Information Technology for

Supply Chain Management

Designing & Managing the Supply Chain

Chapter 11
Dang Quang Vinh
vinhise@pusan.ac.kr
Outline

Case: Backup in the Espresso Lane

Case: ERP Brews Instant Success
Introduction
Goals of Supply Chain Information Technology
Standardization
Information Technology Infrastructure
Supply Chain Management System Components
Integrating Supply Chain Information Technology
Case: Backup in the Espresso Lane

Background
Starbuck Corp. runs coffee business with 2,000 stores.
Chose a best-of-breed approach over an integrated ERP
Three years project is now slated to five years.

Recipe for growth

Since 1992, the company opened 1235 retail locations.
Starbuck Corp. can handle the growth because of ambitious
and impassioned employees.
Initially, when the company had the problem with BOM, they
chose ERP package.
Eventually, best-of-breed approach is selected due to the
functional flexibility.
Case: Backup in the Espresso Lane

Best-of-breed challenges
Extend supply chain overhaul
Overall length of the project is longer because they had to spend
more time selecting and integrating packages
Create extra works, build bridge between applications

The upside
Flexibility approach
Reduction in overall inventory, overtime hours and emergency
orders
Best-of-breed is working
Case: ERP Brews Instant Success

Background
Small coffee roaster has the same double cappuccino-size
supply chain problems
$47 million went with ERP compared with $700 million of
Starbuck Corp.

No more homegrown
Now using homegrown system that integrated its financial, manu
-facturing and distribution systems.
Finding a new suitable ERP systems because of growth.
Purchased 17 modules of the Enterprise Solutions from People-
Soft Inc.
Introduction

Information technology (IT) is an important enabler of

effective supply chain management.
IT for supply chains includes internal and external
systems that facilitate information between various
company and individuals.
For many firms, IT provides a competitive advantage.
In many cases, current IT that supports the components
in the supply chain process is diverse and disconnected.
Various strategies are utilized by companies to
overcome these problems and create systems that can
use the multitude of data in the system effectively.
Introduction

What are the goals of IT from the perspective of supply

chain management?
What IT components are needed to achieve the goals of
supply chain management?
What are the supply chain component systems and how
should they be approached?
What are the trends in IT and how do they affect supply
chain management?
What are the stages I the development of enterprise IT?
Goals of Supply Chain Information
Technology

Collect information on each product from production to

delivery or purchase point and provide complete visibility
for all parties involved.
Access any data in the system from a single point of
contact.
Analyze, plane activities, and make trade-offs based on
information from the entire supply chain.
Collaborate with supply chain partners.
Goals of supply chain information
technology
The primary goal of IT in the supply chain is to link the point of
delivery or purchase. The idea is to have an information trail
that follows the products physical trail.
Product flow

Suppliers Manufacturers Warehouses Retailers

Information flow
Intrafirm
Interfirm Interfirm
Flow of information and goods in the supply chain
Goals of supply chain information
technology

Collect information:
The retailer needs to know the status of its orders and
the suppliers need to be able to anticipate an incomi
ng the manufacturer
The availability of information regarding the status of pro
ducts and material is the basic on which intellig
ent supply chain decisions can be made.
This goal requires standardization of product ide
ntification (e.g. bar coding) across the companies and in
dustries.
Goals of supply chain information
technology

Access to data:
The single-point-of-contact concept : all the available
information, either information provided to a customer
or required internally, can be access to the same , re
gardless of the mode of inquiry use or who is making
the inquiry.
Ideally, everyone who needs to use certain data
should have access to the same real-time data throu
gh any interface device.
Goals of supply chain information
technology

Sales representative
Financial
Demand systems
planner Sales/ marketing
systems
Accountant

Operations Sales representative

Logistic/ manufacturing Customer

systems service

Current information systems

Goals of supply chain information
technology

Sales representative

Demand
planner
Single point
Accountant
of contact

Operations
Service representative

New generation of information

Goals of supply chain information
technology

Analyze based on supply chain data:

Analyzing the data, especially in a way that takes into account
the global supply chain picture.
The information system must be utilized to find the most efficient
ways to produce, assemble, warehouse and distribute.

