Supply Chain Management and Information Technology - Essay Example

Supply Chain Management and Information Technology By Table of Contents Table of Contents Introduction 2 Case study overview 3 Supply Chain Challenges faced by Nike 4 Long Lead times 4 Demand Forecasting and high inventory levels 5 Supply Planning 5 Implementation of ERP in Nike 6 Implementing the SC Software by I2 Technologies Inc. 6 Implementation of SAP AFS 7 Conclusion 8 Part #2 9 Introduction 9 Literature Review 9 Case Study Approach 12 Conclusion 13 References 14 Introduction Total quality management, just-in-time and leaning system have been such ingenuities among organizations to reorganize the core business processes. With the emergence of the latest information technology (IT) based tools, it is being possible to collaborate more and more processes either internal to the organization or external by keeping focus on supply chain management. For more productivity, cutting costs and more quality enhancement, supply chain policies are being major concern, as it let the organization to be more competitive and build their own competencies (Akkermans, et al., 1999). There are many such information systems that help in integration of business processes for instance business intelligence (BI), customer relationship management (CRM), Enterprise Resource Planning (ERP) systems and dashboards etc. One must focus on proper implementation strategies while initiating any new technology for supply chain management leading towards organizational excellence. The objective of this paper is to analyze major supply chain management challenges as well as how the IT applications are being used to support organizations in dealing with these issues. This analysis is based on a case study. There is a famous global company “Nike” that implemented ERP for better collaboration of its systems, but it poses many challenges and it goes from failure to success while initiating ERP. Case study overview Nike, Incorporation is a publicly traded company involved in manufacturing of sports wears, sports equipment, apparels, and accessory products. It is a United States based company, Mr. Phil Knight laid its foundation with his coach Bowerman in 1964. The first product was a sport shoe known as the tiger that was a great success in 1971 and then it introduced much more successful product lines such as air shoes, air Jordan etc. With the passage of time it created a lot of revenue that was about three dollar billion in 1991, then it started direct selling the products through websites. Now it’s a world leading supplier and manufacturer of sport related items reaching 18.6$ billion in 2008. It is also involved in sponsoring many famous sportspersons and sport players all over the world. The company has a head office situated in Beaverton in the US. It has its manufacturing processes in the hands of third party contractors that are actually its suppliers who also manufacture the products for the company. It had an excellent supply chain management. In 1975, Nike tried to make its operations and systems much better and more effective by decomposing them into five regions based on geographical locations. While at the end of 1990s, it was realized that Nike’s earnings were declined by fifty percent as of 798 dollar million toward 399 dollar million. The problem for such decline was identified as the insufficiency and ineptness of the supply chain of company. Supply chain management did not meet the projecting requirements and making provisions for any changes in the environment. Thus to solve the problem, supply chain vise president proposed a scheme and launched the Nike Supply Chain known as “NSC” project. In this project, ERP, Supply chain management and CRM were applied communally into a solo SAP Policy in 2000. It was contracted with an IT firm, “I2 Technologies” that created a customized form of ERP for the Nike Inc. But this was also a failure project, Nike learnt much from this and applied SAP ERP that was proved to be much fruitful to Nike. Supply Chain Challenges faced by Nike There were many challenges faced by Nike in their supply chain management that led them to the adoption of ERP. Such challenges can be resolved through more collaboration. Following are some major challenges and objectives of adopting ERP in supply chain management: Long Lead times As Nike has its manufacturing processes in the hands of third parties, the reason behind the outsourcing is cost driver. With the establishment of manufacturing factories in foreign countries, Nike has cut its costs but not in all terms because clients had to place an order before six to nine months of their need. Then it took fifteen or more months to get the product delivered in the market that leads to longer lead times. Shipping the products to foreign places, having too many suppliers at global level make lead time difficult to manage. Although Nike has built excellent relationships with the suppliers, but still the longer lead times created many issues, like product can be obsolete within that time and substituted by other new replicas. Time-to-market is important consideration for fashion industry products because they have very low time periods to remain competitive in the market. The Nike supply chain was facing the same issue, so it needed to be more competitive (Mongelluzzo, 2002). Demand Forecasting and high inventory levels Nike belongs to fashion industry where estimations for the demand of the product is very complicated due to short life periods of the product, so many varieties of products and highly changes the requirements of customers. Nike’s supply chain was very different in a way it managed the demand forecasting through using future plans. In such programs, Nike required its retailers to stock the products six months before delivering to ensure timely delivery, according to the stock-to-order strategy. But this strategy was posing two threats. One threat was a high level of inventory that has to be stocked by retailers. Secondly, with the passage of time, retailers refused to keep