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Hour 8: Open Systems
Supply Chain supportLean Manufacturing
Supply Chains
• Collections of organizations working together– Raw materials – products – retail– Old manufacturing: vertical integration– Military logistics– Now appropriate for e-business
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
Supply Chain Advantages
• Competitive advantage– Cost
• Production efficiencies– Value
• Logistic efficiencies• Coordinated advertising• Large scale service
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
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
System Openness
• Supply chains require open systems• Original ERP assumed a small number of
users accessing system– Seat pricing mechanism encouraged
Organizational OpennessExtended Enterprise
Cooperative Enterprise
Traditional Company
Profile Agile Lean Profit focus
Strategy Adaptive Value maximizing Cost minimizing
Goal Emphasis Flexibility Effectiveness Efficiency
Operations Collaborative, open
Selective sharing Limited sharing
Planning Joint performance measure
From push to pull Push
Relationships Extended alliances Qualified relationships
Limited sharing
Technology Linked Selected SCM No ERP link
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
Advanced Planning System Providers
i2ManugisticsNumetrixCAPS logisticsBAAN SCM components
J.D. Edwards SCM components
Oracle 11i
PeopleSoft Enterprise Performance Management
SAP SAP APO
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
On-Line MarketplacesManetti [2001]
TARGET MARKETVertical Deep & narrow product accessMultivertical Multiple vertical sitesHorizontal Broader, more extensive linkageTRANSACTION METHODAuction based Exchange for simultaneous bidsFuture contract variants For risk reductionPure auction systems To establish prices for buyersReverse auctions To establish prices for sellersMetacatalogs Reduce search costsMall-based Access multiple suppliers at single site
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
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
Discrete Manufacturing Lean Business Strategies
Bradford et al. [2001]
Build-to-stock Customer orders filled from existing finished goods inventory
Configure-to-order Products assembled to order from pre-built components
Assemble-to-order Batch formulated to fill specific order from pre-built components
Engineer-to-order Each order designed to customer specifications
Continuous Manufacturing Lean Business Strategies
Bradford et al. [2001]
Make-to-Stock Customer orders filled from existing inventory
Configure-to-Order
Batches mixed in common, packaged & processed for specific orders
Make-to-Order Batch formulated to specific order
Key TrendsAkkermans et al. (2003)
1. Further integration of suppliers & customers
2. Focus on ERP system flexibility3. Mass customization
• Standard interfaces across chain
ERP & Hershey’s Supply Chain
Stedman [1999]Osterland [2000]Songini [2000]
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
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
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
Supply Chain & ERP
• Can be done• Hershey’s was a bleeding edge pioneer• Hershey’s seems to have solved problems
Trends in ERP
Expected benefitsConclusions
Expected Benefits from ERPMabert et al. (2000); Olhager & Selldin (2003)
1-not at all; 5-to a great extent
ERP Performance US SwedenQuicker information response time 3.51 3.81Increased interaction across enterprise 3.49 3.55Improved order management 3.25 3.37Decreased financial close cycle 3.17 3.36Improved customer interaction 2.92 2.87Improved on-time delivery 2.83 2.82Improved supplier interaction 2.81 2.78Lowered inventories 2.70 2.60Improved cash management 2.64 2.57Reduced operating costs 2.32 2.74
Benefits from ERPMabert et al. (2000); Olhager & Selldin (2003)
1-not at all; 5-to a great extent
Area Benefitting US SwedenInformation availability 3.77 3.74Integration of operations/processes 3.61 3.42Information quality 3.37 3.31Inventory management 3.18 2.99Financial management 3.11 2.98Supplier management/procurement 2.99 2.94Customer responsiveness/flexibility 2.67 2.95Decreased IT cost 2.06 2.05Personnel management 1.94 2.06
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
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