You are on page 1of 75

PURCHASING & SUPPLY CHAIN MANAGEMENT, 4e

Supply Chain Information Systems and Electronic Commerce


Chapter 18

CENGAGE LEARNING
Monczka Handfield Giunipero Patterson

Chapter Overview
Evolution of e-SCM systems An overview of the e-supply chain Drivers of new supply chain systems and applications Enterprise resource planning systems Purchasing databases and data warehouses
Purchasing & Supply Chain Management, 4e 2

Chapter Overview
Technology for electronic communication between buyers and sellers E-sourcing suites E-sourcing basics Supplier relationship management E-sourcing and supply: fully integrated systems
Purchasing & Supply Chain Management, 4e 3

The Electronic Revolution in SCM


Continued growth in web-based supply chain tools and solutions Greater sophistication in e-SCM system expenditures
Fewer software providers Increasing capabilities Shorter project implementation life cycles Improved pricing and terms
Purchasing & Supply Chain Management, 4e 4

Evolving e-SCM Tools


Point-of-sale systems RFID Product life cycle software Bid optimization Computerized negotiation models E-mobile environment (laptops, PDAs, and smart cell phones)
Purchasing & Supply Chain Management, 4e 5

Supply Chain Information Flows


Record and retrieve critical data Execute and control physical and monetary flows Automate routine decisions Support planning activities Support higher-level tactical and strategic decision making Move and share information cross firms and between users
Purchasing & Supply Chain Management, 4e 6

Decision Making
CRM Internal SCM
Strategic Decision Making Supply Chain Planning Tactical Decision Making Routine Decision Making Transaction Processing
7

SRM

Transaction Processing
Information flows record and retrieve critical data Execute and control physical and monetary flows Little or no human intervention Bar code system to track location

Purchasing & Supply Chain Management, 4e

Routine Decision Making


Oftentimes automated Exceptions dealt with manually Automated inventory management systems
Order quantities Reorder points

Purchasing & Supply Chain Management, 4e

Supply Chain Planning


Decide on technologies for next generation of products or services Identify supply base requirements Forecasted demand Production decisions Projected cash flows

Purchasing & Supply Chain Management, 4e

10

Strategic Decision Making


Search for data patterns or relationships
Customer segment analysis Product life cycle forecasting What if analyses

Need for flexibility for data manipulation and presentation Decision support systems (DSS)
Purchasing & Supply Chain Management, 4e 11

SCM Systems Map


Strategic Decision Making Supply Chain Planning Tactical Decision Making Supplier Relationship Management (SRM) Applications Decision Support Systems (DSS) Network Design Customer Relationship Management (CRM) Applications

Warehouse and Transportation Planning

Routine Decision Making


Transaction Processing Suppliers

Enterprise Resource Planning (ERP) Applications

Warehouse Management and Transportation Execution Customers Logistics


12

Internal Supply Chain

Enterprise Resource Planning


Large, dedicated business transaction processing and reporting systems Integrates all classic business functions together Uses common database Best for routine decision making and transaction processing
Purchasing & Supply Chain Management, 4e 13

ERP System Overview


Finance Accounting Finance Sales Operations Purchasing

Central Database

Purchasing & Supply Chain Management, 4e

14

SRM/CRM Applications
SRM Applications
Design collaboration Sourcing decisions Negotiations Buy process Supply collaboration

CRM Applications
Market analysis Sell process Order management Call and service center management

Purchasing & Supply Chain Management, 4e

15

Network Design Applications


Where should we locate warehouses? How large should our transportation fleet be? Based on simulation and optimization modeling

Purchasing & Supply Chain Management, 4e

16

Transportation - Warehouse Planning


Used to allocate fixed logistics capacity How many units should we ship from each warehouse to each demand point?
Optimization modeling based on warehouse capacities, customer demand levels, and shipping costs

Purchasing & Supply Chain Management, 4e

17

Execution Systems
Kick off and control movement of materials between supply chain partners
Where to store Where to go pick items up How many to pick

Bar code systems Global positioning systems


Purchasing & Supply Chain Management, 4e 18

Drivers of New SCM Systems


Internal and external strategic integration Globalization and communication Data information management New business processes Replacement of legacy systems Strategic cost management
Purchasing & Supply Chain Management, 4e 19

Strategic Integration
Internal
Use of common information between various sites and functional areas Enterprise resource planning systems

