Application software of Supply Chain

ABSTRACT This paper will discuss about the application of supply chain being used in current management of manufacturing industry. It will covered an example of the software, the advantages and disadvantages, and how the used if the application can affect the particular manufacturing practice.

1. INTRODUCTION As a customer, we often went to shop or supermarket to get the things that we need. But have we thinking about where do the things come from? This is the fundamental of supply chain. It started with the customer. Consider a customer walking into a Wal-Mart store to purchase detergent. The supply chain begins with the customer and their need for detergent. The next stage of this supply chain is the Wal-Mart retail store that the customer visits. Wal-Mart stocks its shelves using inventory that may have been supplied from a finished-goods warehouse that Wal-Mart manages or from a distributor using trucks supplied by a third party. The distributor in turn is stocked by the manufacturer (say Procter & Gamble [P&G] in this case). The P&G manufacturing plant receives raw material from a variety of suppliers who may themselves have been supplied by lower tier suppliers. For example, packaging material may come from Tenneco packaging while Tenneco receives raw materials to manufacture the packaging from other suppliers.

2. BACKGROUND What is the supply chain? Supply chain is the system of organization, people, activities, information and resources involving the distribution of product or service to customer. Supply chain activities transform natural resources, raw materials, and components into a finished product that is delivered to the end customer. In sophisticated supply chain systems, used products may re-enter the supply chain at any point where residual value is recyclable. Supply chains link value chains.

Figure 1: Supply Chain

Figure above shows how the supply chain links the overall activities of laptop manufacturing. It started with the crude oil which is provided by suppliers as the raw material of the plastic granules until when the finished product is taking away by customers.

3. SUPPLY CHAIN MANAGEMENT SOFTWARE 3.1 Supply Chain Management Areas of Concern

There are several areas that need to be addressed to ensure an effective and efficient Supply Management System. This areas need to be addressed by using appropriate tools such as Supply Management Software Application to ensure smooth, effective and efficient system in supply chain. Areas identified are:

Distribution Network Configuration: Number, location and network missions of suppliers, production facilities, distribution centers and warehouses, and customers.

Distribution Strategy: questions of operating control (centralized, decentralized or shared); Trade-Offs in Logistical Activities: The above activities must be well coordinated in order to achieve the lowest total logistics cost. Trade-offs may increase the total cost if only one of the activities is optimized. These trade-offs are key to developing the most efficient and effective Logistics and SCM strategy.

Information: Integration of processes through the supply chain to share valuable information, including demand signals, forecasts, inventory, transportation, potential collaboration, etc.

Inventory Management: Quantity and location of inventory, including raw materials, work-in-process (WIP) and finished goods. Cash-Flow: Arranging the payment terms and methodologies for exchanging funds across entities within the supply chain.

3.2 Why Supply Chain Management Software (SCM)?

Due to the limitation and challenges in Chain Supply, few of SCM software are being introduced to the manufacturing companies. The most common software that being widely used are for example are SAP, Oracle, JDA Software, Ariba and Manhattan Associates. Most of the common advantages of the software identified are:

Respond quickly to changes in supply and demand Determine accurate customer delivery dates Optimize inventory, labor, resources, and space Leverage analytics to monitor and measure performance Develop risk avoidance and mitigation strategies Ensure compliance with international trade regulations

4. SAP SUPPLY CHAIN MANAGEMENT SOFTWARE

4.1 Introduction The SAP Supply Chain Management (SAP SCM) application is a planning and execution solutions to manage operations and boost visibility and collaboration to extend the company operations beyond corporate boundaries. SAP SCM empowers companies to adapt their supply chain processes to an ever-changing competitive environment, transforming traditional supply chains from linear, sequential processes into an adaptive supply chain network in which communities of customer-centric, demand-driven companies share knowledge, intelligently adapt to market changes and proactively respond to shorter, less predictable life cycles.

SAP -SCM provides three basis(s) that form the foundation of the adaptive supply chain network:

Synchronize supply and demand-The deployment of front-end demand and backend supply gateways support demand-driven manufacturing and fulfillment processes to keep goods flowing smoothly and profitably to the end customer.

Sense and respond with an adaptive fulfillment network-Distribution, transportation and logistics processes are integrated with real-time planning. Additionally, sense-and-respond capabilities enabled by radio frequency identification (RFID) capabilities deployed in the warehouse and throughout the distribution and transportation network improve order tracking and elevate customer service.

Network-wide visibility, collaboration and analytics-Event management capabilities enable companies to effectively monitor critical activities, resulting in greater transparency, while built-in analytics provide real-time performance management.

