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Venkatraman, Klein et al Technological Enablers for Supply Chain Management

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TECHNOLOGICAL ENABLERS FOR SUPPLY CHAIN MANAGEMENT

Santosh Venkatraman, Department of Business Information Systems, Tennessee State

University, Nashville, TN 37203; (615) 963-7315, [email protected]

Eric P. Klein, Zachary Davis, and Adrienne J. Hairston; MBA Office, Tennessee State

University, Nashville, TN 37203

ABSTRACT

Despite being around for several years, organizations are still trying to find new ways to make their Supply Chains more efficient (both in terms of cost and time), and make them a more effective tool for managing the supply chain. The two major groups of drivers that affect supply chain efficiencies and costs are logistical and cross-functional drivers. This paper examines how the current businesses utilize various technological enablers to enhance the logistical and cross-functional drivers across supply chains; and should prove very useful for both academics and supply chain managers.

INTRODUCTION

The concept and practice of Supply Chain Management has been around for a relatively long time. A supply chain can be defined as all the parties involved, directly or indirectly, in fulfilling the end-customer’s orders. A supply chain includes manufactures and suppliers, along with transporters, warehouses, retailers, and even the customers. Between its scope and complexity, a supply chain is a dynamic entity that involves product, services, information, and funds flowing continuously, both upstream and downstream, among the various players in the supply chain.

Many supply chains have a common structure in which there are several stages. In a typical upstream supply chain flow, the customer purchases from retailers, who then receive their product from wholesalers and distributors, which are in turn supplied by the manufactures that utilize component and raw material suppliers in their production activities. Many firms and industries, however, derive competitive advantages from minimizing or restructuring the stages. Also, most real-world actual supply chains are not a linear chain of individual links, but rather a network of processes. At any stage in the chain, material and information can be received from multiple suppliers, and then subsequently sent to multiple distributors.

The objective of sharing information and engaging in specified partnerships is to maximize the value provided by the supply chain. In maximizing value, a supply chain will provide a product or service in which customers find worth, while minimizing the costs to the chain incurred in fulfilling customers’ orders. As the value is maximized, profits generated should be ideally shared across the supply chain. The process of managing product, information, and funds generates cost within the supply chain. Technological enablers help establish better supply chain designs that allow for more efficient planning and operations, while minimize these costs in order to maximize supply chain value.

The two major groups of drivers that affect supply chain efficiencies and costs are logistical and cross-functional drivers. Logistical drivers consist of facilities drivers, inventory drivers, and transportation drivers, while cross-functional drivers consist of pricing drivers, sourcing drivers


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and information drivers. These drivers dynamically affect each individual stage of the supply chain and determine its performance in terms of responsiveness and efficiency. We discuss these major drivers in the subsequent sections below.

In the effort to improve efficiencies and reduce costs, the technological enablers currently available are generally focused on managing the aforesaid logistic and cross-functional drivers. The purpose of this report is to examine how the current business environment utilizes various technological enablers to enhance the operations across supply chains. While there have been past academic papers on supply chain and specific technologies, as seen in Section 2 below, there are no aggregated reports of current technology enablers as done in this research – especially how these enablers apply to managing the individual drivers and enhancing operations. Sections 3 and 4 describe the technology enablers for logistical drivers and cross-functional drivers respectively. We finally conclude and summarize in the last section.

LITERATURE REVIEW

As stated before the concept and practice of supply chain management has been around for a while, and there are many articles on the subject. We shall only do a brief literature review in this paper. ElMaraghy et al (ElMaraghy & Majety, 2008) argue that an integrated and well-managed outsourcing (a sourcing driver) offers significant opportunities for improving profit margins and reducing cost. Tsung (Tsung, 2000) describes the impact of sharing information on quality control in the supply chain.

Information technology, especially when used in conjunction with the Internet and Web, (Venzeeetti, 2009; Ali et al, 2008) to be a powerful tool as it allows for a dynamic, responsive, and efficient way to manage supply chains. In addition, recent developments in information technology have been relatively inexpensive and reliable (Sari et al, 2008), so companies can increase their investment on information technologies and tools to improve the efficiency, quality, delivery, inventory, and overall performance of supply chains. As stated before, the purpose of this paper is to highlight some of these technology enablers.

