Supply Chains, Silos,

and Enterprise
Systems
Cathy Dwyer
Fall 2012 IS617

What Is the Supply Chain?

Also referred to as the logistics network
Suppliers, manufacturers, warehouses, distribution
centers and retail outlets facilities

Suppliers

Manufacturers

Warehouses & Customers

Distribution Centers

and the

Raw materials
Work-in-process (WIP) inventory

Transportation
Costs

Material Costs

Transportation
Costs
Transportation
Manufacturing Costs Inventory Costs
Costs

Finished products
that flow between the facilities

The Supply Chain

Suppliers

Manufacturers

Transportation
Costs
Material Costs

Warehouses &
Distribution Centers

Customers

Transportation
Costs

Manufacturing Costs

Transportation
Costs
Inventory Costs

The Supply Chain Another View

Plan
Plan

Source
Source

Suppliers

Make
Make

Manufacturers

Deliver
Deliver

Buy
Buy

Warehouses &
Customers
Distribution Centers

Transportation
Transportation
Costs
Costs
Transportation
Material Costs
Manufacturing Costs
Inventory Costs Costs

What Is Supply Chain Management (SCM)?

Plan

Source

Make

Deliver

Buy

A set of approaches used to efficiently integrate

Suppliers
Manufacturers
Warehouses
Distribution centers

So that the product is produced and distributed

In the right quantities
To the right locations
And at the right time

System-wide costs are minimized and

Service level requirements are satisfied

Why Is SCM Difficult?

Plan

Source

Make

Deliver

Buy

Uncertainty is inherent to every supply chain

Travel times
Breakdowns of machines and vehicles
Weather, natural catastrophe, war
Local politics, labor conditions, border issues

The complexity of the problem to globally optimize

a supply chain is significant
Minimize internal costs
Minimize uncertainty
Deal with remaining uncertainty

The Importance of Supply Chain Management

Dealing with uncertain environments matching
supply and demand
Boeing announced a $2.6 billion write-off in 1997 due to
raw materials shortages, internal and supplier parts
shortages and productivity inefficiencies

U.S Surgical Corporation announced a $22 million loss

in 1993 due to larger than anticipated inventories on
the shelves of hospitals

IBM sold out its supply of its new Aptiva PC in 1994

costing it millions in potential revenue

Hewlett-Packard and Dell found it difficult to obtain

important components for its PCs from Taiwanese
suppliers in 1999 due to a massive earthquake

U.S. firms spent $898 billion (10% of GDP) on supplychain related activities in 1998

The Importance of Supply Chain Management

Shorter product life cycles of high-technology products
Less opportunity to accumulate historical data on customer
demand

Wide choice of competing products makes it difficult to

predict demand

The growth of technologies such as the Internet enable

greater collaboration between supply chain trading
partners
If you dont do it, your competitor will
Major buyers such as Wal-Mart demand a level of supply
chain maturity of its suppliers

Availability of SCM technologies on the market

Firms have access to multiple products (e.g., SAP, Baan,
Oracle, JD Edwards) with which to integrate internal
processes

Todays Marketplace Requires:

Personalized content and services for their
customers

Collaborative planning with design partners,

distributors, and suppliers

Real-time commitments for design, production,

inventory, and transportation capacity

Flexible logistics options to ensure timely

fulfillment

Order tracking & reporting across multiple

vendors and carriers

Shared visibility for

trading partners

Supply Chain Management Benefits

A 1997 PRTM Integrated Supply Chain
Benchmarking Survey of 331 firms found
significant benefits to integrating the supply chain
Delivery Performance

16%-28% Improvement

Inventory Reduction

25%-60% Improvement

Fulfillment Cycle Time

30%-50% Improvement

Forecast Accuracy

25%-80% Improvement

Overall Productivity

10%-16% Improvement

Lower Supply-Chain Costs

25%-50% Improvement

Fill Rates

20%-30% Improvement

Improved Capacity Realization

10%-20% Improvement

Source: Cohen & Roussel

10

11

Business processes
Sequence of tasks or activities that take a set of
inputs and convert them into desired inputs

Key processes
Procurement
Fulfillment
Production

Figure 1: A generic
process
Process Steps
Input

Step 1

Step 2

Step 3

Output

Business process example

Make skateboards
What are some parts of a skateboard

Buy parts
What are some steps in the buying process
Who performs these steps

Sell skateboards
What are some steps in the selling proces
Who performs these steps

Procurement Process

Create Purchase
Requisition

Create & Send

Purchase Order
(PO)

Receive
Goods

Receive Invoice
From Supplier

Send Payment
To Supplier

Fulfillment Process

Receive
Customer Order

Prepare
Shipment

Send
Shipment

Send Invoice
To Customer

Receive
Payment

Functional structure
Common functions
Typical tasks in functional areas
Review steps in procurement
Who does what where?
Characterize processes - who is responsible for the
process?

