Module 5

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MODULE-5

© 2007 Pearson Education

The Role of Information Technology in the Supply Chain

The Supply Chain IT FrameworkCustomer Relationship ManagementInternal Supply Chain ManagementSupplier Relationship ManagementThe Transaction Management Foundation

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Role of Information Technologyin a Supply ChainInformation is the driver that serves as the “glue”

that allows the other supply chain drivers to work together with the goal of creating an integrated , coordinated supply chain

Information must have the following characteristics to be useful:AccurateAccessible in a timely mannerInformation must be of the right kind

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Accurate :- without information that gives a true picture of the state of the SC, it is very difficult to make good decisions

Accessible in a timely manner:- need to have a up-to-date information that is easily accessible.

Information must be of the right kind:- decision makers need information that they can use.

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Role of Information Technologyin a Supply Chain

Information technology (IT)Hardware and software used throughout

the supply chain to gather and analyze information

Captures and delivers information needed to make good decisions

Effective use of IT in the supply chain can have a significant impact on supply chain performance

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The Importance of Informationin a Supply Chain

Relevant information available throughout the supply chain allows managers to make decisions that take into account all stages of the supply chain

Allows performance to be optimized for the entire supply chain, not just for one stage – leads to higher performance for each individual firm in the supply chain

It is a key ingredient not just at each stage of the SC, but also within each phase of the SC decision making:- Wal-Mart

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Information provides the basis for supply chain management decisionsInventoryTransportationFacilitySourcingPricing and Revenue management

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Facility :- determining the location, capacity, and schedules of a facility requires information on the trade-offs among efficiency and flexibility, demand, exchange rates, taxes and so on.

Inventory :- setting optimal inventory policies requires information that includes demand patterns, cost of carrying inventory, costs of stocking out, and costs of ordering…

Transportation :- deciding on transportation networks, routings, modes, shipments and vendors requires information including costs, customer locations, shipment sizes to make good decisions.

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Sourcing :- information on product margins, prices, quality, delivery lead times and so on.

Pricing and Revenue Management :- to set pricing policies, one needs information on demand, both its volume and various customer segment’s willingness to pay, as well as many supply issues ( product margin, lead time and availability)

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The Supply Chain IT FrameworkUse of IT in supply chain has increasingly

been enabled by Enterprise Software.Enterprise Software collects transaction

data, analyzes these data to make decisions, and executes on these decisions both within an enterprise and across a supply chain.

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The Supply Chain IT FrameworkThe Supply Chain Macro Processes

Customer Relationship Management (CRM)Internal Supply Chain Management (ISCM)Supplier Relationship Management (SRM)Plus: Transaction Management

Foundation(TMF)

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Supplier Relationship Management

(SRM)

Internal Supply Chain Management

(ISCM)

Customer Relationship Management

(CRM)

Transaction Management Foundation (TFM)


Customer Relationship Management (CRM):- processes that focus on downstream interactions between the enterprise and its customers.

Internal Supply Chain Management (ISCM) :- processes that focus on internal operations within the enterprise.

Supplier Relationship Management (SRM):- processes that focus on upstream interactions between the enterprise and its suppliers.

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Transaction Management Foundation (TMF) :- includes basic ERP systems (& its components such as financials & human resources), infrastructure software, and integration software.

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Why Focus on the Macro Processes?As the performance of an enterprise becomes

more closely linked to the performance of its supply chain, it is crucial for the firms focus on these macro processes.

Good supply chain management is not a “zero-sum game”, but a “positive sum-game”.

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Macro Processes Applied to the Evaluation of SoftwareFailures – B2B market place and software

companies providing market place software that proliferated during 1999 and 2000.

ERP –improving data availability and integrity within the supply chain.

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The software Winners in a Macro ProcessFunctional performance ( ease of use)Integration with other macro processesStrength of the software firm’s

ecosystem.

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Customer Relationship ManagementThe processes that take place between an

enterprise and its customers downstream in the supply chain

Key processes:MarketingSellingOrder managementCall/Service center

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Marketing :- decisions regarding which customers to target, how to target customers, what products to offer, how to price products, & how to manage the actual campaigns targeting customers.

Selling :- providing the sales force the information it needs to make a sale and then execute the actual sales.

Order Management :- managing customers orders, plan & execute order fulfillment.

Call/service center:- primary point of contact between a company and its customers. Customer place orders, suggest products, solves problems, provides information on order status.

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Internal Supply Chain ManagementIncludes all processes involved in planning for

and fulfilling a customer orderISCM processes:

Strategic PlanningDemand PlanningSupply PlanningFulfillmentField Service

There must be strong integration between the ISCM and CRM macro processes

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Strategic Planning :- focuses on the network design of the SC.

