The research methodology consisted in data collection among Ducati and Oracle, literature review through published academic journals, and IS books. The information retrieved using the stated methodology, allowed a critical evaluation of the case study. In conclusion the findings have demonstrated how a well-planned business reengineering with the implementation of Internet-based technology has led to achieve the goals such as a lean enterprise culture, demand-driven oriented, more competitive and profitable. Finally, recommendations are addressed on the demand-driven approach. E. . the Bullwhip Effect on the information flow.
Definition and aim One essential function supported by Enterprise Resource Planning (ERP) systems is provided by the module known as Supply Chain Management Systems (SCMS). SCMS assist firms in managing operations such as procurement, order processing, inventory management, production scheduling, logistics operations, relations with suppliers and distributors. The purpose of this research was to evaluate the position of Information Systems (IS) in enhancing management of operation in the supply chain at Ducati.
The report is divided into four parts:
- Research methodology
Background Ducati, located in Italy and established in 1926, is one of the world’s leading motorcycle manufacturers with a brand presence in 40 countries and a total revenue income of 630. 3 $m. (Ducati Motor Holding S. p. a. , 2008). According to Rae (2005a), after the acquisition in 1996 by the private venture capital Texas Pacific Group (TPC), the new aim was to drastically increase in a five years term the bikes’ production volumes by maintaining the acquired assets.
Consequently, Ducati’s management chose to redesign the firm by adopting the lean enterprise culture, a concept that leads to a demand-driven strategy and the outsourcing of non-core activities, maximising throughput and R&D. (Tinham, 2006a). Ducati migrated from the old IBM AS/400 system, unable to meet the new requirements, to a new integrated system: Oracle E-Business Suite, with a particular interest on the Supply Chain Management (SCM) module (Rae, 2005b). 2. Research methodology The research methodology consisted firstly on data collection among Ducati and Oracle, secondly on academic literature review.
Information regarding Ducati and the adopted system, were found through the firm’s official website, particularly on the investor relations area, and consequently on the customers section of the Oracle’s web site. In addition, several researches, conducted via the Internet, have shown the existence of published articles related to the business reengineering process occurred at Ducati, principally oriented on the supply chain management’s issue. In order to have a real feedback an e-mail correspondence was also tried, unfortunately without any response from the other side.
Furthermore, a significant collection of academic literature was collected via InfoLinx and reviewed in order to find proper evaluative frameworks. Moreover, a careful review of IS main authors was conducted to study consolidated theories. Ducati’s Supply Chain Management System 3. 1 Business Process Reengineering According to Stair et al. (2008a), the concept of business process reengineering (BPR) is what Ducati’s management applied in order to get rid of all non-value-adding activities and achieve the new lean culture.
The whole business process was redesigned with particular attention to stakeholders’ needs, such as production departments and assembling lines. 3. 2 Implementation Ducati and Oracle decided to set up the new integrated system in two different phases, the first as a pilot, was to implement the system at Ducati North America, based in California (USA) with the support of the Oracle Consulting in 2004. (Rae, 2005c). According to Knights (2005a), the Ducati’s reengineering phase one, was a success.
The second phase started in 2005 and involved the Italian site, 100 major suppliers and all the main dealers’ networks around the world. During this second phase, a training programme among Ducati and its major suppliers was conducted in order to improve knowledge and skills. (Tinham, 2006b). The results of the new redesigned company after a three year process were “production costs down by 25 per cent, throughput time shortened by 50 per cent, and product quality increased by 70 per cent. ” (Knights, 2005b, p. 1).
As Rae (2005d) highlights in the article, the reasons of this implementation’s approach could be found in the management’s awareness on key factors, such as a correct evaluation of the project’s complexity, high-quality project plan, support of the top management and clear defined company goals. (Stair et al. , 2008b).
Oracle SCM module is an Internet-based integrated demand-driven information system able to improve some key aspects of the supply chain. (Oracle Corporation, 2008). Fasanghari et al. (2008a) argue that such key factors could be grouped in a framework that includes e-procurement, order processing, inventory management, production scheduling, logistics operations and relations with suppliers and distributors. Four web-based supply chain integration strategies (Frolich, 2002,p. 731) Procurement E-procurement is a technology solution that facilitates corporate buying using the Internet. Presutti Jr. , 2002a). As Rahman (2004a) points out, an Internet-based procurement leads to: streamline the communications and negotiations among the firm and its suppliers, enhance the relationship between the partners, allow information sharing, permit on-line price quotes check and online catalogue purchase with direct effects on transaction costs, day-to-day operations, and long-term strategies.
According to Presutti Jr. (2002b), “e-procurement systems enable firms to become more efficiently and accurately capture and aggregate how much they are spending corporate-wide in various purchased product areas. (p. 223). However, value-creating benefits of e-procurement are not immune to an inconsistency of the process itself, in other words, there is a need of BPR if the procurement process and the key players involved are not efficiently lined up. (Presutti Jr. , 2002c). It is clear that Ducati, in order to overcome the stated issue, firstly reengineered the business process and then selected the best suppliers among only those whom could carry on with the new firm’s approach. (Tinham, 2006c).
