Strategic Supply Chain Management

Chapter - 6
Information Technology and
The Supply Chain

Chapter # 6 Outline

Strategic Supply Chain

Management

The Role of Information Technology in the Supply Chain

The Supply Chain IT Framework
Customer Relationship Management
Internal Supply Chain Management
Supplier Relationship Management
The Transaction Management Foundation
The Future of IT in the Supply Chain
Supply Chain Information Technology in Practice

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Role of Information Technology

in a Supply Chain
Information is the driver that serves as the glue to create
a coordinated supply chain
Information must have the following characteristics to be
useful:
Accurate
Accessible in a timely manner
Information must be of the right kind
Information provides the basis for supply chain
management decisions
Inventory
-Sourcing
Transportation
- Pricing & revenue management
Facility

Strategic Supply Chain

Management

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Role of Information Technology

in a Supply Chain

Information provides the basis for supply chain

management decisions
Facility-

Determining location, capacity, and

schedules of a facility requires information.

Inventory

setting optimal inventory policies

requires information.

Transportation

deciding on transportation
networks, routing, modes, shipments and vendors
requires information about costs, customer
locations and shipment sizes to make good
decisions.

Strategic Supply Chain

Management

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Role of Information Technology

in a Supply Chain

Information provides the basis for supply chain

management decisions
Sourcing

Information on product margins, prices,

quality, delivery lead times and so on are all
important in making sourcing decision.

Pricing

and revenue management- to set pricing

policies, one needs information on demand, both
its volume and various customer segments.

Strategic Supply Chain

Management

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Characteristics of Useful
Supply Chain Information

Accurate its not that 100 information will be correct but at

Accessible in a timely manner Accurate information

It must be of the right kind- Company must decide what

Information must be shared-a supply chain can be

least directionally correct.

sometimes exists but when available it is out dated or not

accessible form.

information to be recorded so that valuable resources are not

wasted collecting meaningless data.

effective only if all its stakeholders share a common view of the

information that they use to make business decision. Otherwise
results in misaligned action plans that hurts supply chain
performance.

Strategic Supply Chain

Management

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Use of Information
In a Supply Chain

Information used at all phases of decision making:

strategic, planning, operational

Examples:
Strategic:

location decisions

Planning:

demand and other planning,

Operational:

what products will be produced

during todays production run

Strategic Supply Chain

Management

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Use of Information
In a Supply Chain

Inventory: demand patterns, carrying costs, stockout

costs, ordering costs

Transportation: costs, customer locations, shipment

sizes

Facility: location, capacity, schedules of a facility;

need information about trade-offs between flexibility
and efficiency, demand, exchange rates, taxes,
etc.

Strategic Supply Chain

Management

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Role of Information Technology

In a Supply Chain

Information technology (IT)

Hardware and software used throughout the supply chain

to gather and analyze information

Captures and delivers information needed to make good

decisions

Effective use of IT in the supply chain can have a

significant impact on supply chain performance

Strategic Supply Chain

Management

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The Importance of Information Technology

In a Supply Chain

Relevant information available throughout the

supply chain allows managers to make
decisions that take into account all stages of the
supply chain

Allows performance to be optimized for the

entire supply chain, not just for one stage leads
to higher performance for each individual firm in
the supply chain

Strategic Supply Chain

Management

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The Supply Chain IT Framework

The Supply Chain Macro Processes
Customer Relationship Management (CRM)
Internal Supply Chain Management (ISCM)
Supplier Relationship Management (SRM)
Plus: Transaction Management Foundation
Figure 16.1
Why Focus on the Macro Processes?
Macro Processes Applied to the Evolution of Software

Strategic Supply Chain

Management

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Macro process
in a Supply Chain
Supplier
Relationship
Management
(SRM)

Internal
Supply Chain
Management
(ISCM)

Customer
Relationship
Management
(CRM)

Transaction Management Foundation (TFM)

Strategic Supply Chain

Management

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Customer Relationship
Management
The processes that take place between an enterprise
and its customers downstream in the supply chain
Key processes:
Marketing Good It systems in the marketing area within

CRM provide analytics that improve the marketing decisions

on pricing, product profitability, among other functions.
Selling Good It System support sales force automation,
configuration, and personalization to improve the sell process.
Order management - Good It systems enable visibility of
orders across the various stages that an order flows through
before reaching the customer.
Call/Service center Good It systems have helped call/
service center operations by facilitating and reducing work
done by customer service representative and by routing to
representative who are best suited to service their request.

