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IT and Supply Chain
Management
IS6006 – second term
A bit of History…
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Management -> Internal focus
Administration of business processes
Optimisation in the allocation of resources
Management of inventory…
“Competition” mode
• Focus turns to external considerations because
processes don’t stop at the gate
• Many factors can only be fully optimised in
collaboration with other firms
1950’s: unlimited demand
Deliver
Supplier
Make
Customer
1960’s : inventory costs money =>
reduce costs
Deliver
Supplier
Make
Plan
Buy
Customer
1960’s : inventory costs money
Deliver
Supplier
Make
Plan
Buy
MRP
Customer
1970’s : first wave of integration
Deliver
Supplier
Make
Customer
Plan
Sell
Buy
MRP
MRP II
1980’s : sales order processing
SOP
Deliver
Supplier
Make
Customer
Plan
Sell
Buy
MRP
MRP II
1990’s : back-office integration
Accounting & Finance
Human Resources
Deliver
Supplier
Make
Customer
Plan
Sell
Buy
MRP
MRP II
ERP
2000’s : the extended enterprise
SCM
Accounting & Finance
Human Resources
CRM
Deliver
Supplier
Make
Customer
Plan
Sell
Buy
MRP
MRP II
ERP
Service
What’s next?
SCM
Accounting & Finance
Human Resources
CRM
Deliver
Supplier
Make
Customer
ERP II
Plan
Design
Buy
MRP
Sell
MRP II
ERP
Service
The Great Acronym War
Late 90’s
CRM Early 00’s
SCM
Logistics
Electronic
Invoicing
Electronic
Marketplaces
Contract
Management
Early 00’s
ERP II
Sales Force
Automation
Contract
Management
Customer Service
& Support
Marketing
Automation
Documentation
Management
Product Data Management
PLM
New Product Introduction
Engineering Change Orders
Collaborative Product Design
Concept of Supply Chain
Complex network of relationships that organisations
maintain with trading partners to source, manufacture
and deliver their products
• includes material, information and financial flows as
shown below
Information Flows
Product
Supplier Flow
Product
Manufacturing Flow
Product
Distribution Flow
Payment Flows
Product
Retailer Flow
Consumer
Transition to Supply Chain
Management
• sustainable competitive advantage has two
fundamental requirements:
• a strategic orientation focussed on consumer
value (not production capability)
– Different analyses
• value chains that are co-ordinated and
responsive to consumer needs and wants
– Organisational design
Legacy of pre-SCM thinking
• Focus on competition
• Supply Chains contain far more than the
required inventory
• Products are handled too many times (5/6
average)
• Physical carriers struggle to maintain costly
equipment on slim margins
• No player has enough info to synchronise /
optimise the entire chain
Consequences
• Lack of knowledge of the end-to-end demand
function – high levels of uncertainty
• Erratic variations in demand (Bull whip effect)
• inconsistent / out-of-date data about SC (poor
decision making)
• Fragmentation of processes and operations
• lack of process integration with partners
• need for fundamental structural changes
• Need for integrated information systems
Supply Chain Management is…
• an integrative philosophy to manage the flow of
goods and information from the earliest supplier
of raw materials to the ultimate customer
through integration and collaboration of all
channel partners”
• SCM aims to reduce costs and add value for the
consumers through more efficient and effective
supply chain linkages
• Operative across a range of industries
• Leverages new technologies to achieve these
aims
Other names
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supply networks
lean chain approach
supplier integration
Buyer-Supplier partnerships
value steam
A Definition
• ‘Supply Chain Management encompasses the
planning and management of all activities
involved in sourcing and procurement,
conversion and all logistics management
activities. Importantly it also includes
coordination and collaboration with the channel
partners, which can be suppliers, intermediaries,
the third party service providers, and customers.
In essence the supply chain integrates supply
and demand management within and across
companies.’
