IT in Supply Chain Management - Essay Example

1. Background Information Technology (IT) has changed the way businesses operate, communicate and leverage advantage. Businesses face the challenge of coordinating both the upstream and the downstream activities in the supply chain. The challenge is intensified as warehouses, shippers and transporters have become geographically dispersed. Firms have become interdependent and the competitive success is no longer a function of its individual efforts (Christiaanse & Kumar, 2000). The success of the business now depends on the efficient management of the entire supply chain. The traditional supply chain had limitations caused by power structures, limited information processing ability, and limited coordination and communication paths (Christiaanse & Kumar, 2000). Today organizations are facing complex changes to combat which Mutsaers, Zee and Giertz (1998) proposed the Nolan and Crosson six-stage model. it has become essential for organizations to be flexible and deliver a wide and changing variety of products. This requires a shift from “make and sell” approach to an externally-oriented “sense and respond” structure. This in turn implies the need for real time information. Real time information can be feasible only with the application of information technology in the different processes and functions. To meet the changing market requirements, companies have decentralized their value-adding activities by outsourcing and developing virtual enterprises (Gunasekaran & Ngai, 2004). All these highlight the importance of integrating IT with supply chain partners in the virtual enterprise or the supply chain. 2. Information technology Demand for new information services like query processing, knowledge sharing and data mining led to the extension of information system engineering to support new, flexible software architecture so that the information system could contain new as well as legacy data and software components (Mylopoulos, 1998). IT has been recognized as a critical factor in the supply chain as they have demonstrated positive contribution to the performance of the firm and the supply chain (Jin, 2006). Technology is essential as it provides direction to the procurement, production and supplies strategies. When suppliers are able to meet customer demands compatibility of exchanges has occurred (Halley & Nollet, 2002). Success of incorporating technology depends upon the personnel’s ability to extract information (Lin & Tseng, 2006). Hence firms rely on technology to increases the flow of information across organizational boundaries and thereby improve the quality of information shared (Peterson, Ragatz & Monczka, 2005). 3. Technology used in supply chains 3.1 World Wide Web and e-commerce The World Wide Web is one of the most popular forms of information technology that has brought about e-commerce and B2B platforms. WWW permeates the supply chain at every point and it removes the time and place restrictions. It reduces operating costs and indirect expenses. B2B and B2C relationships are strengthened as information on products is available through interactive multimedia. Websites become differentiators from competitors when they serve as marketing and sales point (Zsidisin, Jun & Adams, 2000). Dell Computers is an excellent example where they use technology for their direct sales model. The PCs are made by electronic order and supplied directly to customers (Chou, Tan & Yen, 2004). This strategy has helped to eliminate the middlemen in the supply chain thereby reducing the prices for the end customer. E-commerce technologies facilitate interactive websites, electronic mail, extranets to promote electronic communication ordering with suppliers, intranets to facilitate internal knowledge sharing (McIvor & Humphreys, 2004). Apart from the WWW, companies have been investing heavily in ICT such as Electronic Data Exchange (EDI), Enterprise Resource Planning (ERP), and Radio Frequency Identification (RFID). 3.2 EDI This technology refers to direct computer-to-computer communication of business transactions in a standard context-sensitive format (Hsieh & Lin, 2004). EDI enables reduced labour cost of mailing and data entry; information transfer from one computer to another is faster leading to better cash flow management, better communication and improved business processes. Electronic commerce employs the EDI techniques to improve the exchange of information between partners, suppliers and customers by breaking barriers and changing the way they interact. Auto manufacturers have invested heavily in EDI and B2B e-procurement systems which have helped them to reduce costs and gain competitive advantage over rivals (Zhu & Weyant, 2003). EDI automates creation, transmission and processing associated with routine business forms like purchase orders, invoices and payments (Nissesn, 2001). Thus investments in IT are driven by the motive to gains strategic value. 3.3 ERP ERP can bring about changes to the hierarchical structure, to the decision-making strategies, to responsibilities and to the organizational culture (Falk, 2005). This software package uses to control and integrate the information related to customers, suppliers, product information, employee and financial data. ERP applications can link traditional business functions like finance, production, warehousing and sales into a single system employing a shared database (Chang, 2006). It helps to eliminate multiple data entry and ensures the availability of current stock position and customer data when processing an incoming order. 