OPER3208-001 Supply Chain Management

1. OPER3208-001Supply Chain Management Fall 2006 Instructor: Prof. Setzler

2. Class #5 Simchi-Levi, Chapters 11

3. Chapter 11: Information Technology for SCM (Simchi-Levi) • Introduction • IT is an important enabler of effective SCM • Current interest in SCM is motivated by the possibilities that are introduced by the abundance of data and the savings inherent in sophisticated analysis of these data • Electronic commerce and the Internet have also increased interest in IT

4. Chapter 11: Information Technology for SCM (Simchi-Levi) • Introduction • The discussion of IT for SCs will include both systems that are internal to an individual company as well as external systems, which facilitate information transfer between various companies and individuals • SCM typically spans many functional areas within a company and is affected by the way the various groups communicate and interact

5. Chapter 11: Information Technology for SCM (Simchi-Levi) • Introduction • For many firms IT provides a competitive advantage • When applying SC strategies that reduce cost and lead time and increase service level, the timeliness and availability of relevant information is critical • An increasing number of companies are providing value-added IT-based services to their customers as a way of differentiating themselves in the marketplace and developing strong long-term relationships with their customers

6. Chapter 11: Information Technology for SCM (Simchi-Levi) • Goals of SC Information Technology • To utilize information, we need to collect it, access it, analyze it, and have the ability to share it for collaboration purposes

7. Chapter 11: Information Technology for SCM (Simchi-Levi) • Goals of SC Information Technology

8. Chapter 11: Information Technology for SCM (Simchi-Levi) • Goals of SC Information Technology • SCM system goals in these areas are • Collect information on each product from production to delivery or purchase point, and provide complete visibility for all parties involved • Access any data in the system from a single point of contact • Analyze, plan activities, and make trade-offs based on information from the entire SC • Collaborate with SC partners • Collaboration allows companies to manage uncertainty through risk sharing or information sharing, and achieve global optimization

9. Chapter 11: Information Technology for SCM (Simchi-Levi) • Goals of SC Information Technology • The primary goal of IT in the SC is to link the point of production seamlessly with the point of delivery or purchase • The idea is to have an information trail that follows the product’s physical trail • This allows planning, tracking, and estimating lead times based on real data

10. Chapter 11: Information Technology for SCM (Simchi-Levi) • Goals of SC Information Technology

11. Chapter 11: Information Technology for SCM (Simchi-Levi) • Goals of SC Information Technology

12. Chapter 11: Information Technology for SCM (Simchi-Levi) • Goals of SC Information Technology

13. Chapter 11: Information Technology for SCM (Simchi-Levi) • Goals of SC Information Technology • The four goals of SCM do not all have to be achieved at the same time, and are not necessarily dependent on each other • They can be targeted in parallel, with the order of importance depending on the industry, company size, internal priorities, and return on investment considerations

14. Chapter 11: Information Technology for SCM (Simchi-Levi) • Standardization • What allow systems to work together • They drive the cost and sometimes the feasibility of implementation

15. Chapter 11: Information Technology for SCM (Simchi-Levi) • Standardization • The IT field is evolving to a high level of standardization for the following reasons • Market forces • Reduces the cost of system development and maintenance • Interconnectivity • The need to connect different systems and work across networks • New software models • The Internet has produced the need for network software that has new purchase, development, and deployment characteristics • Economies of scale • Reduce the price of system components, development, integration, and maintenance

16. Chapter 11: Information Technology for SCM (Simchi-Levi) • Standardization • The standardization of IT has gone through 4 major phases • Proprietary • Mostly mainframe computers that were accessed through key punches and later terminals with no processing capabilities • Little communication between systems • Stand alone • IBM personal computer (PC) software and hardware (early 80s) • For business networks some standards were developed for mostly private networks for file transfers • EDI was introduced • Communications • The Internet provided the missing link in communications • File and information transfer was greatly simplified by the Internet • The Internet allowed for electronic commerce: shopping, bidding, exchanges, shipment tracking, and collaboration • Client/server-based enterprise resource planning (ERP) systems have become the standard backbone of company IT • Collaboration • Currently under development, addresses collaboration • The major issue is specifying a common language format that will enable diverse systems to understand each other

17. Chapter 11: Information Technology for SCM (Simchi-Levi) • Standardization • The new phase of collaboration has also increased the importance of ERP systems as well as the need for a new generation of systems that support internal and external integration • ERP systems are evolving into the so-called ERP II • An application and deployment strategy that expands out from ERP functions in the following ways • Role • Domain • Function • Process • Architecture • Data

