Supply Chain, Enterprise

Resources Planning, and

Business Processes Engineering

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 IT for Management
Prof. Efraim Turban

Learning Objectives
• Understand the concept of the supply chain, its
importance, and management.
• Describe the problems of managing the supply chain
and some innovative solutions.
• Trace the evolution of software that support activities
along the supply chain.
• Define business processing reengineering (BPR) and
understand its relationship with the supply chain.

4-2
 IT for Management
Prof. Efraim Turban

Learning Objectives
• Describe the networked organization and
identify its benefits.
• Demonstrate the role of IT in supporting BPR.
• Describe mass customization, cycle time
reduction, self-directed teams, and
empowerment.
• Define business alliances and virtual
corporations.
• Understand the relationships among enterprise
resources planning (ERP), supply chain
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management (SCM), and electronic commerce.
 IT for Management
Prof. Efraim Turban

How Dell Reengineered and Managed

its Supply Chain to Become #1
• The Problem
– price war, and on the verge of bankruptcy
• The Solution
– using just-in-time manufacturing
– using mass customization
– locating within 15 minutes of Dell’s suppliers
– doing most orders on the Web
– shipping by UPS
– selling standard computers to large corporations
– testing new PC models at the same time as the
networks’ solutions are developed
– monitor productivity and rate of return on
investment, on all products
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 IT for Management
Prof. Efraim Turban

How Dell Reengineered and Managed

its Supply Chain to Become #1
• What Role did IT Play?
– electronic commerce with customers
– extranet for suppliers
– Using the Internet to create a community
around its supply chain
• The Results
– become the number one PC seller
– be considered one of the world’s best-
managed and profitable companies
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 IT for Management
Prof. Efraim Turban

Essentials of the Supply Chains

• Dell case demonstrates that:
– by introducing a new business model one can change the
manner in which business is done and may even capture
the leadership in its industry
– by introducing major customer-related changes, one can
improve the communication and customer services
– by improving logistics system along the entire supply
chain, Dell integrated its own suppliers into its supply
chain, efficiently and effectively
– Dell created flexible and responsive manufacturing systems
– the changes are considered to be a complete reengineering
– Dell supports all of the above by extensive use of electronic
commerce, the Internet, extranet and intranets
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 IT for Management
Prof. Efraim Turban

Essentials of the Supply Chains

• Supply Chain
– the flow of material, information, and services
from raw material suppliers through factories
and warehouses to the end customers

• Supply Chain Management (SCM)

– to plan, organize, and coordinate all the supply
chain’s activities

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 IT for Management
Prof. Efraim Turban

Essentials of the Supply Chains

• Benefits
reduce
reduce uncertainty
uncertainty and
and
risks
risks in
in the
the supply
supply chain
chain
positively
positively affecting
affecting inventory
inventory
levels,
levels, cycle
cycle time,
time, business
business
processes,
processes, and
and customer
customer service
service
increase
increase profitability
profitability
and
and competitiveness
competitiveness
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 IT for Management
Prof. Efraim Turban

Essentials of the Supply Chains

• The Components of Supply Chain
– Upstream supply chain
• includes the organization’s first-tier
suppliers and their suppliers
– Internal supply chain
• includes all the processes used by an
organization in transforming the inputs of
the suppliers to outputs
– Downstream supply chain
• includes all the processes involved in
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delivering the products to final customers
 IT for Management
Prof. Efraim Turban

Supply Chain
Upstream Internal Downstream
The Generic Process

22ndnd Tier
Tier
Suppliers
Suppliers 11stst Tier
Tier
22ndnd Tier Suppliers
Suppliers Assembly/
Assembly/
Tier Manufacturing Distribution
Distribution
Suppliers
Suppliers Manufacturingand
and Centers
Centers
Retailers
Retailers Customers
Customers
11 Tier
stst
Tier Packaging
Packaging
22ndnd Tier Suppliers
Suppliers
Tier
Suppliers
Suppliers
Packaged
Grain Cereal Cereal
Manufacturing Process

Grain
Grain Processing
Processing Packaging Distribution
Distribution
Producer Facility Packaging Centers Stores
Stores Customers
Customers
Producer Facility Centers
The Cereal

Lumber
Lumber Corrugate
Corrugate Box
Company
Company Paper
Paper Co.
Co. Paperboard
Label
Label
Manufacturing
Manufacturing Labels
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 IT for Management
Prof. Efraim Turban

