Supply Chain Systems I: Enterprise Resource Planning · PDF fileSupply Chain Systems I: Enterprise Resource Planning. ... Chain Management Technologies, CRC Press. ... warehouse and

MIT Center for Transportation & Logistics ctl.mit.edu

SupplyChainSystemsI:EnterpriseResourcePlanning

MIT Center for Transportation & Logistics

WhydosupplychainsneedITsystems?

§ Let’sfocusonthissinglesupermarket.§ Howmanydailytransactionstakeplace?§ Howdoyouaccuratelycapturethem?§ Howdoyouensuretheinformationisconsistentandcurrent?§ Howcanyouusethatinformationtomakebusinessdecisions?§ Howcantheseobjectivesbeachievedefficiently?

§ Atonestore,inoneweek,millionsoftransactionscanoccur.

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Information(order&status)

Money(payment)

Material(delivery)

Supermarket

SupplierInventory Sales

Expired&ObsoleteInventory

FacilityManagement&

Payroll



3



4

InternalSupplyChainManagementProcesses

ISCM“make,move,store”

CustomerManagementProcesses

CRM“sell”

Supp

lier

Custom

er

Firm

SRM“source”

SupplierManagementProcesses

inputsprocess

outputsinputs1 outputs1

Firm1

inputs2Firm2

outputs2Firm3

inputs3

Finance

Procurement

Production/M

anufacturing

Research&Developm

ent

Logistics

Marketing&Sales


WhydosupplychainsneedITsystems?§ Supplychains...

§ arelarge,complex,andinvolvemultipleplayers,§ havebecomeintertwined- whereindividualactionsimpactothers,§ needtomakedecisionswithcommondata(oneversionofthetruth),,§ interactwithotherfunctionsinafirm,and§ requireseamless,instantaneouscommunicationforB2B,B2C,M2M,etc..

§ InformationTechnologySystems§ EnterpriseResourcePlanning(ERP)

§ Generalledgerandcentraldatabase/repositoryforallfirmactivity

§ SupplyChainPlanning§ ProductionPlanningandScheduling,Demandplanning,ProductLifecycleManagement

§ SupplyChainExecution§ TransportationandWarehouseManagementSystemsandManufacturingExecution

Systems

5

B2B=businesstobusinessB2C=businesstocustomerM2M=machinetomachine


KeyPoints

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§ WhydofirmsuseERPs?§ WhatarethecorefunctionsinanERP?§ Whatdataisneeded?§ Howdosystemscommunicate?§ WhataresomestrategicbenefitsofanERP?


ERPBasics– Benefits&Drawbacks

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WhydomostfirmshaveanERP?

8

Sales HumanResources

Finance Distribution

ProductionInventory

Supposeeachfunctionwithinafirmhadasiloed database...

Sales

HumanResourcesFinance

Distribution

Production

Inventory

HowwouldthislookwithacentralizedERP?

ERP


ERPBenefits&Drawbacks§ Benefits– anERPallowsanenterpriseto...

§ organize,codify,andstandardizeprocessesanddatastructure,§ integrate“pocketsofinformation”intounifiedrepository,§ makedatainstantaneouslyvisibleandavailableacrossfunctionsfor

immediatedecisionmaking,§ eliminateredundant/alternativemanagementsystemsanddata,§ reducetheamountofnon-value-addedtasks(e.g.,dataentry),§ takeadvantageof“bestpractice”standardizedprocessdesigns,and§ bemoreflexible!

§ Drawbacks– AdoptingandusinganERPcan...§ requirecostlyandtimeconsumingimplementationandmaintenance§ allowdataerrorstorippleandbereplicatedthroughoutthesystem,§ canlimitcompetitiveadvantagebyforcinguseofstandardprocesses,§ makeafirmreliantonasinglevendortosupportmissioncriticalsystems,§ leadtoashortageofpersonnelwithtechnicalknowledgeofsystem,and§ resultinveryhighcostofsystemdown-timeduetowideimpact.

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“Standardizationcanleadtoincreasedflexibility”ThomasDavenport

MissionCritical(2000)


ERPBasics– CoreFunctionality

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WhatdoERPsdo?§ ERPSystem:

§ Acomplexsoftwaresystemthattiestogetherandautomatesallenterprise-widebasicbusinessprocesses– fromtakingordersandprocessingrequisitions,tomonitoringinventorylevels,tofinancialaccountingandhumanresourcemanagement.

