UNIT V

Learning objectives
After studying this lesson, you should able to
1. Understand the importance of information technology in a supply chain.
2. Know at a high level how the supply chain drivers use information.
3. Understand the major applications of supply chain information technology and the
processes that they enable.

INFORMATION TECHNOLOGY IN A SUPPLY CHAIN

Information is crucial to the performance of a supply chain because a provides the basis
on which supply chain managers make decisions. Information technology consists of the tools
used to gain awareness of information, analyze this information, and execute on it to increase the
performance of the supply chain.

I.

THE ROLE OF IT IN A SUPPLY CHAIN

Information is a key supply chain driver because it 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 is crucial to supply chain performance because it provides the foundations on
which supply chain processes execute transaction and managers make decisions.
Without information, a manager cannot know what customers want, how much inventory
is in stock, and when more products should be produced or shipped.

In short, without

information, a manager can only make decision blindly. Therefore, information makes the

supply chain visible to a manager. With this visibility, a manager can make decisions to improve
the supply chains performance.
Given the role of information in a supply chains success, managers must understand how
information is gathered and analyzed. This where IT comes into play. IT consists of the
hardware, software, and people throughout a supply chain that gather, analyze, and execute upon
information.

IT serves as the eyes and ears (and sometimes a portion of the brain) of

management in a supply chain, capturing and analyzing the information necessary to make a
good decision. For instance, an IT system at a PC manufacturer may tell a manager how many
processors are currently in stock. IT is also used to analyze the information and recommend an
action. In this role, an IT system could take the number of processors in inventory, look at
demand forecasts, and determine whether to order more processors from Intel.
Using IT systems to capture and analyze information can have a significant impact on a
firms performance. For example, a major manufacturer of computer workstations and serves
found that most of its information on customer demand was not being used to set production
schedules and inventory levels. The manufacturing group up lacked this demand information,
which essentially forced them to make inventory and production decisions blindly. By installing
a supply chain software system the company was able to gather and analyze demand data to
produce recommended stocking levels. Using the IT system enabled the company to cut its
inventory in half, because managers could now make decisions based on customer demand
information rather than manufacturings educated guesses. Large impacts like this under some
the importance of IT as a driver of supply chain performance.

Information is the key to the success of a supply chain because it enables les management
to make decision over a broad scope that crosses both functions and companies.
Information must have the following characteristics to be useful when making supply
chain decisions:
1.

Information must be accurate: Without information that gives a true picture of the

state of the supply chain. It is very difficult to make good decisions. That is not to say that all
information must be 100 percent correct, but rather that the data available paint a picture that is
at least directionally correct.
2.

Information must be accessible in a timely manner: Often, accurate information exists,

but by the time it is available, it is either out of date or, if it is current, it is not in an accessible
form. To make good decisions, a manager needs to have up-to-date information that is easily
accessible.

3.

Information must be of the right kind: Decision makers need information that they can

use. Often companies have large amounts of data that is not helpful in making a decision.
Companies must think about what information should be recorded so that valuable resources are
not wasted collecting meaningless data while important data goes unrecorded.
Information is a key ingredient not just at each stage of the supply chain but also within each
phase of supply chain decision making- from the strategic phase to the planning phase to the
operational phase. For instance, information and its analysis play a significant role during the
formulation of supply chain strategy by providing the basis for decisions such as the location of
the push/pull boundary of the supply chain. Information also plays a key role at the other end of

the spectrum, in operational decisions such as what products will be produced during todays
production run.

Information is used when making a wide variety of decisions about each of the supply
chain drivers as discussed here.

1.

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. Marts suppliers use the demand information from Wal-Marts stores to set their
production schedules. Wal-Mart uses this information to determine where to place its new stores
and cross-docking facilities.

2.

Inventory: Setting optimal inventory policies requires information that includes demand

patterns, cost of carrying inventory, costs of stocking out, and cost of ordering. For example,
Wal-Mart collects detailed demand, cost, margin, and supplier information to make these
inventory policy decisions.

3.

Transportation: Deciding on transportation networks, routings, modes, shipments, and

vendors requires information including costs, customer locations, and shipment sizes to make
good decisions. Wal-Mart uses information to tightly integrate its operations network saving on
both inventory and transportation costs.

4.

Sourcing: Information on product margins, prices quality, delivery lead times, and so on,

is all important in making sourcing decisions.