Evolution
• Functional to integrated
• Mass Production to Lean to agile and then
leagile
The Evolution of Manufacturing Technology and Management Techniques (Source: Jin Hai, Anderson and Harrison 2003)
Different Visions of SCM
• Enterprise focus - traditional model
– characterised by fragmentation
– Frequent conflict between links in the chain
• Partner focus - modern vision
– characterised by collaborative idea
– Or provision of a SC related service
• Direct focus (e.g. Dell) - emerging vision
– characterised by customer-direct capability
– near zero inventories
– Domineering concept
Types of SCM
• Integrated Make-to-stock
– smoothing demand in mass production industries
– linked to postponement in distribution channel
• Continuous replenishment
– customer-demand pull system across firms
– ECR, QR
• Build-to-order
– efficient SCM allows return to BTO model
– inventory substituted with information (Dell)
Understanding industry specificities
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Type of product
Complexity of production process
Type(s) of customers
Complexity of supply chain (eg: lead times)
Complexity of demand function (eg: seasonality)
• These determine the strategies that are suitable
Selecting a SCM strategy
• ‘It is supply chains that compete, not
companies’ (Christopher, 1992)
• success / failure of supply chain strategy is
determined in the marketplace by the end
consumer
• understand the external environment
• design an appropriate and effective supply
chain strategy
Elements of consumer responsiveness
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Product Availability
Length of order cycle Time
Consistency of Order Cycle Time
Invoice/ Billing Procedure Accuracy
Information Requests responsiveness
Flexibility in resolving problems
Distance to suppliers warehouse
Special Customer Request
Frequency of Damaged Goods
Quality of Order Department
On time Delivery
• A combination of there will add to customer satisfaction
Understanding the concept of value
Fisher’s Classification
ASPECTS OF
DEMAND
FUCTIONAL
(PREDICATABLE
DEMAND)
INNOVATIVE
(UNPREDICTABLE
DEMAND)
Product Life Cycle
Contribution* Margin
Product Variety
More than 2 years
5%-20%
Low(10-20variants per
category)
10%
3 months-1 year
20%-60%
High (often million of
variants per category)
40%-100%
Average Stock out rate
Average forced end of
season markdown as
percentage of full price
1%-2%
0%
10%-40%
10-25%
Lead time required for
made to order products
6 months to 1year
1 day to 2 weeks
Average margin of error
in the forecast at the time
production is committed
Objective is to match efficient process strategy for functional products
and responsive process strategy for innovative products
Hill’s manufacturing strategy matrix
Christopher and Towill (2002)
Examples
• Wal-Mart stands out on price
• McDonalds on access, availability, consistency and
speed
• Nike and Reebok on brand recognition
• American Express on services
• Dell on timely deliveries
• Dominant in one attribute and efficient in others
• choosing the right product attribute to create the right
customer value
• Select the best-fit strategy but use segmentation as
generic supply chains don’t work
• Dichotomy between efficient and responsive strategies
Lean production techniques
• Toyota-ism
• result of resource scarcity and intense
domestic competition
• achieving cost improvements
• focus on reducing waste (‘muda’) and
continuous improvements
• Origins: JIT, Kanban and respect for employees
Core concept
• simplify and reduce variance within complex
and dynamic systems
• more predictable and controllable behaviour
Elimination Non Value added
activities
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Waste from Irregular Flow
Waste from Inaccurate Supply
Waste from Inflexible response
Waste from Variability
• Inventory is main source of inefficiency
– Storage adds no value to the product
• Idle time due to break down or set up
– Preventative maintenance, reduction of lot size, use of
common parts across product lines
• Reduction in within-firm movements
– Cell manufacturing
Continuous Improvement
• Improvements in material handling systems
• involvement of all production employees
organised in teams
• support of top management
Benefits and Constraints of Lean
• Ample literature indicating that many companies
benefit from lean
– Reduction in lead-time, in inventories, in the cost of
quality and in process changeovers
– Increases in labour productivity
• Equally ample literature on problems
– Inability to cope with variability
– narrow operational focus on the shop floor
– Inflexibility particularly outside the high volume
repetitive manufacturing
Case Study - Delphi
• Modelled after the principles of the Toyota Production System, Delphi
Management Systems has enabled the company to be a lean
manufacturer focused on customer needs. DMS addresses everything
from how supplies are delivered to employee movement in the plant,
with the goal of continuously increasing efficiency and eliminating waste
in a cost-effective manner, DMS focuses on six specific but
interdependent elements aimed at eliminating waste and improving
product flow;
• Employee environment and involvement: Creating a team based work
organization with joint efforts between workers and management, with
shared goals and a commitment to continuous improvement.
