Management Information Systems Taco Pune Abhay Hulikavi

Agenda Supply Chain Management Customer Relationship Management Enterprise Application Integration

What Is a Supply Chain? Flow of products and services from: Raw materials manufacturers Intermediate products manufacturers End product manufacturers Wholesalers and distributors and Retailers Connected by transportation and storage activities Integrated through information, planning, and integration activities Bound by predetermined cost and service levels

What Is a Supply Chain? A value chain is another name for a supply chain. A supply chain is a sequence of organizations - their facilities, functions and activities - that are involved in producing and delivering a product or service.

What Is Supply Chain Management? Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system wide costs while satisfying service level requirements. It deals with linking the organizations within the supply chain in order to meet demand across the chain as efficiently as possible

Two Other Formal Definitions The design and management of seamless, value-added process across organizational boundaries to meet the real needs of the end customer Institute for Supply Management Managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer The Supply Chain Council

PC Industry Supply Chain

Cisco’s Value Network

The SCM Network Supplier Converter Distributor Retailer Consumer Source Supplier Converter Distributor Retailer Consumer Flow of Material / Supply Direction / Value Addition Flow of Funds / Demand Direction Information Flow / Reuse / Maintenance / After Sales Service

The SCM Network

Key Observations Every facility that impacts costs need to be considered Suppliers’ suppliers Customers’ customers Efficiency and cost-effectiveness throughout the system is required System level approach Multiple levels of activities Strategic – Tactical – Operational

Other Related Observations Supply chain strategy linked to the Development Chain Challenging to minimize system costs and maximize system service levels Inherent presence of uncertainty and risk

Why is SCM Important? To gain efficiencies from procurement, distribution and logistics To make outsourcing more efficient To reduce transportation costs of inventories To meet competitive pressures from shorter development times, more new products, and demand for more customization

Why is SCM Important? To meet the challenge of globalization and longer supply chains To meet the new challenges from e-commerce To manage the complexities of supply chains To manage the inventories needed across the supply chain

Why is SCM Difficult? Different organizations in the supply chain may have different, conflicting objectives Manufacturers: long run production, high quality, high productivity, low production cost Distributors: low inventory, reduced transportation costs, quick replenishment capability Customers: shorter order lead time, high in-stock inventory, large variety of products, low prices Supply chains are dynamic - they evolve and change over time

Supply Chains and Vertical Integration For any organization vertical integration involves either taking on more of the supplier activities (backward) and/or taking on more of the distribution activities (forward) An example of backward vertical integration would be a peanut butter manufacturer that decides to start growing peanuts rather than buying peanuts from a supplier An example of forward vertical integration would be a peanut butter manufacturer that decides to start marketing their peanut better directly to grocery stores In supply chains, some of the supplying and some of the distribution might be performed by the manufacturer The significance of vertical integration in the supply chain is that the activities that are performed by the manufacturer are typically more easily managed than those which are performed by other organizations Therefore, the degree of vertical integration can have an impact on the structure and relationships between members of a supply chain

SCM – Key Management Issues Strategic - long term and dealing with supply chain design Determining the number, location and capacity of facilities Make or buy decisions Forming strategic alliances Tactical - intermediate term Determining inventory levels Quality-related decisions Logistics decisions Operating - near term Production planning and control decisions Goods and service delivery scheduling Some make or buy decisions

SCM – Key Functional Issues Distribution network configuration How many warehouses do we need? Where should these warehouses be located? What should the production levels be at each of our plants? What should the transportation flows be between plants and warehouses? Inventory control Why are we holding inventory? Uncertainty in customer demand? Uncertainty in the supply process? Some other reason? If the problem is uncertainty, how can we reduce it? How good is our forecasting method?

SCM – Key Functional Issues Distribution strategies Direct shipping to customers? Classical distribution in which inventory is held in warehouses and then shipped as needed? Cross-docking in which transshipment points are used to take stock from suppliers’ deliveries and immediately distribute to point of usage? Supply chain integration and strategic partnering Should information be shared with supply chain partners? What information should be shared? With what partners should information be shared? What are the benefits to be gained?

SCM – Key Functional Issues Product design Should products be redesigned to reduce logistics costs? Should products be redesigned to reduce lead times? Would delayed differentiation be helpful? Information technology and decision-support systems What data should be shared (transferred) How should the data be analyzed and used? What infrastructure is needed between supply chain members? Should e-commerce play a role? Customer value How is customer value created by the supply chain? What determines customer value? How do we measure it? How is information technology used to enhance customer value in the supply chain?

