
E-Enabled Operations Management
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Jean-Pierre Briffaut is a retired professor of operations management at Institut Mines-Télécom, France, an associate research staff member at Université de Technologie de Troyes (UTT), France, and a board member of Institut Frederik Bull (IFB), a think-tank dedicated to studying the various impacts of digitization upon society. His current field of research is virtual universes and collaborative business environments.
Content
PREFACE xiii
PART 1. MODELING OF BUSINESS STRUCTURES 1
CHAPTER 1. SYSTEM APPROACH TO BUSINESS OPERATIONS AND INFORMATION ENGINEERING 3
1.1. System approach to conduct business operations 3
1.1.1. General considerations 3
1.1.2. System description 4
1.2. Information engineering 6
1.2.1. Information as a resource 6
1.2.2. Explicit and implicit information 6
1.2.3. Clarification of some terms 7
1.2.4. Characteristics of information systems 7
1.2.5. Information system content for a manufacturing company 8
1.3. System approach to describing inventory-controlled storage 8
CHAPTER 2. BUSINESS MODELING BY PROCESS AND MANAGEMENT APPLICATIONS 13
2.1. Process definition and control 13
2.1.1. Definition 13
2.1.2. Process control mechanisms 14
2.2. Process modeling in perspective 15
2.2.1. General considerations 15
2.2.2. Management applications 17
2.3. Management by process 19
2.3.1. Activity-based costing and budgeting of products/services 20
2.3.2. Activity-based management 28
2.3.3. Information system: relationships between processes, activities and data 30
CHAPTER 3. BUSINESS MODELS: CONTROL MODELS, FLOW MODELS, ORGANIZATION MODELS, FUNCTION MODELS 33
3.1. Organizational structure as a blueprint for information systems 33
3.2. Business models 36
3.2.1. Definitions 36
3.2.2. Examples of business models 38
3.2.3. Example of business function model 39
3.2.4. Examples of business flow model 40
3.3. Aris-toolset: a software-toolset: a software package for business modeling 43
3.3.1. Introduction 43
3.3.2. Logic connectors in event-driven processes 45
3.3.3. Exercises 46
3.4. Supply-chain operations reference modeling 49
3.4.1. Introduction 49
3.4.2. What is a process reference model? 50
3.4.3. Model scope and structure 52
3.4.4. Applying the reference model to configurability 54
PART 2. MANAGERIAL CONCEPTS AND SOFTWARE PACKAGES IN PERSPECTIVE 57
CHAPTER 4. FROM MATERIALS REQUIREMENT PLANNING (MRP) TO ENTERPRISE RESOURCE PLANNING (ERP) CONCEPTS AND THE ASSOCIATED SOFTWARE PACKAGES (PICS AND COPICS OF IBM TO ERP-LABELED PACKAGES) 59
4.1. From MRP to ERP concepts 59
4.1.1. Overview of the evolution of management thinking 59
4.1.2. Correlation between management thinking and DBMS 63
4.1.3. Styles of manufacturing 64
4.2. Inventory control system 65
4.2.1. Basic model: reorder quantity 65
4.2.2. Basic model: lead time and threshold stock 67
4.2.3. Generalization of the basic model 68
4.2.4. Probabilistic situation: service levels and safety stock 69
4.2.5. Delivering into stock over time: economic manufacturing quantity (EMQ) 72
4.3. Manufacturing resource planning 76
4.3.1. Defining planning and scheduling 76
4.3.2. General description of the MRP technique 76
4.3.3. MRP-related concepts in action 80
4.3.4. Implementation of MRP-related concepts in the maintenance field 88
4.4. The just-in-time concept 93
4.4.1. Introduction 93
4.4.2. Core features of the just-in-time concept 94
4.4.3. JIT and inventory management 96
4.4.4. JIT and resources capacities 97
4.4.5. JIT and kanban 99
4.5. Customer order decoupling point 102
4.5.1. Description 102
4.5.2. Deploying an MPS within a CODP context 103
4.6. Contrasting the various control concepts 104
CHAPTER 5. SPECIFIC FEATURES OF ERP PACKAGES 107
5.1. Featuring ERP philosophy of software packages 107
5.2. ERP-tagged software packages for managing business processes available in the marketplace 108
5.3. Function capabilities of the SAP CRM package 108
5.3.1. Why CRM? 108
