This document provides an overview of supply chain management and procurement concepts. It discusses information exchange in SCM and enterprise resource planning systems. ERP systems integrate business functions like accounting, sales, and operations. The role of purchasing is described as coordinating suppliers to get the right materials at the right time and price. Outsourcing can provide benefits like reducing costs but risks include losing competitive knowledge. Supply chain collaboration where members work towards shared goals is also covered.

1. The information System for the
Supply Chain and Procurement
Lecture 3 Supply Chain Management
Pia Bosma MSc
September, 2014

2. 1 Information Exchange SCM
2 Enterprise Resource Planning
3 The role of Purchasing
4 Make or Buy decisions

3. 10-3
E-business and Supply Chain
• Cost savings and price reductions
• Reduction or elimination of the role of
intermediaries
• Shortening supply chain response and transaction
times
• Gaining a wider presence and increased visibility
for companies
• Greater choices and more information for
customers

4. 10-4
E-automotive Supply Chain
• Customer sales
• Production
• Distribution
• Customer
relationship
 Push—sell from
inventory stock
 Goal of even and
stable production
 Mass approach
 Dealer-owned
E-Automotive
 Pull—build-to-order
 Focus on customer
demand, respond with
supply chain flexibility
 Fast, reliable, and
customized to get cars
to specific customer
location
 Shared by dealers and
manufacturers
Automotive
Past
Supply Chain
Processes

5. 10-5
E-automotive Supply Chain (cont.)
• Managing
uncertainty
• Procureme
nt
• Product
design
 Large car
inventory at
dealers
 Batch-oriented;
dealers order
based on
allocations
 Complex
products don’t
match customer
needs
E-Automotive
 Small inventories with
shared information and
strategically placed parts
inventories
 Orders made in real time
based on available-to-promise
information
 Simplified products based on
better information about
what customers want
Automotive
Past
Supply
Chain
Processes

6. Supply Chain Information Flows
Customer Internal Supply Supplier
Relationship Chain Management Relationship
Management Management
Strategic decision making
Tactical planning
Routine decision making
Execution and transaction
processing

7. Supply Chain Information Needs
Supply Chain Activity Characteristics Performance Dimensions
purpose for Information Flows
Strategic decision making
long-range plans to meet
organization’s mission
• Focus on long-term decisions
• Least structured of all
• Greatest user discretion
• Flexibility
Tactical planning
plans to coordinate actions
across supply chain
• Focus is on tactical decisions
• Plans physical flows
• Greater user discretion
• Form
• Flexibility
Routine decision making
support rule-based decision
making
• Fairly short time frames
• Limited user discretion
• Accuracy
• Timeliness
• Limited flexibility
Execution and transaction
processing
record / retrieve data & control
physical / monetary flows
• Very short time frames, very high volumes
• Highly automated
• Standardized business practices
• Ideally no user intervention
• Accuracy
• Timeliness

8. What is “perfect” Information?
• Perfect information is:
– Accurate
– Timely
– Correct in detail and form
– Shared
– Complete

9. Costs of “imperfect” Information
• What are some of the costs associated with
information that is:
– Inaccurate? (e.g., inventory or order info.)
– Late? (e.g., forecast changes)
– Incomplete in detail / form? (e.g., quarterly
sales forecast)?
– Not shared? (e.g., engineering changes)

10. Diagnosing and Improving Supply Chain
Information Flows
1. Map the business process(es) containing the information
flows of interest
2. Develop an information flow profile that identifies
potential performance gaps in the information flows
3. Use continuous improvement techniques to identify the
causes of these gaps
4. Use the plan-do-check-act (PDCA) cycle to plan and
implement improvements aimed at closing these gaps

11. This figure illustrates the major entities in Nike’s supply chain and the flow of
information upstream and downstream to coordinate the activities involved in
buying, making, and moving a product. Shown here is a simplified supply chain,
with the upstream portion focusing only on the suppliers for sneakers and sneaker
soles.

12. Simplified Supply Chain
Upstream Internal Downstream
Suppliers
Organization’s
production processes,
including materials
handling, inventory
management,
manufacturing,
quality control
Distributors
material
information
money
Retailers
Customers

13. Extending Supply Chain through e-
Commerce
• Upstream
– Change procurement methods
• Internal
– Use of intranet to enhance internal
processes
• Downstream
– Alter (streamline) selling practices
through direct Web selling, auctions,
or exchanges

14. 1 Information Exchange SCM
2 Enterprise Resource Planning
3 The role of Purchasing
4 Make or Buy decisions

15. Enterprise Resource Planning (ERP)
• An extension of the MRP system to tie in
customers and suppliers
– Allows automation and integration of many business
processes
– Shares common data bases and business practices
– Produces information in real time
• Coordinates business from supplier evaluation to
customer invoicing

16. Enterprise Application Architecture
Source: Adapted from Mohan Sawhney and Jeff Zabin, Seven Steps to Nirvana: Strategic
Insights into e-Business Transformation (New York: McGraw-Hill,2001), p. 175.