Strategic Supply Chain

Management

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Internal Supply Chain

Management
Includes all processes involved in planning for and fulfilling a customer order
ISCM processes:
Strategic Planning- It focuses on network design of the supply chain.
Demand Planning it consists of forecasting demand and analyzing
the impact of demand of demand management tools such as pricing
and promotions.
Supply Planning Factory planning and inventory planning
capabilities are typically provided by supply planning software.
Fulfillment Once a plan is in place to supply the demand, it must be
executed. This process links each order to a specific supply source
and means of transportation.
Field Service Finally, after the product has been delivered to the
customer, it eventually must be serviced. Service processes focus on
setting inventory levels for spare parts as we as scheduling service
calls.
There must be strong integration needed between the ISCM and CRM macro
processes

Strategic Supply Chain

Management

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Supplier Relationship Management

Those processes focused on the interaction between the enterprise and

suppliers that are upstream in the supply chain
Key processes:
Design Collaboration -This software aims to improve the design of
products through collaboration between manufacturers and suppliers.
The software facilitates the joint selection of components that have
positive supply chain characteristics such as ease of manufacturability
or commonality across several end products.
Source - successful software in this area helps analyze supplier
performance and manage contracts.
Negotiate- successful software automates the RFQ process and
execution of auction.
Buy Successful automation in this area helps the procurement
process and decreases processing time and cost.
Supply Collaboration - Once an agreement for supply is established
between the enterprise and a supplier. Supply chain performance
can be improved by collaborating on forecasts, production plans,
and inventory levels. Good software should be able to facilitate
collaborative forecasting and planning in a supply chain.
There is a natural fit between ISCM and SRM processes

Strategic Supply Chain

Management

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The Transaction Management

Foundation
Enterprise software systems (ERP)
Earlier systems focused on automation of simple
transactions and the creation of an integrated
method of storing and viewing data across the
enterprise
Real value of the TMF exists only if decision making is
improved
The extent to which the TMF enables integration
across the three macro processes determines its
value

Strategic Supply Chain

Management

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The Future of IT the Supply Chain

At the highest level, the three SCM macro processes will continue to drive
the evolution of enterprise software.

Software focused on the macro processes will become a larger share of

the total enterprise software market and the firms producing this software
will become more successful.
Functionality, the ability to integrate across macro processes, and the
strength of their ecosystems, will be keys to success.

The following three important trends will impact on IT in the supply chain
the growth in software as a service ( SaaS)
Increased availability of real time data.
Increased use of mobile technology.
SaaS is defined as software that is owned, delivered, and managed
remotely.
Salesforce.com is one of the best known pure SaaS supply chain software
providers. 2009 growth 10%, 2014 16%
Traditional enterprise software vendors such as SAP, oracle, Microsoft are
increasing the availability of their software using the SaaS model.

Strategic Supply Chain

Management

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Supply Chain Information Technology

In Practice

Select an IT system that addresses the companys

key success factors
Take incremental steps and measure value
Align the level of sophistication with the need for
sophistication
Use IT systems to support decision making, not to
make decisions
Think about the future

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Risk management in IT
Two major categories of Risk

The first risk involved with installing new IT systems- a firm is forced to
transition from old processes to new IT systems.
Trouble might be found in business processes or technical issues.
New system requires to be learned and trained up
Requires the entire organization to be onboard but top
management are not actively involved with the transition.
Tremendous technical hurdles need to be overcome.
Without proper integration the system doesnt give great
result/outcome as promised earlier.
Supply Chain Information Technology in Practice
The second risk is that the more a firm relies on IT to make decisions,
the higher is the risk that any sort of IT problem, ranging from glitches
to power outrages to viruses can completely shut down a firm.
A firm must plan to face such kind of risk.

Strategic Supply Chain

Management

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Risk management in IT
Three ideas to implementing IT systems.

The first to install new IT systems in an incremental

fashion rather than in a big bang approach. It limits
the damage

Second the firms can run duplicate system to make

sure the new system is performing well.

Finally, implement only the level of complexity that is

needed. If certain capabilities or added complexities
are unnecessary, they should be left out.

Strategic Supply Chain

Management

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Any Question?

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Management

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Strategic SCM

Strategic Supply Chain

Management

PART 5

DEMAND FORECASING IN A SUPPLY CHAIN

Strategic Supply Chain

Management

Role of Forecasting in a Supply Chain

Role of Forecasting in a Supply Chain

The basis for all strategic and planning decisions in a
supply chain
Used for both push and pull processes
Examples:

Production : scheduling, inventory, aggregate planning

Marketing : sales force allocation, promotions, new
product introduction
Finance : plant/equipment investment, budgetary
planning
Personnel : workforce planning, hiring, layoffs

All of these decisions are interrelated

Strategic Supply Chain

Management

Characteristics of Forecasts

Characteristics of Forecasts

Forecasts are always wrong (rarely correct).

