What Is Supply Chain Management Information Technology Essay
|✅ Paper Type: Free Essay||✅ Subject: Information Technology|
|✅ Wordcount: 5370 words||✅ Published: 1st Jan 2015|
Supply Chain Management is the combination of art and science that goes into improving the way your company finds the raw components it needs to make a product or service, manufactures that product or service and delivers it to customers” (Koch 2002).
“The reason company’s implement a SCM system is to create a faster, more efficient, and lower costing relationship between business partners. The process begins from the conceptual stage of a product or service and continues until market distribution. The Supply Chain consists of suppliers, customers, and other businesses which all work together to build relationships and meet customer demands. The objective for creating a supply chain is to increase competitiveness. This is because no single company is solely responsible for the competitiveness of its products in the eye of the ultimate customer; rather the supply chain as a whole, takes on shared responsibility. In order to meet consumer demands and improve competitiveness, a supply chain must overcome and eliminate organizational barriers, align strategies with one another, and speed information and financial flows” (Kidlger 2000).
However, in nutshell we can define supply chain management simply an amalgamation of the three chief components as follows:
The major key issues comprised within supply chain management are as follows:
- Determining the requirements
- Cataloguing, Standardization, and Engineering Data Management.
- Controlling the stock and distributing
- Functions of technical management
Information technology can support internal operations and also collaboration between companies in a supply chain. Using high speed data networks and databases, companies can share data to better manage the supply chain as a whole and their own individual positions within the supply chain. The effective use of this technology is a key aspect of a company’s success. All information systems are composed of technology that performs three main functions: data capture and communication; data storage and retrieval; and data manipulation and reporting. Different information systems have different combinations of capabilities in these functional areas. The specific combination of capabilities is dependent on the demands of the job that a system is designed to perform. Information systems that are employed to support various aspects of supply chain management are created from technologies that perform some combination of these functions.
Software being developed for supply chain management is generally known as enterprise resource planning systems and applications. There increased usage and demand as the chief component in the supply chain shows that they have potentialities enough for materialising them into the profit if properly channelled according to the needs and demands being kept in mind while supply chain operates and executes its core activities and this way the possible and potential losses may be reduced to the extent possible in the area of all the both dependent and independent operational activities and variables therein.
My major concern to this research work is related with the chief dimensions and components of supply chain management and how I.T integrates the core dynamics and elements of SCM with the information system so as to have successful operational feasibility and implementation.
The practice of supply chain management is guided by some basic underlying concepts that have not changed much over the centuries. Several hundred years ago, Napoleon made the remark, “An army marches on its stomach.” Napoleon was a master strategist and a skilful general and this remark shows that he clearly understood the importance of what we would now call an efficient supply chain. Unless the soldiers are fed, the army cannot move. Along these same lines, there is another saying that goes, “Amateurs talk strategy and professionals talk logistics.” People can discuss all sorts of grand strategies and dashing manoeuvres but none of that will be possible without first figuring out how to meet the day-to-day demands of providing an army with fuel, spare parts, food, shelter, and ammunition. It is the seemingly mundane activities of the quartermaster and the supply sergeants that often determine an army’s success. This has many analogies in business.
The term “supply chain management” arose in the late 1980s and came into widespread use in the 1990s. Prior to that time, businesses used terms such as “logistics” and “operations management” instead. Some definitions of a supply chain are offered below:
“A supply chain is the alignment of firms that bring products or services to market.”—from Lambert, Stock, and Ellram in their book Fundamentals of Logistics Management.
“A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request. The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers, and customers themselves.”— from Chopra and Meindl in their book Supply Chain Management: Strategy, Planning, and Operations.
“A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers.”—from Ganeshan and Harrison at Penn State University in their article ‘An Introduction to Supply Chain’.
If this is what a supply chain is then we can define supply chain management as the things we do to influence the behavior of the supply chain and get the results we want. Some definitions of supply chain management are:
“The systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole.”—from Mentzer, DeWitt, Deebler, Min, Nix, Smith, and Zacharia in their article Defining Supply Chain Management in the Journal of Business Logistics.
