Transcript week 3 inforamtion management 2006.ppt

Information management
• What types of information flow through a
supply chain?
• Some technologies you should be aware of
• E-commerce and new technology
– This changes everything!
– This changes nothing!
– This changes something – but we are not sure
what?
The Health care Supply Chain
• Look at the first reading – Health care in the USA
if fragmented, expensive and error prone.
– Much of the waste and many of the errors could be
eliminated if there were better system wide flows of
data.
• A good example of “quality is free”
• Everything proposed here is already done in most other supply
chains
• Lots of resistance because of lots of local optimization and a
massive lack of trust between chain members
– Funny thing- we tried to do the same thing with cows
when I was at KSU – for the same reasons and with
similar issues
The fix is seemingly a technology one
• Most of the changes will be in systems and
processes
• This is why so many people think IT systems are
the key to SCM
• And that is why we will talk about them today and
maybe next week?
• But – without the human elements the most
elegant system is useless.
Information flows
• Go back to the last class. What kind of data needs
to flow in our model supply chain?
Operational information in a supply chain
• Demand forecasts – aggregate and disaggregate
(Volvo story in reading)
• Inventory
– How much / where / when / etcetera
• Customer orders
– Due date, design, pricing, etcetera
• Production and delivery schedules
– All members of the chain
• Financial flows – who owes what to whom?
Strategic information flows
• New product / service development. Design,
materials choices and so on
• Responding to exceptional events / crisis
• Creating the plans for the above
• Facility locations
• Ecetera.
An operational example – demand forecasts
• CFAR – collaborative forecasting and
replenishment. In many retail settings (think WalMart not The Gap) the retailer can not forecast on
their own – create forecasts with suppliers based
on
– Real time sales data
– Marketing plans – both tiers
– Overall market forecasts – both tiers
• Useless unless we also know
– Production and shipping schedules for entire chain
• Combined much more robust planning tools
Why is getting this data hard?
• When you negotiate do you want to tell a
customer that:
– You have plenty of capacity and can get the job done
fast?
– You have had shipping delays from suppliers
– Etcetera
• Do you want to tell a supplier that:
– You need as much of their product / service as you can
get or that you have stock outs ?
– Do you want a supplier to know you are having a great
year?
A strategic example– new product / service
development
• Traditional design processes
• Concurrent processes
– DFM /DFE / DFX
• What are the benefits of this increased
involvement ?
• What are the potential pitfalls / costs ?
• What is it going to take to make this happen on a
regular basis across your chain?
Increased information sharing
• The foundation of most SCM improvement efforts
is speeding and or increasing information flow.
• Usually across functions and chain members
• We have all sorts of cool new technologies to do
this
• None of that matters until the chain members have
incentives to do this (and of course trust)
You should be aware of:
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ERP / enterprise systems
EDI – electronic data interchange
CFAR
Concurrent design – ESI
The bar code scanner / reader
– Considered by the some the most important technology
of the 20th century – now it is RFID
• CRM – customer relationship management
• Auction technology – especially reverse auctions
What is happening right now?
• Many experts on SCM claim that new information
technologies (especially web based technologies)
are the key to optimization.
• Think hard about this
– What is really new?
– Can technology compensate for poor management
– Would you rather have the best systems or the best
strategy (properly executed)?
E-commerce – is this a revolution?
• EDI has existed in some form for 30 years
• The revolution – if there is one- comes from the
web.
• A typical non-web based EDI system was used to
allow members of a supply chain communicate
with each other in real time and without paper. It
required:
– A large investment in software – usually produced by
the buyer and forced upon suppliers
– Dedicated hardware to run the software
What is different today continued
• EDI systems were then
– Expensive
– Proprietary – Wal-Mart’s system did not use the same
technology as K-Mart’s- to supply to both required two
investments. This was typical
– It was a big deal when the automakers went to a
standard EDI system – so a supplier only had to invest
once.
• Lower costs for suppliers
• Increased number on system – note if much les than 100%
value was very limited
– EDI systems had very high start-up costs, high fixed
costs, and were not generally adapted by all members
of a supply chain.
So what has changed?
• Almost all e-commerce is done using internet platforms –
which means what?
– First a number of companies who invested in
proprietary systems in the middle 90’s wasted a lot of
cash
– The hardware a supplier needs is a PC with a modem
– The only software they need is a browser
– So the set-up costs for the supplier are almost nothing
and they can be on multiple networks.
– The buyer ends up with an entire supply base using the
tools removing the need for a paper bound system (yet I
still meet plenty of people placing orders via fax) –
Note my gift certificate from Colorado Cyclist.
Other changes
• From a supply chain perspective the Web is the big change
but other technology matters as well
– Processing speeds - yield management / Yellow Freight
– Storage capabilities – this is huge for data mining and mass
customization
– ERP systems that actually work – often run on the web now
– RFID, satellite links for trucks and ships and other real time
communication
– Flexibility of production systems because of computer controls
• Nissan (most productive car plant in the world) can make 4
models on their Symrna Tennessee line with no set-up times to
change models
• Bottom line- more information flowing to more people at
higher speeds
The “revolution” from a SCM perspective
•
From the articles I would ague there are 4 or 5 themes all
based on the ubiquity of the net (note many of these
themes were sounded over EDI and never happened)
1.
Through exchanges and auctions the net gives us the
power to lower prices
Lower purchasing costs are one of many ways we can
reduce the costs of our present process
If we just improve the present process we will not be able
to really leverage the net to its fullest
The new processes will create 2 classes of suppliers
You need a strategy - even more now than in the past
2.