18. Chapter 11: Information Technology for SCM (Simchi-Levi) • Standardization • One of the cornerstones of all new IT standards development is the eXtensible Markup Language (XML), which is a language description format that is fast becoming the standard for Internet transactions • XML • Text-based structure is easy to understand and use • Allows businesses to exchange information without intermediate format conversions • XML is a general standard that does not address the issue of terminology in a specific industry

19. Chapter 11: Information Technology for SCM (Simchi-Levi) • Standardization • Another important challenge in developing standards is the issue of applications-to-application interaction across companies • The ability to allow the integration of various applications between different companies • Web services are an emerging set of protocols and standards that reside on the Internet and allow applications to describe their function to each other so that they can integrate with no, or minimal, programming effort

20. Chapter 11: Information Technology for SCM (Simchi-Levi) • Standardization • Drawbacks and challenges of standardization • Availability • Problems surround the cost of creating a standard and the power of those who hold the standard • Proprietary standards are problematic because they may not be the best standards • Even Open Group standards, such as EDI, may sometimes limit growth • Security • The easy access to the Internet exposes systems that are connected to attacks by hackers and industrial spies • There are inherent problems when everyone is running the same software • Scalability • Standards that work in a certain context or size of problem may no be adequate for a different set of industries or for a large number of users

21. Chapter 11: Information Technology for SCM (Simchi-Levi) • Information Technology Infrastructure • A basic component of system capabilities • Can be internal or external to a company • Without the communications and database capabilities, some of the goals outlined cannot be achieved

22. Chapter 11: Information Technology for SCM (Simchi-Levi) • Information Technology Infrastructure • The IT infrastructure is a critical factor in the success or failure of any system implementation • The infrastructure forms the base for data collection, transactions, system access, and communications • IT infrastructure typically consists of the following components • Interface/presentation devices • Communications • Databases • System architecture

23. Chapter 11: Information Technology for SCM (Simchi-Levi) • Information Technology Infrastructure • Interface devices • Personal computers, voice mail, terminals, Internet devices, bar-code scanners, and personal digital assistants (PDAs) are some of the interface devices most commonly utilized • A key trend in It is toward uniform access capability anytime and anywhere • The Internet browser is becoming the interface of choice for information access

24. Chapter 11: Information Technology for SCM (Simchi-Levi) • Information Technology Infrastructure • Interface devices • SCM requires a standard way to track products • Important to record point-of-sale (POS) information, especially for VMI systems • Bar code systems, UPC (Universal Product Code), scan and record information about products • Automatic data capture interfaces, such as bar-code readers and radio frequency (RF) tags, are standardized and commonly used • Auto-ID technology • Will help businesses save billions of dollars in lost, stolen, or wasted products

25. Chapter 11: Information Technology for SCM (Simchi-Levi) • Information Technology Infrastructure • Interface devices • The impact of the Auto-ID technology on SC performance cannot be overstated • Improved service level by reducing store/shelf stockout rate through an accurate inventory database that triggers an order when the inventory level is low • Reduction of the stockout level, especially for promotional and advertised items, can have a major impact on sales • Better utilization of store and warehouse space • Significant increase in the ability to locate items at the store and in the backroom

26. Chapter 11: Information Technology for SCM (Simchi-Levi) • Information Technology Infrastructure • Communications • Interface devices are connected to either an internal system (e.g., LAN, mainframe, intranet) or an external network—either a private network or the Internet • Sometimes direct links to another company’s systems are utilized for efficiency and security • 2 major trends in communications • Wireless communications • The single point of contact for communications

27. Chapter 11: Information Technology for SCM (Simchi-Levi) • Information Technology Infrastructure • Communications • Advanced communications capabilities enable many applications, including • Electronic mail (e-mail) • Data exchange • Groupware • Transportation product tracking • Supply Chain Event Management (SCEM) • Exchange platforms

28. Chapter 11: Information Technology for SCM (Simchi-Levi) • Information Technology Infrastructure • Databases • Data need to be organized in some form of a database, including transaction information, status information, general information (prices and so on), forms, and group work • Organizing these data is an extremely challenging activity and may require specialized databases, depending on the type of data

29. Chapter 11: Information Technology for SCM (Simchi-Levi) • Information Technology Infrastructure • Databases • Types of databases • Legacy databases • Usually a hierarchical or network database • Relational databases • Allow the storage of related data in a way that standardized reporting and querying of related data facilitated • Object databases • Can hold not only numeric and character data, but objects such as pictures and graphics • Data warehouses • Usually involves enterprise data and allows queries by sophisticated analysis tools • Datamarts • Smaller versions of data warehouses and usually store a smaller set of data and are more departmental in scope • Groupware databases