Demand Planning :- consists of forecasting demand and analyzing the impact on demand management tools such as pricing and promotions.

Supply Planning :- process takes as an input the demand forecasts produced by demand planning and the resource made available by strategic planning, & then produces an optimal plan to meet demand.

Fulfillment :- links each order to a specific supply source and means of transportation.

Field service :- after the product has been delivered to the customer, it eventually must be serviced.

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Supplier Relationship ManagementThose processes focused on the interaction

between the enterprise and suppliers that are upstream in the supply chain

Key processes:Design CollaborationSourceNegotiateBuySupply Collaboration

There is a natural fit between ISCM and SRM processes

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The Macro Processes and Their Processes

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TRANSACTION MANAGEMENT FOUNDATION { TMF }Transaction Management Foundation (TMF) :- includes basic ERP systems (components such as financials & human resources), infrastructure software, and integration software.The TMF is the historical home of the largest enterprise software players. In the early 1990s, when much of the thinking in supply chain management was just getting off the ground and ERP systems were rapidly gaining popularity there was little focus on the three macro processes.

SRM, ISCM & CRM


Cont…In fact, there was little emphasis on software applications focused on improving decisions. Instead, the focus at that time was on building transaction management and process automation systems that proved to be the foundation for future decision support applications.The huge demand for these systems during the 1990’s drove the ERP players to become the largest enterprise software companies. SAP continued as the market leader, but other powerful ERP players included Oracles, PeopleSoft, JD Edwards and Baan.


Cont…The real value of the transactions management foundation can only be extracted if decision making within the supply chain is improved.Most recent growth in enterprise software has come from companies focused on improving decision making in the three macro processes.ERP players that focus on the integrating across the macros processes along with developing good functionality in one or more macro processes will continue to occupy a position of strength.


THE FUTURE OF IT IN THE SUPPLY CHAIN

At the highest level, it is believed that the three SCM macro processes will continue to drive the evolution of enterprise software.Firms targeting a macro process, the ability to integrate across macro processes, and the strength of their eco systems has the keys to success.User of supply chain software should first identify areas within the three macro processes where improvement will provide the maximum leverage. Software and IT decision should then support the goal of improving performance along these processes.


Potential paths for a company to enter the market

The first is through superior functionality, whether it be specific functionality needed by a particular industry or an application with vastly improved ease of use.The other path consists of providing an integrated product that increases the linkages between the macro processes.It will be difficult for start-up to garner the resources to build an integrated a product across CRM, ISCM and SRM.E.g.: Microsoft

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Risk management in IT INTRODUCTION: Risk associated with the use of IT in supply

chain is very high.Process of adding new supply chain

capabilities with IT can be filled with danger.Larger the change in IT system, greater the

risk of a negative impact on operation.If IT suffers a major failure , the firm will not

able to function properly.


The major areas of risk in IT can be divided into two categories1)Risk involved with installing new IT system.2)A firm still faces risks ones its IT systems are

operating.


1)Risk involved with installing new IT system

During the process of getting new IT system running the firm is forced to change from old process to new process in its IT system.

troubles can be found in both business and in technical issues

Business issuesRequires employees to operate according to new

process.These may be difficult to learn

getting the entire org on board with the changes bought about by a new IT system is particularly difficult because top management is not actively involved in making this transaction.


Technical issuesthere are tremendous technical hurdles to

overcome in getting new IT system operational

When firm switches over to a new system without proper integration ,The new system is unable to perform all that was promised and sometimes even performs worse than the system it was replacing. Even when the employees are bought into new process.


2)A firm still faces risks ones its IT systems are operatingThe more a firm relies on IT to make decisions

and execute processes, the higher is the risk that any sort of IT problem, ranging from software glitches to power outages to viruses, can completely shut down a firms operations . These are the serious risks that a firm plan to face.


Each of the major categories above has its own mitigation strategies. With regards to implementing IT system, there are three ideas to keep in mind.

install new IT system in a incremental fashion rather than in a “big bang” approach.

Firms can run a duplicate system to make sure the new system is performing well.

Implement only the level of complexity that ones need .


On the operational side mitigation strategies include data backup systems running in parallel in case one should suffer a problem, and a range of security software products that can help to keep a companies system safe. In addition, picking systems that have flexibility to change if need be can be important.


Supply chain IT in practice Here the manager need to keep in mind several

general ideas when they are making a decision regarding supply chain IT.

Select an IT system that addresses the companies key success factors .

Take incremental steps and measure values. Align the level of sophistication with the need of

sophistication. Use IT system to support decision making, not to

make decisions.Think about the future.

Module 5

Business

supply chainthe supply

supply chain performance

supply chain drivers

needs information

date information

thesupply chain

entiresupply chain

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