SCM and the Development Chain Set of activities and processes associated with new product introduction. Includes: product design phase associated capabilities and knowledge sourcing decisions production plans

SCM and the Development Chain

SCM and Global Optimization Geographically dispersed complex network Conflicting objectives of different facilities Dynamic system Variations over time Matching demand-supply difficult Different levels of inventory and backorders Recent developments have increased risks Lean production/Off-shoring/Outsourcing

Global Apparel Value Chain (Tracing back the dress you are wearing)

Uncertainty and Risk Factors REASONS EXAMPLES Raw material shortages Internal and supplier parts shortages Productivity inefficiencies Boeing Aircraft’s inventory write-down of $2.6 billion Sales and earnings shortfall Larger than anticipated inventories Sales at U.S. Surgical Corporation declined 25 percent, resulting in a loss of $22 million Stiff competition General slowdown in the PC market Intel reported a 38 percent decline in quarterly profit Higher than expected orders for new products over existing products EMC Corp. missed its revenue guidance of $2.66 billion for the second quarter of 2006 by around $100 million Matching Supply and Demand is a Major Challenge

Uncertainty and Risk Factors FIGURE 1-3: Order variations in the supply chain

Uncertainty and Risk Factors Forecasting is not a solution Demand is not the only source of uncertainty Recent trends make things more uncertain Lean manufacturing Outsourcing Off-shoring

Uncertainty and Risk Factors August 2005 – Hurricane Katrina P&G coffee supplies from sites around New Orleans Six month impact 2002 West Coast port strike Losses of $1B/day Store stock-outs, factory shutdowns 1999 Taiwan earthquake Supply interruptions of HP, Dell 2001 India (Gujarat state) earthquake Supply interruptions for apparel manufacturers

Evolution of Supply Chain Management Beyond Traditional Mass Manufacturing Inventory Management/Cost Optimization JIT, TQM, BPR, Alliances SCM Formation/ Extensions Further Refinement of SCM Capabilities

Progression of Logistics Costs

Composition of Logistics Costs

Magnitude of the Complexity U.S. companies spend more than $1 trillion in supply-related activities (10-15% of Gross Domestic Product) Transportation 58% Inventory 38% Management 4% The grocery industry could save $30 billion (10% of operating cost) by using effective logistics strategies A typical box of cereal spends 104 days getting from factory to supermarket. A typical new car spends 15 days traveling from the factory to the dealership.

Magnitude of the Complexity Compaq computer’s loss of $500 million to $1 billion in sales in one year Laptops and desktops were not available when and where customers were ready to buy them Boeing’s forced announcement of write-downs of $2.6b Raw material shortages, internal and supplier parts shortages…. Cisco’s multi-billion ($2.2b) dollar write-off of inventories in 2001-2002 Customers balked on orders due to market meltdown

Transactional Complexity National Semiconductors: Production: Produces chips in six different locations: four in the US, one in Britain and one in Israel Chips are shipped to seven assembly locations in Southeast Asia. Distribution The final product is shipped to hundreds of facilities all over the world 20,000 different routes 12 different airlines are involved 95% of the products are delivered within 45 days 5% are delivered within 90 days.

PC Value Chain

PC Value Chain: Focus on Cost Reduction

Magnitude of Supply Chain Costs Cost Elements of a Typical Trade Book

Supply Chain: The Potential P&G’s estimated savings to retail customers of $65 million through logistics gains Dell Computer’s outperforming of the competition in terms of shareholder value growth over more than two decades by over 3,000% using: Direct business model Build-to-order strategy Wal-Mart transformation into the world’s largest retailer by changing its logistics system: highest sales per square foot, inventory turnover and operating profit of any discount retailer

Assessing your Supply Chain Performance The SCOR model - Supply Chain Operations Reference Model - developed by the Supply Chain Council (http://www.supply-chain.org/) can be used to assess performance SCOR model metrics include: On-time delivery performance Lead time for order fulfilment Fill rate - proportion of demand met from on-hand inventory Supply chain management cost Warranty cost as a percentage o revenue Total inventory days of supply Net asset turns

Creating an effective Supply Chain Develop strategic objectives and tactics Integrate and coordinate activities in the internal portion of the supply chain Coordinate activities with suppliers and customers Coordinate planning and execution across the supply chain Consider forming strategic partnerships

Some typical Supply Chain Issues – Inventory Manufacturers would like to produce in large lot sizes because it is more cost effective to do so. The problem, however, is that producing in large lots does not allow for flexibility in terms of product mix. Retailers find benefits in ordering large lots such as quantity discounts and more than enough safety stock. The downside is that ordering/producing large lots can result in large inventories of products that are currently not in demand while being out of stock for items that are in demand. Ordering/producing in large lots can also increase the safety stock of suppliers and its corresponding carrying cost. It can also create what’s called the bullwhip effect. The bullwhip effect is the phenomenon of orders and inventories getting progressively larger (more variable) moving backwards through the supply chain.