Why functional structure?

Information Technology

Human Resources

Finance & Accounting

Research & Development

Sales & Marketing

Warehouse

Operations

Purchasing

Functional organizational

Functions vs. processes

The Silo effect

Communication and collaboration between
functions
What must be communicated?
What information must be exchanged?
How is this coordinated

Paper based processes

Processes supported by functional systems
Processes supported by enterprise systems

Paper-based process
Sales

Warehouse

Receive
Customer
Order

Create/
Update
Paperwork

Delay!

Prepare
Shipment

Send Paperwork

Delay!

Accounting

Send
Shipment

Create/
Update
Paperwork

Delay!

Send
Invoice

Send Paperwork

Delay!

Receive
Payment

Create/
Update
Paperwork

Delay!

Consequences of delays
Delays
Increased lead times
Increased cycle times

Excess inventory
just in case

Lack of visibility across the process

Status: where is my order
How is the process doing

Why accept these delays?

Delays are no longer

acceptable
Why?
Globalization
Increased competition
Pressure to do better

Reliance on technology!

Process using functional

systems
Sales

Warehouse

Receive
Customer
Order

Prepare
Shipment

Send
Shipment

Send Paperwork
Enter/Update
Data

Send
Invoice

Receive
Payment

Send Paperwork
Enter/Update
Data

Enter/Update
Data

Delay!
Sales
Information
System

Accounting

Enter/Update
Data

Enter/Update
Data

Delay!
Warehouse
Information
System

Accounting
Information
System

Processes using Enterprise Systems

Sales

Warehouse

Receive
Customer
Order

Prepare
Shipment

Enter/Update
Data

Enter/Update
Data

Send
Shipment

Enter/Update
Data

Enterprise
Information
System

Accounting
Send
Invoice

Receive
Payment

Enter/Update
Data

Enter/Update
Data

Framework: Key process

flows
Information Flow

Enterprise
Information
System

Data & Document Flow

Physical Flow

Types of Enterprise Systems

The ES Application Suite
Enterprise Resource Planning (ERP)
Supply Chain Management (SCM)
Supplier Relationship Management (SRM)
Product Lifecycle Management (PLM)

Other classifications
Best of breed vs. Niche applications
Software as a service (SaaS)

Magal and Word ! Essentials of Business Processes and

Information Systems | 2009

27

The application suite

Magal and Word ! Essentials of Business Processes and

Information Systems | 2009

28

SAP ERP Solution Map

End-User Service Delivery
Analytics
Financials

Financial Analytics

Financial
Accounting

Treasury

Management
Accounting

Corporate
Governance

Human Capital
Management

Talent Management

Procurement and
Logistics Execution

Procurement

Inventory and
Warehouse
Management

Inbound and Outbound

Logistics

Transportation
Management

Production Planning

Manufacturing
Execution

Product Development

Life-Cycle Data
Management

Product
Development and
Manufacturing
Sales and Service

Corporate Services

Copyright SAP AG
2008

Sales Order Management

Workforce Deployment

SAP NetWeaver

Workforce Process
Management

Workforce Analytics

Shared Service Delivery

Financial Supply
Chain
Management

Operations Analytics

Aftermarket Sales and Service Professional-Service Delivery

Project and Travel

Real Estate Enterprise
Environment,
Quality
Portfolio
Managemen Asset
Managemen Health, and Safety Manageme
t
Management Managemen t
Compliance Mgmt. nt
t

Magal and Word ! Essentials of Business Processes and

Information Systems | 2009

Global
Trade
Services

29

SAP Supply Chain

Management
Demand & Supply
Planning
Procurement

Manufacturing

Warehousing

Transportation
Real World
Awareness
Supply Chain
Visibility
Supply Network
Collaboration

