Download - Unit 8C Revised
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS
Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainMan
agement
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS
Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainMan
agement
Synopsis
Performance measurements and metrics in SCM
Supply Chain Performance Measurement Systems
Measuring Supply Chain Performance
Integrated Performance Measurement
Performance Metrics For Supply Chain
Drivers of supply chain performance
A framework for structuring drivers
Facilities Inventory
Transportation
Information
Obstacles to achieving fit
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS
Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainMan
agement
Performance measurements and metrics in SCM
The metrics and measures are discussed in the context of the following
supply chain activities/processes:
(1) plan
(2) source
(3) make/assemble
(4) delivery/customer (Stewart, 1995; Gunasekaran et al., 2001).
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS
Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainMan
agement
SC Performance Measurement Systems
Performance measurement systems must:
Link SC trading partners to achieve breakthrough performance in satisfying
the end users
Overlay the entire SC to assure that all contribute to SC strategy
In a successful chain, members jointly agree on a SC performance
measurement system.
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS
Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainMan
agement
SC Performance Meas. Systems (2)
Specific Supply Chain Performance Measures
Total SCM costs:
cost to process orders; purchase & manage inventories & information systems.
SC cash-to-cash cycle time: Average # of days between paying for materials and getting paid by SC partners.
SC production flexibility:
average time required to provide an unplanned 20 % increase in production.
SC delivery performance:
average % of orders filled by requested delivery date.
SC perfect order fulfillment performance: average % of orders that arrive on time, complete, and damage free.
Supply chain e-business performance:
average % of electronic orders received for all supply chain members.
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS
Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainMan
agement
Measuring Supply Chain Performance
Strategic decision-making, development of action plans and operations
improvement relies on the development of performance measurement systems
It monitors current and past states and enable projections into the future.
Also stops considering financial accounting measures as the basis for performancemeasurement R.G. Eccles (1991)
According to Neely (1995)
The nature of the work is changing, cost allocation techniques outdated.
Increased levels of competition create pressure to reduce costs and increase value
generated by products
Specific actions geared towards operations improvement / meeting quality standardsrequire specific measures to assess the impact on performance
External demands require firms to be more adaptable
Performance measurement systems need to focus simultaneouly on resource
efficiency, effective output and flexibility (Beamon, 1998)
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainMan
agement
Integrated Performance Measurement
Balanced Scorecard (Kaplan e Norton, 1996)
The BSC translates the firm strategy into a set of metrics that track
performance along four inter-related perspectives:
Financial Perspective
Customer Perspective
Internal process Perspective
Learning and Growth Perspective
Strategic Maps (Kaplan e Norton)
Show causal relationships between metrics associated with the differentperspectives.
Build a cohesive and integrative view of the firm strategy.
Four key themes are value creation, customer value, operational excellence
and comunity relationships.
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainMan
agement
Integrated Performance Measurement
The Performance prism (Neely e Kennerley, 2002)
Satisfy stakeholders and internal strategic objectives:
Satisfaction of stakeholders
Stakeholderscontribution
Strategy
Processes
Competencies
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainMan
agement
Performance Metrics For SC
Propose a set of metrics for supply chain management following the
background literature on performance measurement systems. A few
specific concerns were identified:
Balancing metrics
Internal Vs external metrics;
Financial Vs non-financial;
Functional Vs cross-functional;
Current performance Vs learning and innovation.
Identifying key performance areas Key performance areas are related to value creation.
Identifying key processes in the supply chain
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainMan
agement
Drivers of Supply Chain Performance
Facilities
places where inventory is stored, assembled, or fabricated
production sites and storage sites
Inventory
raw materials, WIP, finished goods within a supply chain
inventory policies
Transportation
moving inventory from point to point in a supply chain
combinations of transportation modes and routes
Information
data and analysis regarding inventory, transportation, facilities throughout the
supply chain
potentially the biggest driver of supply chain performance
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainMan
agement
A Framework for Structuring Drivers
Efficiency Responsiveness
Facilities Transportation Inventory Information
Supply chain structure
Drivers
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainMan
agement
Supply Chain Decisions: Structuring Drivers
Strategy(Design)
Planning
Operation
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainMan
agement
Facilities
Role in the supply chain
the where of the supply chain
manufacturing or storage (warehouses)
Role in the competitive strategy
economies of scale (efficiency priority)
larger number of smaller facilities (responsiveness priority)
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainMan
agement
Components of Facilities Decisions
Location
centralization (efficiency) vs. decentralization (responsiveness)
other factors to consider (e.g., proximity to customers) Capacity (flexibility versus efficiency)
Manufacturing methodology (product focused versus process focused)
Warehousing methodology (SKU storage, job lot storage, cross-docking)
Overall trade-off: Responsiveness versus efficiency
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainMan
agement
Inventory
Role in the supply chain
Role in the competitive strategy
Components of inventory decisions
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainMan
agement
Inventory: Role in the Supply Chain
Inventory exists because of a mismatch between supply and demand
Source of cost and influence on responsiveness
Impact on
material flow time: time elapsed from: material entry in the supply chain to its
exit from the supply chain
throughput
rate at which sales to end consumers occur
Inventory and throughput are synonymous in a supply chain
If responsiveness is a strategic competitive priority, a firm can locate larger
amounts of inventory closer to customers
