8

Information Technology in Supply Chain

Management

2010 Role of IT in SCM Slide 1 of 23

 Learning Objectives

• What is the role of Information Technology in supply

chain management?
• What are the key challenges in adapting information
technology to improve the efficiency of the supply
chain?
• What are the future trends in terms of the way IT is
going to influence supply chain management?

2010 Role of IT in SCM Slide 2of 23

Use of Information Across the Supply Chain

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 Major Functional Roles of IT in SCM
• Processing basic business transactions: IT supports frictionless
transaction execution through supply chain execution systems. This forms
the core of SCM. Processes related to the subject of order management,
manufacturing execution, inventory management, procurement,
transportation execution, warehouse management are mapped.
• Enhancing collaboration and coordination in chain: IT is a means for
enhancing collaboration and coordination in supply chains through Supply
chain collaboration systems. The collaborative part focuses primarily on
cooperation with partners and customers via the internet.
• Support SCM DSS :IT-based decision support systems (DSS) can be used to
aid better decisions through Supply chain planning systems. This provides
capability to SCM to process and evaluate SCM related decisions using
different optimization techniques.
• Measure and report SCM performance: It is important for companies to
measure their supply chain performance to know if they are improving. IT-
based business intelligence (BI) includes a technology stack with layers for
reporting and analysis tools, data warehouse platforms, and data
integration tools.

2010 Role of IT in SCM Slide 4of 23

 IT Map for Supply Chain Management

2010 Role of IT in SCM Slide 5 of 23

IT in Supply Chain Transaction Execution

Enterprise resource planning (ERP) systems automates business functions

and enables tracking of information throughout the company across different
functions.

2010 Role of IT in SCM Slide 6 of 23

 IT in Supply Chain Collaboration
and Coordination
• Supply chain management needs information
technology applications that are integrated
beyond the individual company to include the
neighbouring enterprises as well.
– integration should result in data that flows seamlessly
throughout the supply chain, enabling all enterprises
part of the supply chain to work better.
• Collaboration with suppliers
– Supplier relationship management (SRM)
• Collaboration with Customers
 Customer relationship management (CRM)
 collaborative planning, forecasting, and replenishment (CPFR),
• ERP systems have evolved in to ERP-II : Systems which can mange electronic collaborations with
partners

2010 Role of IT in SCM Slide 7of 23

 Major Differences Between ERP and ERPII
• Optimization: Traditional ERP was concerned with optimizing an
enterprise (Internal optimization). ERP II systems are about
optimizing the supply chain through collaboration with trading
partners.
• Domain: ERP systems focused on manufacturing and distribution.
ERP II systems cross all sectors and segments of business, including
service industries, government, and asset-based industries like
mining.
• Process: In ERP systems, the processes were focused on the four
walls of the enterprise. ERP II systems connect with trading partners
to take those processes beyond the boundaries of the enterprise.
• Architecture: Old ERP systems were monolithic and closed. ERP II
systems are Web-based, open to integrate and interoperate with
other systems, and built around modules or components that allow
users to choose just the functionality they need.
• Data: Information in ERP systems is generated and consumed within
the enterprise. In an ERP II system, that same information will be
available across the supply chain to authorized participants.

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Technologies for Effective Supply Chain Management
Collaboration and Coordination Systems
• Electronic data interchange (EDI) refers to a computer-to-
computer exchange of business documents in a standard format.
• Internet at the most basic level, a network of networks, it provides instant and
global access to numerous organizations, individuals and information sources.
Through systems like the World Wide Web, Internet users are able to conduct
organized searches on specific topics as well as browse various web sites.
• Intranets are networks internal to organization that use the same technology of
global internet.
• Extensible Markup Language (XML) is a language description
format that is fast becoming the standard for internet transactions. However, it does
not address the issue of terminology in a specific industry. Industry specific initiatives
have been taken to address this gap. RosettaNet is one such standard for high-tech
industry that enables transaction between manufacturers and suppliers.
• ebXML is another related standard that defines dictionaries and Partner interface
processes, which handle multiple data transactions among partners. It combines
message format specifications with business process models, a set of syntax-neutral
core components and distributed repositories

2010 Role of IT in SCM Slide 9of 23

 IT in Supply Chain Decision Support
• Strategic-level planning involves supply-chain network design,
which determines the location, size, and optimal numbers of suppliers,
production plants, and distributors to be used in the network. This planning
phase can be summarized as determining the nodes and arcs of network and
their relationships. Strategic-level planning is long-range planning and is
typically performed every few years, when firms need to expand their
capabilities. The method most often used is optimization.
• The tactical level of supply chain management covers
the planning of supplies, manufacturing schedules, and the forecasting of
demand. It primarily includes the optimization of flow of goods and services
through a given network. Decisions at this level include which products must be
produced at what plants in what quantity and which suppliers must source raw
materials and sub-components. Tactical-level planning is medium-range
planning, which is typically performed on a monthly basis. Advanced planning
and scheduling (APS) is the key software product for this planning. The method
most often used is optimization.
• The operational level of supply chain management
focuses on day-to-day operations and enables efficiencies in production,
distribution, inventory, and transportation for short term planning.

