Recent development in the field of SCM by Nimisha Nandan

7/30/2019 Recent development in the field of SCM by Nimisha Nandan

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Recent Development in the field ofSupply Chain Management

Nimisha.M.N

Roll No : 23, MBA FT, Sem III,School of Management Studies

CUSAT, Kochi - 22


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Abstract: This report discusses the recent developmentswhich have taken place in the supply chain management.

Supply chain management is the practice of coordinatingthe design, procurement, and flow of goods, services,information and finances, from raw materials to partssupplier to manufacturer to distributor to retailer toconsumer. Recent advances in supply chaintechnological support, process design, and managementstrategies have created an increasingly complex set ofadministrative, technological, and organizational issuesthat must be resolved if they are to lead to competitiveadvantage.

Key Words: SCM, Benchmarking, ERP, EDI, JIT, QR


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1.0 INTRODUCTION

1.1. General Information

Supply Chain Management includes product design, order generation,order taking, information feedback and the efficient and timely deliveryof goods and services, and typically involves many or more of thebusiness functions in firms that are linked to specific supply chains. Therise of concepts like JIT, quick response, and supply chain integration

has resulted in optimization through seamless connectivity of suppliers,intermediaries and customers. Efficient and effective supply chainmanagement assists an organization in getting the right goods andservices to the place needed at the right time, in proper quantity and atacceptable cost. Managing this process involves developing andoverseeing relationships with suppliers and customers, controllinginventory, and forecasting demand. Recent developments andadvances in supply chain technological support, process design, andmanagement strategies have created an increasingly complex set ofadministrative, technological and organizational issues that must beresolved if they are to lead to competitive advantage.

1.1 Creation Era

The term supply chain management was first coined by a U.S. industryconsultant in the early 1980s. However, the concept of a supply chainin management was of great importance long before, in the early 20thcentury, especially with the creation of the assembly line. Thecharacteristics of this era of supply chain management include theneed for large-scale changes, re-engineering, downsizing driven bycost reduction programs, and widespread attention to the Japanese

practice of management.

1.2 Integration Era


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This era of supply chain management studies was highlighted with thedevelopment of Electronic Data Interchange (EDI) systems in the

1960s and developed through the 1990s by the introduction ofEnterprise Resource Planning (ERP) systems. This era has continuedto develop into the 21st century with the expansion of internet-basedcollaborative systems. This era of supply chain evolution ischaracterized by both increasing value-adding and cost reductionsthrough integration.

1.3 Globalization Era

The third movement of supply chain management development, theglobalization era, can be characterized by the attention given to global

systems of supplier relationships and the expansion of supply chainsover national boundaries and into other continents. Although the use ofglobal sources in the supply chain of organizations can be traced backseveral decades (e.g., in the oil industry), it was not until the late 1980sthat a considerable number of This transition also re-focused thefundamental perspectives of each respective organization. OEMsbecame brand owners that needed deep visibility into their supplybase. They had to control the entire supply chain from above instead offrom within. Contract manufacturers had to manage bills of materialwith different part numbering schemes from multiple OEMs and supportcustomer requests for work -in-process visibility and vendor-managed

inventory (VMI).

The specialization model creates manufacturing and distributionnetworks composed of multiple, individual supply chains specific toproducts, suppliers, and customers who work together to design,manufacture, distribute, market, sell, and service a product. The set ofpartners may change according to a given market, region, or channel,resulting in a proliferation of trading partner environments, each with itsown unique characteristics and demands organizations started tointegrate global sources into their core business. This era is

characterized by the globalization of supply chain management inorganizations with the goal of increasing their competitive advantage,value-adding, and reducing costs through global sourcing.


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1.4 Specialization EraPhase One: Outsourced Manufacturingand Distribution

In the 1990s industries began to focus on core competencies andadopted a specialization model. Companies abandoned verticalintegration, sold off non-core operations, and outsourced thosefunctions to other companies. This changed management requirementsby extending the supply chain well beyond company walls anddistributing management across specialized supply chain partnerships.

.

1.5 Specialization Era

Phase Two: Supply Chain Management asa Service

Specialization within the supply chain began in the 1980s with theinception of transportation brokerages, warehouse management, andnon-asset-based carriers and has matured beyond transportation andlogistics into aspects of supply planning, collaboration, execution andperformance management.

