Unit 4

Information Technology
in the
Supply Chain
Contents
 Role of Information Technology in a Supply Chain
 The Supply Chain - IT Framework
 IT Macro-Processes in a Supply Chain
 Supplier Relationship Management (SRM)
 Internal Supply Chain Management (ISCM)
 Customer Relationship Management (CRM)
 Transaction Management Foundation (TMF)
 Themes and sub-themes across the supply chain,
Consolidation of SMAC
 Digital Supply Chain: Future of IT in Supply Chain
 Outbound-to-Customer Logistics Systems
 Demand Management
 Traditional Forecasting
 Customer Service
 Stock-Outs
 Channels of Distribution
 Role of Information Technology in a Supply
Chain
 Information is the driver that serves as the “link”
to create a coordinated supply chain

 Information must have the following characteristics

to be useful:
• Accuracy
• Accessible in a timely manner
• Insightful

 Purpose of Information Technology (IT):

• Comprises of hardware and software used
throughout the supply chain to gather, analyze &
circulate information
• This information is the basis for making rational
business decisions
Role of Information Technology in a
Supply Chain continued…
 Information provides the basis for other SCM
drivers:
• Facility (location, capacity, schedules)
• Inventory (ordering costs, holding costs,
stock-out costs)
• Transportation (customer locations,
shipment scale)
• Sourcing (in-house, outsource)
• Pricing (maximize revenue from available
resources)

 Information is used at different phases of

decision making:
 Strategic: Facility location, Sourcing &
Pricing decisions
 Information - Role in the Competitive
Strategy

 Role in the Competitive Strategy:

 Improves visibility of transactions and
coordination of decisions across the supply
chain
 Right information can help a supply chain
better meet customer needs at lower cost
 More information increases complexity and
cost of both infrastructure and analysis
exponentially while marginal value diminishes
 Share the amount of information required to
achieve coordination
Components of Information Decisions
 Different information requirements
across the supply side and demand
side
 Coordination and information sharing:
 Supply chain coordination is when all
stages of a supply chain work
toward objective of maximizing total
supply chain profitability based on
shared information
 Sales and Operations Planning
(S&OP):
 The process of creating an overall
Information-related metrics

 Information-related
metrics are:
 Forecast horizon
 Frequency of update
 Forecast error
 Seasonal factors
 Variance from plan
 Demand variability
The Supply Chain - IT Framework

 IT Macro Processes in a Supply Chain :

• Supplier Relationship Management (SRM)
• Internal Supply Chain Management (ISCM)
• Customer Relationship Management (CRM)
• Transaction Management Foundation (TMF)

 Why focus on the Macro Processes?

• Performance of the supply chain is a critical aspect
of the overall Performance of a company
• Every stage within the supply chain is inter-linked
and must work together to increase overall
profitability
IT Macro Processes in a Supply Chain

Supplier Internal Customer

Relationshi Supply Relationship
p Chain Managemen
Managemen Managem t (CRM)
t (SRM) ent (ISCM)

Transaction Management
Foundation (TMF)
Supplier Relationship Management
(SRM)

 Supplier Relationship Management (SRM)

comprises of processes involving interaction
between the company and its suppliers in the
supply chain

 SRM processes:
• Design Collaboration
• Source
• Negotiate
• Buy
• Supply Collaboration

 There is a natural fit between ISCM and SRM

processes
 Internal Supply Chain Management
(ISCM)
 Internal Supply Chain Management (ISCM)
includes all internal processes within the company
involved in planning and fulfilling a customer
order

 ISCM processes:
• Strategic Planning – overall supply chain network
design
• Demand Planning – Forecasting and analyzing
demand impact
• Supply Planning – Factory planning, Inventory
planning
• Fulfillment – Fulfilling orders, transportation,
warehousing
• Field Service – After-sales service, spare parts
Customer Relationship Management (CRM)

 Customer Relationship Management

(CRM) consists of processes that take
place between the company and its
customers in the supply chain

 CRM processes:
 Marketing
 Selling
 Order management
 Service center
 Transaction Management Foundation
(TMF)
 Transaction Management Foundation (TMF) is the
foundation on which CRM, ISCM and SRM rest
 Includes Enterprise Resources Planning (ERP) systems and
its components
 TMF is essential for CRM, ISCM and SRM to function and
communicate with each other
 The extent to which TMF enables integration across CRM,
ISCM and SRM determines its value
Transaction Management Foundation
(TMF) continued…
 Digital Supply Chain: Future of IT in Supply
Chain
 Consolidation of SMAC
 Social networks, Mobility, Analytics & Cloud computing
(SMAC) are inter-connected by:
1. Increased requirements of real-time data
2. Increased use of mobile technology & AI
 SMAC & SCM macro processes will continue to drive
the evolution of Enterprise Software
 Enterprise software, also known as Enterprise
Application Software (EAS), is computer software used
to meet the requirements of a organization rather
than individual users.
 Such organizations would include businesses,
institutions & governments.
 Enterprise software is an integral part of a computer-
based information system.
 Themes and sub-themes across the supply chain that
will be key focus areas for the future - SMAC

Global Supply Chain

Context Technology Culture

9
Client/Employee/Supplier
Landscape

Shift
1 in Global Market5Social networks
Acquisitions
10
2Sustainability 6 Mobility 11Trans-national/
3
Shift in Offerings / Trans-cultural
Portfolio Mix 7 Analytics Organizational Culture
12
Governance Models
13
4Simplification 8 Cloud Corporate Social
14
Responsibility

Commercialization, Shared Services, Client Needs,

Opportunit

15Value
E2E Cost Management

16 Eliminate Non-Value Add work, Optimization,

y

Effectiveness
Customization, Re-Use, Process Improvement
17 Strategy Alignment, Recommended Organizational
Structure
structure, Sourcing Recommendations, Location,
Acquisitions
Risk Management in IT
 Installing new systems:
 Revised business processes:
 Legacy systems removal & replaced
by modern systems
 Proper Integration between various
systems

 Problems that can shut down the

business:
 Software (coding / algorithm)
problems
Risk Management in IT continued…

 Risk Mitigation strategies:

 Install new IT systems in an
incremental fashion
 Run parallel systems to make
sure the new system is
performing well
 Implement only the level of
complexity that is needed
Supply Chain - Information Technology
in practice
 Select an IT system that deals with the
company’s key success factors
(manufacturing / marketing / distribution)

 Take incremental steps and measure value

at each step

 Use IT systems to support decision

making, not to make decisions

 Always think about the future implications

Demand Management
and
Customer Service
Outbound-to-Customer Logistics
Systems
 Toincrease levels of customer service,
significant emphasis is placed on
Outbound-to-Customer logistics systems

 Outbound-to-Customer Logistics Systems

refer to the set of processes, systems
and capabilities that improve the
company’s ability to better serve its
customers

 This
aspect plays a major role in the
company’s revenues, profits and overall
reputation
Demand Forecasting and Management

 Demand Forecasting and

Management are focused
efforts to estimate and
manage customer’s demand
with the intention of using
this information to form
operating decisions

 Demand Management
strives to increase revenues
& reduce total costs for a
company’s supply chain

 Demand Management must

be a collaborative process
Demand Forecasting and Management Objectives

 Gathering and analyzing knowledge from all

possible sources about consumers, their
problems and their requirements
 Sharing with other functions the knowledge
about consumers, available technology and
logistical challenges
 Coordinate with other functions in
developing the best products and services
 Ensuring the distribution of products and
services to consumers in the desired format
 Develop and execute contingency plans with
other functions to allow modification of
short-term schedules when necessary
Issues in Demand Forecasting and
Management
 Lack of communication between departments results in little
or no coordinated response to demand information

 Too much emphasis is often placed on individual demand

forecasts with little attention paid to collaborative efforts and
strategic and operational plans that need to be developed
from the forecasts

 Demand information is often used more for tactical and

operations purposes rather than for strategic purposes
o Example of Apple:
 In the 1990’s, Apple had several problems in
forecasting demand
 Many components were sourced from one supplier
therefore accurate forecasts were critical
 Over $1 billion in un-fulfilled orders during the
crucial holiday season resulted in the CEO
(Spindler) getting ousted a few months later
Traditional Forecasting
 A major component of demand management is
forecasting the amount of product that will be
purchased by consumers or end users
 Involves around how a firm integrates
information about its customers into the
Production Planning and Control Systems
 In the Integrated supply chain, all other
demand will be derived from the Primary
Demand
 As forecast horizon increases, accuracy
decreases
o Example of IBM:
 Badly misjudged the demand for its PC
business
Traditional Forecasting continued…
 An example of integrating Sales
Forecasting with Manufacturing is
illustrated on the next page…

 Points to note are:

 Long-term (3 to 5 years), Mid-term
(1 to 3 years) and Short-term (less
than 1 year) forecasting are all
important contributors to the
forecasting process
Integration of Sales Forecasting and Manufacturing
Major Components of the Order Cycle
Customer Service concepts
 Defining Customer Service:
 In terms of levels of product - Core, Basic,
Expected, Augmented, Potential
 In terms of types of customer support/service -
Technical, Non-Technical
 In terms of levels of involvement
 In terms of complexity of customer service

 Elements of Customer Service:

 Communication
 Dependability
 Correct orders
 Cycle time
 Safe delivery
 Convenience
 Customer Service: Measures of Success

 Traditional  New measures:

measures:  Orders filled
• Availability in accurately
units  Orders received
• Speed, accuracy on time
and  Orders received
consistency complete (OTIF)
• Response time to  Orders received
special requests damage free
• Response and
 Orders billed
recovery time
accurately
requirements
• Quality of
Customer Service significance
 Customer service is the key link between Marketing & Logistics
Customer Service: Key Aspects
 If the basics of customer service are not
in place, nothing else matters !

 Different customers may define service

differently

 All customer accounts are not the same

 Relationships are not one dimensional

 Partnerships and continuous value

additions immensely help to retain
customers
 Stockouts
 A Stockout is a situation in which the customer demand
for a product cannot be fulfilled from the current
inventory.
 Stockouts happen due to unexpected high demand,
ineffective inventory management, manufacturing
delays or mis-information.
 While Stockouts can occur along any supply chain, the
most visible kind are in the Fast Moving Consumer
Goods (FMCG) industry.
 As per research findings, a retailer loses about 4 percent
of sales annually due to Stockouts.

 Possible outcomes from a Stockout:

 Reverse orders - A customer order that cannot be
fulfilled immediately and for which the customer has
to wait for some time.
 Lost sales
 Obstruct Sales and Marketing plans
Expected Costs of Stockouts
 Cost of Stockouts consist of:
 External costs (loss of profit from current lost
sales & loss of future profit due to loss of
goodwill)
 Internal costs (delays, labour time wastage,
lost production)
Expected
Event Probability Costs Costs
Reverse
Orders 70% $ 6.00 $ 4.20
Lost Sale 20% $20.00 $ 4.00
Lost
Customer 10% $200.00 $ 20.00
Total
Estimated
Cost per
Stockout 100% $226 $ 28.20
Channels of Distribution

 A Distribution Channel or Trade

Channel is defined as the route
along which products move
from manufacturers to end
consumers

 This channel consists of various

intermediaries like Wholesalers,
Distributors, Stockists, Agents
and Retailers who intermediate
between the producers and
consumers

 The channel serves to bridge

the gap between the
manufacturing and the point of
consumption thereby creating
time, place and possession
utilities (value additions)
Distribution Channel Separation
Example of Distribution Channel for the Food
Products Manufacturing Industry
Advantages Offered by Channel Members

 Cost Savings in Specialization - Members of the

distribution channel are specialists in what they
do
 Reduce Exchange Time - They often perform their
work more rapidly resulting in faster product
delivery
 Customers Want to Conveniently Shop for Variety
- Assortments at a single location
 Resellers sell Smaller Quantities
 Create Sales Opportunities - Encourage sales of
the product through their own advertising efforts
and using other promotional means such as
special product displays
 Offer Financial Support - Purchase using payment
plans; Purchase on credit; Delay the start of
Growth and Importance of
Distribution Channels

 Retail channels showing spectacular growth

 Successful retailers base efficiency on logistics

systems

 Mass merchandisers such as Walmart, Carrefour,

Sears and Target constricting growth of smaller
retailers

 Nature of logistics is changing to accommodate

customized systems

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