PRDV304: Introduction to Supply Chain Management

Telecommunications and computer technology allow all the actors in the supply chain to communicate among each other. The use of information technology allows suppliers, manufacturers, distributors, retailers, and customers to reduce lead time, paperwork, and other unnecessary activities. It is also mentioned that managers will experience considerable advantages with its use such as the flow of information in a coordinated manner, access to information and data interchange, improved customer and supplier relationships, and inventory management not only at the national level but also internationally. Also the advantages will include supply contracts via internet, distribution of strategies, outsourcing and procurement. All companies are looking for cost and lead time reductions with the purpose of improving the level of service but also to enhance inter-organizational relationships.

A study carried out by Tim states that through the use of communication tools, such as the web sites, industrial organizations can build value in their supply chain relationships. According to Turner, another key for supply chain management success is the use of planning tools. He also mentions that without the use of information systems, companies cannot handle costs, offer superior customer service and lead in logistics performance. Turner indicates that firms cannot effectively manage cost, offer high customer service, and become leaders in supply chain management without the incorporation of top- of-the-line information technologies. Li  identified 14 such information technology tools, among them electronic data interchange (EDI), enterprise resource planning (ERP), internet, and extranets. Li grouped these tools into three groups in terms of their primary purpose: communication tools, resource planning tools, and supply chain management tools. Given this classification, two subfactors are considered in this research: communication and planning tools.

Communication tools

Communication tools are used to facilitate data transfer and communication between the trading parts and this might include EDI, electronic fund transfer (EFT), intranet, internet, and extranet. Electronic Data Interchange (EDI) is used for procurement (purchase orders, order status, and order follow-up). EDI serves as electronic catalogs for customers who can get information, dimensions, and cost about a specific product. EFT provides trading partners with an effective way to transfer funds from one account to another through a value added network (VAN) or the internet. Intranets are corporate local area networks (LAN) or wide area networks (WAN) that communicate through the internet and are secured by firewalls. Usually this type of communication tool is used inside a corporation that features different locations. On the other hand, extranet allows business to communicate and share business with external collaborators with a certain degree of security and privacy. Another type of communication tool is the internet, a uniform interface that allows global communication with the use of browsers. According to O'Neill  the advances in information technology have made communication tools easier for users, allowing its presence in components to extend in the supply chain. Another significant communication tool is the internet based information and communication technology (ICT), mentioned by Tan et al. This study suggested that the use of ICT is a strategic communication tool that improves the organization's competitiveness, allowing cost reduction and permitting the company's effectiveness.

Planning tools

Supply chain management planning tools are intended to integrate the resource planning activities in a firm or organization. Some of the most common planning tools are: material requirment planning (MRP), manufacturing resources planning (MRPII), and Enterprise Resource Planning (ERP). A MRP is a tool that allows an organization to schedule production activities to meet specific deadlines based on the bill of materials, inventory levels, and master production schedule. An improvement of MRP tools is MRPII which integrates manufacturing capabilities and capacities with the benefits of MRP. An ERP tool allows the organization to integrate all processing information tasks related to all processes in the value chain. This is usually a single system that might include order management, inventory fulfillment, production planning, financial planning, and customer service in a company. It is the backbone of the logistic systems for a variety of firms.

Some other IT tools exist that can be used to execute or manage the various activities and relationships in the entire supply chain. These may include: data warehouse (DW), vendor managed inventory (VMI), distribution requirement planning (DRP), and customer service management (CRM).