Supply Chain IT Framework

Framework that managers can use to understand the role of IT within the supply chain. At its core,
IT provides access and reporting of supply chain transaction data. More advanced IT systems then
layer on a level of analytics that uses transaction data to proactively improve supply chain
performance. For example, as a baseline, good IT systems will record and report demand,
inventory, and fulfillment information for Amazon. IT systems that provide analytics then allow
Amazon to decide whether to open new distribution centers and how to stock them.
CRM: 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, what products to offer, how to price products, and how to manage
the actual campaigns that target customers. Good IT systems in the marketing area within
CRM 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 (compared to
marketing, in which processes are more focused on planning whom to sell to and what to
sell). The sell process includes providing the sales force with the information it needs to
make a sale and then execute the actual sale. The sell process also requires such
functionality as the ability to quote due dates and access information related to a customer
order. Good IT systems support sales force automation, configuration, and personalization
to improve the sell process.
 Order management. The process of managing customer orders as they flow through an
enterprise is important 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. Good IT systems enable visibility of orders across the various stages
that an order flows through before reaching the customer.
 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. Good IT systems have
helped improve call/service center operations by facilitating and reducing work done by
customer service representatives and by routing customers to representatives who are best
suited to service their request.
SRM: 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
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
analyze 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 analyze supplier
performance and manage contracts.
 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.
Big Data and its Role in Supply Chain
Big data are characterized as the gigantic or complex sets of data, which usually encompass extend
of more than Exabyte. It outstrips the traditional systems with limited capability in storing,
handling, overseeing, deciphering, and visualizing. Nowadays, data are expanding exponentially
and are anticipated to reach zettabyte per year. The scholarly world and professionals concur that
this surge of data makes modern opportunities; subsequently, numerous organization attempted to
create and upgrade its big data analytics capabilities (BDA) to reveal and gain a higher and deeper
understanding from their big data values. The study of big data is persistently advanced and
extended, and the most properties of big data are presently extended into “5 V” concept containing
variety, verification/veracity, velocity, volume, and value.

The supply chain is the number of firms from raw material suppliers to producer/central
organization, wholesalers, retailers, customers, and end users. The supply chain not only includes
physical flows involving the transfer of materials and products but also consists of information
and financial flows. Supply chain analytics (SCA) means using BDA techniques in order to
extracting hidden valuable knowledge from supply chain. This analytics can be categorized into
descriptive, predictive, and prescriptive analytics. Well-planned and implemented decisions
contribute directly to the bottom line by lowering sourcing, transportation, storage, stock out, and
disposal costs. Hence, using BDA techniques in order to solve supply chain management problems
has a positive and significant effect on supply chain performance. For a long time, managers and
researchers have used statistical and operational research techniques in order to solving supply and
demand balancing problems. However, recent progress in the use of analytics has opened new
horizons for managers and researchers. The summary of the challenges and features of the three
types of analytics is shown in table.

Also, the relationships among descriptive, predictive, and prescriptive analytics to make decisions
or take actions are shown in

In Descriptive analytics, the following questions are answered: What has happened, What is
happening, and Why, In this process, visualization tools and online analytical processing (OLAP)
system are used and supported by reporting technology (e.g. RFID, GPS, and transaction bar-code)
and real-time information to identify new opportunities and problems. Descriptive statistics are
used to collect, describe, and analyze the raw data of past events. It analyzes and describes the past
events and makes it something that is interpretable and understandable by humans. Descriptive
analytics enables organizations to learn from their past and understand the relationship between
variables and how it can influence future outcomes. For example, it can be used to illustrate
average money, stock in inventory, and annual sale changes. Descriptive analytics is also useful to
an organization’s financials, sales, operations, and production reports.
Predictive analytics techniques are used to answer the question of what will happen in the future
or likely to happen, by examining past data trends using statistical, programming and simulation
techniques. These techniques seek to discover the causes of events and phenomena as well as to
predict the future accurately or to fill in the data or information that already does not exist.
Statistical techniques cannot be used to predict the future with 100% accuracy. Predictive analytics
is used to predict purchasing patterns, customer behavior and purchase patterns to identifying and
predicting the future trend of sales activities. These techniques are also used to predict customer
demands, inventory records and operations.
Prescriptive analytics deals with the question of what should be happening and how to influence
it. Prescriptive analytics guides alternative decision based on predictive and descriptive analytics
using descriptive and predictive analytics, simulation, mathematical optimization, or multicriteria
decision-making techniques. The application of prescriptive analytics is relatively complex in
practice, and most companies are still unable to apply it in their daily activities of business. Correct
application of prescriptive analytics techniques can lead to optimal and efficient decision making.
A number of large companies have used data analytics to optimize production and inventory. Some
of the crucial scenarios that prescriptive analytics allows companies to answer include in the
following:
 What kind of an offer should make to each end-user?
 What should be the shipment strategy for each retail location?
 Which product should launch and when?
Reverse Logistics
Reverse logistics involves the movement of goods from their "typical" final destination, back in the
supply chain. While firms have always needed logistics strategies to deal with repairs, or lease returns,
several forces are forcing firms to think carefully about the role of reverse logistics in their distribution
networks:

Increased attention to lifecycle environmental impact means that manufacturers are increasingly
focusing on strategies including recovery, refurbishing, and remanufacturing of products.

As the prevalence of e-commerce continues to grow, increasing numbers of goods are returned by end
customers.

The second point above, in particular, is forcing some retailers to think carefully about their reverse
logistics strategy. Currently, 20 percent of goods bought online (and 50 percent of "expensive" goods
bought online) are returned, and in the United States, in 2020, returns cost retailers about $550 billion.
In many ways, this can't be addressed through improving the online experience-over 40 percent of
shoppers intend to return some of the products they purchase (because, for example, they buy shoes or
clothing in multiple sizes to try on in person). In general, firms facing return logistics challenges employ
one of two strategies they either try to integrate reverse logistics into their forward distribution
strategy, or they implement a separate reverse logistics strategy. Reverse logistics is in many ways
different from forward logistics: packing can be varied, the quality of returns has to be assessed,
decisions about whether (and where) to place returned items into inventory need to be made, repairs
might be necessary, and returned goods can be sold in secondary markets. In light of these
observations, it may not be cost effective to integrate reverse logistics into current facilities and
systems; this typically requires careful assessment of capabilities and current systems, and is a decision
that needs to be frequently reconsidered, as the amount and type of returns changes.
Reverse Logistics is “the process of planning, implementing, and controlling the efficient, cost
effective flow of raw materials, in-process inventory, finished goods and related information from
the point of consumption to the point of origin for the purpose of recapturing value or proper
disposal.”

Product returns arise out of day-to-day sales in a business. They are a necessary evil for consumers
and a bad news for producers and retailers. Even today, many businesses do not follow a structured
product returns policy. In order to decide the right fit of policy for a business, sellers should keep
in mind the type of returns – Controllable returns (those returns that can be avoided or controlled)
and Uncontrollable returns (those returns that cannot be controlled in the short term). For instance,
frequent product returns of damaged goods would suggest that a company can install better
packaging and delivery processes in its supply chain.

Most companies still fail to realize the benefits of reverse logistics even though it is one of the
most significant aspect of the operational life-cycle. It is one of biggest operational challenges for
e-commerce companies given the huge volumes and high costs associated with processing returns
and the subsequent exchanges or refunds. As per a statistic from a leading publication, the volume
of returns for companies can range from 5% to as high as 50% of total shipments. Also, processing
returns can be more expensive than forward or outbound shipments. According to Jupiter research,
over 40% of online shoppers don’t make purchases online because of lack of clarity about returns.

Stages in the Product Returns Process

The product returns process occurs when a consumer has returned an item to a store or has sent it
back to a catalogue or an internet company. The process typically comprises 5 steps:

1. Receive: The process begins by providing a returns acknowledgement to the

consumer. Also many researchers argue that, right at this stage only, the company
must make critical decisions about getting value from the returned item – Whether it
will be refurbished/reworked or sold as scrap, whether it will be resold to consumers
etc.

2. Sort and Stage: A company must sort the returned products effectively to ship it out
to the concerned department (Reworks/Scrap etc). It can employ labeling cartons and
sub-sorting processes to identify the returned goods throughout the Product returns
process.

3. Process: In the third stage, Items move from the sort-and-stage area to the processing
station(s). At these stations, the items can be processed in order of their receipt,
according to the type of product, by customer type or location, by physical size of the
items or some other combination. It is also at this stage that the paperwork received
along with the returned product is verified with the electronic records of the company.

4. Analyze: Analysis of the returned item simply means making a disposition decision
to determine the fate of that item and thereby chalking out a re-marketing strategy if
the item is being resold for instance.

5. Support: At the final stage, the focus remains at speedy processing of returns that
will reduce the amount of cash tied up in returns inventory, thereby increasing the
profitability of the process.

Conversion to key profit centers

Product returns can be converted into a profit centre for the company by:

 Improved customer service and customer knowledge (discharging customer credits

and increasing the likelihood of their repurchase)
 Effective inventory management and product dis-positioning: For example, “Logitech
follows a process of progressive dis-positioning, where the goal is to rapidly and
continuously disposition (repair, refurbish, liquidate, recycle and scrap) returned
inventory as early in the cycle as possible”.
 Efficient Product returns as a marketable asset: An efficient process of Reverse
logistics operations can be marketed to other companies as a service offered thereby
increasing the source of revenue.
 Personnel training and good communication
 Use of third parties: In case the returns management process can be more efficiently
and quickly managed by a third party, the company may opt for this option after
estimating the costs involved.

Effective Utilization of Returns

While there is a high costs associated with reverse logistics, returned items or products don’t need
to be necessarily considered as a loss. They can be viewed as assets if the reverse logistics process
is efficient and also viewed as another opportunity to effectively service, satisfy and retain
customers. According to McKinsey, 82% of customers satisfied with a particular efficient returns
process are likely to make repeat purchases. The key challenge for firms is to generate value from
the returned product. This can be done as follows:

 Products returned due of size or customer preference mismatch that are still new can
be repackaged and restocked for sale. Any items that have been opened can be
repackaged and used during clearance sales or sold as seconds. However, the firms
should ensure that such products are free of any defects or issues.
 Products returned due to defects, damages or not meeting the expectations can be
returned to the original vendor or seller. While more often than not this leads to the
recovery of the entire retail costs, it does result in a loss due to the handling and
shipping costs associated with such returns.
 Returns due to significant defects or issues still retain a certain scrap value.

Reverse logistics at E-Commerce firms in India

Although it is essential for every firm engaged in supply chain operations to carve out a niche
reverse logistics’ strategy, the E-commerce firms today are the worst hit by such product returns.
A rise in subsequent rounds of stellar funding, has directly saw a rise in the scale of operations.
The volume of goods traded by these companies, seems to be in a hyper-growth phase, slashing
sales records by the month. Logically, such a growth in sales is bound to see a peak in the number
of product returns, unless the firm has an effective logistics process in place.

Considering the context of India, which has finally witnessed a consistent growth in its e-buying
consumer behavior, three major players are currently shaping the E-Commerce industry –
Amazon, Flipkart and Snapdeal. According to an article published in the Economic Times, Flipkart
ranks first in terms of the Gross Merchandise Value, followed by Amazon and Snapdeal at second
and third positions respectively. But when you consider the efficiency of these three firms in
managing their product returns and reverse logistics, Snapdeal outperforms the other two by a
margin. “Snapdeal takes 2.3 days to refund the money and 26.4 hours to pick up the item from the
customer from the time the return request is initiated by the customer, according to a study by
ChannelPlay.” Snapdeal has not only acquired four technology-led companies in the past year but
has also focused on predictive analysis in managing its reverse logistics operations.

Further, in order to minimize their losses, each of the three companies has somewhere modified
their product return policy. Even Snapdeal tweaked its return policy, suggesting that the customers
are required to furnish a document from the brand’s authorized service center within 7 days, clearly
stating the product/item is defective. Flipkart has also modified its return policy bring the return-
period down to 10 days from the former 30 days period.

Reverse logistics is an emerging area of critical importance for senior management of all
companies across all industries such as e-retail, automobiles, telecom, shipping etc. Companies
need to address the challenges posed by reverse logistics and leverage it to their advantage.
Inevitably, for e-commerce companies, the next wave of growth goes beyond the deep discounting
cash burn models towards operational excellence. Companies at the forefront of efficient reverse
logistics are likely to emerge as industry leaders and sustain themselves for further growth and
profits.
5R of reverse logistics