“Supply chain management is the coordination of production, inventory, location, and transportation among the participants in a supply chain to achieve the best mix of responsiveness and efficiency for the market being served.”—from Essentials of supply chain management. (John Wiley & Sons)
There is a difference between the concept of supply chain management and the traditional concept of logistics. Logistics typically refers to activities that occur within the boundaries of a single organization and supply chains refer to networks of companies that work together and coordinate their actions to deliver a product to market. Also traditional logistics focuses its attention on activities such as procurement, distribution, maintenance, and inventory management. Supply chain management acknowledges all of traditional logistics and also includes activities such as marketing, new product development, finance, and customer service.
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In the wider view of supply chain thinking, these additional activities are now seen as part of the work needed to fulfil customer requests. Supply chain management views the supply chain and the organizations in it as a single entity. It brings a systems approach to understanding and managing the different activities needed to coordinate the flow of products and services to best serve the ultimate customer. This systems approach provides the framework in which to best respond to business requirements that otherwise would seem to be in conflict with each other.
Taken individually, different supply chain requirements often have conflicting needs. For instance, the requirement of maintaining high levels of customer service calls for maintaining high levels of inventory, but then the requirement to operate efficiently calls for reducing inventory levels. It is only when these requirements are seen together as parts of a larger picture that ways can be found to effectively balance their different demands. Effective supply chain management requires simultaneous improvements in both customer service levels and the internal operating efficiencies of the companies in the supply chain. Customer service at its most basic level means consistently high order fill rates, high on-time delivery rates, and a very low rate of products returned by customers for whatever reason. Internal efficiency for organizations in a supply chain means that these organizations get an attractive rate of return on their investments in inventory and other assets and those they find ways to lower their operating and sales expenses.
There is a basic pattern to the practice of supply chain management. Each supply chain has its own unique set of market demands and operating challenges and yet the issues remain essentially the same in every case.
The sum of these decisions will define the capabilities and effectiveness of a company’s supply chain. The things a company can do and the ways that it can compete in its markets are all very much dependent on the effectiveness of its supply chain. If a company’s strategy is to serve a mass market and compete on the basis of price, it had better have a supply chain that is optimized for low cost. If a company’s strategy is to serve a market segment and compete on the basis of customer service and convenience, it had better have a supply chain optimized for responsiveness. Who a company is and what it can do is shaped by its supply chain and by the markets it serves.
Supply Chain Working
Production refers to the capacity of a supply chain to make and store products. The facilities of production are factories and warehouses. The fundamental decision that managers face when making production decisions is how to resolve the trade-off between responsiveness and efficiency. If factories and warehouses are built with a lot of excess capacity, they can be very flexible and respond quickly to wide swings in product demand. Facilities where all or almost all capacity is being used are not capable of responding easily to fluctuations in demand. On the other hand, capacity costs money and excess capacity is idle capacity not in use and not generating revenue. So the more excess capacity that exists, the less efficient the operation becomes. Factories can be built to accommodate one of two approaches to manufacturing:
- A Product focus —A factory that takes a product focus performs the range of different operations required to make a given product line from fabrication of different product parts to assembly of these parts.
- A Functional focus —a functional approach concentrates on performing just a few operations such as only making a select group of parts or only doing assembly. These functions can be applied to making many different kinds of products. A product approach tends to result in developing expertise about a given set of products at the expense of expertise about any particular function. A functional approach results in expertise about particular functions instead of expertise in a given product. Companies need to decide which approach or what mix of these two approaches will give them the capability and expertise they need to best respond to customer demands. As with factories, warehouses too can be built to accommodate different approaches. There are three main approaches to use in warehousing:
- aStock keeping unit (SKU) storage—in this traditional approach, all of a given type of product is stored together. This is an efficient and easy to understand way to store products.
- A Job lot storage —in this approach, all the different products related to the needs of a certain type of customer or related to the needs of a particular job are stored together. This allows for an efficient picking and packing operation but usually requires more storage space than the traditional SKU storage approach.
- A Cross adocking —an approach that was pioneered by Wal-Mart in its drive to increase efficiencies in its supply chain. In this approach, product is not actually warehoused in the facility. Instead the facility is used to house a process where trucks from suppliers arrive and unload large quantities of different products. These large lots are then broken down into smaller lots. Smaller lots of different products are recombined according to the needs of the day and quickly loaded onto outbound trucks that deliver the products to their final destination.