Given sourcing deals with inter enterprise

transactions; there is also a wide range of transactional information that must be corded in order
to execute operations, even once sourcing decisions have been made.

5.

Pricing and revenue management: To set pricing policies, one needs information on

demand, both its volume and various customer segments willingness to pay, as well as many
supply issues such as the product margin lead time, and availability. Using this information,
firms can make intelligent pricing decisions to improve their supply chain profitability.

II. THE SUPPLY CHAIN IT FRAMEWORK

It is important to develop a framework that helps a manager understand how this
information is utilized by the various segments of IT within the supply chain. Our vision of this
framework is presented in the next several sections. It is important to note that the use of
information in the supply chain has increasingly been enabled by enterprise software. Enterprise
software collects transaction data, analyses these data to make decisions, and executes on these
decisions both within an enterprise and across a supply chain. Certainly other parts of IT beyond
enterprise software. Such as hardware, implementation services and support are all crucial to
making IT effective. Within a supply chain however, the different capabilities provided by IT
have as their most basic building block the capabilities of the supply chains enterprise software.
In many ways, software shapes the entire industry of enterprise IT as the other components
follow the software lead. It is for this reason that we use enterprise software and its evolution as
the primary guide in analyzing IT and its impact on the supply chain.

The enterprise software landscape became increasingly overpopulated during the late
1990s. The unprecedented flow of venture capital into new software companies led not just to an
increase in the number of software companies, but also to the proliferation of entire categories of
software. The growth of the number of software companies, the emergence of ne w categories,
and the expansion of software product lines combined to create an enterprise software landscape
that was not only must more crowded than in the past, but also much more dynamic. It was an
environment ripe for significant evolutionary change.
The downturn in technology spending in the early 2000s brought about this evolutionary
pressure, causing many software companies to cease operations or merge with existing software
firms. Some entire software categories are now extinct or close to it with many recently created
categories loading on this endangered species list.

III THE SUPPLY CHAIN MACRO PROCESSES

The emergence of supply chain management has broadened the scope across which companies
make decisions. This scope has expanded from trying to optimize performance across the
division, to the enterprise, and not to the entire supply chain.
This broadening of scope emphasizes the importance of including processes all along the supply
chain when making decisions. From an enterprises perspective, all processes within its supply
chain can be categorized into three main areas; processes focused downstream, processes
focused internally and process focused upstream. We use this classification to define e the three
macro supply chain process as follows:

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. Note that the software industry commonly calls this supply chain
management (without the word internal) even though the focus is entirely within the
enterprise.

In our definition, supply chain management includes all three macro

processes, CRM, ISCM, and SRM.

Supplier relationship management (SRM). Processes that focus on upstream interactions

between the enterprise and its suppliers.

IV CUSTOMER RELATIONSHIP MANAGEMENT

The CRM macro process consists of processes that take place between an enterprise and
its customers downstream in the supply chain. The goal of the CRM macro process is to
generate customer demand and facilitate transmission and tracking of orders. Weakness in this
process results in demand being lost and a poor customer experience because orders are not
processed and executed effectively. The key processes under CRM are as follows.

Marketing: Marketing processes involve decisions regarding which customers to target,

how to target customers, and what products to offer, how to price products, and how to manage
the actual campaigns targeting customers. Successful software vendors in the marketing area
within CRM provide analytics that improve the marketing decisions on pricing, products
profitability and customer profitability, among other function.

Sell: The sell process focuses on making an actual sale to a customer (compare to

marketing, in which processes are more focused on planning who to sell to and what to sell).
The sell process includes providing the sales force the information it needs to make a sale and
then execute the actual sale. Executing the sale may require the sales person (or the customer) to
build and configure orders by choosing among a variety of options and features. The sell process
also requires such functionality as the ability to quote due dates and access information related to
a customer order.

Successful software provides have targeted sales force automation,

configuration, and personalization to improve the well process.

Order management: The process of managing customer orders as they flow through as

enterprise is important for the customer to track in order and for the enterprise to plan and
execute order fulfillment. This process ties together demand from the customer with supply
from the enterprise. Order management software has traditionally been handled by legacy
systems or been a part of an ERP system. Recently, new order management systems have
emerged with additional functionality that enables visibility of orders across the often numerous
order management systems that exist within a company.

Call/Service center: A call/service center is often the primary point of contact between a

company and its customers.

A call/service center helps customers place orders, suggests

products, solves problems, and provides information on order status.

