Information Technology in Supply Chain

Information Technology in Supply Chain

Information is the essential link between all supply chain processes and members. Computer and information technology allows real-time, online communications throughout the supply chain. Technologies that enable the efficient flow of products and services through the supply chain are referred to as “enablers,” and information technology has become the most important enabler of effective supply chain management.

Supply chain managers like to use the phrase “In modern supply chain management, information replaces inventory.” Although this statement is not true—companies need inventory at some point, not just information—information does change the way supply chains are managed, and these changes can lead to lower inventories. Without information technology, supply chain management would not be possible at the level it is currently being accomplished on a global basis.

Electronic Business

E-business replaces physical processes with electronic ones. In e-business, supply chain transactions are conducted via a variety of electronic media, including electronic data interchange (EDI), email, electronic funds transfer (EFT), electronic publishing, image processing, electronic bulletin boards, shared databases, barcoding, fax, automated voice mail, CD-ROM catalogs, the Internet, websites, and so on. Companies can automate the process of moving information electronically between suppliers and customers. This saves both labor costs and time.

Some of the features that e-business brings to supply chain management include:

• Cost savings and price reductions derived from lower transaction costs (including labor and document savings)
  
  
• Reduction or elimination of the role of intermediaries and even retailers and service providers, thus reducing costs
  
  
• Shortening supply chain response and transaction times for ordering and delivery
  
  
• Gaining a wider presence and increased visibility for companies
  
  
• Greater choices and more information for customers
  
  
• Improved service as a result of instant accessibility to services
  
  
• Collection and analysis of voluminous amounts of customer data and preferences
  
  
• The creation of virtual companies, like Amazon.com that distribute only through the Web, which can afford to sell at lower prices because they do not need to maintain retail space
  
  
• Levelling the playing field for small companies, which lack resources to invest in infrastructure (plant and facilities) and marketing
  
  
• Gaining global access to markets, suppliers, and distribution channels

Electronic Data Interchange

Electronic data interchange (EDI) is a computer-to-computer exchange of business documents in a standard format, which has been established by the American National Standards Institute (ANSI) and the International Standards Organization (ISO). It creates a data exchange that allows trading partners to use Internet transactions instead of paper when performing purchasing, shipping, and other business. EDI links supply chain members together for order processing, accounting, production, and distribution.

It provides quick access to information, allows better customer service, reduces paperwork, allows better communication, increases productivity, improves tracking and expediting, and improves billing and cost efficiency. EDI can be effective in reducing or eliminating the bullwhip effect. With EDI, supply chain members can share demand information in real-time and thus can develop more accurate demand forecasts and reduce the uncertainty that tends to be magnified at each upstream stage of the supply chain.

Bar Codes

A bar code is what is referred to as an “automated data collection” system, or “auto-ID.” In barcoding, computer-readable codes are attached to items flowing through the supply chain, including products, containers, packages, and even vehicles. The bar code contains identifying information about the item. It might include such things as a product description, item number, source and destination, special handling procedures, cost, and order number.

A food product can be identified down to the farmer who grew it and the field it was grown. When the bar code information is scanned into a company’s computer by an electronic scanner, it provides supply chain members with critical information about the item’s location in the supply chain.

Bar code technology has had a huge influence on supply chain management, and it is used by thousands of companies in different situations. Package delivery companies like FedEx and UPS use bar codes to provide themselves and customers with instantaneous detailed tracking information. Supermarkets use scanners at cash registers to read prices, products, and manufacturers from Universal Product Codes (UPCs).

When bar codes are scanned at checkout counters, it also creates point-of-sale data— an instantaneous computer record of the sale of a product. This piece of information can be instantly transmitted throughout the supply chain to update inventory records. Point-of-sale data enables supply chain members—suppliers, producers, and distributors—to quickly identify trends, order parts and materials, schedule orders and production, and plan for deliveries.

Radio Frequency Identification

While a barcode is the most commonly used auto-ID system, a more technologically advanced system is radio frequency identification (RFID). RFID technology uses radio waves to transfer data between a reader (that is, a scanner) and an item such as a shipping container or a carton. RFID consists of a tiny microchip and computer, often a small, thin ribbon, which can be put in almost any form—for example, between layers of cardboard in a box or on a piece of tape or a label. An RFID “tag” stores a unique identification number.

RFID scanners transmit a radio signal via an antenna to “access” the tag, which then responds with its number. The tag could be an Electronic Product Code (EPC), which could be linked to databases with detailed information about a product item. RFID has several advantages over barcodes.

RFID tags do not need a direct “line of sight” to read, and many tags can be read simultaneously over a long distance. When products arrive at a location, such as a retail store, shipping dock, or warehouse, each barcode has to be scanned individually, whereas RFID readers placed at an entry site (like a door) can scan a whole pallet of different products automatically and instantaneously.