TECHNOLOGY ENABLERS FOR LOGISTICS DRIVERS

Technology can be used to greatly improve the two main drivers, logistic and cross-functional, of supply chain. Logistic drivers need to be taken into consideration at each stage in the supply chain and comprises of the three drivers: facilities, inventory, and transportation. The facilities drivers are the actual physical locations where products are stored, assembled, or fabricated. The inventory drivers encompass all finished goods, works in process, and raw materials. Changes in inventory pricing can greatly impact the efficiency and responsiveness of a supply chain. The transportation driver entails the moving of inventory across the supply chain. Each transportation mode type and available route has its own performance characteristics. Different combinations of modes and routes produce different impacts on responsiveness and efficiency that need to be assessed. We next describe the role of technology in enhancing the three logistics drivers, but combine the facilities and inventory drivers into a single section as they are closely related.


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Facilities and Inventory Drivers

Warehousing is best defined as the piece of logistics that stores the company’s products at and between points of origin and point of consumption. The storage facilities in logistics are often referred to as warehouses or as distribution centers. A warehouse’s main function is to store products, and the distribution center primarily focuses on the movement of products thru the facility. It would be optimal for all products to leave their point of origin and be transported to the end user; however, due to an unequal balance of production and consumption, warehousing has become a vital part of most firms’ logistics systems. Warehousing leads to additional costs, for both the consumer and the distributor, but for the purposes of this report, we will evaluate costs related to distributing the product. Aside from the cost of necessary equipment; such as forklifts, pallets, and storage bins; needed to manage and operate these facilities, time can be an expensive cost in this particular driver.

There are six basic components of the facility driver that contribute to warehousing costs: receiving, put-away, pick and pack, physical inventory, order processing, and shipping. Each of these components has operational requirements that need to be managed effectively in order for the product to move efficiently. For example, pick and pack is initiated by a customer or batch order being generated, which leads to a warehouse staff associate finding the products in the warehouse to prepare for shipping to the final destination. Although the task may seem simple enough, if the facility is operating on a paper managing system, the success of completing each order is based primarily on the associate’s knowledge, as well as the accuracy of the storage locations. Many of the problems addressed in case studies are due to the increased amount of time it takes to pick an order. Long lead times in processing orders can lead to low customer service levels, which is why it is essential to provide an organized managing system that will allow the products to move thru the warehouse in a timely fashion. Due to the heavy emphasis placed on time reduction and increased labor costs, warehousing managers have turned to technological enablers, such as Warehouse Management Systems, Auto Guided Vehicles, Auto Case Picking, and handhelds, to operate quickly and efficiently. Figure 1 shows these components of warehousing costs and how technology can be an enabler.


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FIGURE 1: SIX COMPONENTS OF WAREHOUSING AND HOW TECHNOLOGY

CAN BE AN ENABLER

Warehouse Management Systems (WMS)

WMS or a warehouse management system is a software package that controls the movement and storage of materials that is design to increase accuracy and productivity and reduce labor costs. The WMS can either be standalone applications, part of an Enterprise Resource Planning module system or a supply chain execution suite, but most systems will generally use the same basic logic. WMS focuses on a combination of item, location, quantity, unit of measure, and order information to determine where to stock, where to pick, and in what sequence to perform these operations. The system is designed to eradicate legacy systems and paper trails and allow directed picking, packing, and replenishment, but its primary function is to minimize the number of steps in each process and eliminate extra travel time.


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Implementation typically begins by identifying the characteristics of each item and location at a detail level by grouping similar items and locations into categories. An example of item characteristics at the detail level would include exact dimensions and weight of each item in each unit of measure the item is stocked (such as cases or pallets), as well as information such as whether it can be mixed with other items in a location, whether it is rackable, max stack height, max quantity per location, hazard classifications, finished goods or raw material, fast versus slow mover, and so forth. Although some operations will need to set up each item this way, most operations will benefit by creating groups of similar products (Piasecki, 2011). Classifying product identity is only a part of the picture, WMS also needs information to let the system decide exactly which location to pick from, replenish from/to, and put-away to, and in what sequence these events should occur. There specific logic must be assigned to the various combinations of item/order/quantity/location information to determine sequences of preparing a pick/pack list.