Order processing According to Stair et al. 2008c), the order processing system is a part of the transaction processing systems (TPS) that consists in high routine operational level transactions, low complexity and low decision support influence. However, a good collection of this sort of data is important to tactical and strategic IS levels, such as management information system (MIS) and decision support system (DSS). As Rahman (2004b) points out, the implementation of an Internet-based order processing system leads to an average supply chain cost reduction of 18-20 per cent.
Ducati nowadays has approximately 175 suppliers and only 8 per cent of the product cost is manufactured within the firm (Tinham, 2006d), therefore it could be assumed that the implementation of the SCMS has led to a dramatic reduction of paperwork, time between orders placing and dispatching, and inaccuracy in order placing. Inventory management and production scheduling As Rahman (2004c) notes, the new Internet-based technology applied to SCMS, such as the Oracle product chosen by Ducati, has shaped “dramatically the ability of firms to be proactive in the management of inventory systems” (p. 6).
Furthermore, according to Laudon and Laudon (2006a), a good management of the inventory system might count in saving “as much as 25 per cent of a company’s operating costs. ” (p. 269). Ducati was also able to embrace Just-In-Time (JIT) inventory and manufacturing approach (Tinham, 2006e) that leads to a low inventory levels, in other words, same throughput with a reduction in stock costs. (Stair et al. , 2008d). Although Stair et al. (2008e) claim benefits on the JIT approach, they also assert that “it can result in a run-out of inventory when demand exceeds expectations” (p. 82), or according to Laudon and Laudon (2006b), in a recurring situation known as the “Bullwhip Effect, in which information about the demand for a product gets distorted as it passes from one entity to the next across the supply chain. ” (p. 269). Moreover according to Rae (2005f), Ducati’s management, conscious of the new system’s potentiality, was able to embrace a pull-based inventory model. Ducati is now experiencing a demand-driven supply chain, in other words, the firm is using “only actual order demand information to drive their production schedules and the procurement of components. ” (Laudon and Laudon, 2006c, p. 73).
Operational management had benefit from the new SCMS on day-to-day operational activities and decisions, as well as the middle management is experiencing the availability of the new reporting systems in order to better plan the production and make important production decisions. (Rhaman, 2004e and Tinham, 2006f). Logistics operations SCMS are mostly used by firms in the management of the transportation. (Fasanghari et al. , 2008b). The reason of that could be found on the high cost of logistics operations and the multiple advantages that systems as Oracle SCMS are able to provide.
SCMS applied on logistics operations enable the management of key factors, such as shipments tracking, delivery status and transportation carriers quality control. In addition, “the goals are to reduce the cycle time to fill a customer’s order, reduce the inventory of parts, work in progress and finished goods in the pipeline, increase the accuracy and completeness of filling a customer’s order and of billing him for it and accelerate the payment for the delivered items to put cash in the bank as soon as possible”. (Fasanghari et al. , 2008c, p. 89).
As claimed by Knights (2005c), Ducati has improved motorcycle build quality by 70 per cent, therefore it is assumed that part of improvement could be also accredited to the enhanced management of logistics operation. Relations with suppliers and distributors The firm has always considered its suppliers and distributors as an ‘extension of Ducati’ (Rae, 2005g), therefore it could be assumed that all the supply chain players have improved their relationship because of the ease of communication offered by the Internet-based system.
Fasanghari et al. 2008d) also highlight that “successful buyer-supplier relationships are associated with high levels of information sharing. ” (p. 89). Conclusions and recommendations In conclusion, this case study has demonstrated how a well-planned BPR, oriented to new technology and information, sharing has led to achieve a lean enterprise culture and obtain long-term results. Firstly, an important role was played by the firm’s senior management that drove and inspired the company in order to accomplish competitiveness and profitability, as well as the chosen strategy to embrace the highest level of web-based chain integration.
Secondly, a pilot-first implementation approach was thought in order to avoid typical failures. SCMS, as highlighted in the articles and supported by the literature review, has improved the whole supply chain process, from suppliers to distributors, enhancing procurement, order processing, inventory management and production scheduling with the introduction of JIT and demand-driven approaches, logistics operations and eventually the relations with vendors and distributors.
According to Santhanam (2008), as a recommendation, the firm should consider more the Bullwhip Effect, focusing on factors such as:
- Sales and Operation Planning (S&OP), by “capturing demand across various channels. ” (p. 20); •
- Radio Frequency Identification (RFID), in order to analyze real-time data and “minimize demand variability” (p. 20);
- Implement balanced push-pull strategies in order to reduce inventory while get faster the availability of best-seller products. References Ducati Motor Holding S. p. a. , (2008).