The Effects of Information Technology on the Supply Chain Management - Case Study Example

THE BENEFITS OF INFORMATION TECHNOLOGY TO THE BUSINESS WORLD Introduction Information Technology plays a major role in the business world. With the different arms of IT, businesses stand to benefit from technology. In this case we discuss IT influence on business supply chain management. E-business supported supply chain management is the future of logistics and a current trend with some major corporations (Skloett-Larsen, 2000). Application of e-business in the supply chains is allied, but not limited to internet use. There are prominent case examples that illustrate that there are potential benefits due to this. Cisco registered savings of up to $500 million. This was by restructuring the internal operations of the company. Processes with the supplier and customers were also integrated. This integration was done with the help of up to date web based tools (Berger, 2000). It is recorded that up to 90% of Cisco’s returns on sales are facilitated online (Copacino & Dik, 2001). Hundreds of order clerks were replaced by Intel when it acquired an automated ordering application that operated online (Chopra & Meindl, 2001). Celestica, a major electronics manufacturing firm applied a web solution to help it manage its global customer base well and efficiently (Shore, 2001). The firm’s responsiveness to the requests of the customers has improved due to the use of information technology. The good responsiveness has also had a positive effect on Dell, allowing it to make and keep promises to its customers concerning services offered and the delivery of products. Although it might seem as if it is obvious that IT helps improve on business, the evidence is not available of these effects, especially on the supply chain management. Companies operating on networks are very interested to k now the new technologies coming up as they affect their business directly and they have to possess the latest technology at play. This paper discusses the effects of information technology on the supply chain management. Literature Review The review of literature shows that there is an abundance of papers with content on supply chain management and information technology (Gunasekaran & Ngai 2003, provides the literature review). The most common terms of the business models that use IT are ‘e-business’ and ‘e-commerce’. ‘E-business’ was earlier on used to refer to businesses that operated doing their online sales and marketing but this has changed to literary refer to businesses that use IT holistically. In many occasions, ‘e-business’ is however used to refer to the internet use in the running of a business (Chopra & Meindl, 2001; Johnson & Whang, 2002). In other literature, the role of IT in SCM is given deeper comprehensive research. The following are the objectives of IT according to Simchi-Levi et al., (2003, p. 267): IT is used to enable the visibility and availability of information. IT is also used to create a single point of reference and contact with the data. IT has come in to enable and facilitate the collaboration and partnership between chain partners. IT has come in to enable the sound decision making as it provides with all the necessary information and data required for this. The following tree can be used to elaborate on the commonly determined roles of information technology in the supply chain management (SCM) (Figure 1). Figure 1: Functional role of IT in SCM The most common role of IT is to reduce the friction between transactions of different supply chain partners. IT achieves this through ensuring information flow (for example, Cross, 2000). IT is also relied upon to offer support to the coordination and collaboration of supply chains through the sharing of information (for example Lee et al., 1997). IT is also used to support the main decision makers. The decisions made with regards to information provided by IT are often right and bound to deliver great results. Managerial decisions are made with the assistance of computers. Benefits and impacts of IT in SCM IT is believed to deliver great results and opportunities. These might range from the creation of strategic advantages to more direct operational benefits. A common deduction is that IT holds an important position in the running of organizations and businesses specifically in the management of the supply chains. IT runs alongside outsourcing and specialization, which are key preconditions to the networking or organizations. Another group argues that the supply chains end up being less integrated rather more market oriented with the incorporation of IT (Malone et al., 1987). For example, electronic SCM is believed to combine the benefits of the arms-length approach as well as the efficiency brought about by IT. These are used to lower its costs through the creation of a larger supply base to work with and to choose from too. Literature Review Summary With different and vast literature talking on the subject matter, the following were the most