Supply Chain
SUPPLY CHAIN MANAGEMENT
Information Technology and the Supply Chain
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Resource Material
Chopra, S & Meindl, P. (2013 ). Supply Chain Management: Strategy, Planning and Operation, 5th Edition, Pearson Education, Inc. New Jersey
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The importance of Information and IT in a Supply Chain
• Information is crucial to the performance of a supply chain
because it provides the basis on which supply chain managers
make decisions.
• Information technology consists of the tools used to gain
awareness of information, analyze this information, and
execute on it to improve the performance of the supply chain. 3
The importance of Information and IT in a
Supply Chain
• Information is a key supply chain driver because it serves as the glue that allows the
other supply chain drivers (facility, inventory, transportation, sourcing and pricing) to
work together with the goal of creating an integrated and coordinated supply chain.
• Information is crucial to supply chain performance because it provides the foundation
on which supply chain processes execute transactions and managers make decisions.
• Information makes the supply chain visible to a manager so that correct decisions
could be made. Key information include:
o What customers want?
o How much inventory is in stock?
o When more products should be produced or shipped?
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The importance of Information and IT in a Supply Chain
• Information Technology (IT) consist of the hardware, software and the people throughout a
supply chain that gather, analyse and execute information.
• IT serves as the eyes and ears ( and sometimes a portion of the brain) of management in a
supply chain, capturing and analysing the information necessary to make good decisions
(recommended – ideal production schedules and inventory levels).
• E.g. an IT system could take the number of processors in inventory, look at demand
forecasts, and determine whether to order more processors from Intel.
• Information is the key to the success of a supply chain because it enables management to
make decisions over a broad scope that crosses both functional departments and companies.
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The importance of Information and IT in a Supply Chain
• A manager is able to craft strategies that take into account all factors that affect the supply
chain rather than just those factors that affect a particular stage or function within the supply
chain.
• Taking the entire chain into account maximizes the profit of the total supply chain which
then leads to higher profits for each individual company within the supply chain. For e.g.
Downstream demand information and upstream supplier lead times help to create
production schedules and inventory levels.
• To attain a global scope of the supply chain requires the collection of accurate and timely
information on all company functions and organizations in the supply chain.
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Characteristics of Required Information
To support effective supply chain decisions, information must have the following characteristics:
• Information must be accurate – without accurate information that gives a true picture of the
state of the supply chain, it is very difficult to make good decisions. That is not to say that all
information must be 100 percent correct, but rather that the data available paint a picture that is
at least directionally correct.
• Information must be accessible in a timely manner – too often, accurate information
exists but by the time it is available, it is either outdated, or if it is current, it is not in an accessible
form. To make good decisions, a manager needs to have up-to-date information that is easily
accessible.
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Characteristics of Required Information
• Information must be of the right kind – decision makers need information that they
can use. Companies must think about what information should be recorded so that valuable
resources are not wasted collecting meaningless data while important data goes unrecorded.
• Information must be shared - A supply chain can be effective only if all its stakeholders
share a common view of the information that they use to make business decisions. Different
information with different stakeholders results in misaligned action plans that hurt supply
chain performance.
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Information use by Supply Chain Drivers
• Facility – determining the location, capacity and schedule of a facility requires information
on the trade-offs among efficiency and flexibility, demand, exchanges-rates, taxes and so on.
For example, Wal-Mart’s suppliers use the demand information from Wal-Mart’s stores to
set their production schedules. Wal-Mart also uses this information to determine where to
place its new stores and cross-docking facilities.
• Inventory – setting optimal inventory policies requires information that includes demand
pattern, costs of carrying inventory, costs of stocking out, and costs of ordering. E.g. Wal-
Mart collects detailed demand, cost, margin and supplier information to make these
inventory policy decisions.
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Information use by Supply Chain Drivers
• Transportation – deciding on transportation networks, routings, modes, shipments, and
vendors requires information including costs, customer locations, and shipment sizes to
make good decisions. For example, Wal-Mart uses information to tightly integrate its
operations with those of its suppliers. This integration allows Wal-Mart to implement cross-
docking in its transportation network, saving on both inventory and transportation.