At any given moment, market forces could demand changes fromsuppliers, logistics providers, locations and customers, and from any

number of these specialized participants as components of supplychain networks. This variability has significant effects on the supplychain infrastructure, from the foundation layers of establishing andmanaging the electronic communication between the trading partnersto more complex requirements including the configuration of theprocesses and work flows that are essential to the management of thenetwork itself.

Supply chain specialization enables companies to improve their overallcompetencies in the same way that outsourced manufacturing anddistribution has done; it allows them to focus on their core

competencies and assemble networks of specific, best-in-classpartners to contribute to the overall value chain itself, therebyincreasing overall performance and efficiency. The ability to quicklyobtain and deploy this domain-specific supply chain expertise without


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developing and maintaining an entirely unique and complexcompetency in house is the leading reason why supply chain

specialization is gaining popularity.

Outsourced technology hosting for supply chain solutions debuted inthe late 1990s and has taken root primarily in transportation andcollaboration categories. This has progressed from the ApplicationService Provider (ASP) model from approximately 1998 through 2003to the On-Demand model from approximately 2003-2006 to theSoftware as a Service (SaaS) model currently in focus today.


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2.0 SUPPLY CHAIN MANAGEMENT 2.0 (SCM 2.0)

Building on globalization and specialization, the term SCM 2.0 hasbeen coined to describe both the changes within the supply chain itselfas well as the evolution of the processes, methods and tools thatmanage it in this new "era".

Web 2.0 is defined as a trend in the use of the World Wide Web that ismeant to increase creativity, information sharing, and collaborationamong users. At its core, the common attribute that Web 2.0 brings isto help navigate the vast amount of information available on the Web in

order to find what is being sought. It is the notion of a usable pathway.SCM 2.0 follows this notion into supply chain operations. It is thepathway to SCM results, a combination of the processes,methodologies, tools and delivery options to guide companies to theirresults quickly as the complexity and speed of the supply chainincrease due to the effects of global competition, rapid pricefluctuations, surging oil prices, short product life cycles, expandedspecialization, near-/far- and off-shoring, and talent scarcity.

SCM 2.0 leverages proven solutions designed to rapidly deliver resultswith the agility to quickly manage future change for continuousflexibility, value and success. This is delivered through competencynetworks composed of best-of-breed supply chain domain expertise tounderstand which elements, both operationally and organizationally,are the critical few that deliver the results as well as through intimateunderstanding of how to manage these elements to achieve desiredresults. Finally, the solutions are delivered in a variety of options, suchas no-touch via business process outsourcing, mid-touch via managedservices and software as a service (SaaS), or high touch in thetraditional software deployment model.


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3.0 SUPPLY CHAIN BUSINESS PROCESS INTEGRATION

Successful SCM requires a change from managing individual functionsto integrating activities into key supply chain processes. An examplescenario: the purchasing department places orders as requirementsbecome known. The marketing department, responding to customerdemand, communicates with several distributors and retailers as itattempts to determine ways to satisfy this demand. Information sharedbetween supply chain partners can only be fully leveraged throughprocess integration.

Supply chain business process integration involves collaborative workbetween buyers and suppliers, joint product development, common

systems and shared information. According to Lambert and Cooper(2000), operating an integrated supply chain requires a continuousinformation flow. However, in many companies, management hasreached the conclusion that optimizing the product flows cannot beaccomplished without implementing a process approach to thebusiness. The key supply chain processes stated by Lambert (2004)

are:

Customer relationship management Customer service management Demand management

Order fulfilment Manufacturing flow management Supplier relationship management Product development and commercialization Returns management

Much has been written about demand management. Best-in-Classcompanies have similar characteristics, which include the following: a)Internal and external collaboration b) Lead time reduction initiatives c)Tighter feedback from customer and market demand d) Customer levelforecasting

One could suggest other key critical supply business processes whichcombine these processes stated by Lambert such as:

a. Customer service management
http://en.wikipedia.org/wiki/Process_integrationhttp://en.wikipedia.org/wiki/Customer_relationship_managementhttp://en.wikipedia.org/wiki/Customer_relationship_managementhttp://en.wikipedia.org/wiki/Process_integration