External
Need to link suppliers, distributors, and customers Forecast demand Balance supply and demand
Purchasing & Supply Chain Management, 4e 20

Globalization and Communication


Differing cultures and geographies Need to:
Manage global customers and suppliers Calculate total global logistics costs Increase leverage and component standardization Improve communication of global strategies
Purchasing & Supply Chain Management, 4e 21

Data Information Management


New IS technologies (servers, wireless applications, and telecommunication) Need to effectively filter, analyze, and mine huge amounts of data to support managerial decision making Data warehouse systems Decision support systems
Purchasing & Supply Chain Management, 4e 22

New Business Processes


Constantly evolving and changing technologies Reduce redundancies, delays, and waste Need to create a rapid response capability to adapt to changing customer needs and controlling costs
Purchasing & Supply Chain Management, 4e

23

Replacement of Legacy Systems


Need to replace existing piecemeal chains of unlinked data systems Eliminate hardware and software incompatibilities and allow real time, fluid communication
Computer networking Telecommunications Web-based applications
Purchasing & Supply Chain Management, 4e 24

Strategic Cost Management


High volume of transactions to deal with Need to automate data capture in a single enterprise-wide data warehouse accessible to all users Timely and accurate information replaces inventory investments
Purchasing & Supply Chain Management, 4e

25

ERP Systems
Integrated transaction processing and reporting system Tracks organizational resources, including people, processes, and technology Creates a process logic for functional interaction
Purchasing & Supply Chain Management, 4e

26

An ERP System Example


Financial and Resource Controlling

Customer contact

Sales order

Inventory sourcing

Delivery

Customer billing

Customer payment

Sales order planning

MPS

MRP

Planned order

Production order

Shop floor control

Requisition

Supplier selection

PO

Goods receipt

Invoice verification

Supplier payment

Logistics Controlling Warehouse, Transportation

Purchasing & Supply Chain Management, 4e

27

Basic Business Processes


Selling a product or service Making a product Customer order management process

Production planning and execution process


Procurement process Financial / management accounting and reporting process
28

Buying a product Costing, paying the bills, collecting

Purchasing & Supply Chain Management, 4e

ERP and Basic Business Processes


Adopting a single customer, product, and supplier database One master record with multiple views Common database Information is captured only once in real time Highly visible transactions Linked with the work flow
Purchasing & Supply Chain Management, 4e 29

Implementing ERP Systems


Create a process map for every major process May need to reengineer processes prior to ERP to remove non-value-adding steps Could result in major organizational and culture change Need for well-defined processes before implementing
Purchasing & Supply Chain Management, 4e 30

Implementation Steps
1. Define the current process as is 2. Define what the best-in-class business process should be 3. Develop the system 4. Work through all final bugs and then flip the switch

Purchasing & Supply Chain Management, 4e

31

ERP Implementation Cycle

Discovery

Design

System build-out

Testing

Training

Cutover

Postcutover support

Source: Premier International, Chicago

Purchasing & Supply Chain Management, 4e

32

Purchasing Databases
An integrated collection of computer files capable of storing operational data essential for managing a department
Minimal overlapping of information between files Allows different systems to use data contained in the database Efficient cross-referencing of data
Purchasing & Supply Chain Management, 4e 33

Purchasing Data Warehouses


Type of decision support tool for collecting data from different resources and making it available to end users in a consolidated, consistent manner Combines data all in one place Maintained separately from the production system database Organized around informational subjects rather than by process
Purchasing & Supply Chain Management, 4e 34

Purchasing Data Warehouses


Data is fed from multiple production databases Time-dependent, historical data Oftentimes aggregated

Purchasing & Supply Chain Management, 4e

35

Purchasing Database Examples


Part files Supplier name and address files Historical usage files Open-order and past-due files Bill-of-material files Engineering requirements files Forecasted demand files
Purchasing & Supply Chain Management, 4e 36

Communication Technology
Electronic data interchange (EDI)
Standard form (EDI standards) Translation capability (EDI software) Mail service (EDI network)

EDI and the Internet

Purchasing & Supply Chain Management, 4e

37

An Ideal EDI Transaction


1. Buyers computer monitors real-time inventory status 2. If replenishment needed, application program notifies translation software 3. EDI P.O. is created and released against pre-negotiated blanket order 4. Suppliers computer receives order and translates into local format
Purchasing & Supply Chain Management, 4e 38