§ Recordseverybusinesstransaction,inanenterprisewidedataformat,andupdatestherightconnectedsystemstoreflecteachtransaction.

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CustomerManagement ProductDataManufacturing FinanceProcurement AssetManagementLogistics HumanResources

CoreERPComponents

AdaptedfromRoss,D.F.,(2011)IntroductiontoSupplyChainManagementTechnologies,CRCPress.


CoreERPComponents

§ CustomerManagement– thefacetocustomers§ enablesorderentry,orderpromising,openorderstatus§ allowsmarketingtosetpricingschemes,promotions,anddiscounts§ providesreal-timeprofitabilityanalysis,and§ permitsorderconfiguration,customerdeliveryschedules,customer

returns,taxmanagement,currencyconversion,etc.

§ Manufacturing– thefacetoproduction§ istheoriginalroleofmostearlyERPsystems,§ includesMRPprocessing,manufacturingorderrelease,WIP

management,costreporting,shopfloorcontroletc.,§ providesrealtimelinkageofdemandtosupplymanagementenabling

realtimeAvailable-to-Promise(ATP)&Capable-to-Promise(CTP),and§ servesasprimaryinterfaceto“bolt-on”advancedplanningand

schedulingoptimizationmodules.

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CustomerManagement ProductData

Manufacturing Finance

Procurement AssetManagement

Logistics HumanResources



CoreERPComponents

§ Procurement– thefacetosuppliers§ integratesprocurementwithsuppliermanagement,§ facilitatespurchaseorderprocessing,deliveryscheduling,openorder

tracking,receiving,inspection,andsupplierperformancereporting,and§ createsrequestsforquotation(RFQ)§ managesnegotiationandpricingcapabilities.

§ Logistics– thefacetointernalandexternalsupplychain§ runstheinternalsupplychainforenterprise,§ providesconnectivitytoremotetradingpartners(3PLs,carriers,etc.),§ handlesdistributionchannelconfiguration,warehouseactivity

management,channelreplenishment,planning,distributionordermanagement,etc.,and

§ servesasprimaryinterfaceto“bolt-on”warehouseandtransportationmanagementsystems(WMSandTMS).

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CoreERPComponents

§ ProductData– thefacetoallmaterial§ describesproductsenterprisemakesand/ordistributes,§ containsproprietarydataoncosts,sources,engineeringdetails,

dimensions,weight,packaging,etc.,§ interfaceswithinventory,manufacturing,andproductlifecycle

management,and§ sometimesincludedinpartnercollaborationsinordertocompresstime

tomarketofnewproducts.

§ Finance– thefacetotheCFO§ strongsuitofmostERPs(butalsoadoubleedgedsword!),§ providesreal-timereportingofalltransactionsresultingfrominventory

movement,accountsreceivable,accountspayable,taxes,foreigncurrencyconversions,andanyotherjournalentries,and

§ supportsdetailedreportingandbudgetingcapabilities.

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CoreERPComponents

§ AssetManagement– controllingkeyassets§ controlsenterprise’sfixedassets,§ establishesandmaintainsequipmentprofiles,diagnosticsandpreventive

maintenanceactivities,anddepreciationtracking.

§ HumanResources– facetoemployees§ managesallaspectsofhumancapitalwithinenterprise,§ monitorsperformanceoftransactionactivitiestoincludetime,payroll,

compensation,expenses,recruitment,etc.,§ supportsemployeeprofiles,skilldevelopment,careerplanning,

performanceevaluations,andretention.

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CoreERPComponents

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CustomerManagement

ProductData

Manufacturing FinanceProcurement Asset

ManagementLogistics Human

Resources


ERPBasics– Data

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DatainanERPSystem

§ ThreeGeneralTypes§ OrganizationalData

§ representsthestructureofanenterprise

§ MasterData§ representsentities(customers,vendors,material,etc.)associatedwithspecificprocesses

§ TransactionData§ reflecttheconsequencesofexecutingprocesssteps

§ Tiedtobusinessprocesses:§ Processesareexecutedinthecontextoforganizations,usingmasterdata,thatresultsintransactionrecordsordata.