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b. Procurementc. Product development and commercialization

d. Manufacturing flow management/supporte. Physical distributionf. Outsourcing/partnershipsg. Performance measurement

Customerservice management process

Customer Relationship Management concerns the relationshipbetween the organization and its customers. Customer service is thesource of customer information. It also provides the customer with real-time information on scheduling and product availability through

interfaces with the company's production and distribution operations.Successful organizations use the following steps to build customerrelationships:

determine mutually satisfying goals for organization andcustomers

establish and maintain customer rapport produce positive feelings in the organization and the customers

3.1 Procurement process

Strategic plans are drawn up with suppliers to support the

manufacturing flow management process and the development of newproducts. In firms where operations extend globally, sourcing should bemanaged on a global basis. The desired outcome is a win-winrelationship where both parties benefit, and a reduction in time requiredfor the design cycle and product development. Also, the purchasingfunction develops rapid communication systems, such as electronicdata interchange (EDI) and Internet linkage to convey possiblerequirements more rapidly. Activities related to obtaining products andmaterials from outside suppliers involve resource planning, supplysourcing, negotiation, order placement, inbound transportation,storage, handling and quality assurance, many of which include the

responsibility to coordinate with suppliers on matters of scheduling,supply continuity, hedging, and research into new sources or programs.

3.2 Product development and commercialization
http://en.wikipedia.org/wiki/Service_managementhttp://en.wikipedia.org/wiki/Service_management


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Here, customers and suppliers must be integrated into the product

development process in order to reduce time to market. As product lifecycles shorten, the appropriate products must be developed andsuccessfully launched with ever shorter time-schedules to remaincompetitive. According to Lambert and Cooper (2000), managers of theproduct development and commercialization process must:

1. coordinate with customer relationship management to identifycustomer-articulated needs;

2. select materials and suppliers in conjunction with procurement, and3. develop production technology in manufacturing flow to

manufacture and integrate into the best supply chain flow for the

product/market combination.

3.3 Manufacturing flow management process

The manufacturing process produces and supplies products to thedistribution channels based on past forecasts. Manufacturingprocesses must be flexible to respond to market changes and mustaccommodate mass customization. Orders are processes operating ona just-in-time (JIT) basis in minimum lot sizes. Also, changes in themanufacturing flow process lead to shorter cycle times, meaningimproved responsiveness and efficiency in meeting customer demand.

Activities related to planning, scheduling and supporting manufacturingoperations, such as work-in-process storage, handling, transportation,and time phasing of components, inventory at manufacturing sites andmaximum flexibility in the coordination of geographic and finalassemblies postponement of physical distribution operations.

3.4 Physical distribution

This concerns movement of a finished product/service to customers. Inphysical distribution, the customer is the final destination of a marketingchannel, and the availability of the product/service is a vital part of each

channel participant's marketing effort. It is also through the physicaldistribution process that the time and space of customer servicebecome an integral part of marketing, thus it links a marketing channelwith its customers (e.g., links manufacturers, wholesalers, retailers).


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3.5 Outsourcing/partnerships

This is not just outsourcing the procurement of materials andcomponents, but also outsourcing of services that traditionally havebeen provided in-house. The logic of this trend is that the company willincreasingly focus on those activities in the value chain where it has adistinctive advantage, and outsource everything else. This movementhas been particularly evident in logistics where the provision oftransport, warehousing and inventory control is increasinglysubcontracted to specialists or logistics partners. Also, managing andcontrolling this network of partners and suppliers requires a blend ofboth central and local involvement. Hence, strategic decisions need to

be taken centrally, with the monitoring and control of supplierperformance and day-to-day liaison with logistics partners being bestmanaged at a local level.

