Introduction to Information Technology Chapter 10: Computer-based Supply Chain Management and Information Systems Integration

Chapter Preview In this chapter, we will study: The concept of a supply chain Four ways of implementing a supply chain Problems that can occur within a supply chain leading to poor business performance Use of IT to resolve supply chain problems How supply chain management should be integrated with other business functions Effect of e-Commerce on supply chains

Supply Chain Definitions Flow of materials, information, payments, and services, from suppliers through factories and warehouses, to end customers Includes all organizations and processes that create and deliver products, information, and services to the end customers Supply chain management - planning, organizing, coordinating, and controlling all activities in the supply chain Global systems – systems connecting two or more companies in two or more countries Electronic data interchange (EDI) – electronic movement of business documents between business partners Electronic funds transfer (EFT) – transfer of money using telecommunications Extranets – extended Intranets that link business partners Shared databases – databases that business partners both have access to Integrated messaging – delivery of email and fax messages through a single communication system.

Simplified Supply Chain Downstream Internal Upstream material Distributors information Organization’s production processes, including materials handling, inventory management, manufacturing, quality control material money Suppliers information money Retailers Customers

Types of Supply Chains Integrated Make-to-Stock Real-time demand tracking triggers production to restock finished goods Continuous Replenishment Constant inventory replenishment based on expected stable demand Build-to-Order Customer order triggers production of specific item(s) requested Global systems – systems connecting two or more companies in two or more countries Electronic data interchange (EDI) – electronic movement of business documents between business partners Electronic funds transfer (EFT) – transfer of money using telecommunications Extranets – extended Intranets that link business partners Shared databases – databases that business partners both have access to Integrated messaging – delivery of email and fax messages through a single communication system.

Global Supply Chains Many economic factors promote extending the supply chain globally E-commerce enables global supply chains Global supply chains are longer and more complex Use of information technology essential Global systems – systems connecting two or more companies in two or more countries Electronic data interchange (EDI) – electronic movement of business documents between business partners Electronic funds transfer (EFT) – transfer of money using telecommunications Extranets – extended Intranets that link business partners Shared databases – databases that business partners both have access to Integrated messaging – delivery of email and fax messages through a single communication system.

Problems in the Supply Chain How much are we going to sell? (demand forecasts) How long will it take? (for supplies to arrive; shipments to be received) What if the supplies are defective? (quality control) What if my order gets lost or miscommunicated? Global systems – systems connecting two or more companies in two or more countries Electronic data interchange (EDI) – electronic movement of business documents between business partners Electronic funds transfer (EFT) – transfer of money using telecommunications Extranets – extended Intranets that link business partners Shared databases – databases that business partners both have access to Integrated messaging – delivery of email and fax messages through a single communication system.

More Problems in the Supply Chain Bullwhip Effect Wild swings in orders due to lack of coordination and trust among supply chain members Information sharing is essential Phantom Stockouts Inventory is reportedly not available, when in fact it is on hand Global systems – systems connecting two or more companies in two or more countries Electronic data interchange (EDI) – electronic movement of business documents between business partners Electronic funds transfer (EFT) – transfer of money using telecommunications Extranets – extended Intranets that link business partners Shared databases – databases that business partners both have access to Integrated messaging – delivery of email and fax messages through a single communication system.

Overcoming Supply Chain Problems Vertical Integration Own everything upstream and downstream Stockpile Inventory Eliminate risk and uncertainty by hoarding massive inventories; very expensive Improve Supply Chain Management Build trust and coordination through IT enabled supply chain support Global systems – systems connecting two or more companies in two or more countries Electronic data interchange (EDI) – electronic movement of business documents between business partners Electronic funds transfer (EFT) – transfer of money using telecommunications Extranets – extended Intranets that link business partners Shared databases – databases that business partners both have access to Integrated messaging – delivery of email and fax messages through a single communication system.