2010 Role of IT in SCM Slide 10of 23

 The Four Factors in
Operation Planning Systems
• Demand planning generates demand forecast based on
various historical and other related information. The
method used is mostly statistical analysis.
• Production scheduling at all plants on a day-to-day or
hour-to-hour basis based on the tactical plan or demand
forecasts. The method used is constraint-based
feasibility analysis that satisfies all production
constraints.
• Inventory planning generates inventory plans for the
various facilities in the supply chain based on average
demand, demand variability, and source material lead
times. The methods used are statistical and
computational.
• Transportation planning produces transportation routes
and schedules based on availability of transportation on
a lane, cost, and customer delivery schedules. Fleet
planning, transportation mode selection, routing, and
distribution are also part of transportation planning
systems. The methods used are mostly heuristic.
2010 Role of IT in SCM Slide 11of 23
 Technologies for Effective Supply Chain
Management
• Interface : DSS must have interfaces to get data from other relational
databases
• Scheduling algorithms : Based on the data gathered, schedule can be
generated by running operations research algorithm for scheduling. DSS
should be able to formulate the operations research model. Direct link
should be available to commercial available optimizers.
• Expert system rules : Once the data have been gathered and a production
schedule is produced. Expert system rules can capture some of the
expertise of the scheduler and can validate the production schedule
feasibility.
• Business warehouse : To perform pre-defined historical data analysis and
status reports, DSS will need a business warehouse where data can be
stored after uploading from other systems and customized queries can be
written.
• Visual composer: Visual composer is a strong tool to efficiently represent
data into graphs. This will be needed to present the results for DSS
• Graphical user interface: GUI will be needed for display of results,
hierarchical drill down, pull down menus, creation of customized result
display etc.

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 IT in Supply Chain Measurement and
Reporting: Key Supply Chain Metrics
• Supply chain planning metrics: Forecast accuracy, total
inventory, plant utilization, warehouse utilization, fleet
utilization, dwell time through supply chain, plan versus
actual inventory at stores, and production plan variance
• Supplier relationship management metrics: Supplier
quality, purchase costs, direct material costs, delivery
performance, and supplier on-time performance
• Customer relationship management metrics: Customer lift,
customer retention, customer life time value, sales
performance, sales off take versus out of stock at stores,
product availability compliance, promotions goal
compliance, inquiry handling time, and win ratio
• Enterprise resource planning metrics: Perfect order, supply
chain costs, accounts payable, accounts receivable, cash-to-
cash cycle times, cost detail, and order cycle time

2010 Role of IT in SCM Slide 13of 23

 IT in Supply Chain Measurement and
Reporting: Enabling Technologies
• Data warehouse
• Dashboards and Scoreboards :
– Enterprise performance dashboards: It consolidates data
from various divisions and business segments and provide
a holistic view of the enterprise for senior management
– Divisional dashboards: It displays performance metrics
and numbers specific to divisional and operational
managers
– Process / activity monitoring dashboards: It monitors
specific business processes or widespread activities for
example order monitoring dashboards may help monitor
live order conditions, open orders, overdue orders, perfect
orders etc.
– Adhoc query capability: Adhoc query is used to report on
data that is not covered by standard reports. By selecting
selection fields and output fields, stored data is accessed
anywhere within the enterprise system. It does not need
any programming skills & any pre-defined template to
create reports.
– Interface: Data warehouse and BI tools must have
interfaces to get data from other relational databases
2010 Role of IT in SCM Slide 14of 23
Strategic Management Framework for IT
Adoption in SCM

2010 Role of IT in SCM Slide 15 of 23

 Strategic Management Framework For IT
Adoption in SCM

• Strategy Formulation:
The decision for the development and implementation of IT begins at the
upper levels of management, and is closely linked to corporate visions,
goals and strategies. Before implementing IT, organizations usually
undergo a SWOT-MOSP process (Adler, 1989) in which they assess their
strengths, weaknesses, opportunities and threats (SWOT) and then
formulate a suitable set of missions, objectives, strategies and policies
(MOSP). The result of this process, at the organizational level, is the
derivation of a set of business objectives that need to be supported by the
specific technology that is chosen. The strategies of the SCM must be
consonant with these business objectives

