Chapter 12

INFORMATION
TECHNOLOGY FOR SUPPLY
CHAIN MANAGEMENT
Learning Objectives
After studying this chapter, you will be able to understand:
Role of Information Technology in Supply Chain Management
Benefits of IT in SCM and its importance
Various IT solutions available to transform supply chain

Information Technology has been considered as a vital part of an organisation's attempts

to survive and sustain in the cut throat competition existing in the current market.
Managers have
realised that Implementation of IT will enhance the process involved in the management of
supply chain, at al levels. The use of IT is measured as vital for effectively controlling today's
supply chains.
Supply chain isan association of people involved in the fulfilment of a customer request in
the fulfilment of a customer request either directly or indirectly. It
comprises not only the
manufacturer and supplier but also the retailer and people involved in the transport of
commodities. It also comprises the warehouses used for procurement of materials,
transformation of these materials to intermediate and complete products and distribution of
these products to customers. Supply chain has an important role to play in both manufacturing
and service organisations. The ultimate goal of supply chain management is to reduce inventory.
with the assumption that products are available when needed.
Information Technology handles the operation of electroniccomputers and softwares. It
assists to store, protect, transmit, process, convert and securely retrieving information, In 19SOs
Information Technology began its operation in the field of Supply Chain Management. It initially
took root in the transportation and collaboration catagories. The focus of management has
changed over time. Supply Chain Information Systems initiate activities and track information
regarding processes, facilitates information sharing both with the firm and between supply chain
partners and assist in management decision making. Supply chain management enabled by
advances in technology, aims to develop an effective infrastructure linking technology and
people, in an effort to align advances in Information Technology with the capability of the
100
Information TechnologN forSupply Chain Management
organisation for facilitating customer satisfactions. Due to rapid developments and diffusion of
IT, w
what was not feasible in the part, has become feasible today.
IT Capabilities and their Organisational Impacts
E Capability Organisational Impact Examples in SCM
Transactional t can transform instructured processes|Account receivables. payables.
into routine transactions. Evaluation of various rmodes of transport.
Informational |IT can bring vast amounts of detailed| Data of extensive profile of customers
information into process. required for customer relationship
management.
Automatical T can replace or reduce human labour Preparation of vendor rating reports.
in a routineprocess. goods inspection reports etc.
Sequential IT can enable changes in the sequence Various steps required for checking
|tasks in a process often allowing credit worthiness of a customer.
multiple tasks to be worked on
simultaneously.
|Analytical |T can bring complex analytical|Calculation of economic order quantity.
methods to bear on a process supplier evaluation.
(simplify).
Tracking IT allows the detailed tracking of task Tracking status of a particular purchase
status, inputs and outputs. order, tracking inventory using barcode
in a warehouse.

Companies that opt to participate in supply chain management initiatives accept a