Collaborate with supply chain partners:

The ability to collaborate with supply chain partners is essential
to a companys success. This requires not only sophisticated
alignment of IT systems but also the integration of business
processes.
Collaboration has become the focus supply chain systems:
Supplier relationship management (SRM) and Customer
relationship management (CRM).
Goals of supply chain information
technology

Collect Access Analyze Collaborate

Integration/ Standards

Electronic Supply chain

Infrastructure
commerce components

Goals and means of supply chain

Standardization

It is hard to predict in an ever-changing field such as info

rmation technology. Primary is the push toward IT stand
ards. The IT field is evolving to a high level of standardiz
ation for the following reasons:
o Market forces
o Interconnectivity
o New software models
o Economies of scale
Standardization

Standardization of IT has 4 major phases:

o Proprietary: There was little communication between systems
and that was performed through private networks or physical
media.
o Stand alone: For business networks, some standard were devel
oped, but mostly private networks were used for filed transfers.
Electronic data interchange (EDI), a common transaction format,
was introduced at this time. A future development, client/serve
technology, integrated the Pc capabilities and standards with
business systems.
o Communications: The Internet provided the missing link in
communications and display standards beyond the local
networks.
Standardization
o Collaboration: The major issue is specifying a common languag
e format that will enable diverse systems to understand each
other.
A new phase of collaboration increases the important of ERP
systems that are involving into the so-called ERP II:
Role
Domain
Function
Process
Architecture
Data
Standardization
One of the cornerstones of all new IT standards development
in the eXtensible Markup Language (XML), which is the
language description format that is the fast becoming the
standard for Internet transactions.
The Web services architecture is based on standards such as
XML, UDDI, a directory service for applications and
communication protocols such as SOAP.
Web services are offered as components, companies can
purchase only the functionality they need, possibly in the form
of services purchase over the Internet.
Web service applications will make collaboration easier by depl
oying a loose-coupling approach to integration since the integr-
ation methods are the part of the service and do not need to be
tailored for each two applications that are being integrated.
Standardization
For all the obvious advantages of standardization, a few of its
drawbacks and challenges.
Availability: Problem surround the cost of creating a
standard and the power of those who hold standards,
especially if these standards are proprietary.
Security: The easy access to the Internet exposes systems
that are connected to attacks by hackers and conceivably
industrial spies.
Scalability: Standards that work in a certain context or size
of problem may not be adequate for a for a different set of
industries or for a large number of users.
Information technology infrastructure

The information technology (IT) infrastructure is a critic

al factor in the success or failure of any system impleme
ntation. The infrastructure forms the base for data colle
ction transactions, system access and communications.
IT infrastructure consists of:
Interface/presentation devices
Communications
Databases
System architecture
Information technology infrastructure

Interface devices:
Personal computers, voice mail, terminals, Internet devices, bar-
code scanners and personal digital assistants (PADs) are some
of the interface devices most commonly utilized.
A key trend in IT is toward uniform access capability anytime and
anywhere and the interface devices clearly play a major role in
this area.
Auto-ID technology will embed intelligence in physical objects th
at will allow them to communicate with each other and with busin
esses and customers.
Electronic Product Code (ePC)
Product Markup Language (PML)
Object Naming Service (ONS)
Information technology infrastructure

Communications
There are two major trends in communication: wireless communicati
on, and the single point of contact for communications.
Electronic mail (e-mail)
Data exchange
Groupware
Transportation product tracking
Supply Chain Event Management (SCEM)
Exchange platforms
Information technology infrastructure

Databases
Data need to be organized in some form of a database including tra
nsaction information, status information, general information, for
ms and group work.
Legacy databases: These systems are used to built around a
hierarchical or net-work database.
Relational databases: These databases allow the storage of
related data in such a way that standardized reporting and
querying of related data are facilitated.
Object databases: These can hold not only numeric and
character data but more sophisticated objects such as pictures
graphic structures.
Data warehouse: These databases combine data from other
systems databases to allow query by sophisticated analysis tools
.
Information technology infrastructure
Datamarts: These are smaller versions of data warehouses.
Groupware databases: These are specialized databases
designed to accommodate group functions, such as keeping
track of updates, allowing multiple-users access and so forth.
Information technology infrastructure

System Architecture
Systems architecture encompasses the way the components-dat
abases, interface devices and communication- are configured.