Problems Along
the Supply Chains
• Uncertainties
– demand forecast, which influenced by competition,
prices, weather conditions, technological
development, and customers’ general confidence
– delivery times, which depend on several factors
ranging from machine failures to road conditions and
traffic jams, that way interfere with shipments
• Symptoms of poor SCM
– poor customer service, which hinders people from
getting the product or service when and where needed,
or gives them a product of poor quality
– High cost, low (or no) profit
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 IT for Management
Prof. Efraim Turban

Some Solutions to
the Supply Chain Problems
• Vertical integration - building inventories
• Coordination of all different activities
• Use outsourcing rather than do-it-yourself during
demand peaks
• ‘Buy’ rather than ‘make’ production inputs whenever
appropriate
• Configure optimal shipping plans
• Create strategic partnerships with suppliers
• Use just-in-time approach to purchasing
• Use fewer suppliers
• Use IT to support the above

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 IT for Management
Prof. Efraim Turban

The Evaluation of
Computerized Aids
Inventory
2000 1990 1980 1970 1960

Production Production
+ scheduling
MRP Management
Purchasing
Finance, Major
MRP + labor
MRP II Manufacturing
Resources
Coordinated
All internal Manufacturing
MRP II + resources
ERP and Service
Transactions
Internal customers Internal Extended
ERP + and suppliers SCM ERP/SCM

Internal External suppliers Extended Extreme/

ERP/SCM
+ and customers SCM Integration
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 IT for Management
Prof. Efraim Turban

Why Integration?
• 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

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 IT for Management
Prof. Efraim Turban

Why Integration?

• Intangible benefits
– Information visibility, new/improved
processes, customer responsiveness,
standardization, flexibility,
globalization, and business
performance.

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 IT for Management
Prof. Efraim Turban

Integrating the Supply Chain

• After the introduction of computer-based

information, companies started to integrate the
links of the supply chain
• New forms of organizational relationships and
the information revolution, especially the
Internet and electronic commerce, have
brought SCM to the forefront of management
attention

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 IT for Management
Prof. Efraim Turban

Enterprise Resources Planning

(ERP)
• Objective
– to integrate all departments and
functions across a company onto a
single computer system that can
serve all of the enterprise’s needs
• Results
– productivity improvement
– increases customer satisfaction
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 IT for Management
Prof. Efraim Turban

SAP - The Complete Solution

• SAP R/3 is comprised of four major application
categories - accounting, manufacturing, sales, and
human resources - containing more than 70 modules
• SAP R/3 allows companies to automate or eliminate
many costly and error-prone manual communication
procedures
• SAP implementation is very complex and
consequently very expensive

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 IT for Management
Prof. Efraim Turban

Example of How R/3 Work

• Step 1 : Brazilian retailer orders, via the Internet, 1,000
shoes from International Shoe Co. A sales rep takes the
order, routes it to R/3’s ordering module, R/3 checks the
retailer credit, price, etc. The order is approved.
• Step 2 : Simultaneously R/3’s inventory module checks
the stocks and notifies the rep that half the order can be
filled immediately from stock. The other half will be
manufactured and delivered in 5 days directly from the
factory in Taiwan.

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 IT for Management
Prof. Efraim Turban

Example of How R/3 Work

• Step 3 : R/3’s manufacturing module schedules the production in
Taiwan and instructs the warehouse (in Chinese) to ship the shoes
to Brazil and print up an invoice (in Portuguese).
• Step 4 : R/3’s human resources module calculates labor
requirements. Due to a shortage, the personnel manager in
Taiwan is instructed to get temporary workers.
• Step 5 : R/3’s material planning module notifies the purchasing
manager about a shortage of purple dye. A purchase order is
automatically issued.

4-20
 IT for Management
Prof. Efraim Turban

Example of How R/3 Work

• Step 6 : The customer logs on via the extranet to
the company’s sneakers division. He can see that
500 shoes were shipped from the regional
warehouse. This is done with R/3 tracing
capabilities.
• Step 7 : Based on data from R/3’s forecasting and
financial modules, the CEO can determine both
demand and profitability per product. The
financial module also converts all foreign moneys
to $U.S., whenever needed

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 IT for Management
Prof. Efraim Turban

ERP
• Pros
– provides a single interface for managing all the routine
activities performed in manufacturing
– can integrate several hundred applications
– plays critical role in getting small- and medium-sized
manufacturers to focus on business processes
• Cons
– need to change existing business processes to fit SAP’s the
format
– never meant to fully support supply chains
– difficult to build, operate, change and maintain

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 IT for Management
Prof. Efraim Turban

