Leveraging IT in Supply Chains

Oct 4, 2007

Information Technology
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A strategic necessity Believe in it, act on it or become a footnote in History. - Jim Champy in Computerworld, October 1996 A vital component of successful businesses and organizations. Identify opportunities to implement information systems to improve the business processes. IS/IT project management

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Information
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Needs to be put in a meaningful and useful context Needs a recipient who uses it to make decisions.

Information
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Information is data that have been put into a meaningful and useful context and communicated to a recipient who uses it to make decisions. Information involves the communication and reception of intelligence or knowledge. It apprises and notifies, surprises and stimulates, reduces uncertainty, reveals additional alternatives or helps eliminate irrelevant or poor ones, and influences individuals and stimulates them to action

Information
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It apprises and notifies, surprises and stimulates, reduces uncertainty, reveals additional alternatives helps eliminate irrelevant or poor ones, influences individuals stimulates them to action

Quantity of Information
The more unpredictable the message generated by the source, the more information is being transmitted.

Quality of Information
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Accuracy Timeliness Relevancy Verifiability Complete Economical Flexible

Quality of Information
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Reliable Accessible Secure

Transaction processing system

Primary function is to record completed business transactions. Raw material ordered/received Payment made/due Goods produced Customer orders 1960s

Management Information Systems

Provides routine information to managers and decision makers. Focus of MIS: Increase operational efficiency 1970s

Decision Support System

System to support and assist all aspects of problem specific decision making. Focus: Increase effectiveness of decision making process. Do the right thing 1980s

Executive Information System

Used by executives without assistance Trend analysis, exception reporting, drill down capabilities Graphical orientation Tailored to executive's information needs Integrated on-line analysis tools- OLAP/What if etc. Access a broad range of internal and external data

ERP systems
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A set of integrated programs capable of managing a company's vital business operations for an entire multi-site, global organization. A strong TPS, somewhat MIS, very little of DSS, ESS

Characteristics of Useful Supply Chain Information

Accurate Accessible Timeliness Relevant Provides supply chain visibility

The Supply Chain Macro Processes

Customer Relationship Management (CRM) Internal Supply Chain Management (ISCM) Supplier Relationship Management (SRM) Plus: Transaction Management Foundation

Macro Processes in a Supply Chain

Transaction Management Foundation (TMF)

Use of Information in a Supply Chain

Information used at all phases of decision making: strategic, planning, operational Examples:

Strategic: location decisions Operational: what products will be produced during todays production run

Customer Relationship Management

Key processes:

Marketing Selling Order management Call/Service center

Internal Supply Chain Management

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Includes all processes involved in planning for and fulfilling a customer order ISCM processes:

Strategic Planning Demand Planning Supply Planning Fulfillment Field Service

Supplier Relationship Management

Those processes focused on the interaction between the enterprise and suppliers that are upstream in the supply chain Key processes:

Negotiate Buy Supply Collaboration

The Transaction Management Foundation

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Enterprise software systems (ERP) Real value of the TMF exists only if decision making is improved The extent to which the TMF enables integration across the three macro processes determines its value

ERP from qipERP PPT

Supply Chain Information Technology in Practice

i2 tecnologies

Supply Chain Information Technology in Practice

Select an IT system that addresses the companys key success factors Take incremental steps and measure value Align the level of sophistication with the need for sophistication Use IT systems to support decision making, not to make decisions Think about the future

Issues in i2 Technologies
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Supply Chain Planning (SCP) Software Linkage between SCP software and OR techniques in forecasting and optimization What led to sudden popularity of SCP software in mid 90s What led to success of companies like i2 Role of MBAs and general managers in adoption and implementation of SCP like software

Objectives
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Difference between SCP systems (ex i2) and ERP (ex SAP) Difference between a commercial DSS and the algorithm (academic research to software products) What it takes to successfully implement a DSS (algorithms, sales and implementation process, understanding of IT) Market environment for SCP software Entrepreneurial capabilities

Analysis
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Identify i2s business in 1998. How it is different from SAPs? How i2 added value to its clients? Why i2 was successful in supplying DSS?

