Information Technology in Supply Chain Management - Essay Example

1. Introduction (250 words) Throughout most of the 20th century, the manufacturing process was overshadowed by Henry Ford's vision of mass production and vertical integration. In this process, the company owns and controls virtually every aspect of its business, from the mines for the ore to the factories that make the rubber. But by the late 1970's, limitations were found in this approach, especially by the Japanese industrialists. Questions arose, such as - if your business is cars, then why take responsibility and spend money to maintain supplies which can be bought cheaper outside Japanese car makers, whose manufacturing lied in the intelligence of its workers, found it easy to shift their process to a lean and better model, resulting in cheaper and better cars (National Science Foundation, 2000). This led way to the concept of forming a network of resources, raw materials, components and finished products rolling in and out of a factory, coined as supply chain management. Supply chain management is the discipline of managing the movement of raw materials into an organisation and the finished products out of the organisation. SCM is an approach that encompasses every process concerned in manufacturing a product, from source to consumption. There has to be a linkage between the suppliers that provide inputs, manufacturing and service support operations that transform the inputs into products and services, and the distribution and local service providers that localize the product (Chase. et al., 2003). This involves building a network that allows a flow of materials, without a break or hitch, throughout the process of production. This flow is fuelled by co-operation, and co-ordination among the diverse channel partners. Supply chain management thrives on improving efficiency and reducing cost of production by focusing on the core competencies of a company. Functions such as procurement of raw materials and distribution of products are outsourced to companies that are better equipped and more cost-efficient to perform them. Strategic planning is necessary to develop a network to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers. Information technology has helped integrate the various components of SCM by building a network that aids in sharing necessary data between all supply chain partners within a system. 5. Information Technology in Supply Chain Management (800 words) Today the survival of most companies depends on intelligent supply chain decisions. Firms today have to take full advantage of the internet to become more responsive and to better penetrate customer markets (Chase. et al., 2003). With the advent of IT and internet, communication between supply chain partners has become easier and more cost-efficient. Internet has paved way for integrating the varied partners in the SCM system, to bring them closer through the power of electronic communication. Automating SCM is the process of building an electronic information network for transactions among supplier-manufacturer-retailer-customer in virtual space using IT. Every company in a large supply chain or distribution chain is dependent on each other. Thus, the unit of value creation has shifted from individual firms to value-networks that consist of partner firms and their close collaboration. SCM consists of choosing what work to outsource to suppliers (make vs. buy) and selecting suppliers to use and negotiating contracts - both the legalities and the culture of the supply chain relationships. (Milak, 2006) One area where Ford and Toyota have diverged is supplier relations. Armed with cost and quality control at the process level, Toyota can concentrate on a value-based enterprise product strategy focused on customer value. Instead of building and maintaining collaborative supplier strategies, Ford and other American companies concentrate their expertise on mere cost-cutting strategies. Toyota recognizes that fulfilling the enterprise potential of TPS requires a substantial cultural shift toward collaboration and continuous improvement, both internally and externally. Toyota diverges from its competitors like Ford on make-versus-buy decisions. The company is not as interested in outsourcing as its American competitors. Like its material suppliers, Toyota also keeps its R&D close to production (Industry Week, 2006). Ford In late 1999, Ford announced the introduction of internet-based supply chain management systems. With its 30,000 suppliers, Ford planned to do its procurement via the internet. With such an enormously complex supply chain, the company wanted to achieve significant savings and efficiency gains through shifting all their suppliers onto a common, more advanced technology (Brookes and Wahhaj, 2001). Since the Ford 2000 initiative was introduced in 1995, groups such as the Ford Systems Integration Centre (FSIC) are continually rethinking existing methods and looking for new and innovative ways to improve their communications and systems processes. FSIC selected Microsoft NetMeeting 2.0 as the comprehensive solution for its real-time, PC data conferencing needs. With its rich