Muhammad Imran Alam: supply chain management

BPTrends ▪ July 2011 Supply Chain Management - A Practical Solution Approach

Supply Chain Management - A Practical Solution

Approach

Sameer S Paradkar

Abstract

This paper starts by describing the SCM and then walks thro’ the different domains that comprise

SCM value chain. The document lists the drivers and benefits of SCM enterprise applications.

This papers touches upto the SCOR methodology which is a best practice process reference

model endorsed as the cross-industry de facto standard diagnostic tool for SCM. This paper goes

on to describe a Reference architecture for SCM on which more specific solutions can be build.

This paper provides a table consisting of SCM functional area and product/vendor solutions for

that area/domain. The approach is to transform SCM enterprise so that the solution is based on

the Reference architecture and product vendor catalog that the white paper emphasizes.

Supply Chain Management – SCM Introduction:

SCM is the management of the entire value-add chain, from the supplier to manufacturer to the

retailer and finally to the customer. SCM is a systematic approach to manage the entire flow of

information, materials, and services. Supply Chain is a huge network of retailers, distributors,

transporters, warehouses and suppliers that participate in the sale, delivery and production of a

particular product. SCM involves the flows of material, information and finance in a network chain

consisting of customers, suppliers, manufacturers, and distributors.

SCM Drivers: The following list describes the drivers for the current SCM industry at large

o Reduce the cost of carrying excessive Inventory

o Reduce the cost of goods sold to Customer

o Increase the transaction processing speed by exchanging data in real-time

o Increase sales by implementing customer requirements more efficiently

o Reduce lead time from raw material to the finished goods to the customer

Figure 1: SCM Value Chain 2

BPTrends ▪ July 2011 Supply Chain Management - A Practical Solution Approach

SCM Domains: The above figure represents the SCM value chain. The following paragraphs

describe in detail each of these areas.

1) Planning: Planning is a critical part of SCM in which the company develops a strategy

for managing all the resources that are necessary to fulfill the customer demand for the

organization’s products and services. Sales and Operations Planning enables key

decision makers to monitor corporate S&OP performance metrics and trends. This will

help company to achieve real-time sales and operations planning that will expand S&OP

process beyond the traditional boundaries. The company will be able to balance supply,

demand, and budgets and address promotion, allocation, cost, and customer service

level issues profitably. The process helps company to achieve a holistic view of key

performance metrics and trends across performance and across a wide variety of

metrics, dimensions at various levels of aggregation.

2) Material Resourcing or Sourcing: This process deals with ordering, delivery, receipt

and transfer of raw materials, products or services to meet planned or actual customer

demand. This pertains to managing the inventory of goods and services the company

receives from their suppliers, including receiving, verifying, transferring the goods and

services to the appropriate facilities and authorizing supplier payment. This requires

developing a set of pricing, delivery and payment processes with suppliers. The

resourcing process mitigates the company’s risk of engaging in business with suppliers

who fail to comply with corporate or government-set standards with centralized

information. This process also enables an online registration facility for suppliers to

for entry. The process also consolidates the supplier data and enables procurement

tracking in different regions from different suppliers with varying degrees of cost, risk and

performance.

3) Production: This part of the value chain consists of order fulfillment for anticipated or

actual customer demand for finished goods. The process facilitates scheduling activities

necessary for production, testing, packaging and delivery preparation. The user should

be able to schedule production and visibly track available stock of raw materials and

finished goods in the inventory at all locations including suppliers and warehouses.

4) Warehouse: Warehouse Management provides for the planning and execution

capabilities that allow warehouse managers to better plan and manage distribution center

workflow. It provides upfront visibility into inventories to help manage and process orders

at a faster rate. It provides better visibility into order process time and labor availability.

WMS offers push and pull based replenishments to select the warehouses best able to

efficiently pick high volume orders. Warehouse management facilitates integrated

transportation planning and execution by leveraging dock door delivery models.

5) Distribution: This can also be referred to as Logistic Process. These processes will

consist of providing finished goods and services to meet anticipated or actual demand,

typically including order management, transportation management, and distribution

management. This includes the distribution to the company’s distribution Partner, other

distributors such as direct distribution to the channel partners including, IT key accounts,

IT retailers and wholesalers.

