Supply chain management: Information systems
Information systems (IS) impact supply chain management (SCM) on processes such as planning, sourcing, and delivering, and at levels ranging from tactical operations to organizational strategy. The vast scope of IS and SCM relationships have resulted in diverse and disintegrated research on the topic.
Types of Supply Chain Management (SCM) Systems
Depending on the functions the supply chain management systems perform, they are classified into two categories, namely, supply chain planning systems, and supply chain execution systems.
1. Supply Chain Planning Systems
These systems provide information that helps businesses in the planning of their supply chain. Some of the important supply chain planning functions are as follows:
- Forecasting demand for specific products and preparing sourcing and manufacturing plan for those products.
- Estimating the quantity of the product to be manufactured in a given time period
- Deciding the location where the finished goods are to be stored
- Identifying the transportation mode to be used for delivering the products
- Setting the inventory levels for raw materials, intermediate products, and finished goods
- Determining the product quantity a business should make in order to meet all its customers’ demands
2. Supply Chain Execution Systems
These systems provide information that helps businesses in the execution of their supply chain steps. Some of the major supply chain execution functions are as follows:
- Managing the flow of products from the manufacturers to distributors to retailers and finally to customers in order to ensure the accurate delivery of products
- Providing information about the status of orders being processed so that the vendors could provide the exact delivery dates to customers
- Tracking the shipment and accounting for the products that have been returned or are to be repaired and serviced
Benefits of Supply Chain Management (SCM)
Effective Supply Chain Management (SCM) systems provide the following benefits to optimize the organization’s performance.
- Improve customer service by delivering them the right product at the right time and at the right location, which in tum increases the organization’s sales.
- Enable the companies to bring the products to the market at a quicker rate. Thus, the companies get their payment sooner than those who lack an efficient supply chain.
- Lower the total supply chain cost, including procuring materials cost, transportation cost, inventor, carrying cost, etc. The reduction in supply chain costs helps to increase the firm’s profitability.
Benefits of Supply Chain Management (SCM)
Effective Supply Chain Management (SCM) systems provide the following benefits to optimize the organization’s performance.
- Improve customer service by delivering them the right product at the right time and at the right location, which in tum increases the organization’s sales.
- Enable the companies to bring the products to the market at a quicker rate. Thus, the companies get their payment sooner than those who lack an efficient supply chain.
- Lower the total supply chain cost, including procuring materials cost, transportation cost, inventor, carrying cost, etc. The reduction in supply chain costs helps to increase the firm’s profitability.
Information systems in supply chain management
Implementing efficient and reliable SCM information systems can lead to goals that help organizations success. In addition, an organization can compete in the global marketplace . The efficiency of a SC depends on the ability of managing the flow of the following, materials, information, and money. Managing this flow is supported by information system (Turban, Rainer, & E. Potter, 2004). The most encouraging factors for implementing information system in SCM are:
Reduce costs and increase customers’ satisfaction.
The A.T. Kearney Management Consulting Company conducted a study about challenges in SCM. The main SC challenge that has been found in the study is the cost. Additionally, it has mentioned that “supply chain costs can represent more than eighty percent of the cost structure in a typical manufacturing company” (Kearny, 2008). Further, most of the costs came because there were losses in sales regarding insufficient customer service or sold out products. Also, the study concludes that “for every dollar of inventory in a system, there are one to two dollars of hidden supply
chain costs: working capital costs, asset costs, delivery costs, write downs and so on” (Kearny, 2008).it should be noted, the study emphasizes on the importance of implementing SCM information systems to improve SC efficiency.
Increased revenues.
If a company invested in implementing information systems, it can improve the efficiency of their SC and it can “achieve savings equal to three to seven percent of revenues compared with their median performing peers”(Kearny, 2008). Similarly, study conducted by IBM (2010)found the cost containment is number one issue in SCM along with other factors such as visibility, risk, customer intimacy, and globalization.
High performance levels.
Implementing electronic information systems between SC partners is necessary to meet the future SC challenges .Furthermore, IS will help companies achieve the high performance efficiency. Moreover, the SC information systems help organizations compete in the global market by reducing cost, improving services, maintaining sufficient inventory level, and reducing backlog (Bhatt, 2000). All these factors will lead to build stronger relationships with customers and suppliers.
Improved communication with partners
Another factor encourages companies to implement integrated information systems is improving communication with partners (e.g. customers, suppliers etc.). Efficient communication will help managers improve customers’ satisfactions. For example, customers can use companies’ website to order customized products. Different suppliers and departments in the company share the information entered by customers on the website. The information is available to suppliers who will better plan for the future demands. Allowing customers to manage their orders help companies to move from the customers’ satisfaction level to customers’ loyalty level because of better understanding for the customers’ needs.