Successful software

providers have helped improve call/service centre operations by facilitating and reducing work
done by customer service representatives, often by allowing customers to do the work
themselves.

V INTERNAL SUPPLY CHAIN MANAGEMENT:

ISCM, as we discussed earlier, it is focused on operations internal to the enterprise.
ISCM includes all processes involved in planning for and fulfilling a customer order. The
various processes included in ISCM are as follows:

Strategic Planning: This process focuses on the network design of the supply chain. For

more discussion of this process and the use of IT on

Demand planning: Demand planning consists of forecasting demand and analyzing the

impact on demand of demand management tools such as pricing and promotions. For more
discussion of this process and the use of IT in it, on demand forecasting as well as 15 on
pricing.

Supply Planning: The supply planning process takes as an input the demand forecasts

produced by demand planning and the resources made available by strategic planning and then
produces an optimal plan to meet this demand. Factory planning g and inventory planning
capabilities are typically provided by supply planning software. For more discussion of this
process and the use of IT in it, on aggregate planning inventory management.

Fulfillment: once a plan is in place to supply the demand, it must be executed. The

fulfillment process links each order to a specific supply source and means of transportation. The
software applications that typically fall into the fulfillment segment are transportation and
warehousing applications. For more discussion of this process and the use of IT in it.

Field service: finally, after the product has been delivered to the customer, it eventually

must be serviced. Service processes focus on setting inventory levels for spare parts as well as
scheduling service calls. Some of the scheduling issues here are handled in a similar manner to
aggregate planning and the inventory issues are the typical inventory management problems.

VI SUPPLIER RELATIONSHIP MANAGEMENT:

SRM includes those processes focused on the interaction between the enterprise and
suppliers that upstream in the supply chain. There is a very natural fit between SRM processes
and the ISCM processes, as integrating supplier constraints is crucial when creating internal
plans. The major SRM processes and the impact of IT on them are discussed on sourcing. These
processes are the design collaboration, sourcing, negotiation, buy and supply collaboration
process.
SRM

ISCM

CRM

Design collaborating

Strategic planning

Market

Source

Demand planning

Sell

Negotiate

Supply planning

Call centre

Buy

Fulfillment

Order management

Supply collaboration

Field service

TMF

Macro Processes and their processes

Significant improvement in supply chain performance can be achieved if SRM processes
are well integrated with appropriate CRM and ISCM processes. For instance, when designing a
product, incorporating input from customers is a natural way to improve the design. This requires
input from processes within CRM. Sourcing, negotiating, buying, and collaborating the primarily
into ISCM, as the supplier inputs are needed to produce and execute an optimal plan. However,
even these segments need to interface with CRM processes such as order management. Again,
the theme of integrating the three macro processes is crucial for improved supply chain
performance.
The SRM space has three groups of competitors. The best-of breed design collaboration
group is beaded by Agile and Matrix one. The best-of breedbuy firm is Ariba. And finally,
the ERP players SAP and Oracle are major players as well
Given the youth of the SRM Space, the best-of-breed SRM players have not had a chance
to develop large functional leads, and their ecosystems are virtually nonexistent. SRM has
already attracted all the big players from ERP. As with the other spaces, although best-of-breed
players have defined the space and won where the value can be created, the ERP players have
slowly gained in functionality and used their integration and ecosystems to become major
players. Therefore, the future SRM landscape is likely to be dominated by these ERP players.

VII. SYSTEM SELECTION PROCESSES INDIAN APPROACH AND EXPERIENCES:

Indian companies should be in an enviable position when it comes to choosing IT

systems for their specific needs. They face what may be seen as n embarrass de riches
situation. In a booming economy in an IT savvy environment, solution providers are reaching
out to companies, large a d small, to offer both off-the-shelf and customized solutions.
Yet, according to a Government of India report. The SCM market in India is still in a nascent
stage. Some of the verticals that have gone in for SCM solutions include e-manufacturing,
automotive, FMCG, retail, oil, and gas. Manufacturing and automotive sectors have been the
leaders in adopting SCM solutions in India.
The above notwithstanding, adoptions of IT solutions in other sectors is likely to grow with the
organized retail sector acting as a major catalyst.

