The Importance of Business Process: Companies that invest mostly in business processes do better than those who invest

in IT only and  appropriate business

processes./ Investments only in technology without the appropriate business processes  -ve returns.
Challenges: (1) Identify measures to characterize SC effectiveness, KPIs and SCOR Model are objective ways (2) Develop measures to characterize the level of
maturity of the business process and the Info. technology employed by the company/ Much more difficult because of variations across companies
Characteristics of the Level of Business Maturity  Based on the SCOR model
(Level I: Disconnected Processes) 1)Many independent processes. 2)Organized functionally with no or low degree of integration. 3)SC planning typically done for
each site independently of other sites.
#Characteristics: Functional (silo) strategies./ Lack of clear, consistent SC management processes./ No measurements, or measurements not aligned with
company objectives.
(Level II: Internal Integration) 1)Organized functionally, with a high degree of integration. 2)Decisions made through the integration of key functional areas.
3)Common forecasts applied throughout the organization.
#Characteristics: Integration of some functional Info./ Documented processes followed across the entire organization./ Key measurements used departmentally.
(Level III: Intra-Company Integration and Limited External Integration) 1)Cross-functionally organized. 2) Involves key suppliers and customers in decision
making processes.
#Characteristics: Decisions optimized across the internal SC./ Sophisticated processes that involve all affected internal organizations./ Key suppliers and
customers are included in SC planning.
(Level IV: Multi-Enterprise Integration) 1)Multi-enterprise processes 2)Common business objectives/extensive knowledge of the suppliers and customers
business environments. 3)Collaboration links trading partners and enables them to operate as one virtual corporation.
#Characteristics: Collaboration across the entire SC./ Internal and external collaborative SC management focus on key service and financial goals./ Measures
directly link SC results to company goals.
Four Categories of IT Systems
Lv I (Batch processes, indpt. systems and redundant data across the organization. /Focus on spreadsheet & manual manipulation of data for decision making.)
Lv II (Shared data across the SC. /Decisions made using planning tools)
Lv III (Complete visibility of internal data/ Key suppliers and customers have access to some of this data/ Processes are also shared across the SC)
Lv IV (Data and processes are shared internally and externally.)
Areas of PRTM Data Collection
Strategic Planning: Network design, Inventory positioning and Manufacturing strategy
Demand Planning: Demand forecasts and Promotional planning
Supply Planning: Coordination of manufacturing, inventory and transportation activities across the SC
Supply-Demand Balancing: Trade off between suppliers capability and customer demand are considered; Pricing and promotional activities are applied
systematically to better match supply and demand
Procurement Planning: Materials and commodities sourcing strategy
Manufacturing Planning: Single site vs. Enterprise wide strategy;
Delivery Planning: Commitments to customers are based on forecast, available capacity, or real-time inventory and manufacturing Info.
Main Results (Companies with mature business processes have lower inventory levels/ Improvements in certain areas demand IT investments/ BICS companies
with mature processes achieve superior financial performance/ Investing only in IT infrastructure leads to significant inefficiencies/ Priority in IT investments
depends on your objectives)