functionality, NetMeeting conferencing software sets a precedent for communication and collaboration over the Internet and corporate intranet (Microsoft, 1997). In February 2001, a project called V-Chain (Virtual Enterprise for Supply Chain Management) was launched to improve SCM at Ford's largest manufacturing plant in Valencia. An infrastructure called Vitria Business Ware was implemented at Ford to integrate the various applications and systems. Analysis and redesign of the business processes, implementation of an intra-business and inter-business integration infrastructure, and development of new vertical business applications were the main performance lines of the project. The project has become a very important tool for Ford, for its suppliers and for the logistical operator. It is the basis for the overall management of the supply chain facilitating, stock analysis and management, management and control of the exceptions and variations in the production chain, reduction of the overtime and urgent dispatches required, better management and control of obsolete items, improvement of the stability and regularity of demand and production, etc. Ford's supply chain for steel is a complex, multi-tier network made of Ford's in house procurement group, steel producers and large and small contract manufacturer stampers. Ford depends on these companies to co-ordinate their activities to ensure that the carmakers' assembly plants receive exact specified materials on precise schedules. Ford launched a centralized demand aggregation and remarketing program aimed at gaining maximum control and cost-saving in buying steel. Ford selected Dallas based NewView to design and implement an automated supply chain system. NewView featured a single, integrated and hosted application that crossed enterprise boundaries and provided all partners involved with enhanced visibility, control and collaboration (Supply Chain Systems Magazine, 2003). This new system helped Ford in minimising cost and maximising efficiency between partners in the steel supply chain by eliminating old, manual, paper-based systems. In 1998, Ford undertook a program to over-haul its service-parts supply chain and replace it with a more efficient and competitive new software system. The assignment of inventory to various distribution centres didn't take into account the special characteristics of each part - where it was needed, how fast it typically moved, how critical was its nature (Bowman, 2004). Ford targeted several key areas for improvement, including supplier lead time, packager and throughput time, warehouse receipt and item availability time, and transportation. Ford's intention in hiring Cat Logistics in the U.S. was to secure a partner with expertise in the automotive supply chain, laying the foundation for development of a new information system (Bowman, 2004). The deal between Ford and Cat Logistics was struck towards the end of 2001 and SAP came aboard in July 2002. One of SAP's biggest challenges was integration of the numerous systems that controlled processes across Ford's supply chain (McKelvey, 2004). The process of developing this system is still in place, and has stayed on schedule since its inception. Toyota Toyota considers the internet marketplace only as a means to efficiency and not an end in itself. Toyota has a strict policy that considers their suppliers as their partners. Because the procurement process involves not only the price but also the quality, lead time and delivery of components, Toyota is not for putting competitive components on an open market (Shirouzu, 2000). Embodied within its Toyota Production System or TPS, is the philosophy and elements of Japanese technology; reduction of waste and improvement of quality. TPS, the production system developed by Toyota Motor Corporation, was developed to improve quality and productivity and is predicated upon two philosophies that are central to the Japanese culture: elimination of waste and respect for people (Chase. et al., 2003). With the help of TPS, Toyota is able to produce superior quality products and differentiate them from its competitors in its obtaining, manufacturing, monitoring and distribution patterns. Toyota does not differentiate between its technology strategy and business process strategy; both are incorporated in its TPS. TPS is supported by information technology by enabling the business processes that help Toyota eliminate waste, operate with virtually no inventory and continually improve production. Technology plays a critical role by supporting, enabling and bringing to life on a mass scale, the processes derived by adhering to TPS (Chase. et al., 2003). Over the years, Toyota refined a number of other concepts and production methods, supported and enable with the help of information systems. One such is the Assembly Line Control System (ALCS) software. To ensure that parts required in the manufacturing unit arrives just when needed, Toyota employs one of the most sophisticated supply chain systems in manufacturing and working closely with suppliers (Mel Duvall, 2006). Vendors are linked online with a customer to share production scheduling and input needs data (Chase. et al., 2003). Whenever