14

Information System and IT Enablement

“Information is a source of learning. But unless it is organized, processed, and available to the right people in a format for decision making, it is a burden, not a benefit

 

 

—William Pollard”

INTRODUCTION

Supply chain management is a cross-functional approach to manage the movement of raw materials into an organization, a full or part internal processing of materials into finished goods, and finally movement of finished goods to the end-consumer. The purpose of supply chain management is to improve trust and collaboration among supply chain partners, and to improve inventory visibility and velocity. Supply chain management is essentially an information-based process of material movement, wherein the flow of information is key to the success of the entire operations. The starting point of the information in supply chain is the customer order. The customer spells out his needs and passes it on to the suppliers in the form of either paper or electronic documents. Depending on his needs in terms of product quantity, product variety, place of use and urgency, the logistical operation chain at the supplier's end fulfil his requirements at the right place, at the right time with least cost. Thus, the material flow in the supply chain of the enterprise is essentially dependent on the information flow across the system. The information flow starts with the enterprise's customers and end with suppliers via distribution, manufacturing and procurement centres. At each of the above places, the decisions are taken based on the information available. The degree of success of the decisions largely depends on the information quality, timeliness and the form. With advancement in information and communication technologies, the speed of information analysis and flow has increased tremendously. As a result efficiency and effectiveness of supply chain operations improved considerably, resulting in increasing the level of customer satisfaction. The electronic movement of the information helps reducing the cost of logistics operations due to increased coordination between the various activities across the supply chain and, moreover, decisions are taken on real-time basis, minimizing the risk element.

In the supply chain, information is required for operation planning and control, system development, and also for strategic decision-making process at various levels. The operational planning covers, customer order registration, order processing, procurement actions, storage, order picking, packing and transportation. The inventory management provides coordination between the supply chain operations, procurement and the manufacturing.

The supply chain capacity and capability planning and network design requires allocations and commitment of resources. These fall under the purview of strategic planning wherein the information needs are quite different than what is required for operational planning. There is high degree of risk element in strategic planning exercise which can be minimized through designing proper information system using latest technologies, ensuring speed and reliability in information availability, processing and movement.

Manufacturing environments today have lean machines and optimized manufacturing processes. However, to achieve this, the company should have a visibility of inventory into the product distribution. This is possible only with availability of real-time information updates which will help to optimize scheduling and planning costs; this is possible only when supply chain is backed up with information system. Due to the large number of transactions in the business process, it is impossible to achieve the effectiveness in supply chain without IT.

DESIGNING INFORMATION SYSTEM

Similar to management information system (MIS) which is for general application, the supply chain for its efficient and effective operation needs information system for decision-making. The information system is an interactive structure of people, equipment, methods and control designed to create information flow in the required format for the user to take decisions to reduce the risk element. The information system basically consists of the following elements.

• Information sources: There are two basic resources for the information, that is, external customers and the internal departments or functional areas of the enterprise.
• Information collection system: This information from the customer in the form of purchase order may be fed into the system manually if it is in the paper form. The information in the electronic form will be directly decoded and entered into the information system. The customer order may be assigned with a particular code (bar code) to track and trace the order by various internal information users. From internal sources the information may be collected and punched manually or fed into system electronically by using automatic identification technology such as bar coding, radio frequency tags, and voice interactive systems.
• Storage: The information is stored into magnetic tapes, CDs or the hard disk of the centralized computers. With the advanced data storage systems based on magnetic principle, it is possible to store the large data.
• Processing: With the computer technology (using the microchips), information is processed instantly with great accuracy. However, selection of the right computer system for the given application needs to be done cautiously, keeping in view the objectives, the investment cost and the maintenance capabilities.
• Retrieval: Data warehousing and mining system will facilitate instant data retrieval at the users’ terminals spread across the system.
• Report formatting: If suitable software is installed in the system, then reports can be generated in the required formats for decision-makers at various levels.

The above elements need to be configured as per requirements of various users of the system. However, the over-designed system will have the various capabilities but the cost will be prohibitive, while the low cost system will not be capable of satisfying all the users of the system. Hence, the trade-off may be thought of for cost and the system capabilities for the given applications.

