Note: this presentation on SCM is material deferred from Session 5

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02/21/07 Robert G. Fichman – MI 703 Computer Information Systems Slide 1

MI 703 CIS Session #5

Digital Rights Management

Apple Computer

SCM

Midterm exam info

Note: this presentation on SCM is material

deferred from Session #5

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02/21/07 Robert G. Fichman – MI 703 Computer Information Systems Slide 2

Agenda

Introduction to Supply Chain Management

–

Definitions

–

Software

SCM Challenges*

1.

Information integration

2.

Coordination and resource sharing

3.

Organizational relationship linkage

[* See Hau Lee, “Creating Value Through Supply Chain Integration”,

Supply Chain Management Review, 2000]

• We’ll begin with a general introduction to broad topic of SCM

• Then we will examine three challenges associated with supply chain management • Information integration

• Coordinating activities and resources • Creating a strong organizational linkage.

• My thinking about SCM has been heavily influence by this paper by Hau Lee

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02/21/07 Robert G. Fichman – MI 703 Computer Information Systems Slide 3

What is a Supply Chain?

The network of retailers, distributors,

transporters, storage facilities and suppliers

that participate in the sale, delivery and

production of a particular product.

Source: http://www.techexchange.com/

• Most students have a good intuitive idea what a supply chain is • Here is a dictionary definition:

• “A supply chain is a network of retailers, distributors, transporters, storage facilities and suppliers that participate in the sale, delivery and production of a particular product.”

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02/21/07 Robert G. Fichman – MI 703 Computer Information Systems Slide 4

http://

http://www.techexchange.com/thelibrary/Dama/Map_Slacks.htmlwww.techexchange.com/thelibrary/Dama/Map_Slacks.html

• Of course, supply chains can be really complicated.

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02/21/07 Robert G. Fichman – MI 703 Computer Information Systems Slide 5

Supply Chain Management

Customers Retailers

Distributors Manufacturers

Suppliers

Raw mat’ls, intermediate prod’s, finished good Capacity, promotion plans, delivery schedules

Credits, consignment, payment terms, invoice

“Supply chain management involves the flows of material,

informationand financein a network consisting of customers, suppliers, manufacturers, and distributors” [Lee, 2000]

Returns, repairs, servicing, recycling, disposal Sales, orders, inventory, quality, promotions

Payments, consignment Material Information Finance Material Information Finance

• Now let’s talk about supply chain management. Here is dictionary definition:

• “Supply chain management involves the flows of material, information and finance in a network consisting of customers, suppliers, manufacturers, and distributors” (Lee, 2000)

• More informally…

• SCM is the science and art of making sure the right stuff is at the right place at right time --- to lower costs, AND to create value.

• Most of this stuff is physical stuff. But also, information and money have to be at right place at right time

• As diagram shows, supply chains are allow about flows.

• Most of flow comes from suppliers to customers (not surprisingly) • But are reverse flow to suppliers from customers

• There are three types of flows:

1. Most obviously, is flow of actual materials, the middle bars

• From suppliers: flows of raw materials, intermediate products, finished goods • Reverse material flows: returns, repairs, servicing, recycling, disposal

2. Beyond actual materials, there are information flows

• From suppliers: manufacturing capacity, delivery schedules, promotions they have going • Reverse flows: sales, orders, inventory, quality, promotions

3. And finally, there are financial flows:

• From suppliers: Credits, consignment, payment terms, invoice • Reverse Flows: payments, consignment

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02/21/07 Robert G. Fichman – MI 703 Computer Information Systems Slide 6

Why SCM importance keeps growing

Globalization

Vertical disintegration

Outsourcing/offshoring

Shorter product lifecycles

Faster order cycle times

JIT inventory

=>All of this results in massive complexity and

low tolerance for error

• SCM was never easy

• But number of current trends are making it harder. • How does globalization make it harder?

• Geographic distance, regulations, cultures, time zones • How does trend to vertical disintegration make harder?

• No longer “tell power” over captive units • Don’t have common systems (necessarily).

• Lack of knowledge of strategy and culture that subunit of your own firm would ordinarily have • Outsourcing?

• Same issues as disintegration • Shorter product lifecycles?

• Constantly setting up new supply chains

• Remember, each product has its own chain.

• Product, inventory = >get obsolete faster, increases inventory risk • Faster order cycle time

• Less margin for error or delay anywhere in the chain • JIT inventory?

• Same as faster

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02/21/07 Robert G. Fichman – MI 703 Computer Information Systems Slide 7

Supply Chain Management Software

Leading vendors

–

Manugistics

–

i2 Technologies

–

SAP

–

Oracle

Typical modules

–

Demand Planning and Pricing

–

Supply Management

–

Transportation and Logistics

–

Collaboration

–

Visibility and Performance Management

–

Revenue Management

• SCM is business discipline within operations management. It’s not a not technology per se. • But of course, technology plays a crucial role

• Some firms (like Dell) have custom develop their own SCM systems. • But most firms buy a package of some sort

• Here are leading vendors: specialized, ERP

• Manugistics and i2 are the leading specialized vendors, but the leading ERP vendors also have SCM products

• These are kinds of modules find in these packages. • Demand Planning and Pricing

• Supply Management

• Transportation and Logistics • Collaboration

• Visibility and Performance Management • Revenue Management

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02/21/07 Robert G. Fichman – MI 703 Computer Information Systems Slide 8

SCM Challenge 1

:

Information

Integration

Source: http://www.infotech.com

“In an ideal supply chain, all information would be transparent across the supply chain.” (Lee 2000)

• Now let’s examine the three central challenges of supply chain management

• First challenge is information integration, which means getting to the point where supply chain partners share information in real time

• So, what information are we sharing?