Introduction Summary of tools included in the SAP SCM Suite are:

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The SAP SCM suite offers a range of processes and activities that facilitate the daily supply chain operations as well as logistics and distribution. Based on the needs identified on the job description, the SAP SCM suite has several capabilities that support those needs. The following activities meet the needs of information that managers have on the industry level operations:

Need Number of items left in inventory Inventory obsolescence Dates of fabrication FIFO, LIFO Sales figures

Solution Safety-stock planning

Activities Meet desired customer service levels while maintaining a minimum amount of safety stock

Distribution planning Demand planning and forecasting Manufacturing visibility, execution, and collaboration

Chain of production Inventory lines

Inventory turnover Cost of goods manufactured New productions Revision dates Stolen or damaged items Purchase of materials

Production planning and detailed scheduling

Determine the best short-term strategy to meet demand and to replenish stocking locations Use state-of-the-art forecasting algorithms for product life-cycle planning and trade promotion planning - Meet and deliver on your production plans by managing production processes and the development of the workforce and resources on the shop floor - Document, monitor, and dispatch inventory across the production life-cycle - Share information with partners to coordinate production and increase visibility and responsiveness on the shop floor - Generate optimized schedules for machine, labor, and overall capacity utilization - Address problems of unequal allocation of constrained materials and capacity, due-date commitments, and sequencing of incoming orders without disrupting existing plans Plan and execute a physical inventory or velocity-based dynamic-cycle counts - Create feasible production plans across different production locations to fulfill demand to the schedule and to the standard expected by the customer - Use the advantages of production planning and detailed scheduling, simulation, and alert monitoring to optimize order sequences that can be released for production

Physical inventory Material requirements planning based detailed scheduling

Supplier contracts

Strategic Sourcing

Timing Packaging Promotions Costs of shipping

Planning and dispatching

Network Collaboration

Retailers Wholesaling

Sales order processing

Warehouse and retailer locations

Warehousing and storage management Inbound processing and receipt confirmation Rating, Billing, and settlement

Costs

- Identify and evaluate potential vendors based on historical performance and other data - Create long-term plans of sourcing that take into account the companys financial and marketing strategies Optimize, create, and manage planning processes using best-in-class optimization, dynamic routing and scheduling, and continuous-move optimization - Forecast shipment levels, carrier capacity, and equipment allocations - Determine shipment volumes by origin, generate weekly and daily forecasts, and collaborate with logistics service providers - Tender your offers directly into you carriers or forwarders system over the internet or using XML or electronic data interchange Fulfill a range of contracts or purchase orders by delivering a specific product configuration and quantity or by providing a service at a specific time - Optimize internal movement and storage of goods within a warehouse - Utilize task interleaving to decrease travel and improve efficiencies - Receive and process procured goods into the warehouse with a single RF scan - Capture detailed and overview information using RF identification (RFID)- enabled tools - Evaluate, calculate, and distribute transportation charges for the ordering party and the supply party - Enable financial transactions for customer billing and for supplier invoicing - Use denied-party and embargo lists to ensure compliance for cross-border shipments

Timing of transportation

Freight Management

- Receive, update, and confirm transportation requests - Predefine a specific route through the transportation network with dynamic route determination

4.2 SAP SCM Structure

Advanced planning & Optimization

demand planning supply network planning

production planning & Detailed Scheduling

Global Available-to-Promise Transportation PLanning & Vehicle Scheduling

Alert Monitor

The structures consists of synchronizing supply with demand in a global supply chain by balancing push and pull network-planning process and by handling replenishment and production based on actual demand. The modules of ththis structure are shown as below: APO DP: improves the forecast quality and planning accuracy APO SNP: improves visibility across global supply chain and lowers inventory APO PP/DS: supports in creating optimized production plans
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APO gATP: allows sales order confirmation planning processes APO TP/VS: optimizes transportation loads and minimize transportation costs APO Alert Monitor: Powerful exception message system integrated in all APO planning modules

4.3 Applications of SAP SCM

4.3.1

Advanced Planner and Optimizer (APO)

It combines planning algorithms, object-oriented data structure, and optimization databases for solving complex planning problems. A SAP APO system consists of one or more application servers, a database server, one separate server, and multiple optimizer servers executing the optimization algorithms. The infrastructure of SAP APO is shown below.

Figure 3

4.3.2

Business to Business Procurement (BBP)

The aim of SAP BBP is the cost-saving procurement of high-volume, lower transactions for equipments parts and supplies as well as services, such as temporary help. It enables end user to handle the complete procurement process, from creating a requirement to approving invoices all through the front-end.

4.3.4

Environment, Health & Safety (EH&S)

The SAP Environment, Health & Safety (EH&S) component supports all processes required for manufacturing and distributing dangerous goods with regard to international and national legislation. As the transport and shipping of dangerous goods crosses the boundaries of countries and continents, regulations have been synchronized on an international level. In addition, it also offers functionality for product safety, industrial hygiene and occupational heal, observing the various regulations, laws, and guidelines.