WMS is not limited to the actions above; it is a highly complex IT system that encompasses the majority of the operational requirements. In fact, most WMS systems that are currently being utilized today are so complex that they require their own IT staff to manage them. However, many software vendors are turning towards offering Cloud Computing to eliminate the additional costs incurred by having a dedicated team to maintain WMS. For example HighJump is encouraging many of its customers to utilize the cloud deployment model to eliminate much of the time necessitated by installing and implementing the software. The system package can be fairly expensive, ranging from $100,000 to $500,000, not including the several million dollars it requires to implement it into each of the company’s facilities. WMS may not be suitable for every firm’s warehouse, but it is definitely a practical resource to drive down costs and support functions currently not being performed under current paper systems in place.

Robotic Logistics

As previously mentioned, many firms are looking to expand outside of the normal processes for standard warehousing practices. One of the growing technological tools is robots. Their primary function is to reduce costs and increase efficiency by adding automation to a warehouse. Although robots will eliminate the need for several traditional warehousing jobs, their usage in facilities has grown exponentially since their introduction in the 1950’s. Perhaps one of the most popular types of robots is the Automated or automatic Guided Vehicle (AGV) that uses a sensor under the vehicle to detect the RF signal emanating from a wire placed in a slot approximately 1 inch below the floor surface built on the floor to move goods to their correct locations.

In the mid-1980’s the design of AGV’s changed to laser target triangulation instead of wires. The AGV’s operated by mounting reflective targets above the floor, columns, walls, machines and posts, 25 feet apart. Each target was given a specific X,Y coordinate and loaded into the AGV’s memory. Using the reflective targets and its stored memory, the AGV is able to calculate and measure its distance in order to find the correct place to stop.

AGV’s are typically used as a simple towing machine, to transfer loads from one location to another, however, there are several other vehicle types currently used in warehousing such as unit load vehicles, pallet trucks, fork trucks, light load, and assembly line. Because of their wide range of usage, they are commonly used in the pharmaceutical, chemical, manufacturing, automotive, paper and print, food/beverage, and hospital industries.


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One of the newest developments in Robotics Logistics is Automatic Case Picking. Traditionally case picking involved a lot of manual labor, thus a lot of focus was placed on ensuring accuracy and swift order processing. The need for case picking has grown over the years as customers are now requiring mixed-SKU pallets in order to reduce delivery costs. Unfortunately, as the customer’s expectations shift, often times labor costs increase which show no improvement on ROI, thus causing a greater need for automated case picking. Several warehousing operations utilize the case pick-to-belt with downstream sortation where the ‘picker puts the picked cases on a conveyor, which transports them out of the pick area for eventual merge onto the sortation conveyor itself. However, when integrated with WMS, the pickers can apply batch ordering where all orders are printed in waves and the picker can visit each location once instead of moving line by line for individual orders. This method has proven to reduce costs substantially. AGV’s can also be used in an alternative method by bringing the pallets to the pickers in an attempt to reduce travel time. A new development in ACP is the use of a Gantry Robot which is a bridge-like structure which moves horizontally back and forth along a set of overhead tracks that have devices attached that will select individual cases to take away to a conveyor for assorting (Dan & Holste, 2009).

It is unlikely that there will ever be a fully developed system that will eliminate the need for manual work with case picking; however technology can be used to reduce labor and travel times.

Wireless Systems

Besides software and automated machinery, wireless technology is another key technological enabler that is improving supply chain systems. Many firms have integral parts of the supply chain spread out across a large network; therefore it is imperative that they have the most up to date information regarding all inbound and outbound shipments of their products. Accurate inventory management is just as important as focusing on high throughput, because it allows effective management allows the firm to respond faster to changes in demand patterns, and to be able to dispatch and distribute the products accurately to specified locations without errors (Pasha, 2007). Many companies have turned away from paper based inventory management and relying on technology for real-time data that is readily available to every level of the supply chain. We next discuss the role of the wireless technologies using Barcodes and Radio frequency ID tags (RFIDs).

Barcodes: Perhaps the most common use of wireless technology today is the use of Automatic Identification and Data Capture (AIDC) based barcode scanners, which were developed to read barcodes on products as they move thru the supply chain. Barcodes have become increasingly popular since their inception because they are simple to produce and use. Many companies have begun utilizing barcodes in their supply chain systems and have produced highly noticeable results.