specific role to enact. They have a mutual feeling that they, along with other supply chain
participants, will be better off because of this collaborative effort. The advancement of
inter-organisational information system has different benefits. These are:
* Cost Reduction
Productivity
* Improvement in Market/Product Strategies
Better Inventory Management
* Increased Collaboration between Supply Chain Partners
* More effective order Tracking and Delivery
* Cost Reduction: The advancement of technology has further led to ready availability
of all the products with different offers and discounts. This leads to reduction of cost of
products.
* Productivity: The growth of information technology has improved productivity
because of inventions of new tools and software. That makes productivity much easie
and less time consuming.
10 Supply Chain Management
Improvement in Product/Market Strategies: Recent years have seen ahuce
growth in not only the technologies but the market itself. New strategies are made t
allure customers and new ideas are being experimented for improving the product.
$ Better Inventory Management: With the use of technology manufacturers can create
adaptable business processes that provide flexibility to handle varied demand
situations. The analytics will help you in achieving financial goals with predictable
success by managing inventory and sales orders effectively.
IT enabled
3 Increased Collaboration between Supply Chain Partners: With the
collaboration with their
real time information sharing, manufacturers can increase the
ith
key partners. Manufacturer can also track activities through the whole supply chain,
visibility into supplier end and distributor processes. Such information can hep
manufacturer in making more informed decisions and better forecast future demand.
More effective order Tracking and Delivery: Technology solutions can play a vital
role in increasing speed of delivery and in keeping the customer informed about the
product delivery schedule. Processes can be designed to keep customer informed
throughout the process, from order confirmation to order fulfilment. Manufacturers can
also develop mechanisms to interact with their logistic providers and get real time
updates on shipments of both their inventory and product delivery.
It would be appropriate to say that information technology is a vital organ of supply chain
management. With the advancement of technologies, new products are being introduced within
fraction of seconds increasing their demand in the market.
Importance of IT in Supply Chain Management
Information technology has become a crucial element of the concept of supply chain
management in today's business for every organisation. Information Technology for Supply
Chain Management refers to the tools that are technology based. Organisations use these tools to
increase the internal and external communications and also to improve productivity. The key
ingredients of Information Technology is the Supply Chain are:
The use of Internet
* The use of web-based network
* The incorporation of information with ERP software packages
The decision support systems
* The use of Internet: It acts as an information communication tool that offers great
assistance to the organisations. It helps organisations to identify its potential and take
advantage of the profits that it would gain through the acquisition of additional market
shares. Firms that are classified as high technology organisations are more receptive to
the opportunities that have evolved through the development of internet.
Information Technologyfor Supply Chain Management 111

The Web-based Portal: It's a technology that provides means to combine

web services. A web portal is web based system, which operates as a distribured
gateway to a larg
system or to web applications that are in a network. It is commonly used a repository of
dataand information for publication and retrieval of the same within the
It allows asingle point access to information in the supply chain. It organisations.
also provides
application functionality, without regard to the physical location or the storage
mechanism. These web based services enable web applications and multiple
information sources, to be retrieved and combined together into the process of supply
chain management.
The ERP Software Package assists the supply chain management in various ways.
These include the integration of different function areas, to ensure efficient productivity.
proper communication and so on.
The Decision Support Systems: Utilises proven algorithms for various strategic,
tactical and planning problems in specific domains of the organisation. The process of
procurement of raw materials has become easier since the availability of stocks, the price
of the materials, arrangements of transportation facilities and progress of the
transportation of materials can be traced through the internet.
Typical IT Solutions
The developments in IThave resulted in many possible alternative solutions for managing
the supply chain effectively. Some of the major developments in IT which are transforming the
Supply chains today are as follows.
IT Solutions

Electronic Data Imaging

Interchange Data Radio
(EDI) Warehouse Frequency
Identification
Data Mining (RFID)
Enterprise
Resource E-commerce
and Extensive
Planning Markup
(ERP) E-Procurement
Language
(XML)
Intranet,
Bar Coding
Internet Technology
and
Extranet
12 Supply Chain Management
" Electronic Data Interchange (EDI)
Electonic Data Interchange (ED) is the computer-to-computer exchange of business
ocuments in astandard electronic format between business partners. ED* replacespostal mail,
ax and email. While e-mail is also an electronic approach, the documents exchanged via e-mail
must still be handled by people rather than computers. Instead, in EDIdocuments can flow
-traight through to the appropriate application on the receivers' computer (e.g. Order
lanagement System) and processing can begin immediately.
Purchase Order

