Enterprise Resources Planning ERP and Supply Chain Management

Enterprise Resources Planning (ERP) and Supply Chain Management (SCM) Technologies 1

Evolution of Enterprise Systems Material requirement planning (MRP) Add capacity planning Manufacturing resources planning (MRP II) Linked with financial and sales management Enterprise resources planning (ERP) Supply chain management and electronic commerce Supply chain Management (SCM) 2

Enterprise Resources Planning (ERP) Systems • ERP was the biggest thing in business software in the 1990 s. It changed the way companies worked by bringing together all their operational parts into one smoothly functioning whole. • The market leader, a German software form called SAP, , has been able to increase its revenues by more than 60% a year and has been the fastest-growing software company in the world. SAP’s competitors, such as Oracle, Baan, and People. Soft, have also enjoyed rapid growth in sales. • ERP systems promise the seamless integration of all the information flowing through a company - financial and accounting information, human resource information, supply chain information and customer information. 3

Scope of an Enterprise System • Enables a company to integrate the data throughout its entire organization • Functions supported by SAP R/3: Financials Human Resources • Accounting receivables/Payables • Human-resources time accounting • Assets accounting • Payroll • Cost-center accounting • Personnel planning • Product cost accounting • Standard and period -related accounting • Travel expenses Operation/ Logistics Sales and Marketing • Inventory management • Order management • Material Req. planning • Sales management • Pricing • Sales planning • Material management • Project management 4

Anatomy of an Enterprise system Reporting Applications Financial Applications Sales and Delivery Applications Sales force Customers Central Database and customer . Mfc Applications service reps Service Applications Human Resource Management Applications Back-office . admin workers Suppliers Inventory and supply applications Employees 5

Benefits of Enterprise Systems • Enterprise systems are designed to solve the problem: the fragmentation of information in large businesses – Separate computer systems represent one of the heaviest drags on business productivity and performance. – Maintaining them also leads to enormous costs. – If its sales and marketing systems are incompatible with its financial-reporting systems, management is left to make important decisions by instinct rather than real time product and customer information. • An ERP system streamlines a company’s data flows and provides management with direct access to a wealth of real-time operating information. 6

Risks of Enterprise Systems • The enormous technical challenges of rolling out enterprise systems: these systems are profoundly complex pieces of software, and installing them requires large investments of money, time and expertise. • An ERP system is extremely expensive – The huge investment required to implement an ERP at large companies -- ranging from $50 million to more than $500 million -- need to be weigh carefully against the eventual savings the system will produce. • But the biggest problems are business problems. Companies may fail to reconcile the technological imperatives of the enterprise system with the business needs of the enterprise itself. 7

The Logic of the System May Conflict with the Logic of the Business • An ERP is a generic solution. Vendors try to structure the systems to reflect best practices, but it is the vendor, not you, that is defining what “best” means. • Some degree of ERP customization is possible because the system is modular. However, the system’s complexity makes major modifications impracticable. • With the same package, how similar can our information flows and processes be to those of our competitors before we begin to lose our competitive differentiation in the market? – The question will be moot if a company’s competitive advantage derives primarily from the distinctiveness of its products, e. g. Apple Computer. – For companies that compete on cost rather than on distinctive products or superior customer service. How to protect a critical differentiation posts a real problem 8

The Impact on an Organization • By providing universal, real-time access to operating and financial data, ERP allow companies to create flatter, more flexible, and more democratic structures. – Some companies use ERP to break down hierarchical structure, freeing their people to be more innovative and more flexible. • ERP also involves the centralization of control over information and the standardization of process, which look like hierarchical, command-an-control organizations with uniform cultures. – Other companies use ERP to inject disciplines into organizations. • A multinational corporation may ask a more challenging question: how much uniformity should exist in the way it does business in different regions or countries? – Uniformity allows them to achieve tight control but make them to lose lots of flexibility. 9

Doing it Right at Elf Atochem • Following a series of mergers in the early 90 s, Elf Atochem found itself hampered by the fragmentation of information systems among its 12 business units. • The company decided to go with SAP’ R/3 and structured the implementation of its ERP to radically improve its service levels, the critical competitive differentiation. – Focused on four key processes that are most distorted by the fragmented organizational structure. – Install only those R/3 modules required to support customer services. It did not, for example, install the modules for human resource management or plant maintenance. • Elf Atochem also made changes to the organizational structure to maintain its focus on customer. • The system gave Elf Atochem the real-time information is needed to connect sales and production planning for the first time. 10

Limitations of ERP • Ill-fitted with e-commerce – The absence of a standard set of e-business solutions, for example, lacking front-office applications. – High license fees for each user are no longer appropriate for e-business; what is needed is a volume pricing model. • Transaction centric systems with little planning capability – Little supply chain management option. – Little advanced planning and optimization. • Lack business intelligence applications, such as strategic enterprise management. – It focused on automating processes, not on getting information to key decision maker. 11