As such, RFID provides complete visibility of product location, is faster, reduces labor usage, and is more accurate than barcodes. With barcodes it is difficult to know how much product is in a store; however, RFID readers inside a store (or warehouse) can continuously monitor what is available, and when the inventory reaches a certain level it can be reordered. When items are stored in a warehouse, the barcode on the item to be stored has to be scanned as well as the barcode fixed to the location; RFID eliminates these steps.

In a global supply chain, RFID tags make it possible for suppliers or retailers to know automatically what goods they have and where they are around the world. For example, a retailer could distinguish between three cartons of the same product and know that one was in the warehouse in Asia, one was in the store, and one was in ocean transit, which would speed up product location, delivery, and replenishment.

Walmart, an early proponent of RFID, estimated that the following benefits would result from RFID:

• Labor to scan barcodes on cases and pallets will be eliminated.
  
  
• On-shelf monitoring will decrease stock-outs in stores.
  
  
• Product shrinkage, vendor fraud, and theft will be prevented.
  
  
• Tracking over 1 billion pallets annually will reduce distribution center costs.
  
  
• RFID will provide inventory visibility, enabling a 20% reduction in inventory levels.
  
  
• Savings of over $8 billion per year are projected.

However, RFID technology does have disadvantages. RFID technology is not yet universally implemented across different logistics systems and companies, which makes it difficult to track items that move from one system to another. Using RFID is more costly than using barcodes: Individual RFID tags are expensive relative to barcodes, and the readers are costly. Radio waves don’t go through metal and are diffused by water.

Internet

No technology has a bigger impact on supply chain management, and business in general, than the Internet. Through the Internet, a business can communicate with customers and other businesses within its supply chain anywhere in the world in real time. The Internet has eliminated geographic barriers, enabling companies to access markets and suppliers around the world that were previously inaccessible.

By doing so, the Internet has shifted the advantage in the transaction process from the seller to the buyer, because the Internet makes it easier for companies to deal with many more suppliers around the world to get lower prices and better service.

The Internet adds speed and accessibility to the supply chain. Companies can reduce or eliminate traditional time-consuming activities associated with ordering and purchasing transactions by using the Internet to link directly to suppliers, factories, distributors, and customers.

It enables companies to speed up ordering and delivery, track orders and delivery in real-time, instantaneously update inventory information and get instantaneous feedback from customers. This combination of accurate information and speed allows companies to reduce uncertainty and inventory. Internet commerce is expected to exceed $6 trillion in this decade.

Internet of Things

One of the newest digital innovations affecting supply chain management is the Internet of Things (IoT). IoT merges the digital world with the physical; it extends Internet connectivity beyond standard devices like desktops, laptops, smartphones, and tablets to a network of non-Internet physical devices and everyday objects like vehicles and home appliances, as well as components of machines. On a personal basis, it can monitor our footsteps, heartbeats, home and office lighting, and temperature.

However, it has been projected that the most significant impact of IoT will be in supply chain management. IoT can improve customer service with more and better information by providing the ability to track and monitor shipments in real-time using RFID sensors. Connected devices and communication channels enable access to real-time transport status, including location, temperature, and diagnostics. This can increase the overall speed and reliability of supply chain movement.

IoT can automatically recognize the need to order and restock on a machine-to-machine basis without human interaction; for example, a vending machine can reorder items immediately without waiting for a service person to check the machine and make the order.

It can provide preventive maintenance using sensors and connected devices to monitor and react to machine issues before there is a failure, and it can order a replacement part and schedule maintenance, thus helping everything from vehicles to factories run longer. IoT can also control physical manufacturing facilities environments by controlling lighting and temperature.

Blockchains

Blockchains are a recent information technology innovation that is expected to have significant implications for supply chain management. A blockchain is a digital distributed (or shared) ledger that is incorruptible and secure and that can be programmed to record financial and other transactions.

The name blockchain comes from information that is lumped together (i.e., in blocks) and put in chronological order (i.e., in chains). Each block is timestamped and given a digital fingerprint linked to the digital fingerprint of the previous block, thus creating the chain. The information stored in the encrypted ledger can viewed by anyone with access, which enables the validity of every transaction to be verified by all users in the blockchain network. So, if someone tries to hack the system, the verified users can recognize the invalid action.

Supply chains generally lack trust among members, which greatly inhibits information sharing, so creating trust among supply chain members (as blockchains appear to do) would be a significant benefit. It has initially been attractive to financial institutions because it enables users to securely send money (or other information) directly to one another without a third party which typically slows the transaction process.

So, for a financial transaction that might involve a bank, a blockchain would eliminate the time (hours and sometimes days) required for the bank to verify the transaction and the fees the bank might charge.

If third-party validations are not required, processes (including supply chains) can speed up with correspondingly more security. For supply chains, blockchains have the potential to improve the way transactions are conducted and items are tracked.

Blockchains provide a means to have more consistent and secure record keeping of transactions that helps avoid disputes over the accuracy of transactions that can often occur between supply chain members. They can facilitate billing and payment processing. Blockchains also enable more accurate real-time tracking of product movement (i.e., orders and deliveries between suppliers and customers) because of more accurate and secure record-keeping.