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 Extended Enterprise Cooperative Enterprise Traditional Company Profile AgileLeanProfit focus Strategy AdaptiveValue maximizingCost minimizing Goal Emphasis FlexibilityEffectivenessEfficiency Operations Collaborative, open Selective sharingLimited sharing Planning Joint performance measure From push to pullPush Relationships Extended alliancesQualified relationships Limited sharing Technology LinkedSelected SCMNo ERP link

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 i2 Manugistics Numetrix CAPS logistics BAAN SCM components J.D. Edwards SCM components Oracle 11i PeopleSoft Enterprise Performance Management SAP SAP APO

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 Marketplaces Manetti [2001] TARGET MARKET VerticalDeep & narrow product access MultiverticalMultiple vertical sites HorizontalBroader, more extensive linkage TRANSACTION METHOD Auction basedExchange for simultaneous bids Future contract variantsFor risk reduction Pure auction systemsTo establish prices for buyers Reverse auctionsTo establish prices for sellers MetacatalogsReduce search costs Mall-basedAccess multiple suppliers at single site

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 Strategies Bradford et al. [2001] Build-to-stockCustomer orders filled from existing finished goods inventory Configure-to-orderProducts assembled to order from pre-built components Assemble-to-orderBatch formulated to fill specific order from pre-built components Engineer-to-orderEach order designed to customer specifications

16. Continuous Manufacturing Lean Business Strategies Bradford et al. [2001] Make-to-StockCustomer orders filled from existing inventory Configure-to- Order Batches mixed in common, packaged & processed for specific orders Make-to-OrderBatch formulated to specific order

17. Key Trends Akkermans et al. (2003) 1.Further integration of suppliers & customers 2.Focus on ERP system flexibility 3.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 ERP Mabert et al. (2000); Olhager & Selldin (2003) 1-not at all; 5-to a great extent ERP PerformanceUSSweden Quicker information response time3.513.81 Increased interaction across enterprise3.493.55 Improved order management3.253.37 Decreased financial close cycle3.173.36 Improved customer interaction2.922.87 Improved on-time delivery2.832.82 Improved supplier interaction2.812.78 Lowered inventories2.702.60 Improved cash management2.642.57 Reduced operating costs2.322.74

25. Benefits from ERP Mabert et al. (2000); Olhager & Selldin (2003) 1-not at all; 5-to a great extent Area BenefittingUSSweden Information availability3.773.74 Integration of operations/processes3.613.42 Information quality3.373.31 Inventory management3.182.99 Financial management3.112.98 Supplier management/procurement2.992.94 Customer responsiveness/flexibility2.672.95 Decreased IT cost2.062.05 Personnel management1.942.06

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