An Ideal EDI Transaction


5. Functional acknowledgement is automatically generated and sent to buyer 6. EDI P.O. creates additional electronic transactions
Buyers accounts payable application Buyers receiving file Suppliers warehouse or factory file Suppliers invoice file
Purchasing & Supply Chain Management, 4e 39

An Ideal EDI Transaction


7. When order is filled at supplier, advance shipping notice is created and transmitted to buyer 8. Upon receipt of goods, actual shipping notice is entered into receipt file

Purchasing & Supply Chain Management, 4e

40

An Ideal EDI Transaction


9. Receipt notice is transmitted to buyers accounts payable application and to suppliers invoicing system 10. Invoice received by buyer is translated into buyers format and invoice, receiving notice, and P.O. are reconciled in a three-way match

Purchasing & Supply Chain Management, 4e

41

An Ideal EDI Transaction


11. Payment authorization is generated and transmitted to accounts payable, and payment is sent to supplier electronically 12. Electronic remittance notice is sent to supplier, and buyer is credited for payment

Purchasing & Supply Chain Management, 4e

42

EDI and the Internet


Traditional EDI:
Often requires a major investment due to application-specific technology Also requires payment of fees to VAN providers Different EDI standards Different customers have different EDI systems Not considered interactive
Purchasing & Supply Chain Management, 4e 43

Virtual Private Network


Similar to a VAN but at much lower cost Hosted on a third partys website and server Involves tunneling protocols for security May require a T1 line for large volumes of data Typically requires a common ERP platform at each end
Purchasing & Supply Chain Management, 4e 44

Internet-Based EDI
Internet
Virtual Private Network

Router at HQ

Local ISP

Remote Client

Corporate HQ Local LAN


45

Purchasing & Supply Chain Management, 4e

E-Sourcing Basics
Sell-side systems
Contain products or services from one or more suppliers

Buy-side systems
Controlled by buyers and tied into their intranets and extranets

Third-party marketplaces
Facilitate electronic purchasing process without buying or selling
Purchasing & Supply Chain Management, 4e 46

Sell-Side Systems
Typically free registration to users Supplier guarantees site security No investment by buyer Ease of access to many suppliers Inability to track expenditures or to control expenditures Offer varying degrees of security
Purchasing & Supply Chain Management, 4e 47

Buy-Side Systems
May be either self-designed or provided by e-sourcing suite suppliers Allow supply manager to manage the sourcing cycle, track spend, and exert control of contract management Requires initial investment and periodic updates
Purchasing & Supply Chain Management, 4e

48

Third-Party Marketplaces
Independent firms who neither buy nor sell goods and services Vertical portals
Narrow range of commodities

Horizontal portals
Broader range goods or services

Purchasing & Supply Chain Management, 4e

49

SRM Systems
Focused on decision support around a broad group of transactions
Using both data and structured mathematical modeling

Interactive system to assist in:


Supplier selection Contract management Contract compliance
Purchasing & Supply Chain Management, 4e 50

Characteristics of SRM Systems


Spend analysis Sourcing
RFQ processing Reverse auctions Bid optimization Negotiation and total cost support P.O. issuance Receiving and inspection

Contract management and compliance Supplier performance measurement and control Total cost reporting
Price forecasting
51

Purchasing & Supply Chain Management, 4e

Spend Analysis
Determination of the dollar amount and volume of expenditures
What goods and services purchased Which suppliers purchased from Where internal demand originates

Spending reduction

Purchasing & Supply Chain Management, 4e

52

Spending Reduction
Consolidation of similar purchases Reduction in the number of suppliers Reduction of maverick spend Reduction of spend by other departments Increased use of more efficient contracting methods Development of methods to reduce risk and increase supply assurance
Purchasing & Supply Chain Management, 4e 53

Spend Analysis Data


Minimum of one year of spend data Develop similar categories of spend Assign spend to the categories Develop appropriate spend strategies

Purchasing & Supply Chain Management, 4e

54

Request for Quotation


A request to submit a proposal based on a set of specifications provided by a buyer Also known as the eRFx module
Request for information (RFI) Request for proposal (RFP) Request for quotation (RFQ)

Purchasing & Supply Chain Management, 4e

55

Reverse Auctions
Electronics processes where multiple sellers vie for the business of a single buyer Results in price reductions Regular reverse auctions vs. rank reverse auctions Can often alienate suppliers by focus on price only
Purchasing & Supply Chain Management, 4e 56

