OME752 – SUPPLY CHAIN MANAGEMENT Year / Sem: IV / VII Department of IT

UNIT - V
SOURCING AND COORDINATION IN SUPPLY CHAIN

Role of IT in supply chain- The supply chain IT frame work Customer Relationship
Management – Internal supply chain management – supplier relationship management –
future of IT in supply chain – E-Business in supply chain.

Role of IT in supply chain

Information is key to supply chain performance because it provides the foundation
on which supply chain processes execute transactions and managers make
decisions. Without information, a manager cannot know what customers want, how
much inventory is in stock, and when more product should be produced or shipped.

Information Technology consists of the hardware, software, and people throughout

a supply chain that gather, analyze, and execute upon information. IT serves as the
eyes and ears (and sometimes a portion of the brain) of management in a supply
chain, capturing and analyzing the information necessary to make a good decision.
IT systems in SCM can have a significant impact on a firm’s performance.

Characteristics of Information

Information must have the following characteristics, while making decisions in SC

1) Must be accurate – Without information that gives a true picture of the state of
the supply chain, it is very difficult to make good decisions.
2) Accessible in a timely manner – To make good decisions, a manager needs to
have up-to-date information that is easily accessible.
3) Must be of right kind – Companies must think about what information should
be recorded so that valuable resources are not wasted collecting meaningless data
while important data goes unrecorded.

Information is used when making a wide variety of decisions about each supply
chain drivers
1) Facility 2) Inventory 3)Transportation 4) Sourcing 5) Pricing

Page | 1

2020 – 2021 1 Jeppiaar Institute of Technology

OME752 – SUPPLY CHAIN MANAGEMENT Year / Sem: IV / VII Department of IT

ENABLING TECHNOLOGIES

Many technologies exist to share and analyze information in the supply chain.
Managers must decide which technologies to use and how to integrate them into
their supply chain.
Some of these technologies include the following:

1. Electronic data interchange (EDI): was developed in the 1970s to

facilitate the paperless purchase orders with suppliers. It make transactions
faster and more accurate than when they were paper based.
2. Relative to EDI, the Internet conveys much more information using a
standard infrastructure allowing supply chains to improve both efficiency
and responsiveness. The beginning of the 21st century has seen the Internet
become the dominant medium of communication across all the macro
processes (CRM, ISCM, and SRM) that link the supply chain from suppliers
to customers.
3. Enterprise resource planning (ERP) systems provide the transactional
tracking and global visibility of information from within a company and
across its supply chain. This real-time information helps a supply chain
improve the quality of its operational decisions. ERP systems keep track of
the information, whereas the Internet provides one method with which to
view this information.
4. Supply chain management (SCM) software uses the information in ERP
systems to provide analytical decision support in addition to the visibility of
information. ERP systems show a company what is going on, while SCM
systems help a company decide what it should do.
5. Radio frequency identification (RFID) consists of an active or passive radio
frequency (RF) tag applied to the item being tracked and an RF reader/emitter.
A passive tag draws energy from the reader, whereas an active tag has its own
battery and draws power from it. RFID has many potential uses. It can be used
in manufacturing to check availability of the entire bill of materials. The
technology can make the receiving of a truck much faster and cheaper. Full
implementation of RFID could eliminate the need for manual counting and bar-
code scanning at the receiving dock. It can also be used to get an exact count of
incoming items and items in storage. RFID technology, however, has yet to
reach 100 percent accuracy, and its cost per unit is still high enough to make
global acceptance difficult, even at the case level.

Page | 2

2020 – 2021 2 Jeppiaar Institute of Technology

OME752 – SUPPLY CHAIN MANAGEMENT Year / Sem: IV / VII Department of IT

The supply chain IT frame work

IT framework allows managers to use and understand the role of IT within the
supply chain. At its core, IT provides access and reporting of supply chain
transaction data. More advanced IT systems provides analytics of transaction data
that improves supply chain performance.

