Online Tutorial 3: Supply Chain Management: Content

TurbanTut_03.
qxd 7/8/04 3:30 PM Page 1
CHAPTER
ONLINE TUTORIAL 3:
SUPPLY CHAIN MANAGEMENT
Learning Objectives
After studying this tutorial, you will be able to:
Content 1. Understand the concept of the supply chain, its
T3.1 Essentials of the Supply and Value importance, and management.
Chains 2. Describe the problems of managing the supply
T3.2 Computerized Systems: MRP, MRP II, chain and identify some innovative solutions.
SCM, and Integration 3. Trace the evolution of software that supports
T3.3 Enterprise Resource Planning (ERP) activities along the supply chain and describe
MRP, MRP II, SCM software, and ERP.
T3.4 E-Commerce and Supply Chains
4. Describe ERP and understand the relationships
T3.5 Global Supply Chains
between ERP and SCM software.
T3.6 Issues in Supply Chain Management
5. Understand the relationships between
e-commerce and SCM software.
6. Understand the process and issues of global
supply chain management.
7. Describe current issues in SCM.
1
TurbanTut_03.qxd 7/8/04 3:30 PM Page 2
2 Online Tutorial 3: Supply Chain Management
T3.1 ESSENTIALS OF THE SUPPLY AND VALUE CHAINS

DEFINITIONS AND BENEFITS
Initially, the concept of a supply chain referred to the flow of materials from their sources
(suppliers) to the company, and then inside the company to places where they were needed.
A demand chain, which described the process of taking orders and delivering finished goods
to customers, also was recognized. These two concepts are interrelated, so it wasn’t long
before they were combined under the single concept named the supply chain.
Definitions
The following definitions are helpful for the study of this tutorial.
Supply Chain. Supply chain refers to the flow of materials, information, payments, and
services from raw materials suppliers, through factories and warehouses, to the end cus-
tomers. A supply chain also includes the organizations and processes that create and deliver
products, information, and services to the end customers. It is a network of activities that
delivers a finished product or service to the customer. It includes many tasks such as purchas-
ing, payment flow, materials handling, production planning and control, logistics and ware-
housing, inventory control, and distribution and delivery.
Supply Chain Management. The function of supply chain management (SCM) is to
plan, organize, and coordinate all of the supply chain’s activities. Today, the concept of SCM
refers to a total systems approach to managing the entire supply chain. For an overview, see
Larson and Halldorsson (2003). SCM is usually supported by IT. (See Kumar, 2001; Hugos,
2002; and Vakharia, 2002.)
SCM Software. SCM software refers to software that supports specific segments of the
supply chain, especially in manufacturing, inventory control, scheduling, and transportation.
This software is designed to improve decision making, optimization, and analysis.
E-Supply Chain. When a supply chain is managed electronically, usually with Web-
based software, it is referred to as an e-supply chain. As this tutorial will show, improve-
ments in supply chains frequently involve an attempt to convert them to e-supply chains,
namely to automate the information flow in the chain. (See Poirier and Bauer, 2000.)
Flows
The supply chain includes three flows: materials, information, and financial.
◗ Materials flows. This encompasses physical products, new materials, supplies, and so
forth that flow along the chain, including returned products, recycled products, and dis-
posal of material or product.
◗ Information flows. All data related to demand, shipments, orders, returns, schedules,
and changes in the aforementioned are information flows.
◗ Financial flows. Financial flows include all transfers of money, payments, credit card
information and authorization, payment schedules, and e-payments.
A supply chain of milk products is shown in Exhibit T3.1. The process starts with sev-
eral external suppliers that move milk, cardboard, and plastic to the processing plant. After
the milk is processed and packaged, it is delivered to retailers, who sell it to customers. Not
shown in the picture are alternative delivery systems, such as delivery from a warehouse
directly to customers’ homes.
Note that in service industries, no physical flow of materials occurs, but frequently there
is flow of documents (hard and soft copies). These, according to the definition given previ-
ously, are to be considered supply chains, because the information flow and financial flow still
exist. In fact, the digitization of software, music, and so on results in a supply chain without
physical flow. Notice, however, that in such a case, there are two types of information flow:
one that replaces material flow (e.g., digitized software) and one that is the supporting infor-
mation (orders, billing, etc.). In managing supply chains, it is necessary to coordinate all of
the aforementioned types of flows among all of the parties involved in the supply chain. (See
Viswanadham, 2002.)
Online Tutorial 3: Supply Chain Management 3
EXHIBIT T3.1 Milk Products Supply Chain
DOWNSTREAM
Customers
Packaged Milk
Products
External Retail
Distributors Grocers
Packaged Milk
Internal Products
Functions
INTERNAL
Packaging
Milk Product Operation
Processing
ine d
rs
r
Co
Co dboa
Pla iners
Raw Milk
nta
Labels
stic
nta
r
Ca
Tier FAT FREE

One Dairy Farm MILK
Label Company
Cardboard Container Plastic Container

Manufacturer Manufacturer
UPSTREAM
Cardboard Chemicals
External Tier
Suppliers Two
Chemical Plant
Paper Mill
Raw Materials
Wood
Chemical
Tier Extraction Plant
Three Lumber
Company
Material Flow
Information Flow
Source: Reid, R., and N. R. Sanders, Operations Management. Hoboken, NJ: Wiley, 2002.
Benefits
The main goal of modern SCM is to reduce uncertainty and risks in the supply chain,
thereby positively affecting inventory levels, cycle time, business processes, and customer ser-
vice. These benefits contribute to increased profitability and competitiveness. The benefits of
supply chain management have long been recognized in business and in the military. In
today’s competitive business environment, efficient, effective supply chains are critical to the
survival of most organizations, and they are greatly dependent upon the supporting informa-
tion systems.
THE COMPONENTS OF SUPPLY CHAINS

The term supply chain comes from a picture of how the partnering organizations in a specific
supply chain are linked together. A typical supply chain links a company with its suppliers, its
distributors, and its customers. Note that a supply chain frequently involves three segments:
upstream, where sourcing or procurement from external suppliers occurs; internal supply
chain, where transformation (production), assembly, and packaging take place; and down-
stream, where distribution to customers takes place, frequently by external distributors, or a
disposal takes place.
A supply chain also involves a product life cycle approach that goes from “dirt to dust.”
However, a supply chain is more than just the movement of tangible inputs, because it also
includes the movement of information and money, and the procedures that support the
movement of a product or a service. Finally, the organizations and individuals involved are
part of the chain, as well.
Tiers of Suppliers
An examination of Exhibit T3.1 shows that several potential tiers of suppliers exist. Some
processes, such as those required to provide raw milk, may have only one tier of suppliers.
However, in many cases several tiers of suppliers exist, meaning that a supplier has one or
more subsuppliers, and the subsupplier might have its own subsuppliers, and so on. For
example, making cardboard containers involves three tiers: the cardboard container manufac-
turer (tier one), which gets its material from the paper mill (tier two), which gets its material
from the lumber company (tier three). Some supply chains have up to a dozen tiers.
Coordinating subsuppliers can be a complex task. Using business-to-business (B2B)
exchanges can help with such coordination.
TYPES OF SUPPLY CHAINS

Supply chains come in all shapes and sizes and can be fairly complex, as shown in Exhibit T3.2.
As can be seen in this exhibit, the supply chain for a car manufacturer includes hundreds of
suppliers, dozens of manufacturing plants (for parts) and assembly plants (for cars), dealers,
direct business customers (fleets), wholesalers (some of which are virtual), customers, and sup-
port functions such as product engineering and purchasing.
Notice that in this case, the chain is not strictly linear as it is in Exhibit T3.1. Some loops
can be found in the process. In addition, sometimes the flow of information and even goods
can be bidirectional. For example, not shown in this figure is the return of products (known
as reverse logistics, or returns). For the automaker, for example, that would be cars returned
to the dealers in the event of defects or recalls by the manufacturer.
The supply chain shown in Exhibit T3.1 might have warehouses in different locations,
making the chain more complex, such as the one shown in Exhibit T3.2. In fact, several
major types of supply chains can be classified into four major categories: integrated make to
stock, build to order, continuous replenishment, and channel assembly. If a company uses a
build-to-order business model, for example, it will not be necessary to store finished prod-
ucts, but raw materials and components will need to be stored. Therefore, it is clear that sup-
ply chains depend on the nature of the company and its business processes. A brief descrip-
tion of the previously mentioned four types follows.
EXHIBIT T3.2 An Automotive Supply Chain

CARS
Car Dealers
Assembly Material Shipping

Sales Allocated Planning (19 plants)
Operations • Vehicle scheduling Assembly Line
buildable
orders • Preproduction planning
New • Components scheduling Warehousing
products and • Planning/sequencing
Product engineering Receiving
Engineering changes
PARTS
Ship Shi
Manufacturing Request to a pr
release n
(57 plants) Stampings buy de
ele
n
as
Engines Transmissions Castings
PARTS
gi
Request to
es
ne
Electrical/Fuel Components PURCHASING
erin
Electronics buy
Handling Devices Group
g changes
Glass Plastics/ Climate
Trim Products Controls
Sourcing
Ad
MATERIALS Suppliers
va
nc (hundreds)
e
sh
ip n
o ti c e
E ng
in e e
r in g c
h a n ge s
and ship releases
Source: Modified from Handfield, R. B., and E. L. Nichols, Jr. Introduction to Supply Chain Management. Upper
Saddle River, NJ: Prentice Hall, 1999, p. 3.
Integrated Make to Stock

The integrated make-to-stock supply chain model focuses on tracking customer demand in
real time, so that the production process can restock the finished-goods inventory efficiently.
This integration often is achieved through use of an information system that is fully inte-
grated. Through application of such a system, an organization can receive real-time demand
information that can be used to develop and modify production plans and schedules. This
information also is integrated further down the supply chain to the procurement function, so
that the modified production plans and schedules can be supported by input materials. An
example is Starbucks Coffee (starbucks.com), which uses several distribution channels.
Starbucks not only sells coffee drinks to consumers, it also sells beans and ground coffee to
businesses such as airlines, supermarkets, department stores, and ice-cream makers. In addi-
tion, sales can be made through direct mail, including the Internet. Starbucks is successfully
integrating all sources of demand and matching it with the supply by using Oracle’s auto-
mated information system for manufacturing (called GEMMS). The system handles distri-
bution planning, manufacturing scheduling, and inventory control. The coordination of sup-
ply with multiple distribution channels requires timely and accurate information flow about
demand, inventories, storage capacity, transportation scheduling, and more. The information
systems are critical for doing all of these functions with maximum effectiveness and reason-
able cost. Finally, Starbucks must work closely with hundreds of business partners.
Build to Order
Dell Computer is best known for its application of the build-to-order model. In this model,
one begins the assembly of the customer’s order (from components) almost immediately
upon receipt of the order. This requires careful management of the component inventories
and delivery of needed supplies along the supply chain. One way to accomplish this is to uti-
lize many common components across several production lines and in several locations. One
of the primary benefits of this type of supply chain model is the perception that each cus-
tomer is receiving a personalized product. In addition, the customer receives it rapidly. This
type of supply chain model supports the concept of mass customization.
Continuous Replenishment
The idea of the continuous-replenishment supply chain model is to replenish the inventory
constantly by working closely with suppliers and intermediaries. However, if the replenish-
ment process involves many shipments, the cost could be too high, causing the supply chain
to collapse. Therefore, tight integration is needed between the order-fulfillment process and
the production and acquisition processes. Real-time information about demand changes is
required in order for the production process to maintain the desired replenishment schedules
and levels. This model is most applicable to environments with stable demand patterns, as is
usually the case with distribution of prescription medicines. The model requires intermedi-
aries when large systems are involved. Such a distribution channel for McKessen Co. is
shown in the upper part of Exhibit T3.3.
Channel Assembly
A slight modification to the build-to-order model is the channel-assembly supply chain
model. In this model, the parts of the product are gathered and assembled as the product
moves through the distribution channel. This is accomplished through strategic alliances
with third-party logistics (3PL) firms. These services sometimes involve either the physical
assembly of components and making finished products at a 3PL facility, or the collection of
finished components for delivery to the customer. For example, a computer company could
have items such as the monitor and the CPU shipped directly from its vendors to a 3PL fa-
cility, such as at Federal Express or UPS. Therefore, the customer’s computer order would not
come together until all items were placed on a vehicle for delivery by the 3PL. A channel
assembly might have low or zero inventories and can achieve a faster market response time; it
is popular in the computer technology industry. An example is shown in Exhibit T3.3 (lower
part) with a large distributor, Ingram Micro, at the center of the supply chain.
The flow of goods, services, information, and financial resources usually is designed not
only to transform raw items to finished products and services effectively, but also to do so in
an efficient manner. Several types of software are available to achieve this goal.
EXAMPLES OF SUPPLY CHAINS:

Gateway: A Direct Sales Manufacturer
Gateway is a manufacturer of PCs that sells directly to customers who place orders at Gateway
retail stores, over the telephone, or via the Internet. After a customer places an order, the PC is
manufactured to order and then shipped from one of the assembly plants. Over the years,
Gateway expanded its operations worldwide, creating a sales and manufacturing presence in
Europe and Asia Pacific. In 1999, the company had three plants in the United States, one plant
in Ireland, and one in Malaysia. As of January 2002, Gateway had about 280 retail stores in the
United States. The retail stores are used mainly for product displays and for customers to seek
professional advice. Facing lagging demand and fierce price slashing, its share of the domestic
PC market had dropped by 20 percent by November 2002. Gateway then closed all of its over-
seas operations and shut down one of its production facilities in the United States. It also
closed several of its retail stores and reduced the number of configurations of its products.
The answers to the following supply chain–related questions have a bearing on the per-
formance of Gateway.
1. Why did Gateway have multiple production facilities in the United States? What advan-
tages or disadvantages does this strategy offer relative to a company that has one facility?
2. Why does Gateway not carry any finished-product inventory at its retail stores? Should
a firm with an investment in retail stores carry any finished-goods inventory? What
characterizes products that are best manufactured to order?
EXHIBIT T3.3 Types of Supply Chains
McKesson
New
Material
Pharmaceutical Business Retail
Sources
Manufacturers Customers Pharmacies
Distribution
Centers
McKesson
Distribution Customers
Centers
Physical flow of material
Flow of information
(a) Integrated continuous replenishment pharmaceutical supply chain

(Flow of payments not shown.)
Suppliers
Transportation
Solectron company
(FedEx, UPS)
Ingram Micro
Ingram’s Web site
Reseller/Customer
(b) Channel assembly: Build-to-order supply chain with no inventory
Source: Kalakota, R., and M. Robinson, M-Business: The Race to Mobility. McGraw-Hill, 2002, fig. 9.10, p. 301.
3. Is the Dell model of selling directly without retail stores always less expensive than a
supply chain with retail stores?
4. What are the supply chain implications for Gateway’s decision to offer fewer configurations?
Answers to these questions determine the appropriateness of Gateway’s supply chain
decisions and will determine the need for IT support. Manufacturers like HP that sell direct
and through resellers will need a different supply chain design to support their strategy. How
should they design and manage their supply chains?
7-Eleven: A Convenience Store

With more than 23,000 stores in about 20 countries, 7-Eleven is one of the largest con-
venience store chains in the world. It has about 9,000 stores in Japan and almost 6,000 in
the United States. 7-Eleven Japan is one of the most profitable companies listed on the
Tokyo stock exchange. Its success is attributed primarily to its supply chain design and
management ability. One of the key objectives of 7-Eleven Japan is to micro-match supply
and demand by location, season, and time of day. To fulfill this objective, 7-Eleven Japan
opens new stores in target areas. This helps 7-Eleven establish a strong presence, and it con-
solidates its warehousing and transportation functions. In addition, all stores are connected
electronically to the head office, distribution centers (DCs), and suppliers. Orders are passed
to the suppliers, which package store-specific orders and deliver them to the DC. At the DC,
all orders of like products from different suppliers are combined and delivered to the stores.
7-Eleven Japan has made an effort to have no direct store delivery from vendors to the stores.
In the United States, 7-Eleven is taking a similar approach to the one used in Japan, except
that a large fraction of products is delivered to stores by a distributor and not from the
7-Eleven DC.
In Japan and the United States, 7-Eleven has invested a significant amount of money
and effort in a retail information system. Data are collected by scanners and analyzed. The
resulting information is then made available to headquarters and the stores for use in ordering,
product assortment, and merchandising. Information systems play a key role in 7-Eleven’s
ability to micro-match supply and demand.
7-Eleven has made clear choices in the design of its supply chain. Other convenience
store chains have not always made the same choices. The following questions focus mainly on
7-Eleven’s supply chain choices and its key success factors.
1. What factors influence the decision regarding the opening and closing of stores? Why
does 7-Eleven choose to have a preponderance of its stores in a particular location?
2. Why does 7-Eleven Japan discourage direct store delivery from vendors and make an
effort to move all products through combined DCs? How does the presence of the dis-
tributor delivering to the stores affect the performance of the delivery system in the
United States?
3. Where are DCs located, and how many stores does each center serve? How are stores
assigned to DCs?
4. What point-of-sales data does 7-Eleven gather, and what information is made available
to store managers to assist them in their ordering and merchandising decisions? How
should the information system be structured?
W.W. Grainger and McMaster Carr: MRO Suppliers with a Different Supply
Chain Strategy
W.W. Grainger and McMaster Carr sell maintenance, repair, and operation (MRO) prod-
ucts. Both companies have online catalogs, as well as Web pages through which orders can be
placed. Customers can place their orders in the retail stores, over the telephone, or by means
of the Internet. W.W. Grainger orders are either shipped to the customers or picked up by
the customers at one of the stores. McMaster Carr, on the other hand, ships all orders. W.W.
Grainger has several DCs that replenish stores and fill customer orders; McMaster Carr has
DCs from which all orders are filled. Both firms offer several hundred thousand products to
their customers. Each firm stocks about 100,000 products; the rest are obtained from the
supplier as needed. Both firms face the following strategic and operational issues.
1. How many DCs should a company have, and where should they be located?
2. How should product stocking be managed at the DCs? Should all DCs carry all
products?
3. Which products should be carried in inventory, and which products should be left with
the suppliers?
4. How should markets be allocated to DCs in terms of order fulfillment? What should be
done if an order cannot be completely filled from a DC? Should specified backup loca-
tions be available? How should they be selected?
5. How should replenishment of inventory be managed at the various stocking locations?
6. How should Web orders be handled relative to the existing business? Is it better to inte-
grate the Web business with the existing business or to set up separate distribution?
Toyota: A Global Auto Manufacturer

Toyota Motor Corp. is Japan’s top auto manufacturer. The company has experienced signifi-
cant growth in global sales over the last two decades. A key issue facing Toyota is the design
of its global production and distribution network. Toyota must decide what the production
capability of each of the factories will be, because this has a significant impact on the desired
distribution system. Prior to 1996, Toyota used specialized local factories for each market.
After the Asian financial crisis from 1996 to 1997, Toyota redesigned its plants so that they
could be shifted quickly to be able to export to markets that remain strong. Toyota calls this
strategy “global complementation.” For any global manufacturer like Toyota, several ques-
tions arise regarding the configuration and capability of the supply chain.
1. Where should the plants be located, and what degree of flexibility should be built into
each one? What capacity should each plant have?
2. Should plants be able to produce for all markets or only specific contingency markets?
3. How should markets be allocated to plants, and how frequently should this allocation
be revised?
4. What kind of flexibility should be built into the distribution system?
5. How should this flexible investment be valued?
6. What actions can be taken during product design to facilitate this flexibility?
Section T3.1 ◗ REVIEW

1. Define supply chain.
2. Define supply chain management (SCM).
3. Define e-supply chain.
4. List the flows in the supply chain.
5. List the benefits of SCM.
6. List the types of supply chains.
7. Distinguish between built-to-order and continuous-replenishment supply chains.
8. Name the different types of supply chains and some of the issues involved in their
operations.
T3.2 COMPUTERIZED SYSTEMS: MRP, MRP II, SCM,

AND INTEGRATION
The concept of the supply chain is interrelated with the computerization of its activities,
which has evolved over the last 50 years.
THE EVOLUTION OF SUPPLY CHAIN COMPUTERIZED AIDS

Historically, many of the supply chain activities were managed with paper transactions,
which can be slow, error prone, and inefficient. Therefore, since the time when computers
were first used for business, people have wanted to automate the supply chain processes. The
first software programs, which appeared in the 1950s and early 1960s, supported short seg-
ments along the supply chain. Typical examples of these segments are inventory management
systems, scheduling, and billing. The supporting software was called supply chain management
(SCM) software. The major objectives were to reduce cost, expedite processing, and reduce
errors. Such applications were developed in the functional areas, independent of each other,
and they became more and more sophisticated with the passage of time. Of special interest
were decision support procedures such as management science optimization and financial
decision-making formulas (e.g., for finding appropriate order quantities).
It quickly became clear that interdependencies exist among some of the supply chain
activities. One early realization was that production scheduling is related to inventory man-
agement and purchasing plans. As early as the 1960s, the material requirements planning
(MRP) model was devised. This model essentially integrates production, purchasing, and
inventory management of interrelated products. It became clear that computer support could
greatly enhance the use of this model, which might require daily updating. This resulted in
commercial MRP software packages coming on the market.
Although MRP packages were and still are useful in many cases, helping drive in-
ventory levels down and streamlining portions of the supply chain, they failed in as many
cases. One of the major reasons for the failure was the realization that schedule-inventory-
purchasing operations are closely related to financial and labor resources. This realization
resulted in an enhanced MRP methodology (and software) called manufacturing resource
planning (MRP II). which adds labor requirements and financial planning to MRP. (See
Sheikh, 2002.)
During this evolution, it became more and more common to integrate functional infor-
mation systems. This evolution continued, leading to the enterprise resource planning
(ERP) concept, which integrates the transaction processing and other routine activities of all
functional areas in the entire enterprise. ERP initially covered all routine transactions within
a company, including internal suppliers and customers, but later it was expanded to incorpo-
rate external suppliers and customers in what is known as extended ERP software. The next
step in this evolution, which started in the late 1990s, is the inclusion of business intelligence
and other software. At the beginning of the twenty-first century, the integration expanded to
include markets and communities. (See mySAP.com for details.) ERP, which is also known
as enterprise software, will be examined in more detail in Section T3.3.
Notice that throughout this evolution, more and more integrations have occurred along
several dimensions (e.g., more functional areas, combining transaction processing and deci-
sion support, inclusion of business partners). Therefore, before describing the essentials of
ERP and SCM software, it will be beneficial to analyze the reasons for software and activi-
ties integration.
WHY SHOULD SYSTEMS BE INTEGRATED?

Creating the twenty-first-century enterprise cannot be done effectively using twentieth-
century computer technology, which is functionally oriented. Functional systems might not
let different departments communicate with each other in the same language. Worse yet,
crucial sales, inventory, and production data often have to be painstakingly entered manually
into separate computer systems every time a person who is not a member of a specific depart-
ment needs ad hoc information related to the specific department. In many cases, employees
simply do not get the information they need, or they get it too late.
Sandoe et al. (2001) list the following major benefits of systems integration (in declining
order of importance).
Tangible benefits: Inventory reduction, personnel reduction, productivity improvement,
order management improvement, financial-close cycle improvements, IT cost reduction,
procurement cost reduction, cash management improvements, revenue/profit increases,
transportation logistics cost reduction, maintenance reduction, and on-time delivery
improvement
Intangible benefits: Information visibility, new/improved processes, customer responsive-
ness, standardization, flexibility, globalization, and business performance
Internal Versus External Integration

Internal integration refers to integration between applications or between applications and
databases inside a company. For example, one may integrate the inventory control with an
ordering system, or a Customer Relationship Management (CRM) suite with the database
of customers. Large companies that have hundreds of applications might find it extremely
difficult to integrate the newer Web-based applications with the old legacy systems.
External integration refers to integration of applications or databases among business
partners; for example, the suppliers’ catalogs with the buyers’ e-procurement system.
External integration is especially needed for B2B and for partners’ relationship management
(PRM) systems.
Types of Integration: From a Supply to a Value Chain

The most obvious integration is that of the segments of the supply chain and the information
that flows among the segments. However, there is another type of integration—the integration
of the value chain. Traditionally, the supply chain has been thought of in terms of purchasing,
transportation, warehousing, and logistics. The integrated value chain is a more encompassing
concept. It is the process by which multiple enterprises within a shared market channel col-
laboratively plan, implement, and manage (electronically as well as physically) the flow of
goods, services, and information along the entire chain in a manner that increases customer-
perceived value. This process optimizes the efficiency of the chain, creating a competitive
advantage for all stakeholders in the value chain. The supply chain is basically a description of
flows and activities, but the value chain expresses the contributions made by various segments
and activities to the profit and to customers’ satisfaction. (For a survey, see Drickhamer, 2002.)
Another way of defining the value chain integration is as a process of collaboration that
optimizes all internal and external activities involved in delivering greater perceived value to
the ultimate customer. A supply chain transforms into an integrated value chain when it:
◗ Extends the chain all the way from subsuppliers (tier two, three, etc.) to customers.
◗ Integrates back-office operations with those of the front office.
◗ Becomes highly customer-centric, focusing on demand generation and customer service,
as well as demand fulfillment and logistics.
◗ Seeks to optimize the value added by information and utility-enhancing services.
◗ Is proactively designed by chain members to compete as an “extended enterprise,” creat-
ing and enhancing customer-perceived value by means of cross-enterprise collaboration.
COLLABORATION ALONG THE SUPPLY CHAIN

Presently, only a few large companies are successfully involved in a comprehensive collabora-
tion to restructure the supply and value chains. One such effort is described in Application
Case T3.1. It involves the Collaborative Planning, Forecasting and Replenishment (CPFR)
project.
For a special report on this type of collaboration, see ASCET (2000), where such collab-
oration is referred to as collaborative commerce networks, or collaborative commerce.
Vendor-managed inventory (VMI) is a collaboration strategy often used by these large
retailers. The suppliers (vendors) monitor inventory levels at retail stores and place replenish-
ment orders when needed.
Another example of supply chain integration is product-development systems that allow
suppliers to dial into a client’s intranet, pull product specifications, and view illustrations and
videos of a manufacturing process. (For further discussion, see Selland, January 1999 and
October 1999; and Hagel, 2002.)