Invoice
Suppliers' Intermal
Buyer's System
Internal System

The most common documents exchanged via EDI are purchase orders, invoices and
advance ship notices. For these documents a standard format must be used so that the computer
will be able to read and understand the document. The exchange of EDI documents is typically
between two different companies, referred to as business partners or trading partners.
" How Does EDI Work?
There are three steps to sending EDi documents - Prepare the documents, Translate the
documents into EDI format and then Transmit the EDIdocuments to your partner.
(1) Prepare the Documents to be Sent: The first step is to collect and organise the
data. For example, instead of printing a purchase order your systen creates an
electronic file with the necessary information to build an EDI document. The sources
of data and the methods available to generate the electronic documents can include:
Human data entry via screens
* Exporting Pc-based data from spreadsheets or databases
Reformatted electronic reports into data files
* Enhancing existing applications to automatically create output files that are ready
for translation into an EDI standard.
Purchasing application software that has built-in interfaces for EDI fles.
(2) Translate the Documents into EDI Format: The next step is to feed your
electronic data through translator software to convert your internal data format into
the EDl standard format using the appropriate segments and data elements. You can
purchase EDItranslation software that you manage and maintain on your premises.
This requires specialized mapping enterprise in order to define how your internal data
is to be mapped (i.e. correlated) to the EDI data.
Information Technology for Supply Chain Management 113

(3) Connect and Transmit your EDI

Documents to vour Business Partner:
Once the business documents are translated to the appropriate EDI format they ale
ready to be transmitted to your business partner. There are several ways to pertormn
transmission-(a) to connect directly using AS2 or another secure internet protocol.
(b) Connect to an EDI network provider (also referred to as a
VAN provider) using
preferred communications protocol and rely on the network provider to
busines partners using whatever communications protocol your connect to
(c) A combination of both, depending on the particular partnerpartners preter Or
and volume of
transactions you expect to exchange.
Sending Company
Receiving Company

Data in Internal 1. Prepare the

Data in Internal
Format Documnents Format

2. Translate the
EDI
EDI documents
Network EDI
Translator into EDI
format Service Provider
Translator
C o m m u n i c a t iV
o ni a

EDI Data EDI

network
EDI Data

Communication Software Communication Software

Direct Point to Point Communication

3. Connect and transmit your documents to your business partner

Benefits of EDI
Greater effectiveness
Gives competitive advantage
Helps to keep customers happy
3 Leads to an extension of buying/selling centres
Make relationships stronger
3 Leads to co-operation at industrial level
* Supplements other types of communication
3 Reduces transaction cost and time
Increased accuracy
114 Supply Chain Management
Optimized inventory
Improved Decision making
Enterprise Resource Planning (ERP)
ERP is the integrated management of main business processes often in real-tirne and
mediated by software and technology. ERP is usually referred lo as a category of busines5
management software-typically asuite of integrated applications--that an organisation can se
to collect, store, manage and interpret data from these many business activities.
ERP provides and integrated and continuously updated vlew of core business processes
using conmmon databases maintained by adatabase management system. ERP systems track
business resourcescash, raw materials, production capacity and the status of business
commodities: orders, purchase orders and payroll. The applications that make up the systern
share data across various departments (manufacturing, purchasing, sales, accounting, etc.) that
provide the data. ERP facilitates information flow between all business functions and
management connections to outside stakeholders. In ERP system, all departments have their
Own systems but through this system departments can share their information.

Front office Corporate reporting Back office

Financial
Applications
S Sales and
Distribution
Central Database Manufacturing
M Applications
Service
E Applications
R
R
S Inventory
Management

Human resource
management

ERP Applications Framework

Business Functions Potentially Supported by ERP

Financial Human Resource Operations & Logistics Sales & Marketing
Account receivables Time Accounting
and payables.
|Inventory Management Order Management
Asset accounting Pay Roll Material Requirement Pricing
Planning
Cash forecasting Personnel Planning Production Planning Sales Planning
Cost Accounting Travel Expenses Plant Maintenance Sales Management
nformation Technology for Supply Chain
Management 115