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OrganizationalData§ Capturesorganizationalstructureofenterprise§ Examplesincludecompanies,subsidiaries,factories,

warehouses,storageareas,salesregions,etc.

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ABCCorporation

NorthAmericaNA00

LatinAmericaLA00

Plant1 Plant2 Plant3 DC1 DC2

Client/EnterpriseLevel- highestlevel- singleenterpriseof≥1companiesorsubsidiaries

CompanyLevel- separatelegalentity- canonlybelongtoasingleclient/enterprise

Plant/FacilityLevel- aspecificfacility,orsetoffacilities,where:

- productsarecreated- materialisstoredfordistribution- productionplanningoccurs- serviceormaintenanceisperformed

- asinglefacilitymayhavemultipleplantcodes

- canonlybelongtoasinglecompanyAdaptedfromMagal,S.andJ.Word(2012),IntegratedBusinessProcesswithERPs,Wiley.


MasterData§ Representsallentitiesusedinprocesses§ MaterialMasteristhemostcommonlyused

§ Differentprocessesusematerialsdifferently- addstocomplexity§ Specificdataneedsdifferbyprocess– differentviews§ Multiplematerialtypes(rawmaterials,semi-finished,finishedgoods)§ Materialgroups– collectionsofsimilarorsimilarlyuseditems

20AdaptedfromMagal,S.andJ.Word(2012),IntegratedBusinessProcesswithERPs,Wiley.

MaterialMaster

BasicData

Financial&Accounting

Data

SalesData

StorageData

WMSData

MRPDataPurchasing

Data


TransactionData

§ Reflecttheconsequencesofexecutingbusinessprocesses§ Combinationoforganizational,masterandsituationaldata§ Transactiondocuments– e.g.,purchaseorders,invoices,etc.§ Virtualdocuments– internallygeneratedandusedwithinERP

21AdaptedfromMagal,S.andJ.Word(2012),IntegratedBusinessProcesswithERPs,Wiley.

OrganizationalData• Client• CompanyCode• PlantID

MasterData• Customer• Vendor• Material SituationalData

• Who• When• Where

TransactionData


ERPBasics– Communication

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ERPCommunication• Business-to-Business(B2B):

§ Commercetransactionsbetweenmanufacturers,wholesalers,retailers.§ Eachbusinessrepresentsalinkinthesupplychain.

• Business-to-Customer(B2C):§ Saletransactionsbetweenfirmsandend-customers.§ ThevolumeofB2BtransactionsismuchgreaterthanB2C.

• AcceleratingandvalidatingB2BandB2Ctransactions.§ ForB2BthisisachievedthroughElectronicDataInterchange(EDI).§ ForB2Cthisisachievedthroughawebsiteandemail.

• ElectronicDataInterchange(EDI):§ “Thecomputer-to-computerinterchangeofstrictlyformattedmessages

thatrepresentdocumentsotherthanmonetaryinstruments.”§ Thereisnohumaninterventionintheprocess.

23AdaptedfromOmarElwakil (2016)


ERPCommunication§ B2BEDIexample:

§ ERPsystemscan“communicate”viaEDI,sharingnearreal-timeinformation.§ ThedataisusuallytranslatedandvalidatedtobeimportedintoanERPsystem.§ AnyinfofilecanbesharedgivenappropriateERPfieldstocaptureanddisplayits

content.§ Whatotherinfowouldbusinesseswanttoshare?

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BusinessXGateway

BusinessYGateway

PurchaseOrder

OrderConfirmation

OrderCancellation

ETA

ASN

OrderCancellation

OrderReceipt

SAPData

FormatOracleData

Format

AdaptedfromOmarElwakil (2016)


ERPCommunication§ B2CEDIexample:

§ ImaginethisorderfulfillmentprocesswithouttheB2Bintegration:§ Potentialforerrorsindataentry.§ Extracostofcustomercontactforupdates.§ Thecoordinationcostwiththe3PL.

