Designing and Managing the Supply Chain - Essay Example

Introduction Intense competition in recent years has forced product lifecycles to be shortened and high expectations have also forced suppliers and manufacturers to invest greatly in supply chain management. Supply chain management is the logistics network to transport goods from their procurement from raw materials to warehouses and finally to the ultimate customers. The purpose of this paper is to describe the range of technologies being used in the modern retail industry, and to make analysis of the operations management implications of applying these technologies. In addition, some of the broader business challenges of implementing technologies to improve retail supply chains have also been discussed, followed by an analysis of challenges associated with shopper and consumer expectations on retail operations. 2. The Range of Technologies in the Modern Retail Industry An efficient supply chain involves better inventory management and reducing the time from the procurement to the final delivery. For these purposes both supply chain strategies and supply chain technologies are integrated into supply chain management to result in an efficient network of logistics. These technologies include transportation, management and communication technologies which work hand in hand to lead to an evolution of the supply chain. Information technology and decision support system are some of the common technologies being used in today's supply chain management. IT is implemented in the supply chain for strategic planning, virtual enterprise and knowledge management. Another reason why IT is frequently used is the E-Commerce factor of businesses these days(Ngai, 2004).These technologies ensure that a sophisticated analysis of the abundant available data is made possible and the results are used to obtain a competitive edge in the market(Simchi-Levi, 2003). Business redesigning and the implementation of technology in business are often considered to be complimentary with each other. Therefore the integration of technology is bound to change the face of retailing operations. IT is a design tool used for knowledge and business management to produce tangible results such as time reduction, cost reduction and an improvement in the output quality. (Michael Lewis, p. 103) These innovations in Information Technology include Radio Frequency Identification (RFID), Electronic data Interchange (EDI), Pints of sales (POS) and other Data Mining (DM) technologies. These have radically changed the way retailers do their business and brought about efficiency by reducing labour costs, improving inventory accuracy, reducing lead time and increasing the rate of order fill. Points of sales (POS) POS has been in use since the 1980's and it facilitates the sale of products by entry and access of products in stores. POS allows for automatic and dynamic updates of inventory and sales data when sales occur. Thus this system is frequently used for store transactions, refunds, cash authorizations, exchanging issues and inventory tracking. Radio Frequency Identification (RFID) RFID is a generic name for technologies which use radio waves to identify and track objects. It identifies the items by reading a tag and a considerable amount of information is transmitted by just reading of the tag by the reader. This technology can capture product information which can be up to 40 times more than the typical barcode technology. RFID works as an information facilitator which can directly help in developing and aiding decision making in the supply chain. The main features of RFID are real and automatic data capture, enhanced information quality and support for business transactions. Data Mining (DM) Data mining is a process of extracting knowledge from a large database to build predictive models for business decision making. It is used to make strategic and tactical decisions such as sales forecasting, customer acquisition and retention. From the supply chain point of view, they can also be used to make operational decisions like supplier selection, inventory control, production schedule, transportation route and the selection of the logistics provider. Electronic Data Interchange (EDI) Walton and Marucheck have defined Electronic data interchange as computer to computer transmission of standard business transitions (Walton, 1997). It transfers the information from the retailer's computers to the supplier's computers throughout the supply chain. EDI is an efficient and accurate way of collecting information and speeds up transaction and order processes. It has the ability to lower inventory levels by providing information in a short time. EDI is used to place electronic purchase orders, generate invoices and bills, transmit sales and inventory data, and order advanced shipment. Global Data Synchronization Network (GSDN) The use of GSDN is another means of creating value in the supply chain. The manufacturers and retailers have developed a worldwide system for swapping product data which consists of 26 local data pools across 50 countries (Allen, 2008). This system transmits standardizing data globally when sharing product information. A supplier sends product data via the GDS system and unique numbers associating companies with product information and location. Thus retailers have access to detailed product information at a single place while suppliers have one standard place and way to present information. GSDN helps in data management for both suppliers and retailers and allows for product information management. 