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The role of Information Technology 
in SCM 
Prepared By: 
Anand Jha
Supply Chain Management (SCM) 
Systems 
• SCM is the process of effectively managing the components of an extended 
value ...
Value Chain Analysis
Benefits of Value Chain Analysis - Disintermediation 
to the Consumer 
Manufacturer 
Manufacturer 
Manufacturer 
Distribut...
Stockless Inventory Compared to Traditional and 
Just-in-time Supply Methods
2. Information Systems 
for SCM
Information Technology for Supply Chain 
Management 
• Software Systems 
• Electronic Data Interchange (EDI) 
• Material R...
3. ERP
Enterprise Resource Planning (ERP) Systems 
• Enterprise resource planning (ERP) is a term used to refer to a system that ...
Origins of ERP Systems 
• ERP systems grew out of a function called materials requirements planning 
(MRP) which was used ...
Major ERP Systems 
• SAP R/3 
• Oracle 
• PeopleSoft (have been merged by Oracle) 
• Toyota uses PeopleSoft and SAP 
• Mic...
E-Business and ERP Systems 
• An e-business must keep track of and process a tremendous amount of 
information 
• Business...
E-Business and ERP Systems 
• Many e-businesses want the same things from their business infrastructure 
• Thus, rather th...
4. Supply Chain Systems
Supply Chain Management (SCM) Systems 
• A typical SCM system might address the following issues: 
• Planning 
• Vendor se...
Types of Supply Chain Management (SCM) Systems 
• The two basic types of SCM system software are: 
• Supply Chain Planning...
Major Supply Chain Planning (SCP) Players 
• i2 Technologies 
• i2’s strength began with its powerful Advanced Planning an...
Supply Network Design (SND) 
The Supply Chain Cockpit 
(SCC) 
Demand Planning (DP) 
Supply Network Planning (SND) 
Collabo...
5. CRM
Data Mining/Web Mining/Business Intelligence 
• Data mining is the process of using mathematical techniques to look for 
h...
Relationship among SCM, ERP, CRM 
SCM 
ERP 
CRM 
Broader SCM
.6 SAP R/3
BEFORE SAP R/3 
• Systems didn’t talk to the extent processes required, in spite of 20 
years of IS labor 
• Human glue wa...
7. Hardware Considerations for 
SCM systems
Intranet vs. Extranet 
• Intranet is to use Internet technology and protocol (TCP/IP) for the internal 
communications 
• ...
Global Considerations in Using SCM/ERP Systems 
• Time differences 
• Language issues 
• Currency exchange rates 
• Tax 
•...
8. Role of IT in Wal-Mart’s 
SCM system 
A Case Study
Walmart 
• Walmart, an American multinational retail corporation that runs chains of 
large department and warehouse store...
Background Note 
• Wal-Mart known for innovative business practices 
• One of the first retailing companies to centralize ...
Using IT in supply chain management 
• Using EDI for procurement 
• EDI saved time and made procurement efficient (EDI=Ele...
Using EDI for procurement 
• Wal-Mart placed orders for huge quantities of goods with its suppliers 
• Cost of sales worke...
Using IT in supply chain management 
Using voice based technologies: Enhancing warehouse and logistics 
management 
• Wal-...
How to quickly locate & replenish goods? 
• Store ready displays called PDQ(pretty darn quick) displays 
• Time saved per ...
Using IT in supply chain management 
The Retail Link system- Supporting Inventory Management 
•Retail link connected EDI n...
Using the Internet in Supply chain Management 
• CPFR (Collaborative Planning Forecasting 
Replenishment) 
• Real time bas...
Barriers to CPFR 
• Lack of discipline to execute primary phases 
• Promotions and new items events are not jointly planne...
Recent Supply Chain Initiatives 
• 2001- Global Procurement Division[Shenzhen, China 
• Exchange of sales and inventory da...
