IT - Enabled Supply Chain

Management
INTRODUCTION

Business, the world over, is struggling to

sustain competitiveness in a rapidly globalizing
economy. The world is fast being transformed
into a single entity. As far as business is Figure 1 – A Typical Supply Chain
concerned, boundaries are melting away. Management
Economic happenings in one part of the globe
are creating powerful ripples and even Ellram and Cooper (1993) view SCM as "an
aftershocks across the rest of the world. Cost- integrating philosophy to manage the total flow
competitiveness has become the buzzword in of a distribution channel from supplier to
the industry. Globalization in twenty-first ultimate customer. SCM is the systematic,
century presented great scope and access to strategic coordination of the traditional business
the worldwide market for the corporates but at functions within a particular company and
the same time it shoved ample challenges to across business within the supply chain, for the
respond to more aware and demanding purposes of improving the long term
customer. performance of the individual companies and
the supply chain as a whole.
The challenge lies in creating economic value
through vibrant organization, innovations and SCM is a philosophy for conducting business, a
the application of strategic tools. In such a strategy to gain competitive advantage through
challenging environment, supply chain the coordination of all processes starting form
management has become the most powerful the procurement of material form Mother Earth
cost reduction tool in the armoury of business. to providing the final product to the final
Effective supply chain management and consumer and efficient managing the
creation of value by managing its key factors information systems necessary to monitor all of
will help an organization develop distinctive these activities. It links all the partners, which
competence and create a competitive edge. include the intra-organizational members, and
Interest in SCM has increased steadily the inter-organizational members including
worldwide since the 1980s when companies suppliers, manufacturers, distributors,
began to see the benefits of collaborative wholesalers, retailers, third party logistics
relationships. The supply chain concept is still providers and service providers into a seamless
nascent in India. However, the need for the process.
same, at this stage, is more than ever before
because of the challenges unleashed on the Today SCM is no longer a support function but it
competitiveness of the Indian Industry by is in fact regarded as one of the key functions
deregulation and globalization. which would definitely give the organization a
competitive edge in the market. The importance
II. SUPPLY CHAIN MANAGEMENT of SCM has evolved over the years. One of the
reasons could be the fact that large
A Supply is understood as the quantity of corporations have started operations globally
goods available for use or the actual (or with multi-locational plants with several
planned) replenishment of a product (or warehouses and the emergence of multinational
component). companies. Another important factor is the
emergence of new technologies, especially
A Supply Chain is defined as a set of three or Information Technology.
more companies (of a company, an immediate
supplier and an immediate customer) directly III. CHANGING ROLE OF INFORMATION
linked by one or more of the upstream and TECHNOLOGY
downstream flows of products, services,
finances and information from a source to a Information Technology is an organized
customer. collection of computer hardware, software,
data, telecommunications, database
management, other technologies and personnel
designed to capture, store, update, manipulate,
analyze and immediately display information
about worldwide business activities. It is a tool
for providing past, present and projected
information on internal operations and external
activities.
Over the years, technology has progressed
rapidly on the information and communication
front providing cheap but powerful computing
power. Information Technology has evolved
from just a support function to an essential tool
of decision making process. The developments
in IT have resulted in many possible alternative
solutions for managing the supply chain
effectively. The evolution of IT in business can
be explained in four stages as follows: -
StageI
Initially, IT was used to automate routine
functions which involved replacing clerical
systems. Applications such as payroll, order
entry, general ledger, accounts receivables etc.
were automated. Such automation resulted in
clerical and administrativesavings.
StageII
During this stage, the applications of IT become
more sophisticated and the focus was on
effective use of assets and control of overall