1. Define MRP, MRP II, and ERP.
2. Define internal and external integration of supply chain segments.
3. List the benefits of integration (tangible and intangible).
4. Describe collaboration along the supply chain.
5. What is CPFR? (Hint: See Case T3.1.)
T3.3 ENTERPRISE RESOURCE PLANNING (ERP)

One of the most successful tools for managing supply chains is enterprise resource plan-
ning (ERP).
WHAT IS ERP?
With the advance of enterprise-wide client/server computing comes a new challenge: how to
control all major business processes with a single software architecture in real time. Such an
integrated software solution, known as enterprise resource planning (ERP), or just enterprise
CASE T3.1
EC Application
HOW WARNER-LAMBERT APPLIES AN INTEGRATED
SUPPLY CHAIN
One of Warner-Lambert’s (warner-lambert.com) major products Warner-Lambert forecasts demand with the help of
is Listerine antiseptic mouthwash. The materials for making Manugistics Inc.’s Demand Planning Information System.
Listerine come mainly from eucalyptus trees in Australia and (Manugistics is a vendor of IT software for SCM.) Used with
are shipped to the Warner-Lambert (WL) manufacturing plant other software in Manugistics’ Supply Chain Planning suite,
in New Jersey. The major problem in New Jersey is to deter- the system analyzes manufacturing, distribution, and sales
mine how much Listerine to produce. Then one can figure data against expected demand and business climate informa-
how much of each raw material is needed and when. Listerine tion. Its goal is to help WL decide how much Listerine (and
is first purchased by wholesalers and then by thousands of other products) to make, and how much of each raw ingredi-
retail stores, some of which are giants such as Wal-Mart. The ent is needed and when. For example, the model can antici-
problem the manufacturing plant faces is to forecast the pate the impact of a seasonal promotion or of a production
overall demand. A wrong forecast will result either in high line being down. The sales and marketing group of WL also
inventories of products or raw materials or in shortages. meets monthly with WL employees in finance, procurement,
Inventories are expensive to keep, and shortages may result
in a loss of business. (continued )
Wal-Mart Warner-Lambert (WL)
Operational System ERP
Internet EDI Internet
Data Warehouse
SCM
Manufacturing
Wal-Mart WL Planning
CPFR CPFR
Server Server
RetailLink
Sales Data about

WL Products
? ?
Inventory Internet Review and

Forecast
Plan Comments
CASE T3.1
EC Application
HOW WARNER-LAMBERT APPLIES AN INTEGRATED
SUPPLY CHAIN (continued)
and other departments. The group enters the expected Internet to expand the CPFR program to all its major suppliers
demand for Listerine into a Corp. Prism Capacity Planning and retail partners.
system (now Invensys Plc.), which schedules the production Warner-Lambert also is involved in another collaborative
of Listerine in the amounts needed and generates electronic retail industry project: the Supply-Chain Operations Reference
purchase orders for WL’s suppliers. (SCOR), an initiative of the Supply-Chain Council in the
WL’s supply chain excellence stems from the Collaborative United States. SCOR divides supply chain operations into
Planning, Forecasting, and Replenishment (CPFR) program. parts, giving manufacturers, suppliers, distributors, and retail-
This is a retailing industry project for which piloting was done ers a framework within which to evaluate the effectiveness of
at WL. In the pilot project, WL shared strategic plans, perfor- their processes along the same supply chains.
mance data, and market insight with Wal-Mart over private
networks. The company realized that it could benefit from Sources: Compiled from CIO, August 15, 1998; Stores, June 1998;
Wal-Mart’s market knowledge, just as Wal-Mart could benefit and Logistics Management and Distribution Report, October 1998 and
from WL’s product knowledge. In CPFR, trading partners November 1999.
collaborate on demand forecasting using collaborative
e-commerce. The project includes major SCM and ERP vendors,
such as SAP and Manugistics. (See previous page.) During the Questions
CPFR pilot, WL increased its products’ shelf-fill rate—the 1. For what industries, besides retailing, will such
extent to which a store’s shelves are fully stocked—from collaboration be beneficial?
87 percent to 98 percent, earning the company about $8 mil-
lion a year in additional sales (the equivalent of a new product
2. Why was Listerine a target for the pilot CPFR
collaboration?
launch) for much less investment. WL is now using the
systems, is a process of planning and managing all resources and their use in the entire enter-
prise. ERP is a software program comprising a set of applications that automate routine back-
end operations such as financial, inventory management, and scheduling to help enterprises
handle jobs such as order fulfillment. (See O’Leary, 2000.) For example, there are modules for
cost control, accounts payable and receivable, fixed assets, and treasury management. ERP
promises benefits ranging from increased efficiency to improved quality, productivity, and
profitability. (See Ragowsky and Somers, 2002, for details.)
The name enterprise resource planning is misleading because the software does not address
planning or resources. ERP’s major objective is to integrate all departments and functions
across a company onto a single computer system that can serve all of the enterprise’s needs.
(See Stratman and Roth, 2002.) For example, improved order entry allows immediate access
to inventory, product data, customer credit history, and prior order information. This avail-
ability of information raises productivity and increases customer satisfaction. ERP, for exam-
ple, helped Master Product Company increase customer satisfaction and, consequently, sales
by 20 percent, while decreasing inventory by 30 percent; this resulted in an increase in pro-
ductivity (Caldwell, 1997). ERP systems are in use in thousands of large and medium-sized
companies worldwide. Some are producing dramatic results. (See erpassist.com.)
For businesses that want to use ERP, one option is to self-develop an integrated system
by using existing functional packages or by programming one’s own systems. The other
option is to use commercially available, integrated ERP software. The leading software for
ERP is SAP R/3. Oracle, Computer Associates, and PeopleSoft also make similar products.
These products include dozens of different modules, as shown in Exhibit T3.4. Another
alternative is to lease systems from application service providers (ASPs). A major advantage
of this approach is that even a small company can enjoy ERP because users can lease only rele-
vant modules rather than buying the entire package. As of 2003, some ERP vendors are will-
ing to sell only relevant modules; SAP and IBM currently sell ERP for small to medium
enterprises (SMEs).
EXHIBIT T3.4 Representative Modules in ERP

ERPs may contain more than 70 different modules. Here are major representative modules:
Finance/Accounting Area:
General ledger—Keeps centralized charges of accounts and corporate financial balances.
Accounts receivable—Tracks payment due to a company from its customers.
Accounts payable—Schedules bill payments to suppliers and distributors.
Fixed assets—Manages depreciation and other costs associated with tangible assets such as buildings, property, and equipment.
Treasury management—Monitors and analyzes cash holdings, financial deals, and investment risks.
Cost control—Analyzes corporate costs related to overhead, products, and manufacturing orders.
Financial accounting—A comprehensive, robust financial accounting package for monitoring real-time values from financially
relevant transactions out of value-creation processes.
Managerial accounting—Helps companies optimally monitor and control all performance-relevant information in an environ-
ment that is completely integrated with all operative transactions throughout the company. Managerial accounting helps a
company take control of its profitability.
Financial supply chain management—Enables financial collaboration within the enterprise and its business networks using
defined corporate policies and shared services to handle all customers—and supply chain–related financial processes; helps
automate the financial supply chain using the Web and other new electronic service models.
Manager self-service—Provides business managers with access to all relevant business information as well as related services
through financial portal solutions. HR content and processes empower anyone who manages and makes decisions about
finance, management, and human capital. The portals provide convenient Web-based access to internal and external applica-
tions, business content, and services that may be the key to tasks, processes, or business decisions.
Others—Activity-based management, balanced score card, collections, financial analysis, billing, budgeting, expense manage-
ment, and risk management.
Manufacturing and Logistics:

Production planning management and control—Performs capacity planning and creates a daily production schedule for a
company’s manufacturing plants. Plans and control the enterprise production process.
Materials management—Controls purchasing of raw materials needed to build products. Manages inventory stocks.
Warehouse management—Maintains records of warehoused goods and processes movement of products through warehouses.
Transportation management—Arranges, schedules, and monitors delivery of products to customers via trucks, trains, and other
vehicles.
Project management—Monitors costs and work schedules on a project-by-project basis.
Customer service management—Administers installed-base service agreements and checks contracts and warranties when cus-
tomers call for help.
Operations—Enables a company to efficiently streamline the logistic operations for the optimal execution of all orders result-
ing from purchasing, sales, production, and change management environments.
Purchase order management—enables the efficient handling and execution of purchase orders integrated within the entire
logistics process.
Inventory management—Allows a company an integrated management system of stock and inventories in an integrated opera-
tive environment.
Maintenance & quality—Allows a company to efficiently handle the plant maintenance and quality control process within the
company.
Delivery management—Executes the delivery and transportation processes to efficiently support a sales environment.
Others—Allows discrete and/or process manufacturing, product life cycle (PLM) management, supply chain planning and man-
agement, and procurement.
Marketing and Sales:

Sales order management—Enable the sales order fulfillment process allowing for fast and efficient execution of customer sales
orders.
Order entry and processing—Automate the data entry process of customer orders and keeps track of the status of orders.
Managing sales leads—Generate, evaluate, and track leads.
Managing advertisements and promotions—Identify best campaigns and targets, measure results, plan trade promotions.
Manage sales—Plan fields sales, automate call center, manage sales incentives.
(continued )
EXHIBIT T3.4 (continued)

Human Resources Management:
Human resources administration—Automates personnel management processes including recruitment, business travel, and
vacation allotments.
Payroll—Handles accounting and preparation of checks related to employee salaries, wages, and bonuses.
Self-service HR—Lets workers change their personal information and benefit allocations online without having to send forms
to human resources.
HRM analytics—Provides data analysis and reporting tools as well as strategic enterprise management capabilities to support
informed HR policy and decision making. The solutions enable the company to analyze and optimize the current workforce, to
implement and monitor the corporate strategy, and to continuously evaluate how different scenarios will affect business goals.
Others—Benefits’ management, learning and training, labor relations.
Corporate Services:
Real estate management—Provides a complete solution with capabilities to support every stage of the real estate portfolio
life cycle and streamlines business processes, allowing companies to optimally utilize and manage their real-estate assets.
Incentive and commission management—Processes all types of variable remuneration for employees, sales forces and part-
ners, such as incentives, commissions, and brokerage fees.
Travel management—Provides applications for business travel management that support and optimize travel processes;
includes travel manager’s marketplace, which supports procurement of travel services. With seamless integration to expense
reporting, travel management allows for the optimal management of the entire business travel cycle.
Sources: Complied from mysap.com, oracle.com, and peoplesoft.com.
THE FIRST-GENERATION ERP

An ERP suite provides a single interface for managing all the routine activities performed in
manufacturing from entering sales orders, to coordinating shipping, to providing after-sales
customer service. As of the late 1990s, ERP systems were being extended along the supply
chain to suppliers and customers. They can incorporate functionality for customer interaction
and for managing relationships with suppliers and vendors, making the system look less like
one company’s internal system.
Large companies have been successful in integrating several hundred applications using
ERP software, saving millions of dollars and significantly increasing customer satisfaction.
For example, ExxonMobil consolidated 300 different information systems by implementing
SAP R/3 in its U.S. petrochemical operations alone. ERP forces discipline and organization
around business processes, making the alignment of IT and business goals more likely. Also,
by implementing ERP, a company can discover all the “dusty corners” of its business.
However, ERP software can be extremely complex to implement; companies often need
to change existing business processes to fit ERP’s format, and some companies require only
some of the ERP’s software modules yet must purchase the entire package. For these reasons,
ERP software might not be attractive to everyone. For example, Caldwell and Stein (1998)
report that Inland Steel Industries, Inc., opted to write its own ERP system (containing 7
million lines of code), which supports 27 integrated applications, rather than use commercial
ERP. Also, some companies, such as Starbucks, decided to use a best of breed approach,
building their ERP with ready-made components from several vendors. As indicated earlier,
the option of leasing individual modules from ASPs may lessen this problem.
In whatever form it is implemented, ERP has played a critical role in getting manufac-
turers to focus on business processes, thus facilitating business process changes across the
enterprise. (See El Sawy, 2001.) By tying together multiple plants and distribution facilities,
ERP solutions also have facilitated a change in thinking that has its ultimate expression in an
enterprise that is better able to expand operations and in better supply chain management.
(For a comprehensive treatment of ERP, its cost, implementation problems, and payback, see
Koch et al., 1999; James and Wolfe, 2000; Jacobs and Whybark, 2000; and Lucas and Bishop,
2002.) Palaniswamy and Frank (2002) describe positive results obtained by using Oracle
ERP and discuss its implementation process.
However, ERP as it was originally designed was never meant to fully support supply
chains. ERP solutions are centered on routine business transactions. As such, they do not
provide the computerized models needed to respond rapidly to real-time changes in supply,
demand, labor, or capacity, nor to effectively integrate with e-commerce. This deficiency has
been overcome by the second generation of ERP.
THE SECOND-GENERATION ERP