3. The Operations Management Implications of Implementing the Technologies POS A well-integrated POS system allows for quick and precise information capture leading to effective delivery of the right product to the right person at the right place (Ellram & La Londe, 1999). Besides that this system also allows to track a product’s total cost, therefore allowing for easier pricing of products (Cassidy, 1994). POS also integrates participants in the retail supply chain and thus improves forecast accuracy and reduces lead time. It also allows for a higher degree of collaboration in the supply chain by making data available to other supply chain participants. Data Mining (DM) Data Mining allows for both accurate forecasting and developing positive and sound customer relationships. A view at Customer Relationship Management shows that DM allows retailers to gain an understanding and knowledge of consumer behaviour thus making it easier to gain and retain customers (Byrom, 2001). It also enables the retailers to target their market segment and produce adapted and specific goods and services for their customers according to their needs and purchasing power. Data Mining can be used as a powerful tool in many supply chain areas. It reduces business risk by ensuring that the customer's credit history is clear. It also allows for refining of inventory levels to prevent stock out or overstock. It also enables the forecasting of customer demand by the analysis of past customer performance and improves customer relationship management by the provision of a deep understanding of customer needs. It also optimizes market strategies where market actions can be targeted on customers based on their demographics and preferences(Herman, 1997). Data mining is one of the most essential tools required for managing Just in Time strategies in the supply chain. This is due to the fact that Data Mining allows for adequate planning of inventory and sales levels which allow for inventory to be restored as needed. This prevents under or overstocking of goods and saves on warehousing and other storage costs. Data mining techniques also allow for capacity planning and predictions using the information stored in the databases which help to complete utilization. Besides that DM techniques lead to a business transformation as the data available to the business changes. Retailers gain access to more and detailed information which can lead to changes in baseline standards of the retail industry as well as lead to an integration of different programmes in the sector. Radio Frequency Identification (RFID) RFID assures the closing of information gaps in the supply chain. It is often described as technologies which allow process freedom by adding value to the supply chain and other related operations. The RFID is a significant improvement over the typical barcode since it carries much more information and can be scanned over longer distances. The importance of RFID can be judged by its use and the subsequent benefits acquired by some of the world's major companies. Unilever uses RFID to track and move its consumer products in warehouses. On the basis of information generated by transponders, the number of pallets being transported has increased and the information on the movement of physical loads has become more reliable (Angeles, 2005). Chevrole’s service use RFID system to process its legal documents which are used to support the shipment of its containers. The containers have RFIS tags attached to them which can be read by the readers and the information is matched with what is available in the host database. Any information discrepancies stop the containers from passing through the line, therefore frequent interruptions which request human inspections have been removed and quicker services are achieved. It has also reduced the number of staff members needed for inspection, which results in cost savings and less human-based errors. (Angeles, 2005). The Ford motor company is supplied parts using the Just In Time technology. Ford uses RFID for accurate and efficient routing and identification of vehicles thus resulting in a decrease in production down time. From the distribution and transportation points of view in the retailing industry, RFID portals can completely reform the way of doing business. By being able to read tags automatically they can automatically update inventory quantities and data. Thus discrepancies from the original purchase order can be immediately identified. Process freedom will also be achieved by freeing the work from intensive labour by automating the job. Process freedom will also be achieved in renewing orders where operators will be freed from scanning product offloads at different locations and this will be done automatically. Alerts will be automatically activated in case of any errors. As another important component of the supply chain, the ease in transportation can also be achieved by the RFID. Retailers are able to track tagged products as reader portals can be installed on critical points on the supplier premises. With this increased information visibility retailers can handle problematic cases more efficiently. Underused assets can be easily removed and missing assets can be easily detected from this information. RFID also ensures that Total Quality management is assured in the supply chain easily and efficiently as it can eliminate faulty pieces and