3.6 Performance measurement

Experts found a strong relationship from the largest arcs of supplierand customer integration to market share and profitability. Takingadvantage of supplier capabilities and emphasizing a long-term supplychain perspective in customer relationships can both be correlated with

firm performance. As logistics competency becomes a more criticalfactor in creating and maintaining competitive advantage, logisticsmeasurement becomes increasingly important because the differencebetween profitable and unprofitable operations becomes more narrow.A.T. Kearney Consultants (1985) noted that firms engaging incomprehensive performance measurement realized improvements inoverall productivity. According to experts, internal measures aregenerally collected and analyzed by the firm including

1. Cost2. Customer Service

3. Productivity measures4. Asset measurement, and5. Quality.
http://en.wikipedia.org/wiki/Logisticshttp://en.wikipedia.org/wiki/Logistics


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External performance measurement is examined through customerperception measures and "best practice" benchmarking, and includes

1) customer perception measurement, and 2) best practicebenchmarking.Components of Supply Chain Management are 1. Standardization 2.Postponement 3. Customization
http://en.wikipedia.org/wiki/Best_practicehttp://en.wikipedia.org/wiki/Best_practice


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4.0 THE E-SUPPLY CHAIN

High speed, low cost, communication and collaboration with yourcustomers and suppliers are critical success factors to more effectivelymanage your supply chain. Then, the e-Supply Chain is very likely inyour future. The very essence of Supply Chain Management iseffective information and material flow throughout a network ofcustomers and suppliers. The potential for improved productivity, costreduction and customer service are enormous. Of course, the benefitsare based on effectively employing the right processes and supportinginformation technology. This is a higher priority than ever before.Providing the right amount of relevant information to those who need toknow it, when they need to know it is, in fact, effective Supply Chain

Management from an information point of view.

Good supply chain practitioners know that information should bepassed on only to those who need to know it, in the form they need tohave it. Demand information, inventory positions, order-fulfilment,supply management and a whole host of other information exchangeactivities will change how we sell products, supply products and makeand receive payments for goods and services. The e-Supply Chain willhave customers and suppliers seamlessly linked together, throughoutthe world, exchanging information almost instantly. The velocity ofrelevant information flow will be so fast that, as a result, responding to

the inevitable changes in expected vs. actual customer demand willmandate demand-driven manufacturing and supporting processes thatprovide for faster changes in the actual material flow to match demand.Fast access to relevant supply chain information can pay-offhandsomely in lower costs, less inventory, higher quality decision-making, shorter cycle times and better customer service. One of thebiggest cost savings is in the overhead activity associated with lots ofpaperwork and its inherent redundancies. The non-value added time ofmanual transaction processing can instead be focused on higherrevenue creation activities without proportional increases in expense.The result in cycle time compression, lower inventories, decision-

making quality, reduced overhead costs, among other benefits makese-Supply Chain Management a highly desirable strategy. Supply chainprocesses can be more streamlined and efficient than could have beenimagined just a few years ago. For many companies, more effective


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Supply Chain Management is where the profit and competitiveadvantages will emerge and be sustained.

Figure 1.1. Supply chain in e-business environment


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5.0 EMERGING TECHNOLOGIES TO SUPPORT SUPPLY CHAINMANAGEMENT

New technologies that turn raw data into information and knowledgeare changing the way the firms operate. In this context, various formsof supply chain management (SCM) applications are among theenabling technologies transforming how business markets operate. ITresearch agencies expect SCM applications sales to triple in 2004 inpart owing to developments in related technologies that support SCMapplications.

Prominent vendors in SCM applications market include i2Technologies, SAP AG, Oracle, and Invensys, which produce a range

of hardware and software components that span communication,optimization, and modelling systems. The hardware and softwarecomponents that support SCM applications can be collectively referredto as the supply chain infrastructure

The important developments in SCM and supply chain infrastructure,including technologies in optimization and modelling systems, whichhave had a remarkable imprint on supply chain decision-making areindicative in nature and shed light on the trajectory these developmentsare taking, but are not meant to be comprehensive and do notencompass all the facets of supply chain management and SCM

applications.

5.1 Data Capture and Transmission

In the area of communication, automatic data capture (ADC)technology is fast becoming an important tool to support businesstransactional information and supply chain processes. ADC systems,which are predicted to grow by almost 16% per year [9], include barcode scanning, voice recognition, and radio frequency data capture(RFDC) systems. The devices supporting ADC systems range fromscanners, keyboards, PCs, laptops, servers, PDA devices, cell phones,

pagers, and vehicle emounted instruments.

One cannot hope to know the status of items flowing through thesystem without collecting data in a usable form as ADC systems do.