The goal of first-generation ERP was to automate routine business transactions; indeed,
ERP projects do save companies millions of dollars. A report by Merrill Lynch noted
that nearly 40 percent of all U.S. companies with more than $1 billion in annual revenues
have implemented ERP systems. However, by the late 1990s, the major benefits of ERP
had been fully exploited. It became clear that with the completion of the Y2K projects that
were an integral part of many ERP implementations, the first generation of ERP was near-
ing the end of its useful life. However, the ERP movement was far from over. A second, more
powerful generation of ERP development started. (See James and Wolf, 2000.) Its objectives
are to leverage existing systems in order to increase efficiency in handling transactions, to
improve decision making, and to further transform ways of doing business into e-commerce.
The first generation of ERP excelled in its ability to manage administrative activities
such as payroll, inventory, and order processing. For example, an ERP system has the func-
tionality of electronic ordering or the best way to bill the customer, but all it does is automate
the transactions. Palaniswamy and Frank (2002) cite examples of five case studies indicating
that ERP significantly enhances the performance of manufacturing organizations as a result
of automating transactions.
The reports generated by ERP systems gave planners statistics about what happened in
the company, costs, and financial performance. However, the planning systems developed
using ERP were rudimentary. Reports from first-generation ERP systems provided a snap-
shot of the business at a single point in time. However, they did not support the continuous
planning that is central to supply chain planning, which continues to refine and enhance the
plan as changes and events occur up to the last minute before executing the plan. Attempting
to come up with an optimal plan using first-generation, ERP-based systems has been com-
pared to steering a car by looking in the rearview mirror.
This created the need for planning systems oriented toward decision making, which is
what SCM software vendors provide. (See Insights and Additions T3.1.)
Combining ERP with SCM Software

To illustrate how ERP and SCM might work together, one can look at the task of order process-
ing. A fundamental difference exists between SCM and ERP: The question for SCM software is
“Should I take your order?” instead of the ERP approach of “How can I best take or fulfill your
order?” The SCM and ERP software are information systems and will be referred to as such.
Thus, the analytical SCM systems have emerged as a complement to ERP systems to
provide intelligent decision support or business intelligence capabilities. (See Keskinocak,
2001.) An SCM system is designed to overlay existing systems and to pull data from every
step of the supply chain. Thus, it is able to provide a clear, global picture of where the enter-
prise is heading. An example of a successful SCM effort is that of IBM. IBM restructured
its global supply chain in order to achieve quick responsiveness to customers and to do it
with minimal inventory. To support this effort, IBM developed an extended-enterprise,
supply-chain analysis tool called the Asset Management Tool (AMT). AMT integrates
graphical process modeling, analytical performance optimization, simulation, activity-based
costing, and enterprise database connectivity into a system that allows quantitative analysis
of inter-enterprise supply chains. IBM has used AMT to analyze and make improvements
in such areas as inventory budgets, turnover objectives, customer-service targets, and new
product introductions. The system was implemented at a number of IBM business units
and their channel partners. AMT benefits include a savings of more than $750 million in
materials costs and price-protection expenses each year. (For details, see Yao et al., 2000.)
The system was also a prerequisite to a major e-procurement initiative at IBM. Creating a
plan from an SCM system allows companies to assess quickly the impact of their actions on
the entire supply chain, including customer demand. Therefore, it makes sense to integrate
ERP and SCM.
Insights and Additions T3.1 SCM Software Versus ERP Software
SCM software refers to software that is specifically designed to improve decision making along the supply chain, such as deter-
mining the best way to ship to your customer or the optional production plan inside your own manufacturing system. This is in
contrast with ERP software, which streamlines the flow of routine information along the supply chain (such as order taking,
inventory levels computing, or sales data). In fact, data collected by the ERP system are frequently used as input data for
analysis done with ERP software (Latamore, 2000). To better understand the differences between the two, one can look at the
products offered by two SCM vendors: i2 and Manugistics.
i2 CORPORATION OPTIMIZATION SOLUTIONS

This company offers a set of file-integrated optimization solutions, which are shown in the upper part of exhibit below (shown
between “suppliers” and “customers”). Notice that all are optimization tools: For example, logistics optimization enables companies
to procure, plan, execute, and monitor freight movements across multiple modes, borders, and enterprises. Optimization usually is
built on Decision Support Systems (DSS) models, such as linear programming and simulation, as well on other analytical tools.
The optimization tools (each of which includes several applications; see i2.com/solutionareas/index.cfm) are supported by
content subscription and supply chain services modules. The entire set of solutions can be connected to ERP and legacy sys-
tems, which provide the data for the analysis and optimization done by the optimization modules.
(continued )
Fulfillment Optimization
Spend Production Revenue

Suppliers & Profit Customers
Optimization Optimization
Optimization
Logistics Optimization
Content Subscription
Supply Chain Operating Services
ERP ERP/Legacy Systems ERP
Source: From “The Foundation for Supply Chain Optimization,” 2003.

Insights and Additions T3.1 (continued)
MANUGISTICS SUPPLY CHAIN MANAGEMENT SOLUTIONS

Manugistics offers the following integrated solution suites.
◗ Network Design and Optimization
◗ Manufacturing Planning and Scheduling
◗ Sales and Operations Planning
◗ Fulfillment Management
◗ Collaborative Vendor Managed Inventory (VMI) and CPFR
◗ A private Trading Intelligent Hub (for external integration)
◗ Service and Parts Management
◗ Logistics Management
◗ Profitable Order Management
◗ Profitable Demand Management
◗ Enterprise Profit Optimization
Each suite has several applications. (See manugistics.com.)
Alternative Ways to Integrate ERP and SCM

How is such integration done? One approach is to work with different software products
from different vendors. For example, a business might use SAP as an ERP and add to it
Manugistics’ manufacturing-oriented SCM software, as shown earlier in the Warner-
Lambert case. Such an approach requires fitting different software, which can be a complex
task, unless special interfaces known as adopters provided by middleware vendors exist. (See
Linthicum, 1999.)
The second approach is for the ERP vendors to add decision support and analysis
capabilities, which are known as business intelligence. Business intelligence refers to analy-
sis performed by different IT tools such as data mining and intelligent systems. Using
one vendor and a combined product solves the integration problem. However, as is the
case with integration of database management systems and spreadsheets in Excel, the
result can be a product with some weak functionalities. Most ERP vendors offer such func-
tionalities for another reason though: It is cheaper for the customers. The added func-
tionalities, which create the second-generation ERP, include not only decision support
but also CRM, electronic commerce, and data warehousing and mining. Some systems
include a knowledge management component, as well. In 2003, vendors started to add
product life cycle management (PLM) in an attempt to optimize the supply chain (Hill,
2003). An example of ERP application that includes an SCM module is provided in
Application Case T3.2.
SUPPLY CHAIN INTELLIGENCE

The inclusion of business intelligence in supply chain software solutions is called by some
supply chain intelligence (SCI). SCI applications enable strategic decision making by ana-
lyzing data along the entire supply chain. To better understand SCI, it is worthwhile to com-
pare it with SCM. Such a comparison is provided in Exhibit T3.5.
CASE T3.2
EC Application
COLGATE-PALMOLIVE USES ERP TO SMOOTH
ITS SUPPLY CHAIN
Colgate-Palmolive is the world leader in oral care products mentation to allow the company to access more timely and
(mouthwashes, toothpaste, and toothbrushes) and a major accurate data and to reduce costs. The structure of the ERP is
supplier of personal care products (baby care, deodorants, shown in exhibit above.
shampoos, and soaps). In addition, the company’s Hill’s Health An important factor for Colgate was whether it could
Science Diet is a leading pet food brand worldwide. Foreign use the ERP software across the entire spectrum of the busi-
sales account for about 70 percent of Colgate’s total revenues. ness. Colgate needed the ability to coordinate globally and
To stay competitive, Colgate continuously seeks to to act locally. Colgate’s U.S. division installed SAP R/3 for
streamline its supply chain, where thousands of suppliers and this purpose.
customers interact with the company. At the same time,
Colgate faces the challenges of new product acceleration, Source: Compiled from Kalakota and Robinson (2002).
which has been a factor in driving faster sales growth and
improved market share. Also, Colgate is devising ways to
offer consumers a greater choice of better products at a Questions
lower cost to the company, which creates complexities in the 1. What is the role of the ERP?
manufacturing and the supply chains. To better manage and
coordinate its business, Colgate embarked on an ERP imple- 2. Who are the major beneficiaries?
Supply Chain Planning and Optimization
Manufacturing Transportation Distribution Demand

Planning Planning Planning Planning
Mktg.
Product Pricing & Order
Mgmt. & Sales
Development Promotion Entry
Research
Enterprise Resource Planning

E-Commerce
Customers
Suppliers
MRP Manufacturing
Purchasing Inventory Distribution
Inbound & Production
& Accounts Control & & Accounts
Inventory Scheduling
Payable Warehousing Receivable
Plant Mgmt. (MPS)
Finance and Accounting
Human Resources
Source: Kalakota, R., and M. Robinson, M-Business: The Race to Mobility. New York: McGraw-Hill, 2002, p. 259.
How Are SCI Capabilities Provided?

The following are common ways to provide SCI capabilities.
◗ Use an enhanced ERP package that includes business intelligence capabilities. For
example, see Oracle and SAP products of 2001 or later.
◗ Integrate the ERP with business intelligence software from a specialized vendor, such as
Brio, Cognus, Information Builders, or Business Objects.
◗ Use Web Services. (See Hagel, 2002.)
◗ Create a best-of-breed system by using components from several vendors that will pro-
vide the required capabilities.
EXHIBIT T3.5 Comparing SCM and SCI

Supply Chain Management Supply Chain Intelligence
Largely about managing the procurement and production Provides a broad view of an entire supply chain to reveal full
links of the supply chain. product and component life cycle.
Transactional. Analytic.
Tactical decision making. Strategic decision making.
Helps reduce costs through improved operational efficiency. Reveals opportunities for cost reduction, but also stimulates
Usually just the SCM application’s data (as a vertical stovepipe). revenue growth.
Records one state of data, representing “now.” Integrates supplier, manufacturing, and product data (horizontal).
Assists in material and production planning. Keeps a historic record.
Quantifies cost of some materials. Does what-if forecasting based on historical data.
Shows today’s yield but cannot explain influences on it; thus Enables an understanding of total cost.
provides no help for improvements. Drills into yield figures to reveal what caused the performance
Simple reporting. level, so it can be improved.
Collaborative environment with personalizable monitoring of
metrics.
Source: Russom, P., “Increasing Manufacturing Performance Through Supply Chain Intelligence.” DM Review, September 2000. Reprinted by
permission from Sage Tree, Inc.
ERP FAILURES AND JUSTIFICATION

Despite all the improvements, ERP projects, especially large ones, may fail as shown in
Insights and Additions T3.2.
In order to avoid failures and ensure success, it is necessary, according to thespot4sap.com,
for the partners involved in ERP implementation to hold open and honest dialogue at the start
of each project, and to nail down the critical success factors of the implementation. Included in
this initial dialogue should be consideration of the following factors: the customer’s expecta-
tions; the ERP product capabilities and limitations; the level of change the customer has to go
through to make the system fit; the level of commitment within the customer organization to
see the project through to completion; the risks presented by politics within the customer orga-
nization; and the implementing consultant’s capabilities, responsibilities, and role (if applica-
ble). Failures also can be minimized if appropriate cost-benefit and justification are done in
advance. (See Oliver and Romm, 2002; Murphy and Simon, 2002.) Another way to avoid fail-
ures, or at least to minimize their cost, is to use ASPs. ERP implementation may be offered by
cultural and global factors. For an analysis of the Asian experiences, see Soh et al. (2000).
Finally, Willcocks and Sykes (2002) relate the successful implementation of ERP to the
need to identify and build key in-house IT capabilities before embarking on ERP.

