Paavai Institutions Department of CSE

UNIT V

SUPPLY CHAIN AND

INFORMATION TECHNOLOGY

Unit -V 1.0
Paavai Institutions Department of CSE

CONTENTS
5.1. The role IT in supply chain
5.2. The Supply Chain IT Frame Work
5.3. Customer Relationship Management
5.4. Internal Supply Chain Management
5.5. Supplier Relationship Management
5.6. Future of IT in Supply Chain
5.7. E-Business in Supply Chain
5.8. Question Bank

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Technical Terms

1. Collaboration - The action of working with someone to produce something.

2. Inventory - A complete list of items such as property, goods in stock, or the contents of a
building.

3. Supply Chain - The sequence of processes involved in the production and distribution of a
commodity

4. Fabricated - Construct or manufacture especially from prepared components

5. Retailer - A person or business that sells goods to the public in relatively small quantities for
use or consumption rather than for resale

6. manufacturers - A person or company that makes goods for sale

7. Environments - The natural world, as a whole or in a particular geographical area,

especially as affected by human activity

8. Adaptable - Able to be modified for a new use or purpose.

9. Infrastructure - The basic physical and organizational structures and facilities (e.g.
buildings, roads, power supplies) needed for the operation of a society or enterprise.

10. Negotiate - find a way over or through (an obstacle or difficult route)

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5.1. The role IT in 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 foundation on

which supply chain processes execute transactions and managers make decisions.

 Without information, a manager cannot know what customers want, how much inventory is
in stock, and when more product should be produced or shipped.

 In short, information provides supply chain visibility, allowing managers to make decisions
to improve the supply chain’s performance.

 Availability and analysis of information to drive decision making is a key to the success of a
supply chain. Companies that have built their success on the availability and analysis of
information include Seven-Eleven Japan, Walmart, Amazon, UPS, and Netflix.

 To support effective supply chain decisions, information must have the following
characteristics:

o Information must be accurate. Without information that gives a true picture of the
state of the supply chain, it is difficult to make good decisions. That is not to say that
all information must be 100 percent correct, but rather that the available data paint a
picture that is at least directionally corrects.

o Information must be accessible in a timely manner. Accurate information often

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

o Information must be of the right kind. Decision makers need information that they
can use. Often companies have large amounts of data that are 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
go unrecorded.

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o Information must be shared. A supply chain can be effective only if all its
stakeholders share a common view of the information that they use to make business
decisions. Different information with different stakeholders results in misaligned
action plans that hurt supply chain performance.

 Information is used when making a wide variety of decisions about each supply chain driver.

 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. Walmart’s suppliers, for instance, use the demand information from
Walmart’s stores to set their production schedules. Walmart uses demand information to
determine where to place its new stores and cross-docking facilities.

 Inventory. Setting optimal inventory policies requires information that includes demand
patterns, cost of carrying inventory, costs of stocking out, and costs of ordering. For
example, Walmart collects detailed demand, cost, margin, and supplier information to
make these inventory policy decisions.

 Transportation. Deciding on transportation networks, routings, modes, shipments, and

vendors requires information about costs, customer locations, and shipment sizes to make
good decisions. Walmart uses information to tightly integrate its operations with those of
its suppliers. This integration allows Walmart to implement cross-docking in its
transportation network, saving on both inventory and transportation costs.

 Sourcing. Information on product margins, prices, quality, delivery lead times, and so on
are all important in making sourcing decisions. Given sourcing deals with inter-enterprise
transactions, a wide range of transactional information must be recorded to execute
operations, even once sourcing decisions have been made.

 Pricing and revenue management. To set pricing policies, one needs information on
demand, both its volume and various customer segments’ willingness to pay, and on 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.

 Information is crucial to making good supply chain decisions at all three levels of decision
making (strategy, planning, and operations) and in each of the other supply chain drivers
(facilities, inventory, transportation, sourcing, and pricing).
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 IT enables not only the gathering of these data to create supply chain visibility, but also the
analysis of these data so that the supply chain decisions made will maximize profitability.

1.2 The Supply Chain IT Frame Work

 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 now 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 enterprise’s perspective, all processes within its supply chain can be categorized
into three main areas:

 processes focused downstream

 processes focused internally
 processes focused upstream

 Classification to define the three macro supply chain processes 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.

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

interactions between the enterprise and its suppliers.