Supply chain IT can be viewed in the context of the supply chain macro processes.
There are 3 types of Macro Processes.
1. Customer Relationship Management (CRM)
2. Internal Supply Chain management (ISCM)
3. Supplier relationship management (SRM)

Customer relationship management Processes: that focus on downstream

interactions between the enterprise and its customers.

Internal supply chain management Processes: that focus on internal operations

within the enterprise.

Supplier relationship management Processes: that focus on upstream

interactions between the enterprise and its suppliers.

Fig: 5.1. The macro processes in supply chain

Why Focus on the Macro Processes?

• A good supply chain coordinates all the macro processes across all stages.
• To grow the supply chain surplus

Page | 3

2020 – 2021 3 Jeppiaar Institute of Technology

OME752 – SUPPLY CHAIN MANAGEMENT Year / Sem: IV / VII Department of IT

Customer Relationship Management

The CRM macro process consists of processes that take place between an
enterprise and its customers downstream in the supply chain. Management Goal of
the CRM macro process is to generate customer demand and facilitate transmission
and tracking of orders.

Key processes under CRM are as follows :

• Marketing – Involve decisions regarding which customers to target, how to
target customers, what products to offer, how to price products and how to
manage the actual campaigns targeting customers.
• Sell – The sell process includes providing the sales force the information it
needs to make a sale and then execute the actual sale.
• Order management – Important for the customer to track his order and for
the enterprise to plan and execute order fulfillment.
• Call/service center – Helps customers place orders, suggests products, solves
problems, and provides information on order status.

Eg. of CRM software – Siebel, Salesforce.com, SAP and Oracle

FIG. 5.2. The Macro Processes and Their Processes

Page | 4

2020 – 2021 4 Jeppiaar Institute of Technology

OME752 – SUPPLY CHAIN MANAGEMENT Year / Sem: IV / VII Department of IT

Internal supply chain management

ISCM, is focused on operations internal to the enterprise. ISCM includes all
processes involved in planning for and fulfilling a customer order.

The various processes included in ISCM are as follows:

Strategic Planning: Focuses on the network design of the supply chain.

Demand planning: Consists of forecasting demand and analyzing the impact on

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: Links each order to a specific supply source and means of

transportation.

Field service: Service processes focus on setting inventory levels for spare parts as
well as scheduling service calls.

Ex. of ISCM software – i2 Technologies, Manugistics, SAP and Oracle

Supplier Relationship Management

SRM includes those processes focused on the interaction between the enterprise
and suppliers that are upstream in the supply chain. There is a natural fit between
SRM processes and the ISCM processes, as integrating supplier constraints is
crucial when creating internal plans.

The major SRM processes are as follows:

Design collaboration: This software aims to improve the design of products

through collaboration between manufacturers and suppliers. The software
facilitates the joint selection (with suppliers) of components and eliminates the
costly delays that occur when several suppliers are designing components for the
manufacturer’s product concurrently.

Source: Sourcing software assists in the qualification of suppliers and helps in

supplier selection, contract management, and supplier evaluation. An important
Page | 5

2020 – 2021 5 Jeppiaar Institute of Technology

OME752 – SUPPLY CHAIN MANAGEMENT Year / Sem: IV / VII Department of IT

objective is to analyze the amount that an enterprise spends with each supplier,
often revealing valuable trends or areas for improvement. Suppliers are evaluated
along several key criteria, including lead time, reliability, quality, and price. This
evaluation helps improve supplier performance and aids in supplier selection.
Contract management is also an important part of sourcing, as many supplier
contracts have complex details that must be tracked (such as volume-related price
reductions). Successful software in this area helps analyze supplier performance
and manage contracts.

Negotiate: Negotiations with suppliers involve many steps, starting with a request
for quote (RFQ). The negotiation process may also include the design and
execution of auctions.

The goal of this process is to negotiate an effective contract that specifies price and
delivery parameters for a supplier in a way that best matches the enterprise’s needs.
Successful software automates the RFQ process and the execution of auctions.