1. Describe an ERP system.
2. Compare building an ERP with buying or leasing one.
3. Compare the first and second generations of ERP.
4. Define SCM software, and list some of its capabilities.
T3.4 E-COMMERCE AND SUPPLY CHAINS

E-commerce (EC) is emerging as a superb tool for providing solutions to problems along the
supply chain. Many supply chain activities, from taking customers’ orders to procurement,
can be conducted as part of an EC initiative. In general, EC can make the following contri-
butions to supply chain management.
1. Digitize products such as software. This expedites the flow of materials in the chain. It
is also much cheaper to create and move electronic digits than physical products.
Insights and Additions T3.2 Even the Best-Planned ERPs Sometimes Fail
The complexity of ERP projects causes some of them to fail, as shown by the following examples.
Example 1: Hershey’s chocolate bars and its other products were not selling well in late 1999. Hershey Foods Corp.
reported a 19-percent drop in third-quarter net earnings due to computer problems. The problems continued for several months,
causing Hershey to lose market share and several hundred million dollars. The major problem, according to the company, was its
new order-and-distribution system, which uses software from SAP (the ERP) and Siebel Systems (the CRM). Since the integrated
system went live in July 1999, Hershey had been unable to fill all orders and get products onto shelves on time. It took many
months to fix the problem.
Example 2: In November 1999, Whirlpool Corp. reported major delays in its shipments of appliances due to “bugs” in its
new ERP. Orders for quantities smaller than one truckload met with snags in the areas of order processing, tracking, and invoic-
ing. According to cnet.com (site accessed February 16, 2001), SAP gave Whirlpool the red light twice prior to the date on which
the project would go live, saying the supply chain was not ready, but Whirlpool ignored the signals.
Example 3: FoxMeyer, a major distributor of prescription drugs to hospitals and pharmacies that filed for bankruptcy in
1996, sued SAP and Accenture Consulting (in August 2001) for $500 million each, claiming that the ERP system they con-
structed led to its demise. See the complete case on the book’s Web site at wiley.com/college/turban. Many customers sued
FoxMeyer, as well. All cases are still pending as of May 2003.
Example 4: W. L. Gore and Associates filed a lawsuit against PeopleSoft and Deloitte & Touche, because the ERP project
that the two companies developed for the company cost twice the original estimate.
Note: In the W. L. Gore and FoxMeyer cases, the ERP vendors and consultants blamed their client’s poor management teams
for the ERP problems. Both cases were in court at the time this was written (fall 2003).
Example 5: Nike, Inc., installed a $400 million global e-supply chain in 2000 to manage the supply chain of its shoes and
other products. In an attempt to save time, the company modified a generic software product from i2 Inc., only to find out that
the ERP-based e-supply chain does not work. The system was repaired in 2001 after causing millions of dollars in damages to Nike.
Sources: Compiled from Davenport, T. H., Mission Critical: Realizing the Promise of Enterprise Systems. Cambridge, MA: Harvard Business School
Press, 2000; cnet.com; cio.com; and Business Courier (miscellaneous dates).
2. Replace all paper documents that move physically with electronic documents. This
change improves speed and accuracy, and the cost of document transmission is much
cheaper.
3. Provide an integrated messaging system. A single business transaction could involve
many messages, totaling thousands of messages per week or even per day for a company.
E-commerce can replace related faxes, telephone calls, and telegrams with an electronic
messaging system at a minimal cost.
4. Change the nature and structure of the supply chain from linear to a hub. Such
restructuring enables faster, cheaper, and better communication, collaboration, and dis-
covery of information.
5. Enhance collaboration and information sharing among the partners in the supply
chain. This can improve cooperation, coordination, and demand forecasts.
6. Shorten the supply chain and minimize inventories. Production changes from mass
production to build to order as a result of the “pull” nature of EC. The auto industry, for
example, is expected to save billions of dollars annually in inventory reduction alone by
moving to an e-commerce-supported, build-to-order strategy.
7. Facilitate customer service. Of special interest is the reduction of contact between
employees and customers due to innovations such as the introduction of a Web site for fre-
quently asked questions (FAQs) and self-services such as the self-tracking of shipments.
8. Introduce efficiencies. These efficiencies relate to buying and selling through the cre-
ation of e-marketplaces and e-procurement.
The next section examines some specific activities and cases.
BUYING AND SELLING ALONG THE SUPPLY CHAIN

A major role of EC is to facilitate buying and selling along all segments of the supply chain.
The major activity categories are upstream activities, internal supply chain activities, down-
stream activities, and combined upstream/downstream activities.
Upstream Activities
Many innovative models of EC improve the upstream activities. These models generally are
described as e-procurement. Examples are reverse auctions, aggregation of vendors’ catalogs
at the buyer’s site, procurement via consortia, and group purchasing. (For others, see
Mitchell, 2000; Adamson, 2000; and Varley, 2000.)
Internal Supply Chain Activities

Internal SCM activities include several intrabusiness EC activities. These activities—from
entering orders of materials, to recording sales, to tracking shipments—usually are conducted
over a corporate intranet. The Chevron Texaco case that follows illustrates several internal
EC applications.
Downstream Activities
The following are typical EC models of downstream activities.
Selling on your own Web site. Large companies such as Intel, Dell, Cisco, and IBM use
this model. At the company’s Web site, buyers review electronic catalogs from which they can
make purchases. Large buyers get their own pages and customized catalogs. Companies sell
their standard products, and many allow customers to configure customized products (e.g.,
Cisco, National Semiconductor Corp.).
Auctions. Large companies such as Dell conduct auctions of products or obsolete equip-
ment on their Web sites. Electronic auctions can shorten cycle time and save on logistics
expenses. For example, in the United States, more than 2.5 million used cars are sold in auc-
tions annually. Many of these auctions are offered online and are supplied by car rental com-
panies, government agencies, banks, and some other large organizations. One pure online
B2B auctioneer, for example, is manheimauctions.com. The buyers are car dealers who then
resell the cars to individuals. Traditional car auctions are done on large lots, where the cars are
displayed and physically auctioned. In the electronic auction, the autos do not need to be
transported to a physical auction site, nor do buyers have to travel to an auction site. Savings
of up to $500 per car can be realized.
Exchanges
Considerable support to B2B supply chains can be provided by electronic exchanges. Such
exchanges are shown in Exhibit T3.6. Notice that this example shows three separate
exchanges. In other cases, the entire industry might have only one exchange.
Upstream and Downstream Combined

It is sometimes advisable to combine upstream and downstream EC activities. This can be done
in B2B exchanges, where many buyers and sellers meet. Most of these exchanges are centered
one in each industry, so they are referred to as vertical exchanges. A typical vertical exchange is
the one organized by ChemConnect. Similar markets exist for metals, electricity (which is sold
among electricity-generating companies), and many commodities. Some vertical exchanges use
auctions and reverse auctions.
Many other e-commerce innovations exist. For example, Radio Frequency ID (RFID)
tags provide real-time information that can smooth the supply chain. (See Exhibit T3.7.)
INTEGRATION OF EC WITH ERP

Because many middle-sized and large companies already have an ERP system or are installing
one, and because EC needs to interface with ERP, it makes sense to integrate the two tightly.
Such interface is needed mainly for order fulfillment and for collaboration with business part-
ners, as in the case of inventory managed by suppliers. Integrating EC and ERP efforts is still
CASE T3.3
EC Application
CHEVRONTEXACO MODERNIZED ITS SUPPLY CHAIN
WITH EC TOOLS
THE PROBLEM The system uses demand forecasting to determine how
ChevronTexaco is the largest U.S. oil company, and it is much oil it will refine on a monthly basis, with weekly and daily
multinational in nature. Its main business is drilling, refin- checks. This way, production is matched to customers’ demand.
ing, transporting, and selling gasoline (oil). In this competi- To perform all of these steps, it is necessary to integrate the
tive business, a savings of even a quarter of a penny for each supply and demand information systems; this is where the ERP
gallon totals up to millions, and so does the cost. Two prob- software is useful. Planners at various points across the supply
lems have plagued the industry: running out of oil when chain (e.g., refinery, terminal management, station management,
needed at each pump, and a delivery that is aborted because transportation, and production) must share data constantly.
a tank at the gas station is too full (called retain). Run-outs These data are provided by the various information systems.
and retains, known as the industry’s “twin evils,” have been Recent IT projects that support the supply chain
targets for improvements for years with little success. and extend it globally are NetReady, which enables 150
Gasoline flows in the supply chain, starting with the e-business initiatives; Global Information Link (GIL2),
upstream, which includes oil hunting, drilling, and so on. Then which enables connectivity throughout the company;
it is processed, and finally it goes to the downstream part, e-Guest, which enables sharing of information with business
which is the customer-facing part of the chain. The difficulty partners; and Human Resources Information System.
is to match the three parts of the chain. ChevronTexaco owns
THE RESULTS
oil fields and refineries, but it also buys crude and refined oil
The integrated system that allows data to be shared across
to meet peak demand. Purchases are of two kinds: those that
the company has improved decision making at every point
have long-term contracts and those that are purchased as
in the customer-facing and processing parts of the supply
needed on the spot market at prevailing prices, which are usu-
chain, increasing the company’s profits by more than
ally higher than contract purchase prices.
$300 million in 1999 and by more than an additional
ChevronTexaco acted in the past like a mass-production
$100 million in 2000. (The increase resulted from other
manufacturing company, just trying to make products and
initiatives also, but it was mostly due to the change in the
then sell them (supply-driven strategy). The problem with
supply chain.)
this strategy is that each time a company makes too much or
According to Worthen (2002), studies indicate that
too little, extra cost is introduced into the supply chain.
companies that belong to the top 20 percent in their indus-
THE SOLUTION tries operate their supply chains twice as efficiently as
The company decided to change its supply chain business median companies. The successful companies carry half as
model from one that is supply driven to one that is demand much inventory and can respond to a significant rise in
driven. Namely, instead of worrying about how much oil it demand (20 percent or higher) twice as fast; they also know
would process and then pushing it, the company started wor- how to minimize the number of deliveries. ChevronTexaco
rying about how much oil its customers wanted. This change belongs in this category.
required a major transformation in the business and an
extensive support network of information technologies. Sources: Compiled from Worthen (2002) and ChevronTexaco.com (see
To implement the IT support, the company is investing “Information Technology,” site accessed May 19, 2003).
$15 million each year in the United States alone in propri-
etary supply chain IT software that can capture data in real
time. Each tank in each gas station is equipped with an elec- Questions
tronic label monitor that conveys real-time information 1. “The company business is not to make the product, but
about the oil level through a cable to the station’s IT-based selling the product.” Explain this statement. Relate it
management system. The data then travel via a satellite to to the new strategy.
the primary inventory system at the company’s main office.
There, an advanced, DSS-based planning system processes 2. Why was it necessary to use IT to support the change?
the data to help with refining, marketing, and logistics deci- 3. Identify all the segments of the supply chain.
sions. This DSS includes information collected at trucking 4. Identify all supporting information systems
and airline companies. Using an ERP and a business planning in this case.
system, ChevronTexaco determines how much to refine, how
5. Why is this an example of an EC-enabled application?
much to buy on spot markets, and when and how much to
ship to each of its retail stations.
EXHIBIT T3.6 How Several Exchanges Work in One Supply Chain
Financial
Market
Plan Banks
Wholesale
Distributors
Retailers
Suppliers Manufacturers
Supplier- Customer-
Oriented Logistics
Oriented
Exchanges Exchanges
Exchanges
Customers
Virtual
Manufacturers
Contract Returned Items
Manufacturers
Logistics
Providers
Information Flows
Goods Flow
in its infancy in many organizations. ERP vendors started to integrate EC with ERP only
since 1997 on a small scale and only in 2000 as a major initiative. (See Siau and Messersmith,
2002.) For example, SAP introduced mySAP.com as a major initiative in 1999. The mySAP
initiative is a multifaceted Internet product that includes EC, online trading sites, an infor-
mation portal, application hosting, and more user-friendly graphical interfaces.

1. List EC contributions for improving supply chain operations.
2. How does EC facilitate buying and selling along the supply chain?
3. Why is demand driven a better strategy?
EXHIBIT T3.7 Radio Frequency Tags: Smooth Supply Chains
Source: Heizer, J., and B. Render, Operations Management, 7th ed. Upper Saddle River, NJ: Pearson Education, Inc., 2004, p. 423.
T3.5 GLOBAL SUPPLY CHAINS

Supply chains that involve suppliers and customers or other business partners that are located
in two or more countries are referred to as global supply chains. (See Harrison, 2001; and
Handfield and Nichols, 2003.)
CHARACTERISTICS AND PROBLEMS ALONG GLOBAL SUPPLY CHAINS

The major reasons companies go global are lower prices of materials, products, services, and
labor; availability of buying customers; availability of products that are unavailable domesti-
cally; the firm’s global expansion strategy; advanced or special technology available in other
countries; high quality of products available; intensification of global competition, which
drives companies to cut costs; the need to develop a foreign presence; and fulfillment of
counter trade. E-commerce has made it much easier to find suppliers in other countries (e.g.,
by using electronic bidding), as well as to find customers in other countries. (See Handfield
et al., 2002.)
Global supply chains are usually longer than domestic ones, and they can be more com-
plex. Therefore, additional uncertainties are likely. Some of the issues that can create difficul-
ties in global supply chains are legal issues, customs fees and taxes, language and cultural dif-
ferences, fast changes in currency exchange rates, and political instabilities. An example of
the difficulties of using a global supply chain can be seen in Application Case T3.4.
The supply chain in a global environment must be:
1. Flexible enough to adapt to changes in the environment.
2. Able to meet all regulatory and other country-specific constraints.
3. Effective and efficient.
Information technologies are a major contributor for meeting these objectives.
Companies use innovative, IT-based solutions to solve global supply chain problems. For
example, Volkswagen brings in suppliers’ teams, who work in VW factories in Brazil,
Argentina, and the Czech Republic. (See Application Case T3.5.)
Information technologies are extremely useful in supporting global supply chains, but
they need to be designed carefully (Harrison, 2001). For example, TradeNet in Singapore
connects sellers, buyers, and government agencies via electronic data interchange (EDI). A
similar network, TradeLink, operates in Hong Kong, using EDI and EDI/Internet in an
attempt to connect about 70,000 trading partners.
IT provides not only EDI and other communication options, but also online exper-
tise regarding the sometimes difficult and fast-changing regulations. IT also can be instru-
mental in helping businesses find trade partners (via electronic directories and search
engines as in the case of alibaba.com and chemconnect.com). IT also allows for automatic
Web page translation to many languages. Finally, IT facilitates outsourcing of products
and services, especially computer programming, to countries with a plentiful supply of low-
cost labor.