common advantages and benefits of IT on SCM. IT helps in the successful implementation of a solid customer care package The relationship between customer service, communication systems and SCM information has been research upon in the past. Earlier researches indicate that more focus was placed on specific ICT concepts such as integrated information systems. Customer service is an essential part of any business. The views of the contents of customer service vary. In logistics, customer service is believed to mean the process of availing goods to the customer. This, however, involves more than simply delivering goods when requested. Christopher (1998) argues out customer service on these classifications: pre-transaction, post-transaction and transaction elements. Good pre-transaction practices involve the understanding of the customer that the firm can supply them with the goods that they require. That the company is reachable through the contacts it has given as well as the adaptive nature of the company to accommodate the specific clients goods delivery needs. The transaction elements entail the practices and processes that take place between the ordering and delivery of the goods. The post-transaction aspect of the process refers to any issues that might arise after the customer has received the goods they ordered. Company personnel can focus on more critical business activities The use of IT has helped improve on SCM efficiency as reported in various researches (Power and Sohal, 2002). Also, the findings of this study supports the notion that by improving the efficiency in information transfer IT has made it possible to streamline logistics flows, reduce inventory and improve customer service. In the current study supplier web solutions are explored and how they have allowed procurement staff to spend more time focusing on building strategic supplier relationships. The purchasing function has traditionally been a very labour-intensive activity, where a large proportion of procurement staff’s time is spent on non-value adding activities such as data entry, correction of errors in paper work and delivery expedition. Rocla, a manufacturer of electronic warehouses trucks and automated guided vehicles that implemented its supplier web solution in 2002. All of the direct procurement to a specific customer order is conducted through this extranet. This accounts for 30per cent of total purchases. Suppliers have real-time visibility to Rocla’s demand (item, quantity, price, and requested delivery date) and they are requested to view Rocla’s supplier web daily. Rocla has estimated its savings in ordering and checking invoices after implementing the supplier web to be 2.5 man-years. The second case Datex-Ohmeda has, since 2001, moved all communication (demand forecasts, purchase orders and order confirmations) with its suppliers to electronic form. It uses a third party transaction hub that is linked to Datex-Ohmeda’s ERP system. Some 15per cent of suppliers has integrated their ERP systems with the service provider; some use EDI and the majority of the suppliers use the Supplier Web-solution. Currently, 95per cent of Datex-Ohmeda’s purchases with 120 suppliers is processed electronically. The company reported that those twenty staff that were previously involved with routine paper work could now concentrate on more productive jobs. Similar phenomenon was reported from the sell-side IT implementations, where the customer service personnel can focus on more value adding tasks. Wärtsilä Service has been able to keep the number of customer service personnel the same as before, whilst improving the response time to customer orders. SE Mäkinen has been systematically developing its IT system since 1995, and today approximately 75-80per cent of all incoming orders come in electronic form into a central database. Personnel that were earlier engaged in front-line customer operations can now allocate more time to ensure optimisation and so increase operative effectiveness and company competitiveness. Use of e-business solutions improves information quality Informational benefits of IT are generally broken into information access, information flexibility, and information quality (Mirani and Lederer, 1998). Information access benefits provide supply chain decision makers with faster and/or easier access to internal and external information. Information flexibility benefits allow decision makers to easily manipulate the content and format of retrieved information. Information quality benefits make the available information more useful, accurate, and reliable. It improves the usefulness of information for strategic planning and operational control (ibid). Information quality has been studied extensively by researchers interested in computing, management information systems, databases and their management, data security and data warehouses to mention a few (Melkas, 2004). Conventionally, information quality has been described as how accurate information is. English (1999) represents information by