Supply Chain Management

Chapter 8

What are the basics of SCM?

• Supply Chain consists of all parties involved, directly or indirectly, in the procurement of a product or raw material

• SCM: involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness & profitability

Take Dell for Example!

• Dell assembles nearly 80,000 computers every 24 hours!

• Roughly 10 years ago (like many competitors) Had warehouses with 20-25 days worth of inventory

• Today, Dell doesn’t have a single warehouse and carries only 2 hours worth of inventory in its factories and a maximum of just 72 hours across its entire operation

• Today, Dell doesn’t have a single warehouse and carries only 2 hours worth of inventory in its factories and a maximum of just 72 hours across its entire operation

How’d they do it? How’d they do it?

Dell-like Supply Chain Plan1. Supply Chain starts with the customer: by cutting out retailers and selling directly

to its customers, Dell is in a far better position to forecast real customer demand

2. Replace Inventory with Information!: to operate with close to zero inventory, Dell communicates constantly with its suppliers. It sends out status updates 3 times per day from its assembly plants; every week it updates its quarterly demand forecasts. By making communication its highest priority, Dell ensures the lowest possible inventory

3. If you cannot measure it, you cannot manage it: Dell knows what works because it measures everything from days in inventory to the time it takes to build a PC. As Dell slashed those numbers it got more efficient

4. Complexity slows you down: Dell cut the # of its core suppliers from several hundred to about 25. It standardizes critical PC components, which streamlined its manufacturing. Dell got faster by making things simpler

5. Create a watershed mind-set: Dell is not content with incremental improvement; it demands massive change. Each year, it wants its Austin-based PC assembly plant—already very fast—to improve production by 30%. “you don’t get big results if you don’t challenge people with big goals”

What has changed in terms of business focus?

What has changed in terms of business focus?

• In the past, companies focused primarily on manufacturing and quality improvements within their own 4 walls.

–Now companies extend their effort to influence the entire SCM to include CUSTOMERS and SUPPLIERS!

BASICS OF SUPPLY CHAIN

• The supply chain has three main links:1. Materials flow from suppliers and their

“upstream” suppliers at all levels

2. Transformation of materials into semi-finished and finished products through the organization’s own production process

3. Distribution of products to customers and their “downstream” customers at all levels

BASICS OF SUPPLY CHAIN

• Organizations must embrace technologies that can effectively manage supply chains

Think of a business that you recently had a problem with, placing an order, receiving an order; Identify 1 or 2 areas where the business could improve its SCM with technology / information systems

Think of a business that you recently had a problem with, placing an order, receiving an order; Identify 1 or 2 areas where the business could improve its SCM with technology / information systems

Information technology’s role in the Supply Chain

• At this point, the notion of virtually seamless information links within and between organizations is an essential element of integrated supply chains

• Despite this however, remember: Privacy and security of customer information and intellectual capital remain a major concern and should be built into the system

• At this point, the notion of virtually seamless information links within and between organizations is an essential element of integrated supply chains

• Despite this however, remember: Privacy and security of customer information and intellectual capital remain a major concern and should be built into the system

5 basic SCM components

Use metrics to meet demandUse metrics to meet demand

Find reliable suppliers—deal with pricing, delivery, and payments with suppliers

Find reliable suppliers—deal with pricing, delivery, and payments with suppliers

Manufacture product or service—Metric intensive!

Manufacture product or service—Metric intensive!

Logistics: deals with the processes & controls for efficient and effective transport and storage of supplies from supplier to customer

Logistics: deals with the processes & controls for efficient and effective transport and storage of supplies from supplier to customer

Process for allowing customers to return defective and excess products

Process for allowing customers to return defective and excess products

INFORMATION TECHNOLOGY’S ROLE IN THE SUPPLY CHAIN

INFORMATION TECHNOLOGY’S ROLE IN THE SUPPLY CHAIN

• IT’s primary role is to create integrations or tight process and information linkages between functions within a firm

Factors Driving SCMFactors Driving SCM

• Although people have talked about it for a very long time, integrated SCM as only been made possible recently due to development of advances in technology

Visibility

• Supply chain visibility – the ability to view all areas up and down the supply chain

Consumer BehaviorConsumer Behavior

• Companies can respond faster and more effectively to consumer demands through supply chain enhances

• Demand planning software – generates demand forecasts using statistical tools and forecasting techniques

• Consumers are demanding more today

Why?

