INN600 Advanced Readings and Special To p i c s o n S u p p l y C h a i n M a n a g e m e n t

ERPs and SCM Systems Faculty of Science and Technology Brisbane, Australia 2009

Overview

Enterprise Resource Planning (ERP) systems supported by various supply chain management (SCM) components are considered as an important contribution to the improvement of a business overall efficiency. Research Question: Does an organization in fact gain substantial benefits by having a SCM system, in addition to an Enterprise System? Research Methodology:

Exploring different roles of ERPs and SCMs inside organizations Reviewing different industrial based practices and showing how the use of SCM technology added a competitive

Enterprise Resource Planning (ERP)

ERP is one of the most important considerations for business organizations.

Streamlining of organizational processes and operations.

ERP investments are not necessarily advantageous

Business Requirements misunderstanding.. Higher costs associated with ERPs.. Time-schedule..

Go/NoGo ERP decision must be based on an options thinking logic Value Assessment Examples : SAP, Oracle, Microsoft Dynamics..

Few case studies

Company Western Reserve University Fairmont Supply Associated benefits

Integrating payroll and finance functions along with some aspects of purchasing and accounts payable.

Streamlining and assist in updating the universitys business processes ( for example HR activities)
Improving communications among faculty, students and staff, with the primary aim of Increasing productivity and efficiency levels. Managing complex business functions.

Highly utilizing GUI feature which is considered as a major factor that determines the effectiveness of the ERP system.
Providing support for improvements in the companys supply chain.

Supply Chain Management (SCM)

Managing supply chain plays an important role in business. If carefully planned and deployed, it enables businesses to maintain competitive advantage and generate more profit.

Technology (e.g. IT infrastructure, Internet) Globalization. Business/IT alignment. Organizational processes. Operation issues (e.g. Bullwhip effect, forecasting, distribution)

SCM systems improve efficiency and effectiveness in

The communication channels between a business and its customers.

Integrating communications among customers, suppliers and

ERP to SCM
Unit of analysis

Single organization Network of organizations

ERP to SCM

Result of analysis SCM introduction

Modern business operations require a mix of crossfunctional strategic planning and enterprise-wide corporate negotiation. ERP is functionally tied to the integration, standardization, extension and assurance of future flexibility for corporate processes and failed to offer organization an extended business model. ERP as a transactional system has limited capability of forecasting and planning.

Positive or negative influence of ERP on SCM?

ERP Benefits vs. Firm Competence of SCM

Firm Competency of SCM
Operational Benefits Operational Process Integration

ERP Benefits

Business Process and Management Benifts

Customer and Relationship Integration

Strategic IT Planning Benefits

Planning and Control Process Integration

ERP Benefits vs. Firm Competence of SCM

ERP Benefit Type Firm Competence of SCM

Organizational performance of SCM

Operational Benefits

Cost Reduction
Cycle Time Reduction Productivity Improvement Quality Improvement Customer Service Improvement Better Resource Management Improved Decision Making and Planning Performance Improvement Building Business Flexibility IT Cost Reduction Increased IT infrastructure capability

Operational Process Integration

Business Process Management Benefits Strategic IT Planning Benefits

Planning and Control Process Integration Customer and Relationship Integration

SAP SCM Overview and Benefits

Overview of current business environment

Global Business Challenges

Meet a high levels of demand accuracy, visibility, increase variety and short product lifetimes, etc.
SAP apps SAP SCM solution

Companies solution

Benefits of SAP SCM Solutions in practice

Report and survey results Sample Activities and Benefits

The Benefits of SAP SCM

Activity
Demand and supply planning- Demand planning and forecasting

Benefit
Use state-of-the-art forecasting algorithms for product life-cycle planning and trade promotion planning

Production planning and detailed scheduling

Generate optimized schedules for machine, labor, and overall capacity utilization Address problems of unequal allocation of constrained materials and capacity, due-date commitments, and sequencing of incoming orders without disrupting existing plans
Meet and deliver on your production plans by managing production processes and the deployment of the workforce and resources on the shop floor Document, monitor, and dispatch inventory across the production life cycle Share information with partners to coordinate production and increase visibility and responsiveness on the shop floor Optimize, create, and manage planning processes using best-in-class optimization, dynamic routing and scheduling, and continuous-move optimization

Manufacturing-Manufacturing visibility, execution, and collaboration

Transportation-Planning and dispatching

Supply chain visibility-Sales and operations planning

Align your companys financial goals, marketing efforts, and inventory targets in one consolidated plan Gain access to relevant data, including aggregated, role-specific information about time, organization, product, geography, and units of measure
Connect to and collaborate with your suppliers by providing them easy and seamless access to supply chain information, which facilitates your ability to synchronize supply with demand

Supply network collaboration-Supplier collaboration

Marico Results obtained from Implementation

The forecasting accuracy improved 80 percent in the first year of implementation and further reached to 90 percent in the next following year. The planning cycle time reduced to 10days from the initial indicative plan to production plan.
The stock outs associated at distributor level decreased by half due to which loss in sales to retailers also reduced by more than half. The excess inventory which was initially forced to distributors to meet the sales targets (based on push strategy) was reduced by 50 percent because of effective demand forecasting and new planning process embedded within the company. The total operating costs and costs associated with distribution of supply to right places within the network reduced by having the visibility of inventory levels of various distributors.