• Sourcing – Information on product margins, prices, quality, delivery lead times, and so on,
are all important in making sourcing decisions. Given sourcing deals with inter-enterprise
transactions, there is also a wide range of transactional information that must be recorded in
order to execute operations, even once sourcing decisions have been made.
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Information use by Supply Chain Drivers
• Pricing and Revenue Management – to set pricing policies, one needs information on
demand, both its volume and various customer segment’s willingness to pay (elasticity of
demand), as well as, many supply issues such as product margin, lead times, and availability.
• Using this information, firms can make intelligent pricing decisions to improve their supply
chain profitability.
• In general, IT enables not only the gathering of these data to create supply chain visibility,
but also the analysis of these data so that the supply chain decisions made will maximize
profitability.
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IT Applications in the Supply Chain
• The use of information in the supply chain has increasingly been enabled by enterprise
software which forms the foundation of reporting and analyzing available transaction data
accurately.
• Enterprise software collects transaction data, analyses these data to make decisions, and
executes on these decisions both within an enterprise and across a supply chain.
• The enterprise software landscape became increasingly overpopulated during the late 1990s.
• The unprecedented flow of venture capital into new software companies led to an increase in
the number of software companies, proliferation of entire categories of software, and the
expansion of software product lines combined to create a dynamic enterprise software
landscape. 12
IT Applications in the Supply Chain
• The downturn in technology spending in the early 2000s brought about this
evolutionary pressure, causing many software companies to cease operations or
merge with existing software firms.
• Some entire software categories are now extinct or close to it, with many recently
created categories landing on this endangered species list.
• The three (3) main drivers of the evolution taking place in the enterprise software
are the three major groups of supply chain processes, which are called supply
chain macro processes.
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Macro-Processes in the Supply Chain
• The emergence of supply chain management has broadened the scope across which
companies make decisions. This scope has expanded from trying to optimize performance
across divisions, to the enterprise and now to the entire supply chain.
• This broadening of scope emphasizes the importance of including processes all along the
supply chain when making decisions.
• From an enterprise’s perspective, all processes within its supply chain can be categorized into
three main areas:
o processes focused downstream
o processes focused internally
o processes focused upstream
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Macro-Processes in the Supply Chain
The three macro supply chain processes are:
• Customer Relationship Management (CRM) – processes that focus on
downstream interactions between the enterprise and its customers.
• Internal Supply Chain Management (ISCM) – processes that focus on
internal operations.
• Supplier Relationship Management (SRM) – processes that focus on
upstream interactions between the enterprise and its suppliers.
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Macro-Processes in the Supply Chain: CRM
• The goal of the CRM macro process is to generate customer demand and facilitate
transmission and tracking of orders. Weakness in this process results in demand being lost
and a poor customer experience because orders are not processed and executed effectively.
• The key processes under CRM are as follows:
o Marketing - Marketing processes involve decisions regarding which customers to target,
how to target customers, what products to offer, how to price products, and how to manage
the actual campaigns that target customers. Good IT systems in the marketing area within
CRM provide analytics that improve the marketing decisions on pricing, product
profitability, and customer profitability, among other functions.
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Macro-Processes in the Supply Chain: CRM
• Sell - the sell process focuses on making an actual sale to a customer (compared to
marketing, in which processes are more focused on planning whom to sell to and what to
sell).
• The sell process includes providing the sales force with the information it needs to make a
sale and then to execute the actual sale. Executing the sale may require the salesperson (or
the customer) to build and configure orders by choosing among a variety of options and
features. The sell process also requires such functionality as the ability to quote due dates
and access information related to a customer order.
• Good IT systems support sales force automation, configuration, and personalization to
improve the sell process. 17
Macro-Processes in the Supply Chain: CRM
• Order management - The process of managing customer orders as they flow through an
enterprise is important for the customer to track his order and for the enterprise to plan and
execute order fulfilment. This process ties together demand from the customer with supply
from the enterprise. Good IT systems enable visibility of orders across the various stages that an
order flows through before reaching the customer.