DECISION-MAKING LEVELS

The information needs of the organization for planning and implementing the supply chain (SC) decisions depends on objectives. The quality of the management decisions in SC depends on the quality of the information generated by the information system (IS). The criticality of decision will be decided on the speed and accuracy needs of the desired information. However, for reducing the risk involved in decision-making, the following principles needs to be followed while designing the IS:

• Accuracy
• Availability
• Timeliness
• Flexibility
• Format
• Interactive

Information is required at all levels (Exhibit 14.1) in the supply chain management for effective decision-making. The type of information depends on the authority level and the critically of the decision. Depending on the requirements, the supply chain information system is designed around the following four levels of decision-making.

 

Exhibit 14.1 Decision-Making Levels in Supply Chain

Operating Level (1)	Tactical Level (2)
Order registration	Inventory management
Order processing	Facility planning
Inventory planning	Channel integration
Warehousing and distribution	Vehicle route planning/scheduling
Transportation and delivery	Outsourcing
Control Level (3)	Strategic Level (4)
Customer service	Capability planning
System productivity	Capacity planning
Cost control	Alliances and partnership
Asset utilization	Customizing

• Operating level decisions: This starts with receipt of the order from the customer. The operating level components, which need to be coordinated, are order registration, order processing, procurement, order filling, inventory planning, packaging, warehousing, transportation and delivery. To handle voluminous activities, information system is needed for efficiency.
• Tactical level decisions: At the tactical level, the information system is required to provide information for taking the decisions on the formulation and implementation of supply chain strategies. The decision process here requires information for bringing in the cost-effectiveness in the logistic system. The typical decision areas wherein the information analysis is required for evaluating the tactical alternatives are facility planning, vehicle routing and scheduling, inventory management, outsourcing, channel integration and customization.
• Control level decisions: Supply chain information system's (SCIS) major application is in the area of management control. Based on the operating level data, SCIS is required to generate the reports on the performance of the various supply chain operations. SCIS is required to generate reports on a regular basis on the operating cost of the supply chain system. This includes the cost of warehousing operation, operating cost of material handling equipment, wage bill, freight, and utility cost. The deviations can be probed for the timely corrective action. The major area of management control which needs the SCIS support are asset management, customer service, cost control and system productivity.
• Strategic level decisions: Strategic level decision requires information support for developing supply chain strategy for gaining the competitive edge over the competitors. These decisions are having long-term objectives. The frequency of decisions is very low. The decision-making requires the analysis of the variety of data collected at the operating level to build up the models to take strategic decisions. The strategic decisions in this area are capability and capacity planning, alliance and partnership, etc.

DECISION SUPPORT SYSTEM

Decision support systems (DSS) are a specific class of computerized information system that supports business and organizational decision-making activities. A properly-designed DSS is an interactive software-based system intended to help decision-makers compile useful information from raw data, documents, personal knowledge, and/or business models to identify and solve problems and make decisions.

Supply chain decision support system is an information system that helps with decision-making in the formation of a supply chain plans and strategies. A supply chain, which is also referred to as a value chain or value network, consists of suppliers, manufacturing centres, warehouses, distribution centres and retail outlets, as well as materials and goods, information and money that flow between the facilities. There are several decision areas within supply chain and it has been classified into two broad areas: structure and control. Structural decision areas are typically localization of production plants, warehouses and choice of suppliers and transporters. For controls, the structure of the supply chain is considered as given and focus is on effectively managing the supply chain. In its broadest sense, any mental or physical construct that supports and improves decision-making process constitutes a decision support method. A computer-based system is called as decision support systems (DSS).

DSS is not a new concept. In the good olden days the companies were having DSS but with very poor and delayed responsiveness. But in today's business environment, companies have adopted the technology-based DSS to have real-time decision based on real-time data. Today's DSS exhibits three capabilities: dialogues, data and modelling. The importance of each in supply chain varies with product-market configurations. DSS consists of a number of systems, tools and technologies. It may include ERP, DRP, EDI, GIS, GPS, data warehousing, mining tools, etc. DSS used for the entire enterprise to cover all business processes are linked to large data warehouses. ERP (enterprise resource planning) is also a DSS. ERP helps in seamless integration of all functions in an organization.