However, just as it is imperative for success in a highly competitive environment that the
companies achieve and maintain proper strategic, fit because their business strategies and supply
chain strategies, and supply chain strategies, so also do it is important that a proper fit is ensured
between their SCM strategies and information systems they select or develop for their processes
and operations. Then real issue in which conditions is for the users to clearly identify their needs
and then precede to makes an informed choice from among the numerous options available.
The chances of successful implementation of the IT solutions increase substantially
where the companies first take steps to streamline their business processes and carefully manage
the change.

Indian Navy has managed to combine in-house development of a complex IT solution for
its materials and logistics functions through proper identification of its needs and its successful
implementation through proper management of change.

The approach to this project, its

evolution and the steps taken concurrently to ensure its success hold valuable lessons for the
industry.

E-SUPPLIER RELATIONSHIP MANAGEMENT

Supplier Relationship Management or Supply Management (in the following we will use both terms
interchangeably) is a comprehensive approach to managing an organization's interactions with the firms
that supply the products and services it uses. It has its origins in the late 80's basing on the seminal work
of Dwyer et al. about relationship theory and of Davenport and Short about process re-design. Today,
software vendors who developed a wide range of ICT functionalities to support SRM activities give new
impetus as well. The immediate objective of SRM is to streamline and make more effective the sourcing
processes between an enterprise and its suppliers. Indirectly, SRM is also aiming at qualityrelated improvements of information, products, services, and work force capabilities. A common agreed
definition what SRM exactly comprises does not exist to date. Consecutively, some sample definitions from academia and practice - are given below:
Supplier relationship management is the process that defines how a company interacts with its suppliers.
As the name suggests, this is a mirror image of customer relationship management (CRM). Just as a
company needs to develop relationships with its customers, it also needs to foster relationships with its
suppliers. The desired outcome is a win-win relationship where both parties benefit."
SRM is understood as the sourcing policy-based design of strategic and operational procurement
processes as well as the configuration of the supplier management."

 Purchasing and Supply Management is defined as a strategic, enterprise-wide, long-term, multifunctional, dynamic approach to selecting suppliers of goods and services and managing them and the
whole value network from raw materials to final customer use and disposal to continually reduce total
ownership costs, manage risks, and improve performance (quality, responsiveness, reliability, and
flexibility)."
SRM includes both business practices and software and is part of the information flow component of
supply chain management (SCM). SRM practices create a common frame of reference to enable effective
communication between an enterprise and suppliers who may use quite different business practices and
terminology. As a result, SRM increases the efficiency of processes associated with acquiring goods and
services, managing inventory, and processing materials."
SRM refers to any supplier-facing business practices which are enabled by collaborative software and
which allow companies to work with their supplier base for mutual success. Primarily, SRM tools have
been developed to reduce the total cost of ownership (TCO) for procured goods, while creating
competitive advantage for an organization through deeper relationships with its suppliers."
Looking at the above-mentioned definitions it is possible to determine that there is a dichotomy of
understanding of the concept of SRM: A management-oriented definition that concentrates on the aspects
of collaboration as well as coordination and a more technology-focused examining the new possibilities
of electronic communication
Table 1: Perspectives on Supplier Relationship Management
Management-oriented view

Technology-focused view

Conceptual

Relationship theory

Process re-design

foundations

Social network theory

Transaction cost economics

Proactive development of

Coordination of procurement

relationship between an

process and monitoring of quality

organization and its suppliers

consistency of different suppliers

Main focus

 Design, implementation and

(Technically) Integration of

control of cross-organizational

suppliers in procurement processes

relationships to suppliers

Continuous analysis and control of

Continuous advancement of the procurement processes and supplier

'lived' partnership to strategic

performance

suppliers

Automation of all procurement

Exchange of improvement

activities between the enterprise and

ideas between buyer and supplier supplier

Enhancement of cooperation and quality of

Better risk control through better
information flows
information flows
Security of supply and
Lean processes and
leverage through negotiation
consolidation of supplier base
Key objectives

of better deals from suppliers

Reduction of cycle times and
Continuous improvement
process costs and better value for
with suppliers by encouraging
money (TCO)
innovation
Improvement of process quality
Compliance with contracts
and regulations

For the further use of the term we define SRM as a comprehensive approach to
enhance cooperation (business

relationship

level), coordination (process

level),

and communication (information systems level) between the enterprise and its suppliers in order
to continuously improve efficiency and efficacy of collaboration and concurrently enhance
quality, security, and innovation.

