ISL455U-SUPPLY CHAIN MANAGEMENT
Chapter 7: Information Systems in Supply Chains
Information and Information Management in Supply Chains
The supply chain is defined as a system that includes the whole of the operations, information flow, and physical distribution of the products or services from the raw material stage to the end customer. Supply chain management is the optimization of all processes on the path of a product or service to the consumer throughout the supply chain. The participants of a supply chain include suppliers, manufacturers, distributors, retailers and vendors, transport companies, warehouses and distribution centers, service providers, and customers. Flows arising from supply chain activities are formed among all of these participants. These flows can be categorized mainly as material and product, money, and information flows.
The information in a supply chain must be accurate, accessible, and available. Information with these characteristics provides supply chain managers making the best strategic, tactical, and operational decisions. The availability of information throughout the supply chain ensures that the information is used at all levels by all participants of the supply chain. For successful supply chain management, the communication of the supply chain participants must be open and the participants must share information. The information serves as a link between the various stages of the supply chain, allowing them to coordinate their operations and provide many benefits to maximize total supply chain efficiency.
A successful information management process forms the basis of information sharing; and therefore, information integration, which enables efficient execution of supply chain processes and flows. Hsu et al. (2008) define information sharing within a supply chain as the integration of information systems, decision systems, and business processes used to conduct information searches, manage business operations, monitor business details, and perform other business activities. The need to share information among the various participants throughout the supply chain is crucial. Lotfi et al. (2013) summarize the benefits of information sharing in supply chains as given below:
• Inventory reduction and efficient inventory management • Cost reduction • Increasing visibility • Significant reduction or complete elimination of bullwhip effect • Improved resource utilization • Increased productivity, organizational efficiency, and improved services • Building and strengthening social bonds • Early problem detection • Quick response • Reduced cycle time from order to delivery • Better tracing and tracking
• Earlier time to market • Expanded network • Optimized capacity utilization
Although it has many benefits, the supply chain has some obstacles to ensure information integration. Barriers such as information privacy, lack of information, outdated information, and integration costs can affect the performance of the supply chain information integration. Supply chain participants may need to bear high costs for effective information integration. For this reason, for the investments and initiatives to be made for the integration of the information to be made, the risks mentioned should be analyzed and the obstacles should be tried to be eliminated.
Supply Chain Information Systems
Information systems are defined as systems designed to store, process, and analyze the organizational data. Information systems consist of hardware, software, database, network, and human components to perform the mentioned functions. Generally, information systems aim to provide appropriate and requested information to their users by processing the data they collect and store. Information systems store and analyze data and information, support decision-making and management of business processes. Information systems also provide time and cost savings in large quantities and prevent errors caused by manual works are minimized. Besides, information systems reduce paper consumption in organizations.
The main objectives of information systems and technologies in Supply Chain Management, which are summarized by Simchi-Levi et al. (2003) are given as follows:
• Collecting information through the whole supply chain. • Providing access to data from a single point of contact. • Analyzing, planning, and decision-making using the information of the whole supply chain. • Collaborating with all supply chain participants and operations.
Some of the benefits provided by information systems and technologies can be listed as follows:
• Better monitoring of the supply chain • Better forecasting • Cost reduction by eliminating unnecessary processes in the supply chain and increasing the efficiency of the processes • Shortening the lead time • Better management of inventories and consequently reduction of inventory costs • Decrease in transportation costs • The development of the relations between the supply chain participants
• Effective monitoring of the supply chain performance with real-time reports • Quickly resolving customer dissatisfaction • Ensuring sustainability and reducing negative impacts on the environment • Monitoring the purchasing behavior of customers and responding quickly to changes in customer expectations
Information Systems Used in Supply Chains
Electronic Data Interchange (EDI)
Electronic Data Interchange (EDI) is a standardized and automated method that enables electronic transmission of information and documents between companies or departments with different information management systems. There are many EDI standards used according to the structure and different needs of the organizations.
EDI plays three important roles in supply chain management as given below (Min, 2000).
• Electronic integration; • Information diffusion and sharing • Electronic marketplaces.
Fundamentally, EDI provides working efficiently in the supply chain. The information transmitted through EDI throughout the supply chain can be stock levels, customs certificates, delivery documents, invoices, orders, etc. The usage of EDI annihilates the errors due to manual operations and increases efficiency.
Barcode
A barcode is an image consisting of a series of parallel black and white lines of various thicknesses that brings information about a product when scanned. In the simplest form, barcodes are labels on many products purchased in everyday life. Barcodes prevent errors that may arise during manual entry of product codes to the computer and speed up business processes.
Barcode technology is widely used in supply chains because it provides an efficient integration process. Barcodes can be used to label semi and finished products, stock items, and delivery, which must be tracked in the supply chain. Barcodes are provided to identify the products accurately by computer systems at the transition points as they move through the entire supply chain. Thus, the movement of the products along the supply chain has been accelerated and the errors resulting from data entry errors have been eliminated. Besides, storage processes can be given as examples of other usage areas of barcode technology in supply chain management. Packages to be created during storage such as pallets, boxes, and parcels are labeled with barcodes. In this way, easy, accurate, and fast identification is provided at the points passed within the scope of logistics processes.