expenses to enhance profitability. Applications
that were developed concentrated on creating
systems for online cash management, sales
analysis, resource scheduling, inventory
managementetc.
StageIII
At this stage, the price for computing started
reducing drastically with advances in
technology. The applications developed created
new opportunities for enhancing revenues
instead of merely saving costs. These
applications ran on extensive communication
networks and made use of information storage
and retrieval techniques. Examples of such
applications include financial consolidation,
credit card authorization and payment systems,
JIT inventory management, Enterprise Resource
Planning (ERP).
StageIV
Innovative enterprises began using IT during
the same time to create systems for improving
decision making process. It extended the reach
of management control beyond the conventional
boundaries of the organization.
IV. ROLE OF IT IN SUPPLY CHAIN
MANAGEMENT
SCM is essentially an information-driven
function. Time and responsiveness play a vital
role in SCM and information technology has an
important role to play toward this goal. The
most critical task in any information-driven
function is processing of large chunks of data
and maintaining a large database. In the past,
these records were maintained manually.
Today, any global company cannot survive
without thinking of integrating its supply chain.
Another milestone has been the recent
development of the Internet. All these
developments are bringing the world closer and
closer. SCM is a function that calls for extensive
coordination with both external and internal
environment.
IT has a substantial role to play in customer
servicing. Cargo management companies like
DHL, FedEx etc are using this medium
extensively for better customer servicing and
information flow. If a customer wants to know
the status of his shipment, all he needs to do is
to log on to the website and enter his airway bill
number. Immediately, within seconds he gets
the status.
Many companies feel that their current
information management systems do not
provide adequate support for their supply chain
initiatives. Consequently there is an ever-
increasing need for fully integrated supply chain
information management solutions which
incorporate all the functionality of network
strategy/ supply configuration, demand
planning, transportation management and
warehouse management.
V. IT- BASED TOOLS FOR SUPPLY CHAIN
MANAGEMENT
A number of IT-based SCM tools are now
available to provide intelligent decision support
and execution management. They can be
transaction processing systems focused on day
–to-day operations; operational planning
systems or strategic planning tools used to
redesign the supply chain infrastructure
Some of the major developments in IT which
are transforming the supply chain today are as
follows:-
1. Electronic Data Interchange (EDI)
Electronic Data Interchange (EDI) is the inter-
organizational exchange of business
documentation in a structured machine-
processable form. It consists of standardized
electronic message formats for common
business documents such as request for
quotations, purchase orders, invoices and other
standard business correspondence documents.
These electronic transactions sets enable the
computer in one company to communicate with
the computer in another organization without
actually producing paper documents. All human
efforts required to sort and transport the
document are eliminated.
A fully integrated EDI solution adds speed and
efficiency to business processes enabling the
organization to maximize resources, minimize
waste and increase customer satisfaction. The
key benefits of EDI are: - goods
* EDI helps in reducing transaction costs across
the supply chain of an organization through a
reduction in labour and material costs,
communication costs and administrative costs.
* With no data re-entry, EDI ensures grater
accuracy of information while reducing the
likelihood of costly errors.
* Reduced inventory and its associated costs is
one of the biggest advantages of EDI.
* Critical information is available instantly,
enabling quicker response to changes in the
marketplace.
* EDI increases business opportunities by
making it easier for customer to do business
with the company.
2. Enterprise Resource Planning (ERP)
ERP is a philosophy where one tries to integrate
the value chain of the organization to reduce
the wastage or slack of the entire process of
delivering the end product right from the
sourcing of raw materials.
ERP is a comprehensive planning and control
framework that has evolved over a thirty year
time. It finds its genesis in materials
requirement planning (MRP), manufacturing
requirement planning (MRP II), relational
Database management systems (RDBMS) and
4th generation computer languages (4GL). It