1. Describe the characteristics of a global supply chain.
2. Describe the potential problems along a global supply chain.
3. How does IT facilitate solutions for global supply chain problems?
T3.6 ISSUES IN SUPPLY CHAIN MANAGEMENT

The following are a few representative issues that are closely related to IT.
HOW MANY SUPPLIERS?

Companies can choose to have many or few suppliers. Each strategy has pros and cons. The
more suppliers a company has, the less dependent on each one the company is and the lower
the price is due to competition. A company also minimizes the risk of a supplier going out of
CASE T3.4
EC Application
LEGO STRUGGLES WITH GLOBAL ISSUES
Lego Company of Denmark (lego.com) is a major producer of ◗ Invoicing must comply with the regulations of many coun-
toys, including electronic ones. It is the world’s most well- tries. As a result, how many different invoices should be
known toy manufacturer. (It was voted “the toy company of used?
the century,” and it has thousands of Web sites created by ◗ Should Lego create a separate Web site for Mindstorms?
fans all over the world.) In 1999, the company decided to What language(s) should be used on the site?
market its Lego Mindstorms robot on the Internet. This ◗ Some countries have strict regulations regarding advertising
product is a unique innovation. Its users can build a Lego and sales to children. In addition, laws on consumer pro-
robot using more than 700 traditional Lego elements, protection vary among countries. How could the company
gram it on a PC, and transfer the program to the robot. Lego make sure not to violate any of these?
sells its products in many countries using several regional ◗ How should the company handle restrictions on the elec-
distribution centers. When the decision to go global using tronic transfer of individuals’ personal data? These restric-
electronic commerce was made, the company had the follow- tions differ among countries.
ing concerns. ◗ How should the company handle the tax and import duty
◗ How should the company choose which countries to sell in? payments in different countries?
It does not make sense to go to all countries, because sales In the rush to get its innovative product to market,
are low in some countries, and some offer no logistical sup- Lego did not solve all of these issues before the direct mar-
port services. What if a customer wants to buy online, but keting was introduced. The resulting problems forced Lego
there is no physical representation of Lego in that country? to close the Web site for business in 1998. It took about a
◗ A supportive distribution and service system would be year to solve all of the global trade–related issues and
needed, including returns and software support. Again, eventually reopen the site. By 2001, Lego was selling
these were not available in many countries. many of its products online, priced in U.S. dollars, but the
◗ There is an issue of merging the off-line and online opera- online service was available in only 15 countries. By 2003,
tions versus creating a new, centralized unit, which seemed Lego.com was operating as an independent unit that allows
to be a complex undertaking. the online design of many products. (For example, see “Train
◗ Existing warehouses were optimized to handle distribution Configurator” at the Web site.) The site offers many Web-
to commercial buyers but not to individual customers (a only deals, and it is visited by more than 4 million unique
major B2C problem). visitors each day.
◗ It would be necessary to handle returns around the globe.
How should that be done? Sources: Compiled from Lego.com; Damsguard and Horluck (2000);
◗ Lego products were selling in different countries in different and Stoll (2003).
currencies and at different prices. Should the product be
sold on the Internet at a single price? In which currency?
How would this price be related to the off-line prices? Questions
Alternatively, should the pages be customized for each 1. Enter Lego’s Web site and see the latest EC activities.
country? Also, investigate what the competitors are doing.
◗ How should the company handle the direct mail and track
individual shipments? Should the company use one 3PL or 2. Is the Web the way to go global?
several?
business or being unable to meet sudden increases in demand. Government regulations for
doing government jobs may require multiple suppliers, as well.
On the other hand, the fewer suppliers a company has, the more attention and service
the company gets. The company also might receive volume discounts because the company
buys more from each supplier. In addition, the company can anticipate better delivery sched-
ules and build better relationships with its suppliers.
IT plays a major role in this important issue. For example, when using a company-
centric e-marketplace, the number of suppliers tends to be smaller. However, in B2B
exchanges, a company is exposed to many suppliers. There is no one best solution to this
issue. For further discussion, see Reid and Sanders (2002) and Heizer and Render (2003). A
related issue is which suppliers to select.
CASE T3.5
EC Application
HOW VOLKSWAGEN RUNS ITS SUPPLY CHAIN IN BRAZIL
Source: Heizer, J., and B. Render, Operations Management, 7th ed. Upper Saddle River, NJ: Pearson
Education, Inc., 2004, p. 412.
In its Brazilian truck manufacturing plant located 100 miles the line, employees from Rockwell mount axles and brakes.
northwest of Rio de Janeiro, Volkswagen (VW) radically Then workers from Remon put on wheels and adjust tire pres-
altered its supply chain in 2002. The objectives were to sure. The MWM/Cummins team installs the engine and trans-
reduce the number of defective parts, cut labor costs, and mission. Truck cabs, produced by the Brazilian firm Delga
improve efficiency. This is a relatively small manufacturing Automotivea, are painted by Eisenmann, then finished and
plant with scheduled production of only 100 trucks per day upholstered by VDO, both of Germany. Volkswagen employees
and only 1,000 workers. However, only 200 of the 1,000 work do an evaluation of the final trucks.
for Volkswagen; they are responsible for overall quality, mar- VW already is trying a similar approach in plants in
keting, research, and design. The other 800 work for suppli- Buenos Aires, Argentina, and with Skoda in the Czech
ers such as Rockwell International and Cummins Engines, and Republic. Volkswagen’s new level of integration in supply
they do the specific assembly work. Volkswagen’s innovative chain management could be the wave of the future.
supply chain already improves quality and has driven down
costs, as each supplier accepts responsibility for its units and Source: Compiled from Heizer and Render (2003): 412–414.
its workers’ compensation.
Volkswagen’s major suppliers are assigned space in the
VW plant, but they provide their own components, supplies, Questions
and workers. Workers from various suppliers build the truck
1. Draw the supply chain of this VW manufacturing plant.
as it moves down the assembly line. The system is illustrated
in exhibit above. At the first stop in the assembly process, 2. Explain how IT improves the supply chain manage-
workers from Iochepe-Maxion mount the gas tank, transmis- ment. Distinguish among upstream, internal, and
sion lines, and steering blocks. As the chassis moves down downstream activities.
VERTICAL INTEGRATION
As illustrated earlier, companies use suppliers and subsuppliers (several tiers) in their supply
chain. However, instead of using such suppliers, a company might produce the products
itself. Such a strategy is called backward vertical integration. In a forward vertical integra-
tion, a manufacturer of components also makes the finished products. Another example is a
manufacturer that does its own distribution and sales to customers (e.g., via e-commerce)
along the downstream of the supply chain, such as Dell computers does.
Either type of vertical integration has its pros and cons. By using IT, one can increase
the control and improve communication in vertically integrated systems. For further discus-
sion, see Heizer and Render (2003) and Reid and Sanders (2002).
DEVELOPING SUPPLIERS’ AND OTHER PARTNERS’ RELATIONSHIPS

One of the most highly recommended strategies for improved SCM is creating strong rela-
tionships with one of the partners along the supply chain, including customers. Companies
such as peoplesoft.com provide the necessary software to develop appropriate relationships.
The issue is how much to invest in improving suppliers’ and partners’ relationships.
OTHER ISSUES
1. Ethical issues. Conducting a supply chain management project might result in the need
to lay off, retrain, or transfer employees. Should management notify the employees in
advance regarding such possibilities? What should be done about older employees who
might be difficult to retrain? Other ethical issues might involve sharing of personal
information, which could be required for a collaborative organizational culture. The
question is how to force it on employees who are resisting it. Finally, individuals might
have to share computer programs that they designed for their personal use. Such pro-
grams might be considered the intellectual property of the individuals. Should the
employees be compensated?
2. How much to integrate? Although companies should consider extreme integration
projects—including ERP, SCM, and electronic commerce—they should recognize that
integrating long, complex supply chain segments might result in a failure. Therefore,
companies often tightly integrate the upstream, inside-company, and downstream activ-
ities, each part by itself, and loosely connect these three.
3. The role of IT. Almost all major SCM projects use IT. However, it is important to
remember that in most cases, the technology plays a supportive role, and the primary
roles are organizational and managerial in nature. On the other hand, without IT, most
SCM efforts do not succeed.
4. Organizational adaptability. To adopt ERP and other enabling software, organization
processes must, unfortunately, conform to the software, not the other way around. When
the software is changed, when a later version is released, for example, the organization
processes must change also. Some organizations are able and willing to make such
changes; others are not.
5. Should the company sell online overseas? EC provides an opportunity to expand markets
globally. However, this can create long, complex supply chains. Therefore, it is neces-
sary to check first the logistics along the supply chain, as well regulations and pay-
ment issues.
6. Just-in-time delivery. The goal of this strategy is to deliver parts and materials exactly
when they are needed, keeping

1. What are the pros and cons of a smaller number of suppliers? How can IT help in reduc-
ing the number of suppliers?
2. How can PRM improve SCM?
3. How can EC facilitate vertical integration?
KEY TERMS
Backward vertical integration 28 Manufacturing resource Supply chain intelligence
Business intelligence 18 planning (MRP II) 10 (SCI) 18
Collaborative commerce 11 Material requirements Supply chain management
E-supply chain 2 planning (MRP) 9 (SCM) 2
Enterprise resource planning Product life cycle Vendor-managed inventory
(ERP) 10 management (PLM) 18 (VMI) 11
Enterprise systems 11 Reverse logistics (returns) 4 Vertical exchanges 22
Forward vertical integration 28 Supply chain 2 Vertical integration 28
Global supply chains 25
SUMMARY (NUMBERS REFER TO LEARNING OBJECTIVES)

