Chapter 9 ERP & Supply Chains 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 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

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

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

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

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

Organizational Openness Extended Enterprise Cooperative Enterprise Traditional Company Profile Agile Lean Profit focus Strategy Adaptive Value maximizing Cost minimizing Goal Emphasis Flexibility Effectiveness Efficiency Operations Collaborative, open Selective sharing Limited sharing Planning Joint performance measure From push to pull Push Relationships Extended alliances Qualified relationships Technology Linked Selected SCM No ERP link

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

Advanced Planning System Providers Manugistics Numetrix CAPS logistics BAAN SCM components J.D. Edwards Oracle 11i PeopleSoft Enterprise Performance Management SAP SAP APO

ERP Vendor Response mySAP.com an open, collaborative system SAP APO 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

On-Line Marketplaces Manetti [2001] TARGET MARKET Vertical Deep & narrow product access Multivertical Multiple vertical sites Horizontal Broader, more extensive linkage TRANSACTION METHOD Auction based Exchange for simultaneous bids Future contract variants For risk reduction Pure auction systems To establish prices for buyers Reverse auctions To establish prices for sellers Metacatalogs Reduce search costs Mall-based Access multiple suppliers at single site

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

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

Discrete Manufacturing Lean Business Strategies Bradford et al. [2001] Build-to-stock Customer orders filled from existing finished goods inventory Configure-to-order Products assembled to order from pre-built components Assemble-to-order Batch formulated to fill specific order from pre-built components Engineer-to-order Each order designed to customer specifications

Continuous Manufacturing Lean Business Strategies Bradford et al Make-to-Stock Customer orders filled from existing inventory Configure-to-Order Batches mixed in common, packaged & processed for specific orders Make-to-Order Batch formulated to specific order

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

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