• Call/service centre - A call/service centre is often the primary point of contact between a
company and its customers. A call/service centre helps customers place orders, suggests
products, solves problems, and provides information on order status. Good IT systems have
helped improve call/service centre operations by facilitating and reducing work done by
customer service representatives and by routing customers to representatives who are best
suited to service their request.
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Macro-Processes in the Supply Chain: CRM
• Amazon has done an excellent job of using IT to enhance its CRM process.
• The company customizes the products presented to suit the individual customer
(based on an analysis of customer preferences from past history and current clicks).
• Quick ordering is facilitated by systems that allow one-click orders. The order is then
visible to the customer until it is delivered.
• In the rare instances when a customer uses the call center, systems are in place to
support a positive experience including offering a callback in case the call center is
heavily loaded.
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Macro-Processes in the Supply Chain: ISCM
• ISCM, as stated earlier, is focused on operations internal to the enterprise. ISCM includes all processes
involved in planning for and fulfilling a customer order.
• The various processes included in ISCM are as follows:
o Strategic planning - focuses on the network design of the supply chain. Key decisions include
location and capacity planning of facilities.
o Demand planning - consists of forecasting demand and analysing the impact on demand of
demand management tools such as pricing and promotions.
o Supply planning - takes as an input the demand forecasts produced by demand planning and the
resources made available by strategic planning; then it produces an optimal plan to meet this
demand. Factory planning and inventory planning capabilities are typically provided by supply
planning software.
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Macro-Processes in the Supply Chain: ISCM
• Fulfilment - once a plan is in place to supply the demand, it must be executed. The
fulfilment process links each order to a specific supply source and means of transportation.
The software applications that typically fall into the fulfilment segment are transportation
and warehousing management applications.
• Field service - after the product has been delivered to the customer, it eventually must be
serviced. Service processes focus on setting inventory levels for spare parts as well as
scheduling service calls. Some of the scheduling issues here are handled in a similar manner
to aggregate planning, and the inventory issues are the typical inventory management
problems.
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Macro-Processes in the Supply Chain: ISCM
• Given that the ISCM macro process aims to fulfill demand that is generated by CRM processes,
strong integration is needed between the ISCM and CRM macro processes.
• When forecasting demand, interaction with CRM is essential, as the CRM applications are
touching the customer and have the most data and insight on customer behavior.
• Similarly, the ISCM processes should have strong integration with the SRM macro process as
supply planning, fulfillment, and field service are all dependent on suppliers and therefore the
SRM processes.
• It is of little use for your factory to have the production capacity to meet demand if your supplier
cannot supply the parts to make your product. Order management, which we discussed under
CRM, must integrate closely with fulfillment and be an input for effective demand planning.
• Again, extended supply chain management requires that we integrate across the macro processes. 22
Macro-Processes in the Supply Chain: SRM
• SRM includes those processes focused on the interaction between the enterprise and suppliers
that are upstream in the supply chain. There is a natural fit between SRM processes and the
ISCM processes, as integrating supplier constraints is crucial when creating internal plans.
• The major SRM processes are as follows:
o Design collaboration - this software aims to improve the design of products through
collaboration between manufacturers and suppliers. The software facilitates the joint
selection (with suppliers) of components that have positive supply chain characteristics such
as ease of manufacturability or commonality across several end products. Other design
collaboration activities include the sharing of engineering change orders between a
manufacturer and its suppliers. This eliminates the costly delays that occur when several
suppliers are designing components for the manufacturer’s product concurrently.
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Macro-Processes in the Supply Chain: SRM
• Source - sourcing software assists in the qualification of suppliers and helps in supplier
selection, contract management, and supplier evaluation. An important objective is to
analyse the amount that an enterprise spends with each supplier, often revealing valuable
trends or areas for improvement. Suppliers are evaluated along several key criteria,
including lead time, reliability, quality, and price.