4.4 Advantages of SAP SCM

Increase visibility It provides visibility into critical supply chain processes, such as order fulfillment, distribution management, collaborative product design, and supply management. It has a wide range of other critical information, such as orders, plans, supplies, inventory, and shipments. It also enables the user to monitor and analyze the performance of the network to support proactive improvement. It offers sales and operation planning to gain access to relevant data, including affricated, role-specific information about time, organization, product, geography, and units of measure to align company's financial goals, marketing efforts, and inventory targets in on strengthened plan.

Increase network collaboration Facilitates the ability to synchronize supply with demand by connecting and collaborating with suppliers and providing easy access to supply chain information. Collaboration with customers by providing functionality for replenishment, including min/max based vendor managed inventory. Collaboration with contract manufacturers for the use of outsourced manufacturing process by providing access to supply chain information.

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Supply chain management software integration Integration of demand planning in Microsoft Excel to access demand plans, analyze plans offline, and upload revised plans into the demand planning component of SAP SCM application.

5.0

SAP SCM Functionalities

5.1

Planning

Supply chain planning within SAP SCM contains: Supply chain design It is mainly used to design supply chain infrastructure, support strategic decision-making process when choosing the most cost-effective and efficient vendors, production locations, distribution centers, supply relationships, distribution concepts, and transportation networks. Collaborative demand and supply planning Its aim to be used in forecasting market using a variety of forecasting techniques, plan promotions, plan sales volume and demand considering historical buying and selling behavior, plan requirement coverage for various source supply, and determining production requirements for producers across the entire supply network and notifying partners of production progress. There are some important functions that are used under supply chain planning as in below: 5.1.1 Demand Planning Within SAP SCM, demand planning is used for forecasting market trends, and promotion planning within techniques to plan sales volume and demand, considering historical buying and selling behavior. The data us usually bucketed with no constraints. The forecast data is then released to supply network planning to create constraint-based or feasible production plans. The production plans have to be constrained and based on resource availability.

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Some forecasting techniques: Moving average Constant models Trend models Exponential smoothing

There are various techniques for creating forecasts of future demand based on aggregated historical data. An agreed version is released after results have been discussed with the different departments. The planned independent requirements that are created from this can be consumed against incoming customer demands using a variety of strategies. Incoming customer demands are updated in aggregated form and used as the basis for future plans. The following figure clarifies this:

Figure 4: Demand Planning Process Flow

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5.1.2

Supply Network Planning It is usually a bucketed and medium-term planning process. It integrates procurement,

production, distribution, and transportation so that comprehensive tactical planning and sourcing decisions can be simulated and implemented on the basis of a global model. Starting from a demand plan, Supply Network Planning determines a feasible short to medium-term plan for fulfilling estimated sales quantities. This plan covers both the quantities that must be transported between two locations, for example, distribution center to customer or production plant to distribution center, and the quantities to be produced and procured. When making a recommendation, Supply Network Planning compares all supply chain activities with the available capacity. The process of supply network planning flow is shown below:

Figure 5: The Supply Network Planning Process Flow

It supports the following planning scenarios: Medium to long-term planning methods Heuristic: It can be used for fast cross-plant distribution and procurement planning, if constraints are not usually relevant.

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Capable-to-Match (CTM): It is an order based planning method that enables orders to be tracked back to individual demand using pegging procedures.

Optimization: It uses linear programming to take into account all the relevant factors at the same time, then it find the optimal solution by minimizing costs that represent the constraints.

Deployment (Short-term replenishment planning) Heuristic Optimization

Comparison between the above mentioned methods are shown below:

Figure 6: Comparison of the Supply Network Planning Methods

5.1.3

Production Planning and Detailed Scheduling

Production Planning is used for short-term, to-the-minute planning of in-house production and external procurement in the production plant. In Production Planning, requirements are fulfilled by creating planned orders (for planning in-house production) and purchase requisitions or scheduling agreement schedule lines (for planning external procurement). Unlike medium-term

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planning in SNP, production planning in the plant is detailed and uses exact times. Therefore, the exact production dates/times are defined for production of the materials.