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Bar code scanning systems are currently integral to the supply chaininfrastructure of many firms, and radio frequency identification (RFID) is

gaining increasing acceptance too. While RFID systems are moreexpensive than bar codes, they can be read at very high speeds, andcan collect 40 times the data collectible through traditional bar codes,which can help minimize or eliminate information lag: the gap betweenan item being sold or shipped and records showing it in need ofreplenishment.

The elimination of this gap would ultimately reduce replenishment timeitself. RFDC is also extending beyond data capture as it becomestechnically and commercially feasible at the transmission end,transmitting and even managing information generated by bar codes

and warehouse management systems (WMS) across the supply chain.Further, recent development efforts include new standards that enablecommunication between radio frequency terminals of differentsuppliers. Emerging technologies in this area will a lso allow wireddevices like telephones to operate on the same data network as a radiofrequency handheld unit, but without the need to dial into localtelephone lines. With increased frequency allocations and efficientcoding of information over wireless channels, mobile and wirelessnetworks are likely to become the networks of choice over the wirednetworks.

Clearly, the devices and supporting technologies used for data captureand transmission have increased considerably. ADC is just a part of theinfrastructure. Once data is tracked and transmitted, it must berecorded and analyzed to make intelligent decisions. At the corporatelevel, enterprise resource planning (ERP) acts as the central nervoussystem of an enterprise [8]. At the next level, supply chain planning andoptimization software analyze data and transactions to give managersa range of decision choices. Recent developments in optimizationsoftware and modelling language have generated an explosion inimplementation and use of SCM applications across companies andindustrial sectors.


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6.0 OPTIMIZATIONTHE BACKBONE OF SCM

Managers have increasingly found the latest versions of optimizationsoftware capable of providing reasonably good solutions to industrialproblems in a short time span, owing to advances in algorithmictechniques and heuristics in artificial intelligence (AI) and computerscience. Optimization software now embeds advanced algorithmictechniques such as constraint programming, a declarative, relationalstyled programming tool originally developed in the 1980s and usedsolely in the computer science arena, and now being usedcomplimentarily with mathematical programming to solve managementand business problems.

ITs constraint component addresses the issues of satisfiab ility, whilethe programming level component assembles the steps to solve theproblem [6]. The remarkable aspect of this doctrine is that decisionvariables of a mathematical programming problem can be treated asprogramming language variables within a computer-programmingenvironment. This flexibility allows the user or manager to programdifferent solution strategiesalgorithmic techniques available forsolving a particular class of problemfor mathematical programmingproblems. Constraint programming systems are versatile in that theyfacilitate the selection of an appropriate strategy based on the usersunderstanding of the underlying problem structure. Some well-known

constraint programming applications or systems are embedded intooptimization software, such as PROLOG and ECLiPSe , to solve largeand complex problems with impossibly long solution times.

A practical use of such systems involves exploring a hybrid approach tosolve problems without writing the application again. The architectureof a constraint programming system is not suitable for finding theoptimal solution, but for quickly arriving at a feasible solution of largeand complex problems in a spectacularly short time. The challenge stilllies in developing models to support supply chain decision making

using algorithmic techniques like constraint programming. To takeadvantage of such techniques, the manager still needs to know how touse the system and to develop appropriate models capturing thebusiness situation. It can be a formidable task to model a complex


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situation using constraint programming, involving a working knowledgeof computer programming. Companies are becoming aware of the

need for supply chain managers to have expertise in using suchsystems, while efforts to make constraint programming systems easierto use are also in the works.


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7.0 MODELING LANGUAGES

Another issue of importance in the context of mathematicalprogramming is the generation of the mathematical formulation, orprototype, in a format understandable by the optimization software.Real life business situations involve large-sized problems and rapidgeneration of the problem prototype is a key concern for the managersince he or she cannot afford to spend an inordinate amount of time onthis activity.

Therefore, scope of optimization has expanded greatly to includelanguages for model generation and managing data. Modelinglanguages like AMPL, which develop formulation formats in linear or

matrix forms, interface with optimizing software like CPLEX, MINTOand XPRESS. Real-life problems often run into thousands of variablesand constraints that capture the multiple dimensions of decisionmaking. The modeling languages make the development of problemsfeasible within a short span of time. The growing interest in optimizationof supply chain planning problems can also be attributed substantiallyto these incredible technological advances in the modeling languagedomain.