Buy:. Buy” software executes the actual procurement of material from suppliers.
This includes the creation, management, and approval of purchase orders.
Successful software in this area automates the procurement process and helps
decrease processing cost and time.

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. The goal of
collaboration is to ensure a common plan across the supply chain. Good software
in this area should be able to facilitate collaborative forecasting and planning in a
supply chain.

Eg of SRM Software – Agile, MatrixOne, Ariba, SAP, Oracle

Transaction Management Foundation (TMF)

The transaction management foundation is the historical home of the largest

enterprise software players.

• In the early 1990s, supply chain management was just getting off the ground
and ERP systems were rapidly gaining popularity, there was little focus on
the above three macro processes.

Page | 6

2020 – 2021 6 Jeppiaar Institute of Technology

OME752 – SUPPLY CHAIN MANAGEMENT Year / Sem: IV / VII Department of IT

• SAP continued as the market leader, but other powerful ERP players
included Oracle, Peoplesoft, JD Edwards and Baan.
• Little focus was on 3 Macro processes, and soft ware application on
‘improved decision making’
• Automation and Building Transaction Management were given importance.
• Automation of simple transaction and Integration of store and view of data
process excelled in ‘division and enterprise level’

Future of IT in supply chain

The three SCM macro processes Customer Relationship Management (CRM),
Internal Supply Chain management (ISCM) , Supplier relationship management
(SRM) will continue to drive the evolution of supply chain IT.

The following three important trends will impact IT in the supply chain:

1. The growth in software as a service (SaaS)

2. Increased availability of real-time data
3. 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 (in CRM). Gartner has predicted that SaaS (which comprised about 10
percent of the enterprise software market in 2009) will grow to about 16 percent of
global software sales by 2014.

This shift is likely to occur because SaaS provides lower startup and maintenance
costs compared to applications that are deployed onsite. These factors are
particularly important for small and midsized companies. Traditional enterprise
software vendors such as SAP, Oracle, and Microsoft are increasing the
availability of their software using the SaaS model.

The availability of real-time information: has exploded in most supply chains.

Whereas current supply chain software is primarily focused on improving strategy and
planning decisions (often at the corporate level) that are revisited infrequently,
significant opportunity exists to devise software that will use real-time information to
help frontline supply chain staff (such as in transportation and warehousing) make

Page | 7

2020 – 2021 7 Jeppiaar Institute of Technology

OME752 – SUPPLY CHAIN MANAGEMENT Year / Sem: IV / VII Department of IT

smarter and faster decisions that are revisited frequently. The opportunity is to
design systems that enable rapid insight based on real-time data.

The increased use of mobile technology: coupled with real-time information

offers some supply chains an opportunity to better match demand to supply using
differential pricing.

An example is an initiative by Groupon titled Groupon Now, which offers mobile

users deals that are time and location specific. Businesses can improve profitability
by offering deals when business is slow at specific locations. Consumers benefit
from getting a deal when and where they want it. Such an approach is likely to be
applicable in many supply chain settings.

SUPPLY CHAIN IT IN PRACTICE

1. Select an IT system that addresses the company’s key success factors.

For instance, the ability to set inventory levels optimally is crucial in the PC
business, where product life cycles are short and inventory becomes obsolete
quickly.

2. Take incremental steps and measure value. One way to help ensure
success of IT projects is to design them so that they have incremental steps.
For instance, instead of installing a complete supply chain system across
your company all at once, start first by getting your demand planning up and
running and then move on to supply planning. Along the way, make sure
each step is adding value through increases in the performance of the three
macro processes.

3. Align the level of sophistication with the need for sophistication.

Management must consider the depth to which an IT system deals with the
firm’s key success factors.

4. Use IT systems to support decision making, not to make decisions.

Although the software available today can make many supply chain
decisions for management, this does not mean that IT applications can make
all of the decisions.