also is influenced by just in time (JIT) and
computer integrated manufacturing (CIM) and
takes advantage of latest IT developments such
as client-server computing and Internet.
The key benefits of ERP are: -
* ERP links all the activities in the organization
with customer orders and thus the customer
becomes the key focus of all departments.
* An ERP system regulates the flow of goods
from a number of manufacturing sites to the
stocking points. It captures and consolidates
related data from the retailer that can be used
to change the production schedule quickly.
* ERP as a tool can enhance overall
performance by reduction of costs, increased
per capita productivity and improved quality of
and services.
3. Internet commerce
Internet is transforming the entire nature of
supply chains by eliminating middlemen,
making commerce more democratic and
creating a frictionless economy. Internet
commerce is changing the manner in which the
entire supply chain is managed today. It is
reducing entry barriers for the new entrants and
the costs of operations for the existing ones at
the same time and also offering the customers
a wider choice for selection.
4. Bar Coding
A bar code is a grouping of parallel bars (usually
blocks) of varying widths separated by light
spaces (usually white) of varying width.
Scanner is used to read the bars and spaces
and it uses software to interpret their meaning.
In the supply chain, the accurate, rapid
identification of products and use of this
information in controlling the entire process
have been key factors. The following are the
benefits of bar code technology in supply
chain:-
* Speed data entry
* Enhances data accuracy
* Reduces materials handling labour
* Verifies orders at receiving and shipping
* Improves customer service
5. Communication Technology
Information and Communication Technology
(ICT) also significantly enhances the supply
chain performance through faster and
widespread communication. Applications of
radio frequency, satellite communications and
image processing technologies have overcome
the problems caused by product movement and
geographic decentralization. Improved customer
service is provided in the form of more timely
definition of tasks, quicker transport tracing,
and faster transfer of sales and inventory
information. The availability of shared
information has led to increase efficiency and
effectiveness across the supply chain.
In today's competitive global environment, the
onus is now on supply chain management.
Companies whose SCM is competitive will gain
in the long run. The advances in information
technology have transformed the supply chain
elements and enabled organizations to make
significant improvements in productivity and
competitiveness. The IT- enabled options
available today for supply chain facilitate real
time information flow through networking and
electronic data transfer, faster response time
and improved decision making, through timely
availability of relevant information
IT-enabled supply chain
management in logistics
The Internet has been widely adopted in the
transportation and logistics industries—
primarily as a means to offer customer service
and sell products. DEEPAK SHIKARPUR explains
how SCM and IT-enabled logistics can benefit
the transportation and logistics industries
Around the mid-nineties, various factors began
to change the role of logistics in major
corporations. Quality initiatives, ERP and re-
engineering forced enterprises to evaluate
entire processes, rather than individual
components. Supply chain management (SCM),
the integrated control over goods, information,
and money, followed.
SCM is an attempt to develop a unified process
by which goods and services would be produced
for customer sale and consumption. SCM and
IT-enabled logistics together are not merely
considered an opportunity to minimise cost—but
they can also be developed into a major source
of corporate profitability.
Commercialisation of the Internet, initially
business-to-consumer, spawned online
shopping. Search engines metamorphosed into
portals, adding content, shopping, and other
items. Finally, e-business came into full force
with online auctions leading the way. E-business
exists along two dimensions. The first
dimension defines the parties: B2B (business-
to-business), or B2C (business-to-consumer).
The second dimension defines the transactional
nature. Here there exist several categories of
service types—buy-side and sell-side. Sell-side
servers are electronic storefronts and
catalogues that manage the purchase process
from the selection of items through payment.
Buy-side servers provide the capabilities for
purchase orders to be entered and fulfilled.
Usually there are well-established business
rules that are incorporated into e-business
applications.
Sell-side e-business