Inventory is spread throughout the supply chain and includes everything from raw material to work in process to finished goods that are held by the manufacturers, distributors, and retailers in a supply chain. Again, managers must decide where they want to position themselves in the trade-off between responsiveness and efficiency. Holding large amounts of inventory allows a company or an entire supply chain to be very responsive to fluctuations in customer demand. However, the creation and storage of inventory is a cost and to achieve high levels of efficiency, the cost of inventory should be kept as low as possible. There are three basic decisions to make regarding the creation and holding of inventory:
- A Cycle Inventory—this is the amount of inventory needed to satisfy demand for the product in the period between purchases of the product. Companies tend to produce and to purchase in large lots in order to gain the advantages that economies of scale can bring. However, with large lots also comes with increased carrying costs. Carrying costs come from the cost to store, handle, and insure the inventory. Managers face the trade-off between the reduced cost of ordering and better prices offered by purchasing product in large lots and the increased carrying cost of the cycle inventory that comes with purchasing in large lots.
- aSafety Inventory—Inventory that is held as a buffer against uncertainty. If demand forecasting could be done with perfect accuracy, then the only inventory that would be needed would be cycle inventory. But since every forecast has some degree of uncertainty in it, we cover that uncertainty to a greater or lesser degree by holding additional inventory in case demand is suddenly greater than anticipated. The trade-off here is to weigh the costs of carrying extra inventory against the costs of losing sales due to insufficient inventory.
- A Seasonal Inventory—this is inventory that is built up in anticipation of predictable increases in demand that occur at certain times of the year. For example, it is predictable that demand for anti-freeze will increase in the winter. If a company that makes anti-freeze has a fixed production rate that is expensive to change, then it will try to manufacture product at a steady rate all year long and build up inventory during periods of low demand to cover for periods of high demand that will exceed its production rate. The alternative to building up seasonal inventory is to invest in flexible manufacturing facilities that can quickly change their rate of production of different products to respond to increases in demand. In this case, the trade-off is between the cost of carrying seasonal inventory and the cost of having more flexible production capabilities.
Location refers to the geographical setting of supply chain facilities. It also includes the decisions related to which activities should be performed in each facility. The responsiveness versus efficiency trade-off here is the decision whether to centralize activities in fewer locations to gain economies of scale and efficiency, or to decentralize activities in many locations close to customers and suppliers in order for operations to be more responsive. When making location decisions, managers need to consider a range of factors that relate to a given location including the cost of facilities, the cost of labour, skills available in the workforce, infrastructure conditions, taxes and tariffs, and proximity to suppliers and customers. Location decisions tend to be very strategic decisions because they commit large amounts of money to long-term plans. Location decisions have strong impacts on the cost and performance characteristics of a supply chain. Once the size, number, and location of facilities are determined, that also defines the number of possible paths through which products can flow on the way to the final customer. Location decisions reflect a company’s basic strategy for building and delivering its products to market.
This refers to the movement of everything from raw material to finished goods between different facilities in a supply chain. In transportation the trade-off between responsiveness and efficiency is manifested in the choice of transport mode. Fast modes of transport such as airplanes are very responsive but also more costly. Slower modes such as ship and rail are very cost efficient but not as responsive. Since transportation costs can be as much as a third of the operating cost of a supply chain, decisions made here are very important. There are six basic modes of transport that a company can choose from:
- A Ship which is very cost efficient but also the slowest mode of transport. It is limited to use between locations that are situated next to navigable waterways and facilities such as harbours and canals.
- A Rail which is also very cost efficient but can be slow. This mode is also restricted to use between locations that are served by rail lines.
- A Pipelines can be very efficient but are restricted to commodities that are liquids or gases such as water, oil, and natural gas.
- A Trucks are a relatively quick and very flexible mode of transport. Trucks can go almost anywhere. The cost of this mode is prone to fluctuations though, as the cost of fuel fluctuates and the condition of roads varies.
- A Airplanes are a very fast mode of transport and are very responsive. This is also the most expensive mode and it is somewhat limited by the availability of appropriate airport facilities.
- Electronic Transport is the fastest mode of transport and it is very flexible and cost efficient. However, it can only be used for movement of certain types of products such as electric energy, data, and products composed of data such as music, pictures, and text.
