strategic supply chain management - chapter 6

Strategic Supply Chain Management

Chapter - 6Information Technology and

The Supply Chain

Strategic Supply Chain

ManagementChapter # 6 Outline

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

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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.


in a Supply Chain

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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.


in a Supply Chain

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Characteristics of Useful

Supply Chain Information Accurate its not that 100 information will be correct but at

least directionally correct.

Accessible in a timely manner Accurate information sometimes exists but when available it is out dated or not accessible form.

It must be of the right kind- Company must decide what information to be recorded so that valuable resources are not wasted collecting meaningless data.

Information must be shared-a supply chain can be 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.

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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

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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.

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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

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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

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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

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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)

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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.

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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

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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

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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

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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.

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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.

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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.

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Strategic SCM


Management

PART 5

DEMAND FORECASING 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

Role of Forecasting in a Supply Chain


Management

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

Characteristics of Forecasts


Management

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.

Components of a Forecast


Management

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.

Forecasting Methods


Management

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

Forecasting Methods


Management

The following basic, six-step approach helps an organization perform effective forecasting.

1. Understand the objectives of forecasting - such decisions include how 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.

2. Integrate demand planning and forecasting throughout the supply chain

3. Identify the major factors that influence the demand forecast At the 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.

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.

Basic Approach to Demand Forecasting


Management

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.

Demand and Supply Planning In A Supply Chain


Management

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.

The Role of IT in Forecasting


Management

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.

Forecasting in Practice


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strategic supply chain management - chapter 6

Documents

supply chain inventory

supply chain performance

needs information

timely manner information

right kind information

location decisions planning

ordering costs transportation

stockout costs