Supply Chain Management Software Welcome Supply Chain Management Software Jonathan D. Wareham wareham@acm.org

Agenda When firms cooperate, compete and exchange problems with traditional supply chain management (SCM) problems this creates for manufacturers problems this creates for their suppliers problems this creates for consumers Supply Chain Management Software Who is doing it What is working, what is not…

Quiz ? days a box of cereal spends in the supply chain? Distorted information causes total inventory in the pharmaceutical supply chain to exceed ? days. $? in savings to be realized. $ ? wasted because of poor coordination in the food industry supply chain $ ? Boeing write-off in 1997 due to supply chain inefficiencies

Quiz A box of cereal spends 104 days in the supply chain Distorted information causes total inventory in the pharmaceutical supply chain to exceed 100 days. $11 billion in savings to be realized Poor coordination wasting $ 30 billion annually in the food industry $ 2.6 billion Boeing write-off in 1997 due to supply chain inefficiencies

Defining SCM SCM is the coordination of material, information and financial flows between and among enterprises participating in the demand fulfillment process for a product or service. Spans multiple organizations and industries Coordination and integration of flows essential for the modern enterprise

Gates: Business @ The Speed of Thought A digital nervous system is the corporate, digital equivalent of the human nervous system, providing a well-integrated flow of information to the right part of the organization at the right time. A digital nervous system consists of the digital processes that enable a company to perceive and react to its environment, to sense competitor challenges and customer needs, and to organize timely responses.

Gates: Business @ The Speed of Thought A digital nervous system requires a combination of hardware and software; it's distinguished from a mere network of computers by the accuracy, immediacy, and richness of the information it brings to knowledge workers and the insight and collaboration made possible by the information.

Scott McNealy on Gates’ View He is right - I would be very nervous if my systems were based on their platforms and products!

Beer Game video

Traditional supply chain obsolescence Direction of flow of demand Direction of flow of product Point of differentiation Distribution costs Market mediation costs Manufacturers Tier-I Suppliers Distribution Centers Tier-II Suppliers Retailers Customer Zones Raw Material vendor

The Bullwhip Effect Upstream amplification of demand variation Progression of a brushfire to an inferno! Customer Retailer Distributor Factory Tier 1 supplier Equipment

Machine Tools at Bullwhip Tip

The Diaper Supply Chain! Ripples to tidal waves Stockpiles and stockouts Insufficient or excessive capacities Higher costs

The “bullwhip effect” - four key causes What is the Problem? The “bullwhip effect” - four key causes Demand signal processing Currently only order information is shared (not actual sales) Need to instead share POS retail data (sell-through data) Order batching (retailers only order periodically) Infrequent access to demand information Order rationing retailers order popular items excessively Hoarding of scare products (inflate demand order of scarce product to ensure that you have it on-hand) Special Promotions Alter the normal pattern of product demand from customer; so that it’s impossible to understand the “true” demand

Interorganizational Systems: CRP BIG RETAILER < 3% stock outs < 14days inventory Warehouse 1 P&G Warehouse 2

Before CRP BIG RETAILER P&G Budget Actual Volume discounts Warehouse 1 P&G Warehouse 2 Volume discounts New product promos Here and now discounts Trade marketing Bonuses….

Interorganizational Systems Integration of supply chain across companies Degrees of integration: information, process, property rights Increased efficiencies through optimal production/logistics planning lower inventories increased flexibility customer satisfaction Oh brave new world, this is wonderful…But…

But…. Look out for proprietary systems with high specificity Lock-in Sharing processes is optimal from logistics viewpoint, but remember ‘knowledge of time and place’ Additional information acquired by one party can reduce bargaining power of other. Competitive industries like retailing, grocery and electronics has demonstrated many examples of this….

Solutions to Improve Sales Forecasting Vendor Managed Inventory Collaborative Forecasting and Replenishment Quantity-Flexible contracts (as contrasted with rigid contracts) Buyer allowed to make limited changes to forecast information, which is then shared with suppliers. Supplier only ships enough for the “newest” forecast. Why is this helpful?

Types of Shared Information Inventory information Transition to echelon-based inventory systems Upstream companies can determine when and what to produce Downstream companies can improve service levels with less inventory The Apple-Fritz Supplier Hub Fritz manages entire inbound logistics for Apple Consolidates freight, clears customs, manages the hub, manages local transportation to Apple FLEX system

Types of Shared Information Sales Data Variance of orders greater than that of sales The “bullwhip effect” - four key causes Demand signal processing Move to sharing sell-through data and POS retail data Order batching Infrequent access to demand information Order rationing Hoarding of scare products Promotions

Types of Information Sharing Production/Delivery Schedule Improves due-date estimation Expand planning horizons Other Information Sharing Performance metrics Capacity information

Models of Information Sharing Information Transfer Model Transfer information to the other who maintains the database for decision-making XML, Web Services, EDI, FAX EDI Limitations Multiple industry-specific standards Rigid design for transaction processing Rigid text formats Batch-oriented Installation costs

Challenges Aligning incentives of different partners Channel Management Example Trust and cooperation Confidentiality of shared information Anti-trust implications, such as possible price fixing behavior Timeliness and accuracy of information Processes, not technology.. Technological constraints

SCM Software –Who?

What does SCM software do? Factory Scheduling Bar Code Warehouse Management Transportation Routing and Scheduling Inter Organizational Systems Collaborative Planning & Optimization Multi – echelon optimization E-Procurement & Marketplaces Supplier Contract Management RFID Management Systems