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Supplier Internal Customer

Relationsh Supply Relationship
ip Chain Managemen
Managem Managemen t (CRM)
ent (SRM) t (ISCM)

Transaction Management
Foundation (TMF)

Fig 1.1 The Macro Processes in a Supply Chain

 All operation and analytics related to the macro processes rest on the transaction management
foundation (TMF), which includes basic enterprise resource planning (ERP) systems,
infrastructure software, and integration software.

 TMF software is necessary for the three macro processes to function and to communicate with
one another. The relationship between the three macro processes and the transaction
management foundation can be seen in Fig1.1.

Focus on the Macro Processes?

 As the performance of an enterprise becomes more closely linked to the performance of its
supply chain, companies need to intensify their focus on these macro processes.

 While improving internal processes is important, it’s not enough.The goal should be to increase
the total profitability of the supply chain, which can also be referred to as the supply chain
surplus.

 Extended supply chain management is not a zero sum game wherein one player in the supply
chain increases profits at the expense of another.

 A good supply chain coordinates all the macro processes across all stages. Apple is an example
of a company that has coordinated all macro processes to introduce and sell blockbuster

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products such as the iPhone.

 Apple has been very successful in its interactions with customers not only in designing products
that meet their needs but also in operating Apple retail as a successful and profitable endeavor.

 All its products are designed in-house but manufactured by a third party. Despite this, Apple
has managed the release of new products to effectively meet huge demand. Strong coordination
across all the macro processes has been fundamental for the level of success achieved by
Apple.

1.3 Customer Relationship Management

 Customer Relationship Management (CRM) embodies those processes that take place
between an enterprise and its customers downstream in the supply chain.

 Weakness in this process results in lost demand signals and poor customer experiences
because orders are not processed and executed effectively.

Key processes under CRM include:

 Marketing: Marketing processes center on such issues as which customers to target, how to
target them, what products to offer, how to price products, and then 7 how to manage the
actual campaigns targeting customers.

Successful software vendors in this space provide analytics that improve the
marketing decisions on pricing, product profitability, and customer profitability, among other
functions.

 Sell: The sell process focuses on making an actual sale to a customer. It includes providing
the sales force with the information needed to make the sale and then executing the actual
sale.

Executing the sale may require the sales person to build and configure orders by
choosing among a variety of options and features.

The sell process also requires functionality that enables users to quote due dates and
access information related to a customer order. Successful software providers have targeted
sales force automation, configuration, and personalization to improve the sell process.
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 Order Management: The process of managing customer orders as they flow through an
enterprise is important both for the customer to track an order and for the enterprise to plan
and execute order fulfillment.

This process ties together demand from the customer with supply from the enterprise.
Traditionally, order management software has been handled by company legacy systems or
has been a part of an ERP system.

Recently, new order management systems have emerged with additional functionality
that provides visibility across the numerous order management systems that typically exist
within a company.

 Call/Service center: A call/service center is often the primary point of contact between a
company and its customers. The center helps customers place orders, suggests products,
solves problems, and provides information on order status.

Successful software providers have helped improve call/service center operations by

facilitating and reducing work done by customer service representatives, often by allowing
customers to do the work themselves.

1.4 Internal Supply Chain Management

ISCM, as we discussed earlier, 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. Key
decisions include location and capacity planning of facilities. For more details on strategic
planning decisions.

 Demand planning. Demand planning consists of forecasting demand and analysing the
impact on demand of demand management tools such as pricing and promotions. For more
discussion of this process on demand forecasting as well as 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 and inventory planning
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capabilities are typically provided by supply planning software. For more discussion of this
process on sales and operations planning on inventory management.

 Fulfilment. Once a plan is in place to supply the demand, it must be executed. The
fulfilment process links each order to a specific supply source and means of transportation.
The software applications that typically fall into the fulfilment segment are transportation
and warehousing management applications. For more discussion of transportation on
transportation.

 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.

Forecasting demand, interaction with CRM is essential, as the CRM applications are
touching the customer and have the most data and insight on customer behaviour. Similarly,
the ISCM processes should have strong integration with the SRM macro process.

Supply planning, fulfilment, and field service are all dependent on suppliers and
therefore on the SRM processes. It is of little use for your factory to have the production
capacity to meet demand if your supplier cannot supply the parts to make your product.
Order management, which we discussed under CRM, must integrate closely with fulfilment
and be an input for effective demand planning.