17. Enterprise Resource Planning (ERP)
• Cross-functional enterprise system
–with an integrated suite of software modules
–that support the basic internal business processes
of a company

18. ERP application components

19. Business benefits of ERP
•Quality and efficiency
• Decreased costs
• Decision support
• Enterprise agility

20. What is ERP? (Enterprise
Resource Planning)
www.youtube.com/watch?v=PVRg
IXLWDHs
http://www.youtube.com/watch?v=
8OvY63m-N1E
http://www.youtube.com/watch?v=
bnnS1fL5fT8

21. Costs of implementing a new ERP

22. Supply Chain Information Systems
Strategic
decision
making
Tactical
planning
Routine
decision
making
Execution and
transaction
processing
SRM
applications
DSS
CRM
applications
Network
design
Warehouse &
transportation
planning
Warehouse
management &
transportation
execution
ERP
applications
Suppliers Internal supply Customers Logistics
chain

23. Supply Chain Information Systems
Enterprise Resource Planning (ERP) Systems
Strategic decision
making
Tactical
planning
Routine
decision
making
Execution &
transaction
processing
Suppliers Internal supply Customers Logistics
chain
SRM
applications
DSS
CRM
applications
Network
design
Warehouse &
transportation
planning
Warehouse
management &
transportation
execution
ERP
applications
Large, integrated computer-based
business transaction processing
and reporting systems. ERP
systems pull together all of the
classic business functions such
as accounting, finance, sales, and
operations into a single, tightly
integrated package that uses a
common database.
Traditional strengths in routine
decision making and in execution
and transaction processing
Captures data to support higher-level
decision support systems
(DSS)

24. Information Technology: A Supply Chain
Enabler
• Information links all
aspects of supply chain
• E-business
– replacement of physical
business processes with
electronic ones
• Electronic data
interchange (EDI)
– a computer-to-computer
exchange of business
documents
• Bar code and point-of-sale
– data creates an
instantaneous computer
record of a sale
• Radio frequency
identification (RFID)
– technology can send
product data from an item
to a reader via radio waves
• Internet
– allows companies to
communicate with
suppliers, customers,
shippers and other
businesses around the
world, instantaneously

25. 1 Information Exchange SCM
2 Enterprise Resource Planning
3 The Role of Purchasing
4 Make or Buy decisions

26. What is purchasing?
Perspectives on purchasing
– To perform specialised tasks
– To achieve an output
–With production and warehousing
– Internal and external focus
– Knowledge based
– Demonstrable skills and knowledge
As a function
As a process
As a link in the supply chain
As a relationship
As a discipline
As a profession
1
2
3
4
5
6

27. What is purchasing?
The classic definition
Definitions
To buy materials of the right quality , in the right quantity,
from the right source, delivered to the right place, at the
right time at the right price.
Modern definition
To be contrasted with
The process undertaken by the organisational unit which, either as a
function or a part of an integrated supply chain, is responsible for
procuring or assisting users to procure in the most efficient manner
required suppliers at the right time, quality, quantity and price and
the management of suppliers, thereby contributing to the competitive
advantage of the enterprise and the achievement of its corporate strategy.

28. What is purchasing?
Definition of procurement
Procurement is the process of acquiring goods, works and services,
covering both acquisition from third parties and from in-house providers.
The process spans the whole life cycle from identification of needs,
through to the end of the useful life of an asset. It involves options
appraisal and the critical ‘make or buy’ decision.

