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
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WhydosupplychainsneedITsystems?
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MIT Center for Transportation & Logistics
WhydosupplychainsneedITsystems?
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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
MIT Center for Transportation & Logistics
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
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B2B=businesstobusinessB2C=businesstocustomerM2M=machinetomachine
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KeyPoints
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§ WhydofirmsuseERPs?§ WhatarethecorefunctionsinanERP?§ Whatdataisneeded?§ Howdosystemscommunicate?§ WhataresomestrategicbenefitsofanERP?
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ERPBasics– Benefits&Drawbacks
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WhydomostfirmshaveanERP?
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Sales HumanResources
Finance Distribution
ProductionInventory
Supposeeachfunctionwithinafirmhadasiloed database...
Sales
HumanResourcesFinance
Distribution
Production
Inventory
HowwouldthislookwithacentralizedERP?
ERP
MIT Center for Transportation & Logistics
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)
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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.
MIT Center for Transportation & Logistics
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
AdaptedfromRoss,D.F.,(2011)IntroductiontoSupplyChainManagementTechnologies,CRCPress.
MIT Center for Transportation & Logistics
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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CustomerManagement ProductData
Manufacturing Finance
Procurement AssetManagement
Logistics HumanResources
AdaptedfromRoss,D.F.,(2011)IntroductiontoSupplyChainManagementTechnologies,CRCPress.
MIT Center for Transportation & Logistics
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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CustomerManagement ProductData
Manufacturing Finance
Procurement AssetManagement
Logistics HumanResources
AdaptedfromRoss,D.F.,(2011)IntroductiontoSupplyChainManagementTechnologies,CRCPress.
MIT Center for Transportation & Logistics
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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CustomerManagement ProductData
Manufacturing Finance
Procurement AssetManagement
Logistics HumanResources
AdaptedfromRoss,D.F.,(2011)IntroductiontoSupplyChainManagementTechnologies,CRCPress.
MIT Center for Transportation & Logistics
CoreERPComponents
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CustomerManagement
ProductData
Manufacturing FinanceProcurement Asset
ManagementLogistics Human
Resources
MIT Center for Transportation & Logistics
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.
MIT Center for Transportation & Logistics
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
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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
MIT Center for Transportation & Logistics
ERPBasics– Communication
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MIT Center for Transportation & Logistics
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.Ӥ Thereisnohumaninterventionintheprocess.
23AdaptedfromOmarElwakil (2016)
MIT Center for Transportation & Logistics
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)
MIT Center for Transportation & Logistics
ERPCommunication§ B2CEDIexample:
§ ImaginethisorderfulfillmentprocesswithouttheB2Bintegration:§ Potentialforerrorsindataentry.§ Extracostofcustomercontactforupdates.§ Thecoordinationcostwiththe3PL.
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OnlineRetailer
3PLProvider
Order
OrderConfirmationOrderinfo
Tracking#ShippingConfirmation
ShipmentTracking TrackingUpdates
B2BEDIB2CWeb
AdaptedfromOmarElwakil (2016)
MIT Center for Transportation & Logistics
ERPStrategicValue
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MIT Center for Transportation & Logistics
ERPSCMStrategicValue– ReducingBullwhip
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• TheBullwhipEffect:• Aphenomenonwhereinformationdistortionleadstoincreasing
orderfluctuationsintheupstreamsupplychain(forecast-drivensupplychains).
Quantityorderedbydistributioncenters
time
Quantityorderedbyretailers
time
Upstream
Customers
Quantityorderedbycustomers
time
RetailersDistributionCenters
FluctuationsIncrease
FluctuationsIncrease
AdaptedfromOmarElwakil (2016)
MIT Center for Transportation & Logistics
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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MIT Center for Transportation & Logistics
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.
MIT Center for Transportation & Logistics
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
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“Blas– patientlywaitingforhisERPtobeimplemented”photocourtesyofLucasVelencoso