• Workplace organisation: Paying attention to how employees,
equipment, and materials arc coordinated, providing a safe, clean work
environment.
• Quality: Focusing on variation reduction, waste elimination, and firsttime-through customer satisfaction.
• Operational availability: Minimizing non productive time for operations.
• Material movement: Assuring on-time delivery of required materials.
• Flow manufacturing: Responding quickly, safely, and efficiently to
customer demand .with high quality, high-value products
Agile Manufacturing
• Agility is a business-wide capability that embraces
organisational structures, logistics processes,
information systems and, in particular, mind-sets’
(Christopher)
– flexible manufacturing systems
– mass customisation
– leagile supply chain
• market sensitive and demand driven
• Virtual arrangements
• information sharing between upstream and
downstream partners
• process alignments and collaborative approach
Cted
• ability of the firm to reconfigure itself
• In the face of dynamic and competitive
environment
• continuous and unanticipated changes outside
the firm
– government policies
– international trade agreements
– changing customer expectations
Core Concepts (Gunasekaran et al.
1999)
Core Competence Management
• Specific factor that a business sees as being
central to the way it works
• It provides consumer benefits
• It is not easy for competitors to imitate
• It can be leveraged widely to many products and
markets
• Exist at two levels: the firm and its employees
• It should be exploited
• It should be further developed
Virtual organisation
• integration of core competencies distributed
among a number of carefully chosen but real
organisations
• Solution to a wide range of problems
– improve product and process design
– reduce manufacturing risks
– enhance product service and repair
• high levels of cooperation - Agile teams work
across organisational boundaries
• Temporary arrangement – need to be able to
reconfigure rapidly
Example
• IBM - strategic partnerships to work jointly on
research and development, product
conceptualization, product development, and
distribution as well as operations
– HITACHI - advanced storage technologies
– Tree Data - storage networking products for midsized customers
– UPS - distribution network
Capability for re-configuration
• Track windows of opportunities
• Pre-empt competition
• Develop a strategic architecture based on a
corporate-wide map of core skills
• Invest in technologies to achieve flexibility in
both organisation and operations
Knowledge-driven enterprise
• Well-trained and motivated workforce
• Focus on knowledge
– Creation, acquisition, codification, storage,
maintenance and transfer
• Multi-path agility as a factor of speed
• IT for coordination, communication and
ebusiness
Knowledge activities at firm level
Knowledge Activity
(KA)
Definition
Acquire
Identify and capture knowledge from source to a
company. Sources include written form, physical
objects, people, courses, cooperation between source
and recipient, and outsourcing
Codify
Assess the value of knowledge, distil, refine and
assemble into comprehensive format
Store
Store knowledge in an artefact e.g. system, document
Maintain
Update on continuous basis, as a result of additional
acquisition activities
Transfer
Identify receiver, organize channel of communication
and send
Create
New knowledge cultivated through knowledge
transfer. Acquisition activities come into play as new
knowledge is acquired
Strengths and weaknesses of Agile
• effective only if physical set-ups made flexible
– machineries, buildings, storage facilities
• Business processes, empowerment…
• Without compromising control
• HR issues are important
– Flexible employment
– Unclear boundaries of responsibility
– Team based organisation
Example
• Zarra – Benetton
• Manage the 3 lead times of the fashion industry: time
to market, time to serve and time to react
– team of fashion scouts seeking new ideas and trends
across the market and analyse the Point of Sale Data
– Ideas quickly converted into tangible products
– Time to market is a matter of weeks
– working closely with small manufacturers, specialising in
production process and garment types
– Admin can provide flexible technological, financial and
logistical support
• Key to success: creating virtual technology enabled
teams with a high degree of information sharing
Lean + Agile?
• Leagility is being discussed
• a system in which the advantages of leanness
and agility are combined
• strategic use of decoupling point
– lean concept upstream from the decoupling point
to achieve economies of scale
– agility concept downstream to achieve consumer
responsiveness
Forrester effect
Does it make sense?
Decoupling points
• “decoupling points : The locations in the
product structure or distribution network
where inventory is placed to create
independence between processes or entities.
Selection of decoupling points is a strategic
decision that determines customer lead times
and inventory investment.