SAP SCM Successful Practices

Successful stories:

Marico Retail and consumer

Telefonica, S.A Telecommunication

Parbury FHS- Manufacturing MG Industries - Gas producer Palm, Inc - Mobile and handheld computer Canada Post - Postal service provider

Business challenges Results obtained from Implementation

Marico - Overview

Plants

Depots

Marico, Mumbai based , Indian manufacturing company producing 9 major brands with leading market positions, mostly second and third place. Product Range Non durable consumer goods including coconut oil, fabric, refined edible oil, nature care and health care Companys supply chain

Distributor

Super Distributor

Retailer

Stockist

Urban consumer

Retailer

20 production units 32 warehouses and 1000 distribution centres 1.6 million retail outlets ( less than 2% organized retailers spanning across rural area consisting of

Rural consumer

Marico Business Challenge

Poor forecasting and planning

Disintegrated Internal operations Due to stand-alone application and lack of integration, data used for forecasting is quite inadequate Excel sheet to maintain sales data at various ends of supply chain has increased the length of planning horizon and change in market dynamics is not being captured Lack of visibility in the Sales data causing high stocks, poor service level and wastage of inventory

Factory

Stock Transfer Depot

Ideal Info Flow

Distributor/ Super Distributor Retailer

Primary Sales

Secondary Sales

Offtakes Consumer

Distribution - Due to non availability of the stock

information at various depots wrong shipment decisions are caused resulted in extra storage space hire, inter depot stock transfer, increasing transportation cost, inventory build-ups and expired products

Marico Results obtained from Implementation

The forecasting accuracy improved 80 percent in the first year of implementation and further reached to 90 percent in the next following year. The planning cycle time reduced to 10days from the initial indicative plan to production plan. The stock outs associated at distributor level decreased by half due to which loss in sales to retailers also reduced by more than half.

The excess inventory which was initially forced to distributors to meet the sales targets (based on push strategy) was reduced by 50 percent because of effective demand forecasting and new planning process embedded within the company. The total operating costs and costs associated with distribution of supply to right places within the network reduced by having the visibility of inventory levels of various distributors.

Telefonica - Overview

Telefonica, S.A., is a Spanish telecommunication company operating globally in 25 countries.

Third largest in its industry in terms of number of clients only behind China Mobile and Vodafone and holds a top five position in market value

Product Range Fixed lines, Broadband internet connectivity, Mobile telephony, Internet content services
Its customer base exceeds 260 million globally, with annual sales of more than 27.5 Billion Euros. The companys growth strategy is focused on the markets where they have the strong foothold especially Spain, Latin America and Europe.

Telefonica Business Challenge

Demand and Supply Planning:

When considering the planning aspect, the company needed to capture detailed market insights and historical trends. The planning horizon currently spans across three months due to which any real changes in the Market dynamics during the time is not included into the plan. The internal departments within the company follows their own plan for and there is no joint execution. The order placed to suppliers is adhoc and manual. Company requires a system in place to process robust algorithms to calculate procurement needs based on forecast demand, ADSL bandwidth inventory, ADSL disconnect rates, supplier lead times, safety stock and lead time for network implementation. There exists a lack of collaborative demand and supply planning between supplier, company and customers and thus lot of infrastructure is being built to meet customer demands before even receiving the customer requests yielding to additional cost of capital and assets.

Telefonica Business Challenge

Telefonica Business Challenge

Collaborative Engineering Design: while establishing the network node during infrastructure
implementation the company and the supplier does not contribute to collaborative work and information such as product configuration, bill of materials and exchanging the required data is done manually and leads to long procurement lead times.

System Integration: the suppliers usually the manufacturers of network equipments have high
operational expenses including high inventory carrying cost, logistics and obsolescence cost. The costs at suppliers end can be minimised when processes gets integrated with companys business systems. Cost efficiency can be also achieved at organisation level when new technology enables process change to add specific value.

Telefonica Results obtained from

Implement.

Telefonica has reduced its investment in unused ADSL network inventory by 20% to 40%

Increased in the productivity of employees by 30% to 40% due to elimination of various manual communications
Telefonica reduced its operating costs by receiving reduction in the range of 5% on products from their main supplier Alcatel. Alcatel has transferred some of their savings to the company because of the new business process of collaborative supply and demand planning implemented. Telefonica achieved on time installation for 90% of its customers while maintaining the service level agreement of having a lead time of 10 days.

Conclusion

ERP systems poses limited capability in collaborative demand and supply planning, and lack of visibility into supply chain events. ERP systems are transactional based systems while SCM systems primarily used for planning and provide visibility, collaboration, and control across and beyond the enterprise.

SCM systems are suitable for accurate demand forecasting and supply network planning, ERPs have limited decision-making over these functionalities.

SCM systems capture various market constraints and risk elements simultaneously to develop a collaborative plan where ERP can handle supply and demand constraints individually. Our research of ERP and SCM roles inside organisations, its linkage and associated benefits, and various industry-based reviews found that SCM can provide substantial benefits to the organisation in addition to its ERP system.