The Bull Whip Effect! Order Size Time Customer Demand Retailer Orders Production Plan Distributor Orders Retailer Orders Order Size Customer Demand Time Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

The Bull Whip Effect Some of the causes of variability that leads to the bullwhip effect includes: Demand forecasting Many firms use the min-max inventory policy. This means that when the inventory level falls to the reorder point (min) an order is placed to bring the level back to the max , or the order-up-to-level. As more data are observed, estimates of the mean and standard deviation of customer demand are updated. This leads to changes in the safety stock and order-up-to level, and hence, the order quantity. This leads to variability. Lead time As lead time increases, safety stocks are increased, and order quantities are increased. More variability.

The Bull Whip Effect Some of the causes of variability that leads to the bullwhip effect includes: Batch ordering. Many firms use batch ordering such as with a min-max inventory policy. Their suppliers then see a large order followed by periods of no orders followed by another large order. This pattern is repeated such that suppliers see a highly variable pattern of orders. Price fluctuation. If prices to retailers fluctuate, then they may try to stock up when prices are lower, again leading to variability. Inflated orders. When retailers expect that a product will be in short supply, they will tend to inflate orders to insure that they will have ample supply to meet customer demand. When the shortage period comes to an end, the retailer goes back to the smaller orders, thus causing more variability.

How to deal with the Bull Whip Effect? Centralizing demand information occurs when customer demand information is available to all members of the supply chain. This information can be used to better predict what products and volumes are needed and when they are needed such that manufacturers can better plan for production. However, even though centralizing demand information can reduce the bullwhip effect, it will not eliminate it. Therefore, other methods are needed to cope with the bullwhip effect.

How to deal with the Bull Whip Effect? Reducing uncertainty. This can be accomplished by centralizing demand information. Reducing variability. This can be accomplished by using a technique made popular by WalMart and then Home Depot called everyday low pricing (EDLP). EDLP eliminates promotions as well as the shifts in demand that accompany them. Reducing lead time. Order times can be reduced by using EDI (electronic data interchange). Strategic partnerships. The use of strategic partnerships can change how information is shared and how inventory is managed within the supply chain.

How to deal with the Bull Whip Effect? Cross-docking. This involves unloading goods arriving from a supplier and immediately loading these goods onto outbound trucks bound for various retailer locations. This eliminates storage at the retailer’s inbound warehouse, cuts the lead time, and has been used very successfully by WalMart and Xerox among others. Delayed differentiation. This involves adding differentiating features to standard products late in the process. For example, Bennetton decided to make all of their wool sweaters in undyed yarn and then dye the sweaters when they had more accurate demand data. Another term for delayed differentiation is postponement.

How to deal with the Bull Whip Effect? Direct shipping. This allows a firm to ship directly to customers rather than through retailers. This approach eliminates steps in the supply chain and reduces lead time. Reducing one or more steps in the supply chain is known as disintermediation. Companies such as Dell use this approach.

Effects of Disintermediation of Supply Chain Manufacturer Distributor Retailer Customer Cost per Percent Shirt Saving $52.72 0% $41.34 28% $20.45 62%

SCM – Strategic Partnering Strategic partnering (SP) is when two or more firms that have complementary products or services join such that each may realize a strategic benefit. Types of strategic partnering include: Quick response, Continuous replenishment, Advanced continuous replenishment, and Vendor managed inventory (VMI)

SCM – Strategic Partnering In advanced continuous replenishment SP suppliers will gradually decrease inventory levels at the retailer’s location as long as they can still meet service levels. The result is that inventory level are continuously improved. Kmart uses this approach. In vendor managed inventory SP the supplier will decide on the appropriate inventory levels for each of the products it supplies and the appropriate inventory policies to maintain these levels. One of the best examples of this is the SP between WalMart and Proctor & Gamble.