If cost is more important, inventory can be reduced to make the firm more
efficient
. Trade-off
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainMan
agement
Components of Inventory Decisions
Cycle inventory
Average amount of inventory used to satisfy demand between shipments
Depends on lot size
Safety inventory inventory held in case demand exceeds expectations
costs of carrying too much inventory versus cost of losing sales
Seasonal inventory
inventory built up to counter predictable variability in demand
cost of carrying additional inventory versus cost of flexible production
Overall trade-off: Responsiveness versus efficiency
more inventory: greater responsiveness but greater cost
less inventory: lower cost but lower responsiveness
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainMan
agement
Transportation
Role in the supply chain
Role in the competitive strategy
Components of transportation decisions
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainMan
agement
Transportation: Role in the Supply Chain
Moves the product/people between stages in the supply chain
Impact on responsiveness and efficiency
Faster transportation allows greater responsiveness but lower efficiency
Also affects inventory and facilities
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainMan
agement
Transportation:
Role in the Competitive Strategy
If responsiveness is a strategic competitive priority, then faster
transportation modes can provide greater responsiveness to customers who
are willing to pay for it
Can also use slower transportation modes for customers whose priority isprice (cost)
Can also consider both inventory and transportation to find the right
balance
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainMan
agement
Components of Transportation Decisions
Mode of transportation:
air, truck, rail, ship, pipeline, electronic transportation
vary in cost, speed, size of shipment, flexibility
Route and network selection
route: path along which a product is shipped
network: collection of locations and routes
In-house or outsource
Overall trade-off: Responsiveness versus efficiency
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainManagement
Information
Role in the supply chain
Role in the competitive strategy
Components of information decisions
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainManagement
Information: Role in the Supply Chain
The connection between the various stages in the supply chain allows
coordination between stages
Crucial to daily operation of each stage in a supply chain e.g., production
scheduling, inventory levels
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainManagement
Information:
Role in the Competitive Strategy
Allows supply chain to become more efficient and more responsive at the
same time (reduces the need for a trade-off)
Information technology
What information is most valuable?
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainManagement
Components of Information Decisions
Push (MRP) versus pull (demand information transmitted quickly
throughout the supply chain)
Coordination and information sharing
Forecasting and aggregate planning
Enabling technologies
EDI
Internet
ERP systems
Supply Chain Management software
Overall trade-off: Responsiveness versus efficiency
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainManagement
Considerations for Supply Chain Drivers
Driver Efficiency Responsiveness
Inventory Cost of holding Availability
Transportation Consolidation Speed
FacilitiesConsolidation /
Dedicated Proximity / Flexibility
InformationWhat information is best suited for each
objective
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainManagement
Obstacles to Achieving Strategic Fit
Increasing variety of products
Decreasing product life cycles
Increasingly demanding customers
Fragmentation of supply chain ownership
Globalization
Difficulty executing new strategies
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainManagement
Major Obstacles to Achieving Fit
Multiple owners / incentives in a supply chain
Increasing product variety / shrinking life cycles / customer fragmentation
Increasing implied uncertainty
Local optimization and lack of global fit
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainManagement
Summary
What are the major drivers of supply chain performance?
What is the role of each driver in creating strategic fit between supply
chain strategy and competitive strategy (or between implied demand
uncertainty and supply chain responsiveness)?
What are the major obstacles to achieving strategic fit?
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-30
6SupplyChainManagement
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainManagement
Role of Information Technology in a Supply Chain
Information is the driver that serves as the glue to create a coordinated
supply chain
Information must have the following characteristics to be useful:
Accurate
Accessible in a timely manner
Information must be of the right kind
Information provides the basis for supply chain management decisions
Inventory
Transportation
Facility
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainManagement
Characteristics of Useful Supply Chain
Information
Accurate
Accessible in a timely manner
The right kind
Provides supply chain visibility
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainManagement
Use of Information in a Supply Chain
Information used at all phases of decision making: strategic, planning,
operational
Examples:
Strategic: location decisions
Operational: what products will be produced during todays production
run
Inventory: demand patterns, carrying costs, stockout costs, ordering
costs
Transportation: costs, customer locations, shipment sizes Facility: location, capacity, schedules of a facility; need information
about trade-offs between flexibility and efficiency, demand, exchange
rates, taxes, etc.
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainManagement
Role of Information Technology in a Supply
Chain
Information technology (IT)
Hardware and software used throughout the supply chain to gather andanalyze information
Captures and delivers information needed to make good decisions Effective use of IT in the supply chain can have a significant impact
on supply chain performance
The Importance of Information in a Supply Chain
Relevant information available throughout the supply chain allowsmanagers to make decisions that take into account all stages of the
supply chain Allows performance to be optimized for the entire supply chain, not just
for one stage leads to higher performance for each individual firm inthe supply chain
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainManagement
Role of Information Technology in a Supply Chain (2)
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainManagement
Business Processes Mapped to an IT Solution
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainManagement
Enterprise Applications along the Value Chain
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainManagement
Information and Technology: Application of SCM
In the development and maintenance of Supply chain's information
systems both software and hardware must be addressed.