First Generation ERP

• Supported routine transactional activities
• Excelled in transaction management
• Generated reports which provided a snapshot
of the business at a point in time
• Did not support the continues refining and
enhancing of plans as changes and events
occur, up to the very last minute before
executing the plan
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 IT for Management
Prof. Efraim Turban

Second Generation ERP

• Adds decision support and

business intelligence capabilities
• Integration of database
management systems (DBMS) and
spreadsheets in Excel or Lotus 1-2-
3
• It is Web-based
• Integrates CRM and EC
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 IT for Management
Prof. Efraim Turban

Application Service Providers

and ERP Outsourcing
• Application service providers (ASP)
– a software vendor that offers to lease ERP-based
applications to other businesses
– offerings are evident in ERP-added functions such as
electronic commerce, customer relationship
management (CRM), datamarts, desktop
productivity, human resources information systems
(HRMS), and other supply chain-related applications

4-25
 IT for Management
Prof. Efraim Turban

Global Supply Chains

• IT provides EDI, communication options,
online expertise in sometimes difficult and fast-
changing regulations
• IT can be instrumental in helping businesses
find trade partners
• IT facilitates outsourcing of products and
services, especially IT programming, to
countries with plentiful supply of labor, at low
cost

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 IT for Management
Prof. Efraim Turban

Business Process
Reengineering (BPR)
• Fundamentally rethinking and
radically redesigning business
processes, in order to achieve
dramatic improvements in
quality, cost, speed and service

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 IT for Management
Prof. Efraim Turban

The Need for BPR

• Three Cs
– Customers today know what they want, what they are willing
to pay, and how to get products and services on their own
terms.
– Competition is continuously increasing with respect to price,
quality, selection, service, and promptness of delivery.
– Change continues to occur. Markets, products, services,
technology, the business environment, and people keep
changing, frequently in an unpredictable and significant
manner.

4-28
 IT for Management
Prof. Efraim Turban

Problem of the Stovepipe

• “Stovepipe” because of lack of
cooperation between functional areas
(vertical dimension)
• Business process reengineering (BPR),
which undertakes a fundamental change
in specific business processes, integrates
information required for good decision
making
4-29
 IT for Management
Prof. Efraim Turban

Need for
Information Integration
Vendors,
Suppliers Organization Customers
Logistics,
Distribution Purchasing Finance R&D Production Sales Distribution Services

Product
Productdevelopment
development

Order
Orderfulfillment
fulfillment

Planning,
Planning,resourcing,
resourcing,and
andcontrol
control

Customer
Customerservice
service

Business processes across functional areas and

4-30 organizational boundaries.
 IT for Management
Prof. Efraim Turban

IBM Credit Corporation

Reduced Cycle Time by 90%
• The old process
– took an average of seven days
• The reengineered process
– a simple DSS provides the deal structurer with the
guidance needed
– the program guides the generalist in finding
information in the databases, plugging numbers
into an evaluation model, and pulling standardized
clauses - ‘boilerplate’-from a file
– electronic communication and collaboration

4-31
 IT for Management
Prof. Efraim Turban

The Enabling Role of

Information Technology in BPR
• Shared databases, Internet client/server architecture, intranet
• Expert systems, neural computing
• Telecommunication and networks: client/server intranet
• Decision support systems, enterprise support systems, expert systems
• Wireless communication and portable computers, the web, electronic mail
• Interactive videodisk, desktop teleconferencing,electronic mail
• Tracking technology, groupware, workflow software, search engines
• High-performance computing systems, intelligent agents
• Groupware and group support systems,telecommunication, electronic mail, client/server
• CAD/CAM, CASE tools, online systems for JIT decision making, expert systems
• CAD/CAM, electronic data interchange, imaging processing
• Artificial intelligence, expert systems
• Robots, imaging technologies, object-oriented programming, expert systems,
geographical information systems (GIS)

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 IT for Management
Prof. Efraim Turban

Retooling of IT for BPR

• Get a good understanding of the current

installed base of information systems
applications and databases
• Understand the existing infrastructure in
terms of computing equipment,
networks, and the like, and their
relationships to the current available
software, procedures, and data
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 IT for Management
Prof. Efraim Turban

Tools for BPR

• Simulation and visual simulation tools
• Flow diagrams
• Work analysis
• Rapid application development
• Other tools (e.g. CAD/CAM, imaging technologies,
EDI, interorganizational systems and expert systems)
• Integrated tool kits
• Workflow software
• The Web

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 IT for Management
Prof. Efraim Turban

Ford’s Process Redesign

OLD
OLD PROCESS
PROCESS NEW
NEW PROCESS
PROCESS
Supplier Supplier
Purchase Purchase
Purchasing order Purchasing
order
Copy of
purchase Goods Data- Goods
order base
Payment

Payment
Invoice

Ford receiving Ford receiving

Receiving document
Accounts payable Accounts payable

4-35
500 Employees 125 Employees
 IT for Management
Prof. Efraim Turban

From Mass Production

to Mass Customization
• Mass production
– a company produces a large quantity of
an identical standard product
• Mass customization
– a company produces large volumes, yet
customizes each product to the
specifications of individual customers

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 IT for Management
Prof. Efraim Turban

Push-based Supply Chain vs.

