About Role of IT in SCM

1. The role of Information Technology
in SCM
Prepared By:
Anand Jha

2. Supply Chain Management (SCM)
Systems
• SCM is the process of effectively managing the components of an extended
value chain--from suppliers, through manufacturing and distribution chain, and
to the consumers.
• SCM information systems use technology to more effectively manage supply
chains

3. Value Chain Analysis

4. Benefits of Value Chain Analysis - Disintermediation
to the Consumer
Manufacturer
Manufacturer
Manufacturer
Distributor Retailer
Retailer
Customer
Customer
Customer

5. Stockless Inventory Compared to Traditional and
Just-in-time Supply Methods

6. 2. Information Systems
for SCM

7. Information Technology for Supply Chain
Management
• Software Systems
• Electronic Data Interchange (EDI)
• Material Requirements Planning (MRP)
• Manufacturing Resource Planning (MRP II)
• Enterprise Resource Planning (ERP)
• Supply Chain Management Systems (SCM)
• Customer Relationship Management (CRM)
• Internet-based Software
• Network Infrastructure
• Wide Area Network
• Internet (for E-commerce: B2B, B2C)

8. 3. ERP

9. Enterprise Resource Planning (ERP) Systems
• Enterprise resource planning (ERP) is a term used to refer to a system that links
individual applications (for example, accounting and manufacturing
applications) into a single application that integrates the data and business
processes of the entire business.

10. Origins of ERP Systems
• ERP systems grew out of a function called materials requirements planning
(MRP) which was used to allocate resources for a manufacturing operation
• MRP systems software ultimately became very complex allowing for efficiencies
of scale not previously possible
• Even more sophisticated MRP II systems began to replace MRP systems in the
1980s
• By the early 1990s, other enterprise activities were being incorporated into ERP
systems
• Today, an ERP system can encompass, but is not limited to, the following
functions:
• Sales and order entry
• Raw materials, inventory, purchasing, production scheduling, and shipping
• Accounting
• Human resources
• Resource and production planning

11. Major ERP Systems
• SAP R/3
• Oracle
• PeopleSoft (have been merged by Oracle)
• Toyota uses PeopleSoft and SAP
• Microsoft Dynamics (formerly Microsoft Business Solutions - Great
Plains)

12. E-Business and ERP Systems
• An e-business must keep track of and process a tremendous amount of
information
• Businesses realized that much of the information they needed to run an e-business
— stock levels at various warehouses, cost of parts, projected
shipping dates — could already be found in their ERP system databases
• A major part of the online efforts of many e-businesses involved adding Web
access to an existing ERP system

13. E-Business and ERP Systems
• Many e-businesses want the same things from their business infrastructure
• Thus, rather than custom build applications, many companies prefer to use
prepackaged ERP system software, which is often more efficient and less
expensive to implement.
• Most businesses need extensive help from consultants to configure their ERP
system software around their existing business practices, or to suggest changes
in business practices in order to better fit the ERP system requirements
• This process of mutual adaptation is called systems integration
• The consultants who supervise the integration process are often referred to as
systems integrators

14. 4. Supply Chain Systems

15. Supply Chain Management (SCM) Systems
• A typical SCM system might address the following issues:
• Planning
• Vendor selection
• Manufacturing
• Logistics
• Customer relationship

16. Types of Supply Chain Management (SCM) Systems
• The two basic types of SCM system software are:
• Supply Chain Planning software (SCP): uses mathematical models to
predict inventory levels based on the efficient flow of resources into the
supply chain
• Supply Chain Execution software (SCE): is used to automate different
steps in the supply chain such as automatically sending purchase orders
to vendors when inventories reach specified levels

17. Major Supply Chain Planning (SCP) Players
• i2 Technologies
• i2’s strength began with its powerful Advanced Planning and Scheduling
(APS)
• Manugistics
• Oracle
• SAP
• Advanced Planner and Optimizer (APO)

18. Supply Network Design (SND)
The Supply Chain Cockpit
(SCC)
Demand Planning (DP)
Supply Network Planning (SND)
Collaborative Planning,
Forecasting, and
Replenishment (CPFR)
…
Levels of SAP APO
SAP R/3

19. 5. CRM

20. Data Mining/Web Mining/Business Intelligence
• Data mining is the process of using mathematical techniques to look for
hidden patterns in groups of data, thereby discovering previously unknown
relationships among the many pieces of information stored in a database
• A data warehouse is a database that contains huge amounts of data, such as
customer and sales data
What does Data Mining Do?
EExxpplloorreess YYoouurr DDaattaa FFiinnddss PPaatttteerrnnss PPeerrffoorrmmss
PPrreeddiiccttiioonnss
Query, Reporting, Analysis Data Mining
Why
How
What

21. Relationship among SCM, ERP, CRM
SCM
ERP
CRM
Broader SCM

22. .6 SAP R/3

25. BEFORE SAP R/3
• Systems didn’t talk to the extent processes required, in spite of 20
years of IS labor
• Human glue was required:
• to fill-in where systems don’t talk
• to reconcile multiple views of data to arrive at an “answer”
• to monitor “hold-points” to ensure procedures are followed amidst the
disorganization of being part paper and part automated
• to bridge systems and paper processes
• Realized through ability to reduce the personnel requirements to
perform the process
• Transfer into processes that were able to meet customer
requirements

26. 7. Hardware Considerations for
SCM systems

27. Intranet vs. Extranet
• Intranet is to use Internet technology and protocol (TCP/IP) for the internal
communications
• Extranet is to use Internet technology and protocol for the internal and
suppliers’ communications
• WAN Technologies
• Ordinary telephone line and telephone modem.
• Point-to-Point Leased lines (such as T1 line)
• Public switched data network (PSDN)
• Such as ATM, Frame Relay
• Send your data over the Internet securely, using Virtual Private Network
(VPN) technology
PSDN