Steps in a Reverse Auction


Buyer decides which commodities are to be considered for a reverse auction Suppliers are initially evaluated and invited to participate Buyer writes RFQ and sends to all qualified suppliers Bidding process is conducted Buyer analyzes results and rewards business to chosen supplier
Purchasing & Supply Chain Management, 4e 57

How to Conduct a Reverse Auction


Self-service Full-service third party provider
Selection of commodity Supplier qualification Provide training Conducts auction

Purchasing & Supply Chain Management, 4e

58

Reverse Auctions
Buyer-initiated bidding event Utilizes electronic software that allows price or rank visibility to sellers Secure, online environment within a specified timeframe Goal is rational market price for the chosen commodity Reduces bidding time
Purchasing & Supply Chain Management, 4e 59

Concerns of Reverse Auctions


Price reductions without regard to existing or future relationship May breed mistrust or lack of cooperation Realized price reductions may decrease over time Tactical, not strategic in nature
Purchasing & Supply Chain Management, 4e 60

Phases of A Reverse Auction


Before the reverse auction
Determine strategic importance of relationship Importance of price vs. other variables

Offer phase
Explaining the rules

Execution phase
Select appropriate form of contract
Purchasing & Supply Chain Management, 4e 61

Considerations in Reverse Auctions


Price most controversial Strategic importance of relationship Tradeoff between price and opportunity cost of not choosing suppliers who can contribute in non-price areas Market-based (bid-and-buy) approach vs. need for relationship and cooperation
Purchasing & Supply Chain Management, 4e 62

E-Bid Optimization
Permits suppliers to configure bids in any number of alternative ways Flexible bidding or expressive bidding Increases buyers ability to analyze and review bids optimally Uses mathematical algorithms in evaluating different supply and cost scenarios
Purchasing & Supply Chain Management, 4e 63

Estimating Total Costs


Shipping Freight Duties Imports and tariffs Inventory costs Quality costs

Purchasing & Supply Chain Management, 4e

64

Contract Management / Compliance


Oversight of the back end of the sourcing process Ensure that suppliers and users are in compliance with contract terms Other considerations

Purchasing & Supply Chain Management, 4e

65

Other Considerations
Price compliance Changes in terms Volume discount thresholds Payment schedules Due dates Contingencies for nonperformance

Purchasing & Supply Chain Management, 4e

66

Performance Measurement
Visibility to open-item status Measures and analyzes supplier performance Use of electronic scorecards
Automatic inquiry of item status Monitoring of order due dates Analysis of supplier performance
Purchasing & Supply Chain Management, 4e

67

Performance Measurement
Capability to monitor planned receipts against due dates Provide immediate visibility to past-due items Flag those items likely to become past due Generate summary reports and compare to predetermined criteria
Purchasing & Supply Chain Management, 4e 68

Benefits of Measurement
Input into supplier selection considering total cost, not just price Isolating supplier process inefficiencies Improving total cycle times Providing suppliers with reliable feedback on historical performance
Purchasing & Supply Chain Management, 4e 69

Total Cost Reporting


Generate timely management reports Provide visibility to entire materials process Use of data warehouses Frequency of reporting
Real-time updating Data buckets Batch updating
Purchasing & Supply Chain Management, 4e 70

Price Forecasting
Length of items product life cycle Current life cycle phase Items price history

Purchasing & Supply Chain Management, 4e

71

Integrated E-Sourcing and Supply


ERP systems Sourcing strategy module Supply chain planning module Distribution planning module Demand planning module Supplier collaboration module

Purchasing & Supply Chain Management, 4e

72

Information Visibility
Sharing critical data required to manage the flow of products, services, and information in real time between suppliers and customers
Share forecasts Manage inventories Schedule labor Optimize deliveries
Purchasing & Supply Chain Management, 4e 73

Benefits of Information Visibility


Suppliers are aware of buyers needs in a timely manner Buyer is assured that shipments are received on time, every tome Allows problems to become more visible earlier Improved processes
Purchasing & Supply Chain Management, 4e 74

Benefits of Information Visibility


Breaks down organization barriers Builds in supply chain visibility Manages by metrics Reduces decision cycle time Encourages decision making collaboration Reduces opportunity and problem resolution latency
Purchasing & Supply Chain Management, 4e 75