Wednesday, October 1, 2014

Optimization of Supply Chain using Information Technology

           What is supply chain? Earlier, supply chain was defied as the movement of material from point of origin to point of consumption. But with the advent of information technology and its incorporation in the supply chain, the entire process of supply chain along with its definition has undergone a transformation. With the inclusion of information technology in the supply chain, it is now defined as the movement of information and material in the value chain. As a result, information is now extracted, processed and stored in the most efficient manner.

Figure1: Entities in a supply chain

Figure1 shows the different entities involved in the supply chain. Due to the involvement of many separate entities, there is a great need for collaboration and coordination between these different entities, which is supported by information technology.
                 Let us look at how some of the leading companies are using technology to aid them in their supply chain.

Use of technology in the supply chain of Dell

Major PC makers are suffering losses as products are becoming obsolete in the electronic industry. How is Dell dealing with this problem? Dell uses information technology to manage their inventory. Dell has a strong supplier base and maintains thin inventory. They have majority of online orders. Whenever a customer places an order online, Dell shares these order details with its suppliers located in the areas closer to the area of the customer, who provide the components. These suppliers transport the components to the nearest Dell warehouse where they are assembled and shipped to the customer. This saves Dell the inventory storage costs and also saves the company from incurring losses due to the product becoming obsolete. This is made possible by the IT infrastructure of Dell, which allows real time data sharing between the company and the suppliers.

Emergence and inclusion of information technology in the supply chain, not only benefited the manufacturing firms, but also the service industries.
Use of technology in the supply chain of Banks
Millions of transactions are done in the banks every day. Thanks to technology, customers can now transfer money instantaneously using IT enables systems. This reduces the exchange of currency notes to a great extent. Technology not only makes it easier for the banks, but also for the customers. The customers can transfer money on the go using their mobiles or computers. Today IT has become an inseparable part of bank’s supply chain.

Use of Technology in Logistics

Logistics is the most important part of any company’s supply chain and many companies prefer to outsource it to a third party in order to optimize their operations.

Figure2: Use of technology in the Logistics system of FedEx

The Figure2 above shows the use of information technology by FedEx, who is the logistics provider for Acer. Whenever a customer logs a complaint for any of the Acer products, it gets logged in the FedEx database. This helps FedEx to pick up the package and ship it to the nearest Acer repair center. A barcode is put on the package which helps in real time tracking of the package. This helps Acer and the customer to track the package at any point in time.

As we saw above, Information Technology is now affecting almost every entity of the supply chain process. This gives rise to the following questions:

How long does it take for the company to cover up the initial costs required to set up the IT infrastructure?

Does incorporating IT in the supply chain prove to be beneficial for small firms as well?


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