Plan for this Month

• 4 more "foundation" class meetings to make a systematic tour of models and patterns from the three levels of the Model Matrix

• Reinforcing the distinction between conceptual models and physical ones

• Will also apply the c/p distinction to system architectures - SOAs and Web Services

• After President's Day Holiday (2/20) we start Document Engineering methods and case studies

Plan for Today's Class

• Business Organization Patterns

• The "Buy Side" and "Sell Side"

• Supply Chains

• SCOR

A Taxonomy of Patterns

• Four types of patterns are described in Chapter 4 of the Document Engineering book

  • Business Organization

  • Business Process

  • Business Information

  • Business Architecture

• We can apply the PHYSICAL - CONCEPTUAL distinction with each of these pattern perspectives

Business Organization Patterns

• Organization charts, facilities maps

• "Organization of business unit" patterns

• Business Models

Business Model Patterns

• This is interactive at http://process.mit.edu/Info/eModels.asp

"Component" Business Models

• Emerging pattern of business organization is sometimes called the "component" business model in which business functions are specialized and modularized

• Core competencies -- functions or capabilities that are most efficient, optimized, or that provide the most competitive advantage

• Outsourcing -- having external service providers perform some activity formerly carried out by a functional organization -- is facilitated by componentization

Big Questions about Business Organization

• What's the relationship between business model patterns and an enterprise's physical organization and technology?

• What is the relationship between organizational patterns and business models?

• Is any model of organization more natural than another? How is a "company of 1" organized? Is there a natural size to an organization or enterprise?

Patterns in Enterprise "Eco-systems"

• "Buy Side" Patterns

• "Sell Side" Patterns

• Patterns "in the Middle"

What Businesses Do on the "Buy Side" of the Value Chain

• Deal with suppliers (the businesses they buy from)

• Procurement is the simplest business pattern; one buyer buys something from one seller

  • Direct vs Indirect Procurement

• Sourcing and Supplier Management – selecting suppliers, measuring and optimizing how they perform

Indirect Procurement

• Things your buy that don't go into your products but are needed to run your business; often treated as "overhead"

• Large number of low-value transactions

• Conducted on ad hoc schedule by employees not trained in purchasing

Direct Procurement

• Things you buy that go into the things you make

• Smaller number of large value transactions

• Much more complex business processes than for indirect procurement

• Supplier selection decisions – "Sourcing" – are rarely made only on price, and often long-term contracts

• Conducted on regular schedule by procurement specialists

Benefits of Automating Procurement

• Reduced cycle time in purchasing and fulfillment

• Reduced inventory

• Reduced administrative costs

• Elimination of maverick purchasing

• MORE STRATEGIC BENEFITS SUCH AS ...

What Businesses Do on the "Sell Side" of the Value Chain

• Deal with customers (the businesses or individuals they sell to)

  • Order Management and Fulfillment – offering product catalogs, taking orders, filling them as promised

  • Channel Management – working with distributors, retailers, other partners

  • Customer Relationship Management – marketing, sales, customer service, field support

What Businesses Do For Themselves

• Dealing with themselves – internal or enterprise functions

  • Design and Engineering – figuring out how to make their stuff, increasingly by collaborating with people who make the materials and components

  • Manufacturing – actually making the stuff, increasingly by collaborating with people who are "downstream" toward the customer ("channel assembly")

  • Human Resources, Finance, MIS – assembling and taking care of the people who do everything else

  • Information Systems – designing, deploying, supporting computing and communications infrastructure

What Businesses Do that Spans the Value Chain

• Activities that involve both the sell-side and the buy-side

  • The Supply Chain connects the Buy Side to the Sell Side, but the emphasis is more often on the Buy Side

  • Likewise, the Demand Chain is just the view of the information flowing up the Supply Chain in the opposite direction

  • Logistics – moving the stuff around on the way into and out of the company and keeping track of how much there is of it and where it is while in transit

The Supply Chain

• A supply chain is an aggregated and end-to-end view of the buy-side and sell-side relationships of an enterprise

• A supply chain is the network of facilities and distribution capabilities an enterprise uses to:

  • "Source" (or "procure") raw materials (chemicals, ores, grains, ...) or components

  • Transform the materials or assemble the components into products

  • Deliver the products to customers (indirectly through distributors or stores or directly to the purchaser)

Supply Chain - Physical Model

Supply Chain - Conceptual Model

Apple Computer's Supply Chain Nightmare

• In the mid 1990s Apple was selling lots of computers but losing billions of dollars

• It was great at designing products but poor at predicting and measuring demand for them, so it was constantly out of stock on the hottest sellers and overloaded with inventory for everything else

• Its supply chain was seriously dysfunctional – PowerBooks were assembled in Ireland from components manufactured in Asia, and many of the finished PowerBooks were then being sent back to Asia

Fixing the Apple Computer Supply Chain

• Steve Jobs returned to Apple in 1997 and made streamlining the product architecture and supply chain top priorities

  • 15 models cut to 4 models that were much more modular in design to allow more product choices without as much supply chain and manufacturing complexity

  • Internet "Apple Store" set up to enable schools and consumers to order configured products built to order

  • Outsourcing of manufacturing for motherboards and "channel assembly" initiated to get products built quicker and closer to customers

  • Number of suppliers reduced significantly

  • More information sharing of forecasts with suppliers

Attacking Supply Chain Problems

• Supply chain problems primarily result from poor visibility and lack of collaboration

• The visibility problem can be attacked by the use of technologies and strategies that speed information flow across the chain or that allow more information to be shared in controlled ways

Design Goals for Supply Chains

• Especially for direct goods that are inputs to manufacturing processes, the things that businesses buy need to get to specified places at specified times in specified quantities according to manufacturing plans and sales forecasts.

  • The right stuff in the right amount at the right time in the right place

• Get as close to zero inventory THAT YOU OWN without ever losing a sale or having to shut down the assembly line

Supply Chain Design [1]

• Your business model and strategy sets the framework for design of the supply chain

• Supply chain structures (like the number of suppliers and distributors) are shaped by industry characteristics and product architectures

• Supply chains reflect many interconnected decisions about allocation of materials, production, and distribution responsibilities

Supply Chain Design [2]

• Location of manufacturing facilities and how to transport materials and goods to and from them

• Location of suppliers and distributors with respect to manufacturing facilities

• How many distributors and other intermediaries between the manufacturer and customers (0 or more)?

• How much inventory to maintain at each stage

• How visible are secondary tiers (suppliers of suppliers (of suppliers...))?

Supply Chain Operations Reference Model (SCOR)

• The Supply Chain Council was established in 1996 to develop a standard process reference model for communicating supply-chain management practices across companies called SCOR that:

  • provides a common supply-chain framework with standard terminology

  • defines common metrics with associated benchmarks and best practices

  • serves as a common model for evaluating, positioning, and implementing supply-chain application software

• Put another way, SCOR is designed to provide discipline and advice to a firm trying to answer questions about its supply chain design

Process Reference Model (Buzzword Unification)

The SCOR Model

• Five essential supply chain processes (Plan, Source, Make, Deliver, Return)

• Different supply chain models for different industries and partner configurations can be created from the same standard process vocabulary

SCOR Model Decomposition [1]

SCOR Model Decomposition [2]

What We Learn From SCOR

• Note that my "generic supply chain" is a structural view that doesn't show the planning and return processes, so the reference model has already added to our understanding of supply chains

  • Every firm in a supply chain has the same problems to solve

  • Every process is a customer of the previous one and a supplier to the next

  • The model also distinguishes three patterns for "making" things: make-to-stock, make-to-order, engineer-to-order

Assignment: Pattern "Scavenger Hunt"

• Familiarize yourself with FEA, MIT Process Library, RosettaNet, Cover Pages, OASIS, UBL

• 15 short-answer questions about each resource, and some that compare and contrast them

• All of the resources are also assigned readings

• Due Friday Feb 17

Readings for 8 February

• DE book, 119-127

• 221-231 of Organizing Business Knowledge (about the MIT Process Handbook)

• MIT Process Handbook

• RosettaNet PIP Directory