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Harnessing Open Systems in Supply Chain: ERP, Lean Manufacturing & More

Learn about the advantages of open systems in supply chains, ERP motivations, lean manufacturing integration, advanced planning systems, and key trends impacting the industry. Explore the case study of Hershey's ERP implementation and the lessons learned for successful supply chain management.

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Harnessing Open Systems in Supply Chain: ERP, Lean Manufacturing & More

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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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