inventories with the argument that within the storage time, the customer might have changed their preferences and tastes. So this would lead to wastage of resources and high inventory costs (Koch, 2004). Supply Planning Nike was fronting another contest that can be said as Supply planning. Supply planning encompasses the scheduling about the right time to create the product and right manner of distributing it with the enhancement of profits. It was challenging for Nike to elect what to manufacture and how can it be distributed to the customers profitably that was a huge problem and complex in nature. Thus, it was important for the Nike to augment its capability so that it could be able to accelerate its reaction to any change, increase the visibility of the product at the global level and more synchronization can be possible with suppliers. Moreover, ERP in SCM of Nike was introduced to increase the company’s competencies, lower the resource outlay and inventory threats, for superior elasticity and visibility, services improvement and bring efficiency in global supply chain (Parhi, 2008). Implementation of ERP in Nike Implementation of ERP in Nike can be decomposed in two different periods; one was a disaster, but the other one was able to meet the goals. Implementing the SC Software by I2 Technologies Inc. Nike made a contract with I2 technologies Inc. for procurement of the ERP software, while the price was about 400 million dollars. I2 Technologies Inc. was a software company that was considered to be an expert in ERP and SCM. In 1999, Nike executed the former part of its supply chain plan which was focusing on the corresponding the supply according to the demand. It was supposed to create maps for manufacturing of the products. Nike has some goals regarding costs, quantity of canvas, rubbers and other stuff, accurate demand estimations etc. But the software created disasters in the supply chain. Demand and supply forecasts were made wrong. Such mismatch between these resulted in producing more such shoes which were not famous to be produced in such quantity while producing less numbers of such shoes that were more famous among the customers. Such blunders disrupted the whole supply chain management. Moreover, it affected the good will of the company and then concessions were given for selling such detested shoes. Further, for fulfilling the demands for manufactured products, shipments were sent through air and sea at higher costs regarding shipping. Market shares for both companies Nike and I2 technologies were dropped down and both were accusing each other (Arora & Aggarwal, 2010). There were many reasons that could be outlined here; Nike didn’t realize the complexity of the software implementation Goals predicted to be quite impractical Third party as selected being integrator poses many mismanagements Nike tried to forecast for very long periods that was not a good idea Nike customize the software according to its needs that is a slow going process, but it tried to make it very quick Pilot testing is essential that was not properly performed as it was also a time intensive job (Rizky, 2003) Implementation of SAP AFS After the failure, Nike didn’t stop there rather, it worked for five years with the same contractor I2 Tech. Inc. but later on it chose to apply another solution that was specifically intended for footwear and clothing industry. It was an SAP AFS solution that was a modified version of the SAP R/3 software. Nike intended to make the use of such software for many departments of it defying SIS (Single Instance Strategy) while other applications of the SAP were used for Business info Warehouse and Supply chain management. It didn’t repeat the previous mistake and appropriately tested the application. In 1998, it also procured SAP AFS but didn’t execute the first version of it rather it made use of more appropriate second new version. Modules of SAP that were executed in Nike included material management, financial and control, production planning and sales and distribution. These modules interfaced with Nike’s Siebel Software and I2 Supply-Demand Forecasting. A Nike employed such an approach known as a big bang approach for implementation of ERP software. ERP was executed by fitting many of Sap Apparatuses such as planning, entry, order, procurement, treasury, financials, etc. all together. Nike implemented project based on areas rather than products like apparel. Technology companion of Nike was HP this time as it was well experienced in SAP and I2 technologies. SIS gives a universal view of Nike’s corporate that resulted in well collaboration and attaining an edge over competitors (Arora & Aggarwal, 2010). There were many benefits reaped by Nike with this implementation of IT in its SCM that are outlined below; It brings better collaboration among all the departments It lowered the inventory levels by properly forecasting the demands and supply Lead time was declined as it was able to manufacture and deliver the product more quickly and swiftly It gives excellent visibility that enables the company to track the orders in a better way Nike was having highest profits and specially he cash level was increased to incredible levels With these, it achieved agility, visibility, automated operations and greater responsiveness (Parhi, 2008) Conclusion It can be concluded that ERP implementation to improve the supply chain management of the company can lead to many benefits in this era of information technology development. But there could be some challenges that must be muddled through all the stages such as planning, purchasing and implementing the new software. Essential focus on Supply Chain Management has vast productive welfares for any company. This paper has illustrated this with the example of Nike that has addressed a very well approach towards IT and SCM. Even with a failure in the first attempt, Nike overcomes all the losses in the second attempt that shows the significance of IT in SCM but with accurate monitoring and controlling the implementation. Part #2 Introduction In