Recent Supply Chain Initiatives 
• October 2002- Asked suppliers to replace VAN-EDI to Web based EDI 
• Direct online comm...
Benefits from RFID 
• Drastic decrease in Stock out situations 
• From $400 million to $1.2 billion for P&G 
• Lesser labo...
Problems 
• An estimated cost of $20 million to suppliers 
• 50% of this is integration of system with software and modifi...
Role of information Technology in Supply Chain Manageent
Role of information Technology in Supply Chain Manageent
Role of information Technology in Supply Chain Manageent
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Role of information Technology in Supply Chain Manageent

  1. 1. The role of Information Technology in SCM Prepared By: Anand Jha
  2. 2. Supply Chain Management (SCM) Systems • SCM is the process of effectively managing the components of an extended value chain--from suppliers, through manufacturing and distribution chain, and to the consumers. • SCM information systems use technology to more effectively manage supply chains
  3. 3. Value Chain Analysis
  4. 4. Benefits of Value Chain Analysis - Disintermediation to the Consumer Manufacturer Manufacturer Manufacturer Distributor Retailer Retailer Customer Customer Customer
  5. 5. Stockless Inventory Compared to Traditional and Just-in-time Supply Methods
  6. 6. 2. Information Systems for SCM
  7. 7. Information Technology for Supply Chain Management • Software Systems • Electronic Data Interchange (EDI) • Material Requirements Planning (MRP) • Manufacturing Resource Planning (MRP II) • Enterprise Resource Planning (ERP) • Supply Chain Management Systems (SCM) • Customer Relationship Management (CRM) • Internet-based Software • Network Infrastructure • Wide Area Network • Internet (for E-commerce: B2B, B2C)
  8. 8. 3. ERP
  9. 9. Enterprise Resource Planning (ERP) Systems • Enterprise resource planning (ERP) is a term used to refer to a system that links individual applications (for example, accounting and manufacturing applications) into a single application that integrates the data and business processes of the entire business.
  10. 10. Origins of ERP Systems • ERP systems grew out of a function called materials requirements planning (MRP) which was used to allocate resources for a manufacturing operation • MRP systems software ultimately became very complex allowing for efficiencies of scale not previously possible • Even more sophisticated MRP II systems began to replace MRP systems in the 1980s • By the early 1990s, other enterprise activities were being incorporated into ERP systems • Today, an ERP system can encompass, but is not limited to, the following functions: • Sales and order entry • Raw materials, inventory, purchasing, production scheduling, and shipping • Accounting • Human resources • Resource and production planning
  11. 11. Major ERP Systems • SAP R/3 • Oracle • PeopleSoft (have been merged by Oracle) • Toyota uses PeopleSoft and SAP • Microsoft Dynamics (formerly Microsoft Business Solutions - Great Plains)
  12. 12. E-Business and ERP Systems • An e-business must keep track of and process a tremendous amount of information • Businesses realized that much of the information they needed to run an e-business — stock levels at various warehouses, cost of parts, projected shipping dates — could already be found in their ERP system databases • A major part of the online efforts of many e-businesses involved adding Web access to an existing ERP system
  13. 13. E-Business and ERP Systems • Many e-businesses want the same things from their business infrastructure • Thus, rather than custom build applications, many companies prefer to use prepackaged ERP system software, which is often more efficient and less expensive to implement. • Most businesses need extensive help from consultants to configure their ERP system software around their existing business practices, or to suggest changes in business practices in order to better fit the ERP system requirements • This process of mutual adaptation is called systems integration • The consultants who supervise the integration process are often referred to as systems integrators