there is a requirement for a specific part, Toyota's instructions are provided to its suppliers by Toyota's proprietary, ALCS software. Sophisticated monitoring software such as Activplant's Performance Management System, alerts operators and prevents them from producing defective products. An Internet portal, Dealer Daily is used to allow dealerships to swap car inventories so that customers are not left waiting longer for the vehicle they want (Duvall, 2006). These tools ensure that no production time is wasted by a worker. Wherever possible, Toyota uses visual controls, or Andons, such as overhead displays, plasma screens and electronic dashboards to quickly convey the state of work. Newer plasma screens, tied into assembly line equipment, provide information such as which machine malfunctioned, the operator and the exact conditions (speed, temperature) when it broke down. Toyota uses a range of low-cost, highly reliable devices throughout its operations to prevent defects, called a PokaYoke. It could as simple as a beam of light that sends a signal to a computer when a hand or some other object interrupts its flow, so that there is no stoppage of work flow (Duvall, 2006). And finally, rather than hear about a problem, Toyota requires its workers, team leaders and executives to go and see a problem directly and to work collectively on a solution. And for this in mind, at least 50% of Toyota's information systems workers are stationed at plant sites to work directly with operations (Duvall, 2006). 7. Competitive advantages derived from supply chain management (400 words) When a company is able to deliver more value to a customer than its competitors, then the company is said to have a competitive advantage. Porter (1980) identified two basic types of competitive advantage - cost leadership and differentiation. Achieving cost leadership means that the company sets out to be the low cost producer in its industry while achieving differentiation means that the company seeks to be unique in its industry within the parameters appreciated by the buyers. With supply chain management, the value and service provided to the end customer can be enhanced, particularly reducing the time needed to deliver vehicles and meeting deadlines, thereby contributing to increase the competitiveness of the company. Many companies actually achieve competitive advantage by leveraging the management of their supply chains. Two of the most powerful SCM competitive advantage principles are - 1) Stick to your core competencies and outsource non-core competencies and 2) Coordinate these functions across supply chain partners (John. T. Mentzer, 2007). Ford In its Ford 2000 strategy, Ford reduced the number of its raw material suppliers so that the vendors may produce in sufficient volume to generate economies of scale and thereby pass the savings along to Ford in terms of lower raw material prices (Treece, Kerwin & Dawley, 1995). Supply Chain management has helped Ford gear for the challenges of globalisation. Ford now serves customers in markets like China and competes with a growing number of companies from all regions of the world. Ford's increasing supply base is the backbone of its progress towards global presence. In 1999 Ford was the strongest western performer in Asia with a market share of five per cent. Competitive production has helped Ford establish a significant place in the Asian market. In its plant in Thailand, Ford buys 70% of its components locally, mostly from plants belonging to suppliers it uses elsewhere in the world (Frederik Balfour, 2000). Ford has its biggest suppliers spend their own scarce capital to set up shop right next door. Several auto-part companies set up shop a stone's throw away from Ford's assembly plants. This short pipeline also helps in solving quality problems as parts can be bought and fixed quickly. Ford's suppliers carry heavy fixed costs as they cater solely to a single Ford plant, but in return they acquire a lock on a big chunk of Ford's business. (Kathleen Kerwin, 2004). This mutual relationship helps cut cost by reducing miles between suppliers and the company, leading to a distinct competitive advantage. At Ford Motor Company, partnerships are created to better connect with their customers. Ford carefully selects those alliance opportunities that enable them to deliver better ideas into the marketplace in new and exciting ways. A Partner Recognition New Vehicle Purchase Plan (X-Plan) is offered by Ford Motor Company to the employees, retirees and spouses of selected suppliers, business partners, fleet partners and special organizations having a unique relationship with the Company. Through the X-Plan, Ford assists the individuals eligible for this program by providing two personal identification numbers (PINs) per year that they may use to purchase new vehicles. This helps the company build distinctive relationships with their supply chain partners. Ford also builds alliances with Percepta, a provider of customized outsourcing solutions such as CRM to the automotive industry. Percepta was established in 2000 as a partnership between TeleTech Holdings and Ford. This alliance is set to strengthen customer