formula, where all three components, data, definition, and presentation must have integrity to provide information quality. In a supply chain context there are business processes that produce information (planning, designing, selling, distributing etc.), other processes that transcribe if from one form to another; and processes that can be considered as users of information. When planning e-business solutions and the underlying processes, attention should be paid on information quality management (English, 2001). In this study we identified three different mechanisms of how the use of e-business solutions can improve information quality. The first mechanism identified is related to the actual design of the e-business solutions. An effective design is based on a clear understanding of the underlying process and the relevant information flows. Those cases where enough time and effort was invested in analyzing what data is needed, in what context, to what purposes it is used in various parts of the process and what is the right accuracy and objectivity level, reported that the overall quality level of information had improved. Wärtsilä Service’s and GNT Finland’s, an IT wholesaler, sell-side web-portals force the customer to specify all the necessary information to the web site before the order was processed. These companies reported that they had been able to rely on the quality of the information in decision-making. Kiitolinja, a logistics service provider receives complete customer orders through its web-portal. This helps in executing deliveries and pick-ups without any additional verification. Conclusion Benefits of IT in SCM are multitude and vary in the context of their implementation. Moreover, as the use of IT is closely related to process changes, most of the benefits are overlapping and interlinked. Then, it is hard to specify the origin of benefit very explicitly. Notably, strategic benefits are only achievable when the introduction of IT is coupled with process re-design. The ideas of BPR are then closely related to current study. Our study corroborates that business process re-engineering skills are vital to benefiting from IT strategically in SCM. The change in processes needs not to be total, but without any process changes, IT becomes merely an automating force, providing efficiency benefits in a limited scope. But clearly there are benefits of using IT in the SCM. References Berger, A. (2000) “Five steps to an eSynchronized Supply Chain”, Available http://www.accenture.com/xd/xd.asp?it=enweb&xd=ideas%5Coutlook%5Cpov% 5Cpov_fivesteps.xml [20.2.2004] Chopra, S. & Meindl, P. (2001), Supply Chain Management: Strategy, Planning, and Operation. Prentice Hall, Upper Saddle River, New Jersey, 457 p Copacino, W.C. & Dik, R.W. (2001), “Why B2B e-markets are here to stay”, Accenture Outlook, No. 2, pp. 22-29 Cross, G.J. (2000), “How e-business is transforming supply chain management”, The Journal of Business Strategy, 21(2), pp. 36-39 English, L. P. (1999), Improving data warehouse and business information quality: Methods for reducing costs and increasing profits. Wiley, New York, NY English, L. P. (2001), “Information quality management: The next frontier”, American Society for Quality’s Annual Quality Congress Proceedings, American Society for Quality, Milwaukee, pp. 529-533 Gunasekaran, A. & Ngai, E.W.T. (2003), “Information systems in the supply chain integration and management”, European Journal of Operational Research, In Press Johnson, M.E. & Whang, S. (2002), “E-business and supply chain management: an overview and framework”, Production and Operations Management, 11(4), pp. 413-423 Lee, H. & Whang, C. (1997), “Bullwhip Effect in Supply Chains”, Sloan Management Review, 38(3), pp. 93-102 Malone, T.W., Yates, J. & Benjamin, R.I. (1987), “Electronic markets and electronic hierarchies”, Communications of the ACM, 30(6), pp. 484-497 Christopher, M. (1998), Logistics and Supply Chain Management Strategies for Reducing Cost and Improving service, London, Pittman Publishing, Melkas, H. (2004), Towards holistic management of information within service networks. Safety telephone services for ageing people, PhD dissertation, Helsinki University of Technology, Lahti Center, Dissertations 2004/1, pp. 42-43 Power M.T. & Sohal A.S. (2002), “Supply chain management in Australian manufacturing – Two case studies”, Computers & Industrial Engineering, 43(1), p.97 Mirani, R., Lederer, A.L. (1998), “An Instrument for assessing the organizational benefits of IS projects”, Decisions Sciences, Fall 1998, Vol. 29, No. 4, pp. 803-838 Shore, B. (2001), “Information Sharing in Global Supply Chains”, Journal of Global Information Technology Management, 4(3), pp. 27-46 Simchi-Levi, D., Kaminsky, P. & Simchi-Levi, E. (2003), Designing and Managing the Supply Chain: Concepts, Strategies, and Case Studies. McGraw-Hill, New York, 354 p Skloett-Larsen, T, Kotzab, H., Grieger, M. (2002), “Electronic marketplaces and supply chain relationships”, Industrial Marketing Management, 32(3), pp. 199-210 Read More