time (JIT) Efficient Consumer Response (ECR) Vendor Managed Inventory (VMI)

Why is JIT important? Long Pipeline = High Inventory Holding Cost Long Lead Time= Lower Customer Satisfaction Suppliers are reducing lead time to compete!

What is Just In Time (JIT)?

Lead Time Gap Analysis Procurement Manufacturing Delivery Logistics Lead Time Customer Order Cycle Customer Order Cycle Lead Time gap Most companies face a problem of lead time gap. This refers to the total logistics lead time is longer than the customer’s willingness to wait (customer order cycle). As such, companies carry inventory to fill the gap. But this is an inefficient solution.

Using JIT to Shorten Gap Logistics Lead Time Customer Order Cycle The solution is to reduce the logistics pipeline move the customer order cycle forward (improved demand visibility)

Traditional Purchasing Purchase Order Materials Delivery Order Buyer Vendor Invoice Payment Inventory Plan Delivery Schedule

Vendor Managed Inventory (VMI) Typically if a customer needs a product, they place an order with a manufacturer (vendor). The customer is in total control of the timing and size of the order being placed and maintains the inventory plan. With Vendor Managed Inventory (VMI) the vendor receives electronic data that informs him of the customer stock levels. The vendor is responsible for creating and maintaining the inventory plan. Under VMI, the vendor generates the shipment for the replenishment, not the customer. VMI does not change the "ownership" of the inventory. It remains as it did prior to VMI. If VMI is combined with consignment stock the ownership of the stored material at the customer location goes over to the vendor. The customer only pays by consumption.

How VMI works? Sales and Inventory Data Auto-Replenishment Deliveries Deliveries

What VMI needs? Trust Electronic Data Interchange Data Sharing

Video and Discussion Title : What is ERP? • Questions • Name some of the ways ERP can be used by companies? • What are some other technologies mentioned that work with ERP?

Question 1 Mr. Heng just joined a local company as the operations manager. After one month, Mr. Heng noticed that it is very hard to get real-time and accurate data within the company. Each department uses its own software which is not integrated. Also, the heads of each department seldom meet and exchange information. The best software solution is to use a • Warehouse Management System (WMS) • RFID • Electronic Data Interchange (EDI) • Enterprise Resource Planning (ERP) Answer : D

Question 2 Which of the statement below is TRUE? In bullwhip effect, the nearer a company is to the company, the slower it respond the changing demand. If the players in the supply chain can jointly cut down delays in lead time, the amount of inventory can be reduced. Human psychology plays a part in aggravating the bullwhip effect. • I and II only • I and III only • II and III only • All of the Above Answer : C

Question 3 The advantage(s) of using a ERP include(s) • Less data re-entry and errors • Obtain best practices • Real-time information • All of the Above Answer : D

Question 4 In a three-tier architecture, the user interacts with the _____ layer of the ERP. • Presentation • Application • Database • All of the Above Answer : A

Question 5 If NTUC decides to work with its top ten suppliers where the re-ordering function is passed to the suppliers based on common agreed re-order point, this is called • Just In Time • Efficient Consumer Response • Kanban • Vendor Managed Inventory Answer : D

Diploma in Integrated Logistics Mgt I.T. Applications in Logistics (ITAL)