• This evaluation helps improve supplier performance and aids in supplier selection.
Contract management is also an important part of sourcing, as many supplier contracts
have complex details that must be tracked (such as volume-related price reductions).
Successful software in this area helps analyse supplier performance and manage
contracts.
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Macro-Processes in the Supply Chain: SRM
• Negotiate - negotiations with suppliers involve many steps, starting with a request for quote (RFQ). The
negotiation process may also include the design and execution of auctions. The goal of this process is to
negotiate an effective contract that specifies price and delivery parameters for a supplier in a way that best
matches the enterprise’s needs. Successful software automates the RFQ process and the execution of
auctions.
• Buy - “Buy” software executes the actual procurement of material from suppliers. This includes the
creation, management, and approval of purchase orders. Successful software in this area automates the
procurement process and helps decrease processing cost and time.
• Supply collaboration - once an agreement for supply is established between the enterprise and a
supplier, supply chain performance can be improved by collaborating on forecasts, production plans, and
inventory levels. The goal of collaboration is to ensure a common plan across the supply chain. Good
software in this area should be able to facilitate collaborative forecasting and planning in a supply chain. 25
Macro-Processes in the Supply Chain: SRM
• Significant improvement in supply chain performance can be achieved if SRM processes are
well integrated with appropriate CRM and ISCM processes.
• For instance, when designing a product, incorporating input from customers is a natural way
to improve the design. This requires inputs from processes within CRM.
• Sourcing, negotiating, buying, and collaborating tie primarily into ISCM, as the supplier
inputs are needed to produce and execute an optimal plan. However, even these segments
need to interface with CRM processes such as order management.
• Again, the theme of integrating the three macro processes is crucial for improved supply
chain performance.
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Transaction Management Foundation
• All operation and analytics related to the macro processes rest on the Transaction
Management Foundation (TMF), which includes basic Enterprise Resource
Planning (ERP) systems (and its components, such as financials and human resources),
infrastructure software, and integration software.
• TMF software is necessary for the three macro processes to function and to communicate
with one another.
• Thus, the goal of a successful IT system is ultimately to help coordinate decisions and actions
across the supply chain. This can happen only if IT supports the macro processes to
coordinate and run as one rather than as disparate silos. 27
IT Applications in the Supply Chain
• It is important for IT to know that good supply chain management
is not a zero-sum game in which one stage of the supply chain
increases profits at the expense of another but instead a positive-
sum game whereby supply chain partners can increase their
overall level of profitability by working together.
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IT Applications in the Supply Chain
• Market places which failed to focus on the macro processes was a key contributor to their downfall.
• As the downturn in technology spending in the early 2000s applied evolutionary pressure on the
enterprise software landscape, the majority of survivors chose to focus their products on improving
their customers’ macro process, whereas others addressed only a small portion of a macro-process.
• To survive, software firms have evolved away from being marketplace providers to being software firms
focused on a macro process.
• Almost all areas of enterprise software growth exist with CRM, ISCM or SRM. Both new companies and
large firms within enterprise software are now targeting these three macro-processes much more
sharply.
• In the future, we see the ability to improve the three macro-processes driving the growth of enterprise
software.
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IT Applications in the Supply Chain
• Another example of software category that is being transformed by a focus on macro-
processes is the Enterprise Resource Planning (ERP) category.
• ERP software has been successful in improving data availability and integrity within the
supply chain but by itself, data availability and integrity provide only a portion of the value
potentially available.
• The real value from these data comes about only when the data can be used to improve
decision making.
• This is where the three macro-processes enter the picture. Companies that are users of
software must understand these macro-processes well.
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The Role of the Internet within Supply Chains
• The internet has revolutionized supply chain management. There are at least six roles the
internet has played when it comes to this. Below are the different areas in which this has
happened:
• Inventory Management
Definitely one aspect of supply chains that is most costly is inventory management. And, the
internet has made it possible for business firms to quickly set up Electronic Document
Interface (EDI) information programs with their clients. Before the emergence of the
internet, EDI will usually take a longer time to be implemented in a supply chain. Then,
every channel member had to massively invest in software, equipment, as well as training
before EDI systems could be made operational.