  14. 14. 4. Supply Chain Systems
  15. 15. Supply Chain Management (SCM) Systems • A typical SCM system might address the following issues: • Planning • Vendor selection • Manufacturing • Logistics • Customer relationship
  16. 16. Types of Supply Chain Management (SCM) Systems • The two basic types of SCM system software are: • Supply Chain Planning software (SCP): uses mathematical models to predict inventory levels based on the efficient flow of resources into the supply chain • Supply Chain Execution software (SCE): is used to automate different steps in the supply chain such as automatically sending purchase orders to vendors when inventories reach specified levels
  17. 17. Major Supply Chain Planning (SCP) Players • i2 Technologies • i2’s strength began with its powerful Advanced Planning and Scheduling (APS) • Manugistics • Oracle • SAP • Advanced Planner and Optimizer (APO)
  18. 18. Supply Network Design (SND) The Supply Chain Cockpit (SCC) Demand Planning (DP) Supply Network Planning (SND) Collaborative Planning, Forecasting, and Replenishment (CPFR) … Levels of SAP APO SAP R/3
  19. 19. 5. CRM
  20. 20. Data Mining/Web Mining/Business Intelligence • Data mining is the process of using mathematical techniques to look for hidden patterns in groups of data, thereby discovering previously unknown relationships among the many pieces of information stored in a database • A data warehouse is a database that contains huge amounts of data, such as customer and sales data What does Data Mining Do? EExxpplloorreess YYoouurr DDaattaa FFiinnddss PPaatttteerrnnss PPeerrffoorrmmss PPrreeddiiccttiioonnss Query, Reporting, Analysis Data Mining Why How What
  21. 21. Relationship among SCM, ERP, CRM SCM ERP CRM Broader SCM
  22. 22. .6 SAP R/3
  23. 23. BEFORE SAP R/3 • Systems didn’t talk to the extent processes required, in spite of 20 years of IS labor • Human glue was required: • to fill-in where systems don’t talk • to reconcile multiple views of data to arrive at an “answer” • to monitor “hold-points” to ensure procedures are followed amidst the disorganization of being part paper and part automated • to bridge systems and paper processes • Realized through ability to reduce the personnel requirements to perform the process • Transfer into processes that were able to meet customer requirements
  24. 24. 7. Hardware Considerations for SCM systems
  25. 25. Intranet vs. Extranet • Intranet is to use Internet technology and protocol (TCP/IP) for the internal communications • Extranet is to use Internet technology and protocol for the internal and suppliers’ communications • WAN Technologies • Ordinary telephone line and telephone modem. • Point-to-Point Leased lines (such as T1 line) • Public switched data network (PSDN) • Such as ATM, Frame Relay • Send your data over the Internet securely, using Virtual Private Network (VPN) technology PSDN
  26. 26. Global Considerations in Using SCM/ERP Systems • Time differences • Language issues • Currency exchange rates • Tax • Different accounting systems • Internet and security restrictions • Culture and religion holidays
  27. 27. 8. Role of IT in Wal-Mart’s SCM system A Case Study
  28. 28. Walmart • Walmart, an American multinational retail corporation that runs chains of large department and warehouse stores • Established 1962, Arkansan-USA • Sam Walton- Founder & Mike duke- current CEO • Successful due to its IT usage in SCM Introduction t case • 1990 –Superseded ‘K-Mart’ rival retail chain as one of the largest retailing chain in US • 1991- Superseded ‘Sears Roebuck & Company’ and became the largest retailing chain in US • In November 2003, Wal-Mart, world’s largest retailer, planned to replace bar code technology with RFID. • Objective: To enhance supply chain efficiency • Expected they could save $8.35 million per year primarily in labor costs
  29. 29. Background Note • Wal-Mart known for innovative business practices • One of the first retailing companies to centralize distribution system. • Always among the front runners in employing IT to manage its supply chain processes.