For example, General Motors reduced its assembly-line errors, such as installing the wrong parts, from 15% to zero in certain plants by increasing the number of parts that were bar-coded, according to Larry Graham, GM's global manager of manufacturing technology. The process then continues into warehouses. Between 80% and 90% of FORTUNE 500 companies have automated their warehouses using bar-code systems, and less than 50% of smaller companies have done so. Forklift operators often have onboard terminals that read bar codes on pallets and


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elsewhere in the warehouse. At each point, the operator scans a bar code, which informs the computer where he is, allowing the system to direct the worker's actions. Such automation has also brought double-digit productivity improvements and inventory reductions for Procter & Gamble, and has reduced shipping errors at Kimberly-Clark by more than 50% (Varchaver, 2004).

When barcodes were first introduced, each scanner could only read one type of symbology; causing companies to employ many types of barcode scanners which in turn increased hardware costs. However, due to the progression of barcode scanner technology, many scanners have the ability to read a large number of symbologies, which allows companies to purchase multiple handsets, thus reducing their previous supply chain limitations. Technology improvements have also expanded the ranges of wireless scanners to capture data outside of remote locations thus updating information in real time. This additional benefit allows all areas of the company’s operation to interact with each other efficiently, and allow management to quickly identify and resolve potential problems within the supply chain system.

RFID: In an effort to manage inventory management even better, many companies are now implementing radio frequency identification tags as known as RFID, which involves the use of radio frequency to identify objects that have been implanted with an RFID tag. Compared to bar codes, RFID does not require a clear line of sight between an object and RFID hardware, it can store much larger quantities of data, and also offers both read and write capabilities so that data can be changed and/or updated (Murphy & Wood, 2008). Furthermore, RFID tags are ideal because they provide a portable database that lives with the product throughout its entire lifecycle and can be utilized to gain insight on user buying patterns as well. Although this new type of technology is much more costly than barcodes, its applications will bring a large amount of cost savings to supply chain operations. Figure 4 is a list of applications where RFID provides the greatest improvements and benefits that manufacturers can realize (Pasha, 2007).

RFID tags are generally categorized as either active or passive and are more complex than the simple barcode because they consist of plastic and silicon. However, each tag generally works the same way:

• Data- stored within an RFID tag's microchip waits to be read.

• The tag's antenna receives electromagnetic energy from an RFID reader's antenna.

• Using power from its internal battery or power harvested from the reader's electromagnetic field, the tag sends radio waves back to the reader.

• The reader picks up the tag's radio waves and interprets the frequencies as meaningful data.

The biggest difference between the two types of tags is their power source. Active tags rely on internal batteries to power their circuits, whereas passive tags rely directly on the reader, which means they must be within close range in order to be read. This also means they are less expensive and can be applied to inexpensive merchandise. Even though RFID technology could vastly improve many supply chains, there is still a lot of push back from the industry as a whole to fully implement the technology.


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Wal-mart tried a few years ago to convert part of their supply chain over by requiring all their suppliers to convert to RFID but weren’t successful in completely launching. Many analysts think it will still take a few more years for the manufacturing industry to fully employ RFID tags because barcode scanners are so widely used and very simple to operate. However, in order to drive down costs and stay competitive, the switch may be inevitable (McCathie & Michael, 2005). Table 1 (Staff, 2011) compares the two wireless technologies, and lists seven reasons why RFIDs are more beneficial to supply chains than Barcodes.

TABLE 1. ADVANTAGES OF RFID OVER BARCODES

Attribute RFID Barcode

Line of Site Not required in most cases Required

Read Range Passive UHF RFID: - Up to 40 feet (fixed readers) - Up to 20 feet (handheld readers) Active RFID: - Up to 100's of feet or more

Several inches up to several feet

Read Rate 10's, 100's or 1000's simultaneously Only one at a time

Identification Can uniquely identify each item/asset tagged.

Most barcodes only identify the type of item (UPC Code) but not uniquely

Technology RF (Radio Frequency) Optical (Laser)

Interference Like the TSA (Transportation Security Administration), some RFID frequencies don't like Metal and Liquids. They can interfere with some RF Frequencies

Obstructed barcodes cannot be read (dirt covering barcode, torn barcode, etc.)

