IT and Supply Chain Management

1. IT and Supply Chain Management IS6006 – second term

2. A bit of History… • Management -> Internal focus • Administration of business processes • Optimisation in the allocation of resources • Management of inventory… • “Competition” mode • Focus turns to external considerations because processes don’t stop at the gate • Many factors can only be fully optimised in collaboration with other firms

3. 1950’s: unlimited demand Deliver Supplier Make Customer

4. 1960’s : inventory costs money => reduce costs Deliver Supplier Make Customer Plan Buy

5. 1960’s : inventory costs money Deliver Supplier Make Customer Plan MRP Buy

6. 1970’s : first wave of integration Deliver Supplier Make Customer Plan Sell MRP MRP II Buy

7. 1980’s : sales order processing SOP Deliver Supplier Make Customer Plan Sell MRP MRP II Buy

8. 1990’s : back-office integration Accounting & Finance Human Resources Deliver Supplier Make Customer Plan Sell MRP MRP II ERP Buy

9. 2000’s : the extended enterprise SCM Accounting & Finance Human Resources CRM Deliver Supplier Make Customer Plan Service Sell MRP MRP II ERP Buy

10. What’s next? SCM Accounting & Finance Human Resources CRM Deliver Supplier Make Customer ERP II Plan Design Service Sell MRP MRP II ERP Buy

11. SCM Logistics Electronic Invoicing Electronic Marketplaces Contract Management Late 90’s CRM Early 00’s Sales Force Automation Contract Management Customer Service & Support Marketing Automation Documentation Management Early 00’s ERP IIProduct Data Management Engineering Change Orders New Product Introduction Collaborative Product Design The Great Acronym War PLM

12. Product Flow Product Flow Product Flow Product Flow Concept of Supply Chain Complex network of relationships that organisations maintain with trading partners to source, manufacture and deliver their products • includes material, information and financial flows as shown below Information Flows Distribution Retailer Consumer Manufacturing Supplier Payment Flows

13. Transition to Supply Chain Management • sustainable competitive advantage has two fundamental requirements: • a strategic orientation focussed on consumer value (not production capability) • Different analyses • value chains that are co-ordinated and responsive to consumer needs and wants • Organisational design

14. Legacy of pre-SCM thinking • Focus on competition • Supply Chains contain far more than the required inventory • Products are handled too many times (5/6 average) • Physical carriers struggle to maintain costly equipment on slim margins • No player has enough info to synchronise / optimise the entire chain

15. Consequences • Lack of knowledge of the end-to-end demand function – high levels of uncertainty • Erratic variations in demand (Bull whip effect) • inconsistent / out-of-date data about SC (poor decision making) • Fragmentation of processes and operations • lack of process integration with partners • need for fundamental structural changes • Need for integrated information systems

16. Supply Chain Management is… • an integrative philosophy to manage the flow of goods and information from the earliest supplier of raw materials to the ultimate customer through integration and collaboration of all channel partners” • SCM aims to reduce costs and add value for the consumers through more efficient and effective supply chain linkages • Operative across a range of industries • Leverages new technologies to achieve these aims

17. Other names • supply networks • lean chain approach • supplier integration • Buyer-Supplier partnerships • value steam

18. A Definition • ‘Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion and all logistics management activities. Importantly it also includes coordination and collaboration with the channel partners, which can be suppliers, intermediaries, the third party service providers, and customers. In essence the supply chain integrates supply and demand management within and across companies.’

19. Evolution • Functional to integrated • Mass Production to Lean to agile and then leagile The Evolution of Manufacturing Technology and Management Techniques (Source: Jin Hai, Anderson and Harrison 2003)

20. Different Visions of SCM • Enterprise focus - traditional model • characterised by fragmentation • Frequent conflict between links in the chain • Partner focus - modern vision • characterised by collaborative idea • Or provision of a SC related service • Direct focus (e.g. Dell) - emerging vision • characterised by customer-direct capability • near zero inventories • Domineering concept

21. Types of SCM • Integrated Make-to-stock • smoothing demand in mass production industries • linked to postponement in distribution channel • Continuous replenishment • customer-demand pull system across firms • ECR, QR • Build-to-order • efficient SCM allows return to BTO model • inventory substituted with information (Dell)

22. Understanding industry specificities • Type of product • Complexity of production process • Type(s) of customers • Complexity of supply chain (eg: lead times) • Complexity of demand function (eg: seasonality) • These determine the strategies that are suitable

23. Selecting a SCM strategy • ‘It is supply chains that compete, not companies’ (Christopher, 1992) • success / failure of supply chain strategy is determined in the marketplace by the end consumer • understand the external environment • design an appropriate and effective supply chain strategy

24. Elements of consumer responsiveness • Product Availability • Length of order cycle Time • Consistency of Order Cycle Time • Invoice/ Billing Procedure Accuracy • Information Requests responsiveness • Flexibility in resolving problems • Distance to suppliers warehouse • Special Customer Request • Frequency of Damaged Goods • Quality of Order Department • On time Delivery • A combination of there will add to customer satisfaction

25. Understanding the concept of value

26. Fisher’s Classification Objective is to match efficient process strategy for functional products and responsive process strategy for innovative products

