Supply Chain

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SUPPLY CHAIN MANAGEMENT

Information Technology and the Supply Chain

Resource Material

Chopra, S & Meindl, P. (2013 ). Supply Chain Management: Strategy, Planning and Operation, 5th Edition, Pearson Education, Inc. New Jersey

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?

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.