3.
4.
5.
Lets start with the most hyped stuff
• The internet is going to lower prices
– B to B exchanges and auction sites
• How do auction cites work?
– Savings are often 20-30%
• Are they universal?
– Requires a very precise RFQ
– Requires many available suppliers
– Requires a willingness to have a transaction based
relationship
Can new technology do more than just lower
prices?
• Krispy Kreme
– Electronic ordering system
• If order quantities change dramatically it queries the manager
– Did you mean 50 or 5?
• When bad items are shipped managers can place orders for
instant replenishment
• Far fewer errors
Jet Blue
• Paperless cockpit
• All pilots have a laptop with
– Most up to date flight manuals
– Faster searches – no out of date information
– Faster turn time on the ground
Lower costs
• These example are typical e-commerce
information sharing examples.
• They involve the reduction of non-value adding
tasks – all of them would make a JIT / Lean
proponent happy
– Reducing wasted resources in the supply chain.
• None of this will lead to a long term competitive
advantage.
Competitive advantage
• All of the previous examples showed ways to:
– Reduce prices and hopefully costs
– Decrease lead times
– Increase the likelihood that the right inventory is being
held
– Teach customers more about a product (or service) or
how to service it
– Etc.
• So why doesn’t this create competitive advantage?
Long term CA continued
• Is auction technology available to everyone?
• Is web based communication available to
everyone?
• Is the expertise to make this work becoming easier
to access?
• I would argue the answer to all of these questions
is yes.
To gain a CA from information technology
• So far most of the processes we have talked about
changing using e-commerce / IT are the non-core
parts of our supply chain.
– We improve communication
– We reduce inventory
– Etc.
– But we do not fundamentally change what we make or
how we do it- we are making an existing process as
good as it can be.
Key point
• The internet and other investments in IT can make
our existing processes more efficient
• But to gain a real long term competitive advantage
ala Dell (15 years?) you need to change processes
as well.
One area of real promise from e-commerce is
• Creating all new process to allow for true “mass
customization”
– Mass customizers reap the benefits of economies of
scale while giving customers some level of
customization- lower cost linked with higher prices
• This is limited- recent research – full customization increases
production costs and lead times – ATO no trade-off.
• Note level of customization has no statistical influence on cost
or time in marketing or service.
• Dell is probably the best example of this – note they were
doing it before the web- that just made it easier for them
– Taco Bell is Mark’s favorite example
Lets examine a specific supply chain - cars
• The auto industry has had EDI for 20 years. They
have moved suppliers to the web. They are using
web auctions. They have an average of a 60 day
supply of cars in the USA – yet they rarely have
the car you want on a lot
– Most let you search dealers inventory to see if you can
find what you want
– This is still a push system
– The costs of this inventory are humongous – and the
costs are also inflated because people will not pay as
much for a car that is close to what they want as a car
that is exactly what they want.
What has to change?
• The real problem is not finding out what
consumers want- it is making it.
• But car makers are JIT what is the problem?
– Harley is JIT and does mass customization.
• Lead time is measured in many months
• Customers willing to wait
– Car companies have a much more complex product
– Customers less willing to wait
• Still the real issue is the way a car is made
– Smart Car concept.
– BMW – 12 days Europe- 24 days USA
Examples of leveraging new technology
• Some companies who have changed their
processes or created all new processes
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ChemStation.com – rapidly commoditizing as VMI
Dell
E-bay
Plagerism.com
Amazon.com
Text book publishing?
Education without a campus?
Lets step back - a supplier perspective
• Prices reduced – and buyers have full access to
pricing information
• If your product or service can be described by a
RFQ with no uncertainty everything but price
becomes an order qualifier.
• So companies are going to end up in 1 of 2
categories- things bought on price and things
bought for other reasons.
– It does not take a genius to figure out that if you are in
the price only category that competition will be brutal
and margins will be minimal
Edison’s Curse
• Gary Hamel’s article is perhaps the best thing on
new information technologies I have read.
• Starts with electrification at the start of the 20th
century.
– Consumers- lower prices
– Makers of generation equipment – large profits
– Electricity distributors – lots of cash at first and then
competition increased and they made less
– Industrial companies – much more efficient but no
more profitable
E- commerce equivalents
• Consumers – lower prices
• Makers of internet hardware (routers, servers and the like)
– think Cisco
– Until every company has this stuff they are going to continue to
grow – the last few years created expectations that were too high but in the long term someone is going to make this stuff – but
eventually they will become GE power systems
• Distributors – ASP’s, Portals and the like – already starting
to look less attractive
• Industrial companies- more efficient but not more
profitable
Electricity to e-commerce
• Most companies became much more efficient with
the advent of electric power – but no more
profitable- why?
• Hamel predicts the same thing with e-commerce
– Costs will go down considerably due to increased
efficiency
– Increased information will also lower costs - he notes
that many industries are premised on imperfect
information – this is bad for me
– But for most companies these two things do not equal
increased profits
Hamel’s key point
• “Any company that plans to make money from “e”
must have a web strategy that creates unique value
for customers, confers unique advantages in
delivering that value, and is tough to copy”
• This changes nothing.
Conclusions
• The web is EDI for everyone
• Prices will fall – probably a great deal
• Suppliers of commodities will get caught in a low price
trap –with prices constantly falling. This will reduce the
costs of all goods and services.
– From a supply chain perspective our chain will be much more
efficient – but so will all other chains
• Competitive advantage will come from
– Using the web to create a new product or service (or creating a
new way of delivering an existing product or service)
– Having a way to create a long term competitive advantage.