Safety Stock
Planning

Supply Network
Planning

Distribution
Planning

Service Parts
Planning

Strategic Sourcing

Purchase Order Processing

Invoicing

Production Planning & Detailed

Scheduling

Manufacturing Visibility &

Execution & Collaboration

MRP based Detailed Scheduling

Inbound
Processing &
Receipt
Confirmation

Outbound
Processing

Cross Docking

Sales Order Processing

Freight
Management

Billing

Planning &
Dispatching

Strategic Supply Chain

Supply Chain Analytics
Design

Supply Chain
Management with
Duet

Driver & Asset

Management

Network
Collaboration

Auto ID / RFID and Sensor Integration

Supply Chain Risk
Management

Customer Collaboration

Sales & Operations

Planning

Outsourced Manufacturing

Demand Planning in MS Excel

Copyright SAP AG
2008 and Word ! Essentials of Business Processes and
Magal

Information Systems | 2009

Physical Inventory

Service Parts Order Fulfillment

Rating & Billing &

Settlement

Supply Chain Event Management

Supplier Collaboration

Warehousing &
Storage

30

SAP NetWeaver

Order Fulfillment

Demand Planning
& Forecasting

SAP Supplier Relationship Management

Purchasing
Governance

Global Spend Analysis

Category Management

Compliance Management

Sourcing

Central Sourcing Hub

RFx / Auctioning

Bid Evaluation & Awarding

Collaborative
Procurement

Legal Contract
Repository
Self-Service
Procurement

Contract Authoring

Contract
Negotiation

Services Procurement

Contract Execution

Direct / Plan-Driven
Procurement

Contract
Monitoring

Catalog Content
Management

Supplier
Collaboration

Web-based Supplier Interaction

Direct Document Exchange

Supplier Network

Supply Base
Management

Supplier Identification &

Onboarding

Supplier Development &

Performance Management

Supplier Portfolio Management

SAP NetWeaver

Contract
Management

Copyright SAP AG
2008

Magal and Word ! Essentials of Business Processes and

Information Systems | 2009

31

SAP Product Lifecycle

Management
Product Strategy
and Planning

Product
Development and
Collaboration

Engineering,
R&D
Collaboration

Product Data
Management
PLM Foundation

Product Portfolio
Management

Supplier
Collaboration

Manufacturing
Collaboration

Product
Intelligence

Requirements
Management

Service and
Maintenance
Collaboration

Market Launch
Management

Product Quality Product Change

Management
Management

Service and
Visualization and
Configuration
Maintenance
Publications
Management
Structure
Management
Tool and
Project and
Document
Product Costing
Workgroup
Resource
Management
Integration
Management

Product Master and Specification and

Structure
Recipe
Management
Management
Product
Compliance

Innovation
Management

SAP NetWeaver

Product
Management

Copyright SAP AG
2008

Magal and Word ! Essentials of Business Processes and

Information Systems | 2009

32

SAP Customer Relationship Management

Campaign
Management

Real-Time Offer
Management

Lead Management

Sales
Sales
OpportunitQuotation &
Incentive &
Territory
Accounts y
Pricing & Commission Time &
Planning & Performanc
Order
Manageme
& Contacts Manageme Managemen Contracts Managemen Travel
Forecastin e
nt
g
Managemen
nt
t
t
t Service
Service
Installed
Case
Warranty
Complaints
In-House
Resource
Order
Contract
Base
Managemen
Managemen
Repair
Planning
Managemen Managemen & Returns
Managemen
t
t
t
t
t

Business Communication
Management

Marketing Resource Segmentation &

Management
List Management

Trade Promotion
Management

Partner Channel
Management

Service

Web Channel

Sales

Interaction Center

Marketing

Copyright SAP AG
2008

Magal and Word ! Essentials of Business Processes and

Information Systems | 2009

33

Risk/Rewards of ES
Benefits of fully integrated information
technology systems

Increases speed, quality, accuracy others?

Risk? dependency and changing expectations
Changes in the business environment as
companies move to supply chain/value chain
systems

(Changes in technology -> changes in org.

Structure/social structure)

34

ES Risks
NY Times news? Hack of banks in retaliation
for Muslim video (on Blackboard)

(Risk - business continuity planning)

(Security risk assessment - security audits, IT
audits)

35

ES Risks cont.
Internet has become platform for political
protest and civil disobedience

Anonymous on Scientology
http://www.youtube.com/watch?v=JCbKv9yiLiQ

Other actions
http://www.youtube.com/watch?v=HrXyLrTRXso

36

Green Supply Chain

Use of ES have led to expectations that
companies are responsible for who they select
as suppliers

Walmart, Starbucks set environmental standards

on their suppliers

37