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The Role of the Internet within Supply Chains
• Purchasing
The internet has also made it possible for cost associated with purchasing to be reduced.
• In the United States, business firms have been able to make use of the internet to streamline
the purchasing function. With it there is reduction in paper-flows as well as order-cycle times
o The is, the time it takes for purchased orders to be delivered.
• Today, face-to-face negotiations, which might be considered the order of the day in the past,
are not frequently used anymore; as bargaining, re-negotiations, term and price agreements,
etc. can now be done via the internet.
• Covid-19 has literally change the landscape of online operations.
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The Role of the Internet within Supply Chains
• Transportation - Transport management is probably the most popular use of the internet in supply
chains. This is so important for any business since the tracking of shipments to regional depots will
provide the firm with data that shows how reliable or otherwise the performance of its carriers is,
making it possible for transport managers to confirm whether their motor carriers are meeting the
promised arrival time. And, it also enables them to inform carriers about shipment delays as this occurs
rather than wait for days or even longer before informing them.
• Order processing - This critical role of order processing is one that the internet has helped to
dramatically reduce costs. And, reduction in paperwork is a major item of this cost saving when
compared to conventional practices.
• Increase in Speed - Another major benefit that the internet has bestowed on this process is the
increase in speed with which order processing is now done. Since there is now a reduction in the time it
takes for orders to be placed and received by clients. 33
The Role of the Internet within Supply Chains
• Vendor relationships
A critical factor when it comes to vendor relations for a business is being able to rate the
performance of its vendors. This will be based on elements agreed by both parties (the company
and its vendors). And, such performances include factors like deliveries to the company’s
warehouses including depots; vendor raw material inventory among others. The internet has been
used to monitor these areas.
• Customer service
The internet has made it possible for customers to have 24-hour access to a business firm’s
customer service department making it possible for companies to be notified of any problem or
service issue. Now apart from providing another option for customers to contact a company
concerning service issues this has helped improve communication flow between business firms
and their customers.
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The Future of IT in the Supply Chain
• At the highest level, the three SCM macro processes will continue to drive the evolution of
supply chain IT.
• While there is still plenty of room to improve the visibility and reporting of supply chain
information, the relative focus on improved analysis to support decision making will
continue to grow.
• The following three important trends will impact IT in the supply chain:
o 1. The growth in software as a service (SaaS)
o 2. Increased availability of real-time data
o 3. Increased use of mobile technology
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The Future of IT in the Supply Chain
Software as a Service (SaaS)
• SaaS is defined as software that is owned, delivered, and managed remotely.
• Salesforce.com is one of the best-known pure SaaS supply chain software
providers (in CRM).
• SaaS provides lower startup and maintenance costs compared to applications
that are deployed onsite. These factors are particularly important for small
and midsized companies.
• Traditional enterprise software vendors such as SAP, Oracle, and Microsoft
are increasing the availability of their software using the SaaS model. 36
The Future of IT in the Supply Chain
Increased availability of real-time data
• The availability of real-time information has exploded in most supply chains.
• Whereas current supply chain software is primarily focused on improving strategy
and planning decisions (often at the corporate level) that are revisited infrequently,
significant opportunity exists to devise software that will use real-time information
to help frontline supply chain staff (such as in transportation and warehousing)
make smarter and faster decisions that are revisited frequently.
• The opportunity is to design systems that enable rapid insight based on real-time
data. 37
The Future of IT in the Supply Chain
Increased use of Mobile Technology
• The increased use of mobile technology coupled with real-time information offers some
supply chains an opportunity to better match demand to supply using differential pricing.
• An example is an initiative by Groupon titled Groupon Now, which offers mobile users deals
that are time and location specific.
• Businesses can improve profitability by offering deals when business is slow at specific
locations.
• Consumers benefit from getting a deal when and where they want it. Such an approach is
likely to be applicable in many supply chain settings.
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