28. Global Considerations in Using SCM/ERP Systems
• Time differences
• Language issues
• Currency exchange rates
• Tax
• Different accounting systems
• Internet and security restrictions
• Culture and religion holidays

29. 8. Role of IT in Wal-Mart’s
SCM system
A Case Study

30. Walmart
• Walmart, an American multinational retail corporation that runs chains of
large department and warehouse stores
• Established 1962, Arkansan-USA
• Sam Walton- Founder & Mike duke- current CEO
• Successful due to its IT usage in SCM
Introduction t case
• 1990 –Superseded ‘K-Mart’ rival retail chain as one of the largest retailing
chain in US
• 1991- Superseded ‘Sears Roebuck & Company’ and became the largest
retailing chain in US
• In November 2003, Wal-Mart, world’s largest retailer, planned to replace bar
code technology with RFID.
• Objective: To enhance supply chain efficiency
• Expected they could save $8.35 million per year primarily in labor costs

31. Background Note
• Wal-Mart known for innovative business practices
• One of the first retailing companies to centralize distribution system.
• Always among the front runners in employing IT to manage its supply
chain processes.

32. Using IT in supply chain management
• Using EDI for procurement
• EDI saved time and made procurement efficient (EDI=Electronic Data
Interchange)
• Using the bar code scanners, an analysis of daily, weekly, monthly sales
data helped the store manager determine what products were selling and
at what quantity.
• Accordingly, the store manager would place orders in the manufacturing
division.
• In 1977, Wal-Mart set up a computer terminal network (CTN) to
establish a communication link between its stores and the company
headquarters
• Real time business operations
• In 1978, Wal-Mart set up its first fully automated distribution center

33. Using EDI for procurement
• Wal-Mart placed orders for huge quantities of goods with its suppliers
• Cost of sales worked out to be 2-3 %(very low from industry average)
• Information of product, manufacturer, price was recorded on
computer system
• That information was passed to centralized data warehouse.
• Analysis of daily, weekly, monthly sales data helped store manager to
determine which products were sold in which quantities
• So that they can place purchase order
• Edi also helped suppliers
• Right merchandize at the right time, and have it at right place at right
price

34. Using IT in supply chain management
Using voice based technologies: Enhancing warehouse and logistics
management
• Wal-Mart could replenish stock at any of its 1525 stores in US within
24 hours
• Cross-docking
• It enabled the company to receive goods and dispatch them to stores in
lees than a day
• How it works at distribution centers?
• It installed voice based order filling(VOF) system in all distribution
centers
• Is consisted portable Voice Recognition Talkman Terminals(VRTT)
and radio module on company’s wireless LAN
• It eliminated mis-picks and product labeling costs since VOF didn’t
require paper lists labor

35. How to quickly locate & replenish goods?
• Store ready displays called PDQ(pretty darn quick) displays
• Time saved per employees were not much but aggregate time saved
was quite good
GPS
• GPS system in communication in trucks
• Any truck can be located
• Drivers could activate system by voice and interact with staff

36. Using IT in supply chain management
The Retail Link system- Supporting Inventory Management
•Retail link connected EDI network to extranet ,accessible to all
suppliers
•Provided suppliers historical sales data of 24 months, allowed them to
track invoice, can make demand forecast
•Suppliers could also study competitors products demand

37. Using the Internet in Supply chain Management
• CPFR (Collaborative Planning Forecasting
Replenishment)
• Real time bases to determine product wise demand forecast
• Wal-Mart shared past data, customer data, demographic data, stock
positions
• Both forecasted demand individually and then co-operated
• Reduced inventory cost
• Product availability across supply chain
• As a result lead time was cut to 11 days from 21 days
• On-hand inventory was reduced by two weeks
• Sales grew by $8.5 millions in six months
• Later on it was implemented to other stores
• By 1990’s, about 90% of suppliers were doing business through Retail
Link

38. Barriers to CPFR
• Lack of discipline to execute primary phases
• Promotions and new items events are not jointly planned
• Ineffective replenishment in response to demand fluctuations
• Trading partners focus on traditional supply chain steps
• Scalability and critical mass

39. Recent Supply Chain Initiatives
• 2001- Global Procurement Division[Shenzhen, China
• Exchange of sales and inventory data
• Best deal procurement from any part of world
• Strategy Employed
• Identify generic products
• Enhance product quality
• reduce cost by collaborating
• 2001- copy paper – increased sales
[ 46% in UK, 94% in Federal Republic of Germany, 38% in
Canada, 25% in US]

40. Recent Supply Chain Initiatives
• October 2002- Asked suppliers to replace VAN-EDI to Web based EDI
• Direct online communication between trading partners
• No transaction costs
• Highly secured
• Saved millions[ VAN-EDI cost $200 Billion]
• No licensing fees
• July 2003 – Asked suppliers to place RFID tags on goods, packed in pallets
and crates
VAN-EDI = Value Added Network-EDI
RFID = Radio Frequency Identification

41. Benefits from RFID
• Drastic decrease in Stock out situations
• From $400 million to $1.2 billion for P&G
• Lesser labor requirements
• Almost $6.34 billion yearly
• Decrease in merchandise thefts
• Almost $2 billion
• Real time tracking of consumption patterns
• Would help enhance JIT Inventory management system
• Decrease in stock levels by around 25%[IBM]
• Total savings expected to be 8.34 billion per year

42. Problems
• An estimated cost of $20 million to suppliers
• 50% of this is integration of system with software and modification
in soft wares
• Not a proven technology
• Not compatible with liquids and metal packaging