ROLE OF IT IN MANAGING SUPPLY CHAIN

Information technology and, in particular, the Internet, plays a key role in achieving goals of supply chain integration. As the management of information flow has always been a key aspect of supply chain management, the web-based information transfer between companies, their suppliers, and their customers has decidedly increased the importance of information management in creating effective supply chains. Today, the Internet has emerged as a most cost-effective means of driving supply chain integration. The most visible manifestation of the Internet has been in the emergence of electronic commerce as a new retail channel. The Internet has a profound impact on business-to-business interaction, especially in the area of supply chain integration. The Internet has redefined how back-end operations—product design and development, procurement, production, inventory, distribution, after-sales service support and even marketing—are conducted and the relationships between various parties are fostered in the networks, services and business models.

Before IT was enablement in the supply chain, the company had to follow the processes enumerated below in order to purchase an item:

• Determination of goods and process needs.
• Needs determination for delivery.
• Entering the order into the computer.
• Checking on information that the correct product is being bought.
• Receive three bids from vendors.
• Evaluation of bids and ordering.
• Physical receipt of goods.
• Matching freight bill, packing list with order.
• Processing receipt.
• Sending paperwork to accounts payable.
• Entering paperwork into computer.
• Checking for payment.
• Receipt of invoice.
• Matching invoice to receipt.
• Receiving payment authorization.
• Cutting the cheque and Mailing the cheque.

Having learned the costs involved in these processes, companies used IT to eliminate lots of non-value-adding processes, and the result was that a typical purchase operation would be IT enabled by using the following e-tools:

• EDI for ordering and invoicing.
• Bar coding for tracking the items being ordered.
• Automated clearing house for payment.
• Electronic fund transfer for payment.

For optimizing performance of supply chains the business organizations are using software technology to get product information. The software technologies are used in Materials Requirement Planning (MRP), Manufacturing Resources Planning (MRP), and Enterprise Resource Planning (ERP) in their day-to-day planning activities. Most of applications are for capturing of data from internal and external sources. The emergence of the Internet technology has given rise to new business models and increased competitive pressures. IT has helped in enhancing supply chain efficiency and responsiveness by sharing real-time information regarding inventory, shipment status and other key information like product design, product availability and demand between the partners. The IT-enabled supply chain seamlessly integrates all its internal and external processes. With the speed of information sharing, it became possible for the business organization to adopt pull strategy as against push strategy. The benefits of IT enablement in supply chain are as follows:

• Product acquisition costs reduced
• Procurement-related transaction cost reduced
• Inventory level drastically reduced
• Quality in decision-making enhanced
• Cycle times considerably reduced
• Wastages reduced
• Customer service improved

IT-enabled planning application focuses on demand forecasting, inventory simulation, distribution, transportation, and manufacturing planning and scheduling. Planning software is designed to improve forecast accuracy, optimize production scheduling, reduce inventory costs, decrease order cycle times, reduce transportation costs, and improve customer costs, decrease order cycle times, reduce transportation costs and improve customer service. IT-enabled execution process addresses procuring, manufacturing and distributing products throughout the value chain. Supply chain execution applications are designed to manage the flow of products through distribution centres and warehouses and help ensure that products are delivered to the right location using the best transportation alternative available. There are four key dimensions (Exhibit 14.2) in which the impacts of IT on supply chain integration can be found:

 

Exhibit 14.2 Dimensions Impacted by IT on Supply Chain Integration

Dimension	Elements	Benefits
Information integration	Information sharing and transparency Direct and real-time accessibility	Early problem detection Faster response Trust building
Synchronized planning	Collaborative planning, forecasting and replenishment Joint design	Reduced bullwhip effect Lower cost Optimized capacity utilization Improved service
Workflow coordination	Coordinated production planning and operations, procurement, order processing, engineering change and design Integrated, automated business processes	Fast response Improved service Earlier time to market Expanded network
New business models	Virtual resources Logistics restructuring Mass customization New services Click-and-mortar models	Better asset utilization Higher efficiency Penetrate new markets Create new products

 

• Information integration
• Planning synchronization
• Workflow coordination
• New business models

Information Integration

Information is the backbone of supply chain operation. Hence, integration of information from and to at various decision-making points is a must. In fact, information integration refers to the sharing of information among members of the supply chain. This includes any type of information that could influence the actions and performance of other members of the supply chain. The information may be pertaining to demand data, inventory status, capacity, production schedules, promotion plans and shipment schedules. Ideally, such information can be accessible by the appropriate decision-makers on a real-time basis. The information is essentially required for the following.