Successful ISCM software providers have helped improve decision making within
ISCM processes. Good integration with CRM and SRM, however, is still largely inadequate
at both the organizational and software levels.

1.5 Supplier Relationship Management

SRM includes those processes focused on the interaction between the enterprise and
suppliers that are upstream in the supply chain. There is a natural fit between SRM processes and
the ISCM processes, as integrating supplier constraints is crucial when creating internal plans. The
major SRM processes are as follows:

 Design collaboration. This software aims to improve the design of products through
collaboration between manufacturers and suppliers. The software facilitates the joint
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selection (with suppliers) of components that have positive supply chain characteristics such
as ease of manufacturability or commonality across several end products.

Other design collaboration activities include the sharing of engineering change orders
between a manufacturer and its suppliers. This eliminates the costly delays that occur when
several suppliers are designing components for the manufacturer’s product concurrently.

 Source. Sourcing software assists in the qualification of suppliers and helps in supplier
selection, contract management, and supplier evaluation.

An important objective is to analyse the amount that an enterprise spends with each
supplier, often revealing valuable trends or areas for improvement. Suppliers are evaluated
along several key criteria, including lead time, reliability, quality, and price.

This evaluation helps improve supplier performance and aids in supplier selection.
Contract management is also an important part of sourcing, as many supplier contracts have
complex details that must be tracked (such as volume-related price reductions). Successful
software in this area helps analyse supplier performance and manage contracts.

SR ISCM CRM
M
Design Strategic
Market
Collaboration Planning
Demand
Source Sell
Planning
Supply
Negotiate Call Center
Planning
Order
Buy Fulfillment
Management
Supply Field
Collaboration Service

TMF

FIG 1.2 The Macro Processes and their Associated Processes

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 Negotiate. Negotiations with suppliers involve many steps, starting with a request for quote
(RFQ). The negotiation process may also include the design and execution of auctions.

The goal of this process is to negotiate an effective contract that specifies price and
delivery parameters for a supplier in a way that best matches the enterprise’s needs.
Successful software automates the RFQ process and the execution of auctions.

 Buy. “Buy” software executes the actual procurement of material from suppliers. This
includes the creation, management, and approval of purchase orders.

Successful software in this area automates the procurement process and helps
decrease processing cost and time.

 Supply collaboration. Once an agreement for supply is established between the enterprise
and a supplier, supply chain performance can be improved by collaborating on forecasts,
production plans, and inventory levels.

The goal of collaboration is to ensure a common plan across the supply chain. Good
software in this area should be able to facilitate collaborative forecasting and planning in a
supply chain.

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 inputs from processes within CRM. Sourcing, negotiating, buying, and
collaborating tie 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 is highly fragmented in terms of software providers and not as well
defined as CRM and ISCM. Among the larger players, SAP and Oracle have SRM
functionality in their software. There are many niche players, however, that focus on
different aspects of SRM.
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1.6 Future of IT in Supply Chain

At the highest level, we believe that the three SCM macro processes will continue to drive
the evolution of supply chain IT.

Although there is still plenty of room to improve the visibility and reporting of supply chain
information, the relative focus on improved analysis to support decision making will continue to
grow.

The following important trends will affect IT in the supply chain:

1. The growth in cloud and software as a service (SaaS)

2. Increased availability of real-time data
3. Increased use of mobile technology
4. Increased use of social media

Supply chain visibility, coordinated planning, forecasting, and

COORDINATION replenishment, collaborative product development,
coordinated logistics, coordinated promotions...

SRM ISCM CRM

SILOS

Supplier Our Company Customer

FIG 1.3 The Goal of Supply Chain IT: From Silos to Coordination

o SaaS is defined as software that is owned, delivered, and managed remotely through the cloud.
Salesforce.com is one of the best-known pure SaaS supply chain software providers in CRM.

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o Another example is transportation management systems, for which roughly a quarter of the
revenues are from SaaS applications. This shift is likely to occur because SaaS provides lower
start up and maintenance costs compared with applications that are deployed onsite.

o These factors are particularly important for small and mid-sized companies. Traditional
enterprise software vendors, such as SAP, Oracle, and Microsoft, are increasing the
availability of their software using the SaaS model.

o The availability of real-time information has exploded in most supply chains. Whereas current
supply chain software is focused primarily on improving strategy and planning decisions that
are revisited infrequently, significant opportunity exists to devise software that will use real-
time information to help frontline supply chain staff, such as that in transportation and
warehousing.

o It make smarter and faster decisions that are revisited frequently. The opportunity is to design
systems that enable rapid insight based on real-time data.