The Internet has been widely adopted in the
transportation and logistics industries to provide
sell-side e-business—primarily as a means to
offer customer service and to ‘sell’ products.
Almost every transportation company offers its
customers the ability to log on to their website
to make bookings, or to track and trace
shipments. Many of these initiatives were
developed for fairly simple reasons. When a
customer opts to visit a website, instead of
calling the service centre, the company usually
benefits, as the transaction requires no paid
employee. This not only represents a cost
saving, but also eliminates the risk of any
unfavourable customer/employee exchange.
Sell-side e-business obstacles
Despite the promise, transportation carriers
have had trouble utilising e-business solutions
to fulfil customer supply chain expectations. The
primary problem involves tracking and tracing.
Customers want to know the exact location of
their shipment and to be alerted if the time-
definite delivery is threatened. This problem can
manifest itself in two forms: the shippers and
the intermediate carriers. If a shipper wishes to
track an individual shipment, he must go to a
Web page for each carrier or logistics provider.
Multiple shipments therefore require constant
movements between Web pages.
Three problems result from this type of set-up.
First, the shipper must match carriers to
shipments prior to tracking, which is sometimes
complex and difficult for the customer. Second,
carriers usually allow tracking from either the
equipment ID or their shipment ID. Carriers do
not always retain the unique shipment ID that
the customer utilises (i.e., purchase order, lot
number, customs file, Renban number, etc). In
some cases, this makes it almost impossible for
a customer to locate the shipment for tracking.
Third, and perhaps most important, the
customer lacks a single point of focus. All of this
leads to problems for customers. E-business has
not delivered value to them and, as a result,
their supply chain suffers. Some transportation
movements are intermodal—they involve more
than one carrier and different modes.
Buy-side e-business
Although sell-side e-business may define the
manner in which services are provided, buy-side
e-business will determine the ultimate
configuration of the market and industry
survivors. Forrester Research estimates that e-
business transactions will double every year,
reaching $1.3 trillion by 2003. (This sum
increases tenfold if traditional electronic data
interchange transactions are included. While
most new transactions are Internet-based, the
embedded base of EDI over private networks is
expected to remain in place for many years.)
Most industry focus has been on the business-
to-consumer (B2C) market in the form of initial
public offerings and market
valuations.
There has been great interest in which portions
of the transportation and logistics industry will
benefit from this new form of distribution.
Despite all this publicity, 90 percent of this
market is business-to-business (B2B). Buy-side
e-business is compelling to businesses for the
economies that seem apparent. It offers
convenience, timeliness, and choice that may
not always
be available. In many cases, multiple vendors
offer sales to multiple customers. Although e-
business is still in its infancy, some companies
have already generated significant savings by
moving their purchasing to the Internet. This
can also be a means by which 3PLs (third-party
logistics players) can assure themselves an
adequate, cost-effective supply of underlying
carrier transportation capacity. While they show
promise, buy-side transactions are not largely
employed amongst transportation carriers.
Many carriers seem to think they are engaging
in e-commerce if they have a Web page
showcasing their newest equipment. This is not
the case, and they are overlooking a multitude
of opportunities.
Marketplace e-business
The growth of buy-side e-business in the
transportation industry is similar to—but more
accelerated than—the development of other
areas of the industry. Early on, logistical
operations involved a complex chain of
transportation transactions, a large number of
participants and handoffs, and a multitude of
redundancies and reworking.
What will the future bring?Many wonder
what the advent of the Internet and e-business
will mean to the transportation and logistics
industry. A large number of carriers fear that
technology will cause further depression of rate
levels. This is a valid concern. Internet auction
sites have usually yielded two types of results.
For products, the price can sometimes rise, but
for services, the price frequently has been
driven down (perhaps reflecting the ‘perishable’
nature of services). In today’s transportation
market, the cause is not so much e-business,