27. Hill’s manufacturing strategy matrix

28. Christopher and Towill (2002)

29. Examples • Wal-Mart stands out on price • McDonalds on access, availability, consistency and speed • Nike and Reebok on brand recognition • American Express on services • Dell on timely deliveries • Dominant in one attribute and efficient in others • choosing the right product attribute to create the right customer value • Select the best-fit strategy but use segmentation as generic supply chains don’t work • Dichotomy between efficient and responsive strategies

30. Lean production techniques • Toyota-ism • result of resource scarcity and intense domestic competition • achieving cost improvements • focus on reducing waste (‘muda’) and continuous improvements • Origins: JIT, Kanban and respect for employees

31. Core concept • simplify and reduce variance within complex and dynamic systems • more predictable and controllable behaviour

32. Elimination Non Value added activities • Waste from Irregular Flow • Waste from Inaccurate Supply • Waste from Inflexible response • Waste from Variability • Inventory is main source of inefficiency • Storage adds no value to the product • Idle time due to break down or set up • Preventative maintenance, reduction of lot size, use of common parts across product lines • Reduction in within-firm movements • Cell manufacturing

33. Continuous Improvement • Improvements in material handling systems • involvement of all production employees organised in teams • support of top management

34. Benefits and Constraints of Lean • Ample literature indicating that many companies benefit from lean • Reduction in lead-time, in inventories, in the cost of quality and in process changeovers • Increases in labour productivity • Equally ample literature on problems • Inability to cope with variability • narrow operational focus on the shop floor • Inflexibility particularly outside the high volume repetitive manufacturing

35. Case Study - Delphi • Modelled after the principles of the Toyota Production System, Delphi Management Systems has enabled the company to be a lean manufacturer focused on customer needs. DMS addresses everything from how supplies are delivered to employee movement in the plant, with the goal of continuously increasing efficiency and eliminating waste in a cost-effective manner, DMS focuses on six specific but interdependent elements aimed at eliminating waste and improving product flow; • Employee environment and involvement: Creating a team based work organization with joint efforts between workers and management, with shared goals and a commitment to continuous improvement. • Workplace organisation: Paying attention to how employees, equipment, and materials arc coordinated, providing a safe, clean work environment. • Quality: Focusing on variation reduction, waste elimination, and first-time-through customer satisfaction. • Operational availability: Minimizing non productive time for operations. • Material movement: Assuring on-time delivery of required materials. • Flow manufacturing: Responding quickly, safely, and efficiently to customer demand .with high quality, high-value products

36. Agile Manufacturing • Agility is a business-wide capability that embraces organisational structures, logistics processes, information systems and, in particular, mind-sets’ (Christopher) • flexible manufacturing systems • mass customisation • leagile supply chain • market sensitive and demand driven • Virtual arrangements • information sharing between upstream and downstream partners • process alignments and collaborative approach

37. Cted • ability of the firm to reconfigure itself • In the face of dynamic and competitive environment • continuous and unanticipated changes outside the firm • government policies • international trade agreements • changing customer expectations

38. Core Concepts (Gunasekaranet al. 1999)

39. Core Competence Management • Specific factor that a business sees as being central to the way it works • It provides consumer benefits • It is not easy for competitors to imitate • It can be leveraged widely to many products and markets • Exist at two levels: the firm and its employees • It should be exploited • It should be further developed

40. Virtual organisation • integration of core competencies distributed among a number of carefully chosen but real organisations • Solution to a wide range of problems • improve product and process design • reduce manufacturing risks • enhance product service and repair • high levels of cooperation - Agile teams work across organisational boundaries • Temporary arrangement – need to be able to reconfigure rapidly

41. Example • IBM - strategic partnerships to work jointly on research and development, product conceptualization, product development, and distribution as well as operations • HITACHI - advanced storage technologies • Tree Data - storage networking products for mid-sized customers • UPS - distribution network

42. Capability for re-configuration • Track windows of opportunities • Pre-empt competition • Develop a strategic architecture based on a corporate-wide map of core skills • Invest in technologies to achieve flexibility in both organisation and operations

43. Knowledge-driven enterprise • Well-trained and motivated workforce • Focus on knowledge • Creation, acquisition, codification, storage, maintenance and transfer • Multi-path agility as a factor of speed • IT for coordination, communication and ebusiness

44. Knowledge activities at firm level

45. Strengths and weaknesses of Agile • effective only if physical set-ups made flexible • machineries, buildings, storage facilities • Business processes, empowerment… • Without compromising control • HR issues are important • Flexible employment • Unclear boundaries of responsibility • Team based organisation

46. Example • Zarra – Benetton • Manage the 3 lead times of the fashion industry: time to market, time to serve and time to react • team of fashion scouts seeking new ideas and trends across the market and analyse the Point of Sale Data • Ideas quickly converted into tangible products • Time to market is a matter of weeks • working closely with small manufacturers, specialising in production process and garment types • Admin can provide flexible technological, financial and logistical support • Key to success: creating virtual technology enabled teams with a high degree of information sharing

47. Lean + Agile? • Leagility is being discussed • a system in which the advantages of leanness and agility are combined • strategic use of decoupling point • lean concept upstream from the decoupling point to achieve economies of scale • agility concept downstream to achieve consumer responsiveness

48. Forrester effect

49. Does it make sense?

50. Decoupling points • “decoupling points : The locations in the product structure or distribution network where inventory is placed to create independence between processes or entities. Selection of decoupling points is a strategic decision that determines customer lead times and inventory investment. • Information decoupling point (IDP) and other is material decoupling point (MDP)