Financial evaluation of the company Economies of software and services Entry barriers to the business Threat from SAP Difficulty in managing service and software components within the same company Difficulty of expanding the scope of the company beyond traditionally strong sectors such as high-tech and metals

Challenges in 1999

i2 (DSS software)
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Given the data availability, optimize decisions Processing data managed by ERP like systems for meaningful decisions Buy ERP and bolt-on with specialized application from i2 Very specific for SUPPLY CHAIN PLANING Roots in optimization and OR No multiple iterations (simultaneously consider the trade-offs

i2
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founded in 1988 by Sanjiv Sidhu and Ken Sharma, passionate about applying technology and best practices to eliminate inefficiencies in business. From humble beginnings in a two-bedroom Dallas apartment i2 has completed more than 1,000 implementations

What Business was i2 in?

DSS software
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Given the data availability, how to optimize decisions? Not in the business of transaction processing systems like MRP and ERP Processing data managed by ERP like systems for meaningful decisions Buy ERP and bolt-on with specialized application from i2 Very specific for SUPPLY CHAIN PLANING 1998, lack of sophistication in ERP and MRP systems

Though widely used in 1980s(MRP) and 1990s (ERP) USA alone, 70,000 MRP applications with 4 million people ERP companies annual revenue in 1997-$10.6 billion (SAP-$4 billion) Lack of material availability and capacity constraints Circular planning logic: lead times needed to derive schedules, lead times were a function of the schedule As a result, multiple iterations to resolve the conflicts

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i2 and Manugistics consider these constraints Roots in optimization and OR No multiple iterations (simultaneously consider the trade-offs) Academic research to commercial solver

Understanding i2s Success

1998- @27/share, 70 million shares Market capitalization: $2 billion High P/E ratio: high growth company R&D intensive company: 1997, R&D expenses are $53 mn on sales of $73 mn Software business operated with a margin of 97% (scaleable business, attracts VCs) Consulting (services) margins: 25-50%

i2 Functionality
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Collaborative Replenishment Collaborative Supply Execution Consolidated Procurement Customer Order Management Distributed Inventory Visibility

i2 Functionality
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Master Data Management Merchandise Planner Performance Manager Product Information Management Replenishment Planner Supply Chain Visibility

Factors Contributing i2s success

Knowledge of Algorithms and Optimization Techniques Good use of IT Domain knowledge Sales and Implementation team

Factors Contributing i2s success

Knowledge of Algorithms and Optimization Techniques

Effort in implementing classroom techniques like exponential smoothing, moving averages, mathematical programming, heuristics Though, these techniques were well established and documented

Factors Contributing i2s success

Good use of IT

Cost of memory dropped appreciably in 1990s Fast memory resident algorithms High speed processors available Object-oriented software Better integration of various software (ERP and other legacies) Popularity of OR in business application with improved IT But, IT is not firm specific, easy for other firms to adapt!

Factors Contributing i2s success

Domain knowledge

Sound knowledge of problems facing managers in the industry and their solutions Demand Planner
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Forecasting techniques are well documented But, focus on Demand Forecasting like weather forecasts. Does not assume managers role in influencing demand i2 knew to integrate these techniques with actual forecasting techniques

Good knowledge of developing heuristic solutions Companies like SAP can develop domain knowledge over time

Factors Contributing i2s success

Sales and Implementation team

Concepts embedded in the software are new to most companies and complex i2 was a pioneering company, convincing managers about the benefits was i2s job
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Convincing Timken steel (first project)

Difficult to sell the concept (and that too costly) unless proven benefits SOA process to identify the value addition pockets Business Release Methodology- module wise implementation to reduce risks SOA and BRM helped gaining customers confidence like IBM used to have in PCs Respect and involvement of Schedulers

Capabilities required for supply chain excellence

Strategic network design Supply chain master planning Operational planning Operational execution