The following strategies can be used for planning: Make-to-stock Production based on make-to-stock planning, using warehouse stock to meet requirements Subassembly planning Make-to-stock production for assemblies Make-to-order production This can mean that assemblies are produced in the warehouse on a make-to-stock basis, but the finished product is completed for sales order stock on a make-to-order basis

5.2 5.2.1

Execution External Procurement

External procurement covers the entire procurement process from purchase requisition through source determination, purchasing, goods receipt, invoice verification, and through to inventory management. It integrates direct Internet buying capabilities, use of e-market places, catalogs, and rule-based procurement processes for automated procurement. 5.2.2 Manufacturing

It supports discrete manufacturing (order-based and time-based) and process manufacturing from planning through to execution. Manufacturing creates feasible, optimized production schedules, takes material and capacity constraints into account, and takes into account production resource and tool availability. Specific Manufacturing approaches can be used such as: Discrete manufacturing: It supports companies in the discrete industry in long, medium, and short-term material requirements planning of project-based, order-based, mass or repetitive manufacturing, as well as purchasing, storage, distribution, delivery, and transportation processes. Typical industry sectors are: Mechanical engineering, hi-

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tech industries, plant engineering and construction, vehicle manufacturers and aircraft manufacturers.

Process manufacturing: It enables companies in the process industry to plan production campaigns for long-, medium- and short-term material requirements planning of process manufacturing, while managing complex constraints such as limited intermediate storage capacities or shelf life, and supports companies in purchasing, storage, distribution, delivery, and transportation processes. Typical industry sectors are: Chemical, pharmaceuticals, metal, paper, wood.

Consumer product manufacturing: it supports companies in the consumer goods industry in anticipating customer demand, in demand-driven procurement planning, and process manufacturing, while enabling them to manage complex constraints such as limited, intermediate storage capacities or shelf life in planning, and in purchasing, storage, distribution, delivery, and transportation processes, as well as enabling seamless integration of retailers and transportation service providers into the procurement chain using VMI/CPFR functions. Typical industry sector: Retail

5.2.3

Sales and Distribution and Logistics Execution

These support sales order management with quotation creation, delivery date determination, global ATP checks, picking, financial reporting, transportation management, including transportation planning and vehicle scheduling, and tracking of individual shipments.

5.3

Coordination

Supply Chain Coordination is a key functional area of the SAP Supply Chain Management (SAP SCM) solution. 5.3.1 Supply Chain Event Management Supply chain event management is defined as an application that supports the control over a company's internal as well as external business processes. It provides transparency across the entire supply chain by enabling or improving the visibility of the logistical processes in

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planning as well as in execution. The role-based approach of SAP EM provides you with different ways of viewing the same business process. It lets you process messages about the events in the business process, inform the parties within the supply chain network in a variety of ways about business events that have occurred, and make this information clearly available. Functions of Supply Chain Event Management include: Determination of SCEM relevance of an application object, and transfer of SCEMrelevant data to SAP Event Management. Notification of events and triggering the follow-up activities. Monitoring and evaluation of processes. Evaluations in a data warehouse system.

5.3.2 Supply Chain Performance Management Supply chain performance management is a powerful tool that measures key performance indicators (KPIs) such as work order cycles and capacity load utilization. It also lets you calculate profitability and potentials, strategically optimize the supply chain, and measure effectiveness of business partners and vendors.

5.4

Collaboration

As traditional supply chains evolve into supply networks, collaboration becomes increasingly critical. It enables the design of transparent and flexible company networks. The integration of all partners in the supply chain facilitates the synchronization of supply and demand across company boundaries. Processes such as: Collaborative Planning Forecasting and Replenishment (CPFR) Supplier Managed Inventory (SMI), or Vendor-Managed Inventory (VMI)

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Conclusion The new era of globalization makes competition increase and technological trends advance in a rapid pace. Several industries suffer from this changes and one of the most affected in the manufacturing industry. It is important for manufacturing companies to overcome their obstacles and make their operations more efficient in order to survive. Enabling business users to work with SAP SCM directly from Excel, without programming is critical to an agile and flexible supply chain ecosystem. Leveraging the worlds most common and useful applications interface, the spreadsheet improves SAP SCM productivity and can help you save time and money. Integrating Microsoft applications with SAP SCM allows it to delegate supply chain management solution development to supply chain stakeholders. This will ensure that companies and their supply chains can be more flexible and competitive in todays global economy.

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References 1. Oracle SCM. Oracle.com. Retrieved April 16, 2010 from http://www.oracle.com/us/internal/migration/018265.htm 2. SAP Licensing Guide. SAP.com. Retrieved April 16, 2010 from http://www.sap.com/usa/sme/howtobuy/businessallinone/index.epx 3. SAP Supply Chain Management. SAP.com. Retrieved April 4, 2010 from http://www.sap.com/usa/solutions/business-suite/scm/index.epx 4. SAP SCM Solutions Brochure. SAP.com. Retrieved April 4, 2010 from http://www.sap.com/usa/solutions/business-suite/scm/pdf/BWP_SO_mySAP_SCM.pdf 5. Supply Chain Management (SCM). Wikipedia.ORG. Retrieved March 28, 2010 from http://en.wikipedia.org/wiki/Supply_chain_management

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