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customers have ordered, procuring exactly the right amount of components or
raw materials to fill actual orders, staging production, and minimizing the time
that components or finished products are in inventory.
Alcoa, the world’s leading producer of aluminum and aluminum products
with operations spanning 31 countries and over 200 locations, had initially been
organized around lines of business, each of which had its own set of information
systems. Many of these systems were redundant and inefficient. Alcoa’s costs
for executing requisition-to-pay and financial processes were much higher and
its cycle times were longer than those of other companies in its industry. (Cycle
time refers to the total elapsed time from the beginning to the end of a process.)
The company could not operate as a single worldwide entity.
After implementing enterprise software from Oracle, Alcoa eliminated many
redundant processes and systems. The enterprise system helped Alcoa reduce
requisition-to-pay cycle time by verifying receipt of goods and automatically
generating receipts for payment. Alcoa’s accounts payable transaction process-
ing dropped 89 percent. Alcoa was able to centralize financial and procurement
activities, which helped the company reduce nearly 20 percent of its worldwide
costs.
Enterprise systems provide much valuable information for improving
management decision making. Corporate headquarters has access to up-to-
the-minute data on sales, inventory, and production, and uses this informa-
tion to create more accurate sales and production forecasts. Enterprise soft-
ware includes analytical tools for using data captured by the system to evaluate
overall organizational performance. Enterprise system data have common
standardized definitions and formats that are accepted by the entire organiza-
tion. Performance figures mean the same thing across the company. Enterprise
systems allow senior management to easily find out at any moment how a
particular organizational unit is performing, determine which products are
most or least profitable, and calculate costs for the company as a whole.
For example, Alcoa’s enterprise system includes functionality for global
human resources management that shows correlations between investment
in employee training and quality, measures the company-wide costs of deliv-
ering services to employees, and measures the effectiveness of employee
recruitment, compensation, and training.

9.2 SUPPLY CHAIN MANAGEMENT SYSTEMS

If you manage a small firm that makes a few products or sells a few services, chances
are you will have a small number of suppliers. You could coordinate your supplier
orders and deliveries using a telephone and fax machine. But if you manage a firm
that produces more complex products and services, then you will have hundreds of
suppliers, and your suppliers will each have their own set of suppliers. Suddenly,
you are in a situation where you will need to coordinate the activities of hundreds
or even thousands of other firms in order to produce your products and services.
Supply chain management (SCM) systems, which we introduced in Chapter 2, are
an answer to the problems of supply chain complexity and scale.

THE SUPPLY CHAIN

A firm’s supply chain is a network of organizations and business processes for
procuring raw materials, transforming these materials into intermediate and

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