SCM – Strategic Partnering Criteria Types Decision Maker Inventory Ownership New Skills Employed by Vendors Quick Response Retailer Forecasting Skills Continuous Replenishment Contracted Agreement for Inventory Levels Either Party Forecasting and Inventory Control Advanced Continuous Replenishment Contractually agreed to and continuously improving inventory levels VMI Vendor Retail Management Source: Simchi-Levi, Kaminsky & Simchi-Levi, Irwin McGraw Hill, 2000

SCM – Strategic Partnering Requirements for an effective SP include: Advanced information systems, Top management commitment, and Mutual trust Steps in SP implementation include: Contractual negotiations Ownership Credit terms Ordering decisions Performance measures

SCM – Strategic Partnering Steps in SP implementation include: Develop or integrate information systems Develop effective forecasting techniques Develop a tactical decision support tool to assist in coordinating inventory management and transportation policies Advantages of SP include: Fully utilize system knowledge Decrease required inventory levels Improve service levels Decrease work duplication Improve forecasts

SCM – Strategic Partnering Disadvantages of SP include: Expensive technology is required Must develop supplier/retailer trust Supplier responsibility increases Expenses at the supplier also often increase

Agenda Supply Chain Management Customer Relationship Management Enterprise Application Integration

Purpose of CRM Why we need CRM Defining CRM Identifying different customer types Developing customers i.e. Loyalty programs A buzz phrase…with meaning Good CRM has a sophisticated database Management of customers – don’t have to be passive recipients of their behavior

History of CRM B&S RM CIMS CRM e-CRM B&S – Buying & Selling Time line Late 80’s Early 90’s Mid 90’s 2002 - Future B&S – Buying & Selling RM – Relationship Marketing CIMS – Customer Information Management Systems CRM – Customer Relationship Management e-CRM- A subset of CRM that focuses on enabling customer interactions via e-channels (The web, email and wireless)

Definitions “is a business strategy with outcomes that optimise profitability, revenue and customer satisfaction by organizing around customer segments, fostering customer-satisfying behaviors and implementing customer-centric processes.” “is a strategy used to learn more about customers' needs and behaviors in order to develop stronger relationships with them.”

Underpinning Theory Customers have many points of contact with an organization Retaining customers is far most cost effective than recruiting new ones Some customers are more profitable than others The “80/20” rule For most firms, 80 percent of profit comes from 20 percent of customers Use of Technology

Sales force automation Customer service/call center management An example The Elements of CRM Sales force automation Customer service/call center management Marketing automation Call center telephone sales Call Centers Managing aspects Of customer contact Campaign management E-commerce Field sales Web-based self service Content management Retail Field services and dispatch Data analysis And business Intelligence tools Third-party brokers, Distributors, agents Data warehouse and data cleaning tools *Source: Computerworld

Potential Benefits Of CRM Customer retention Share of customer or share of wallet Cross-selling Up-selling

Potential Costs Of CRM IT infrastructure Process change Hardware Software Consulting and Implementation Process change Maintenance and Support

Benefits Of CRM For Customers Continuity A contact point Personalisation

Three phases of CRM Acquiring New Relationships You acquire new customers by promoting your company’s product and service leadership. Enhancing Existing Relationships You enhance the relationship by encouraging excellence in cross-selling and up-selling, thereby deepening and broadening the relationship. Retaining Customer Relationships Retention focuses on service adaptability – delivering not what the market wants but what customers want.

Steps to improve CRM Build a database Analyze, define types, profitability Customer selection Activities to delight selected customers and discourage others Analyze again to see how we’re doing

What should be in the database Demographics How do you get people to provide this? History of contacts Transaction history or summary Response to marketing communications How did you hear about us (this offer?)

Behavioral Patterns Behavioral patterns Consumption channel Benefit segments Degree of loyalty Permission

Analytically Derived Segments On-line analytical processing (OLAP) Customer lifetime value Intangible benefits

CRM Applications *Source: Patricia Seybold Group

Customer Types Platinum Heavy, reliable users, not price-sensitive, try new products, loyal Gold Large users who push for price breaks, shop around and not so loyal Iron Low volume or intermittent users; cost to serve them is quite high Lead Demanding, want special attention but don’t buy much and show no loyalty

Advantages of CRM While company is quickly growing, customers are more satisfied as well Service provided in a better way, and a quicker way Sales force automated Integrated customer information Unwanted processes eliminated Operation cost cut, and time efficient

Advantages of CRM Brand names more quickly established A central database so that everyone in your company can keep track of customer contacts Sales and marketing teams can benefit from having all this inside knowledge about customers Lets you set up rules for distributing work throughout your company Lets you pick and choose the functionality that you want

Disadvantages of CRM Organizational wise change of priority to customers. Significant investment of time and money Threatens management’s control/power struggle Heightens people’s resistance to change Inappropriate integration can lead to disaster

Agenda Supply Chain Management Customer Relationship Management Enterprise Application Integration

What is EAI? Enterprise application integration (EAI) is the use of technologies and services across an enterprise to enable the integration of software applications and hardware systems. Many proprietary and open projects provide EAI solution support. EAI is related to middleware technologies.

