Role of IT in Supply Chain

Management
Supply Chain Management

Supply Chain Management is the design and management of

processes across organizational boundaries with the goal of
matching supply and demand in the most cost-effective way.

Supply Demand

Mission: Matching Supply and Demand

The Supply Chain
1. Supply Chain: It is a network of organizations and processes
involved in:
– Procuring materials: Sourcing raw materials from suppliers.
– Transforming materials into products: Manufacturing or
assembling products from raw materials.
– Distributing the products: Delivering finished goods to
customers.

2. Types of Supply Chains:

– Upstream Supply Chain: Deals with suppliers and procurement of raw
materials.
– Downstream Supply Chain: Focuses on delivering the final product to
customers, including distribution and retail.
– Internal Supply Chain: Covers processes within an organization, such
as production, inventory management, and internal logistics.
Flows in Supply Chain
Material Flow

Converter
Supplier Retailer
Distributor

Source
Converter Consumers
Distributor End-User
Supplier

Value-Added Goods

Funds/Demand Flow

Information Flow

Reuse/Maintenance/After Sales Service Flow

Nike’s Supply Chain
Features of SCM
• Inefficiencies in Supply Chains
– Operational inefficiencies can lead to increased costs.
– Companies may waste up to 25% of their operating expenses due to
these inefficiencies.
• Bullwhip Effect
– This occurs when demand signals get distorted as they move through
the supply chain.
– Small changes in consumer demand can cause large fluctuations in
inventory orders upstream, leading to inefficiencies.
• Just-in-Time (JIT) Strategy
– This strategy ensures that components arrive as needed, reducing
inventory holding costs.
– Finished goods are shipped immediately after production, minimizing
storage costs.
• Safety Stock
– A buffer stock is maintained to account for uncertainties in supply and
demand.
– This helps manage fluctuations but can increase costs if overstocked.
Business Value of Supply Chain
Management Systems

• Match supply to demand

• Reduce inventory levels
• Improve delivery service
• Speed product time to market
• Use assets more effectively
• Increase sales
Supply Chain Macro Processes in a
Firm
• Supply chain processes can be classified into
– Customer Relationship Management (CRM)
– Internal Supply Chain Management (ISCM)
– Supplier Relationship Management (SRM)

• Integration among the above three macro

processes is critical for effective and successful
supply chain management
Supply Chain Macro Processes in a
Firm

Supplier Firm Customer

SRM ISCM CRM

Source Strategic Planning Market

Negotiation Demand Planning Price
Buy Supply Planning Sell
Design Fulfillment Call Center
Collaboration Field Service Order Management
Supply Collaboration
Global Supply Chains and the Internet
• Global Supply Chain Issues:
– Greater geographical distances and time differences create complexities
in coordination.
– Involvement of participants from different countries brings additional
challenges:
– Different performance standards: Quality, efficiency, and reliability
expectations may vary.

• How the Internet Helps:

– Warehouse management: Enables real-time tracking of inventory across
locations.
– Transportation management: Helps in route optimization, tracking
shipments, and reducing delays.
– Logistics: Enhances supply chain visibility and coordination between
suppliers, manufacturers, and distributors.
– Outsourcing: Facilitates communication and management of outsourced
activities across different regions.
Supply Chain Management Software

• Supply Chain Planning Systems:

– Help in modeling the existing supply chain to analyze and improve
operations.
– Enable demand planning by predicting future customer needs.
– Optimize sourcing and manufacturing plans to reduce costs and improve
efficiency.
– Establish inventory levels to avoid stock shortages or overstocking.
– Identify transportation modes to ensure cost-effective and timely delivery.

• Supply Chain Execution Systems:

– Focus on managing the flow of products through distribution centers and
warehouses.
– Ensure smooth operations from production to final delivery.
The Emerging Internet-Driven Supply
Chain
The Bullwhip Effect
• Bullwhip effect is the phenomenon of aggregation of inventory at
various stages of supply chain.

• Average inventroy increases from customer to supplier.

• Volatility amplification along the network of distrbution.

• Increase in demand variability as we move upstream away from

the market.

• Occurs because of lack of communication and coordination.

• Delays in information and material flows.

The Bullwhip Effect
Inventory
level

Supplier Supplier
Manufacturer Distributor Customer
Tier-2 Tier-1

Ordering
The Bullwhip continued...
Bullwhip effect occurs because of various reasons:
• More number of players in supply chain
• Order Batching- Accumulate orders
• Shortage gaming- Ask for more than what is
needed
• Bulk discount purchasing
• Excessive dependent on forecasting
The Bullwhip in graphically
How to reduce Bull whip effect
• Segment customers based on product needs.
• Cultivate warm relationships with suppliers.
• Customize the logistics network.
• Develop forecasts collaboratively involving every link
of the supply chain.
• Use point of sales data other than forecast
• Delay product differentiation till the last possible
moment.
• Efficient supply chain management has to be
accompanied by a technology strategy.
• Use of EDI effectively within supply chain players.
Information Technologies (IT) in SCM

1. Enterprise Resource Planning (ERP)

2. Internet of Things (IoT)

3. Artificial Intelligence (AI)

4. Blockchain

5. Cloud Computing
1. Enterprise Resource Planning (ERP)
in SCM
• ERP is a centralized software system that integrates all core supply chain
processes into a single platform.

Features & Benefits:

• Centralized Data Management – Real-time visibility into inventory,

procurement, and logistics.
• Automation of Processes – Reduces manual errors and improves
efficiency.
• Better Decision-Making – Access to real-time data enables quick
responses to supply chain disruptions.

Examples:
• SAP SCM – Provides end-to-end supply chain visibility.
• Oracle SCM Cloud – Offers AI-powered insights for demand forecasting.
2. Internet of Things (IoT) in SCM
• IoT involves interconnected smart devices that collect and exchange
real-time data to optimize supply chain operations.

Applications in SCM:
– Real-time Tracking – RFID and GPS sensors help track shipments and
inventory.
– Smart Warehousing – IoT-powered robots and automated inventory
systems streamline warehouse operations.
– Predictive Maintenance – Sensors detect potential equipment failures
before they happen, reducing downtime.
– Cold Chain Management – IoT monitors temperature-sensitive goods
(e.g., vaccines, food).
Example:
• DHL Smart Sensor Technology – Uses IoT for real-time shipment
tracking and condition monitoring.
3. Artificial Intelligence (AI) & Machine
Learning in SCM
• AI and ML use data-driven algorithms to improve supply chain
efficiency, forecasting, and automation.

• Applications:
– Demand Forecasting – AI predicts market trends and optimizes inventory
levels.
– Route Optimization – AI-powered tools determine the best delivery routes
to save time and fuel.
– Autonomous Decision-Making – AI-driven systems can make real-time
supply chain adjustments.
– Chatbots & Virtual Assistants – AI-powered bots handle supplier and
customer queries.
Example:
• Amazon’s AI-driven Logistics – Uses AI to optimize warehousing,
delivery routes, and inventory.
4. Blockchain Technology in SCM
• Blockchain is a decentralized digital ledger that records transactions
securely and transparently.

Benefits in SCM:
– Improved Traceability – Tracks product movement across the supply
chain.
– Fraud Prevention – Prevents counterfeit goods by verifying authenticity.
– Automated Smart Contracts – Reduces paperwork and speeds up
transactions.
– Enhanced Security – Tamper-proof data ensures trust between
stakeholders.
Example:
• IBM Food Trust – Uses blockchain to trace food products from farm
to table, improving food safety.
5. Cloud Computing & Big Data
Analytics in SCM
• Cloud computing provides on-demand data access, while big
data analytics processes large datasets for insights.

Advantages in SCM:
– Real-time Data Access – Enables remote monitoring of supply
chain activities.
– Scalability – Businesses can scale their IT infrastructure as needed.
– Improved Collaboration – Cloud platforms facilitate real-time
communication between suppliers, manufacturers, and distributors.
– Data-Driven Insights – Big data analytics helps in predicting
demand, identifying bottlenecks, and optimizing supply chain
operations.
Example:
• Alibaba Cloud SCM Solutions – Uses cloud-based analytics
for demand prediction and supplier management.