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Hour 8: Open Systems

Hour 8: Open Systems. Supply Chain support Lean Manufacturing. Supply Chains. Collections of organizations working together Raw materials – products – retail Old manufacturing: vertical integration Military logistics Now appropriate for e-business. Vertical Integration.

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Hour 8: Open Systems

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  1. Hour 8: Open Systems Supply Chain support Lean Manufacturing

  2. Supply Chains • Collections of organizations working together • Raw materials – products – retail • Old manufacturing: vertical integration • Military logistics • Now appropriate for e-business

  3. Vertical Integration • 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

  4. Supply Chain Advantages • Competitive advantage • Cost • Production efficiencies • Value • Logistic efficiencies • Coordinated advertising • Large scale service

  5. 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

  6. 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]) • ERP systems provide integrated information • Unless all units use the same system, a barrier to communication

  7. System Openness • Supply chains require open systems • Original ERP assumed a small number of users accessing system • Seat pricing mechanism encouraged

  8. Organizational Openness

  9. 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

  10. Advanced Planning System Providers

  11. ERP Vendor Response • 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 • Oracle’s 11i Advanced Planning & Scheduling

  12. On-Line MarketplacesManetti [2001]

  13. Lean Manufacturing • Toyota bundle of techniques from 1950s • Common supply chain philosophy • Cut waste by eliminating activities that don’t add value • Continuous product flows without bottlenecks • Produce to order • (demand pull, not supply push) • Emphasize quality

  14. 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

  15. Discrete Manufacturing Lean Business StrategiesBradford et al. [2001]

  16. Continuous Manufacturing Lean Business StrategiesBradford et al. [2001]

  17. Key TrendsAkkermans et al. (2003) • Further integration of suppliers & customers • Focus on ERP system flexibility • Mass customization • Standard interfaces across chain

  18. ERP & Hershey’s Supply Chain Stedman [1999] Osterland [2000] Songini [2000]

  19. History • 1997 Hershey’s adopted a $110 million ERP system • SAP R/3 • Siebel CRM • Manugistics logistics package • To replace many legacy systems • Original 4 year project • Compressed to 30 months to precede Y2K • July 1999 three months behind schedule • Adopted big-bang approach to beat deadline

  20. Hershey Business • Very seasonal • Halloween, Thanksgiving • Sept 1997 serious order processing & shipping problems • Shipping delays • Sent incomplete deliveries • Delivery time formerly 5 days, with ERP 12 days • Sales revenue dropped 12% from prior year • Inventory piled up at Hershey warehouses

  21. Problem Diagnosis • Attempted ERP implementation in supply chain environment • That can be done • Confounding factors • During peak season • Tried to do too much as once • Complexity from CRM & Logistics Planning add-ons • Time pressure

  22. Supply Chain & ERP • Can be done • Hershey’s was a bleeding edge pioneer • Hershey’s seems to have solved problems

  23. Trends in ERP Expected benefits Conclusions

  24. Expected Benefits from ERPMabert et al. (2000); Olhager & Selldin (2003)1-not at all; 5-to a great extent

  25. Benefits from ERPMabert et al. (2000); Olhager & Selldin (2003)1-not at all; 5-to a great extent

  26. Lessons Learned • ERP implementation projects problematic • Variety of ways to implement • Benefit assessment problematic • Different ways to design ERP • Customization of vendors popular • Many enhancements available • Supply chain opportunities • Requires open systems

  27. Summary • Vertical integration historically used to make supply chains efficient • Today supply chain efficiency gained by linking specialists across organizations • ERP initially focused on integrating internal operations • High investment, rigid procedures barriers to supply chains • Trends more supportive • Advanced Planning Systems • Vendor software • Lean manufacturing support

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