Tuesday, February 28, 2012

IT and Supply Chains

Supply chain management (SCM) is concerned with the flow of products and information between supply chain members' organizations. Recent developments in technology enable the organizations to avail information easily in their premises. These technologies are helpful to coordinate the activities required to manage the supply chain. The cost of information transmission has decreased due to the increase in available technologies. In the below integrated supply chain model (Fig.1) the bi-directional arrows represent the flow of materials and information (feedback). The thing that we need to understand most is that information technology is more than just computers. It includes data recognition equipment, communication technologies, factory automation and other hardware and services are included to interface between the various facets of a supply chain.
(Fig 1)
Integrated supply chain model 

The importance of information in an integrated supply chain management environment:

Prior to the 1980s the information flow between functional areas within an organization and between supply chain member organizations was paper based. The paper based transactions and communication was time consuming and prone to more errors. During this period, information was often over looked at as a critical competitive resource because its value to supply chain members was not clearly understood. IT infrastructure capabilities provided a competitive positioning of business initiatives like cycle time reduction, implementation, implementing redesigned cross-functional processes etc. Three factors that strongly impacted this change in the importance of information include: - First, satisfying in fact pleasing customer has become something of a corporate obsession. Serving the customer in the best, most efficient and effective manner has become critical. Second information is a crucial factor in the managers' abilities to reduce inventory and human resource requirement to a competitive level. Information flows plays a crucial role in this form of strategic planning.

Wal-Mart & P&G experiences demonstrate how information sharing can be utilized for mutual advantage. Through sound information technologies Wal-Mart shares point of sale information from its many retail outlets directly with P&G and other major suppliers.

The fast fashion brand Zara uses IT for immediate sharing of user needs and trend changes to its headquarters with the help of the internet and mailing servers and other ERP tools. They also use computers RFID tags and software for tracking their inventory like most stores and super markets.

Information and Technology Applications in Supply Chains:

In the development and maintenance of Supply chain's information systems both software and hardware must be addressed. Hardware includes computer's input/output devices and storage media. Software includes the entire system and application programme used for processing transactions management control, decision-making and strategic planning.


It is the term used to describe the wide range of tools and techniques utilized to conduct business in a paperless environment. Electronic commerce therefore includes electronic data interchange, e-mail, electronic fund transfers, electronic publishing, image processing, electronic bulletin boards, shared databases and magnetic/optical data capture. Companies are able to automate the process of moving documents electronically between suppliers and customers.

Electronic Data Interchange:

Electronic Data Interchange (EDI) refers to computer-to-computer exchange of business documents in a standard format. EDI describe both the capability and practice of communicating information between two organizations electronically instead of traditional form of mail, courier, & fax. The benefits of EDI are:

1. Quick processing of information.
2. Better customer service.
3. Reduced paper work.
4. Increased productivity.
5. Improved tracing and expediting.
6. Cost efficiency.
7. Competitive advantage.
8. Improved billing.

Though the use of EDI supply chain partners can overcome the distortions and exaggerations in supply and demand information by improving technologies to facilitate real time sharing of actual demand and supply information.

Bar coding and Scanner:

Bar code scanners are most visible at the checkout counters of super markets.  This code specifies name of product and its manufacturer. Other applications are tracking the moving items such as components in PC assembly operations, automobiles in assembly plants etc.

Data warehousing and Data Mining:

Data warehouse is a consolidated database maintained separately from an organization's production system database. Many organizations have multiple databases. A data warehouse is organized around informational subjects rather than specific business processes. This information can then be mined to generate information about patterns, trends etc. These help to streamline the supply chain and related processes.

Enterprise Resource planning (ERP) & Customer Relationship Management (CRM) tools:

Many companies now view ERP systems (eg. Baan, SAP, People soft, etc.) as the core of their IT infrastructure. ERP systems have become enterprise wide transaction processing tools which capture the data and reduce the manual activities and tasks associated with processing financial, inventory and customer order information. ERP system achieve a high level of integration by utilizing a single data model, developing a common understanding of what the shared data represents and establishing a set of rules for accessing data. Other CRM tools help to keep track of customers and their interactions with the organization. This helps with trend analysis and collecting data about the customers’ needs and demands.

The world is shrinking day by day with advancement of technology. Customers' expectations are also increasing and companies are prone to more and more uncertain environments. Companies will find that their conventional supply chain integration will have to be expanded beyond their peripheries. The strategic and technological innovations in supply chain will impact how organizations buy and sell in the future. However clear vision, strong planning and technical insight into the Internet's capabilities would be necessary to ensure that companies maximize the Internet's potential for better supply chain management and ultimately improved competitiveness. Internet technology, World Wide Web, electronic commerce etc. will change the way a company does business. These companies must realize that they must harness the power of technology to collaborate with their business partners. That means using a new breed of SCM applications, the Internet and other networking links to observe past performance and historical trends to determine how much product should be made as well as the best and most cost effective method for warehousing it or shipping it to retailer.

In a previous blog I had talked about how the Dabbawalas on Mumbai have also started using IT in their supply chains, for expanding their business (http://cmuscm.blogspot.com.au/2012/02/mumbais-dabbawalas-go-hi-tech.html). They are already using Mobile phones and the internet to publicise and register more customers. The main hindrance to their adopting more sophisticated forms of technologies is due to their lack of literacy and computer knowledge and skills. Are there some more ways that they can harness the power of IT to improve and expand their supply chain further without having to force them to become computer literate? 

Source: http://www.indianmba.com/Faculty_Column/FC461/fc461.html

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