such highly fluctuating and ever escalating global world, it has become essential for modern organizations to frequently review and appropriately modify their policies to be more competitive. Restructuring the business processes or the supply chain processes implicates many choices to be made regarding internal processes. Such reorganization of the supply chain can be better achieved by complete cooperation with all of its business associates that can be possible with information technology solutions. Most of the managers are in favor of outsourcing such IT software, as sometimes they are not capable of or the systems are very costly. While whatever the reasons would be, it is an essential and crucial to implement such an IT solution to manage the multiple suppliers that will result in the organizational success. A key to realize the accomplishment in SCM could be the harmonization of information exchange as well as material flow across the chain that is only conceivable through information technology investment in SC. Thus IT is an essential part of SC re-engineering process (Umeda & Jones, n.d.). Literature Review Corporations are much involved in redesigning and downscaling their business processes in reaction to the cumulative competitive situation and heaviness arising from the depression trend in the market. Information technology is playing a significant role in facilitating such re-engineering of processes as IT enable the companies to lessen the costs, improve enactments and developing competences (Grover, et al., 1999). To gain that level of competitiveness, most importantly, in this era, it is Supply chain management that serves as a competitive process strategy at global level. Companies are finding ways to be more responsive and flexible in terms of their operations, and for this, they need to bring about an organizational, tactical and technical transformation through the employment of IT in SCM concept. Many companies have subcontracted and regionalized their operations to add worth and have established cybernetic companies. Such initiatives accentuate the significance of Information Technology to be built in supply chain as it brings more collaboration and integration among all the associates in a cybernetic company. Moreover, companies are required to go towards online collaborative systems because of the complication involved in the supply chain structure such as the internet is the best source of more interfaces among the company and clients. With this information sharing and collaboration at over all the supply chain, one can achieve a long term accomplishment. It implies the significance of employing IT in SCM. A literature based research presented by Ngai plus Gunasekaran suggested some major constituents of SCM connecting IT such as decisively planning, e-business, Information and IT management, Cybernetic enterprise, set-up and execution (Gunasekaran & Ngai, 2004). (Gunasekaran & Ngai, 2004) further discuss the role of information technology, in his another study, in the reengineering of the processes considering the manufacturing firms. The fundamental benefits of involving information technology are described as reducing the time inadequacy, accurateness in information or material exchange among all the suppliers, firm, and customers, elimination of human mistakes in-built in monotonous and composite tasks, and reduction in costs. Moreover it brings a competitive edge over the competitors and one can better promote the product in the market. This study further elaborates the problems of management support and change, conflict aroused in the reengineering of the processes and suggested the reward system and proper training to execute the project in an effective manner. Because the information technology is the vital part of the re-engineering process (Gunasekaran & Nath, 1997). Koperberg gives a research study regarding the flow of info, IT and SCM encapsulating in the automotive industry. In his study, the automotive industry is redesigning the supply chain structure to get some returns as easy and efficient collaboration among the suppliers and customers. It concluded through research that the role of IT is far important in supporting the flow of information that cannot be done otherwise. Further, it said that there is no alternative for the automated collaboration seen in supply chains without involvement of IT. By realizing the huge amount of info flows in the supply chain, the connections and communications through internet based systems is a necessity now a days to gain real responsiveness and efficiency in business processes. The capability of best demand estimations and reacting to any change in market efficiently and effectively is essential to be competitive (Koperberg, 2007). Reengineering is such a radical change in a process and ways the organization has been structured before. Information Technology is a thing that actually drives such processes. So it is almost impossible to restructure any process without the information technology. The emergence of information technology gives many choices for how a process can be executed, it gives different dimensions to rethink the implementation of any process that were difficult with previous solutions. The process reengineering policy must be affiliated with the information technology arrangement to gain major benefits (Panda, 2013). There are many information technology software that are involved now a days in supporting the supply chains. In this scenario, Manufacturing Resource Planning, Advanced Planning Systems and enterprise resource planning systems are just some of the examples. Among these mostly the ERP is being used in reengineering processes. It was initially used for collaboration of internal processes. Although these software technologies present many benefits, but still there are many barriers to their employment such as high infrastructure cost, rigid procedures etc. Nowadays, organizations are focused on integration of supply chain linkages, however, it could be better achieved if all the vendors