3.4 RFID RFID is an emerging wireless technology which is expected to close the information gap in the supply chain by replacing the barcode technology. This will help to identify, track and trace items automatically. In the manufacturing sector, it helps to build to order with mass production efficiency as has been done by QSC-Audio Products (Kärkkäinen & Holmström, 2002). QSC has derived advantages like reducing manufacturing lead time, increasing output and moving from build-to-stock operative model to build-to-order model. Toyota uses RFID to automate goods receipts and link it to the production scheduling system. A smart convoyerised assembly system using the RFID technology helps to identify the products on the assembly line. This technology not only solves the problem of linking the material and information flow together, the communication of operational information decreases the need to integrate information system in order to build effective processes between companies. 4. Benefits of e-supply chains The use of information technology in supply chain management leads to advantages ranging from direct operational benefits to creation of strategic advantage (Auramo, Kauremaa & Tanskanen, 2005). In the manufacturing sector the use of IT integration within and between firms in the supply chain is known as lean/just-in-time (JIT) manufacturing practices (Ward & Zhou, 2006). Information is transmitted electronically within and between firms. Lean/JIT practices include quick changeover techniques, kanban systems, and lot-size reduction. Through this adaptation it is possible to produce high quality products at the pace of the customer demand thereby maintaining low inventory levels. Information is the supply chain is crucial for its performance because delayed information could result in wrong decisions by managers and the wrong processes could be executed (Visich, Li & Khumawala, 2007). IBM has strengthened its supplier relationships by listening to their suppliers and by providing them tools to collaborate more effectively. They implemented an application called e-collaboration supply chain interlock (eSI). This is a customized, secure, collaborative environment for suppliers, supply managers, and engineers to interact and share information on technical specifications, drawings, information about forecasts and volume (Roberts, 2004). 4.1 Uncertainties in the supply chain Given the volatilities in the market maintaining an agile and flexible supply chain is critical especially with constantly shifting and increasing customer expectations. Gupta and Maranas (2003) categorize these uncertainties as short-term or long-term uncertainties where short-term uncertainties include day-to-day processing variations, cancelled/rushed orders, or equipment failure. Long-term uncertainty includes raw material or final product unit price fluctuations, seasonal demand variations and product rate changes. If the uncertainties are underestimated it could lead to unsatisfied customer demand translating to loss of market share (Gupta & Maranas) or outperform their competitors (Kannabiran & Bhaumik, 2005). However Koh and Tan (2006) contend that manufacturing activities cannot be planned during the production process leading to manufacturing uncertainties. These are unpredictable events that occur during the manufacturing cycle like the breakdown of a machine. Demand uncertainty of the product directly impacts the manufacturing cycle time and order release to the shop floor. Supply uncertainty can also delay the production process which could occur due to shortage of parts or late deliveries. Demand uncertainty is the characteristic of the changed market conditions today. Variation in the demand increase as one moves upstream in the supply chain and this leads to operational inefficiencies (Ge, Yang, Proudlove & Spring, 2004). Information exchange can help anticipate demand fluctuations and avoid the Forrester’s bull-whip effect. When orders to suppliers have larger variance than sales to the buyer, this distortion is called the Forrester’s bull-whip effect. The bull-whip effect has become a major concern for many manufacturers, retailers and distributors (Yu, Yan & Cheng, 2001). The causes of the bull-whip effect are demand forecasting, order batching, price fluctuation and rationing game. Information sharing between members of the supply chain helps to minimize the uncertainty as the manufacturer can eliminate the amplified customer’s demand variance in its replenishment process through the use of EDI. Saturn Corporation, a major automobile manufacturer, has been able to overcome the demand uncertainty by employing the sense and respond business model (Dawson, 2004). The company jointly manages the inventory with its dealers. Through the application of technology it has been able to respond to the demand of the customers thereby increasing after sales customer satisfaction. It does not rely on demand forecast to hold stocks for parts but replenishes the stocks at the retailers on one-for-one basis. 