Automation Most "fixed" readers don't require human involvement to collect data (automated)

Most barcode scanners require a human to operate (labor intensive)

Transportation Drivers

Along with the systematic storage of products and effective management of inventory within a company’s facility, the supply chain is also heavily impacted by the transportation of its good and services as well. As the need for lean supply chains has become increasingly necessary, many transportation managers are beginning to invest in computerized software packages known as TMS or transportation management systems to improve reliability. Similarly to a WMS, a TMS can be an ERP module, or a standalone application. The primary function of transportation management is buying and controlling transportation services by either a shipper or a consignee.

Most importantly, transportation is a major expense in supply chains, it currently accounts for 6% of most gross domestic products (Murphy & Wood, 2008). Therefore it is imperative that transportation expenses be controlled in a successful supply chain. Transportation costs are primarily driven from rate and service negotiations as well as modal and carrier selections. Most transportation managers spend roughly half of their time managing both processes. With the


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implantation of TMS, companies are able to see massive cost savings, as the system becomes a centralized source of data for efficiency planning.

Table 2 shows the benefits of TMS (SCDigest, 2008). Transportation systems are also not as complex as warehouse management systems, and do not require an extensive implementation as WMS. TMS software package can be integrated as a whole or into separate modules that include, but are not limited to Transportation Appointment scheduling, audit and payment claims, Fleet management, procurement and yard management.

TABLE 2. THE BENEFITS OF TMS

Papa John’s pizza, the 3rd last pizza company in the US, for example, lacked the carrier relationships necessary to gain visibility, and to ensure the highest level of quality control. Their goal was to reduce transportation costs by reducing manual processes and increasing efficiencies. They contracted Manhattan Associates to implement a TMS solution that would select carriers based on rating tables from the procurement process. The tools provided in the solution support effective shipper-carrier relationships and network alignment. A primary goal for Papa John’s in automating transportation procurement was to deliver greater value to the company’s shareholders by reducing costs. According to Eric Hartman, Senior Director of Logistics Papa John’s, they were able to reduce freight spend after just six months of live runtime on the system, achieving our goal of a 10-15% reduction (Manhattan Associates, 2008).


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TECHNOLOGY ENABLERS FOR CROSS-FUNCTIONAL DRIVERS

While logistics remain a major component of efficiencies and costs, supply chain managers are increasingly focusing on the cross-functional drivers, which consist of the pricing, sourcing, and information drivers. The pricing driver determines how much a firm will charge for goods and services that it makes available in the supply chain. This has a significant impact on supply chain performance as it directly affects consumer behavior. The sourcing driver is the determination of who will conduct which activities across the supply chain. These activities include production, storage, transportation, and information management. This driver directly impacts a firm’s decision to perform certain functions in-house, and outsource the rest. The information driver consists of data and analysis concerning facilities, inventory, transportation, costs, prices, and customers throughout the supply chain – it could potentially be the biggest driver of supply chain performance. Because of the impact of information on the other drivers, the capturing and management of information is an intricate component of all technological enablers used across the supply chain.

Pricing Drivers

Price revenue management software (PRMS) is software that plays an integral role in the financial success of organizations. Businesses need to optimize price and revenue management to ensure profitability and lower costs. Revenue and price management helps optimize and manage prices throughout the product life cycle. For optimal price management, adjustments are always needed to stay competitive and consistent with the business's customer demand and their supply requirements. Through the utilization of the PRMS companies are given the capability to either change prices for individual items or by automatic mass maintenance adjustments based on pre-specified dates, items, store, zone or region (SAP.com).

Sourcing Drivers

Sourcing Software Systems: Companies realize that their success does not depend solely on what happens in-house, but also on having strong ties with the outside companies and systems that make it possible to efficiently execute the production process. For this reason, companies understand that establishing beneficial relationships with their vendors is crucial to that success. Sourcing software for these companies has become the ultimate solution. Some companies that provide good sourcing software include SAP-SCM, Epiq Technologies, Oracle SCM, FlexRFP and Epicor.

Sourcing software systems also support the information gathering process that takes place before actual purchases are made by a sourcing manager or buyer. The sourcing software for a company provides buyers with access into a vast system of supplier databases. This access created by the sourcing software makes it easier to pre-screen supplier data and analyze suppliers’ past successes and failures. Along with procurement and demand planning software, sourcing software helps organizations make intelligent decisions and is a key component of supply chain management software (Software Advice, 2012).