Terminals Minicomputer

Mainframe

Personal computers Printer

Legacy system architecture

Information technology infrastructure

Electronic Commerce
Replacing of physical processes with electronic one and the crea
tion of new models for collaboration with customer and supplier.
Facilitating the interaction between different companies as well
as the interaction of individuals within companies.
Companies use Internet standards : intranets, extranets and
exchanges
Also, companies develop the portal : a role-based entry into a co
mpanys systems that aggregates all the applications and
sources of information employees need in order to perform their
job into a single desktop environment.
Information technology infrastructure

Electronic Commerce Levels

SUMMARY OF ELECTRONIC COMMERCE LEVELS

Level number Description Example

One-way
1 E-mail, FPT, browsing
communication
Inquiries, forms, purchases,
2 Database access
tracking

3 Data exchange EDI, clearinghouse

4 Sharing processes CPFR, exchanges

Information technology infrastructure

Electronic Commerce Levels

Supplier relationship management (SRM) : drives the
optimization goods and materials for manufactures.
Strategic supply management
Supply Chain Collaboration
Direct materials procurement execution
Customer relationship management (CRM) : aim to drive and opt
imize the interaction with clients.
Sales-force automation
Sales-pitch customization
Managing and using customer information
CPFR : sharing process of collaboration planning, forecasting,
and replenishment.
Supply Chain Management
System Components

The DSS that various companies and industries employ

depends, among other things, on manufacturing charact-
eristics, demand fluctuation, transportation costs and
inventory costs.
The DSS will support the strategic, tactical and operation
-al levels.
The main IT capabilities required for supply chain
excellence as well as relationships between the different
capabilities.
Strategic network design
Supply chain master planning
Operational planning : demand planning, production scheduling,
inventory management and transportation planning
Supply Chain Management
System Components
Operational execution: enterprise resource planning, customer
relationship management, supplier relationship management,
supply chain management, transportation systems
Planning horizon
Return on investment
Implementation complexity
Integrating Supply Chain
Information Technology

The key is to analyze what each component can

contribute to the enterprise and then plan the investment
according to the specific needs of the company and the
demands of the industry.
SAPs Stages of Excellence model: designed for
evaluating a companys stage of development in IT and
its impact on SCM.
Stages of Development :
Stage 1: Disconnected systems
Companies : functions and tasks.
Organization : internal process standardization & address Internet
readiness.
Integrating Supply Chain
Information Technology
Stage 2: Internal and external interfaces
Companies : e-business solutions, disparate information systems,
flow through of data, decentralized external links
Organization : transaction-focused on both buy-side and sell-side
Stage 3: Internal integration and limited external integration
efficiency
Companies: cross-functionally organized, integrated systems within
the enterprise, limited external value chain integration.
Organization: link supplier to their back-end systems and buyer front
-end systems.
Stage 4: Multi-enterprise integration
Companies: cross-functionally organized, maximum external value c
hain integration.
Organization: link trading partners.
Integrating Supply Chain
Information Technology

SAP STAGES OF EXCELLENCE

Stage III: Intergrated IV: Multienterprise
I: Disconnected II: Interfaces
Capital internally integrated

Internet Visibility Catalogs Exchanges Unattended trading

Supply chain
Integration None Batch Interrenterprise
networks
Supply chain Informal demand Format global Integrated global
None
planning planning demand planning planning
Production Advanced planning
None Basic MRP Constraint-based
sheduling systems(APS)
Integration with EDI with all large
FAX/ phone EDI/FAX/phone VMI, online RFQ
suppliers suppliers
Customer Available to promise Capable to promise
Research Local inventory
delivery (ATP) (CTP)
Integrating Supply Chain
Information Technology

Implementation of ERP and DSS

ERP AND DSS FOR SUPPLY CHAIN MANAGEMENT

Implementation issue ERP DSS

Length 18-48 months 6-12 months

Strategic, tactical, operational,
Value Operational
operational
ROI 2-5 year payback 1 year payback

Users All end users Small group

Training Simple Complex

Integrating Supply Chain
Information Technology

PRIORITIES WHEN IMPLEMENTING DSS

Industry DSS

Soft drink distributor Network and transportation

Computer manufacturer Demand and manufactoring

Comnsumer products Demand and distribution

Demand, capacity, and

Apparel
distribution
Integrating Supply Chain
Information Technology

Best-of-Breed versus Single-Vendor ERP Solutions

Implementation
Best of breed Single vendor Proprietary
issue
Length 2-4 years 12-24 months Not known
Depends on
Cost Higher Lower
expertise
Flexibility Higher Lower Highest
Complexity Higher Lower Highest
Quality of solution Higher Lower Not sure
Fit to enterprise Higher Lower Highest
Staff training Longer Shorter Shortest
Summary

Standardization of processes, communications, data

and interfaces bring about cheaper and easier metho
ds to implement the basic infrastructure.
Data display and access in various forms are becomi
ng more integrated in systems that do not require
any specialized knowledge.
Various systems will interact in a way that will blur
the current boundaries.
Electronic commerce is changing the way we work,
interact, and do business.