Page | 8

2020 – 2021 8 Jeppiaar Institute of Technology

OME752 – SUPPLY CHAIN MANAGEMENT Year / Sem: IV / VII Department of IT

5. Think about the future: Although it is more difficult to make a decision

about an IT system with the future rather than the present in mind, managers
need to include the future state

E-Business in supply chain.

E-business is the execution of business transactions via the internet. It is used for
• Providing product information.
• Placing orders with Suppliers.
• Allowing customers to place orders.
• Allowing customers to track orders.
• Filling and delivering orders to customers.
• Receiving payment from Customers.

Today, The internet plays a significant role in many supply chains And companies
are using the internet to conduct a wide variety of Supply Chain transactions.

Business to Business commerce (B2B): When one business sells to another

business rather than to an end user.

Business to Business commerce (B2C): Transactions between a company and a

consumer.

Example of Business-to-Business (B2B)

• Business-to-business transactions and large corporate accounts are
commonplace for firms in manufacturing. Samsung, for example, is one of
Apple's largest suppliers in the production of the iPhone. Apple also holds
B2B relationships with firms like Intel, Panasonic and semiconductor
producer Micron Technology.
• B2B transactions are also the backbone of the automobile industry. Many
vehicle components are manufactured independently, and auto
manufacturers purchase these parts to assemble automobiles. Tires, batteries,
electronics, hoses and door locks, for example, are usually manufactured by
various companies and sold directly to automobile manufacturers.
• Service providers also engage in B2B transactions. Companies specializing
in property management, housekeeping, and industrial cleanup, for example,
often sell these services exclusively to other businesses, rather than
individual consumers.

Page | 9

2020 – 2021 9 Jeppiaar Institute of Technology

OME752 – SUPPLY CHAIN MANAGEMENT Year / Sem: IV / VII Department of IT

Business to Business commerce (B2C)

• B2C is typically used to refer to online retailers who sell products and
services to consumers through the Internet.
• Online B2C became a threat to traditional retailers, who profited from
adding a markup to the price.
• Example Amazon, eBay, and Priceline

The role of E-business

The Value of e-business will allow business to create significat value in the future.
The value however will depend upon the industry and the stage in the supply chain
a firm occupies.

Impact of the following online sales with respect to the Cost and service
Factors of the Distribution network
(i) Amazon Online sales of books compared to traditional method of sales
(ii) Neflix Online sale compared with traditional method of DVD sale.

Impact of online sales on Netflix Performance

• Netflix is the world largest Subscription service for video streaming through
a variety of devices.
• In ealy 20s, Neflix DVD sale is very effective. Customer received DVD's
within 24 hours once the order is placed.
• Now Online Distribution of Video content increases the sale tremendously.
• The Performance is listed below in the table as follows

Cost Factor Impact for Impact for

DVD digital
content
Inventory +2 +2
Transportation -2 0
Facilities and handling +1 +1
Information -1 -1
Service Factor

Page | 10

2020 – 2021 10 Jeppiaar Institute of Technology

OME752 – SUPPLY CHAIN MANAGEMENT Year / Sem: IV / VII Department of IT

Response time -1 +2
Product variety +2 +2
Product availability +1 +2
Customer experience +1 +2
Time to market -1 -1
Order visibility 0 0
Returnability -1 -2

Note : +2 : higly positive, +1 : positive, 0:neutral, -1: negative, -2 highly negative

Impact of online sales on Amazon Ebooks and Traditional Book Selling

Performance

• Internet E Book Sales offeres tremendous advantages compared to

traditional bookselling.
• The Performance is listed below in the table as follows

Cost Factor Impact Impact for

physical books E-BOoK
Inventory +1 +2
Transportation -2 +1
Facilities and handling +1 +1
Information -1 -1
Service Factor
Response time -1 +1
Product variety +2 +2
Product availability +1 +2
Customer experience +1 +1
Time to market +1 +2
Order visibility 0 0
Returnability -1 -2

Note : +2 : higly positive, +1 : positive, 0:neutral, -1: negative, -2 highly negative

Page | 11

2020 – 2021 11 Jeppiaar Institute of Technology