In order to ease the transition from traditional manual methods of vendor/buyer interactions, many companies are using sourcing software systems, which help prevent many of the problems


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that inexperienced companies first encounter when they implement strategic sourcing programs. These systems enable companies to actually negotiate with a larger number of suppliers efficiently. Since sourcing is often complex, it forces buyers to limit their number of potential vendors. Good sourcing software gives buyers the tools needed to handle the additional complexity when dealing with multiple vendors depending on the size of the company.

One of the key benefits of sourcing software is its time efficiency. For many companies it ends up taking longer to complete the entire purchasing cycle without it. With sourcing software, however, this generally is not the case. It automates many of the processes involved which consumes less time. Some businesses actually attempt to shave time off from the purchasing cycles by basing their decisions on incomplete information. Since sourcing software speeds up the process and helps businesses organize vendor data more efficiently, the company can take the necessary time to carefully evaluate suppliers and to choose the one who best meet the needs of the business (Epiq Technologies, 2012.).

Sourcing software combines a variety of features and functions businesses are looking for to help guide the development and management of their vendor relationships. These programs have successfully helped businesses reduce their purchasing costs while also reducing procurement cycle times and administrative expenses. A highlight of sourcing software is that it provides benefits for both the buyers and the suppliers. The software allows buyers to easily pre-screen potential vendors to determine whether they have the necessary qualifications or capabilities to deliver the products or services. Additionally, this software helps buyers create and manage reverse auctions.

Suppliers who are part of a strategic sourcing partnership with companies using the sourcing software can also benefit. The software provides an easy-to-use interface that allows them to conveniently register and monitor the bidding process. The software notifies vendors of upcoming auctions and gives them additional time to prepare. Vendors are informed early in the bidding process when they have been outbid and can respond with a more competitive price. Also, this software allows the vendor to post questions related to the project being auctioned to more accurately prepare their bids.

There are a series of steps required while utilizing a company’s sourcing software. These steps include: evaluating spend analysis, supplier filtering, viewing electronic request and the auction initiation within the suppliers. The spend analysis is the first step when using sourcing software. The software will initiate a spend analysis to identify areas in which the company could decrease spending through new sourcing projects. The decrease in spending will free-up money for the business that can be used in other areas within the company.

The second step is the supplier filtering. Based on revenue projections and market trends, the sourcing software begins to collect information and filter results from current and past supplier historic data. This step allows for the sourcing manager to be more efficient and saves time on information gathering. The supplier filtering step also prevents buyers from wasting time and resources on suppliers that are incompatible with the company needs.


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Electronic requests are the next step in the sourcing software series. Using the software, sourcing managers can submit requests for proposals, tenders, quotes, and other forms of information to eliminate those suppliers that do not meet the organization’s needs or financial goals. Once the data starts coming in, the software manages that information and makes it easy to compare quotes and supplier capabilities.

The final step in utilizing the software is the auction initiation. Once a list of viable suppliers has been created, a reverse auction can force suppliers to compete with each other on pricing. The sourcing software handles incoming bids and communicates standing bids to competitors (Software Advice, 2012).

Purchasing/Procurement Software: Procurement software manages the purchasing processes within a supply chain system. After using sourcing software to analyze current spending and potential vendor performance, procurement takes over to finalize deals and initiate monetary transactions. As an important element of supply chain management software, procurement systems can help companies efficiently track their purchasing cycle times and maximize profit on every purchase order (Software Advice, 2012). Some prominent procurement software vendors are Coupa Cloud Spend Management, JDA Software, Puridiom, Verian, and Ariba.

Procurement software can convert a well-researched sourcing process into successful purchase orders through user friendly processes. This helps control non-payroll expenditures and thus support positive asset management over the long run. After reverse auctions, which can take place through public bids or multi-round private offers, the requisitioning phase begins. At this point, the supplies are purchased via the procurement system’s electronic purchasing capabilities. Once the order has been completed, the software analyzes receipts for invoice approval and reconciliation.