5.3.2. Function capabilities of CRM software systems 110
5.4. Reference control model of a manufacturing firm 111
5.5. Finance reference control model 120
PART 3. BEYOND ERP PACKAGES: THE E-ENABLED ENTERPRISE 123
CHAPTER 6. CHANGE IN BUSINESS PROCESSES INDUCED BY E-COMMERCE AND E-BUSINESS 125
6.1. General considerations for approaching the digital economy 125
6.2. Change in business structures 127
6.3. Microeconomic approach to the digital economy 130
6.4. E-commerce 132
6.4.1. Distinction between e-commerce and e-business 132
6.4.2. E-commerce from different perspectives 133
6.4.3. Business models for e-commerce exchanges 135
6.5. Changes in business processes induced by e-enabled business operations 135
6.5.1. Dell business model and its evolution 136
6.5.2. Bricks-and-mortar model 138
6.5.3. Virtual firm model 139
6.6. Online auction process 140
6.6.1. Introduction 140
6.6.2. Online auction process in a high-tech manufacturing company 140
6.6.3. Description of the market place COVISINT 143
6.6.4. Exercise 144
6.7. E-commerce, sales chains and ROI 149
6.7.1. General setting 149
6.7.2. ROI of e-commerce in sales chains 152
CHAPTER 7. CONTROL PARAMETERS FOR E-ENABLED SUPPLY CHAIN 155
7.1. Collaborative planning, forecasting and replenishment 155
7.2. Control parameters for e-enabled supply chain 157
7.2.1. Master production schedule 158
7.2.2. Projected available balance (PAB) 159
7.2.3. Available to promise (ATP) 159
7.3. The bullwhip effect 160
7.3.1. The model 161
CHAPTER 8. INTEGRATION OF ERP PROCESSES WITH E-COMMERCE AND E-BUSINESS PATTERNS 163
8.1. Information system architecture and business processes 163
8.1.1. What is a layer architecture? 163
8.1.2. What is a layer architecture describing a business? 164
8.1.3. Developing a layer architecture 165
8.1.4. Relations between different layers 166
8.1.5. Relations between different subsystems inside a layer 167
8.2. Business workflows and information system architecture 168
8.3. Integration of ERP processes with e-commerce and e-business 169
CHAPTER 9. ROLES OF INFORMATION TECHNOLOGIES FOR MAKING BUSINESS MODELS FLEXIBLE 175
9.1. Information technologies: engine of change 175
9.1.1. CAD/CAM 176
9.1.2. Quality of service and speed of delivery 176
9.1.3. Virtual organizations 176
9.2. Approach to the specific functions of virtual collaborative context 177
9.3. Applications of portals 181
9.3.1. How portals impact business organizations 181
9.3.2. Portals and negotiations in business life 181
9.3.3. Scenario of a collaborative e-enabled working environment in the fashion-sensitive textile sector 184
9.3.4. Example of a collaborative design environment 191
9.3.5. Benefits of electronic negotiations 193
PART 4. CRITICAL BUSINESS FUNCTIONS FOR E-ENABLED OPERATIONS MANAGEMENT 197
CHAPTER 10. LOGISTICS 199
10.1. Logistics in perspective 199
10.1.1. Overview 199
10.1.2. Components of logistics 200
10.1.3. Logistics and the digital economy 201
10.2. Logistics and hierarchical layers of management within the framework of supply chain management 203
10.2.1. General context 203
10.2.2. Promotion of logistics strategy by Toshiba of Japan 205
10.3. Information system for e-logistics 206
10.3.1. Introduction 206
10.3.2. Goods movement control system and its components from the customer side 208
10.3.3. Goods movement control system and its components from the provisioning side 211
10.3.4. Electronic data interchange 214
10.4. Logistics flow process management: logistics performance indicators 224
10.4.1. Definition 224
10.4.2. Logistics key indicators 224
10.4.3. Definitions of logistics key indicators 226
10.5. Location analysis of warehouses and transportation 227
10.5.1. Transportation method 228
10.5.2. Procedure of the transportation method 229
10.5.3. Stepping-stone method 229
10.5.4. VAM method 230
10.5.5. Problem setting 231
10.5.6. Solution with the northwest corner rule and the stepping-stone method 232
10.6. Reverse logistics: cash from trash and environmental issues 235