1 It is necessary to manage the supply chain properly to that manages all information processing of routine
assure superb customer service, low cost, and short transactions in an enterprise.
cycle time. 5 E-commerce tools, such as e-procurement and col-
1 The supply chain must be completely managed from laborative commerce, are used to solve supply chain
the raw materials to the end customers. problems.
2 It is difficult to manage the supply chain due to the 5 Special large, automated warehouses help improve the
uncertainties in demand and supply and the need to EC order fulfillment, but they can be expensive to
coordinate several business partners’ activities. build and operate.
2 Innovative approaches to SCM require cooperation 5 Electronic commerce is able to provide new solutions
and coordination of the business partners, facilitated to problems along the supply chain by integrating the
by IT innovations such as inventory optimization and company’s major business activities with upstream and
VMI over extranets. These approaches allow suppliers downstream entities via an electronic infrastructure.
to view companies’ inventories in real time and man- 6 Global supply chains are usually long and can be com-
age them for their customers. plex. Therefore, they must be analyzed carefully before
3, 4 Software support for supply chain management has a decision to go global is finalized.
increased in coverage and scope, from MRP to MRP 6 Of the many issues related to SCM and EC, one
II, to ERP, to enhanced ERP (with business partners), should explore vertical integration, decide on the
and to an ERP/SCM software integration. number of suppliers, deal with ethical issues, and pro-
4 Today, ERP software, which is designed to improve vide computer-based PRM.
standard business transactions, is enhanced with busi- 7 Supply chain management software deals with opti-
ness intelligence and decision-support capabilities, as mization of segments of the supply chain (e.g., inven-
well as Web interfaces. tory control). It was recently integrated into some
4 ERP is an integrated software (also known as an ERP packages.
enterprise software), processing enterprise software
DISCUSSION QUESTIONS
1. Identify the supply chain(s) and the flow of informa- 5. Distinguish between ERP and SCM software. In
tion described in the ChevronTexaco case. what ways do they complement each other?
2. Discuss ERP failures. What lessons can be learned? 6. Discuss the relationships between e-commerce and ERP.
3. Discuss the Warner-Lambert Listerine case, and pre- 7. Discuss what it would be like if the registration
pare a chart of Warner Lambert’s supply chain. process and class scheduling process at your college or
4. Discuss the advantage of demand-driven versus supply- university were restructured to an online, real-time,
driven supply chains. seamless system with good connectivity and good
empowerment in the organization. (If your registra- hospitals, retailing, banking, education, construction,
tion is already online, find another manual process that agribusiness, and shipping.
can be automated.) Explain the supply chain in this 11. Discuss the meaning of intelligence in the term supply
situation. chain intelligence.
8. Relate ERP to software integration. 12. It is said that supply chains are essentially “a series of
9. Discuss how cooperation between a company that you are linked suppliers and customers; every customer is in
familiar with and its suppliers can reduce inventory costs. turn a supplier to the next downstream organization,
10. Find examples of how organizations improve their until the ultimate end user.” Explain. Use of a diagram
supply chains in two of the following: manufacturing, is recommended.
EXERCISES
1. Draw the supply chains of Dell Computer (see Online the information there is free. Prepare an outline of the
Minicase 2) and Warner-Lambert. What are the simi- major resources available at the site.
larities? The differences? 4. Automated warehouses play a major role in B2C and
2. Draw the supply chain of Lego. (See additional mail-order fulfillments. Find material on how they
description at lego.com.) Include at least two operate. (Use google.com and findarticles.com for
countries. more information.)
3. Enter aberdeen.com and observe their “online supply 5. Examine the functionalities of ERP software from
chain community” (supplychainaccess.com). Some of SAP or other vendors.
INTERNET EXERCISES
1. Enter ups.com. Examine some of the IT-supported cus- 6. Enter rawmart.com and find
tomer services and tools provided by the company. How what information they provide
does UPS contribute to supply chain improvements? that supports logistics. Also find
2. Enter supply-chain.org, cio.com, findarticles.com, what shipment services they pro-
and google.com and search for recent information on vide online.
supply chain management integration. 7. Visit ups.com and find its recent EC initiatives.
3. Enter coca-colastore.com. Examine the delivery and Compare them with those of fedex.com. Then go to
the return options that are available there. onlinestore.ups.com and simulate a purchase.
4. The U.S. Postal Service provides EC logistics. Examine its 8. Enter efulfillmentservice.com. Review the products
services and tracking systems at uspsprioritymail.com. you find there. How does the company organize the
What are the potential advantages for EC shippers? network? How is it related to companies such as
FedEx? How does this company make money?
5. Enter brio.com and identify Brio’s solution to SCM
integration as it relates to decision making for EC.
View the demo.
GROUP EXERCISE
BACKGROUND for its quality products, has been growing slowly, and con-
trols a fairly large but fixed market share. CF salespeople,
Custom Furniture Ltd. (CF) is a large office furniture
equipped with a catalog of their basic products and pic-
manufacturing company that specializes in custom-made
tures of some specially designed furniture, visit their reg-
luxury office furniture (such as executive desks and board-
ular customers periodically and call on potential cus-
room tables and chairs). Located in a big metropolitan
tomers to set up appointments to show the catalogs.
area (population about 12 million), the company is known
If a customer is interested, a sketch of the furniture is d. Customers frequently complain about the long
made jointly with the customer, measurements are taken, time span from when they place the order to when
and an estimated price is given on the spot (using a for- the furniture is received.
mula in the salesperson’s portable PC). The order infor- e. Although the company sells only a few dozen
mation is faxed or manually delivered to the main office products that are made from a selection of 250
daily. The design department prepares the blueprints of basic components, literally millions of configura-
the furniture, finance/accounting prepares an accurate tions of the final products are possible. In general,
price, and a contract is sent to the customer by mail or a customers are getting more innovative and
delivery service. (Legal requirements do not allow faxing.) demanding, so it is getting more difficult to trans-
The customer can negotiate the deal and can request late customers’ wishes into blueprints and final
modifications. After the contract is finalized, production products.
begins and the final product is sent to the customer.
f. A new company, CF2.com (factitious name),
appeared from nowhere a few weeks ago, offering
PROBLEMS competing products at a 30 percent discount and a
The company experiences the following problems. 50 percent reduction in cycle time. CF2.com has
a. Completed furniture is frequently returned for not received an order yet, but CF remembers what
changes. (“This is not what we had in mind; you happened to Toys R Us and Barnes and Noble—
misinterpreted our sketch.”) Although some modi- companies that ignored online competition.
fications can be made at the customer’s site, other
Your mission. Your group was hired as a consultant by
items must physically be sent back to the company.
CF. What would you advise CF Management to do?
b. Deliveries are made by a small contractor who
charges low fees with the understanding that a 1. Prepare a diagram of the supply chain of CF in this
delivery might take 1 to 3 days from the time the case.
delivery is called for. Using a larger delivery com- 2. Using your knowledge of strategic IT systems, SCM,
pany would cost 47 percent more with a guaran- e-commerce, and so on, prepare a plan for CF that
teed same-day delivery cycle. will deal with each of the aforementioned six points.
c. The salespeople claim they are too busy to actively That is, what IT-based solutions can be used?
seek many new customers. Because they are paid Because cost could be a major factor, suggest two
mostly fixed salaries (which is the norm in the indus- alternatives for each point (standard and deluxe).
try), adding more salespeople might be too expensive.
WEB RESOURCES FOR SCM