A benefit of procurement and supplier relationship management software is its ability to effectively manage the mass amounts of data generated after business purchases. Once purchasing terms have been agreed, procurement software submits the information to all necessary parties for immediate approval, ensuring that the procured products are delivered as scheduled. For future reference, the software also stores documents and the expense figures for each purchase, which will be used in the next sourcing cycle when the company once again looks to cut costs.

Some important features of procurement software are described next. Selection & Ordering: Procurement software puts product information in a format that makes it easy to compare products to make the best selection. Although this software makes all purchasing decisions easier, where it really adds value is in the selection of commodities, where there are no variations in product features or quality.

Purchase order (PO) approval & delivery: Organizing the data in one place makes it easy to identify product and purchase order approvals, ensuring that nothing is ordered without the right people knowing about it. They then deliver the POs to the vendors through their preferred delivery method.


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Billing: As part of the billing functionality in a procurement system, the software will match invoices to orders, and handle electronic bill paying as desired.

Spend data analysis: The business intelligence side of procurement software analyzes purchasing trends and evaluates vendors to identify potential areas to improve on economies of scale and to improve their negotiating position.

Information Drivers

Information is the lubricant that enables the supply chain to function smoothly, efficiently, and effectively. Data such as inventory, transportation, facilities, and customer orders/demand needs to be collected and distributed at the right time, in the right format, and to the right parties in the supply chain. Data analysis, possibly using Business Analytics software systems, is also crucial to ensure that supply chain managers are made aware of current business environment and possible trends.

As stated before, information drivers are potentially the biggest driver since it affects all the other drivers as well. Information plays a critical role as it connects various supply chain stages, and enables the coordination of activities along supply chains. It is therefore essential to the daily operations of each stage of the supply chain. Information systems that effectively support the supply chain can also enable a firm to get a high variety of customized products to customers rapidly, and enable the firm to better understand and respond to changing consumer needs.

Information driver can be classified as either “Push” or “Pull”. Push systems, like MRP systems, need information on anticipated demand to create production and purchasing schedules. Pull systems, like JIT, need accurate and quick information on actual demand to move inventory and schedule production in the chain.

All the enabling information technologies encountered above contribute as information drivers to varying degrees. To fully realize the benefits, relevant information needs to be shared and integrated throughout the supply chain. Systems such as electronic data interchange (EDI), the Internet, Enterprise Resource Planning (ERP) systems, Supply Chain Management (SCM) software (such as the ones described above) enable information sharing.

There are, however, many obstacles to sharing information in a supply chain. Confidentiality is probably one of the biggest issues, but others not like antitrust regulations, the timeliness and accuracy of the provided information, differing technologies between the supply chain partners, and mismatches in the alignment of supply chain partner incentives. Consequently, trust, communication, and cooperation are vital ingredients in a supply chain partnership.

There are several different categories of information shared between companies (Lee, 2000). First is at the Inventory Level, which allows partners to adjust the production rate depending on the demand. Orders from downstream serve as a critical source of information about future business. Similarly, Information about raw material availability helps the buyer to expand the planning horizon of his own production schedule. Information validity, however, can be a huge


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problem as inaccurate inventory data can result in distorted demands resulting in disastrous consequences for partners.

The second category of shared data is at the Sales level. Having access to downstream sales data, however, allows manufacturers to be in a much better position to differentiate real demands and the so-called “phantom” demands due to the Bullwhip effect. A third category of shared data can be at the production schedule. Having access to suppliers manufacturing schedule assures downstream partners a reliable supply for their own production. Finally, the sharing of performance metrics or capacity can help to identify bottlenecks in the supply chain and improve the performance of the overall supply chain

Three models of information sharing have been identified (Lee & Whang, 2000). In the “Information Transfer Model,” one partner takes the lead in the supply chain, while the other partner(s) transfers their information to the other who maintains the database for decision making. In the “Third Party Model,” a third party is responsible for collecting information and maintaining it in a database for the supply chain. Finally, in the “Information Hub Model,” a system is used instead of a third party. In this case the information hub does not have to exist physically, individual functional modules can reside at scattered locations and be called and invoked as needs arise. Thus, the information hub could exist only as a logical entity.