Executive Information
Project Management
System
Fnancial consolidation
General Ledger
Purchasing
Quality Management
Profitability analysis
Shipping
Standard costing Vendor Evaluation
Benefits of ERP
Focused IT costs
o Total visibility
* Improved Reporting and planning
Complete customization
* Improved Efficiency
Customer Service
Data Security & Quality
o Improved Collaboration and Workflow
" Standardized Business Processes
Improved Supply Chain Management
"Disadvantages
High cost of ERP software
High cost of implementation and Maintenance
* Difficulty in customization according to your need
* Complexity and Difficult to use.
Intranet/Extranet and Internet
In global manufacturing environments, competitive pressures are ever increasing. So,
systems are required that document processes and distribute factory information. Internet is a
global system of interconnected computer networks that use standard internet protocol suit to
link several devices worldwide. It is an international network of networks, linked by optical,
wireless and electronicnetwork technologies which consist of busines,public, educational and
government networks. It carries an extensive range of information, resources and services. It
utilises:
* IP Addressing scheme
Transmission Control Protocol
* Peer to Peer (P2P) networks for file sharing and telephony.
116 Supply Chain Managemert
The main reasons for its establishment was to transmit data, share
communicate remotely.
resources and
An Extranet is a private network that use Internet technology and the
telecommunication system to securely share part of a business's information or operationspublic
with
suppliers, vendors, partners, customers or other businesses. It has also been described:sa"State
of Mind" in which the internet is perceived as away to do business with other companies as well
as to sellproducts to customers.
It is an extension of info system of the company to its partners outside. It uses intern ot
protocols to link intranets over the public internet.
An Intranet is a private network that is contained within an enterprise. It may consist of
manuy interlinked local area networks and also use leased lines in the wide area netuicr
Typically an intranet includes connections through one or more gateway computers to the
outside internet. The main purpose of an intranet is to share company's information and
Computing resources among employees. An intranet can also be used to facilitate working in
groups and for teleconferences. When intranet is made accessible to customer, partners,
suppliers or others outside the company, it becomes an extranet.
" Benefits
1. Better collaboration by means of real-time communication of information between
functional area of the firm, suppliers, customers, third party logistical servic
providers, etc.
2. Reduced transaction costs, communication costs and response time across the supply
chain.
3. Bringing about a proper balance between demand and supply resulting into lower
inventory level and prevention of stock-out position.
4. Enhanced supply chain relationships.
5. Competitive advantage.
Data Warehouse or Data Mining
Data warehousing isa technique for collecting and managing data from varied sources to
provide meaningful business insights. It is a blend of technologies and components which allows
the strategic use of data. Data warehouse is electronic storage of a large amnount of information
by abusiness which is designed for query and analysis instead of transaction processing. It is a
process of transforming data into information and making it available to users for analysis. Data
Mining is looking for hidden, valid and potentially useful patterns is huge data sets.The insights
extracted via Data Mining can be used for marketing, trend detection and scientific discovery, etc.
Why use Data Mining?
* Establish relevance and relationships amongst data.
* Business can make informed decisions quickly.
nformation Technology for Suppy Chain Management 117

s Helps to measure customer's response rates in business marketing.

