Technology and Information in SCM

In today’s world, where the market is ever more competitive and aggressive, and customers are more and more demanding in terms of product quality, corporations cannot do without information technology in their supply chain. Generally, technology has affected supply chain management at least in two ways: by increasing the quality of service offered to customers, and by decreasing inventory costs, and consequently the entire supply chain costs [1].

Customers these days are used to performing orders online in a matter of minutes: they can choose the product they want, pay for it electronically, they can see when their orders are being processed, when the items are being shipped, they can see the expected delivery date and they can track shipments. None of this would be possible without proper investments in information technology, and if companies want to retain their customers, they have to be able to offer such service, or buyers, who rightly love this service and expect it from sellers, will simply flee to the next online vendor. Companies like FedEx and UPS have not only embraced these technologies, but they actually contributed to developing them, and they are in fact leaders in the shipping industry [2].

Moving on to see how IT has helped in cost reduction, consider inventory costs. Inventory management has taken advantage of the utilization of technologies such as barcode and RFID. RFID allows for a surprising cut in time needed for inventory cycles: what used to take days of work, and was only doable 2 or 3 times a year, can be done today on a daily basis. This technology also permits to perform an accurate re-ordering strategy, that cut inventory costs [3]. The barcode is another helpful technological support for managing customers’ checkout process in stores. A new type of barcode, the stretched barcode, has enhanced the checkout process even more, increasing customers’ satisfaction (Trader Joe’s) [4].

Cost reduction is also brought about by an efficient communication across different sectors of the supply chain. If a problem arises at one particular stage, the adjacent stages will be directly affected too. Similarly to Just-In-Time (JIT) strategies for inventory management, efficient and timely notification strategies, such as automated alerts via email or text message, will circulate information in real time and allow for interventions when and where needed [2].

Is information technology the real asset to rely on though, when it comes to efficient supply chain management? Is it really technology that we have to acknowledge for the progress made in these 30 years or so of the recognition of supply chain management as a field of its own? And is it really technology that we have to count on in order to move forward? Isn’t the greatness of human minds that first envisioned and then developed such technologies that we should be thanking for the wonders they created and will be able to create in the future [5]? The man before and beyond the machine, so to speak.

References

[1] http://www.csi-india.org/c/document_library/get_file?uuid=434f261e-5a9e-46df-a5b6-d6e8936f28cd&groupId=12177

[2] http://www.supplychainbrain.com/content/general-scm/business-strategy-alignment/single-article-page/article/how-technology-can-ease-supply-chain-management-and-mitigate-risk/

[3] http://www.tagsysrfid.com/Markets/Applications/Inventory

[4] http://designnotes.info/?p=1740

[5] http://blog.kinaxis.com/2012/05/scm30-how-has-technology-changed-supply-chain-management-today/

Logistics in Supply Chain

In the previous weeks of our SCM course we have discussed themes such as customers’ demand and achievement of strategic-fit, products’ design and development, and inventory management. All these topics are related to the subject examined last week: logistics.

This topic is critical for companies, and it drastically influences their supply chain for several reasons. Let’s analyze them focusing on transportation.

First of all, companies’ main goal is to satisfy demand and do it profitably. In order to do that, companies have to meet demand by providing desired products, but they also need to deliver them as quickly as possible, so that customers will appreciate the service and build loyalty towards the company. We may recall the example of the high fashion dress seen on TV on day 0, bought on day 1 and received on day 2. This was possible thanks to an efficient production line, but also to effective logistics.

Second, some companies set up the product design and development phases precisely thinking of how the product will be shipped. For example, [1] Ikea’s designers create all their products in such a way that all the necessary pieces to assemble the object fit in a certain box with pre-specified dimensions. This is because Ikea doesn’t want “to ship air”, maximizing the number of products shipped and limiting the cost of transportation. On the same line of Ikea is [2] Tata with its Nano, the most inexpensive car in the world. Since assembly is outsourced, Tata realized Nano with a modular design and a revolutionary building procedure, so that all its components are shipped and can be efficiently assembled by different entrepreneurs. 

Sometimes, companies prefer to use low cost transportation (on rails or water) and place more frequent orders. This may be done specifically to reduce inventory costs, or also for other reasons, as is the case, for instance, with food products, in order to avoid that they expire.

More and more often companies outsource partially or entirely the management of their supply chain to specialized firms. [3] Brooksint and [4] Essintial are two examples of business firms which externalized several services, such as the management of the inventory or the entire logistics. Sometimes transportation companies themselves propose to take care of different services. This is the example of UPS:  initially UPS was involved in distributing Toshiba’s products and recovering all the products which need assistance. Now, UPS has an own assistance department which is in charge of repairing Toshiba’s products. So, UPS recovers, repairs and brings back to the customers products that must be repaired.

What is the future of logistics? How can technology help in increasing its efficiency? RFID tagging, which allows for better tracking of shipments and assets, is a useful way to manage logistics, but it may raise privacy or security concerns, especially if the transported products are sensitive or particularly valuable. In order to meet customers’ needs at best, companies will need to find a practical, profitable solution to guarantee a timely but at the same time secure shipment. So what’s next for logistics management?

[1] http://karlulrich.pbworks.com/f/IKEA-cost-article.pdf

[2] http://www.businessweek.com/stories/2008-02-27/learning-from-tatas-nanobusinessweek-business-news-stock-market-and-financial-advice

[3] http://www.brooksint.com/inventory-a-logistics-management

[4] http://essintial.com/field-technical-services/logistics-and-inventory-management/