Information System & Supply Chain Management

Supply Chain Management (SCM) involves the coordination of all supply activities of an organization from its supplier and delivery of products to its customers. Its essentially the optimization of material flows and the associated information flows involved with an organizations operations. Supply Chain Management (SCM) includes not only supplier and buyer, but also the intermediaries such as the suppliers suppliers and the customers

customers. It is the coordination of supply activities of an organization from its suppliers and partners to its customers. For most commercial and not for profit organization we can distinguish between upstream supply chain and down stream supply chain. An organizations supply chain can be viewed from a systems perspective as the acquisition of resources (inputs) and their transformation (processes) into products and services (outputs) which are then delivered to customers. Such a perspective indicates that as part of moving to e-business, organizations can review the transformation process and optimize it in order to deliver products to customers with greater efficiency and lower cost. The position of the system boundary for the SCM extends beyond the organization- in involves not only improving the internal processes, but also processed performed in conjunction with suppliers, distributors and customers. The process perspective has also a strategic importance that provides great opportunities to improve product performance and deliver superior value to the customers. As a result, Supply Chain Management can dramatically have an impact on the profitability of a company through reducing operating costs and increasing customer satisfaction and so loyalty and revenue. Upstream supply chain is the transactions between an organization and its suppliers and intermediaries, equivalent to buy side e-commerce. On the other hand downstream supply chain is the transactions between an organization and its customers and intermediaries, equivalent to sell side ecommerce. For the companies that have first-tier suppliers, second-tier and even thirdtier suppliers or first-, second- and higher-tier customers maintain a supply chain network. A supply chain network is the link between an organization and all partners involved in multiple supply chain.

Developments in supply chain management

Over the time modern technology and improved concepts like e-commerce and logistics have contributed to the development of supply chain. We can shoe it in chronology as following

Physical Distribution Management

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THE Physical Distribution Management (PDM) focuses upon the physical movement of goods by treating stock management, warehousing, order processing and delivery as related rather than separate activities. Although information systems were developed to manage these processes they were often paper-based and not integrated across different functions. However, some leading companies started using EDI at this time. PDM was essentially about the management of finished goods but not about the management of materials and processes that impacted upon the distribution process. PDM was superseded by logistics management which viewed manufacturing storage and transport from raw material to final consumer as integral parts of a total distribution process.

Material Requirement Planning (MRP) and Just-In Time (JIT) Logistics Management
The Just-in time (JIT) philosophy is still a relatively recent development of logistics management, its aim being to make the process of raw materials acquisition, production and distribution as efficient and flexible as possible in terms of material supply and customer service. Minimum order quantities and stock levels were sought by the customer and therefore manufacturers had to introduce flexible manufacturing processes and systems interfaced directly with the customer who could call an order directly against a prearranged schedule with a guarantee that it would be delivered on time.

Materials Requirement Planning systems were important in maintaining resources at an optimal level. The design for manufacture technique was used to simplify the number of components required for manufacture. However, none of the above methods looked at the management of total supply chain. An associated phenomenon is lean production and lean supply where supply chain efficiency is aimed at eliminating waste and minimizing inventory and work in progress.

Supply chain management and Efficient Customer Response

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Effective management of supply chain involved much closer integration between the supplier, customer and intermediaries and in some instances involved one organization in the channel taking over functions that were traditionally the domain of the intermediary. Bottlenecks or undersupply/oversupply can have a significant impact on the organizations profitability. The two primary goals of supply chain management are to maximize the efficiency and effectiveness of the total supply chain for the benefit of all the players, not bust one section of the channel, and to maximize the opportunity for the customer purchase by ensuring adequate stock levels at all stages of the process. These two goals impact upon the sourcing of raw materials and stockholding. A recent phenomenon has been the rapid in global sourcing of supplies from preferred suppliers, particularly amongst multinational or global organizations. The internet will provide increased capability for the smaller players to globally source raw materials and therefore improve their competitiveness. The internet will revolutionize the dynamics of international commerce and in particular lead to the more rapid internalization of small and medium sized enterprise. The web will reduce the competitive advantage of economies of scale in many industries, making it smaller companies to compete on a worldwide basis. New integrated information systems such as the SAP Enterprise Resource Planning (ERP) system have helped manage the entire supply chain. ERP systems include modules which are deployed throughout the business and interface with suppliers. Technology ha enabled the introduction of faster, more responsive and flexible ordering, manufacturing and distribution systems, which has diminished even further the need for warehouses to be located near to markets that they serve.