Creating and maintaining newcustomer grOups for marketing purposes.
A Predict customer defections like which customers are more likely to switch to other
supplier in thenearest future.
&Differentiate between profitable and unprofitable customers.
E-Commerce/E-Procurement
E-Procurement is B2B or B2C or B2G procurement of goods and services through
octronic methods, such as internet as wellas other information and networkingsysterms like
EDIor ERP
Typically, E-procurement web-sites allow qualified and registered users to look for buyers
and sellers of goods and services. Depending on the approach, buyers or sellers may specity
pices, Transactions can be initiated and completed. Ongoing purchases may qualifypossible
customers
to
for volume discounts or special offers. E-procurement software may make it
automate some buying and selling. Companies participating expect to be able to control parts
and inventories more effectively, reducing purchasing agent overhead, and improve
manufacturing cycles. E-procurement is expected to be inteqrated with trend toward
computerized supply chain management.
. Main Variants of E-Procurement
1. E-tendering: Sending requests for information and prices to suppliers demand
receiving their responses.
2. E-Reverse auctioning: Buying goods and services from a number of known or
unknown suppliers.
3. E-informing: Gatheringand distributing purchasing information from and to other
parties.
4. E-Sourcing: ldentifying suppliers for a specific category of purchasing
requirements.
5. Web-enabled ERP: Creating and approving purchase requisitions, placing
purchase orders and receiving goods and services by using a software system based
on Internet technology.
6. E-MRO(Maintenance, Repair and Operations): Similar to Web-enabled ERP
except that the goods and services are MRO supplies.
" Advantages of E-Procurement
1. E-procurement helps with the decision making process by keeping relevant
information neatly organized and time-stamped.
2. E- procurement enhances the comparability of suppliers and prices.
118 Supply Chain Management
3. E-procurement reduces the energy expended. Especially at
equipment and other class C commodities.
purchasing offce
4. Well managed E-procurement helps reduce inventory levels.
numbers, bid prices, and contact points can help businesses close a deal Knowingwhileproduct
suppliers are struggling to gather their relevant data. other
5. Effective E-prrocurement minimizes process costs by fast
orders.
transaction
of the
purchasing
access levels and
6. E-procurement systems that allow multiple permissions
administrative users by roles, groups or tasks. help
managers organize
managers do not need to be as highly trained or paid because Such systerns are
standardized and easy to learn.
Procurement
Barcoding Technology
Amaterial in the Supply Chain must havea unique identification to ensure controlotue'a
custody and movement. Acommon way to do this is to fix a barcode label on the material lek
its item code or SKU (Stock Keeping Unit) code.
Barcodes have influenced almost every aspect of Supply Chain Management. The usenf
barcodes makes business integration processes in supply chain management simpler and more
efficient. Barcodes are an effective identification tool that helps track products and greatly redure
errors. Barcode technology has a range of advantages as being affordable, easy to handle and
accurate. These advantages make barcodes widely used in supply chain management and
accepted across the world. Employing barcode technology in inventory practices enables timely
and accurate information that helps to operate with greater warehouse efficiency and lower
inventory on hand.
1D Barcode 2D Barcode

ISBN 855267869-4

qll788 56278L91

In terms of logistics supply chain management, barcode technology can be applied tet
allaspects of product production to finished product offine, sales, transportation, warehousiy
retail and other links to facilitate convenient and quick management. Barcode technology like d
link, connects the information that occurs at all stages of the life of the product. The barcode
technology is widely used in the logistics industry, which is main reflected in:
Information Technology for Supply Chain Management 119

Production Management
Sales Information System
Warehouse management
Inventory management
Repository management
< Single piece management of goods
Sorting management
For decades, barcodes were scarcely used outside of retail point of sale systems. Now the
technology is nearly applicable across the industries and points along supply chains. The
information stored on both 1D(linear) and 2D(such as QR codes) barcodes helps businesses
identify inventory in a timely and efficient manner, with markedly fewer errors than seen in
manual systems. As long as the businesses along the Supply Chain all have access to barcode
creating and scanning technology, information about a product can be seamlessly integrated
and tracked throughout its journey into hands of a paying customer.
RFID (Radio-Frequency ldentification)
RFID is the use of radio waves to read and capture information stored on a tag attached to
an object. Atag can be read from up to several feet away and does not need to be within direct
line-of-sight of the reader to be tracked.
RFID uses electromagnetic fields to automatically identify and track tags attached to a
product. The tagcontains electronically saved information. Passive tags collect energy from a
nearby RFID reader's interrogating radio waves. Active tags have a local power source (such as a
battery) and may operate hundreds of meters from the RFID reader. Unlike a barcode, the tag
need not be within the line of sight of the reader, so it may be embedded in tracked object, RFID
is one method of automatic ldentification and data capture.
RFID tags are used in many industries. For example, an RFID tag attached to an
automobile during production can be used to track its progress through the assembly line. RFID
tagged pharmaceuticals can be tracked through warehouses. Tags can also be used in shops to
expedite checkout, and to prevent theft by customers and employees.
" Advantages
1. Information about movement of materials is available real time.
2. Theft of expensive materials is controlled.
3. Eficient supply chain policies.
120
Supply Chain Management