CHAPTER 11. SOURCING AND PHYSICAL DISTRIBUTION 237
11.1. Sourcing policy 237
11.1.1. Pure market option 237
11.1.2. Controlled competition option 238
11.1.3. Vertical integration option 238
11.1.4. Advantages versus disadvantages of the various options in relation to business strategy and types of products 239
11.2. Physical distribution policy 243
11.2.1. Objectives and constraints 243
11.2.2. Various patterns of physical distribution 244
11.2.3. Choice of a physical distribution option 245
CHAPTER 12. QUANTITATIVE QUALITY MANAGEMENT 247
12.1. ISO 9000 standards: impact upon business operations 247
12.2. Acceptance testing 248
12.3. Operating characteristic curve 248
12.4. Average outgoing quality 252
12.5. Terms used in an acceptance plan for attributes 255
PART 5. CASE STUDIES 257
CHAPTER 13. CASE STUDIES: HELLAS CORPORATION AND THE E-ENABLED CAR INDUSTRY 259
13.1. Hellas Corporation case study 259
13.2. The e-enabled car industry 263
13.2.1. Introduction 263
13.2.2. Assignment 264
13.2.3. Car manufacturing 264
INDEX 269
1
System Approach to Business Operations and Information Engineering
1.1. System approach to conduct business operations
1.1.1. General considerations
The system approach is instrumental in tackling complexity in the managerial as well as technical worlds. The system concept is a modeling tool based on interacting entities. Its purpose is to understand complex structures by (de)composing them into entities having specific functions and interacting with each other.
The "composition" approach is implemented when designing a real or virtual object. The "decomposition" approach is implemented when analyzing some existing part of the world.
In both approaches, systems are constructed with a view to identifying certain function capabilities perceived by the users to be desirable. Examples of function-based systems include: defending the country, transmitting messages, transporting people and goods, manufacturing goods, exchanging products and services, etc.
In general, users are known not to be able to articulate all their requirements and expectations. Therefore, at the planning stage, there always exists a considerable uncertainty about many aspects of the system to be built, or, in other words, the system behavior. That explains why prototypes have to be built for checking whether the users' requirements are adequately fulfilled.
Systems do not exist in isolation. Each operates within a definite environment. But the ways a system interacts with its environment may prove to be of a wide variety. In other words, how and when some types of interaction take place have to be ascribed to uncertain or random events. As a result in certain circumstances, the system behavior can run out of control. These circumstances refer to events or sequences of events which have not been taken into account at the design stage of the system.
1.1.2. System description
- Describing a system implies:
- - describing its constituent entities as attributes;
- - describing the inter-entity relationships;
- - describing the relationships between entities and the environment.
- Each entity can be a system in itself.
When a business unit is described as a system, the purpose is to control its business operations. Three entities have to be identified, i.e. the controlled system, the controlling system and the information system (IS). The controlled system, often called the transformation system, because it converts inputs into outputs, is modeled generally as a process. The relationships between these three entities are shown in Figure 1.1.
It is noteworthy to elaborate on Figure 1.1 for understanding the features of the system approach to business description. What is meant by direct and indirect control? Direct control refers to the direct action on the controlled process to maintain or change its state. Indirect control resorts to some entity external to the system for influencing the state of the controlled process by means of inputs.
