ERP

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
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
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)
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
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
Supply Chain Planning

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

Finance Accounting Finance Sales Operations Purchasing
Central Database
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
15
Network Design Applications

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

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
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
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
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
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
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
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
25
ERP Systems
Integrated transaction processing and reporting system Tracks organizational resources, including people, processes, and technology Creates a process logic for functional interaction
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
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
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
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
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
31
ERP Implementation Cycle
Discovery
Design
System build-out
Testing
Training
Cutover
Postcutover support
Source: Premier International, Chicago
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 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 Data Warehouses

Data is fed from multiple production databases Time-dependent, historical data Oftentimes aggregated
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
Communication Technology
Electronic data interchange (EDI)
Standard form (EDI standards) Translation capability (EDI software) Mail service (EDI network)
EDI and the Internet
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

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

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
40

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
41

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
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
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
Internet-Based EDI
Internet
Virtual Private Network
Router at HQ
Local ISP
Remote Client
Corporate HQ Local LAN

45
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
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
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
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
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
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
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
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
Spend Analysis Data

Minimum of one year of spend data Develop similar categories of spend Assign spend to the categories Develop appropriate spend strategies
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)
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
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
How to Conduct a Reverse Auction

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

Shipping Freight Duties Imports and tariffs Inventory costs Quality costs
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
65
Other Considerations
Price compliance Changes in terms Volume discount thresholds Payment schedules Due dates Contingencies for nonperformance
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
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
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
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
Price Forecasting
Length of items product life cycle Current life cycle phase Items price history
71
Integrated E-Sourcing and Supply

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

ERP

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PURCHASING & SUPPLY CHAIN MANAGEMENT, 4e

Supply Chain Information Systems and Electronic Commerce

The Electronic Revolution in SCM

Evolving e-SCM Tools

Supply Chain Information Flows

Purchasing & Supply Chain Management, 4e

Routine Decision Making

Purchasing & Supply Chain Management, 4e

Supply Chain Planning

Purchasing & Supply Chain Management, 4e

Strategic Decision Making

SCM Systems Map

Warehouse and Transportation Planning

Routine Decision Making

Enterprise Resource Planning (ERP) Applications

Warehouse Management and Transportation Execution Customers Logistics

Internal Supply Chain

Enterprise Resource Planning

ERP System Overview

Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e

Network Design Applications

Purchasing & Supply Chain Management, 4e

Transportation - Warehouse Planning

Purchasing & Supply Chain Management, 4e

Bar code systems Global positioning systems

Drivers of New SCM Systems

Globalization and Communication

Data Information Management

New Business Processes

Replacement of Legacy Systems

Strategic Cost Management

An ERP System Example

Sales order planning

Shop floor control

Logistics Controlling Warehouse, Transportation

Purchasing & Supply Chain Management, 4e

Basic Business Processes

Production planning and execution process

Buying a product Costing, paying the bills, collecting

Purchasing & Supply Chain Management, 4e

ERP and Basic Business Processes

Implementing ERP Systems

Purchasing & Supply Chain Management, 4e

ERP Implementation Cycle

Source: Premier International, Chicago

Purchasing & Supply Chain Management, 4e

Purchasing Data Warehouses

Purchasing Data Warehouses

Purchasing & Supply Chain Management, 4e

Purchasing Database Examples

EDI and the Internet

Purchasing & Supply Chain Management, 4e

An Ideal EDI Transaction

An Ideal EDI Transaction

An Ideal EDI Transaction

Purchasing & Supply Chain Management, 4e

An Ideal EDI Transaction

Purchasing & Supply Chain Management, 4e

An Ideal EDI Transaction

Purchasing & Supply Chain Management, 4e

EDI and the Internet

Virtual Private Network