Linking Processes and Systems

Box A (Immature business processes and IT systems./ Below average business performance.)
Box B (mature business processes and immature systems./ Perform significantly better than those who did not invest in either processes or systems, but they
leave a lot on the table.)
Box C (mature systems and processes./ Enjoy significant improvements in operational performance. )
Box D (mature IT systems but not processes./ Performance even worse than those with immature systems and processes. / IT infrastructure typically requires
significant investment accompanied by expensive support staff. / IT provides only Info.)
Goals of SC IT: Desired goals of IT as they relate to the SC management and its unique requirements.
SCM System Goals 1 Collect Info. on each product from production to delivery or purchase point (provide complete visibility for all parties involved.) 2
Access any data in the system from a single point of contact. 3 Analyze, plan activities, and make trade-offs based on Info. from the entire SC. 4
Collaborate with SC partners. (Allows companies to manage uncertainty)
1st goal: Link the point of production seamlessly with the point of delivery or purchase. / Have an Info. trail that follows the product’s physical trail. / Allows
planning, tracking, and estimating lead times based on real data./ Any party that has an interest in the whereabouts of the product should be able to have access
to this Info..
A. Collect Info. #Info. Requirements: Status of retailer’s orders/ Suppliers’ need to be able to anticipate an incoming order from the manufacturer.
Data access requirements: From other companies’ Info. systems/ Across functions and geographic locations inside a company/ Data in their own term/ Alert
diverse systems to the implications of this movement/ Requires standardization of product identification (e.g., bar coding) across companies and industries
(Radio Frequency Identification (RFID) technology an attempt to address this issue)
B. Access Data: Single-point-of-contact/ All available Info. accessed in one stop and consistent regardless of: 9the mode of inquiry used (e.g., phone, fax, Internet,
kiosk)/ who is making the inquiry.)/ Info. may reside in various locations within one company and across several companies. / Problem of synchronizing data
across multiple systems and making sure data is available real-time
C. Analysis Based on SC Data: Data analysis should take into account the global SC picture./ Info. system must be utilized to find the most efficient ways to
produce, assemble, warehouse, and distribute products/ Different levels of analysis required (Strategic/Tactical/Operational)/ Systems need to be flexible enough
to accommodate changes in SC strategies. / Systems need to be highly configurable and new standards need to be developed.
D. Collaborate with SC Partners: Ability to collaborate key for most companies/ Sophisticated alignment of IT systems/ Integration of business processes./
Collaboration among SC partners (Ability to link and work effectively with suppliers through supplier relationship management (SRM) systems. +Collaboration
platforms, whether private or public.+ Customer relationship management (CRM) systems to provide better contact and understanding of customer needs.)
Four goals of SC management
1)Do not all have to be achieved at the same time 2)Not necessarily dependent on each other. 3)Can be targeted in parallel
4) Enterprise Resource Planning (ERP) systems (Installed in most companies today/ Cover the first two requirements to a large extent./Common infrastructure
throughout the company with role based access to data./ Web based portals provide the entry point into the systems)