Planning Synchronization

Planning synchronization is a joint design and execution of plans for product introduction, forecasting and replenishment. In essence, planning synchronization defines what is to be done with the information that is shared; it is the mutual agreement amongst members as to specific actions based on that information.

Workflow Coordination

Workflow coordination refers to streamlined and automated workflow activities between supply chain partners. In this, shared information is used to sequence the activities like a relay race. The procurement activities from a manufacturer to a supplier can be tightly coupled so that efficiencies in terms of accuracy, time and cost can be achieved. In essence, for coordination supply chain partners rely on technology solutions (information flow) to automate many or all of the internal and cross-company workflow steps.

E-business Models

Adopting e-business approaches to supply chain integration promises many improvements in system efficiency. E-business allows partners to redefine logistics flows so that the roles and responsibilities of members may change to improve overall supply chain efficiency. A supply chain network jointly creates new products, pursue mass customization, and penetrate new markets and customer segments. New rules of the supply chain game can emerge as a result of integration process due to the Internet.

Information technology supports internal operations of a company and its supply chain partners. Using high speed data networks and databases, companies can share data to better manage the supply chain as a whole and their own individual positions within the supply chain. The effective use of this technology is a key aspect of a company's success. The model is used to classify and gain perspective on available technology and how it can be used.

All information systems are composed of technology that performs three main functions: data capture and communication; data storage and retrieval; and data manipulation and reporting. Different information systems have different combinations of capabilities in these three functional areas. The specific combination of capabilities is dependent on the demands of the job that a system is designed to perform. Chopra and Meindl¹ define several kinds of systems that support supply chain operations, as follows:

• Enterprise resource planning
• Procurement
• Planning and scheduling
• Transportation planning
• Demand planning
• Customer relationship management
• Sales force automation
• Supply chain management
• Inventory management
• Manufacturing execution
• Transportation scheduling
• Warehouse management

These systems support daily supply chain operations. They provide capabilities to efficiently run the ongoing operations to keep track of inventory levels and stocking locations within a network and they support the actions needed to pick, pack and ship products to fill customer orders.

TECHNOLOGY—ROLE IN INFORMATION SYSTEM

Any DSS to work successfully require data (both internal and external) identification and input. The data may manually be identified and captured for further processing. The internal data refers to transactions associated with receiving material, staging, storage, location, picking, manufacturing, product status, etc. However, the external data refers to transactions in purchase, acquisition, movement and location of items in the supply chain. The manual data has some disadvantages in data capture. It is slow and prone to delays and errors. To overcome the disadvantages of manual data capture, automatic data capture techniques are developed. These techniques make the job of data capture, speedy and error free. Following are techniques based on the latest technology which are commonly in practice in business applications

Bar Codes

Bar codes are used for identification, handling, retrieval and storage of goods in warehouses and stores. It is the most popular identification technology in many applications. The individual inventory items, cartons or unitized packages are affixed with a bar code, which can be read by bar code scanner attached to the online computer system. Bar codes are assigned to particular inventory items to show its identity during storage, retrieval and dispatch. The bar codes are further used for communication of dispatched items for preparing bills by accounts departments and making periodic reports on inventory status and sales. The bar codes facilitate to track the item in warehouse during inventory audit or material pick up. It also helps in tracking the consignment during transportation and inspection at the customer end. The information, which may be required, is country code, manufacturer's name, product details, date of manufacture, material content, etc. These details are required at user's end for inventory management. These details in machine-readable codes are in the form of bars and spaces.

Bar codes are seen on all types of goods today. It is sequence of parallel lines of different thickness with spaces in between. These bars are nothing but the items of information in the codified form, which can be decoded or read with the help of scanner. In other words, bar code is a type of Morse code to put information of the item in code language. The bar code facilitates data accuracy, real-time data availability, uniformity and easy usage, which are recognized universally.

The bar codes have found applications, as diverse as in automobile industry, logistics, retail chains, electronics, defence, pharmaceutical industry, banking, consumer goods, libraries, airlines, passports, etc. Today it is invariably used in all industries. The bar codes increase productivity in three ways such as speed, accuracy and reliability and offer the following advantages:

• Easy identification of inventory items in various logistics activities.
• Reduction in paper work and processing time leading to cost reduction.
• Elimination of human error.
• Increase in the productivity of warehouse.
• Facilitation of system automation.