discrepancies automatically. This reduces the time needed for inspections and errors due to human handling. This also has a distinct effect on the number of people employed by the retailers as the number of employees will be considerably reduced and the resultant cost cutting will lead to an increase in profits. Global Data Synchronization Network (GSDN) The GSDN allows manufacturers to have detailed information about their products in the data pool. Both manufacturers and retailers gain significant benefits when it comes to savings. Research has found that these are due to the increased speed to market new products. They are also due to the fact that sales force time in communicating information to customers and solving discrepancies is reduced by 7% to 13%. An average of 1 percent decrease in inventory and less time in dealing with disputed invoices is also reported (Field, 2005). GSDM allows for both efficient standardizing and the managing of information and products. By accurate data shown in retailer's data bases of what kinds of products are being sold, quality management becomes much easier. Since the data available is of premium quality, the consolidation and the integration of this data adds great value to the supply chain (Allen, 2008). Data integration and availability at a single standardized resource ensure the integration of suppliers for retailers which enables easier hassle free transactions. GSDN allows for greater business sustainability as it brings all suppliers and retailers on the same platform. It allows for competition on equal terms and thus success chances for small retailers grow as they now face the same challenges as larger retailers. 4. Broader Business Challenges of Implementing Technologies to Improve Retail Supply Chains Business challenges related to costs, management or technical issues can hinder the implementation of these technologies in the business systems. The challenges of implementing EDI include the fact that members of the supply chain have to agree on the terms associated with EDI use (Cai, 2003). For these reasons top management should have a complete understanding of EDI issues and terms. Managers need education and training to be able to handle EDI systems and the EDI system has to be completely integrated into the computer system of the retailer. (Golhar, 1993). Therefore an increase in initial administrative costs is bound to surface once the implementation of EDI or any other technology related product is decided. The implementation of EDI can also raise some security and legal issues which have to be dealt carefully. POS reduces checkout time and errors and improves inventory management. However the implementation and the integration of POS in the system has its own challenges. First of all, POS requires continuous improvements in the system which means that the initial investment is not enough. Not all retailers have the resources to invest in these added resources which include technically equipped staff. Thus POS requires constant input of money which might outweigh the advantages brought by the technology. Companies using POS will have to use suppliers using the same platform which obviously limits the number of suppliers available to the retailers. Implementation of GSDN also imposes the same limitations on retailers who are restricted to using the suppliers and manufacturers from the database. The implementation of RFID has also got some limitations. Some consumers feel that RFID has given retailers the ability to interfere in customers personal lives as the amount of data being stored in RFID tags includes customer information and can be misused (Parker, 2003). The implementation of RFID technology requires great investment and infrastructure. This means that the initial costs of implementation are very high and not possible for all retailers. Since RFID involves procurement of large amount of data, storage and transmission of this data is also problematic for retailers who have to handle this data most of which might be unwanted. There are technical issues also involved with the implementation of RFID. RFID tags and signals can be distorted or absorbed by some products particularly dairy and fresh products. Its usefulness is also impeded by extreme temperatures (Sellitto & Burgess, 2007). Collision of signals from different tags and different readers is another issue associated with RFID. When the programming is done to enable readers to read different tags at different times, it means that more overhead costs might occur as tags found in areas of overlap will be read twice. Readers may also read different chips in the same field resolving of which may also lead to greater costs. Data management concerns have also surfaced with the use of RFID. The data collected and which needs to be processed has increased significantly since the coming of the RFID. This produces more strain on the data management system of retailers who may have the resources and the willingness to make processes automated, but do not want to process all the data being generated. Thus the retailers should also have appropriate capabilities to interpret the huge volume of data. Investments in both hardware and software are necessary before even running a test project on the RFID. Firms are also expected to design and make their own interface which is in accordance with their applications. This results in a considerable investment of time and money. The implementation of GSDN also comes with its own