CompetitionCompetition

• Supply chain planning (SCP) software– uses advanced mathematical algorithms to improve the flow and efficiency of the supply chain

• Supply chain execution (SCE) software – automates the different steps and stages of the supply chain

• Supply chain planning (SCP) software– uses advanced mathematical algorithms to improve the flow and efficiency of the supply chain

• Supply chain execution (SCE) software – automates the different steps and stages of the supply chain

• Having a efficient & effective SCM means having a competitive advantage over competitors

SpeedSpeed

Benefits of SCM

• Many are obvious;

– Cost control/ savings– Productivity improvements– Inventory reductions /

improvements– Improved visibility into

demand/supply– Quality improvements– Maintain/gain competitive

advantage

• Many are obvious;

– Cost control/ savings– Productivity improvements– Inventory reductions /

improvements– Improved visibility into

demand/supply– Quality improvements– Maintain/gain competitive

advantage

• Perfect example: • NEC & Epson Deliver

Global SCM Reform for Printer Supplies;

Microsoft Office Word 97 - 2003 Document

Drivers of SCM

1. Facilities2. Inventory3. Transportation4. Information

1. Facilities2. Inventory3. Transportation4. Information

• SCM like we have said provides metrics by which we can measure efficiency IT metrics and effectiveness IT metric

• These metrics are driven by the 4 drivers;

• Facilities: addresses the process or transformation of inventory into another products or stores inventory before it moves to the next facility

– Factors to consider are» Location» Capacity» Operational design

• Inventory: addresses the strategy employed to maintain low inventories but also maintain a rapid turnover time to meet demand!

• Management & Control software helps address this

• Inventory: addresses the strategy employed to maintain low inventories but also maintain a rapid turnover time to meet demand!

• Management & Control software helps address this

• Transportation: a major cost in the SCM strategy

• Software again is providing solutions for organizations through

– Global inventory management systems

– Transportation planning software &

– Distribution management software

Information Driver

• An organization must decide what information is most valuable in efficiently reducing costs or improving effectiveness

• SCM strategies then consider;– Information Sharing– Push vs. Pull information

strategy

In a push technology environment, organizations send information. In a pull technology environment, organizations receive or request information

In a push technology environment, organizations send information. In a pull technology environment, organizations receive or request information

Customer Relationship Management (CRM)

Basics & Business Benefits of CRM

Most Valuable Customers

• Organizations can use the RFM formula to determine who is its MVC’s!

1. Recency: how recently a customer purchased items

2. Frequency: how frequently a customer purchases items

3. Monetary value: how much a customer spends on each purchase

Customer Relationship Management

• CRM: involves managing all aspects of a customers relationship with an organization to increase customer loyalty, retention, and an organization’s profitability.

• CRM: involves managing all aspects of a customers relationship with an organization to increase customer loyalty, retention, and an organization’s profitability.

• CRM acknowledges industries that they are migrating from the traditional product-focused organization toward customer-driven organizations.

• Why?

Brief History: the 80’s

• 1980 Business Processes - In the case of larger, key clients it was a valuable tool for keeping the lines of communication open and tailoring service to the client’s needs. In the case of smaller clients, however, it tended to provide repetitive, survey-like information that cluttered databases and didn’t provide much insight.

• 1990 Resource Planning - In the 1990’s companies began to improve on Customer Relationship Management by making it more of a two-way street.

• Instead of simply gathering data for their own use, they began giving back to their customers not only in terms of the obvious goal of improved customer service, but in incentives, gifts and other perks for customer loyalty.

2000 Customer Relationship Management - Life blood of most sales and service based business.2000 Customer Relationship Management - Life blood of most sales and service based business.

CRM-Supporting technologiesCRM-Supporting technologies

• self-service• 24x7 support• AVR’s (automated voice response phone systems)

• Password Resets Via Email

• self-service• 24x7 support• AVR’s (automated voice response phone systems)

• Password Resets Via Email

CRM Solutions

• Web Based Applets• Intra/Extranet

Share Point Office Online

• Business Contact Manager

• Shared Calendars Open Source

• Web Based Applets• Intra/Extranet

Share Point Office Online

• Business Contact Manager

• Shared Calendars Open Source

• Dynamics• Oracle• SQL• Intuit (QuickBooks,

Peachtree)

Customer Satisfaction

• Because businesses recognize that customers have more choices and often already come with a considerable amount of product knowledge

• Businesses need to do everything they can to acknowledge customer demand, preferences, demographic info, etc.. To ensure that customers are satisfied!

• Businesses need to do everything they can to acknowledge customer demand, preferences, demographic info, etc.. To ensure that customers are satisfied!

BUSINESS BENEFITS OF CRM

• CRM enables an organization to:– Provide better customer service– Make call centers more efficient– Cross sell products more effectively– Help sales staff close deals faster– Simplify marketing and sales processes– Discover new customers– Increase customer revenues

• CRM enables an organization to:– Provide better customer service– Make call centers more efficient– Cross sell products more effectively– Help sales staff close deals faster– Simplify marketing and sales processes– Discover new customers– Increase customer revenues

Benefits Explained

• CRM is a business philosophy based on the premise that those organizations that understand the needs of the individual customers are best positioned to achieve sustainable competitive advantage in the future

• CRM in many cases is about sifting through information

– to reveal trends, – explain outcomes, – and predict results so

that businesses can increase response rates& identify profitable customers

• CRM in many cases is about sifting through information

– to reveal trends, – explain outcomes, – and predict results so

that businesses can increase response rates& identify profitable customers

Operational and Analytical CRM

• Operational CRM – supports traditional transactional processing for day-to-day front-office operations or systems that deal directly with the customers