Someday technology that allows us to convert matter to energy and back to matter again may completely rewrite the theory and practice of supply chain management.
Given these different modes of transportation and the location of the facilities in a supply chain, managers need to design routes and networks for moving products. A route is the path through which products move and networks are composed of the collection of the paths and facilities connected by those paths. As a general rule, the higher the value of a product (such as electronic components or pharmaceuticals), the more its transport network should emphasize responsiveness and the lower the value of a product (such as bulk commodities like grain or lumber), the more its network should emphasize efficiency.
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Information is the basis upon which to make decisions regarding the other four supply chain drivers. It is the connection between all of the activities and operations in a supply chain. To the extent that this connection is a strong one, (i.e., the data is accurate, timely, and complete), the companies in a supply chain will each be able to make good decisions for their own operations. This will also tend to maximize the profitability of the supply chain as a whole. That is the way that stock markets or other free markets work and supply chains has many of the same dynamics as markets.
- Coordinating daily activities related to the functioning of the other four supply chain drivers: production; inventory; location; and transportation. The companies in a supply chain use available data on product supply and demand to decide on weekly production schedules, inventory levels, transportation routes, and stocking locations.
- Forecasting and planning to anticipate and meet future demands. Available information is used to make tactical forecasts to guide the setting of monthly and quarterly production schedules and timetables. Information is also used for strategic forecasts to guide decisions about whether to build new facilities, enter a new market, or exit an existing market.
Within an individual company the trade-off between responsiveness and efficiency involves weighing the benefits that good information can provide against the cost of acquiring that information. Abundant, accurate information can enable very efficient operating decisions and better forecasts but the cost of building and installing systems to deliver this information can be very high. Within the supply chain as a whole, the responsiveness versus efficiency trade-off that companies make is one of deciding how much information to share with the other companies and how much information to keep private. The more information about product supply, customer demand, market forecasts, and production schedules that companies share with each other, the more responsive everyone can be. Balancing this openness however, are the concerns that each company has about revealing information that could be used against it by a competitor. The potential costs associated with increased competition can hurt the profitability of a company.
The Evolving Structure of Supply Chains
The participants in a supply chain are continuously making decisions that affect how they manage the five supply chain drivers. Each organization tries to maximize its performance in dealing with these drivers through a combination of outsourcing, partnering, and in-house expertise. In the fast-moving markets of our present economy a company usually will focus on what it considers to be its core competencies in supply chain management and outsource the rest. This was not always the case though. In the slower moving mass markets of the industrial age it was common for successful companies to attempt to own much of their supply chain. That was known as vertical integration. The aim of vertical integration was to gain maximum efficiency through economies of scale.
In the first half of the 1900s Ford Motor Company owned much of what it needed to feed its car factories. It owned and operated iron mines that extracted iron ore, steel mills that turned the ore into steel products, plants that made component car parts and assembly plants that turned out finished cars. In addition, they owned farms where they grew flax to make into linen car tops and forests that they logged and sawmills where they cut the timber into lumber for making wooden car parts. Ford’s famous River Rouge Plant was a monument to vertical integration—iron ore went in at one end and cars came out at the other end. Henry Ford in his 1926 autobiography, Today and Tomorrow, boasted that his company could take in iron ore from the mine and put out a car 81 hours later.
This was a profitable way of doing business in the more predictable, one-size-fits-all industrial economy that existed in the early 1900s. Ford and other businesses churned out mass amounts of basic products. But as the markets grew and customers became more particular about the kind of products they wanted, this model began to break down. It could not be responsive enough or produce the variety of products that were being demanded. For instance, when Henry Ford was asked about the number of different colours a customer could request, he said, “they can have any colour they want as long as it’s black.” In the 1920s Ford’s market share was over 50 percent but by the 1940s it had fallen to below 20 percent. Focusing on efficiency at the expense of being responsive to customer desires was no longer a successful business model.