Supply Chain Management (SCM) Technologies 12

From ERP to SCM • Enterprise resource planning (ERP) – Focus on the transactional activities that have already taken place rather than planning for what will be. – Focus on activities that occur within the four walls of the company. • Supply Chain Management (SCM) – The SCM products take a prospective view of the future with more emphasis on planning activities and extend their reach to customers and suppliers – Model an entire supply chain, including vendors, distributors, and points of demand. – Advanced supply chain planning and optimization to help you gain the forward visibility to spot opportunities for improvement now and in the future. – Internet access capability. 13

Why SCM? • ERP primarily focuses on internal functional efficiencies inside your company. • SCM is about planning and visibility. The emphasis is less on point solutions and more on integration and connectivity as the whole supply chain. • Effective supply chain requires understanding and managing the interrelationships among transportation, warehousing, inventory, purchasing, production planning, customer service, order processing and even forecasting. This isn’t your ordinary MRP software. This is sophisticated stuff, built around engines that use artificial intelligence and complex algorithms to optimize resources and drive a well-planned supply-chain strategy. • Most companies start with an ERP system and then move on to supply chain planning software. But some directly get at the benefits promised by supply-chain tools. 14

How Are ERP and SCP Related? Raw data for planning engine to produce optimal solution Enterprise resources planning (ERP) Dialogue Supply chain Planning (SCP) Optimal solution data back into ERP for execution 15

The SCM Solutions • SCM is a optimization tool to synchronize and optimize the elements in supply chain so that supply meets demand. • The SCM applications has two major types: – Supply chain Planning (SCP) focuses on planning. SCP products handle supply chain network design, demand planning and forecasting, supply planning, manufacturing planning and scheduling, and distribution planning. – Supply chain execution (SCE) handles execution and control. SCE includes warehouse management systems, transportation management, international trade logistics, inventory management and order management. 16

The Market for SCP Applications • The market for supply chain planning applications is currently divided between best-in-class providers concentrating on this market and ECR venders. • The large-scale ERP vendors, including SAP, Oracle, Baan, and People. Soft, provide an integrated offering. Application integration on a transactional level allows for the update of information in real time, yet the functionality of such applications is very limited in comparison to stand-alone packages provided by the bestin-class leaders, including i 2, Manugistics, Numetrix and Logility. • To choose a package, the fundamental tradeoff is between the ease of simplifying vendor relationships, infrastructure considerations, and choosing a system with functionality that may provide a better fit for your organization. 17

Ability to Execute The Gartner SCM Magic Quadrant • Challengers Manugistics i 2 Leaders • • SAP • SCT/Flyer Synquest People. Soft • • • LPA • • • • Thru-Put Paragon Mersia • • Web. Plan Demand • • • Aspen Tech/Chesapeake Logility Numetrix Mgmt. • APS Baan Niche Players Visionaries Completeness of vision 18

The Magic Quadrant Process • The ability-to-execute axis shows how well a vendor performs today; The vision axis shows how well a vendor will do in the future. • The magic quadrant sectors: – Niche quadrant: Either focuses on a small segment of the market and does it well, or is unfocused and does not out-innovate others. – Challengers quadrant: Executes well today but is not in synch with market direction. – Visionaries quadrant: Understands where the market is going or has vision of changing market rules, but does not execute well yet. – Leaders quadrant: Executes well today, well-positioned for tomorrow. 19

i 2 Technologies • i 2 is the world’s leading provider of supply chain management and intelligent e. Business solutions. • i 2 recently launched RHYTHM e. Xchange services, which leverages the global reach of the Web combined with the power of the Intelligent e. Business solutions. • i 2’s Intelligent e. Business solutions merges the e-commerce front-end with intelligent back-end fulfillment. • i 2 has made its home among discrete manufacturers. • i 2 was the first to integrate all the components of MRP in one package, and also the first to do the calculations in memory, as opposed to on a hard disk. 20

Rhythm e. Xchange Sevices • Most e. Business solutions differentiate through attractive but static web store-fronts and online catalogues with little to no customer personalization or back-end supply chain integration. • i 2’ Intelligent e. Buisness solutions aim to eliminate the shortcomings of current systems by – enabling highly personalized and intelligent customer facing solutions; – providing operational excellence to business processes; – integrating customer facing “front-end”solutions to the operational “back-end” supply-chain processes; – and enabling creation of virtual trading communities. 21