6) After Sales: The final segment of the value chain defines processes associated with

returning or receiving returned products from a customer or other channel partners. It

also manages handling defective material received from the suppliers. It enables tracking

all the information related to products or services. The process is integrated with the

finance function to track and initiate cost settlement with customer / vendor. This enables

users to seamlessly manage reverse logistics operations in the same distribution centers

that handle vendor receipts and customer order fulfillment. The process supports

component picks for discrete jobs and schedules, ingredient picks for process

manufacturing batches, parts picks for maintenance work and repair orders. 3

BPTrends ▪ July 2011 Supply Chain Management - A Practical Solution Approach

Supply-Chain Operations Reference - SCOR Methodology: SCOR is a

process reference model endorsed by the Supply-Chain Council (SCC) as the cross-industry de

facto standard diagnostic tool for SCM organizations. SCOR enables users to address, improve,

and communicate SCM practices within an enterprise.

Figure 2: SCOR Methodology

The model is based on 3 major pillars which are described below.

1) Process Modeling Pillar: Describes supply chains using process modeling building

blocks. The process pillar is focused on:

o Plan: Processes that balance aggregate supply and demand to develop a

course of action which best meets sourcing, production and delivery

requirement

o Source: Processes that procure goods and services to meet planned or

actual demand

o Make: Processes that transform product to a finished state to meet

planned or actual demand

o Deliver: Processes that provide finished goods and services to meet

planned or actual demand, typically including order management,

transportation management, and distribution management

o Return: Processes associated with returning or receiving returned

products for any reason. These processes extend into post-delivery

customer support4

BPTrends ▪ July 2011 Supply Chain Management - A Practical Solution Approach

2) Performance Measurements Pillar: This pillar deals with measuring the performance

of the supply chain and comparing it against internal and external industry goals. These

performance metrics derive from the experience and contribution of the Council

members. Supply chain performance is focused on:

o Reliability - achievement of customer demand fulfillment on-time,

complete, and without damage etc.

o Responsiveness - the time it takes to react to and fulfill customer

demand

o Agility - the ability of supply chain to increase/decrease demand within a

given planned period

o Cost - objective assessment of all components of supply chain cost

o Assets - the assessment of all resources used to fulfill customer demand

3) Best Practices Pillar: After the performance of the supply chain operations has been

measured and performance gaps identified, it becomes important to identify what

activities are melded to close those gaps. Re-alignment is achieved through a

combination of the following:

o Classic Process Re-engineering from "As-Is" to "To-Be"

o Lean Manufacturing analysis and process change

o Six-Sigma analysis of defective processes

o Theory-of-Constraints analysis of systems of processes to elucidate

root-cause issues

o Balanced SCOR cards and benchmarking

SCM Reference Architecture

SCM software solutions provide real-time systems that manage the flow of product and

information throughout the supply chain network. They are designed to enhance SCM operations

by reducing manual tasks through automations.

This below diagram depicts SCM application landscape consisting of interfacing

applications/systems. Diagram depicts an SCM Reference architecture on which more specific

architectures can be build. The Reference architecture is based on the SCM value chain domain

and SCOR process methodology. The diagram segregates the applications based on

infrastructure applications (Integration, Security, MDM) and business applications (Production

Management, Procurement Management). The blocks depicted forms the essential components

of the SCM eco system. There are close to 10 different vendors providing SCM application

catering to different functions hence there is a lot of choice when it comes to the final list of

application that will make the cut for an organization but the Reference architecture should still

hold good. The final solution will be a matter of mixing and matching the COTS products and/or

Customer Development applications based on different parameters life functionality, integration,

processes, budget and vendor support to essentially to meet the organization requirements. 5

BPTrends ▪ July 2011 Supply Chain Management - A Practical Solution Approach

Figure 3: SCM Reference Architecture

The Major Building Blocks of the reference architecture for SCM are

1) ERP: ERP accommodates a variety of business activities, including sales, marketing,

delivery, billing, production, inventory management, quality management, and human

resource management. It is often referred to as a back office system suggesting that

customers and the general public are not directly involved with its functions. The major

components of ERP includes

a. Financial Accounting

b. Procurement

c. Inventory

d. Order Manager

e. Point of Sale

2) Planning: Planning deals with all planning related activities in the SCM ecosystem. This

block includes supply, demand, production and distribution planning functions.