Displaying the Solutions Allows you To Compare Scenarios

Typical Strategic Network Design Applications

Evaluate the optimal distribution network to reduce costs and improve service Determine how to optimally consolidate two networks after a merger Develop an e-commerce distribution strategy Perform due diligence studies

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Who is Involved?
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Operations

Can include transportation, warehousing, manufacturing, and vendors Provides information on how the business runs and what is possible Provides information on service level constraints and evaluates how different scenarios will impact sales Provides forecast data Determines cost inputs and validates cost of scenarios Assists with data collection

Sales/Marketing

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Finance

Information Technology

Network Design Optimization

The key is to balance the total costs with s ervice requirements

Cost (millions $)

$60 $50 $40 $30 $20 $10 $Total Cost Transportation Cost Fixed Cost Inventory Cost

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Number of Warehouses

Limitations of Strategic Tools and the Need for Tactical Tools

Strategic tools do not consider time periods

Demand varies over time Production capacity can vary over time

Strategic models cannot identify the month in which warehouses will be out of capacity or demand will not be satisfied

Need for Tactical Planning Tools

DC Capacity Production Capacity

Jan

Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

Trends in Information Technology

The Browser and the Internet

Accessibility Universal standard XML, CPFR, RosettaNet

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Improved integration capability

Move to Application Service Provider (ASP) Deployment Fast ROI

Information Technology
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IT in SCM spans both internal and external systems connecting the firm to its customers and suppliers Companies employ different systems that support different locations

Warehouse management systems, Production planning, Transaction and sales processing Decision support systems Communications systems: Email, Intranets

Information Technology
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In many businesses, competitive edge in the market is achieved through the use of IT

Banking Retail (Wal Mart) Airlines (American Airlines) Trucking and Shipping (FedEx)

Goals of IT in SCM
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Collect information on each product from production to delivery/purchase point and provide complete visibility for parties involved.

Tracking Alerting

Goals of IT in SCM
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Access any data in the system from a single point of contact. This is complicated by the fact that one may need information which resides

in various locations within one company in different companies

Goals of IT in SCM
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Analyze and plan activities based on total supply chain information.

Decision Support Systems Advanced Planning Systems

Goals of IT in SCM
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Collaborate with Supply Chain partners.

Alignment of IT systems Integration of business processes Supply chain relationship management CPFR

How are these Goals Achieved?

How are these Goals Achieved?

The forces behind them:

Market forces: cheaper to purchase and maintain Interconnectivity Reduced software costs Economies of scale Wintel Internet: HTML, XML Web services

General standards

Emerging Standards
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Supply Chain Operations Reference Model (SCOR) Collaborative Planning Forecasting And Replenishment (CPFR) Rosettanet ERPII

How are these Goals Achieved? (Cont.)

Interface/presentation devices Communications Databases System architecture

How are these Goals Achieved? (cont.) 3. Electronic Commerce: z EC refers to the ability to perform transactions electronically z Examples of direct-sell to customers through the Internet:

Dell Computer Amazon.com Peapod

Table 1
Summary of Electronic Commerce levels
Level number Description 1 2 3 4 One-way communication Database access Data Exchange Sharing processes Example Email, FTP, Browsing Inquiries, Forms, Purchases, Tracking EDI, Clearinghouse CPFR, Business communities

Table 2
Comparison of ERP and DSS Implementation
Implementation Issue Length Value ROI Users Training ERP 18-48 months Operational 2-5 year payback All and users Simple DSS 6-12 months Strategic, tactical, operational One-year payback Small group Complex

Table 3
Priorities when Implementing DSS
Industry Soft-drink distributor Computer manufacturer Consumer products Apparel DSS Network and Transportation Demand and Production Demand and Distribution Demand, Capacity and Distribution

Table 4
Best of breed versus ERP package
Implementation Issue Length Cost Flexibility Complexity Quality of solution Fit to enterprise Staff training Best of Breed 2-4 years Higher Higher Higher Higher Higher Longer Single-vendor 12-24 months Lower Lower Lower Lower Lower shorter