Let us take an example to explain how the messages exchanged between the entities involved are articulated and how their contents trigger decisions. The controlled process is assumed to be a manufacturing process made of storage and production activities. A message coming from the market place (environment data) is captured and processed by the IS. The message content says that a market slump is forecast. It is directed to the production scheduler in an appropriate format (control data). As a consequence, the scheduler decides to reduce the production level by releasing orders to the manufacturing shops (direct control) on the basis of inventory levels (process data) and to send orders to suppliers to decrease the number of deliveries (indirect control).
Figure 1.1. Relationships between the various entities of a business unit within the framework of a system approach
- Describing any business organization as a system means:
- - identifying and modeling the system to be controlled (WHAT);
- - identifying decision-making functions (WHO) and defining management rules (HOW);
- - producing the IS requirement.
1.2. Information engineering
1.2.1. Information as a resource
- Central to any human activity is the process of decision-making, i.e.:
- - defining a goal;
- - identifying a number of alternative actions which may lead to the goal;
- - evaluating the consequences of each action;
- - selecting the action which is most likely to lead to the desired goal.
The decision maker, in general, faces uncertainty mainly about the results of the envisaged action. Decisions vary in uncertainty associated with their outcomes. The greater the uncertainty, the greater the risk of a negative outcome. This uncertainty can be reduced or even completely removed by obtaining the relevant information about the courses of action in progress. It follows that information is defined as a resource by means of which uncertainty is reduced.
For large systems, as a rule, a part of the required information on the behavior of system environment becomes available only after the system has been put in operation. For this reason, there is a need for incorporating a control function of a sort into the very system. The role of control is to make decisions on the system behavior effective. When some deviation from the set goals is detected corrective control action is engineered to reach the set goals.
1.2.2. Explicit and implicit information
Information may be explicit or implicit. Implicit information or knowhow is that piece of information which is an integral part of skill and can be gained only by apprenticeship from an expert. The term "expert" is used here to denote a person who knows how to perform an activity without necessarily understanding why his/her methods work. In contrast, explicit information or know-how exists independently from any skill. It can be readily represented, stored and made available for general use.
1.2.3. Clarification of some terms
The body of knowledge, methods and established practices related to the handling of information as well as the associated devices will be called information technology. Systems of artifacts, the purpose of which is to handle information will be called here information systems. The engineering discipline concerned with the design, production, installation, operation and maintenance of ISs will be called information engineering.
1.2.4. Characteristics of information systems
It is quite clear that no organization could operate without some type of IS. The main functional capabilities an IS must fulfill are:
- - capturing data;
- - processing data;
- - memorizing data.
These are followed in order to support the decision makers to conduct business operations.
- Contents of an information system
Even if users are not aware of this fact, IS designers posit that ISs are a modeled vision of the business universe. Whatever the assumptions made about the chosen representation of the business universe, IS constructs reflect how the enterprise is organized and operates. It implies that business information systems contain, in a way or another, a description of the enterprise's organizational structures, functioning mechanisms and deliverables. The contents of business information system include:
- - static properties of operations and controls;
- - description of deliverables (products or services);
- - dynamic behavior of operations.
Several types of ISs are considered in businesses.
- Transaction processing systems
A transaction is a business operation modifying the state of the enterprise. Whenever a transaction occurs, data describing the transaction is created. Capturing, storing, processing, distributing and reporting of transaction data is the objective of transaction processing systems.
Let us consider an example. When a client places an order, an order form is created where the order content is described in terms of items, quantities and delivery dates and payment conditions. This order triggers updating of the inventory, sending an invoice, launching the manufacturing of new items, recording provisional income in the balance sheet, etc.
Somehow transaction processing systems are the front office of management information systems (MISs)
- Management information systems
MISs must give a relevant, accurate, significant and updated image of business activities and incoming and outcoming goods flows. Today, this is achieved by means of artifacts (software programs and databases) modeling the activities and goods flows involved.
1.2.5. Information system content for a manufacturing company
The IS content comprises the models representing the business from different points of view (processes/functions/organization). As an example, the products/services delivered, the control pattern and the infrastructure can be modeled for a manufacturing company as shown in Figure 1.2.
1.3. System approach to describing inventory-controlled storage
Storage is a...
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