Antenna

Tag or
Transponder

Computer
R.F.I.D. System

Extensive Mark-Up Language (XML)

XML is a very valuable technology that is in use today, for creating flexible and
structured
documents. In business, it is a method of packing information for movement on to the internet. It
is highly efficient way to package information such that, it can be
or firms having internet or web based capabilities. It is useful in
readily accessible to any person
exchange of files between
applications of different software dealers.
" Advantages
1. Helps supply chain management in the various corporate systems.
2. Saves time in data transfer.
3. It is of great help in conversion of legacy data into new
softwares.
Imaging
Document Imaging is an information technology category for systems
replicating documents commonly used in business. Document Imaging means the capable ofof
paper filesof any description or size to digital images. Image conversion
processing
influences the Supply Chain Management. It consists of scanning or technology significantly
essential documents and then communicating the images as and when takingorphotographs of
until their use is necessary. Transportation firms needed store centrally.
of delivery by many of their customers.
frequently this technology to provide proot
use
Information Technology for Supply Chain Management 121
Impact of IT on Supply Chain
The development in the field of Management
Information
affectedthe ways of doing business. With the recent Technology in the last few decades has
the concept of Supply Chain Management is gainingdeveloprments
huge benefitsintoInformation Technology.
the organisations. The
major reason fororganisations to opt for Information
is,the complexity involved in the business. The majorTechnology in Supply Chain Managernent
1. Reduction of cost in oder impacts can be mentioned as below:
9 Great role in
processing.
purchases.
communication with vendors, checking price quotes and in making
3. Assisting the process of tracking shipments.
4 Vital in Inventory management.
5 Facility to offer customers ways to contact
business house with respect to issues
related to service.
6. Closer buyer and seller relationships.
7. Possible to deliver best services to customers.
8. Increased profits across Supply Chain Partners because of faster cycle times and
reduced inventory costs.
9. Ease of documentation with automated systems and paperless transactions.
Thus we can conclude that, that impact of IT in Supply Chain Management is much larger
as it enables interorganisational communication and in turn decreases cycle time and builds up
co-operation.
ISummary
Information technology handles the operation of electronic computers and softwares. It
helps to store, protect, transmit, process, convert and securely retrieving information. It began its
operation in the field of supply chain in 1980. Advancement of interorganisational information
system has different benefits such as cost reduction, improved market strategy, better inventory
management, effective order tracking and delivery.
Today multiple IT solutions are available which are transforming the supply chains. They
are--Electronic Data Interchange (EDI), Enterprise Resource Planning (ERP), Intranet, Internet
and Extranet, Data Mining, E-Commerce, E-Procurement, Barcoding Technology. Radio
Frequency ldentification (RFID), Extensive Mark up Language (XML) and imaging.
With recent developments in IT, the concept of Supply Chain Management is gaining
huge benefits to the organisations. Major impacts are reduced costs, better communication
network, better tracking of shipments, better inventory management, closer buyer-seller
relationships, increased profits and caseof documentation.
122 Supply Chain Management

Questtene
. Short Answer Type Questions
1. What are the benefits of Interorganisational information system?
2. Write a short note on Electronic Data Interchange.
3. Write a short note on Enterprise Resource Planning.
4. Write a short note on Data Mining.
5. What do you mean by E-procurement?
6. What is Barcoding Technology?
7. What is Radio Frequency ldentification (RFID)?
8. Writea short note on Imaging.
I. Long Answer Type Questions
1. Howsupplychain management has developed due to Information Technology? What
are the benefits of Interorganisational information system?
2. What are the various IT Solutions which assist Supply Chain Management?
3. What are the recent developments in Supply Chain Management?
4. Information Technology has helped in development of Supply Chain Management
substantially. Explain any three IT solution which have influenced Supply Chain
Management.