3) Warehouse Management: Warehouse management provides the planning and

execution capabilities that allow warehouse managers to better plan and manage

distribution center workflow. WM provides upfront visibility into inventories to help

manage and process orders at a faster rate. Warehouse management facilitates

integrated transportation planning and execution by leveraging dock door delivery

models.

4) Claims and Warranty: CWS deals with the returns management process including

warranty. This system manages returning or receiving returned products from a customer

or other channel partners. It also deals with handling defective material received from

suppliers.

5) Transportation Management: Transportation Management provides transportation

planning and execution capabilities to shippers and third party logistics providers. It

integrates and streamlines transportation planning, execution, freight payment, and

business process automation across all modes of transportation.6

BPTrends ▪ July 2011 Supply Chain Management - A Practical Solution Approach

6) Supplier Portal: Supplier Portal deals with communication and coordination with

suppliers.

7) Production Management: Production Management deals with activities related to

Production Management including MPS/MRP and production order.

8) Procurement Management: Procurement Management enables the complete

procurement process from order to payment and allows complete visibility of the entire

process. It also facilitates online negotiation and collaboration.

9) Order Management: Order Management handles the order fullfillment process from of

SCM business. OM facilitates end to end order to cash solution.

10) Inventory Management: Inventory Management provides advanced, real time inventory

transactions and visibility functionality for SCM. IM supports inbound, outbound, and

reverse logistics, transactional support and finished goods, raw materials, and work in

process components tracking.

11) Master Data Management: Master Data Management acts like the Central Repository of

the Master data. It standardizes matches and removes duplicates from the incoming

data. MDM cleanses and enriches the data centrally. MDM is a workflow-driven process

in which various business units collaborate to harmonize, cleanse, publish and protect

common information assets that must be shared enterprise wide. MDM ensures the

consistency, accuracy, stewardship and accountability of the enterprise's core

information.

12) Integration Infrastructure: This component deals with the integration of disparate

systems and application through the EAI component. Allows simplified systems

integration (Plug and Play) through clearly defined contract interfaces between

applications. It also reduces software development costs by building on industry best

practices and standards.

13) PLM – Product Life Cycle Management: PLM manages the information, processes,

and decisions about products throughout their. The product record includes all the

information required by an SCM enterprise and its extended design and supply chain to

conceptualize, design, source, build, sell, service and dispose of products.

Benefits of SCM IT Solutions:

1) Improved staff and task productivity: Automating various SCM tasks from plan-toproduce, demand-to-build and order-to-cash processes thereby improving business

processes and leading to increased productivity.

2) Improved Supply Chain Network: Supply chain software provides complete, all-round

visibility throughout the entire supply chain network, a feature that cannot be achieved

with manual processes. The organization can detect and respond quickly to market

changes and quickly capitalize on new opportunities.

3) Enhanced Collaboration: This feature provides the organization with the ability to track

the status of all interactions with its suppliers and distributors. It also enables suppliers

and distributors access to the same information in the organization.

4) Minimized Delays: All processes can be seamlessly coordinated and executed from

start to finish, ensuring collaboration and much higher levels of on-time delivery across

the board

5) Reduced Costs: Supply chain software can help reduce overhead expenses in a variety

of ways.

6) Increased Customer Satisfaction: SCM enables the organization to better adapt to and

meet customer demands thereby increasing customer satisfaction.