• Production plans, designs, promotions and sales, orders, production schedules, inventory levels ... Everything required determine how much stuff to send, where, when

• What good does this do us?

• As one tangible example, it helps counter so-called bullwhip effect.

• This is problem of demand distortion in a supply chain, which increases as it moves back through the supply chain.

• It starts with a shift in consumer demand, which drives a response by retailers, then wholesalers, then manufacturers, the component suppliers, then raw materials suppliers

• Wikipedia: “Moving up the supply chain from end-consumer to raw materials supplier, each supply chain participant has greater observed variation in demand and thus greater need for safety stock. In periods of rising demand, down-stream participants will increase their orders. In periods of falling demand, orders will fall or stop in order to reduce inventory. The effect is that variations are amplified the farther you get from the end-consumer.”

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02/21/07 Robert G. Fichman – MI 703 Computer Information Systems Slide 9

SCM Challenge 2

:

Coordination and

Resource Sharing

What is being exchanged?

–

Decision rights

–

Actual work

Methods

–

Decision delegation, work realignment,

outsourcing

• The first challenge we just discussed is about information integration

• This is not trivial to achieve. Managers are worried about sharing demand information, product plans, inventory levels, etc.

• Also, you need common IT systems, or at least systems that talk to each other in real time, like Dell has with its suppliers

• But this first challenge is still easier than the second challenge of SCM, which is Coordination and resource sharing

• Here it is not just information we are sharing, but rather we are shifting decision rights and actual work across firm boundaries

• Traditionally we located decisions and work with owner of resource

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02/21/07 Robert G. Fichman – MI 703 Computer Information Systems Slide 10

Example:

Vendor Managed Inventory at Wal

-

Mart

P&G Wal-Mart

• Let’s look at example of this sort of coordination and resource sharing at Wal-Mart

• Wal-Mart as you know, is King of supply chain management. As Friedman says, they manage their supply chain “down to the last atom.

• For example, in 1980s—a decade before the internet--Wal-Mart hooked up in store point-of-sale terminals with major suppliers in real time using a custom built satellite network.

• How it works:

• When a customer buys P&G diapers, a message is instantly sent to P&G • So, this is information exchange

• Sort of nice. Might help P&D plan manufacturing. But is that worth a satellite network? • Actually, yes, because the initiative goes way beyond information integration:

• Wal-Mart says to P&G, OK, you decide when to send more diapers to our stores based on these real-time information flows

• A DECISION right (when to reorder) is being moved from Wal-Mart

• Why is this good? P&G has information Wal-Mart doesn’t’: general consumer demand about diapers, future pricing policies, national promotions, new products, competitor actions

• See any problems? Yes, incentives: Why wouldn’t P&G intentionally overstock? • Because Wal-Mart says, here’s another idea

• We’ll pay you on when sale happens. • Why is this a big deal?

• More efficient and responsive, sure

• But it aligns incentives with suppliers to get right amount to right stores. • And it pushes inventory risk onto them.

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02/21/07 Robert G. Fichman – MI 703 Computer Information Systems Slide 11

SCM Challenge 3:

Organizational

Relationship Linkage

What is being exchanged?

–

Accountability

–

Risks/costs/gains

Methods

–

Extended communication & performance measures

–

Incentive realignment

Example: Virtual Integration at Dell

Supplier Manufacturer Customer

• The third and most difficult challenge of SCM is organizational relationship linkage • Here you are really entwining two organizations together

• Exchanging accountability • Exchanging risks, costs gains

• We see some of that in the Wal-Mart example just discussed: Inventory risk is being exchanged • Earlier in the course had great case study on this: Dell and their “virtual integration” strategy

• Examples from the Dell case of: • Information exchange?

• Sharing forecasts with suppliers

• Collaboration and resource sharing (decision rights, work)? • Dell’s becomes your PC department

• Organizational relationship linkage?

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02/21/07 Robert G. Fichman – MI 703 Computer Information Systems Slide 12

SCM Challenges Summary

Extended communication and performance measures, incentive realignment Accountability, risks/costs/gain 3. Organizational relationship linkage

Decision delegation, work realignment, outsourcing Decisions, work 2. Coordination and resource sharing Information sharing, collaborative planning, forecasting and replenishment Information, knowledge 1. Information Integration

How

Exchanges

Challenge

Source: Lee 2000

• Conclusions:

• Supply chain management is about getting the right stuff to the right place at the right time, efficiently and effectively

• Some of this “stuff” is physical stuff, but just as important are information and financial flows. • Most of the flow goes “forward” in the supply chain, but “reverse flows” are important too • Technology plays a crucial role in modern SCM.

• Many organizations use purchased packages from companies like Manugistics, i2 and SAP • But firms with the most advanced SCM tend to develop most of their own custom systems • Effective supply chain management has information integration as it’s foundation.