E-LRM
LRM is a term that is often referred to in Supply chain. However, there is no complete agreement
upon a single definition. This is because LRM can be considered from a number of perspectives. In
summary, the three perspectives are:

Information Technology (IT) perspective

The Logistics Life Cycle (CLC) perspective
Business Strategy perspective

LRM Different Definitions

1. LRM is the application of a well developed Logistics strategy, based on a high level of
Logistics awareness, to a properly matched set of LRM technologies and services.

2. LRM is the business buzzword on the Internet these days. Logistics Relationship
Management promises faster Logistics service at lower costs, higher satisfaction and
from this, better logistics retention and ultimately logistics loyalty.

3. LRM is a strategic approach that is concerned with creating improved shareholder

value through the development of appropriate relationships with key logistics and
logistics segments. LRM unites the potential of relationship marketing strategies and IT
to create profitable, long-term relationships with Logistics and other key stakeholders.
LRM provides enhanced opportunities to use data and information to both understand
Logistics and create value.

E- SUPPLY CHAIN MANAGEMENT

As pointed out very recently, there is some debate about the scope of SCM. For example, (Oliver and
Webber 1992) and (Houlihan 1984) used the term SCM for the internal supply chain that integrates
business functions involved in the flow of materials and information from inbound to outbound ends of
the business. (Ell ram 1991) viewed SCM as an alternative to vertical integration. And, (Christopher
1998) defined SCM as the management of upstream and downstream relationships. (Croom 2005)
suggested that one way of dealing with the diversity of SCM definitions is to concentrate on the core
processes and functions relating to the management of supply chains (for example, fulfillment, operations
planning and procurement). In the literature there is a diversity of models suggesting which the main
supply chain processes are. For example, the Supply Chain Operations Reference (SCOR) model
developed in 1996 focuses on five key processes: plan, source, make, deliver, and return. (Cooper,
Lambert et al. 1997) defined SCM taking into account the eight supply chain processes identified by the
International Centre for Competitive Excellence (now named Global Supply Chain Forum): customer
relationship management, customer service management, demand management, fulfillment, procurement,
manufacturing flow management, product development and commercialization, and reverse logistics.
Hewitt (1994) found that executives identify up to fourteen business processes. As a result, a definition
comprising a number of processes closer to fourteen might provide more detailed information for
practitioners and researchers. Accordingly, from the two previous models we decided to adopt the
definition of SCM provided by (Cooper, Lambert et al. 1997). This definition has been widely referred to
(see for example, (Romano and Vinelli 2001), (Cagliano, Caniato et al. 2003), (Mills, Schmitz et al.
2004), (Cousins 2005) and (Danese, Romano et al. 2006)). (Cooper, Lambert et al. 1997) defined SCM as
the integration of key business processes from end user through original suppliers that provides products,
services, and information that add value for customers and other stakeholders. SCM ideally embraces all
business processes cutting across all organizations within the supply chain, from initial point of supply to

the ultimate point of consumption (Cooper, Lambert et al. 1997). For (Cooper, Lambert et al. 1997), SCM
embraces the business processes identified by the International Centre for Competitive Excellence (now
Global Supply Chain Forum). Accordingly, we define e-SCM as the impact that the Internet has on the
integration of key business processes from end user through original suppliers that provides products,
services, and information that add value for customers and other stakeholders. The Internet can have three
main impacts on the supply chain. One of the most covered topics in the literature is the impact of ecommerce, which refers mainly to how companies can respond to the challenges posed by the Internet on
the fulfillment of goods sold through the net. Another impact refers to information sharing, how the
Internet can be used as a medium to access and transmit information among supply chain partners.
However, the Internet not only enables supply chain partners to access and share information, but also to
access data analysis and modeling to jointly make a better planning and decision making. This jointly
planning and decision making is the third type of impact of the Internet on SCM and we refer to it as
knowledge sharing.

Summary of learning objectives

Information is essential to making good supply chain decisions because it provides the broad
view needed to make optimal decisions. IT provides the tools to gather this information and
analyse it to make the best supply chain decisions. Information is the factual component on
which decision about each of the drivers are based. In essence, the information is the glue that
holds the entire supply chain together and allows it to function, making information the most
important supply chain driver.
Discussion questions
1. 1. What process within each macro process is best suited to being enabled by IT?

2. What are the key advantages that best of breed software companies provide?
3. Discuss why the high tech industry has been the leader in adopting supply chain IT
systems.