IT and Supply Chain

Management
IS6006 second term

A bit of History

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 dont stop at the gate
Many factors can only be fully optimised in
collaboration with other firms

1950s: unlimited demand

Deliver
Supplier

Make

Customer

1960s : inventory costs money =>

reduce costs

Deliver
Supplier

Make

Plan

Buy

Customer

1960s : inventory costs

money

Deliver
Supplier

Make

Plan

Buy

MRP

Customer

1970s : first wave of

integration

Deliver
Supplier

Make

Customer

Plan
Sell
Buy

MRP

MRP II

1980s : sales order

processing
SOP
Deliver
Supplier

Make

Customer

Plan
Sell
Buy

MRP

MRP II

1990s : back-office
integration
Accounting & Finance Human Resources

Deliver
Supplier

Make

Customer

Plan
Sell
Buy

MRP

MRP II

ERP

2000s : the extended

enterprise

SCM

Accounting & Finance Human Resources

CRM
Deliver
Supplier

Make

Customer

Plan
Sell
Buy

MRP

MRP II

ERP

Service

Whats 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
90s
CRM Early 00s
Sales Force
Automation
Contract
Management
Customer
Service
& Support
Marketing
Automation
Documentation
Management

SCM
Logistics
Electronic
Invoicing
Electronic
Marketplaces
Contract
Management

Early 00s
ERP II

Product Data Management

New
PLMProduct 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

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

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

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

Fishers 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%

1%-2%
0%

10%-40%
10-25%

6 months to 1year

1 day to 2 weeks

Average margin of error

in the forecast at the
time production is
committed
Average Stock out rate
Average forced end of
season markdown as
percentage of full price
Lead time required for
made to order products

ective is to match efficient process strategy for functional produ

responsive process strategy for innovative products

Hills 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 dont 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

Waste
Waste
Waste
Waste

from
from
from
from

Irregular Flow
Inaccurate Supply
Inflexible response
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 mid-sized customers
UPS - distribution network

Capability for reconfguration

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 confguration; 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
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:
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
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

single-person 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
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