set of challenges. The first challenge is to get the data in a format which fits and is congruent with both the company and the GSDN's standard. The compliance of the basic standards which are set by GSDN is not feasible for all retailers. The data provided has to be ensured for accuracy as incorrect data can completely ruin the GSDN's network and reliability. The basic purpose of GSDN is data accuracy and standardization so stringent checks on retailers are kept to ensure correct data. Since retailers work with different kinds of products and attributing all of them on a single scale is not possible, different standards have to be used for different products which make tagging and attribution difficult. Implementation of IT and other technologies in business also leads to operations redesign and a complete overhaul of how retailing will function. Process redesign and continuous process improvement are two implications of this. (Michael Lewis). Though they are dynamic processes but they need an intense amount of concentration, investment and hard work which might be cumbersome for retailers, particularly smaller ones to inculcate. Another problem with technology implementation which associates with all technologies is the time required to implement them. Since the integration of these technologies often involve a complete overhaul of the system, it is an extremely time consuming and painful procedure for most companies. Companies which are moving from one technology to another often find it difficult to attribute themselves with anyone. Another problem which often arises with the implementation of technology is the number of job cuts due to automated processing. These job cuts though are beneficial for the company but may result in low worker morale and a sick economy as a whole. 5. Challenges due to evolving Shopper and Consumer Expectations on Retail Operations Fierce competition and rapid changes in demands present a great source of competition to retailers. Firstly consumers and shoppers today are more widely informed because of the information revolution. This means that they are well aware of the alternative available in the market and switch providers. This requires retailers to provide the best quality products in the shortest amount of time. The fast changing world means that customer demands change quickly and have to be catered to extremely quickly thus preventing customers moving to other retailers. This calls for leaner supply chains and shorter delivery times. Time loss in the supply chain reduces value from the supply chain and has to be eliminated. Thus all sources of errors and delays have to be dealt with immediately and removed. JIT supply chain management and carefully maintaining levels of inventory and supply are also implications if rapidly changing demand. The retailers must distribute enough to cater to the needs of the customers but even a slight over supply will mean wastage and loss. Processes which can be automated have to be done so and extremely efficient logistics and transport services have to be chosen. This also implies that the choice of the location of the warehouses and storage depots is also extremely important. The location selection for warehouses has to be done carefully so that they do not increase costs greatly but are also able to supply to all distribution centres efficiently and in an extremely timely manner. 6. Conclusion Data Mining, Electronic Data Exchange, Points of Sales, Radio Frequency Identification and Global Data Synchronization Networks are some of the new technologies which are used in the modern retailing industry. They are used to automatically capture and transmit data, manage inventory levels, utilization of capacity and quality management. They are also used to cut down on supply time thus making the supply chain more efficient and add more value to it. Thus the advent of these technologies provides extensive opportunities for the retail industry and improves their performance greatly. But like all new innovations, they cost a lot to be implemented. They have frequently raised security and legal issues as the amount of information being procured by them is huge and detailed and can be used for evil purposes. Secondly the implementation and integration costs of most of these technologies are huge and besides infrastructure and technology they need human resource personnel who are adequately trained. Thus they are the added costs for the company. There are also technical issues involved with a few of these technologies which have to be completely understood and resolved before applying any of them in operation. Thus they have opened up an entirely new world for an efficient supply chain which is the need of the time but there are a few impediments which have to be overcome before obtaining the rewards of this technology. References Allen, N. (2008, November). For the greater good. Logistics manager . Angeles, R. (2005). RFID TECHNOLOGIES:Supply chain applications and impemantation issues. I nformation systems management . Byrom, J. (2001). The role of loyalty card data within local marketing initiatives. International Journal of Retail and distribution management , 333-341. Cai, J. M. (2003). Key obstacles to EDI success: from the US small manufacturing companies’ perspective,. Industrial Management & Data systems , 192-203. Cassidy, P. (1994). The point of most return. CIO , 46-56. David Simchi-Levi, P. K.-L. (2003). 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