Radio Frequency Identification (RFID)
Radio Frequency Identification or RFID can be defined as a technology in which digital data encoded in RFID tags are met by a reader through radio waves. RFID technology can be used to identify and monitor all kinds of objects and living creatures from a distance without touching them.
Tajima (2007) demonstrated the benefits of using RFID in supply chains in general based on supply chain participants. The benefits of RFID throughout the supply chain are listed as follows:
• Reduced shrinkage • Reduced material handling • Increased data accuracy • Faster exception management • Improved information sharing
The benefits of RFID technologies in terms of manufacturer and supplier are stated as production monitoring, quality control, and supply and continuity of production. It is also emphasized that RFID technology has material handling, land use, and asset management benefits for distributors and logistic providers. Lastly, the benefits of RFID for retailers are specified as reduced stockouts, customer service, aftersales service, and lower inventory.
Enterprise Resource Planning (ERP)
Enterprise Resource Planning (ERP) is defined as an integrated management system that enables the efficient use of resources such as labor, machinery, and materials required for the production of goods and services in enterprises. An ERP system carries out a wide range of operations such as planning, accounting, finance, purchasing, inventory management, logistics, and human resources in a holistic way.
Some of the benefits that ERPs provide to businesses can be listed as follows:
• Efficient use of resources and consequent reduction in costs and time • High traceability in the business/supply chain • Efficient inventory management • Decrease in business processes • Automatic preparation of accurate and consistent reports • Effective order tracking • Annihilation of the limitations about language and time • Reaching the fastest and up-to-date information in terms of market, customer, and business • Decrease in errors caused by manual works and paper usage
With ERP, all supply chain data is contained in a single central database. Thus, the need for upto-date data can be achieved through ERP without the need for extra
communication or processing. Thus, operations are simplified and possible errors are prevented. Besides, the need to enter the same type of information into the system many times is eliminated and time is saved. ERP solutions, which are end-to-end integrated systems, provide more regular and error-free execution of supply chain processes. Since ERP provides standardization in all processes, it eliminates misunderstandings and language problems between suppliers. Offering a more efficient and effective supply chain management, ERP provides products and services to customers in a fast and high- quality manner. This results in increased customer satisfaction and preference for the supply chain. Besides, ERP’s holistic perspective on supply chain management enables managers to make more accurate and informed decisions.
Transportation Management Systems (TMS)
A transportation management system (TMS) can be defined as software for planning, executing, and optimizing transportation activities. TMSs can be a software application on their own or integrated into ERP systems.
Some of these advantages can be listed as below:
• With the transportation system followed by TMS, a reduction in transportation costs can be achieved. • TMSs provide route and load optimization. It performs the optimization of the mentioned issues in terms of warehouse, order, customer, and supplier as integrated. This opportunity provided by TMS saves time and money. • As with any information system, TMSs minimize paper usage and increase supply chain visibility. • With a real-time TMS, planning and forecasting work is more successful because inventory levels are instantly correct.
Inventory Management Systems (IMS)
Inventory management systems are the information systems that are basically used for managing the inventory through a business or a supply chain. An inventory management system includes information such as all inventory items and their locations, demands, safety stock quantities, delivery times, and inventory error tracking. Like TMS, inventory management systems can be a module of ERP systems.
Inventory management systems benefit supply chains in terms of keeping stock levels in balance, preventing wrong records, keeping stocks up-to-date, saving cost and time, ensuring warehouse layout, etc. However, since stock systems are an expensive solution, it is vital for the supply chains to examine the feasibility of this information system and to make the investment decision according to the result.
Internet of Things (IoT)
With the development of technology in recent years, the Internet of Things (IoT) and cloud computing technologies have quickly entered our lives. There are numerous definitions of IoT in the literature. As one of them, Gubbi et al. (2013) define IoT as the interconnection of sensing and actuating devices providing the ability to share information across platforms through a unified framework, developing a common operating picture to enable innovative applications. They also emphasized that this interconnection is provided by seamless ubiquitous sensing, data analytics, and information representation with Cloud computing as the unifying framework. IoT is aimed at enabling the interconnection and integration of the physical world and the cyberspace (Ma, 2011).
Lee and Lee (2015) specify five IoT technologies that are widely used for the deployment of successful IoT-based products and services. These technologies are given below:
1. RFID 2. Wireless sensor networks 3. Middleware 4. Cloud computing 5. Applications
In the supply chain management context, IoT expression was first used by Kevin Ashton in 2009 (Ashton, 2009). However, IoT supply chain management practices are fairly new approaches than the other information system applications mentioned. In recent years, worldwide companies such as Amazon, Nissan, Volvo, Decathlon, DHL, and New Maersk Line have been managing their supply chain with IoT. IoT has an important role in sharing and transferring information among the supply chain members. IoT working on sensors and interconnected systems provides flexibility to supply chains. Besides, IoT technology transforms the supply chain into digital and intelligent systems. Supply chains become stronger with IoT solutions powered by artificial intelligence.
IoT can have many applications in its supply chains. IoT generally adds speed, flexibility, agility to supply chains, and makes supply chains smart. With the rapid development of technology, it is inevitable that IoT’s supply chain applications will increase in the coming years.