14.4 SCM System Components

ERP systems (attempt to resolve, bring all business functions together to make an enterprise more efficient. /do not help answer the fundamental questions of
what should be made, where, when, and for whom. )
DSS: Range from spreadsheets to expert systems/ Appropriate DSS depends on: nature of the problem, the planning horizon, and the type of decisions that need
to be made. /DSS helps in analysis: (At various planning levels/ Exact nature depends on manufacturing characteristics, demand fluctuation, transportation costs,
and inventory costs.)
Data Analysis Techniques in DSS
Queries (Vast quantities of data make manual analysis difficult./ Decisions facilitated by simply asking specific questions about the data)
Statistical analysis: Used to determine trends and patterns in the data
Data mining: With larger corporate databases/ New tools to look for “hidden” patterns, trends, and relationships in the data.
On-line analytical processing (OLAP) tools: An intuitive way to view corporate data, typically stored in data warehouses./ Aggregates data along common
business dimensions/ let users navigate through the hierarchies and dimensions by drilling down, up, or across levels./ Also provide sophisticated statistical tools
to analyze these data and tools to present them.
DSS Interfaces: Display and report based on the specific problem being solved./ Uses analytical tools that have some specific embedded knowledge of the
problem being solved.
Analytics Used in DSS
 Calculators: Simple decision-support tools that facilitate specialized calculations such as accounting costs.
 Simulation: Incorporates random components./ Create a model of the process on a computer./ Specify each of the random elements of the model with a
probability distribution./ Run the model to study effects
Analytics Used in DSS Artificial Intelligence (AI)
 Systems that exhibit intelligence by incorporating some form of learning.
 Concept of agents: A software process/ Communicate and interact with other agents,
Expert systems are a type of AI system: Capture an expert’s knowledge in a database and use it to solve problems./ Relies on an extensive database of
knowledge, usually expressed as a set of rules./ Not extensively used in logistics practice
Analytics Used in DSS Mathematical Algorithms
 Can be applied to the data to determine potential solutions to problems
 Exact algorithms: Finds a solution that is mathematically the “best possible solution” or optimal solution./ May take a long time to run, especially if a problem
is complex./ Input data to these algorithms are often approximated or aggregated/ Exact solutions to approximate problems may be worth no more than
approximate solutions to approximate problems
 Heuristics: Provide good, but not necessarily optimal, solutions to problems./ Typically run much faster/ Most DSSs employ heuristics when using
mathematical algorithms./ Quality of a good heuristic defined by how rapidly it can give a solution that is very close to the optimal solution
Appropriateness of Different Tools
 Typically a hybrid of different tools used
 Factors to consider: The type of problem being considered/ The required accuracy of the solution/ Problem complexity/ The number and type of quantifiable
output measures./ The required speed of the DSS/ The number of objectives or goals of the decision maker
IT Capabilities- Strategic Network Design: Pick the optimal number, location, and size of warehouses and/or plants/ Determine optimal sourcing strategy/
Determine the best distribution channels/Objective: minimize total costs, including sourcing, production, transportation, warehousing, and inventory, by
identifying the optimal trade-offs between the number of facilities and service levels./ Planning horizon typically a few months to a few years/ Uses aggregated
data and long-term forecasts.
IT Capabilities Tactical Planning: Determines resource allocation over shorter planning periods such as weeks or months/ SC master planning (Coordinates
production, distribution strategies, and storage requirements/ Efficiently allocates SC resources to maximize profit or minimize system-wide cost.)/ Inventory
planning (Determines the optimal amount of safety stock/How to best position inventory in the SC.)
IT Capabilities Operational Planning
Enables efficiencies in procurement, production, distribution, inventory, and transportation for short-term planning./ Planning horizon typically daily to weekly/
Systems focused on generating feasible strategies, not optimized solutions
Four Components of Operational Planning
 Demand planning: Generates demand forecasts based on various historical and other pertinent Info.. (Statistical analysis and forecasting methods)
 Production scheduling: Generates detailed production schedules based on the SC master plan or demand forecasts./ Constraint-based feasibility analysis that
satisfies all production constraints.
 Inventory management: Generates inventory plans for the various facilities in the SC/ Statistical and computational methods.
 Transportation planning: Produces transportation routes and schedules/ Fleet planning, transportation mode selection, routing, distribution planning.
IT Capabilities Operational Execution: Provide the data, transaction processing, user access, and infrastructure for running a company./ Tend to be real-time in
the sense that the data are current and are constantly being updated by users and events.
Five Components of Operational Execution (Enterprise resource planning/ Customer relationship management/ Supplier relationship management/ SC
management systems/ Transportation systems)
Other factors 1)Planning horizons different for various capabilities 2)Return on investment different for various system: High for strategic systems/ Much smaller
gain for operational planning and execution 3) Implementation complexity different: Low for strategic network design is not high(Tools and processes not
integrates with other systems or processes./ Does not require real-time updates) 4)High for operational systems (Integrate and require real-time data/ Extensive
training.)
Sales and Operations Planning (S&OP): Business process that continuously balances supply and demand./ Cross-functional integrating sales, marketing, new
product launch, manufacturing and distribution into a single plan/ Typically involves analysis of aggregated volume such as product families./ Most companies
use some demand planning software and spreadsheet analysis of data collected from various ERP, CRM and manufacturing systems.
S&OP Implementations: Achieving S&OP process success is quite challenging./ Process doesn’t include optimization, inventory considerations, what-if
capabilities/ Data complexity and too many options to analyze in a spreadsheet results in a need to create repeatable and visible process with ERP systems.
Features in the New Process: Aided by new technology platforms (Allows easier integration of data)/ Ability to optimize and not focus solely on the forecast./
Integration of different activities into the S&OP process

Integrating SC IT: Systems are complex/ Companies may think it is not cost effective to implement some of the systems / Implementing ERP systems (Internal
processes have to be converted/ Follow some industry conventions)
No single standard has emerged as yet Therefore, companies need to decide: the priorities in implementation? +invest in first?
Implementation issues: Companies must first install ERP so that data is available/ However companies can start installing DSS before/in-parallel with ERP as data
is already available in legacy systems (DSS projects take much lesser time/ DSS projects have a higher ROI)
Single Vendor: Purchase ERP and SC DSS as a total solution from one vendor
Best of Breed: Purchase the best-fit solution in each category from a different vendor,/ System better fits each function in the company./ More complex and takes
longer to implement/ Provides greater long-term flexibility./ Better overall solutions to the company’s problems.
Proprietary Systems Development: Makes sense for extremely large companies/ Already existing expert IT departments and systems that already serve the
company well. /Latest technologies provide easier business oriented development and integration(May be a push back towards more internal or software
integrator development)
Two distinct chains in organizations:
1) SC  the flow of physical products from suppliers through manufacturing and distribution all the way to retail outlets and customers 2)development
chainnew product introduction and involves product architecture, make/buy decisions, earlier supplier involvement, strategic partnering, supplier footprint
and supply contracts.
Key Characteristics of SC: Demand uncertainty and variability, in particular, the bullwhip effect/ Economies of scale in production and transportation/ Lead time,
in particular due to globalization
Key Characteristics of Development Chain
Technology clock speed: Speed by which technology changes in a particular industry
Make/Buy decisions: Decisions on what to make internally and what to buy from outside suppliers
Product structure: Level of modularity or integrality in a product/ Modular product (assembled from a variety of modules/ each module may have several
options/ Bulk of manufacturing can be completed before the selection of modules and assembly into the final product takes place)
Interaction between the Two Chains
Fisher’s concept of Innovative and Functional Products 1)Functional products characterized by: slow technology clock speed, low product variety, and typically
low profit margins 2)Innovative products characterized by: fast technology clock speed and short product life cycle, high product variety, relatively high margins.
What Is the Appropriate SC Strategy and Product Design Strategy for Each Product Type?
Each requires a different SC strategy/ Development chain has to deal with the differing level of demand uncertainty
Design for Logistics(DFL): Product and process design that help to control logistics costs and increase service levels (Economic packaging and transportation/
Concurrent and parallel processing/ Standardization)
Economic Transportation and Storage 1)Design products so that they can be efficiently packed and stored 2)Design packaging so that products can be
consolidated at cross docking points 3)Design products to efficiently utilize retail space