Earlier in this section, we stated that ERP systems and Supply Chain Management Systems (SCM) are useful technologies for integrating data across an enterprise, and even across organizations using the Internet. The most distinguishing characteristic of ERP systems is their comprehensiveness. This is because ERP systems are process oriented and are based on a value-chain view of a company’s functional departments. An ERP System is typically a large and complex software package consisting of a set of integrated business applications, or modules. These modules reflect a particular set of business process associated with each function within the enterprise. Through the use of a single computer system and an enterprise wide database, these modules allow for a level of integration that provides synergy and a common operating picture across the enterprise. In 2011, the global ERP market was estimated to be $46 billion (CBR, 2011). The major ERP vendors are SAP, Oracle and Microsoft.

SCM systems have been developed to facilitate cooperative relationships across the supply chain to manage the procurement of materials and components and the distribution of finished goods. These systems are inter-organizational and involve looking at sales data up and down stream to allow for more accurate forecasting to manage supply chain capacity and costs. The primary advantage of an SCM system over an ERP system is that they consider demand, material constraints, and capacity all simultaneously. By comparison, data in ERP systems is analyzed in static sourcing tables.

While the ERP system may contain the same data as the SCM system, the data is analyzed separately, often in different business processes. SCM systems, on the other hand, will take the data and simultaneously identify constraints across the data sets. It will then simulate adjustments of the constraints in real-time. This is a capability that is counterintuitive for ERP systems as they are designed primarily for transaction processing. Additionally, ERP systems play a broader role within the enterprise than SCM systems, conducting and integrating transaction processes across each business function. Since SCM systems possess more dynamic


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functionality and are narrower in scope, they can perform supply chain analysis in minutes or seconds. ERP systems comparatively could take up to multiple hours, depending on other processing requirements across the enterprise (Wendelove, 2012).

The planning, analytic, and transaction capabilities of ERP systems are designed to support internal operations within the enterprise. SCM systems are designed to be outward looking, and to account for supplier and customer constraints. They often contain advanced planning tools that take the external constraints into consideration to produce global optimal results.

Generally, SCM and ERP are complimentary systems that use shared data to produce real-time information. The ERP system produces transactional data from across the enterprise that the SCM system then uses to support supply chain planning and management. The plans and decisions generated through the SCM system are then in turn used by the ERP system to conduct day-to-day operations. This relationship can be described as the SCM system riding above of the ERP system providing medium and long range planning capabilities. It also provides a comparatively superior decision making capability for analyzing such items as trends, demand patterns, and new product demand. The ERP systems are able in turn to respond and react to these plans and recommendations to provide responsiveness and flexibility to day-to-day operations.

In 2010, the market for Supply Chain Management systems (Pettey, 2011) was estimated at $6.8 billion with a 10% growth rate. The five top SCM vendors provide almost 50% of the market, and are SAP with $1,317 million, or 19.5% of the market; Oracle with $1,210 million, or 17.9% of the market; JDA Software with $362 million, or 5.4% of the market; Ariba Company with $250 million, or 3.7% of the market; and Manhattan Associates with $136 million, or 2% of the market.

The predominant trend for the SCM market in 2010 was that business process platforms, integration, and mobility were the primary areas of focus for product development. Also in 2010, while the Asia/Pacific and the Latin American sectors of the market had seen noted increases in sales, the overall SCM customer base was still predominantly centered on the North American and European regions. Combined sales for these regions provided 79% of the global market revenues.

CONCLUSION AND SUMMARY

Supply Chain Management is a major tool for making organizations more efficient and effective. The two major groups of drivers that affect supply chain efficiencies and costs are logistical and cross-functional drivers. Logistical drivers consist of facilities drivers, inventory drivers, and transportation drivers, while cross-functional drivers consist of pricing drivers, sourcing drivers and information drivers. These drivers dynamically affect each individual stage of the supply chain and determine its performance in terms of responsiveness and efficiency. The rapid advances in information technology, both hardware and software, have made possible for technology to be a major enabler of supply chain by supporting and improving the aforesaid drivers.


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Information is the life-blood of the modern supply chain, and it is very possible that the information driver is perhaps the most potent driver, as it also enhances all the other drivers. In this paper, we have strived to provide an integrated view of the current technologies that are available to continue improving the effectiveness and efficiency of modern supply chains by improving the major supply chain drivers. This work would prove useful for both business managers, as well as for academics. The work also lays the groundwork for future research in this field, especially in identifying, documenting, and improving upon best practices in deploying technology to enhance supply chain management.

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