7) Compliance with Regulatory Requirements – Organizations can monitor compliance

with the regulatory requirements. 7

BPTrends ▪ July 2011 Supply Chain Management - A Practical Solution Approach

SCM Application Functionality and Product Catalog:

SCM applications provide real-time analytical systems that manage the flow of product and

information throughout the enterprise supply chain network. They are designed to enhance SCM

operations - supplier sourcing, production planning, inventory planning, transportation planning,

and demand planning, and so on. The SCM solutions are fragmented along these functional

applications into specific spaces – for example, advanced planning and scheduling for the

manufacturing plant, demand planning for the sales group, and transportation planning for the

distribution center. The below table list the vendors against each of the functional areas in supply

chain network

Function Application Area/Sub Function Vendor/Product Catalog

Planning

Demand Planning

SAP, Oracle Apps, JD Edward and Baan

Supply Resource Aggregation for Supply

Planning

Final Demand & Supply Plan

Material

Resourcing

Material Resource Planning

Purchasing and Inventory Raw Materials SAP, Oracle Apps, Baan

Supplier Portal

Procurement

Production

Production Management

SAP, Baan, Oracle Apps, Interbiz

Inventory Finish Goods

Warehouse

Warehouse Management

JD Edward, JBA (System 21), Oracle Apps

Transportation Management

Distribution

Order Management

Interbiz, Oracle Apps

Inventory Management

After Sales

Claim and Warranty Mgmt (Order Return &

Return Logistics)

Oracle Apps

Others

Product Life Cycle Management

Oracle, Sun, IBM

Master Data Management 8

BPTrends ▪ July 2011 Supply Chain Management - A Practical Solution Approach

Table 1: SCM Functionality and Product Vendor Mapping

Supply Chain Management Vs Enterprise Resource Planning

ERP equips the company to gain competitive edge by integrating all business processes and

optimizing the resources available. It facilitates integration and synchronization of the isolated

functions into streamlined business processes. ERP is being implemented in almost all types of

organizations irrespective of its mode and spread of operation.

Difference Between ERP and SCM.

1) Real Time Information: Traditional ERP systems generally do not gather real-time

information from everywhere in the supply chain. On the contrary, they often contain

static, dated information only related to subsections of the supply chain. Getting answers

from an overloaded ERP system may take hours, whereas getting them from a separate,

memory resident, always running SCM system may take minutes or seconds.

2) One Vs Many: An ERP system accommodates a single company that is attempting to

integrate its business activities, SCM almost always spans across multiple companies

and involves only a relatively few people and resources within each company. One

company may be involved in many supply chains for different product lines or different

markets for the same product line.

3) Decision Making: Real-time information throughout the entire supply chain is needed to

make correct decisions, and SCM products are designed to gather that real-time

information. ERP systems broadly cover sales and distribution, business planning,

production planning, shop floor control, and logistics. This would seem to cover the same

areas as SCM. However, effective SCM enables the organization to make informed

decisions throughout the entire supply chain network. SCM goes beyond traditional

planning solutions by simultaneously considering demand, capacity and material

constraints.

SCM User Case Scenarios: The following scenarios are addressed by SCM end to end

workflow solutions and involve several of the components highlighted in the SCM reference

architecture.

o Procure to Pay

o Order to Cash

o Lead to Service

o Forecast to Plan

o Demand to Build

Integration Infrastructure 9

BPTrends ▪ July 2011 Supply Chain Management - A Practical Solution Approach

Figure 4: SCM Use Case Scenarios

Conclusion:

SCM software is the most fragramented group of software applications on the planet. Each of the

six major supply chain domains outlined earlier consists of dozens of specific tasks, many of

which have their own software. Organizations need to track supply, demand, manufacturing

status, logistics and distribution on a real time basis. They also need to share data with supply

chain partners at an ever increasing rate. Vendors assemble these different chunks of software

under a single roof, but no single vendor will have a complete package that is right for every

company. The trend is to consolidate these disparate functions into a comprehensive SCM

solution, and this is where the Reference Architecture explained earlier provides a foundation on

which more specific solutions can be built based on enterprise requirements.

_____

Author

Sameer S Paradkar is an Enterprise Architect with Wipro Consulting Services. Sameer has 14 years of

experience in IT and have worked across different industry verticals. Sameer can be reached at

sameer.paradkar@wipro.com.

Disclaimer

The views expressed in this article / presentations are that of mine and Wipro does not subscribe to the

substance, veracity or truthfulness of the said opinion’

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Muhammad Imran Alam

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Saturday, September 10, 2011

supply chain management

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