Technological Interface Management

The challenges facing suppliers, intermediaries and customers in the supply chain will shift from a focus on physically distributing goods to a process of collection, collation, interpretation and dissemination of vast amounts of information. Enterprise resource planning systems are continuously being updated to support direct data interfaces with suppliers and customers, for example to support EDI. A more recent development is interfacing of ERP systems with B2B intermediary sites or exchanges such as commerce One. SAP has also created mySAP facility to help customers manage and personalize their interactions with these exchanges. XML is increasingly used as the technical means by which technological interface management is achieved.(The critical resources possessed by these new intermediaries will be information
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rather than inventory. This stage has been taken a bit further by suggesting that customer information capture will sere customers rather than vendors in future. Currently customers leave a trail of information behind them as they visit sires and make transactions. This data can be captured and then used by suppliers and agents to improve targeting offers. However, as customers become more aware of the value of information and as technology n the internet enables them to protect private information relating to site visits and transactions, then the opportunity grows for intermediaries to act as customer agents not supplier agents.

Practice by Renata Limited

Renata Limited has got a Distribution Channel Management (DCM) that primarily works for the downstream supply chain that we can relate to Physical Distribution Management (PDM), the earliest phase of supply chain management. This is responding to the need of the market from the front end, the distribution channel, and back end, the procurement of raw materials. The Block list, total procurement needed for a year, is usually made at the beginning of a year with minor adjustment afterwards. This is determined by a forecasting based on previous years sale with adjustment for the micro factors, every single response from the field force who visit doctors and chemists. The technology used here are simple mail communication for the overall supply chain while keeping track of every movement of inbound and outbound logistics are kept in custom database. Since the procurement is designed for once in a year there are tenders to bid by the suppliers, the management is simple and largely done by the suppliers. For the local supplier the complication is less and supply can happen as per order at any time. On downstream supply chain the communication is web. Every performance on delivery of goods is communicated through web to update database. So present stock level, the delivered lot and present demand from the customer can be traced at every moment.

Supply Chain Models

Two prominent models are very widely used. They are illustrated below

Push supply chain

The push model is illustrated by a manufacturer who perhaps develops an innovative product and then identifies a suitable target market. A distribution channel is then created to push the product to the market. Push to Customer

Supplier Supplier

Manufacturer Manufacturer

Distributor Distributor

Retailer Retailer

Customer Customer

Pull supply chain

This model emphasizes on using the supply chain to deliver the value to customers who are actively involved in product and service specifications. Here the supply chain is constructed to deliver value to the customer by reducing costs and increasing service quality.

Supplier Supplier

Manufactur

Distributor Distributor

Retailer Retailer

Customer Customer

Renata Limited is following the pull model of supply chain as they are demand oriented and this model has been the strategy for many organizations.

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Setbacks in supply chain management

The practice by Renata Limited for its supply chain, the Goods Distribution Process (GDP), has been suffering from many problems that a future participant in pharmaceuticals arena should have been eliminated. We can list the shortcomings as following. The system is comparable to the earliest model of supply chain management like Physical Distribution Management (PDM). Here the information management and coordination is least and it is integrated within the organization. They need to maintain a safety level of inventory in front end for a period of 8 weeks and in the back end for a period of 8 weeks. This signals more investment done for the working capital. Once a safety level of inventory is maintained, it cost more for storage and management. Just In Time (JIT) eliminated this problem that they are yet to introduce. Their supply chain is dependent one some intermediaries in back end and their own multistage distribution channel in front end. So they arent able to order directly for inputs and supply directly to customers. They havent yet employed any high performing supply chain management software like ERP system. They only rely on the database for the performance judgment and forecasting the future needs based on it. The time lag in back is high as it needs several steps for ordering the new materials and coordination with different agencies.

Options for restructuring supply chain

As part of strategy definition for e-business, managers will consider how the structure of the supply chain can be modified. These choices arent primarily based on internet technology choices, rather they are mainly choices that have existed for many years. What internet technology provides is a mire

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efficient and enabler and lower cost communications within the new structure. Supply chain management options can be viewed as a continuum between internal control of the supply chain elements and the external control of supply chain elements through outsourcing. The two end elements of the continuum are usually referred to as vertical integration and virtual integration.

Vertical integration refers the extent to which supply chain activities are undertaken and controlled within the organization. Virtual integration refers the majority of supply chain activities ate undertaken and controlled outside the organization by third parties.

Vertical Integration integration

Vertical Disintegration

Virtual

Characteristics: Majority of manufacture inhouse. Distant relationship with suppliers.

Characteristics: Move to outsourcing. Network of suppliers.

Characteristics: Total reliance on linked third parties. Close relationships with Suppliers.

Applications: Specialized or proprietary production

Applications: Cost reduction and focus on core capabilities.

Applications: Rapid market penetration

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There was a general trend in during the second half of twentieth century from vertical integration through vertical disintegration to virtual integration.

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