but basic microeconomics. If supply exceeds
demand, prices will fall. E-business sites will not
cause rates to fall further than they would—but
they may cause rates to fall faster. Better
communication and information in the
marketplace will allow prices to achieve market
equilibrium more quickly.
E-business penetration can be determined by
supply and demand, in addition to market
aggregation and intermediation. A market with
a few major carriers (e.g., six major railroads)
will be harder to penetrate than one with
numerous carriers (e.g., 50,000 interstate
truckers). Transportation markets with well-
established (transportation) intermediaries (i.e.,
consumer products) will be easier to introduce
to e-business solutions than markets that do
not traditionally rely on intermediaries (e.g.,
domestic bulk commodities). Shippers will be
forced to consider their options carefully. If they
suspect that demand is close to, or exceeds
supply, they will want contracts for most of
their expected traffic. But if they suspect that
supply will exceed demand, they will want to
buy most of their capacity on the spot.
Internet Technologies and Supply Chain
Management
See firsthand how a
number of companies have
used the Internet to lower
costs and add value to their
businesses; learn a chain operations
framework showing how
the Internet impacts supply
chains and two major
requirements for successful
implementations.
Experiment with a costs
simulation comparing
standard purchase
arrangements with the
option of purchasing some materials via spot markets,
and look to the future of Internet-enabled supply chains
to gain an understanding of what challenges lie ahead
for a number of new ideas.
The Internet has already had a tremendous
impact on the field of supply chain management, and
there is more to come. Through this module you will
see firsthand how a number of companies (Cisco, Dell,
Adaptec, Zara, and Texas Instruments) have used the
Internet successfully to lower costs and add value to
their businesses. You will see a framework showing
how the Internet impacts supply chains and you'll learn
two major requirements for successful
implementations. You will examine the variety of e-
business relationships made possible through the
Internet and learn important reasons why some
approaches work better than others.
The Internet can create more sourcing
opportunities for raw materials; we'll use a spot market
simulation to show how combining long-term contracts
with spot market purchases can reduce safety stocks
and their associated holding costs. You'll also discover
how emerging standards like Web Services (XML,
SOAP, UDDI, and WSDL) can simplify information
exchange and business processes within the
enterprise and between supply chain partners; a closer
look at RosettaNet will show how the development of
standard business practices for Internet relationships
can reduce costs and improve response times.
Finally, you can't just blindly accept everything
you hear about the future of supply chain
management; for each new innovation, the risks for
each player must be weighed against the chain-wide
benefits. You'll look to the future of Internet-enabled
supply chains to gain an understanding of what
challenges lie ahead for a number of new ideas.
Objectives
• Learn how the Internet has changed
traditional supply chain flows
• Define a framework for major business
benefits from Internet-enabled supply
chains
• Review examples of how companies
have used the Internet in their supply
• Learn about e-business relationships,
auctions, and public vs. private
exchanges
• Discover how spot markets and contracts
can be combined to lower procurement
• Define Web Services (XML, SOAP, UDDI,
WSDL) and review a successful example
of their application in a vertical market
• Examine characteristics (and likelihood
of adoption) of possible future supply
chains made possible by Internet
technologies
Traditional vs. Net Model
...Before widespread expansion of the Internet,
most supply chains were operated according to the so-
called Traditional Model, where companies doing
business together did so "directly" (i.e. with separately
managed links at every stage between suppliers and
customers); this model is illustrated in the figure below,
in which the blue lines represent information, financial,
and material flows:
 With the Internet emerging as an important way
to conduct business, an alternative model has
emerged, often called the Net Model, in which
intermediate nodes link many buyers and sellers. This
model is illustrated in the figure below. As we'll see
later on, these intermediate nodes can be exchanges
(either public or private) or e-hubs; again the blue lines
represent information, financial, and material flows
(although material flows may bypass the hub to
minimize transportation costs)...