1.7 E-Business in Supply Chain

o E-business is concerned with the use of the Internet to link companies with their suppliers,
customers and other trading partners.

o As a business concept, it has evolved significantly since its introduction in the 1990’s in
parallel with the rapid rate of development of information technology (IT) during this period.

o Supply chain management (SCM) is fundamentally concerned with integration of activities

both with and between organizations. IT plays a crucial role in SCM as a key enabler of
supply chain integration (SCI).

The Role of e-Business

o Network technologies enabled by e-business standards have the potential to transform and
integrate the functional elements of many industries.

o The Internet facilitates the abolition of the trade-off between richness and reach of
information, which means that communication can occur at almost zero cost, without
constraints on the richness of information.

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o Richness of information includes characteristics such as bandwidth, customization, and

interactivity. Reach is defined as the connectivity, and is the number of agents involved in
exchanging information

o E-business is the execution of business transactions via the internet: Providing product
information. Placing orders with Supplier.

o The internet plays a significant role in many supply chains and companies are using the
internet to conduct a wide variety of Supply Chain transactions.

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1.8 Question Bank

Part – A (2 Marks)

1. Why Focus on the Macro Processes?

As the performance of an enterprise becomes more closely linked to the performance of its
supply chain, companies need to intensify their focus on these macro processes. While improving
internal processes is important, it’s not enough.

The goal should be to increase the total profitability of the supply chain, which can also be
referred to as the supply chain surplus. Extended supply chain management is not a zero sum game
wherein one player in the supply chain increases profits at the expense of another.

2. Define supply chain integration.

Supply chain integration is a close alignment and coordination within a supply chain, often
with the use of shared management information systems. ...Supply chain refers to all inputs required
to produce a product and fulfill a purchase.

3. What is Argo supply chain?

ARGO's Transport Management System promotes efficiency across all transportation modes.
Our customized solutions are designed to accelerate the deployment process while saving time and
money. With reliable 24/7 monitoring services, our customers gain immediate visibility and access
to a wide network.

4. What problems can arise if each stage of a supply chain focuses solely on its own profits when
making decisions?
High inventories, poor quality, low customer service, increased returns are just a number
of problems that occur when each stage of a supply chain focuses solely on its own
profits. The trucking company requires full truckloads for delivery forcing the retailer to carry more
inventory than wanted or needed.

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5. What is agile supply chain?

The agile supply chain refers to the use of responsiveness, competency, flexibility, and
quickness to manage a supply chain entity on a day-to-day basis

6. What is an agricultural supply chain?

Agribusiness, supply chain management (SCM) implies managing the relationships between
the businesses responsible for the efficient production and supply of products from the farm level to
the consumers to meet consumers' requirements reliably in terms of quantity, quality and price.

7. What exactly is the internal supply chain?

The external supply chain refers to the network of activities outside of a company such as
transportation, and the environmental factors, which can have a direct or indirect effect on
operations e.g. supplier failure, changes in laws and natural disasters

8. What are the four elements of supply chain management?

There are four major elements of supply chain management: integration, operations,
purchasing and distribution. Each relies on the others to provide a seamless path from plan to
completion as affordably as possible

9. Which of the following are internal supply chain components?

Elements of internal Supply Chains – apart or together

 producer.
 converter;
 fabricator;

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 Assembler.
 consumer durables – fast moving consumer goods (FMCG) 'use by date' controlled –
consumer packaged goods (CPG)
 finished product sales & distribution .

10. What is supply chain management in e business?

Supply Chain Management (SCM) is a range of activities needed to plan, coordinate,

schedule and control the procurement, production, and deliveries of products to
customers. SCM is the backbone of ecommerce and is a very crucial component in its
growth.

Part - B (16 Marks)

1. Which processes within each macro process are best suited to being enabled by IT? Which
processes are least suited?
2. What are some advantages of the software as a service (SaaS) model? Why has it been
successful in the CRM space?
3. Why is supply chain management software dominated by the ERP players, such as SAP
and Oracle?
4. Identify a few examples of the availability of real-time information being used to improve
supply chain performance.
5. Discuss why the high-tech industry has been the leader in adopting supply chain IT
systems.

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