  30. 30. Using IT in supply chain management • Using EDI for procurement • EDI saved time and made procurement efficient (EDI=Electronic Data Interchange) • Using the bar code scanners, an analysis of daily, weekly, monthly sales data helped the store manager determine what products were selling and at what quantity. • Accordingly, the store manager would place orders in the manufacturing division. • In 1977, Wal-Mart set up a computer terminal network (CTN) to establish a communication link between its stores and the company headquarters • Real time business operations • In 1978, Wal-Mart set up its first fully automated distribution center
  31. 31. Using EDI for procurement • Wal-Mart placed orders for huge quantities of goods with its suppliers • Cost of sales worked out to be 2-3 %(very low from industry average) • Information of product, manufacturer, price was recorded on computer system • That information was passed to centralized data warehouse. • Analysis of daily, weekly, monthly sales data helped store manager to determine which products were sold in which quantities • So that they can place purchase order • Edi also helped suppliers • Right merchandize at the right time, and have it at right place at right price
  32. 32. Using IT in supply chain management Using voice based technologies: Enhancing warehouse and logistics management • Wal-Mart could replenish stock at any of its 1525 stores in US within 24 hours • Cross-docking • It enabled the company to receive goods and dispatch them to stores in lees than a day • How it works at distribution centers? • It installed voice based order filling(VOF) system in all distribution centers • Is consisted portable Voice Recognition Talkman Terminals(VRTT) and radio module on company’s wireless LAN • It eliminated mis-picks and product labeling costs since VOF didn’t require paper lists labor
  33. 33. How to quickly locate & replenish goods? • Store ready displays called PDQ(pretty darn quick) displays • Time saved per employees were not much but aggregate time saved was quite good GPS • GPS system in communication in trucks • Any truck can be located • Drivers could activate system by voice and interact with staff
  34. 34. Using IT in supply chain management The Retail Link system- Supporting Inventory Management •Retail link connected EDI network to extranet ,accessible to all suppliers •Provided suppliers historical sales data of 24 months, allowed them to track invoice, can make demand forecast •Suppliers could also study competitors products demand
  35. 35. Using the Internet in Supply chain Management • CPFR (Collaborative Planning Forecasting Replenishment) • Real time bases to determine product wise demand forecast • Wal-Mart shared past data, customer data, demographic data, stock positions • Both forecasted demand individually and then co-operated • Reduced inventory cost • Product availability across supply chain • As a result lead time was cut to 11 days from 21 days • On-hand inventory was reduced by two weeks • Sales grew by $8.5 millions in six months • Later on it was implemented to other stores • By 1990’s, about 90% of suppliers were doing business through Retail Link
  36. 36. Barriers to CPFR • Lack of discipline to execute primary phases • Promotions and new items events are not jointly planned • Ineffective replenishment in response to demand fluctuations • Trading partners focus on traditional supply chain steps • Scalability and critical mass
  37. 37. Recent Supply Chain Initiatives • 2001- Global Procurement Division[Shenzhen, China • Exchange of sales and inventory data • Best deal procurement from any part of world • Strategy Employed • Identify generic products • Enhance product quality • reduce cost by collaborating • 2001- copy paper – increased sales [ 46% in UK, 94% in Federal Republic of Germany, 38% in Canada, 25% in US]
  38. 38. Recent Supply Chain Initiatives • October 2002- Asked suppliers to replace VAN-EDI to Web based EDI • Direct online communication between trading partners • No transaction costs • Highly secured • Saved millions[ VAN-EDI cost $200 Billion] • No licensing fees • July 2003 – Asked suppliers to place RFID tags on goods, packed in pallets and crates VAN-EDI = Value Added Network-EDI RFID = Radio Frequency Identification
  39. 39. Benefits from RFID • Drastic decrease in Stock out situations • From $400 million to $1.2 billion for P&G • Lesser labor requirements • Almost $6.34 billion yearly • Decrease in merchandise thefts • Almost $2 billion • Real time tracking of consumption patterns • Would help enhance JIT Inventory management system • Decrease in stock levels by around 25%[IBM] • Total savings expected to be 8.34 billion per year
  40. 40. Problems • An estimated cost of $20 million to suppliers • 50% of this is integration of system with software and modification in soft wares • Not a proven technology • Not compatible with liquids and metal packaging
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