• Analytical CRM – supports back-office operations and strategic analysis and includes all systems that do not deal directly with the customers

• Operational CRM – supports traditional transactional processing for day-to-day front-office operations or systems that deal directly with the customers

• Analytical CRM – supports back-office operations and strategic analysis and includes all systems that do not deal directly with the customers

Operational and Analytical CRM

Using IT to Drive Operational CRM

Sales and Operational CRM

• The sales department was the first to begin developing CRM systems with sales force automation – a system that automatically tracks all of the steps in the sales process

Sales and Operational CRM technologiesSales and Operational CRM technologies

1. Sales management CRM system – automates each phase of the sales process, helping individual sales representatives coordinate and organize all of their accounts

2. Contact management CRM system – maintains customer contact information and identifies prospective customers for future sales

3. Opportunity management CRM system – targets sales opportunities by finding new customers or companies for future sales

Sales and Operational CRM

• CRM Pointers for Gaining Prospective Customer

1. Get their attention2. Value their time3. Overdeliver4. Contact frequently5. Generate a trustworthy mailing list6. Follow up

USING IT TO DRIVE ANALYTICAL CRM

USING IT TO DRIVE ANALYTICAL CRM

• Personalization – when a Web site knows enough about a persons likes and dislikes that it can fashion offers that are more likely to appeal to that person

• Analytical CRM relies heavily on data warehousing technologies and business intelligence to glean insights into customer behavior

• These systems quickly aggregate, analyze, and disseminate customer information throughout an organization

Analytical CRM has the ability to provide an organization with information about their customers that was previously impossible to locate, and the resulting payback can be tremendous.

Analytical CRM has the ability to provide an organization with information about their customers that was previously impossible to locate, and the resulting payback can be tremendous.

CUSTOMER RELATIONSHIP MANAGEMENT’S EXPLOSIVE GROWTH

CUSTOMER RELATIONSHIP MANAGEMENT’S EXPLOSIVE GROWTH

CRM Business Drivers

CURRENT TRENDS: SRM, PRM, AND ERM

• Current trends include:– Supplier relationship management (SRM) – focuses on

keeping suppliers satisfied by evaluating and categorizing suppliers for different projects, which optimizes supplier selection

– Partner relationship management (PRM) – focuses on keeping vendors satisfied by managing alliance partner and reseller relationship that provide customers with the optimal sales channel

– Employee relationship management (ERM) – provides employees with a subset of CRM applications available through a Web browser

The End of the line: ERP

Enterprise Resource Planning & Collaboration Systems

Enterprise Resource Planning & Collaboration Systems

ERPERP

• Integrates all departments and functions throughout an organization into a single IT system (or integrated set of IT systems so that employees can make decisions by viewing enterprise wide information on all business operations

Really? What about access control & authentication?

Remember Information Security!!!

Powerful Organizational ToolsReasons ERP Systems are Powerful Organizational Tools

ERP is a logical solution to the mess of incompatible applications that had sprung up in most businesses

ERP addresses the need for global information sharing and reporting

ERP is used to avoid the pain and expense of fixing legacy systems

Core & Extended Components• Core: traditional

components included in most ERP systems and they primarily focus of internal operations

• Extended: extra components that meet organizational needs that focus primarily on external operations

ERP: Key to e-business success

• Applications such as SCM, CRM, and ERP are the backbone of e-business

• Integration of these applications allows the unlocking of information to make it available to any user, anywhere, anytime

PeopleSoft: MainStreetComponent PeopleSoftCRM XSCM XFinancial management XHRM XService Automation XSupplier relationship Management X

Enterprise Performance management X

Business Intelligence

Learning Management

Order management

Manufacturing

Marketing

Sales

THE CONNECTED CORPORATION

• Many companies purchase modules from an ERP vendor, an SCM vendor, and a CRM vendor and must integrate the different modules together

• Many companies purchase modules from an ERP vendor, an SCM vendor, and a CRM vendor and must integrate the different modules together

• Middleware – several different types of software which sit in the middle of and provide connectivity between two or more software applications

• Enterprise application integration (EAI) middleware – packages together commonly used functionality which reduced the time necessary to develop solutions that integrate applications from multiple vendors

EAI example, if a company is looking at purchasing Siebel CRM and they find out the Siebel has already built many integrations to PeopleSoft financials, it would be more inclined to purchase the product

Risk and ERP• Costs: is a major

risk to implementing ERP. – Can easily start in

the millions of dollars, which includes hardware, software, professional services, and internal staff costs

– Implementation: can take an average of 23 months…..

Additional Risks• Lie in the integration layer

of joining different types of application systems.

• Integration at the Enterprise level is generally achieved through Web-Services

• Web Services: is defined by the W3C as "a software system designed to support interoperable machine-to-machine interaction over a network

• Establishes communication with HTTP and uses XML solutions

Again, how do we establish security when joining disparate systems? Integration needs to also address

access control, authentication, and use encryption

Again, how do we establish security when joining disparate systems? Integration needs to also address

access control, authentication, and use encryption