Key Components for Intelligent e. Business • RHYTHM e. Customer Suite (TM) -- an intelligent “front-en” for managing the entire customer lifecycle in a highly personalized manner. • RHYTHM Intelligent Fulfillment Server (TM) -- a product designed to integrate the customer facing solutions with the efficient back-end supply chain processes to ensure profitable fulfillment. • RHYTHM e. Xchange Services -- Software and services that provide for seamless integration among trading partners. 22

i 2 Rhythm’s Functionality • • Product Lifecycle Management for product leadership. Supply chain management for operational excellence. Customer management for customer intimacy. Inter. Process Planning to integrate the above three processes, maximizing resource utilization and profitability. Strategic Planning for accurate long-term decision-making and scenario-based analysis. High-performance Web fulfillment, increased efficiency, collaboration over the Internet, and maximum responsiveness to customer demand. RHYTHM integrates Web front-end applications with backend business process optimization. RHYTHM allows you to rapidly integrate and collaborate with business partners and customers through flexible, open standards. 23

Manugistic • The most widely used SCM solution in the industry • Has had its great success with consumer packaged goods (CPG) manufacturers. • Net. WORKS, an Internet-enabled set of collaborative applets for demand planning and forecasting, order processing, load tendering, and material and supply planning. • It doesn’t run its software in memory. But a partnership deal with Information Resources Inc. , a market-research company. IRI provides Manugistics’ customers with demographic data that helps them develop targeted consumer-marketing campaigns. 24

Manugistic’s e-Chain Solutions • Manugistics’ Open Application Integration (OAI) product family will include two products: – OAI/Enterprise (a great single site model): configuration, master planning, demand management, manufacturing planning & scheduling, material planning, network design and optimization, open application integration, purchase planning, replenishment planning, supply chain analysis, transportation management, and vendor managed inventory (VMI) / continuous replenishment planning(CRP). – OAI/Net ( not available): a product that will address direct, real-time, business-to-business integration and leverage the Internet for easy integration with trading partners such as customers, suppliers, distributors or transportation providers. 25

Baan Solutions • Baan. ERP: – Baan. ERP provides end to end Enterprise Resource Planning software. Its functionalities include sales order management, procurement, inventory, warehousing, project management, manufacturing • Baan. SCS – Baan. SCS products handle all aspects of strategic, tactical, and operational supply chain planning, including supply chain modeling, demand planning, supply planning, manufacturing and distribution planning, transportation planning and execution, route planning and scheduling, as well as plant scheduling and execution. • Baan’APS comprises four product offerings: demand planning and forecasting, constraint-based supply-chain planning, plant level scheduler, and closed loop shop floor control. 26

SAP Solutions • The SAP supply chain initiative provides solutions for integrating strategic decision support, data warehousing, planning and simulation, optimization, forecasting, sales force automation and customer relationship systems. – SAP APO (SAP Advanced Planner and Optimizer) – SAP business-to-business procurement – SAP LES ( Logistics Execution System) – electronic commerce • SAP products are based on – open interfaces – standard implementation methodologies 27

Comparison of SCM Vendors i 2 Technologies Manugistics Baan SAP Demand planning Yes Yes Supply planning Yes Yes Distribution and supply chain planning Yes Yes Yes Enterprise resource planning (ERP) Interfaces Yes Electronic commerce Yes No Yes Multi-enterprise data integration Yes No No Collaborative planning Yes No No No Merging e-commerce front-end and the back-end order fulfillment Yes No No No Strategic planning Yes No No No Concurrent and intelligent online and offline channel No No Manufacturing scheduling Transportation management 28

Costs of the SCM systems Cost for The System Consulting Distributor $100, 000 to $200, 000 $50, 000 Manufacturer $150, 000 to $300, 000 $75, 000 Retailers $450, 000 $100, 000 Whole packages average around $70, 000 to $900, 000, but range from $150, 000 to $20 million. 29

Link Web Commerce to Supply Chain 30

The Fallacies of E-Commerce Fulfillment • Fallacy #1: We’re selling over the Web, so we must be making money over the Web -- fail to capture the true costs of fulfillment. • Fallacy #2: Our differentiation on the Web will come from our front-end processes -- fail to consider through most differentiating section of back-end processes. • Fallacy #3: We can always do back-end integration later -poorly integrated front- and back-end processes and lead to excessive costs and erosion of customer loyalty. • Fallacy #4: Our logistics operations can handle Web commerce fulfillment -- highly automated warehouses are ill -suited to picking and packing the smaller Web orders. 31

The Fallacies of E-Commerce Fulfillment (Continue) • Fallacy #5: Our existing supplier relations will support Web commerce -- fail to create a partnership with manufacturers to enable efficient fulfillment and to discourage manufacturers from selling direct. • Fallacy #6: Our order management system can handle Web commerce -- fail to handle the high-volume transactions found with Web commerce. • Fallacy #7: We can now sell effectively to anyone around the globe -- ill-equipped to handle international trade deals. 32

Merging the E-Commerce Front-end with Intelligent Back-end Fullfillment “A front-end Web site is often the easiest and least differentiating section of an effective Web strategy…A little -discussed, not-so-pleasant fact is that many Web commerce transactions are unprofitable because of back-end fulfillment problems. ” -- Garner Group, “The Fallacies of Web Commerce Fulfillment” April 1999, B. Enslow 33