4.2 Efficient Supply Chain Management (SCM) Today there is a clear shift in organizations as they move from ‘push’ to ‘pull’ supply chain, increasing level of outsourcing and high level of IT exploitation in supply chain integration. An effective supply chain can be determined by the involvement of the top management, by using cross-functional teams in managing relationships and having a high level of involvement of suppliers, as was done by Tanishq in India (Kannabiran & Bhaumik, 2005). Tanishq, the branded jewelry company suffered huge losses as they carried very high inventory. Having 60 boutiques their areas of concern included delayed information of sales, stocks and trends. Communication real time became essential for information on local gold prices, price updates and control data. They implemented a web-based initiative named Gold Mine that connected their boutiques, their agents and the factory. This enabled verifying the status of orders placed by boutiques with the production through an ERP-based internal system. The visibility of sales from each boutique improved. Most importantly the management could track effectiveness of marketing programs and promotions at the boutique level, category level and price band wise. This initiative also enabled online indenting for replenishment – both boutique specific and customer specific. Dissemination of information was possible through bulletin boards and it also provided discussion for queries raised by users for modifying new and existing products. SCM involves integrating all the functions to maximize benefits and reduce costs. The logistics flows, the customer order management, the production processes, and the information flows are all necessary to monitor the activities at the supply chain nodes (Svensson, 2003). This can be possible through the right application of IT and requires real time collaboration between supply chain partners. According to Barratt (2004) a virtual supply chain can be created through the use of IT by sharing data between buyers and suppliers. The virtual supply chain is information based rather than inventory based but this gives limited visibility of real demand. Any IT facility can meet with success only when there is proper alignment between processes and technology (Delaney-Klinger, Boyer & Frohlich, 2003). This is the arson Porter has states that gaining competitive advantage requires building on the proven principles of effective strategy (cited by Delaney-Klinger et al.,). 5. Limitations of e-supply chains Not all companies can derive the same benefit from using the same ERP application as it requires change in the organization structure, efficient top down leadership, training and efficient project management (Falk, 2005). Investment in IT is not sufficient as information must be accessed, registered, retrieved, processed and shared between different functional units to enable coordination and better decision making (Jonsson & Gunnarsson, 2006). Besides, as multiple players with diverse technological backgrounds and systems join hands to integrate supply chain activities, the benefits may not always be reaped (Lippert & Forman, 2006). Users must have positive attitude towards technology and involvement of top management is essential. Trust in an inanimate object or in technology can lead to risks because the supply chain member is dependent on sharing information. Apart from producing uncertainty, it includes the risk and possibility of information loss due to adoption or usage behaviour. Losses may not be quantifiable and hence uncertainty is a significant part of the risk. This can lead to significant inefficiencies as this is an inability to deliver the final products to the consumers. Inefficiencies and uncertainties are possible because the solutions provided are individualistic in nature as they are developed from a single company’s point of view (Auramo, Kauremaa & Tanskanen, 2005). Even though the customers and the suppliers may have been taken into consideration but the focus has been to control costs and increase the effectiveness of e-business applications. Use of RFID tags too has some constraints since global standards have not yet been formulated. Another constraint is that while tens of RFID tags can be read at a time, only one tag can be written to. Besides, when reading multiple tags, it is difficult to identify which tag is being read (Kärkkäinen & Holmström, 2002). People could disagree upon sharing of investments in technology and its benefits. IT implementations fail due to lack of user awareness, project management, and industry or firm culture. Using internet as a technology in supply chain has its own potential threats. The risk of standardizing on the wrong technology is perennial and organizations may be unable to keep pace with the change (Mulligan & Gordon, 2002). Other risks include security risks, network and systems instability and the difficulty of integrating different systems. In maintaining customer relationships the risks could be loss of client control and lack of personal touch. Inadequate security in e-commerce is an obstacle to the strengthening of the customer and supplier relationships. Integrating systems among business parents has proved to be difficult. Although web is a common denominator, the participants in the chain have to still tie their web systems to their back end systems and that has proved to be difficult for most firms. 6. Conclusion Through the use of IT in supply chains firms have been able to shift their strategies to make or build to order. Inventory levels can be low and information flow is possible in real time. Communication flow helps in building relationships in both upstream and downstream of the supply chain. It facilitates programming marketing as well understanding changing customer demands and needs. Data sharing between buyers and suppliers is possible. All the functions in an organization can be integrated. However there are limitations as it requires the involvement of top management. Besides, technology has to be properly understood by the personnel using it. This requires proper training of the people using technology. Risks and limitations in ICT may hinder progress to some extent but when firms derive benefits, they would also make efforts to overcome these limitations. Tools and techniques are available to handle the risks and it depends on how an organization would like to prioritize its IT platform. 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