Software includes the entire system and application programme used for
processing transactions management control, decision-making andstrategic planning.
Recent development in Supply chain management are:
Electronic Commerce
Electronic Data Interchange (EDI)
Bar coding and Scanner Data warehouse
Enterprise Resource planning (ERP) tools
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainManagement
The Future of IT in the Supply Chain
At the highest level, the three SCM macro processes will continue todrive the evolution of enterprise software
Software focused on the macro processes will become a larger share of
the total enterprise software market and the firms producing thissoftware will become more successful
Functionality, the ability to integrate across macro processes, and thestrength of their ecosystems, will be keys to success
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainManagement
Analytical Applications for SCM
Demand/Supply Match Sales values
Inventory
Order lead times
Issues/Receipts
Forwarding Agent Efficiency Total transportation lead time
Carrier efficiency
Transportation time
Transportation waiting time
Forwarding Agent Requirement Analysis Shipment values
Time efficiency
Shipment weights and volumes
Global Capacity Utilization Global capacity utilization
Capacity utilization by plant and week
Capacity details - comparison
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainManagement
Analytical Applications for SCM (2)
Global Inventory View Inventory per product (pieces)
Inventory details per selected product
Inventory value per product
Days of supply per selected product
Inventory per selected product
Order Analytics Order status
Existing orders versus sales target by customer
Existing orders versus sales target by sales organization
Existing orders by customer (pieces)
Existing orders by key account (pieces)
Supplier Rating Monitor Top 10 suppliers by order volume
Supplier rating by product for selected supplier
Supplier alerts
Alerts for selected product
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainManagement
Analytical Applications for SCM (3)
Warehouse Workload Historical View
Quantities delivered
Outbound deliveries by line item
Delivery detail
Stocks
Total receipts/issues by month
Receipts/issues variance
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainManagement
Supply Chain Information Technology in Practice
Select an IT system that addresses the companys key success factors
Take incremental steps and measure value
Align the level of sophistication with the need for sophistication
Use IT systems to support decision making, not to make decisions
Think about the future
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainManagement
Transactional vs. Analytical IT
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainMa
nagement
What are Enterprise Systems?
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainMa
nagement
Integrated Enterprise
Organization
Processes
Technology
INFORMATION
Information is a Key Enabler!
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainMa
nagement
Enterprise Resources Planning (ERP) Definition
Enterprise Resource Planning A method for the effective planning and controlling of ALL these sources needed
to take, make, ship and account for customer orders in a manufacturing,distribution or service company
It Includes: Typical MRP II Functions
Quality Functions
Sales Force Automation
Field Service Functions
Engineering Function / PDM
Complete Financial Functions
Advance Manufacturing Function Human Resources Functions
Distribution / Logistics Functions
Management Reporting
ERP is a System for the Entire Company A Global Tightly IntegratedClosed-Loop System
Source: APICS Complex Industries Special Interest Group
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainMa
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ERP Functionality
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainMa
nagement
Typical ERP Functionality
System Wide Elements
Project Management & Project
Costing (EVM)
Executive Management
Information System
Work Flow Management
Multi-Company
Multi-Currency
Multi-Lingual
Multi-Mode
EDI / Electronic Commerce
Web Enabled / Internet
Communications
Imaging & Multi Media
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainMa
nagement
Typical ERP Technology
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainMa
nagement
Why ERP ?
To improve the profitability of the company
To solve problems of legacy systems (year 2000)
To be able to cope with new production requirements
To provide the architectural anchor for rationalization of acquisitions
To provide interoperability of its organizations
To provide the means for Supply Chain Management
There are several reasons why a company will consider theImplementation of a New Backbone Business System:
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainMa
nagement
Why ERP ? (2)
Fully integrated systems where everyone has instant access to the latest
accurate information One data base, date is added only once and used by All
The system allows interoperability of the internal and external supplychain
On line (vs Batch) systems elements data is there automatically
Work flow is managed efficiently through system action messages androuting of decisions
Paperless systems allow efficient on-line approvals
Reduce Costs How will ERP Help?
Enable Reduced Resource Requirements due to:
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-306SupplyChainMa
nagement
ERP Systems View of Functionality
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-3
06SupplyChainMa
nagement
Supply Chain Management and the Internet
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-3
06SupplyChainMa
nagement
Internet-based supply chain management
applications
Two main categories
Supply chain planning systems
Supply chain execution systems
Supply chain planning systems Demand planning
Order planning
Advanced scheduling and manufacturing planning
Distribution planning
Transportation planning
Supply chain execution systems
Manage flow of products through distribution centers and warehouses to ensureproducts delivered to right locations in most efficient manner
Order commitments
Final production
Replenishment
Distribution management
Reverse distribution
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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD
LSM-3
06SupplyChainMa
nagement
The Future Internet-Driven Supply Chain