Pull-based Supply Chain
PUSH PULL
Manufacturer Customers
Manufacturer
Purchase Merchandise

Retail
Retail Distribution
Distribution
Center Retail
Retail Store
Store
Center

Retail Retail
Retail Distribution
Distribution
Retail Store
Store
Center
Center
Customers
Purchase Merchandise Manufacturer
Manufacturer
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 IT for Management
Prof. Efraim Turban

Cycle Time Reduction

• IT allows the combination or elimination
of steps, and the expedition of various
activities in the process
• Telecommunications and especially the
Internet and intranets cut communications
time through the use of e-mail and EDI
and allows collaboration in design and
operations of products and services
4-38
 IT for Management
Prof. Efraim Turban

Reengineering Organizations
• An Example - Bank
– Customer deals with a single point of contact, the account
manager
– Account manager is responsible for all bank services, and
provides all services to the customer, who receives a single
statement for all accounts
– IT provides account manager with expert advice on
specialized topics, such as loans
– By allowing easy access to the different databases, the
account manager can answer queries, plan, and organize the
work with customers

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 IT for Management
Prof. Efraim Turban

Networked vs. Hierarchical

Organization
Hierarchical Organization Networked Organization
Formal  Informal
Highly structured  Loosely structured
Manage  Delegate/lead
Control  Ownership/participation
Direct  Empower
Employees a cost  Employees an asset
Information management -owned  Information shared ownership
Hierarchical Organizations  Flatter Organizations
Risk avoidance  Risk management
Individual contributions  Team contributions
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 IT for Management
Prof. Efraim Turban

From Hierarchy to a Network

Hierarchical Flattened Network

Organization Organization Organization
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 IT for Management
Prof. Efraim Turban

Empowerment
• The vesting of decision-making or
approval authority in employees
• Giving permission to the workforce to
unleash, develop, and utilize their skills
and knowledge to their fullest potential,
for the good of the organization as well
as for themselves, and providing the
framework in which this can be done

4-42
 IT for Management
Prof. Efraim Turban

Empowerment’s Relationship
to Information Technology
• IT provides the right information, at the right time, at
the right quality, and at the right cost
• IT provides tools that will enhance the creativity and
productivity of employees, so they can make self-
decisions, as well s the quality of their work
• IT provides online training, uses multimedia, and
even apply intelligent computer-aided instruction to
employees who need more skills and higher levels of
skills

4-43
 IT for Management
Prof. Efraim Turban

Teams
• Types of teams
– permanent or work group teams
– problem-solving teams
– quality circles, participating teams
– management teams
– virtual teams
• IT plays a critical role in empowering team
members and providing the necessary
communication links among teams

4-44
 IT for Management
Prof. Efraim Turban

Virtual Corporations
• Virtual corporation is an organization
composed of several business partners
sharing costs and resources for the purpose
of producing a product or service
• Major attributes
– excellence – full utilization
– opportunism – lack of borders
– trust – adaptability to change
– technology

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 IT for Management
Prof. Efraim Turban

How IT Supports
Virtual Corporation
• IT allows communication and collaboration among the
dispersed business partners
• Standard transactions in the interorganizational IS are
supported by EDI and EFT
• The Internet is the infrastructure for these and other
technologies
• Modern database technologies and networking permit
business partners to access each other’s databases
• ERP software is extensively used to support standard
transactions among business partners

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 IT for Management
Prof. Efraim Turban

Buying and Selling

Along the Supply Chain
• Upstream activities
– Bidding
– Consolidation of vendors’ catalogues in buyer’s site
– Onsite specialty stores
– Other purchases
– Buying knowledge
– Internal SCM activities
• Downstream activities
– Selling on your own web site
– Auctions on your web site
• Upstream and Downstream combined

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 IT for Management
Prof. Efraim Turban

Implementing EC Solutions
Along the Supply Chain
• Build in yourself, in house
• Outsource the job
• Integrate EC with ERP
• Integration with CRM and DSS
• Componentization

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