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8.0 HANDLING COMPLEXITY

A discussion of optimization must naturally include the time incurred inproblem solving. In this context, we need to discuss issues involvingthe growth of the problem solution time as a function of the size of theproblems. It takes different time\ amounts to solve different probleminstances of the same size by using any particular algorithm (say ).The solution times may vary depending upon the algorithm we use.Since different problem instances of the same size (say size ) mayrequire different solution times using any particular algorithm (say ),the term solution time refers to the longest time that any instance ofsize requires to get solved by employing algorithm .

Different algorithms can solve the same problem instance of aparticular size, but algorithms differ in how long they take to solve aparticular problem instance of a specific size. The longest time neededto solve a specific problem instance as a function of the size is calledthe time complexity function (TCF) or simply the complexity of thealgorithm. When we speak of the complexity of the problem, we meanthe complexity of the most efficient algorithm, known or unknown,which solves it. In the context of optimization, a commonly askedquestion is how much computing time, as a function of constraints andvariables, is required to solve a certain class of mathematicalprogramming problems. The time required to solve problems like the

traveling salesman problem, the vehicle routing problem, and thecutting stock problem increases exponentially with the size of theproblem.

In fact, to arrive at an optimal solution for a fairly large-sized problem ofthis nature would take years. Supply chain decision-makers must tacklesuch issues almost on a daily basis but such situations involvealmost instantaneous decision-making. The decision-makers cannotafford to search for optimal solutions, but must quickly access afeasible solution. Much research has been conducted on rapid solution,

an initiative that has benefited in no small measure by thedevelopments in the processing power (millions of instructions persecond or MIPS) of computing machines and modeling languages.


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Currently, optimization of mathematical programming models on thePC is significantly faster than it was on mainframes of several decades

ago. This evolution, complemented by the developments in constraintprogramming and the algorithms in artificial intelligence have greatlyfacilitated supply chain management decision-making.

9.0 ARTIFICIAL INTELLIGENCE AND SCM

AI techniques have been put to use in multiple segments of the supplychain. Expert systems embed AI techniques for scheduling in cellularmanufacturing systems (CMS) and related manufacturingenvironments. Many sophisticated business intelligence commercialapplications also embed AI algorithms to perform neural networking,

clustering, and classification techniques, enabling intelligent -making indata mining and online analytical processing.

The algorithmic techniques implanted in business intelligencecommercial applications offered by companies such as IBM, Cognos,SAS, Oracle, and SPSS run at the back end and give users relevantdecision choices in user-friendly interfaces. Decisions involvingcustomer profiling, new product development, retail marketing, andsales patterns are immensely refined using business intelligence tools.Also, as such decisions have an impact on the overall supply chainprocesses, it is important that business intelligence tools also be linked

to SCM applications [8]. Moreover, such decisions are strategic ortactical in nature, and may result in reconfiguration of supply chainnetwork itself, a change in the information exchange across the supplychain, or a modification of business processes.

For instance, a change in the target customer segment for a productleads to a change in the distribution system for that particular product.Likewise, a decision to shift the production of an item to a differentmanufacturing center would affect the raw material supply network forthat item.

Today, RFID is used in enterprise supply chain management to improvethe efficiency of inventory tracking and management.


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STRATEGIC LEAD TIME MANAGEMENT

In a world of shortening product life-cycles, volatile demand andconstant competitive pressure the ability to move quickly is critical. It isnot just a question of speeding up the time it takes to get new productsto market but rather the time it takes to replenish the existing demand.Marketers today are often time-sensitive as well as price-sensitivethus the search is for logistics solutions that are more responsive butlow-cost.

Time compression in the pipeline has the potential both to speed upresponse times and to reduce supply chain costs. The key to achieving

these dual goals is through focussing on the reduction of non valueadding time- and particularly time spent as inventory. Where were inthe past, logistics systems were very dependent upon a forecast withall the problems that entailed, now the focal point has becomes leadtime reduction.


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10.0 REFERENCES

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Recent development in the field of SCM by Nimisha Nandan