The bar codes are described by the symbology used. Symbology means the pattern of lines and spaces which are used within the bar code to represent the number or the alphabet. The various bar code symbologies differ both in the way they represent data and in the type of data they can encode. Some symbols can encode numbers, others numbers and letters, and some letters, numbers and characters, that is, ASCII codes. The latest symbologies include options of multiple languages.

Radio Frequency Identification (RFID)

Radio frequency identification is currently one of the preferred forms of auto identification of the goods in the manufacturing, retailing and logistics industries. The identification is relying on storing and remotely retrieving data using device called RFID tag or transponders. The tag is an object that can be applied to or incorporated into a product for the purpose of identification using radio waves.

Most IRID tags contain at least two parts. One is an integrated circuit tor sorting and processing information, modulating and demodulating a (RF) signal, and performing other specialized functions. The second is an antenna for receiving and transmitting the signal. The payment card with RFID can be recharged with cash at add-value machine or in shops, and can be read several centimetres from the reader. Delhi Metro uses this technology. High-frequency RFID tags are used in library book or bookstores, jewellery or pallet tracking, building access control, airline baggage tracking and apparel tracking, etc.

Geographical Positioning System (GPS)

The more accurate system in use in developed countries is based on global positioning system or geographical positioning system (GPS), wherein a vehicle could be traced accurately with the help of geo stationary satellites.

There are 12 stationary satellites in three layers with four in each layer, orbiting the earth. The fix from three of these satellites will determine the latitude and longitude to an accuracy of 1 metre. These devices are already been in use by mountaineers. Once the position of the vehicle is known, it can be transmitted to other centres, that is, consigner or consignee. The transmission network shall be a mobile telephone or the Internet. In GPS, a voice over facility for driver to speak and hear instruction and LCD (liquid crystal display) with keyboard, to receive and transmit text messages is possible. GPS helps in enhancing the effectiveness in logistics operation. The familiar GPS application is locating the vehicle location. It also determines the best route to any destination, provides turn-by-turn navigation instructions, and estimates arrival time. In India, such systems are in use at limited places. The other system in use is dual mode wireless vehicle system, but usage is restricted to small geographical areas.

GPS receivers calculate geographic location from signals received from a minimum of 3 satellites. The satellite signals improve accuracy of location of the object. In combination with information from roadmap databases and user-entered destination locations GPS enables receivers to calculate speed, direction, distance travelled, time and distance to destination, and more. Via wide-area networking technology (for example, GSM/GPRS), GPS-equipped mobile computers can provide real-time location information to an enterprise's IT system., particularly those with operations in truck route accounting, direct store delivery, trucking, parcel delivery and postal services and field services.

GPS reduces fuel consumption and fuel waste, searching for locations or using inefficient routes. It improves route efficiency, allowing drivers to service more customers. It brings access to real-time traffic updates, helping drivers avoid congestion. It eliminates the need for paper maps, with routes determined more quickly and safely. It enhances safety, voice prompts enable drivers to keep their eyes on the road. In route auditing, GPS receivers capture the travel history of vehicles or personnel and the entire routes-information which can be easily stored for analysis at any time. This enables to document and verify all stops made on a route. It helps to identify opportunities for enhanced efficiency by analysing routes taken. It reduces unnecessary fuel usage and vehicle wear. It adds more stops per day by streamlining driver travel. It identifies and eliminates out-of-route travel.

In GPS, geo-coding can validate that a service was rendered; archive the location of assets placed in the field; identify landmarks or points of commerce; initiate a secondary business process with geo-coded items and automatically trigger an activity when in proximity to a specified location. Similarly in GPS, geo-fencing creates a virtual boundary around a geographic area. That makes it simple to track assets carrying a GPS device when they enter or exit that boundary (distribution centre).

Equipping a mobile computer with integrated GPS offers significant advantages over separate solutions for GPS capability and mobile computing. A single-device solution means less maintenance, and the inherent ability to use multiple technologies in combination (GSM/GPRS with GPS). Making the most of these synergetic technologies requires choosing a device with the right combination of attributes for effective use in one's application as GPS capability alone isn't enough. Considering these key factors the firm should choose the right solution to meet its needs such as durability and reliability of equipment, power management, GPS usability, versatile data-capture capability and effective GPS integration.