2010 Role of IT in SCM Slide 16of 23

 Strategic Management Framework For IT
Adoption in SCM
• Strategy formulation: : SCM IT applications should be linked to
corporate visions, goals and strategies. Before implementing IT in SCM , organizations
formulate a suitable set of missions, objectives, strategies and policies .
• Business process design: should include ``re-engineering'' stage
comprising two studies named ``as-is'‘ processes, and ``to-be'‘ processes.
• Determination of functional requirements: This step
involves: ♦Identification of alternate IT configurations for the system to enable “to-be”
business processes. ♦Using “to-be” business processes, conceptual modes are
developed through prototyping, story boarding, data flow diagramming, flow charting
and other similar techniques. ♦Finally, functional use cases are derived to define the
functional scope and configuration of the IT system.
• Business case preparation: Justification for IT Investments:
Typically, there are many factors with many characteristics to consider in an evaluation -
tangible, intangible, financial/quantitative and qualitative.
• IT Implementation: IT Implementation is treated as project. Depending
upon how much time and cost is available, and how much risk the company is willing to
take, company can choose the most appropriate implementation methodology.
• Post-implementation audits: This last ``feedback'' stage helps in
``closing the loop'' for future development of the system. It is also the primary step
required for the inclusion of the concept of continuous improvement

2010 Role of IT in SCM Slide 17of 23

 IT Implementation Methodologies

• Parallel Approach: The existing system and the

new system operate simultaneously until there is
confidence that the new system is working
properly.
• Big bang or cold turkey approach: The old system
is removed totally and the new system takes over
• Phased approach: Modules of the new system are
gradually introduced one at a time using either big
bang or parallel approach.
• Pilot approach: The new system is fully
implemented on a pilot basis in one segment of
the organization.
Depending upon how much time and cost is available, and how much risk the company is willing
to take, company can choose the most appropriate implementation methodology.

2010 Role of IT in SCM Slide 18of 23

 Categories of Firms Offering Supply Chain
Application Software

• ERP Vendors offering comprehensive solution for

variety of vertical industries
– SAP, Oracle
• Independent vendors offering comprehensive solution
for variety of vertical industries solution
– i2 Technology, Manugistics
• Niche players offering solution for specific supply chain
functionalities
– Adapta, viewlocity, Demand solutions
• Niche Players offering solution for specific industries
– Aspen Technologies , Click Commerce, Adexa

2010 Role of IT in SCM Slide 19of 23

 Future Trends

• Increased polarization of the SCM application software

market
• New technologies will be judged on their business benefits:
Collaborative planning forecasting and replenishment (CPFR),
and Radio-frequency identification (RFID)
• The emergence of supply chain event management (SCEM)
applications, enabled by the Internet make it possible to
sense changes in the supply chain environment in near real-
time
• Emergence of on demand-hosted supply chain software
• SOA ( Service oriented architecture)-based collaboration

2010 Role of IT in SCM Slide 20of 23

RFID and Barcode: A Comparison

Support: +ve

Counter:-ve

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 RFID Technology
• Radio-frequency Identification (RFID) can be used to identify,
track, sort, or detect a wide variety of objects. It is evolving
as a major technology enabler for tracking goods and assets.
• RFID system exchanges information between the tagged
object and a reader/writer in wireless medium.
• An RFID system transmits the identity of a physical item in
the form of a unique serial number wirelessly, using radio
waves. Communication takes place between a reader or
interrogator and a transponder or a tag: a silicon chip
connected to an antenna. RFID tags are attached on items to
be tracked, which could be individual items, boxes, or even
consignments.
• The major components of RFID system are:
– One or more tags or transponders comprised of semiconductor
chips and antennae.
– Reader/Writer devices or Interrogators
– Two or more antennae, one on the transponder and another
with the interrogator.
– A host computer system and the application software.
2010 Role of IT in SCM Slide 22of 23
 Summary
• Supply chain managers can make effective decision if they have access to timely
information about the activities of all the other entities in the supply chain. . IT can
link all activities in a supply chain into an integrated and coordinated system that is
fast and flexible so that supply chain managers get the needed information.
• There are four major functional roles of IT in supply chain management:
transaction execution, collaboration and coordination, decision support, and supply
chain measurement and reporting. Each of these functions needs different set of
capabilities to be enabled by IT.
• IT in SCM has broad and long-term implications for an organization's competitive
advantage as it is integrating not only the functions and processes of an
organization, but also those of suppliers who are external to it.
• IT systems on its own have limited use unless it is ensured that right kind of
information is accurately captured in timely manner.
• At early stages of IT enablement of supply chain, interest of all the stake holders
involved are properly understood and a realistic expectation is set on what IT can
do.
• Advancement in technology is further changing the landscape of supply chain
solutions ad what it can do.

2010 Role of IT in SCM Slide 23of 23