• Information decoupling point (IDP) and other
is material decoupling point (MDP)
Material decoupling point
• strategic point for buffer stock
• position changes depending on the variability in
demand and product mix
– increase in product mix and fluctuating volume
decoupling point move upstream -> supply chain more
agile
– Reduced variability in demand or product mix
decoupling point move downstream -> supply chain
leaner
• Product differentiation must occur at or beyond
the decoupling point
Information Decoupling point
Order penetration
• “order penetration point : The key variable in a
logistics configuration; the point (in time) at which a
product becomes earmarked for a particular customer.
Downstream from this point, the system is driven by
customer orders; upstream processes are driven by
forecasts and plans.
• “postponement : A product design strategy that shifts
product differentiation closer to the consumer by
postponing identity changes, such as assembly or
packaging, to the last possible supply chain location.”
Towards hybrid strategies
upstream from postponement applications and the information decoupling
point,
supply chains should be lean
downstream from that point they should be agile
Some configurations
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I – basic
T – few products – many packaging variants
V – few raw materials, many end products
A – Many raw materials, few end products
Understanding SCM Strategies
Another one
Example – who is this?
LeaAgile in action
BT: a service case study
• telephony and provision service for residential and small business
customers,
– from call centre reception of orders/faults through to the field engineering
workforce
– new customer services division
– optimisation of whole process, rather than sub-optimisation of individual
functions such as sales or operations
• Break departmental barriers and allows process measures from a customer
perspective
• field engineering workforce given local autonomy -> formation of customer
service teams with multi-skilling
• Automated proactive maintenance scanning network at night -> schedule
maintenance
• automated software controlled systems delivering agile service (eg:
callminder)
• ``Plug and Play‘’ equipment and mass customisation (eg: billing)
Some pointers
• Lean = centralise production of a standard product with
few variants -> economies of scale
• Globalisation =serving different markets from one
manufacturing site
• Compromised by increasing demand for product
variability
• Agile = re=organise firms so they leverage temporary
alliances to allow for closer focus on customers (virtual
arrangements)
• Merging of the two strategies on either side of a
differentiation point
• Postponment
HP: global leagile case study
• Primary production in the States - > generic
product
• Shipped to national distribution centres (push
system)
• Each centre performs regionalisation on demand
(pull system)
• Only one level of forecast: global demand for the
generic product
• Unexpected demand can be covered by transfer
from one distribution hub to another
Comparison of lean, agile and leagile supply chains (Source: Agarwal, A. et.al.
2006)
Case study: food industry
• globalization and technological advancements in the
past decade
• Supply chain evolved from simple to very complex
• Challenges:
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Increased Consumer demand (and dominance)
Specialisation of products (organic…)
Increasing product variety (SKUs, recipes, packaging…)
Extensive new EU legislation
Increased retailer power (size effect)
Inherent Nature of Food Manufacturing (seasonal,
disjointed, variable supply and quality…)
Key issues for food industry
• Process Efficiency
– mixing, processing, packaging and preservation
– large number of routings
– Activities labour intensive and dedicated
• Consumer Responsiveness
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Especially at later stages (post-decoupling point)
All inventory retained in semi-processed state
Postponement until customer order (not final customer)
Innovation as a mode of market entry
• Demand Management
– More attention to customer induced variations
– Many misconceptions – eg: promotional policies and Supply-side
effects
• Collaboration and Integration of Supply Chain
– Size effect
Customer profile
• in the UK over 50 per cent of all food and
drink consumed outside the home (2003)
– 33 per cent in 1992
• significant increase in the number of singleperson households
• demand for smaller package sizes and
convenience
• logistics of supplying such a customer base
can be daunting
Ireland
• Traditional agrarian country turned into a specialised
producer
• Location disadvantage (cost and dependence on transport
channels)
• Therefore SCM very important
• one in four businesses have taken on board SCM
• 9% of Irish firms have a specialized SCM or logistics
manager
• Aware of SCM issues but not measuring them
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46 % of companies do not have KPIs for customer service
59 % of companies do not know their total supply chain costs
41 % of firms do not know their transport costs
82 % of companies do not formally measure warehousing in
terms of key performance indicators.
Perceived Integration of Supply chain activities in Irish Companies