Final Packaging (Delay until as late as possible/ Repackaging at the cross-docking point is common for many products)
Concurrent/Parallel Processing (Objective is to minimize lead times/ Achieved by redesigning products so that several manufacturing steps can take place in
parallel/ Modularity/Decoupling is key to implementation/ Enables different inventory levels for different parts)
Traditional Manufacturing (Set schedules as early as possible/ Use large lot sizes to make efficient use of equipment and minimize costs/ Large centralized
facilities take advantage of economies of scale)
Standardization (aggregate demand information is more reliable)
Modular Product: Can be made by appropriately combining the different modules/ It entails providing customers a number of options for each module
Modular Process: Each product undergo a discrete set of operations making it possible to store inventory in semi-finished form/ Products differ from each other
in terms of the subset of operations that are performed on them
 Semiconductor wafer fabrication is modular since the type of chip produced depends on the unique set of operations performed
 Oil refining is not modular since it is continuous and inventory storage of semi-finished product is difficult
 Modular products are not always made from modular processes (Bio-tech and pharmaceutical industries make modular products but use non-modular
processes; many products are made by varying the mix of a small number of ingredients)
Swaminathan’s Four Approaches to Standardization
Part standardization: 1)Common parts used across many products. 2)Common parts reduce: inventories due to risk pooling costs due to economies of scale 3)
Excessive part commonality can reduce product differentiation 4) May be necessary to redesign product lines or families to achieve commonality
Process standardization: 1)Standardize as much of the process as possible for different products 2)Customizing the products as late as possible 3)Decisions about
specific product to be manufactured is delayed until after manufacturing is under way (Starts by making a generic or family product/ Differentiate later into a
specific end-product) 4)Postponement or delayed product differentiation
Delayed Differentiation (May be necessary to redesign products specifically for delayed differentiation/ May be necessary to resequence the manufacturing
process to take advantage of process standardization)
 Resequencing (modify the order of product manufacturing steps/ resequenced operations result in the differentiation of specific items are postponed as much
as possible)  Postponement
Product Standardization  Downward Substitution (Produce only a subset of products (because producing each one incurs high setup cost)/ Guide customers
to existing products/ Substitute products with higher feature set for those with lower feature set/ Which products to offer, how much to keep, how to optimally
substitute ?)
Procurement Standardization  Consider a large semiconductor manufacturer (The wafer fabrication facility produces highly customized integrated circuits/
Processing equipment that manufactures these wafers are very expensive with long lead time and are made to order/ Although there is a degree of variety at the
final product level, each wafer has to undergo a common set of operations/ The firm reduces risk of investing in the wrong equipment by pooling demand across
a variety of products)
<Selecting the Standardization Strategy>
l If process and product are modular, process standardization will help to maximize effective forecast accuracy and minimize inventory costs.
l If the product is modular, but the process is not, it is not possible to delay differentiation. However, part standardization is likely to be effective.
l If the process is modular but the product is not, procurement standardization may decrease equipment expenses.
l If neither the process nor the product is modular, some benefits may still result from focusing on product standardization.
Important Considerations: Strategies designed to deal with demand uncertainty and/or inaccurate forecasts/ Changes suggested in the strategies may be too
expensive to implement (Redesign related costs should be incurred at the beginning of the product life cycle/ Benefits cannot be quantified in many cases:
increased flexibility, more efficient customer service, decreased market response times)
Resequencing causes: level of inventory in many cases to go down/ per unit value of inventory being held will be higher
Tariffs and duties are lower for semi-finished or non-configured goods than for final products: Completing the manufacturing process in a local distribution
center may help to lower costs associated with tariffs and duties.