How IT Supports the Supply Chain Material Requirements Planning (MRP) Early model that integrated production, purchasing, and inventory management Manufacturing Resource Planning (MRP II) MRP plus financial and labor planning Enterprise Resource Planning (ERP) Extension to entire enterprise, plus external business partners In short, Integration is the key Global systems – systems connecting two or more companies in two or more countries Electronic data interchange (EDI) – electronic movement of business documents between business partners Electronic funds transfer (EFT) – transfer of money using telecommunications Extranets – extended Intranets that link business partners Shared databases – databases that business partners both have access to Integrated messaging – delivery of email and fax messages through a single communication system.

How IT Supports the Supply Chain Integrated Value Chain Multiple enterprises within a shared market channel collaborate throughout the entire shared chain to enhance perceived customer value Chain members act as an extended enterprise Benefits to each chain member occur as entire chain is optimised Idealized goal only achieved in a few cases at present Global systems – systems connecting two or more companies in two or more countries Electronic data interchange (EDI) – electronic movement of business documents between business partners Electronic funds transfer (EFT) – transfer of money using telecommunications Extranets – extended Intranets that link business partners Shared databases – databases that business partners both have access to Integrated messaging – delivery of email and fax messages through a single communication system.

How IT Supports the Supply Chain Enterprise Resource Planning (ERP) Systems Initially focused on integrating all departments and functions within an organization Recently have extended to suppliers and customers Focus was on transaction processing, not decision support and continuous planning Global systems – systems connecting two or more companies in two or more countries Electronic data interchange (EDI) – electronic movement of business documents between business partners Electronic funds transfer (EFT) – transfer of money using telecommunications Extranets – extended Intranets that link business partners Shared databases – databases that business partners both have access to Integrated messaging – delivery of email and fax messages through a single communication system.

How IT Supports the Supply Chain Supply Chain Management (SCM) Software Standalone software targeting the planning and decision making needed for supply chain management Integrated ERP and SCM Build linkages between ERP package and SCM package Extend ERP to incorporate needed SCM functions Addition of business intelligence (analysis) Global systems – systems connecting two or more companies in two or more countries Electronic data interchange (EDI) – electronic movement of business documents between business partners Electronic funds transfer (EFT) – transfer of money using telecommunications Extranets – extended Intranets that link business partners Shared databases – databases that business partners both have access to Integrated messaging – delivery of email and fax messages through a single communication system.

Extending Supply Chain through e-Commerce Upstream Change procurement methods Internal Use of intranet to enhance internal processes Downstream Alter (streamline) selling practices through direct Web selling, auctions, or exchanges Global systems – systems connecting two or more companies in two or more countries Electronic data interchange (EDI) – electronic movement of business documents between business partners Electronic funds transfer (EFT) – transfer of money using telecommunications Extranets – extended Intranets that link business partners Shared databases – databases that business partners both have access to Integrated messaging – delivery of email and fax messages through a single communication system.

e-Commerce Supply Chain Issues EC has generated problems in the order fulfilment part of the supply chain Delivering what the customer ordered in a timely way Providing customer support EC must continue to improve through More efficient order processing Better fulfilment processes, such as automated warehouses Provide simple mechanism for customers to return products Global systems – systems connecting two or more companies in two or more countries Electronic data interchange (EDI) – electronic movement of business documents between business partners Electronic funds transfer (EFT) – transfer of money using telecommunications Extranets – extended Intranets that link business partners Shared databases – databases that business partners both have access to Integrated messaging – delivery of email and fax messages through a single communication system.

Chapter Summary Understanding and managing the supply chain is critical to success Many supply chain problems can be resolved through improving information flows IT can supply needed support to supply chain management Electronic commerce may reshape the supply chain Global systems – systems connecting two or more companies in two or more countries Electronic data interchange (EDI) – electronic movement of business documents between business partners Electronic funds transfer (EFT) – transfer of money using telecommunications Extranets – extended Intranets that link business partners Shared databases – databases that business partners both have access to Integrated messaging – delivery of email and fax messages through a single communication system.