Texas Instruments has recently implemented an

extensive planning and supply/demand matching
optimization tool using the Internet. Every two days
they do a global supply/demand match for over 45,000
products produced in 56 factories worldwide. 70% of
their customer orders are now online; they provide
real-time order status information. Their system has
factory-level planning optimization with global inventory
visibility.

The results of this improvement are a two-week

reduction in customer delivery times and an increase in
factory utilization of 2%. A two-week reduction in
customer delivery times is clearly beneficial from a
competitive standpoint. Also, while the increase in
factory utilization may sound small, the impact of such
a change on profitability is much larger than 2% since
one is earning additional revenue without any increase
in corresponding production capacity costs. (This is a
fair assumption because Texas Instruments' factories
typically build to order, which means they are likely to
sell what they produce.)

Placing their benefits in our framework:

Texas Instruments' Management Impact

Revenue Speed /
Cost Reduction
Enhancement Efficiency

Within an
Enterprise
 number of potential suppliers. Examples of public
Globally exchanges include Covisint for auto manufacturers and
optimal their suppliers, and Converge (formerly eHITEX) for
electronic components.
supply/demand
Lead
Across balancing
time Despite the hype, the huge numbers of public
the Chain exchanges created by both third parties and major
reduction
Increased industry players have had difficulties gaining volumes...
factory
utilization In many instances there may be a need to install
a Decision Support System (DSS) to take full
Across advantage of the possible improvements from the
Internet. A Decision Support System is a software
Multiple application that provides decision support (i.e.,
Chains suggested actions) for a given management function. A
DSS may be supported by optimization software
Multiple Chains designed for a particular task.

We have not yet provided any examples of For example, for ease of management, many
multiple-chain benefits. To offer one example, a global businesses are organized by regions; common
Contract Manufacturer or EMS (Electronic regions are North America, Europe, Asia/Far East, and
Manufacturing Services provider) may need to Rest of World. Generally in the past there was little or
purchase a standard component for multiple OEMs no operational interaction among the different regions.
(Original Equipment Manufacturers - customers of the Now, with Internet communication capabilities,
EMS)... companies with global operations can look for
opportunities across different regions to create
synergies. For example, a plant in one region may be
..Public exchanges, which exploded in short of a particular component, while a plant in
popularity in the late 1990's, were designed to be open another region of the world may have a surplus of the
to anyone and provide the following benefits: same component. In the past it was viewed as too
inefficient to try to track down these kinds of
• Automated procurement (sometimes opportunities, but with information flowing rapidly and
called Automated Workflow) automatically through a global network, such synergies
become easier to find and exploit. However, the
(avoid fax/phone/data errors; significantly lower problem of exploiting them "optimally" is an
transaction costs) optimization problem of large proportions, and hence
some kind of Decision Support System (DSS) is
needed to accomplish this.
• Collaboration in forecasting,
planning and/or replenishment
• (complete visibility, no Bullwhip Effect)
• More efficient market
• (more suppliers bidding for business, more
buyers competing for components)
• Sell unused capacity to new or
different markets

These benefits were intended to result in lower

procurement costs, lower inventories, less Bullwhip
Effect, and more profits among the companies winning
additional business. Procurement costs would be lower
because in a public exchange it might be possible to
find some new supplier willing to compete heavily on
price at any given moment. The Bullwhip Effect would
be reduced if exchange partners collaborated in
forecasting and planning based on inventory and sales
information made available through the exchange. In the figure above, assume the Pennsylvania
Inventories would be lower due to the reduction of the factory has run out of raw materials...
Bullwhip Effect, and also because materials might be
easier to source with shorter lead times given a greater
 The idea of applications interacting with one
another within the enterprise through a common set of
protocols is often referred to as "Enterprise Application
Integration" (EAI). The scope of EAI goes well beyond
supply chain management, encompassing many other
organizational areas in which enterprise-wide, real-time
data is useful, including applications like Enterprise
Resource Planning (ERP), Customer Relationship
Management (CRM), and financial reporting and
analysis. Applied across the chain to supply chain
partners, this idea is often called B2B Integration. The
practical impact of these emerging standards (or
protocols, as they are usually called) is that once
widely adopted, B2B Integration (the acquisition of data
from one partner's Application A for use by their supply
chain partner's Application B) would be much closer to
plug-and-play than it is today. This would sharply
reduce the IT cost of accomplishing such information-
sharing or information-linking, and thus make
information sharing across applications and indeed
across company boundaries much more feasible.
How Web Services Would Work
If you wish to use a particular application, you
would use UDDI to find it, literally using a SOAP
message; once you find it, you would access the
application's WSDL file (again, a document using XML
and in SOAP format). The only manual coding required
to link these items would be the initial generation of a
SOAP request and the above-mentioned SOAP
"wrapper" for your application. New applications may
have SOAP built into their functionality in the future.
The animation below illustrates how this might work: