Information Technology in Logistics and Supply Chain Management
Logistics encompasses the activities of inventory management, order processing, warehouse and materials handling and physical distribution. SCM is the design and operation of the physical and managerial systems needed to transfer goods and services from vendor to customer in an effective and efficient manner. While logistics is a function, SCM is a process involving entire business activity.
The concept of SCM has only recently stepped into the marketing world. It rooted three decades back and has passed through three phases.
Phase 1: Physical distribution management: This phase is better characterised as ‘inventory push phase when manufacturing was handled in isolation and output was pushed down to the finished goods warehouses.
Phase 2: Integrated logistics management: This phase recognised the importance of integrating operations within the organisation like sales, procurement, manufacturing, warehousing, distribution and transportation to achieve an efficient and effective goods distribution system.
Phase 3: SCM: The graduation of logistics management to its modern day avatar is better known as ‘SCM’. SCM extends the scope to link external partners like suppliers, vendors, distributors and customers with a view to deliver enhanced customer and economic value through synchronized management of the flow of physical goods and associated information from source to consumption.
Information technology is simplifying the processing of data via computer: the use of technologies from computing, electronics, and telecommunications to process and distribute information in digital and other forms.
Information Technology, or IT, is the study, design, creation, utilization, support, and management of computer-based information systems, especially software applications and computer hardware. IT is not limited solely to computers though. With technologies quickly developing in the fields of cell phones, PDAs and other handheld devices, the field of IT is quickly moving from compartmentalized computer-focused areas to other forms of mobile technology.
A supply chain is the network of suppliers, distributors and subcontractors used by a manufacturer to source its raw materials, components and supplies. Logistics companies store, transport and distribute supplies and work-in-progress within the supply chain and distribute finished products to customers or intermediaries. Integrating supply chain and logistics operations improves efficiency and reduces costs, increasing the manufacturer’s competitive advantage.
In fact, the need for supply chain management is felt to benefit both customer and enterprise. While it enhances customer delight by satisfying the customer need for better products, lower costs and fastest supply, it improves enterprise plight by improving its productivity.
- Reduced operational costs
• Improved flow of supplies
• Reduction of delays in distribution and increased customer satisfaction
• Brings compelling bottom line benefits to enterprise
The corporate profitability can be linked to the deliverables of a supply chain with the help of following equation:
Profit = Revenue + Customer service / Cost + Capital employed
Use of Internet, has enabled companies to realize several supply chain related benefits.
- More Collaborative, timely product development through enhanced communication among functional departments, suppliers, customers and even regulatory agencies
- Reduction of channel inventory and product obsolescence owing to closer linkage across the supply chain and better insights into demand signals to drive products schedule and ultimately achieve build-to-order capability
- Reduction in communication costs and customer support costs with more interactive, tailored support capability inherent with Internet technologies
- New channel capability to reach different customer segments and further exploit current market
- Ability to enhance traditional products and customer relationships through customization driven by Internet connectivity and interactivity
Fundamental changes have occurred in today’s economy. These changes alter the relationship we have with our customers, our suppliers, our business partners and our colleagues. IT developments have presented companies with unprecedented opportunities to gain competitive advantage. So IT investment is the pre-requisite thing for each firm in order to sustain in the market.
IT and Supply Chain Integration
Supply chain management (SCM) is concerned with the flow of products and information between supply chain members’ organizations. Recent development in technologies enables the organization to avail information easily in their premises. These technologies are helpful to coordinates the activities to manage the supply chain. The cost of information is decreased due to the increasing rate of technologies. In an integrated supply chain where materials and information flow in a bi-directional, Manager needs to understand that information technology is more than just computers.
At the earliest stage of Supply Chain (the late 80s) the information flow between functional areas within an organization and between supply chain member organizations were paper based. The paper based transaction and communication was slow. During this period, information was often over looked as a critical competitive resource because its value to supply chain members was not clearly understood. An IT infrastructure capability provides a competitive positioning of business initiatives like cycle time reduction, implementation, implementing redesigned cross-functional processes. Several well know organizations that are involved in supply chain relationship through information technology have reaped huge gain through integration. Three factors have strongly impacted this change in the importance of information. First, satisfying and pleasing customer has become something of a corporate obsession. Serving the customer in the best, most efficient and effective manner has become critical. Second information is a crucial factor in the managers’ abilities to reduce inventory and human resource requirement to a competitive level and finally, information flow plays a crucial role in strategic planning.
Supply chain organizational functions
All enterprises participating in supply chain management initiatives accept a specific role to perform. They also share the joint belief that they and all other supply chain participants will be better off because of this collaborative effort. Power within the supply chain is a central issue. There has been a general shift of power from manufacturers to retailers over the last decades. Retailers sit in a very important position in term of information access for the supply chain. Retailers have risen to the position of prominence through technologies.
The examples and experiences of some firms in the Retails Supermarkets has demonstrated how information sharing can be utilized for mutual advantage. Through sound information technologies, firm’s shares point of sale information from its many retail outlet directly with their Manufacturers and other major suppliers.
The development of Inter organizational information system for the supply chain has three distinct advantages like cost reduction, productivity, improvement and product/market strategies.
Firms can collaborate and participation within five basic levels in the inter-organizational information system.
Remote Input/Output mode: In this case the member participates from a remote location within the application system supported by one or more higher-level participants.
Application processing node: In this case a member develops and shares a single application such as an inventory query or order processing system.
Multi participant exchange node: In this case the member develops and shares a network interlinking itself and any number of lower level participants with whom it has an established business relationship.
Network control node: In this case the member develops and shares a network with diverse application that may be used by many different types of lower level participants.
Integrating network node: In this case the member literally becomes a data communications/data processing utility that integrates any number of lower level participants and applications in real times.
Information and Technology: Application in Supply Chain Management
In the development and maintenance of Supply chain’s information systems both software and hardware must be addressed. Hardware includes computer’s input/output devices and storage media. Software includes the entire system and application programme used for processing transactions management control, decision-making and strategic planning.
How IT can be applied in Supply Chain Management
Electronic Commerce: It is the term used to describe the wide range of tools and techniques utilized to conduct business in a paperless environment. Electronic commerce therefore includes electronic data interchange, e-mail, electronic fund transfers, electronic publishing, image processing, electronic bulletin boards, shared databases and magnetic/optical data capture. Companies are able to automate the process of moving documents electronically between suppliers and customers.
Electronic Data Interchange: Electronic Data Interchange (EDI) refers to computer-to-computer exchange of business documents in a standard format. EDI describe both the capability and practice of communicating information between two organizations electronically instead of traditional form of mail, courier, & fax.
The benefits of EDI are:
1. Quick process to information
2. Better customer service
3. Reduced paper work
4. Increased productivity
5. Improved tracing and expediting
6. Cost efficiency
7. Competitive advantage
8. Improved billing
Though the use of EDI supply chain partners can overcome the distortions and exaggeration in supply and demand information by improving technologies to facilitate real time sharing of actual demand and supply information.
Bar coding and Scanner: Bar code scanners are most visible in the checkout counter of super market. This code specifies name of product and its manufacturer. Other applications are tracking the moving items such as components in PC assembly operations, automobiles in assembly plants.
Data warehouse: Data warehouse is a consolidated database maintained separately from an organization’s production system database. Many organizations have multiple databases. A data warehouse is organized around informational subjects rather than specific business processes. Data held in data warehouses are time dependent, historical data may also be aggregated.
Enterprise Resource planning (ERP) tools: Many companies now view ERP system (eg. Baan, SAP, People soft, OTM etc.) as the core of their IT infrastructure. ERP system have become enterprise wide transaction processing tools which capture the data and reduce the manual activities and task associated with processing financial, inventory and customer order information. ERP system achieve a high level of integration by utilizing a single data model, developing a common understanding of what the shared data represents and establishing a set of rules for accessing data.
Benefits of IT application in Supply Chain Management
Streamlining— communicate and collaborate more effectively with suppliers worldwide
Connecting— make the connection between what your customers want and what you produce
Analysing– Analyse your supply chain and manufacturing options and choose the plan that makes best use of your assets
Synchronizing— Synchronize the flow of your batch production by managing the capacity of vessels, tanks, and lines-and the flow between them
Communicating— Improve your communication and collaboration with suppliers worldwide
Designing— create the optimal supply chain network and adapt the network to keep pace with changes in your business
Transforming— Transform processes inside the warehouse and across the supply chain to meet demands for new efficiencies
Understanding—Get a better understanding of your warehouse labor activities and implement the changes you need to optimize worker performance
Maximizing– Maximize warehouse profits by using advanced costing, billing, and invoicing capabilities
Optimizing— optimize your day-to-day fleet performance to reduce costs and improve customer satisfaction
Drivers of SCM
What drove logistics to SCM? One can identify a number of drivers for a paradigm shift from logistics to SCM (Dubey 1999). The major ones are :
First, the expectations of customer for increased value addition, response time sensitivity, need for reliability, cost consciousness and information sensitivity.
Second, the nature of competition favouring firms that have been in a position to decrease lead times as well as operational costs.
Third, the recent revolution taken place in the field of information technology has enabled and encouraged the firms to initiate newer means in the field of distribution management.
Fourth, managers have realized and recognised the need for continuous improvement of process involved in marketing activity. The attitude of managers has changed in favour of integrating all activities in the chain from sourcing to consumption.
Fifth, perception of firms to have inventories has changed to JIT philosophy. While money locked up in inventories leads to poor use of working capital, higher inventories lead to higher lead times for procurement, manufacture and distribution.
Thrust areas of SCM
The drivers listed above help identify the key thrust areas of SCM which would lead to specific decision areas. These are :
Minimising uncertainty by reducing lead times Improving flexibility improving process quality Minimising variety kitting of supplies
Planning for multiple supply chain Modifying performance measures Integration of processes
SCM needs to be compatible with the prevailing business environment.
World is shrinking day by day with advancement of technology. Customers’ expectations are also increasing and companies are prone to more and more uncertain environment. The IT field is evolving and developing every day. New technologies in computers and mobile devices are shaping the way the world communicates with one another, gets work done, and spends free time. Companies will find that their conventional supply chain integration will have to be expanded beyond their peripheries. The strategic and technological innovations in supply chain will impact on how organizations buy and sell in the future. However clear vision, strong planning and technical insight into the Internet’s capabilities would be necessary to ensure that companies maximize the Internet’s potential for better supply chain management and ultimately improved competitiveness. Internet technology, World Wide Web, electronic commerce etc. will change the way a company is required to do business. These companies must realize that they must harness the power of technology to collaborate with their business partners. That means using a new breed of SCM application, the Internet and other networking links to observe past performance and historical trends to determine how much product should be made as well as the best and cost effective method for warehousing it or shipping it to retailers.
Connect for further discussion to re-engineer the Logistics & SCM Processes
M/s S.J. EXIM SERVICES- TEAM Q-FREIGHT
CP: Mr. Ravi Jha
TEL NO: +91-9999005379