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
How’d they do it?
• 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
 Dell-like Supply Chain Plan
1. 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
2. demand
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?
• 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

3. Transformation of materials into semi-finished

and finished products through the
organization’s own production process

5. 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
 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
 5 basic SCM Logistics: deals
with the

components processes &

controls for
efficient and
Find reliable effective
suppliers— transport and
deal with storage of
pricing, supplies from
delivery, and supplier to
payments with customer
suppliers

Manufacture Process for allowing

product or customers to return
Use metrics to service—Metric defective and excess
meet demand intensive! products
 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 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 Behavior

• Consumers are • Companies can respond

demanding more today faster and more
effectively to consumer
demands through
supply chain enhances

Why? • Demand planning

software – generates
demand forecasts using
statistical tools and
forecasting techniques
 Competition

• Having a efficient &

effective SCM means • Supply chain planning
having a competitive (SCP) software– uses
advantage over advanced mathematical
competitors 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
Speed
 Benefits of SCM
• Many are obvious;
– Cost control/ savings
– Productivity improvements
– Inventory reductions /
improvements
– Improved visibility into
demand/supply
• Perfect example:
• NEC & Epson Deliver
Global SCM Reform for
Printer Supplies;
Microsoft Office
Word 97 - 2003 Document

– Quality improvements
– Maintain/gain competitive
advantage
 Drivers of SCM
• SCM like we have said
provides metrics by
which we can measure
efficiency IT metrics and
effectiveness IT metric 1. Facilities
2. Inventory
• These metrics are 3. Transportation
driven by the 4 drivers;
4. Information
• 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
• 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
 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!

• Recency: how recently a customer

purchased items
• Frequency: how frequently a customer
purchases items
• Monetary value: how much a
customer spends on each purchase
 Customer Relationship Management
• CRM: involves • CRM acknowledges
managing all aspects of industries that they are
a customers migrating from the
relationship with an traditional product-
organization to increase focused organization
customer loyalty, toward customer-driven
retention, and an organizations.
organization’s
profitability. • 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.
 CRM-Supporting technologies

• 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
• Dynamics
• Business Contact • Oracle
Manager
• SQL
• Shared Calendars Open
Source • Intuit (QuickBooks,
Peachtree)
 Customer Satisfaction
• Because businesses
recognize that
customers have more • Businesses need to do
choices and often everything they can to
already come with a acknowledge customer
considerable amount of demand, preferences,
product knowledge 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
 Benefits Explained
• CRM is a business • CRM in many cases is about
philosophy based on the sifting through information
premise that those
organizations that
– to reveal trends,
understand the needs of
the individual customers – explain outcomes,
are best positioned to – and predict results so
achieve sustainable that businesses can
competitive advantage in increase response
the future 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 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 technologies

– Sales management CRM system – automates each

phase of the sales process, helping individual sales
representatives coordinate and organize all of their
accounts

– Contact management CRM system – maintains

customer contact information and identifies
prospective customers for future sales

– 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 attention
2. Value their time
3. Overdeliver
4. Contact frequently
5. Generate a trustworthy mailing list
6. Follow up
 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.
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
 ERP
• 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 Tools
Reasons 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: MainStreet
Component PeopleSoft
CRM X
SCM X
Financial management X
HRM X
Service Automation X
Supplier relationship Management X
Enterprise Performance management X
Business Intelligence
Learning Management
Order management
Manufacturing
Marketing
Sales
 THE CONNECTED CORPORATION

• Many companies purchase • Middleware – several

modules from an ERP
vendor, an SCM vendor,
and a CRM vendor and must
integrate the different
modules together
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
EAI example, if a company is looking at functionality which reduced
purchasing Siebel CRM and they find out the the time necessary to
Siebel has already built many integrations to develop solutions that
PeopleSoft financials, it would be more inclined integrate applications from
to purchase the product multiple vendors
 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