29. What is purchasing?
Purchasing and change
Globalisation impact
Information
technology
impact
Chasing production &
management
philosophies impact
•Transgression of
national boundaries
•Advantage of cost
•Specialised labour skills
•Emerging economies
•Slicker transactions
•Quality of management
data
•Strategic link with
suppliers
•Paperless environment
•Competitive advantage
•Outsourcing
•Supply chain
management

30. What is purchasing?
World-class purchasing
TQM
JIT
Total cycle time reduction
Long range planning
Supplier relationship engineering
Strategic cost management
Performance accountability
Professional flexibility and development
Service excellence
Corporate social responsibility
Must accommodate
http://www.loreal.com/who-you-can-be/
operations/purchasing.aspx

31. 1 Information Exchange SCM
2 Enterprise Resource Planning
3 The Role of Purchasing
4 Make or Buy decisions

32. Procurement and Outsourcing
• Outsourcing components have increased
progressively over the years
• Some industries have been outsourcing for
an extended time
– Fashion Industry (Nike) (all manufacturing
outsourced)
– Electronics Industry
• Cisco (major suppliers across the world)
• Apple (over 70% of components outsourced)

33. Why do Companies Outsource?

34. Outsourcing Benefits and Risks
Benefits
• Economies of scale
– Aggregation of multiple orders reduces costs, both in
purchasing and in manufacturing
• Risk pooling
– Demand uncertainty transferred to the suppliers
– Suppliers reduce uncertainty through the risk-pooling
effect
• Reduce capital investment
– Capital investment transferred to suppliers.
– Suppliers’ higher investment shared between customers.

35. Outsourcing Benefits
• Focus on core competency
– Buyer can focus on its core strength
– Allows buyer to differentiate from its competitors
• Increased flexibility
– The ability to better react to changes in customer demand
– The ability to use the supplier’s technical knowledge to accelerate
product development cycle time
– The ability to gain access to new technologies and innovation.
– Critical in certain industries:
• High tech where technologies change very frequently
• Fashion where products have a short life cycle

36. Outsourcing Risks
Loss of Competitive Knowledge
• Outsourcing critical components to suppliers may
open up opportunities for competitors
• Outsourcing implies that companies lose their
ability to introduce new designs based on their
own agenda rather than the supplier’s agenda
• Outsourcing the manufacturing of various
components to different suppliers may prevent the
development of new insights, innovations, and
solutions that typically require cross-functional
teamwork

37. Trends
• Outsourcing of non-core activities to suppliers
• Focusing of operations
• A reduction in supply base as companies shift from
multiple to single sourcing
• Long-term buyer supplier relationships.
• Partnerships rather than adversarial trading
The outcome of these changes are that companies are
establishing new relationships with their suppliers.

38. Supply Chain Collaboration – What Is It?
• Many different definitions depending on perspective
• The means by which companies within the supply chain work
together towards mutual goals by sharing
– Ideas
– Information
– Processes
– Knowledge
– Information
– Risks
– Rewards
• Why collaborate?
– Accelerate entry into new markets
– Changes the relationship between cost/value/profit equation

39. Supply Chain Collaboration
• Cornerstone of effective SCM
• The focus of many of today’s SCM initiatives
Manufacturer
Distributors/
Wholesalers
Suppliers
Retailers
Collaborative
Demand
Planning
Synchronized
Production
Scheduling
Collaborative
Product
Development
Collaborative Logistics Planning
•Transportation services
•Distribution center services
Logistics Providers

40. Benefits of Supply Chain Collaboration
CUSTOMERS MATERIAL SUPPLIERS SERVICE
SUPPLIERS
• Reduced inventory
• Increased revenue
• Lower order management costs
• Higher Gross Margin
• Better forecast accuracy
• Better allocation of promotional
budgets
• Reduced inventory
• Lower warehousing costs
• Lower material acquisition costs
• Fewer stockout conditions
• Lower freight costs
• Faster and more reliable delivery
• Lower capital costs
• Reduced depreciation
• Lower fixed costs
• Improved customer service
• More efficient use of human resources
http://www.loreal.com/profiles/suppliers/promoti
ng-collaborative-innovation.aspx

41. Supply Chain Collaboration
Spectrum
Number of Relationships
Extensive
Extent of Collaboration
Many Few
Limited
Transactional
Collaboration
Synchronized
Collaboration
Cooperative
Collaboration
Coordinated
Collaboration
Not Viable
Low Return
• The green arrow describes
increasing complexity and
sophistication of:
– Information systems
– Systems infrastructure
– Decision support systems
– Planning mechanisms
– Information sharing
– Process understanding
• Higher levels of collaboration
imply the need for both trading
partners to have equivalent (or
close) levels of supply chain
maturity
• Synchronized collaboration
demands joint planning, R&D
and sharing of information and
processing models
– Movement to real-time
customer demand information
throughout the supply chain

42. Studying and preparing

43. Assignments
• Questions case Nike
• Search for a brand
– Make a summary of 2 pages  apply the
subjects of the lectures
– Articles
– Video’s

44. Final Presentation week 7
• Consultation hours week 5 and 6
• Presentation week 7