relations by developing individualized relationships with customers. By joining forces with a division of UPS Supply Chain Solutions, Ford aims to reduce the time required for delivery of vehicles from plant through the dealer to the final customer. UPS Supply Chain Solutions is a company that specialises in turning the supply chain of the company into a competitive advantage with advanced technologies and experienced professionals. Steel is one of the basic and the key raw material in the manufacturing of cars. To maximise efficiency and operational savings, Ford established alliances with NewView to launch a steel-e-commerce procurement system. Toyota Toyota, the largest automaker in Asia, with a 23.4% market share in Asia in 1999, hopes to increase its global market share by 50 percent within the next ten years. In 2001, Toyota's global market share hovered around 10 percent, while Ford's held around 12.8 percent and General Motors, the world's largest automaker, held 14.9 percent of the global market. Toyota aims to convert its 10 percent to 15 by the early 2010's. In the 1990s the Toyota Motor Company came up with the concept of lean manufacturing. The overall benefits of lean manufacturing such as reduced inventory, demand driven manufacturing, elimination of waste, increased value within the supply chain, workplace organization and management, quick changeover, and quality products (Chaneski, 2005). The lean concept stresses zero inventory at all stages of production, eliminating waste as much as 75%, and improving quality and inspection by 92%. Japanese companies' successes in manufacturing are partly attributed to implementing the lean concept (Hassan B Ndahi, 2006). The fundamental reason for Toyota's global competitive advantage lies in its corporate philosophy known as the TPS. The system depends partly on the human resources of the company and majorly on the highly efficient network of suppliers and components manufacturers. Toyota has successfully penetrated the global market and established a world-wide presence by virtue of its productivity. The company's approach to both product development and distribution is very consumer-friendly and market-driven (Vaghefi, 2001). Toyota's biggest competitive advantage has been created through collaborations which lead to sharing information, knowledge, resources and assets. While comparing the cost and quality of a Chrysler car with a comparable Toyota model in 1985, it was seen that the total cost of components (70 percent of which were provided by suppliers) for the Toyota model was more than 30 percent below that of the Chrysler car. The differences were not confined to cost, but also extended to quality and speed of new model cycle time. Customer satisfaction of Toyota was 50 percent higher and the company could develop new models in 35 percent less time (Dyer, 2000). Competitive advantage can be achieved for a company that has 1) the most geographically concentrated facilities with greatest site specialization will provide lowest inventory, transportation and co-ordination costs; 2) the highest physical asset specialization for differentiation and quality; and 3) the greatest human specialization for better co-ordination of interdependent activities. Toyota's production network is characterized by greater specialization in all three types mentioned above, even when compared to its Japanese competitors ( Dyer, 2000). As companies outsource more of their value chain to their suppliers, their competitive advantage depends increasingly on the performance of those suppliers. Toyota depends on suppliers for more than 70 percent of its vehicles and suppliers play a key role in building quality into Toyota vehicle. Over the years, Toyota has invested heavily in networks of communication among its suppliers, to promote spread of successful practices, involving both tacit and explicit knowledge. Toyota decentralizes its knowledge base by insisting on non-proprietary and subsidized knowledge-sharing activities within the extended enterprise. This has enabled Toyota to gain the co-operation and energetic participation of its suppliers, along with their loyalty and devotion (Dyer, 2000). Other car manufacturers around the world have been unable to overcome Toyota's advantages in the synergy of human resource management, supplier networks and distribution systems in the highly competitive car market. Toyota maintains a diverse supplier base which reflects the manufacturer's diversity of customers and its employees. Partnering with suppliers with a diversity of ideas, in addition to providing support goods for the product, creates a significant competitive advantage for the company. 