What is the role of IT in supply chain management?
In the last decade there has been a significant shift in power from manufacturers to retailers. The reason for this shift has primarily been the increasing technologies at the disposal of the retailers. Companies become part of supply chain management so that they can all benefit from the collaborative effort.
Supply Chain Management
A supply chain is a network of companies, people, functions, information, and resources who are involved in moving the product from the supplier to the customer. Each entity agrees to play a specific role in this movement. The management of the flow of goods and services from the supplier to the end-user is called supply chain management.
IT In Supply Chain Management
The role of IT in supply chain management is so important. Data is pivotal to the execution of the supply chain, primarily because it provides the base on which the supply chain managers can take decisions. Information technology provides the tools which can pick up relevant information, break it down for proper analysis and execute on it for optimum performance of the supply chain.
Role Of IT In Supply Chain Management
IT is leaving its mark everywhere. Nothing remains untouched. No wonder every aspect of a business is now under its command! The role of IT in Supply Chain Management (or SCM) is highlighted in the following points.
1. Integrated & Coordinated Supply Chain - A supply chain can only work efficiently when it is properly integrated and well coordinated. IT performs this crucial task by bringing in multiple technologies and combining them in the best possible manner to optimise all possible scenarios of the supply chain. These technologies make the collection of even the most basic data possible. In turn, this allows precise and detailed data analysis possible on the Business Intelligence (BI) side.
2. Increased Productivity - Smooth flow of information, new technologies and effective communication increases the productivity of all entities in the supply chain. It is like a trigger action which starts at one end and continues down the line until the action is (in this case the product movement) complete. Instead of going back and forth, IT provides the link that passes the requisite information continuously.
3. Cost Reduction - IT permits optimum utilisation of resources and assets. Old data is used to study the trends and technology is used to analyse it for improving performance. When resources are used optimally they result in cost reduction. In a supply chain, the role of IT becomes more prominent because it has to make all the parties use their respective resources in the most cost-efficient manner. When IT is used as it should be there is a dramatic fall in overall expenses.
4. Product Improvement - IT consists of tools and applications which can be used to gain early awareness. In a market where the customer wants something new regularly, the product will either have to evolve or it will go out of demand. To stay in business, you will have to introduce product improvement at all levels. The kind and extent of product improvement can be validated with the help of IT.
5. Supply Chain Visibility - Information makes the entire supply chain visible to the managers. The manner in which the information flows from one collaborator to the other and the impact it has on others is used by the managers in making strategic decisions.
Functional Roles Of IT In Supply Chain Management
Apart from the above-mentioned basic roles, there are three functional roles of IT in SCM. These are:
1. Transaction Execution - When information flows efficiently between the participants of the SC, the number of transactions between them is reduced. IT increases the efficiency of repetitive data exchanges. This data usually is appropriate for delivery verification, order processing, billing, and dispatch advice.
2. Collaboration & Coordination - IT renders the flow of information. This makes for easier planning, coordination and improved collaboration between all participants. Demand forecasts make it possible to plan for the future and order tracking makes knowing the physical location of each order a reality. Neither of these activities are possible without IT.
3. Decision Support - Good decisions cannot be pulled out of thin air, they are and should be based on data. IT is a huge benefit in decision support. It can collect even the most complicated set of data and convert it to easy to understand charts and reports. In this context, IT extends decision support to all managers.
Software in Supply Chain Management
There are many software systems which are used in SCM. These are primarily categorised as:
1. Enterprise Resource Planning - Materials requirement planning, which was earlier used to distribute resources for a manufacturing operation, resulted in enterprise resource planning (or ERP). Electronic Resource Planning is a system that links individual IT applications into a single one. This results in the integration of the data and the processes of the complete business. When all operations are consolidated, information relating to cash flow and material flow starts making more sense. ERP has now become the backbone of the supply chain and provides an integrated view of the organisation as a whole. Today, ERP has also led to the automation of many functions so that there is minimal human intervention.
2. Electronic Data Interchange - EDI is the exchange of business data from one computer to another. It is usually done in a standard format so that all concerned parties can use it according to their need without having to constantly ask for it. The benefit of using EDI is that it allows companies, across the industry, to communicate with each other. Everyone who uses EDI follows the same rules and methods. This makes for efficient inventory management, better business relationships, and improved customer service.
3. Supply Chain Management Systems - An ideal supply chain management system will help in planning, selecting the vendor, manufacturing, logistics, and building the customer relationship. To provide the necessary assistance Supply Chain Planning (SCP) software and Supply Chain Execution (SCE) software are used.
4. Customer Relationship Management - CRM or e-CRM uses IT to assist an e-business in managing its customer base. It matches customer needs with the product plans to increase sales.
The secret behind successful Supply Chain Management lies in information technology. From the very beginning of the SC to its very end, data plays a key role in bringing the entire set up together. IT tools provide the necessary communication link between all entities and allow them to work independently and yet in a coordinated manner. Role of IT in supply chain management is undeniable. It is the chain that binds everyone and everything together. It is vital!