Geographical Information System (GIS)

GIS are the software tools for the visualization of spatial features and databases relating to geography. Data relating to special location of any entity on earth is stored in databases and GIS then integrates the different types of data in different databases into a detailed, clear visualization of data with respect to the entity. This could in terms of physical maps of the surface of earth, layout of inner surface of earth or a layout of streets or roads. Data can be collected and used through different tools such as demographics, market research, physical features, aerial photography, satellite imagery, etc. All these can be fed into a GIS and then can be visualized as per the needs of the user. GIS in integration with GPS is used in logistical operation for tracking and tracing of the consignment location to the extent of road or street in a particular city.

Electronic Data Interchange (EDI)

EDI is an emerging technology used for transfer of business documents from one computer to another. Traditionally the business document such as invoices, challans, cheques, drawings are sent through mail, courier or by fax. However, with EDI these documents are transferred electronically from one organization to another. In short, EDI is a drive towards paperless document transfer or transactions. EDI is emerged in strategic areas such as the provision of better levels of customer service and improved marketing competitiveness. EDI is computer-to-computer communication with the same language. To accomplish this, the two computers should have same communication standard. The standard includes:

• Matching of data transmission speed
• Data coding and decoding system
• Matching of hardware of the computers

Different industries have developed their own communication and message standard for their own use. However, for large-scale usage of EDI in the business, it is important that a uniform standard has to be developed. The usage of EDI in the area of supply chain between the manufacturer and supplier will ensure substantial saving on transaction cost for both the parties. Similarly, using EDI between manufacturer and the customer will ensure the reduction in order cycle time and inventory that will help the customer to enhance his competitiveness. Thus, sharing the benefits of EDI by both seller and buyer will result in creation of partnership sprit leading to high switching cost for the customer and creating barriers for competitors. Today EDI is widely used in banks, marketing, customs, logistics and finance companies and in international trade in the developed countries.

Business Intelligence System (BIS)

Because of the fast pace of change in markets and their supply chains, it is very important for people and organizations to stay current with events as they happen and understand what these events mean. Business intelligence systems help companies to understand what is happening within their own organizations and within the markets they serve. BI systems collect, store, and analyse data. They collect data using from many different sources. Data can be collected from sensors and RFID scanners. Data can be collected by BPM (business process management) systems or data can be obtained from the many transaction-processing systems in a company such as ERP systems, order entry systems, or CRM systems.

Simulation Modelling

Simulation modelling software is a category of software that is growing rapidly. Because of the fast pace of change in business, companies are faced with the need to make important decisions more often and these decisions have significant consequences on company operations and profitability. Companies are faced with decisions like where to build a new factory or distribution centre and what is the best way to layout and equip a new facility.

Simulation modelling software allows people to create a model of a factory or a supply chain or a delivery route and then subject that model to different inputs and different situations and observe what happens. A design that may seem good on paper could very well turn out to have problems that are not apparent until the design is modelled and its performance is simulated under a range of different conditions. It is much faster and cheaper to find this out through simulations than to find out the hard way through real experience.

REVIEW QUESTIONS

1. ‘Information is a major factor in supply chain competitiveness’. Explain.
2. Which are the different information requirement levels of information system?
3. Discuss the role and benefits of technology in decision support system.
4. Efficiency and effectiveness of supply chain depends on the information requirement at operational and tactical level, respectively. Explain.
5. Discuss the role of IT in managing supply chain.

INTERNET EXERCISES

1. Visit http://www.chainlinkresearch.com, to find out how to manage information flow with accuracy in supply chain system
2. To study more on information system implementations in SC visit http://www.supplychain-online.com

VIDEO LINKS

1. Supply Chains and Information Systems, http://www.youtube.com/watch?v=DwNfNHGUjuY
2. Supply Chains and Information Technology, http://www.youtube.com/watch?v=S×DvHgjRNDQ

PROJECT ASSIGNMENT

1. Companies like Hindustan Unilever and Marico Industries have implemented information systems in various forms using latest information technology tools. With implementation of the information systems they have successfully reduced the inventory level to the level, which was beyond expectations earlier. Study these information systems, the challenges in implementations and benefits reaped.