8. Other Recommendations Ford, though the pioneer in efficient production practices like the assembly line technology, today lags behind Toyota. There are enormous opportunities to eliminate waste, improve quality, and reduce cycle time by connecting and managing multiple tiers of the supply chain. The first is identifying and connecting the chain. The Internet provides this opportunity. Before the Internet there were ways of managing the supply chain, but there was no way of hooking the multiple tiers together. The second problem is the type of suppliers in the lower tiers. Typically, these are smaller suppliers with limited resources. Helping smaller suppliers upgrade their capabilities and participate constructively in the supply chain will be a major challenge. RFID or Radio-frequency identification will be a major advance in supply chain management, but enterprises like Ford will need to do considerable upfront planning and testing to successfully implement and integrate the technology. RFID will have a significant impact on every facet of supply chain management-from the mundane, such as moving goods through loading docks, to the complex, such as managing terabytes of data as information about goods on hand is collected in real time. Supply chain management is the effort of continuously improving supply chain -network-partners performance. Collaborative manufacturing goes one step further to include supply chain partners in the virtual corporation as if they were part of the company (McClellan, ). Ford needs to concentrate more of its energy on striking collaborations with supply chain partners, like Toyota, so as to reap benefits of competitive advantage. Most automotive companies are organized by region with little-to-no interdependency among regions. As a result of globalization, these companies are likely to move to a primarily functional or process-oriented organization that spans regions, time zones, languages, and cultures. As different markets begin to share platforms, parts, and capacity supply, companies will have to develop new processes to quickly aggregate and disaggregate their demand, balance it against global supply, and perform intelligent allocation of constrained supplies to the "right" demand. Sales and operations planning processes will require increased attention since events and decisions in one part of the organization will now have a truly global impact. Toyota on the other hand has pioneered lean productions practices and is the leading automotive producer. Toyotas efficiencies in manufacturing and supply chain practices place it in a strategic position to take advantage of the next level of possibility. The present times call for maximum customer indulgence. Satisfying the customer to a degree where he or she can customize and choose the product even before it is manufactured. This can be achieved only on attaining an almost perfect supply chain management system. Toyota can achieve with cars what dell achieved with customized selling of personal computer, thereby allowing customers to choose what their car would be like almost from the design stage before being submitted to the manufacturing stage. At the manufacturing stage the company can just call for the required materials and make a vehicle in the way the customer wanted it to be. 8. Conclusion Taking cues from experts in the field, Ford & Toyota are now considering a possible collaboration. Though the specifics are not clear, the companies are in talks for a future collaboration. Ford has a bunch of excess production capacity based in the U.S., while Toyota has lots of technology to offer, as well as experience on building a rock solid reputation for fine automobiles. It is known that supply chain management is, as a research subject, still in its infancy, and in a phase of strong development. This reflects upon the usage of advanced logistical applications in companies; not all are aware of the possibilities that modern logistics could bring to their operations. To recognise the significance of logistics, companies have to understand that it could be a source of competitive advantage (Nyberg and Henriksson, 2005). The more integrated the flow of data between customers and suppliers, the easier it becomes to balance supply and demand across the entire network. Web-based technologies are now indispensable to demand forecasting, inventory planning, and customer relationship management. It is not just about the synergy of partners in the supply chain, but also about sharing real-time demand information and being responsive to customers. Another growing challenge for the automotive industry would be the slow-down of the growth in demand for automobiles in established markets in North America, Europe and Japan, while developing markets, particularly in Asia, are projected to account for more than 90 percent of the total sales growth over the next decade (Ford Motor Company, 2007). It is the customers who add the ultimate value to the product and hence should be catered to with more and more efficiency and care. Companies need to aim towards customer satisfaction by means of competitive pricing, improved quality, better reach, superior technology, valuable financing options and better after sales service. Global sourcing is now a competitive requirement of doing business. Companies with global presence need to find effective and cost-efficient ways of supply chain management without waste of time, all the while aiming for improved quality. Directing the offshore supply chain, as to costs, performance, inventory, visibility, collaboration, integration and agility is an imperative for corporate success. 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