Globalization, highly competitive markets, and the rapid pace of technological change are now driving the development of supply chains where multiple companies work together, each company focusing on the activities that it does best. Mining companies focus on mining, timber companies’ focus on logging and making lumber and manufacturing companies focus on different types of manufacturing from making component parts to doing final assembly. This way people in each company can keep up with rapid rates of change and keep learning the new skills needed to compete in their particular business. Where companies once routinely ran their own warehouses or operated their own fleet of trucks, they now have to consider whether those operations are really a core competency or whether it is more cost effective to outsource those operations to other companies that make logistics the centre of their business. To achieve high levels of operating efficiency and to keep up with continuing changes in technology, companies need to focus on their core competencies. It requires this kind of focus to stay competitive.
Instead of vertical integration, companies now practice “virtual integration.” Companies find other companies who they can work with to perform the activities called for in their supply chains. How a company defines its core competencies and how it positions itself in the supply-chains it serves is one of the most important decisions it can make.
Participants in the Supply Chain
In its simplest form, a supply chain is composed of a company and the suppliers and customers of that company. This is the basic group of participants that creates a simple supply chain. Extended supply chains contain three additional types of participants. First there is the supplier’s supplier or the ultimate supplier at the beginning of an extended supply chain. Then there is the customer’s customer or ultimate customer at the end of an extended supply chain. Finally there is a whole category of companies who are service providers to other companies in the supply chain. These are companies who supply services in logistics, finance, marketing, and information technology.
In any given supply chain there is some combination of companies who perform different functions. There are companies that are producers, distributors or wholesalers, retailers, and companies or individuals who are the customers, the final consumers of a product. Supporting these companies there will be other companies that are service providers that provide a range of needed services.
Producers or manufacturers are organizations that make a product. This includes companies that are producers of raw materials and companies that are producers of finished goods. Producers of raw materials are organizations that mine for minerals, drill for oil and gas, and cut timber. It also includes organizations that farm the land, raise animals, or catch seafood. Producers of finished goods use the raw materials and subassemblies made by other producers to create their products.
Producers can create products that are intangible items such as music, entertainment, software, or designs. A product can also be a service such as mowing a lawn, cleaning an office, performing surgery, or teaching a skill. In many instances the producers of tangible, industrial products are moving to areas of the world where labour is less costly. Producers in the developed world of North America, Europe, and parts of Asia are increasingly producers of intangible items and services.
Distributors are companies that take inventory in bulk from producers and deliver a bundle of related product lines to customers. Distributors are also known as wholesalers. They typically sell to other businesses and they sell products in larger quantities than an individual consumer would usually buy. Distributors buffer the producers from fluctuations in product demand by stocking inventory and doing much of the sales work to find and service customers. For the customer, distributors fulfil the “Time and Place” function—they deliver products when and where the customer wants them.
A distributor is typically an organization that takes ownership of significant inventories of products that they buy from producers and sell to consumers. In addition to product promotion and sales, other functions the distributor performs are inventory management, warehouse operations, and product transportation as well as customer support and post-sales service. A distributor can also be an organization that only brokers a product between the producer and the customer and never takes ownership of that product. This kind of distributor performs mainly the functions of product promotion and sales. In both these cases, as the needs of customers evolve and the range of available products changes, the distributor is the agent that continually tracks customer needs and matches them with products available.
Retailers stock inventory and sell in smaller quantities to the general public. This organization also closely tracks the preferences and demands of the customers that it sells to. It advertises to its customers and often uses some combination of price, product selection, service, and convenience as the primary draw to attract customers for the products it sells. Discount department stores attract customers using price and wide product selection. Upscale specialty stores offer a unique line of products and high levels of service. Fast food restaurants use convenience and low prices as their draw.
Customers or consumers are any organization that purchases and uses a product. A customer organization may purchase a product in order to incorporate it into another product that they in turn sell to other customers. Or a customer may be the final end user of a product who buys the product in order to consume it.
These are organizations that provide services to producers, distributors, retailers, and customers. Service providers have developed special expertise and skills that focus on a particular activity needed by a supply chain. Because of this, they are able to perform these services more effectively and at a better price than producers, distributors, retailers, or consumers could do on their own.
Some common service providers in any supply chain are providers of transportation services and warehousing services. These are trucking companies and public warehouse companies and they are known as logistics providers. Financial service providers deliver services such as making loans, doing credit analysis, and collecting on past due invoices. These are banks, credit rating companies, and collection agencies. Some service providers deliver market research and advertising, while others provide product design, engineering services, legal services, and management advice. Still other service providers offer information technology and data collection services. All these service provid
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