Large numbers of resources for supply chain im- Supply Chain Academy: supplychainacademy.com
provement and management are available on the Web. Supply Chain Exchange: gxs.com
The following are representative examples. Supply Chain Planet: supplychainplanet.com
Supply Chain Excellence: pfsweb.com
American Supplier Institute (ASI): amsup.com
Council of Logistics Management: clm1.org Harvard Business School Cases: textbookcasematch.hbsp.
CXO Media Inc.: cio.com/research Harvard.edu:
Erasmus Global Supply Chain Center: 1. H. F. Butt Grocery Co.: The New Digital Strategy
global-supply-chain.org (A)(#300-106): Examines how this company’s supply
ERP Association: erpassist.com chain has moved to e-commerce.
Institute for Logistics Management: logistics-edu.com 2. Webvan (#602-037): Discusses the processes by which
IT Guide: smeit.com Webvan delivers groceries to customers’ homes.
Logistics Information on the Web: dsii.com 3. Cisco Systems: Building Leading Internet Capabilities
Nummi: nummi.com (#301-133): Cisco’s efforts to broaden its Internet use
Purchasing Magazines Web Site: manufacturing.net/ are explored.
magazine/purchasing
SME Supply Chain Management: bettermanage ment.com
REAL-WORLD CASES
CASE 1: SMOOTHING THE SUPPLY CHAIN
OF DAVIS AND WARSHOW USING THE WEB
Davis & Warshow (daviswarshow.com) is a plumbing and and the orders go directly to the warehouse. From there,
heating wholesaler in New York City. This is a competi- they are routed to the nearest distribution center, which
tive business, where a medium-sized company ($60 mil- gets parts for special orders when needed.
lion in annual sales) like Davis & Warshow (D&W) can Linking its Web site to eBay’s Web site allows D&W
survive only by being innovative. Indeed, the 75-year-old to auction surplus faucets and other parts. The company
company survived mainly by positioning itself as a was amazed to find that plumbing-hungry Web surfers
technology-first mover in its industry. For example, in were bidding up prices sometimes to as much as 100 per-
1945 it used a billing machine, in the 1950s it com- cent over the normal price.
puterized its payroll, and in the mid-1980s the company The electronic catalogs of D&W are used by the cus-
introduced EDI and voice mail. In 2000, the company tomers (plumbing contractors and builders) not only to
embarked on automated warehousing and e-commerce to place orders, but also to prepare their proposals for their
smooth its supply chain. clients. This coordination makes it easier for the cus-
With New York’s old buildings, it is difficult for tomers to sell a job. D&W views it as a customer service.
plumbers to know in advance what parts they will need. Using passwords, the contractors and builders can access
They are usually on the job sites when they find out information in the electronic catalogs that they can’t get
what parts they have to get. Calling in for parts and anywhere else.
materials and then waiting for delivery costs a lot of The company also helped its customers solve
money in terms of lost time. D&W’s mission is to provide another problem. Many of the customers do not keep
parts as quickly as possible to its customers, who are their pricing information up-to-date. D&W has created a
retailers and plumbing contractors. customized Excel spreadsheet for each customer with a
The company has a large warehouse, 6 distribution Web site password and loaded updated pricing informa-
centers (branches), and 20 delivery trucks, each tion onto a CD-ROM. Contractors can use the CD-ROM
equipped with a wireless communication system. to make sure prices are current. The Web site and the
However, delivery still was slow at times. In addition, CD-ROM are synchronized.
inventories at the distribution centers were high, Adoption was slow at the beginning, but it started
because the delivery from the central warehouse was not to accelerate in 2001. D&W expects a major portion of
fast enough. This has all changed now, thanks to the its business to be online by 2005. Some of the system’s
automated warehouse. benefits are that employees can quickly find any item
Using Mincron’s Warehouse Management System, with the scan guns, employees’ stress levels have gone
Davis & Warshow built an automated, 120,000-square- down dramatically because they no longer need to hunt
foot warehouse. To begin with, all products that are not around the warehouse for products or pieces of paper,
bar-coded by the manufacturers are labeled as they enter and customer service and customer satisfaction levels
the warehouse. Then, all employees at the warehouse had have improved dramatically; finally, the system paid for
to learn to use radio-frequency bar-code scanners and itself in 2 years just from inventory reduction at the dis-
unlearn many years of the traditional ways of putting tribution branches.
away, picking, and shipping orders. Employees worried
that scan guns would eliminate their jobs along with the Sources: Compiled from B. Miodonski, “Davis & Warshow Hit 75
paper documents that were being replaced. Employees’ Running,” Supply House Times, July 2000; and daviswarshow.com
cooperation was achieved when job and salary levels were (site accessed May 13, 2003).
guaranteed. (New employees, however, are paid less,
because they do not need the same level of training and
experience.) Using the scan guns, employees can find Questions
items in a few minutes. Before, it took much longer—in 1. Will D&W be disintermediated if manufacturers
some cases a few hours. start to sell directly to contractors?
Another problem was order entry. Customers used to
order by fax, by phone, or by dropping in to a distribu- 2. What will happen if its competitors duplicate the
tion branch. Now, the customer can order on the Web, system?
REAL-WORLD CASES
CASE 2: HOW DELL IS MANAGING
ITS SUPPLY CHAIN
The Problem eration with other vendors reduced the testing period
from 60 or 90 days to 15.
Michael Dell started his business as a student from his
university dorm by using a mail-order approach to selling ◗ Using the Internet, Dell’s employees constantly moni-
PCs. This changed the manner in which PCs were sold. tor productivity and rate of return on investment (ROI)
The customer did not have to come to a store to buy a on all products.
computer, and Dell was able to customize the computer Most significant for Dell has been the emergence of
to the specifications of the customer. The direct-mail electronic commerce. In 2003, Dell was selling more than
approach enabled Dell to underprice his rivals, who were $8.0 million worth of computers each day on its Web
using distributors and retailers, by about 10 percent. For site, and this amount was growing by an unheard of
several years the business grew slowly, but Dell con- 6 percent per month. In 1999, Dell added electronic
stantly captured market share. In 1993, Compaq, the PC auctions (dellauction.com) as a marketing channel. Dell’s
market leader at that time, decided to cut prices drasti- goal is to sell most of its computers from its Web site
cally to drive Dell computers out of the market. As a (dell.com). In addition to computers, Dell sells servers,
result of the price war, Dell Computer, Inc., had a printers, and other hardware.
$65 million loss from reduced sales and inventory write- Dell frequently is cited as an example of a top cus-
downs in the first 6 months of 1993 alone. The company tomer relationship management (CRM) provider. The
was on the verge of bankruptcy. e-CRM activities are integrated electronically with cus-
tomers’ ordering and order fulfillment. For example, cus-
The Solution tomers can track their orders online to see if the comput-
Dell realized that the only way to win the marketing war ers are in production or already on the shipping track.
was to introduce fundamental changes, termed business They also can access detailed diagrams of the computers
process reengineering (Chapter 9), in its own business, and get information about troubleshooting. By using
and along the supply chain from its suppliers all the way viewer-approved configurations and pricing for its cus-
to its customers. In addition to competing on price and tomers and by eliminating paperwork, Dell has been able
quality, Dell started competing on speed. Since 2000, if to cut administrative process expenses by 15 percent.
you order a customized PC on any working day, the com- In addition, Dell created customized home pages for
puter can be on the delivery truck in 2 to 3 days; a com- its biggest corporate customers, such as Eastman
plex, custom-made PC will be delivered in 5 days or less. Chemical, Monsanto, and Wells Fargo. These sites, known
Among the IT-supported innovations were the following. as Premier Pages, enable customers’ employees to use
◗ Dell uses a mass customization approach to produc- Dell’s provided configuration and workflow software to
tion. Though the approach wasn’t a new one, Dell was design computers, get an order approved inside the
the first to use it in making and selling computers. client organization, and place orders quickly and easily.
These employees also can order PCs for their own homes
◗ Dell builds many computers only after they are and receive the corporate price. The electronic ordering
ordered. This is done by using just-in-time manufac- makes customers happy, but it also enables Dell to col-
turing (Chapter 7), which also enables quick deliveries, lect payments quickly.
low inventory levels, little or no obsolescence, and After orders are received, they are transferred elec-
lower marketing and administrative costs. tronically to the production floor. Intelligent systems
◗ Component warehouses, which are maintained by Dell’s prepare the required parts and components list for each
vendors, are located within 15 minutes of Dell facto- computer and check availability. If they are not in stock,
ries. As described in Chapter 2, Dell gets components components are ordered electronically directly from sup-
quickly, and it can get components that are up to pliers, which can sometimes deliver in less than 60 min-
60 days newer than those of its major competitors by utes. Dell uses several other information technologies,
using Web services. including e-mail, EDI, video teleconferencing, electronic
◗ Most orders from customers and to suppliers are placed procurement, computerized faxes, an intranet, DSS, and a
on the Web. Web-based call center. Computerized manufacturing sys-
tems tightly link the entire demand and supply chains
◗ Shipments, which are handled by UPS and other carri-
from suppliers to buyers. This system is the foundation
ers, are all arranged electronically.
on which the build-to-order strategy rests.
◗ Dell collaborates electronically with its major buyers Dell also passes along data about its defect rates,
to pick customers’ brains for new product ideas. engineering changes, and product enhancements to its sup-
◗ Dell’s new PC models are tested at the same time as pliers. Because Dell and its suppliers are in constant com-
the networks that they reside on are tested. This coop- munication, the margin for error is reduced. Also, employees
are now able to collaborate in real time on product designs in-plant inventories by about 85 percent and vendors’
and enhancements. In turn, suppliers are required to share inventories by 10 percent to 40 percent (Hagel, 2002).
with Dell sensitive information, such as their own quality
problems. It was easy to get suppliers to follow Dell’s lead Sources: Compiled from several articles in Business Week (1997
because they also reap the benefits of faster cycle times, through 2001); cio.com (2001); dell.com, accessed March 27,
reduced inventory, and improved forecasts. 2003; Hagel (2002).
In addition, Dell uses the Internet to create a com-
munity around its supply chain. Dell’s corporate portal
has links to bulletin boards where partners from around Questions
the world can exchange information about their experi- 1. List all the actions taken by Dell to improve its
ences with Dell and its value chain. supply chain. Which are (or can be) facilitated
In 2000, Dell was a first mover to the use of Web by IT?
services to expedite communication between its manufac-
turing plants and its vendor-managed hubs and parts’ 2. Divide the actions in question 1 into the
suppliers. (See Hagel, 2002.) upstream, downstream, and internal parts of
the supply chain.
The Results 3. List the collaborative actions with business part-
ners in this case.
By 2000, Dell had become the number-one PC seller. It is
considered one of the world’s best-managed and most prof- 4. Why is it critical for Dell to maintain such an effi-
itable companies. The Web services system alone reduced cient supply chain?
REFERENCES
Adamson, J. “E-Procurement Comes of Age.” Proceedings, Gupta, V. Gibbons-Paul. “Suspicious Minds.” CIO
E-Commerce for Transition Economy, Geneva, June 2000. Magazine, January 15, 2003.
ASCET. “From Supply Chain to Collaborative Network: Hagel, J., III. Out of the Box. Boston: Harvard Business
Case Studies in the Food Industry.” White paper, 2000. School Press, 2002.
Andersen_ASCET.com. Handfield, R. B., and E. L. Nichols, Jr. Introduction to
Bayles, D. L. E-Commerce Logistics and Fulfillment. Upper Supply Chain Management. Upper Saddle River, NJ:
Saddle River, NJ: Prentice-Hall, 2001. Prentice Hall, 1999.
Caldwell, B. “Taming the Beast.” Information Week, March Handfield, R. B., and E. L. Nichols, Jr. Introduction to
10, 1997. Supply Chain Management. Upper Saddle River, NJ:
Caldwell, B., and T. Stein. “Beyond ERP: New IT Prentice-Hall, 1999; 2d ed., 2003.
Agenda.” Information Week, November 30, 1998. Handfield, R. B., et al. Supply Chain Redesign: Transforming
Chopra, S., and P. Meindl. Supply Chain Management, 2d Supply Chains into Integrated Value Systems. Upper Saddle
ed. Upper Saddle River, NJ: Prentice-Hall, 2004. River, NJ: Financial Times/Prentice Hall, 2002.
Cio.com. “Supply Chain Integration: The Name of the Harrison, T. P. “Global Supply Chain Design.” Information
Game Is Collaboration.” CIO Magazine, November 1, Systems Frontiers (October–December 2001).
1999, special advertising supplement. Heizer, J., and B. Render. Operations Management, 7th ed.
Damsguard, L., and J. Horluck. “Designing www.LEGO. Upper Saddle River, NJ: Prentice-Hall, 2004.
com/shop: Business Issues and Concerns,” case 500-0061. Hill, K. “Next Big Thing for ERP Vendors?” CRM Daily,
European Case Clearing House, 2000. February 19, 2003.
Davenport, T. H., Mission Critical: Realizing the Promise of Hugos, M. H. Essentials of Supply Chain Management. New
Enterprise Systems, Cambridge, MA: Harvard Business York: Wiley, 2002.
School Press, 2000. Jacobs, F. R., and D. C. Whybark. Why ERP? Boston:
Donovan, R. M. “Supply Chain Management: Cracking McGraw-Hill, 2000.
the Bullwhip Effect.” Material Handling Management, James D., and M. L. Wolf. “A Second Wind for ERP.”
Director Issue (2002–2003). McKinsey Quarterly, no. 2 (2000).
Drickhamer, D. “Value-Chain Management Moves from Kalakota, R., and M. Robinson. eBusiness 2.2. Boston:
Dream to Reality.” Industry Week, April 2002. Addison Wesley, 2001.
El Sawy, D. A. Redesigning Enterprise Processes for Kalakota, R., and M. Robinson. M-Business: The Race to
E-Business. New York: McGraw-Hill, 2001. Mobility. New York: McGraw-Hill, 2002.
Keskinocak, P. “Quantitative Analysis for Internet-Enabled Russell, R. S., et al. Operations Management, 4th ed. Upper
Supply Chains.” Interfaces (March–April 2001). Saddle River, NJ: Prentice-Hall, 2002.
Kinsella, B. “The Wal-Mart Factor,” Industrial Engineer, Russom, P. “Increasing Manufacturing Performance
Nov. 2003. Through Supply Chain Intelligence.” DM Review
Koch, C., et al. “The ABCs of ERP.” CIO Magazine (September, 2000).
(cio.com), December 22, 1999. Sandoe, K., et al. Enterprise Integration. New York: Wiley,
Kumar, K., ed. “Technology for Supply Chain Management.” 2001.
Communications of the ACM ( June 2001, special issue). Segev, A., and J. Gebauer. “B2B Procurement and
Larson, P. D., and A. Halldorsson. “What Is SCM? Where Marketplace Transformation.” Information Technology
Is It?” Australian Purchasing and Supply ( January/ and Management (April–June, 2001).
February, 2003). Selland, C. “Extending E-Business to ERP.” E-Business
Latamore, G. B. “Using ERP Data to Get Closer to Advisor ( January 1999).
Customers.” APICS (September 2000). Selland, C. “The Key to E-Business: Integrating the
Linthicum, D. S. Enterprise Application Integration. Boston: Enterprise.” E-Business Advisor (October 1999).
Addison Wesley, 1999. Shecterle, B. “Managing and Extending Supplier Relation-
Lucas, M. E., and R. Bishop. ERP For Dummies. Greens- ships.” People Talk, April–June 2003.
boro, NC: Resource Publication, October 2002. Sheikh, K. Manufacturing Resource Planning (MRP II).
Miodonski, B. “Davis & Warshow Hit 75 Running.” New York: McGraw-Hill, 2002.
Supply House Times, July 2000. Siau, K., and J. Messersmith. “Enabling Technologies for
Mitchell, P. “E-Procurement Systems: Beyond Indirect E-Commerce and ERP Integration.” Quarterly Journal
Procurement.” Proceedings, E-Commerce for Transition of Electronic Commerce ( January–March 2002).
Economy, Geneva, June 2000. Simatupang, T. M., and R. Sridharan. “The Collaborative
Morgan Stanley. “CIO Survey Series.” November 2001; Supply Chain.” International Journal of Logistics Man-
February 2002. agement 13, no. 1 (2002).
Murphy, K. E., and S. J. Simon. “Intangible Benefits Soh, C., et al. “Is ERP a Universal Solution?” Communi-
Valuation in ERP Projects.” Information Systems Journal cations of the ACM (April 2000).
12 (October 2002). Sterne, J. Web Metrics: Proven Methods for Measuring Web
Novak, S., and S. D. Eppinger. “Sourcing by Design: Site Success. New York: Wiley, 2002.
Product Complexity and the Supply Chain.” Manage- Stoll, R. “How We Built LEGO.com.” Practical Internet,
ment Science, January 2001. March 2003.
O’Leary, D. E. Enterprise Resource Planning Systems. Stratman, J. K., and A. V. Roth. “ERP Competence
London: Cambridge University Press, 2000. Constructs.” Decision Sciences (Fall 2002).
Oliver, D., and C. Romm. “Justifying Enterprise Resource Vakharia, J., ed. “E-Business and Supply Chain Manage-
Planning Adoption.” Journal of Information Technology ment.” Decision Sciences (Fall 2002, special issue).
(December 2002). Varley, S. “E-Procurement—Beyond the First Wave.”
Palaniswamy, R., and T. G. Frank. “Oracle ERP and Proceedings, E-Commerce for Transition Economy,
Network Computing Architecture.” Information Systems Geneva, June 2000. (Also available at wmrc.com.)
Management (Spring 2002). Viswanadham, N. “The Past, Present, and Future of
Poirier, C. C., and M. J. Bauer. E-Supply Chain: Using the Supply Chain Automation.” IEEE Robotics and
Internet to Revolutionize Your Business. San Francisco, Automation Magazine ( June 2002).
CA: Berrett-Koehler, 2000. Willcocks, L. P., and R. Sykes. “The Role of the CIO and
Ragowsky, A., and T. M. Somers, eds. “Enterprise Re- IT Function in ERP.” Communications of the ACM
source Planning.” Journal of Management Information (April 2002).
Systems (Summer 2002, special issue). Worthen, B. “Drilling for Every Drop of Value.” CIO
Reda, S. “The Path to RFID.” Stores ( June 2003). Management ( June 1, 2002).
Reddy, R. “Taming the Bullwhip Effect.” Intelligent Yao, D. D., et al. “Extended Enterprise Supply-Chain
Enterprise ( June 2001). Management at IBM.” Interfaces ( January–February
Reid, R., and N. R. Sanders. Operations Management. 2000).
Hoboken, NJ: Wiley, 2002.
Robb, D. “The Virtual Enterprise: How Companies Use
Technology to Stay in Control of a Virtual Supply
Chain.” Information Strategy (Summer 2003).

Online Tutorial 3: Supply Chain Management: Content

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Online Tutorial 3: Supply Chain Management: Content

Uploaded by

Copyright:

Available Formats

TurbanTut_03.

qxd 7/8/04 3:30 PM Page 1

2 Online Tutorial 3: Supply Chain Management

T3.1 ESSENTIALS OF THE SUPPLY AND VALUE CHAINS

Online Tutorial 3: Supply Chain Management 3

EXHIBIT T3.1 Milk Products Supply Chain

Tier FAT FREE

Cardboard Container Plastic Container

4 Online Tutorial 3: Supply Chain Management

THE COMPONENTS OF SUPPLY CHAINS

TYPES OF SUPPLY CHAINS

Online Tutorial 3: Supply Chain Management 5

EXHIBIT T3.2 An Automotive Supply Chain

Assembly Material Shipping

Integrated Make to Stock

6 Online Tutorial 3: Supply Chain Management

EXAMPLES OF SUPPLY CHAINS:

Online Tutorial 3: Supply Chain Management 7

EXHIBIT T3.3 Types of Supply Chains

(a) Integrated continuous replenishment pharmaceutical supply chain

Ingram’s Web site

(b) Channel assembly: Build-to-order supply chain with no inventory

7-Eleven: A Convenience Store

8 Online Tutorial 3: Supply Chain Management

Online Tutorial 3: Supply Chain Management 9

Toyota: A Global Auto Manufacturer

Section T3.1 ◗ REVIEW

T3.2 COMPUTERIZED SYSTEMS: MRP, MRP II, SCM,

THE EVOLUTION OF SUPPLY CHAIN COMPUTERIZED AIDS

10 Online Tutorial 3: Supply Chain Management

WHY SHOULD SYSTEMS BE INTEGRATED?

Internal Versus External Integration

Online Tutorial 3: Supply Chain Management 11

Types of Integration: From a Supply to a Value Chain

COLLABORATION ALONG THE SUPPLY CHAIN

Section T3.2 ◗ REVIEW

T3.3 ENTERPRISE RESOURCE PLANNING (ERP)

12 Online Tutorial 3: Supply Chain Management

Wal-Mart Warner-Lambert (WL)

Operational System ERP

Internet EDI Internet

Sales Data about

Inventory Internet Review and

Online Tutorial 3: Supply Chain Management 13

14 Online Tutorial 3: Supply Chain Management

EXHIBIT T3.4 Representative Modules in ERP

Manufacturing and Logistics:

Marketing and Sales:

Online Tutorial 3: Supply Chain Management 15

EXHIBIT T3.4 (continued)

Sources: Complied from mysap.com, oracle.com, and peoplesoft.com.

THE FIRST-GENERATION ERP

16 Online Tutorial 3: Supply Chain Management

THE SECOND-GENERATION ERP

Combining ERP with SCM Software

Online Tutorial 3: Supply Chain Management 17

Insights and Additions T3.1 SCM Software Versus ERP Software

i2 CORPORATION OPTIMIZATION SOLUTIONS

Spend Production Revenue

Supply Chain Operating Services

ERP ERP/Legacy Systems ERP

Source: From “The Foundation for Supply Chain Optimization,” 2003.

18 Online Tutorial 3: Supply Chain Management