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OnlineRetailer

3PLProvider

Order

OrderConfirmationOrderinfo

Tracking#ShippingConfirmation

ShipmentTracking TrackingUpdates

B2BEDIB2CWeb



ERPStrategicValue

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ERPSCMStrategicValue– ReducingBullwhip

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• TheBullwhipEffect:• Aphenomenonwhereinformationdistortionleadstoincreasing

orderfluctuationsintheupstreamsupplychain(forecast-drivensupplychains).

Quantityorderedbydistributioncenters

time

Quantityorderedbyretailers

time

Upstream

Customers

Quantityorderedbycustomers

time

RetailersDistributionCenters

FluctuationsIncrease

FluctuationsIncrease



ERPSCMStrategicValue– ReducingBullwhip• CausesoftheBullwhipEffect:

§ BehavioralCauses:1. Overreactiontobacklogs– panicordering2. Miscommunicationandlackoftransparency

§ OperationalCauses:1. Demandforecastingerrors– errorsareamplifiedasinformation

flows.2. Leadtimevariability– delaysandforecastingerrors.3. Lot-sizing/orderbatching– consolidationofdemandstoreduce

ordercoststhroughtransportationscaleeconomiesandquantitydiscounts.

4. Shortagegaming– orderingmorethanrequiredduringperiodsofshortsupply.

5. Promotions– forwardbuyingtobenefitfromlowerprices.

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ERPSCMStrategicValue– ReducingBullwhip

• Causes

§ BehavioralCauses:1. Overreactiontobacklogs2. Miscommunicationandlack

oftransparency

§ OperationalCauses:1. Demandforecastingerrors2. Leadtimevariability3. Lot-sizing/orderbatching4. Shortagegaming5. Promotions

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• ERPCountermeasures

Thekeyistoextendvisibilityofdownstreamcustomerdemandto

upstreamparticipants:w Trustfulcollaborationw PointofSale(POS)datacapturingw InformationSharingw Reducebatchsizesanddemand

variabilitythroughsmallerandmorefrequentorders.


ERPSCMStrategicValue– EnablingAnalytics§ ERPsystemsareprimarilyretrospectiveorbackwardslooking

§ Generalledgerofthefirm§ Captureshistoricaldata§ ProvidestheCFOwithfinancialsnapshotsatparticularmomentsintime

§ ArethereotherusesforthedatathatERPsystemscontain?§ BusinessIntelligence(BI)transformsrawdataintomeaningful

informationtoimprovebusinessdecision-making.§ Descriptive – “Whathashappened?”e.g.,Reporting,scorecards,etc.§ Predictive – “Whatcouldhappen?”e.g.,Statistics,modeling,data

mining,machinelearning.§ Prescriptive – “Whatshouldwedo?”Combinesrules,algorithms,

simulation,andoptimization.

§ ERPsenableadvancedbusinessanalyticswithinfirms

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ERPSCMStrategicValue– ExtendingEnterprise

§ ERPsystemsareprimarilyusedintra-firmprocessmanagement§ Connectsvariousdepartmentswithinafirm§ Instantaneousaccesstoallrelevantdata

§ However,companiesincreasinglyrelyupontheirtradingpartnerstohelpthemcreatevaluefortheircustomers

§ HowcanERPsbeusedtoconnectEnd-to-EndSupplyChains?§ Formlargerbusinessnetworksbyconnectingallsupplychainparticipants§ Providethemwithasharedunderstandingofthestateoftheworld

(“oneversionofthetruth”)§ Reducestheneededcoordinationandmonitoringcosts§ Abletorespondquicklytomarketfeedbackandsupplyanddemand

volatility,withsignalsfromtheedgesofthenetwork

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MIT Center for Transportation & Logistics 32

ERPSCMStrategicValue– ExtendingEnterprise

ERP

PLM

CRMSRM

SCM

PLM- ProductLifecycleManagementCRM- CustomerRelationshipManagementSRM- SupplierRelationshipManagementSCM- SupplyChainManagement

ERP

PLM

CRMSRM

SCM

ERP

PLM

CRMSRM

SCM


ctl.mit.eduMIT Center for Transportation & Logistics

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[email protected]

“Blas– patientlywaitingforhisERPtobeimplemented”photocourtesyofLucasVelencoso

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Supply Chain Systems I: Enterprise Resource Planning · PDF fileSupply Chain Systems I: Enterprise Resource Planning. ... Chain Management Technologies, CRC Press. ... warehouse and