Should include expected value and measure of
error)
Long-term forecasts are less accurate than
short-term forecasts (forecast horizon is
important)
Aggregate forecasts are more accurate than
disaggregate forecasts

Strategic Supply Chain

Management

Components of a Forecast

Components of a Forecast (needs to be considered while

forecasting)

Past demand

Lead time of product

Planned advertising or marketing efforts

State of the economy

Planned price discounts

Actions that competitors have taken

Key Points

Companies must balance objective and subjective factors when

forecasting demand.

The goal of any forecasting method is to predict the systematic component

of demand and estimate the random component.

Strategic Supply Chain

Management

Forecasting Methods

Forecasting Methods

Qualitative it is primarily subjective and depends on human judgment.

Most appropriate when little historical data are available
or experts have market intelligence that may affect forecast.
It is necessary to forecast demand several years into the future in a new industry.

Time Series it uses historical demand to make forecast.

it is based on assumption that past demand history is a good indicator of future
demand
it is appropriate when basic demand pattern doesnt vary year on year.
it is simplest method so can serve as a good starting point for demand forecasting.
Causal it assumes that demand forecasting is correlated with certain environmental
factors such as state of economy and tax rates etc.
as there is a correlation so this process uses estimates of what environmental factors
will be to forecast future demand.
For example product pricing is correlated with demand.

Simulation it imitate the consumer choices that give rise to demand to arrive at a
forecast.
using simulation, a firm can combine time-series and causal methods.

Its rather difficult to decide which method is most appropriate for forecasting. Several studies have indicated that using multiple forecasting methods
to create a combined forecast is more effective than using any one method alone.

Strategic Supply Chain

Management

Forecasting Methods

Forecasting Methods

With Any forecasting method there is always a random element that can
not be explained by historical demand patterns. Therefore, any observed
demand can be broken into a systematic and a random component

Observed demand (0) = (S)+ random component (R)

Systematic component measures the expected value of demand and

consists of level, the current deseasonalized demand and trend, the rate of
growth or decline in demand for the next period and seasonality is the
predictable seasonal fluctuations in demand.

Random component is that part of the forecast that deviates from the
systematic part.

A company should not forecast the direction of the random component. it

can predict is the random components size and variability, which provides
a measure of forecast error.

The forecast error measures the difference between the forecast and actual
demand

Strategic Supply Chain

Management

Basic Approach to Demand Forecasting

The following basic, six-step approach helps an

organization perform effective forecasting.
1.

Understand the objectives of forecasting - such decisions include how

2.

Integrate demand planning and forecasting throughout the

supply chain

3.

Identify the major factors that influence the demand forecast At the

4.

Forecast at the appropriate level of aggregation - Aggregate

forecasts are more appropriate than disaggregate forecasts

5.

Establish performance and error measures for the forecast

companies should establish clear performance measures to
evaluate the accuracy and timeliness of the forecast.

much of a particular product to make, how much to inventory, and how

much to order. All parties affected by a supply chain decision should be
aware of the link between the decision and the forecast.

demand side company must ascertain whether demand is growing or declining or has
a seasonal pattern. Estimates must be on demand not on sale data. At the supply side
company must consider the available supply sources to decide on the accuracy of
the forecast of the desired.

Strategic Supply Chain

Management

Demand and Supply Planning In A Supply Chain

Integrate demand Planning and Forecasting

throughout the Supply Chain

Should link forecast to all planning activities throughout the

supply chain

Capacity planning, production planning, promotion planning

and purchasing

This link should exist at both the information system and the
human resources management level

To accomplish this integration, it is a good idea for a firm to

have a cross-functional team, with members from each
affected function responsible for forecasting demand and an
even better idea is to have members of different companies in
the supply chain working together to create a forecast.

Strategic Supply Chain

Management

The Role of IT in Forecasting

There is a natural role for IT in forecasting, given the large

amount of data involved, the frequency with which
forecasting is performed, and the importance of getting
the highest-quality results possible.
The forecasting module within a supply chain IT system,
often called the demand planning module, is a core supply
chain software product.
Most demand planning applications make it fairly easy to
test the various forecasting algorithms against historical
data to determine the one that provides the best fit to the
observed demand patterns.
The IT systems can be used to best determine forecasting
methods not just for the firm overall, but also by product
categories and markets.

Strategic Supply Chain

Management

Forecasting in Practice

Collaborate in building forecasts. Collaboration within your chain

partners can often create a much more accurate forecast.

It takes an investment of time and effort to build the relationships with your
partners to begin sharing information and creating collaborative forecast.

Share only the data that truly provide value. The value of data depends
on where one sits in the supply chain. Keeping the data shared to what
is truly required decreases investment in IT and improves the chances of
successful collaboration.

Be sure to distinguish between demand and sales. Often, companies

make the mistake of looking at historical sales and assuming that this is
what the historical demand was. To get true demand, adjustments
need to be made for unmet demand due to stock outs, competitor
actions, pricing, and promotions. Failure to do so results in forecasts that
do not represent the current reality.

Strategic Supply Chain

Management

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