Pull-based systems typically  reduction in SC lead times, inventory levels, and system costs/ making it easier to manage system resources
- Not always practical to implement a pull-based system throughout the entire SC: Lead times may be too long/ May be necessary to have economies of scale in
production or transportation.
- Standardization strategies can combine push and pull systems: Portion of the SC prior to product differentiation is typically a push-based SC/ Portion of the SC
starting from the time of differentiation is a pull-based SC.

Supplier Integration into New Product Development: (Traditionally suppliers have been selected after design of product or components/ However, firms often
realize tremendous benefits from involving suppliers in the design process. - Benefits include (a decline in purchased material costs/ an increase in purchased
material quality/ a decline in development time and cost/ an increase in final product technology levels. )

The Spectrum of Supplier Integration (No single “appropriate level” of supplier integration)
None (Supplier is not involved in design./ Materials/subassemblies supplied as per customer specifications/design)
White box (Informal level of integration/ Buyer “consults” with the supplier informally when designing products and specifications/ No formal collaboration)
Grey box (Formal supplier integration/ Collaborative teams between buyer’s and supplier’s engineers/ Joint development)
Black box (Buyer gives the supplier a set of interface requirements/ Supplier independently designs and develops the required component)

Appropriate Level Depends on the Situation

Process Steps to follow: 1)Determine internal core competencies. 2)Determine current and future new product developments. 3)Identify external development
and manufacturing needs.
Black Box (If future products have components that require expertise that the firm does not possess, and development of these components can be separated
from other phases of product development, then taking)
Grey Box (If separation is not possible)
White Box (If buyer has some design expertise but wants to ensure that supplier can adequately manufacture the component)

Keys to Supplier Integration #Making the relationship a success: Select suppliers and build relationships with them/ Align objectives with selected suppliers
Suppliers selection: 1)Capability to participate in the design process/ 2)Willingness to participate in the design process/ 3)Ability to reach agreements on
intellectual property and confidentiality issues./ 4)Ability to commit sufficient personnel and time to the process./ 5)Co-locating personnel if appropriate /
6) Sufficient resources to commit to the supplier integration process.

Mass Customization
 Evolved from the two prevailing manufacturing paradigms of the 20th century (Craft production and mass production.)
 Mass production: efficient production of a large quantity of a small variety of goods/ High priority on automating and measuring tasks/ Mechanistic
organizations with rigid controls
 Craft production: involves highly skilled and flexible workers/ Often craftsmen/ Organic organizations which are flexible and changing

Absence of Trade-Offs
 Two types meant inherent trade-offs 1)Low-cost, low-variety strategy may be appropriate for some products 2)a higher-cost, higher-variety, more adaptable
strategy was more effective
 Development of mass customization implies it is not always necessary to make this trade-off
 Mass customization (delivery of a wide variety of customized goods or services quickly and efficiently at low cost/ captures many of the advantages of both
the mass production and craft production systems/ not appropriate for all products/ gives firms important competitive advantages/ helps to drive new business
models)

Making Mass Customization Work a)Highly skilled and autonomous workers, processes, and modular units b)Managers can coordinate and reconfigure these
modules to meet specific customer requests and demands

Key Attributes
 Instantaneous (Modules and processes must be linked together very quickly/ Allows rapid response to various customer demands.)
 Costless (Linkages must add little if any cost to the processes/ Allows mass customization to be a low-cost alternative.)
 Seamless (Linkages and individual modules should be invisible to the customer)
 Frictionless (Networks or collections of modules must be formed with little overhead. /Communication must work instantly)
Mass Customization and SCM
- Many of the advanced SCM approaches and techniques essential if mass customization is to be successfully implemented
- IT critical for effective SCM is also critical for coordinating different modules
- Concepts like strategic partnerships and supplier integration essential for the success of mass customization.
- Postponement can play a key role in implementing mass customization