30. Chapter 11: Information Technology for SCM (Simchi-Levi) • Information Technology Infrastructure • Systems architecture • Encompasses the way the components—databases, interface devices, and communications—are configured • The selection on IT infrastructure because the design of the communications networks and choice of systems depend on the implementation of these systems • Legacy systems • Client/server computing • Internet

31. Chapter 11: Information Technology for SCM (Simchi-Levi) • Information Technology Infrastructure • Systems architecture

32. Chapter 11: Information Technology for SCM (Simchi-Levi) • Information Technology Infrastructure • Systems architecture • The power of the client/server concept is in distributing functions among specialist servers that perform them efficiently • The disadvantage is the added complexity of navigating between servers and making sure that data are processed correctly and updated across the network • Interoperability • Two systems are capable of interacting in a sophisticated way that is a built-in feature of their design

33. Chapter 11: Information Technology for SCM (Simchi-Levi) • Information Technology Infrastructure • Systems architecture • The applications that reside between the server and the client are collectively called middleware • Tools that facilitate communication between different system architectures, communication protocols, hardware architectures, and so forth • The part of an application that reside on a server, client, or as middleware depend on specific implementation • This is the three-tiered architecture model

34. Chapter 11: Information Technology for SCM (Simchi-Levi) • Information Technology Infrastructure • Systems architecture

35. Chapter 11: Information Technology for SCM (Simchi-Levi) • Information Technology Infrastructure • Electronic commerce • The most important emerging IT field in the last few years • e-commerce refers to the replacement of physical processes with electronic ones and the creation of new models for collaboration with customers and suppliers • It has enabled not only internal efficiencies but also the ability to collaborate with partners in the SC • Purchasing over the Internet, exchanges, order tracking, and e-mail • Companies use Internet standards internally—intranets—and externally—extranets and exchanges

36. Chapter 11: Information Technology for SCM (Simchi-Levi) • Information Technology Infrastructure • Electronic commerce • Portals • Use of the Internet to create role-based entry into a company’s systems • Aggregates all applications and sources of information employees need into a single desktop environment, typically through a Web browser • Portals require integration technology for structured and unstructured data sources, including DBs, Java classes, Web services, and XML

37. Chapter 11: Information Technology for SCM (Simchi-Levi) • Information Technology Infrastructure

38. Chapter 11: Information Technology for SCM (Simchi-Levi) • Information Technology Infrastructure • Electronic commerce levels

39. Chapter 11: Information Technology for SCM (Simchi-Levi) • SCM system components • Comprise the various systems that are involved directly in SC planning • Typically systems that combine short-term and long-term decision support systems and intelligence elements • ERP tries to solve the infrastructure issue by bringing all business functions together and making an enterprise more efficient

40. Chapter 11: Information Technology for SCM (Simchi-Levi) • SCM system components • The firsts 2 goals of IT: collect and access data • Require enterprise as well as interenterprise systems • Third SCM goal: data analysis • Most achievable • Goal with the highest and most immediate return on investment (ROI)

41. Chapter 11: Information Technology for SCM (Simchi-Levi) • SCM system components

42. Chapter 11: Information Technology for SCM (Simchi-Levi) • SCM system components • IT capabilities are partitioned into 4 layers • Strategic network design • Pick optimal number, location, and size of warehouses/plants; determine optimal sourcing strategy; determine best distribution channels • Supply chain master planning • Coordinate production, distribution strategies, and storage requirements by allocating SC resources to maximize profit or minimize systemwide cost • Operational planning • Enables efficiencies in production, distribution, inventory, and transportation for short-term planning • These systems focus on generating feasible strategies, not optimal solutions • Includes 4 factors: Demand planning (stat analysis), Production scheduling (constraint-based feasibility analysis), Inventory management (stat and computational), Transportation planning (heuristic) • Operational execution • Systems provide data, transaction processing, user access, and infrastructure for running company • Tend to be real-time • Includes 5 factors: Enterprise resource planning (ERP), Customer relationship management (CRM), Supplier relationship management (SRM), Supply chain management (SCM), Transportation systems

43. Chapter 11: Information Technology for SCM (Simchi-Levi) • SCM system components • Difference between the various layers of capabilities • Planning horizon • Return on investment • Implementation complexity

44. Chapter 11: Information Technology for SCM (Simchi-Levi) • Integrating SC Information Technology • Implementation of ERP and DSS • Implementation of a system that supports SC integration involves infrastructure and decision-support systems

45. Chapter 11: Information Technology for SCM (Simchi-Levi) • Integrating SC Information Technology

46. Chapter 11: Information Technology for SCM (Simchi-Levi) • Integrating SC Information Technology

47. Chapter 11: Information Technology for SCM (Simchi-Levi) • Integrating SC Information Technology • “Best-of-Breed” versus Single-Vendor ERP Solutions