What are EAI Applications? EAI Applications provide an integrated approach to connecting the different components of IT Infrastructure People Applications Platforms Databases It enables a secure intra and inter enterprise collaboration

What are EAI Applications? EAI solutions enable an organization to integrate business processes internally and externally with business partners to create dynamic environments that support current and evolving business requirements, thereby helping businesses to create a global organization. EAI solutions assist in unrestricted sharing of data and business processes among any connected applications or data sources in and outside of the enterprise without making major changes to the applications or data structures

What are EAI Applications? EAI integrates multiple, independently developed applications using incompatible technologies into a single enterprise wide system with information flowing seamlessly.

The business and other drivers for the EAI need Mergers and Acquisitions Mergers &/ or Acquisitions to be successful require overnight integration of dissimilar business processes of two or more companies, so that they can work as a single corporation. EAI is the only solution, which will enable such a rapid integration

The business and other drivers for the EAI need E-business requires connecting of customers, suppliers and partners across the world, so as to form an integrated value and supply chain over the Internet

The business and other drivers for the EAI need Industry regulation and de-regulation Opening up of business processes to share information and allow market access requires information to flow transparently and seamlessly both externally and internally.

The business and other drivers for the EAI need Business Process Automation Business Process Automation requires new products and services to be integrated with already existent applications so as to improve efficiency, operating costs and customer services across an organization.

The business and other drivers for the EAI need Growth in implementation of ERP ERP vendors are coming up with a product line complete with interfaces/ adapters to assist the ERP solution to be integrated with other applications as they have realized that ERP solutions to be effective should be integrated with the back end legacy applications.

The business and other drivers for the EAI need Growth in implementation of SCM and CRM There is a movement towards virtual enterprise linking application systems from various companies in the supply chain. Significant developments in peer to peer networking and distributed processing have made it possible for businesses to integrate better their own functional departments as well as integrate with their partners and suppliers for better SCM & CRM. Re-engineering of business processes by organizations for greater customer focus requires close cooperation between standalone applications.

The business and other drivers for the EAI need Zero Latency Enterprise Zero latency enterprise refers to an organization that can change its business rules in real time to act on new market opportunities and customer demands. An enterprise application integration solution accelerates responses and facilitates business changes in the zero latency enterprise.

The business and other drivers for the EAI need Reduction in Business Process Lifecycle In the todays competitive business environment the need to align business systems with business goals is all the more a reality. Business processes evolve continuously requiring new methods and data, which in turn require integration with the existing ones. These new applications should start operations quickly moving IT management to shorter application lifecycles. This is made possible because of EAI solutions which help in integrating different applications and also assist in changing the business rules as required in minimum amount of time.

The business and other drivers for the EAI need Intranet / Internet Explosion The Intranet/ Internet explosion is leading to surge in the demand for a new class of human active applications that require integration with back end legacy applications. This feature again is enabled by EAI solution which can integrated the front end and back end applications.

How US Banks merged in two decades

Advantages of EAI Assists in Supply Chain Management and has the ability to adapt to business changes like Mergers and Acquisitions as it unifies/ integrates applications in no time Presents user applications with an unified view of information for better decision making thereby achieving cross system consistency Assists in formation of Zero Latency Enterprise - when all functions within the organization work with the same up-to-data information, latency between applications is eliminated/ reduced

Advantages of EAI Updating and integrating of applications is possible whenever required. New applications can be created by integrating real time data from different parts of the enterprise Assists in rapid business process change · Enables creation of virtual corporations with virtual supply chains and operations through sharing of data beyond the organization

Advantages of EAI Makes possible for legacy or proprietary systems to function on web Enhancements to standard applications can be made rapidly

Typical stages in functioning of an EAI application Unload Raw Data From The Source Validate Raw Data Against Source Business Model Transform Source Business Model Data Into Target Business Data Validate Converted Data With The Target Business Model Load Data Into Target

Typical integration processes of an EAI application Source Application Target Application Database Business Model Business Model Database

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