and suppliers also adopt the same software (Olsan, 2011). Case Study Approach Ford Motor Company best illustrates the concept that IT is an integral part of the Supply Chain Management. Ford Motors is a prominent motorized manufacturing company headquartered in the United States. Henry Ford was the founder and the company progress remains excellent as the revenues were $150 billion in 1903 and in 1996, there were 370,000 employees. Ford Motor Company was facing fierce competition in the market, not only local competitors like General Motors but also the foreign competitors such as Honda, Toyota. For this, Ford entered into an acquisition of a Swedish Volvo Model to expand its base. Next, it propelled a full re-organization of its business process strategy named “Ford 2000″ targeting to make reestablishment of the infrastructure. This process abridged the numbers of Vehicle centers. It installed its information technology system to make collaborations between all the centers of Ford Motor Company in all over the world. During the enhancement of technological solutions, the company intended to build such a system that maintained the Internet Protocol for communication established for Department of Protection of United States necessities. Earlier, the company was already having a network that allowed file transfers not only sending or receiving email. During the nineties, Ford advanced its infrastructure by developing a Global Enterprise Network Integration (GENI) process that was very effective in reducing the costs. This process was meant to connect all of the geographical. Along with that, Ford also built its Web Farm that was supporting and marketing its public website by a group managing the system. It started to publish some manuals regarding technical assistance and more images through an automated live show that resulted in more and more user registration. Ford further launched its web facilities by more printed information, and more standardized web applications were built and procured. Netscape browsers system built for user and generating a B2B server to permit the suppliers protected entree to the company’s Intranet. To be more competitive and getting more orders by using web technology, it launched its ANE (Automotive Network Exchange) certificate. It allowed more collaboration when all the suppliers and manufacturers were using the same technology that could best serve in the integration of the supply chain. Moreover, a team was employed for updating the information on its website and making it an easy access so that it could be more useful for users. The recent establishment of Ford was that they tried to build more infrastructure model as was of Dell computers to enhance the supply chain management and supply procedure. But it didn’t go in that direction for the automotive industry as was for computers. Further, Ford did the transformation of its retail network and tried to achieve best in delivering through more considerations. Thus, Ford Motor brings such a success through continuous reengineering the processes using the up-to-date Information Technology Solutions that creates incredible synergies. Conclusion This paper described and analyzed the very concept, “the IT should be considered as an integral part of the supply chain re-engineering process”. It created a literature review where most of researches have declared the impossibility of Supply chain re-engineering without the use of Information technology systems. IT can bring close collaboration among all the supply chain linkages and gives many benefits like, responsiveness, demand management, timely delivery, cost reduction and customer focus. This can be evidenced through the case study of Ford Motor Company that has brought the company excellent success. The steps it took to front the foreign competition are such remarkable progressing. It keeps on updating its infrastructure to better able to cope with market changes and competition. References Akkermans, H. A., Bogerd, P., Yucasen, E. & Wassenhove, L. n. V., 1999. The impact of ERP on Supply chain management: Exploratory findings from Eurpeon Delphi Study, s.l.: s.n. Arora, R. & Aggarwal, D. G., 2010. OPERATIONS MANAGEMENT AT NIKE: From breakdown to Achievement. International Journal of Managemnet Research and Review, July, 2(7), pp. 1293-1297. Grover, V., Fiedler, K. D. & Teng, J. T. C., 1999. Exploring the success of IT enabling Business process re-engineering. pp. 02-18. Gunasekaran, A. & Nath, B., 1997. The role of information technology in the processof reengineering. International Journal of Production economics, 50, pp. 91-104. Gunasekaran, A. & Ngai, E., 2004. Information systems in supply chain integration and managemnet. European Jornal of Operational Research, I(159), pp. 269-295. Koch, C., 2004. Nike Rebounds: How (and Why) Nike Recovered from its Supply Chain. [Online] Available at: www.cio.com/article/32334/Nike_Rebounds_How_abd_Why_Nike_Recovered_fro [Accessed 28 May 2014]. Koperberg, S. X., 2007. The Information Flows and Supporting Technology in the Automotive Supply Chain: a Suppliers Focus. s.l., s.n. Mongelluzzo, B., 2002. Nikes logistics hierarchy. Joc Weekly, 3(12), p. 24. Olsan, D. L., 2011. Supply Chain Information Technology. [Online] Available at: http://www.scribd.com/doc/76163027/Supply-Chain-Information-Technology [Accessed 29 May 2014]. Panda, M., 2013. IT enaled business process Reengineering. International Journal of Information Technology and Management Information System, 4(3), pp. 85-89. Parhi, S., 2008. SCM & ERP Software: Implementation from failure to success. [Online] Available at: http://www.slideshare.net/soumya.parhi/nike-finals-erp-implementation [Accessed 28 May 2014]. Rizky, S., 2003. MIS Case Study. [Online] Available at: http://sim.constructive-learning.net/wp-content/uploads/2012/09/4-NIKE-FAILS-AT-SUPPLY-CHAIN-MANAGEMENT.pdf [Accessed 28 May 2014]. Umeda, S. & Jones, A., n.d. Virtual Supply Chain Management: A Re-Engineering Approach Using Discrete Event Simulation. National Institute of Standards and Technology. Read More