Monday, October 7, 2013

IT and Supply Chain

Efficient exchange of information can provide a company with higher service levels, lower inventory and a lower supply chain cost. Unlike the start of the last decade where the demand for a particular product was defined by the wholesale distributers, the manufacturers have direct access to assess the demand for a particular product in the market. SCM is concerned with the downward flow of product in the supply chain and an upward flow of information. Efficient exchange of information is very necessary for a company’s operations.  IT infrastructure capabilities provide a competitive positioning of business initiatives like cycle time reduction, implementation, implementing redesigned cross-functional processes. Several well know firms are involved in supply chain relationship through information technology. There are several factors that have strongly impacted this change in the importance of information. First, 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.

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 outlet directly with P&G and other major suppliers.

Recognizing the critical importance of information in an integrated supply chain environment, many organizations are implementing some form of an inter-organizational information system (IOIS). With the ERP solutions most of the automobile industries are able to produce JIT productions which have led to a considerable decrease in the cost of the vehicles. In order to perfectly implement the IT solutions within a firm, a firm needs to integrate the three tier system. That is the suppliers, the customers and the internal SCM network need to communicate over a single platform. With a proper flow of information between these three segments the firms can achieve high levels of profitability. Many leading companies like Oracle, SAP, Microsoft and NetSuite work towards building the right solution by integrating these three components for their clients. All enterprises participating in supply chain management initiatives accept a specific role to perform. They also share the joint belief that they and all other supply chain participants will be better off because of this collaborative effort. In the past two decades the power in a supply chain has shifted from the manufacturer to the retailers. Retailers sit in a very important position in term of information access for the supply chain. Retailers have risen to the position of prominence through technologies. The use of technology enables the manufacturers to know how much to produce according to the demand in the market.
Typically, the following types of information are of relevance,

·      Inventory level: This comprises of the material that is used in the production of certain goods and the finished products which are ready to transit.
·      Sales data: The sales data integrated with the orders that are placed to the suppliers forms an important component of the process ensuring lower inventory and higher number of inventory turnovers.
·      Order status for tracking and tracing: For many firms that outsource their shipments to other service providers it’s needed for them to track the shipment of their goods. This information can be further shared with the customer which provides them with a better service feature.
·      Production and delivery schedules: The different tiers in a supply chain can align their operations to 
support the whole process if production and delivery schedules are shared.

The efficient flow of this information has led to companies working with their suppliers and ultimately eliminating the cost from the supply chain, rather than pushing it down the chain. This leads to a better business for all the members of the supply chain network.

A successful implementation of these solutions is very important. Hershey Food Corporation tried to implement the ERP systems and failed in doing so. They went through various problems later down the lane. Their usual delivery period was 5 days but with the failed system in place there delivery time increased to 15 days. They suffered through an increase in inventory levels as they rose by 25%. In hindsight they realized that the problem was the missing inventory database in the SAP R/3 ERP software that had been set up. The technical team did not coordinate well with the operations team and thus the inventory data was not updated. There were several reasons for this failure:

1.    They implanted the system during the peak season and couldn’t rectify the implementation.
2.    The implementation should have been incremental but they went with the ‘Big Bang’ with the scope not layed out.
3.    Software interference from different vendors.
4.    The board members had no-one with the competency to understand the IT complexity.
5.    Overloaded employees.

These problems were avoidable as they were a consequence of their own shortcomings. It was the internal factors that mattered and not the external ones!


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