Supply Chain Integration, a Chain of Efficient Utilization of Information Technology: Its Benefits & Challenges

doi:10.4236/ojapps.2012.24044

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Open Journal of Applied Sciences, 2012, 2, 298-301

doi:10.4236/ojapps.2012.24044 Published Online December 2012 (http://www.SciRP.org/journal/ojapps)

Supply Chain Integration, a Chain of Efficient Utilization

of Information Technology: Its Benefits & Challenges

Regine Adele Ngono Fouda

Department of Logistic Management, Shanghai Maritime University, Shanghai, China

Email: [email protected]

Received September 22, 2012; revised October 22, 2012; accepted November 10, 2012

ABSTRACT

Business renovation , effective utilization of information techno logy and the role of business process modeling are dealt

in supply chain integration projects. The main idea is to show how the performance of supply chain can be improved

with the integration of various tiers in the chain. Integration is preconditioned for efficient sharing and utilization of

information between diverse companies in the chain.

Keywords: Supply Chain Management; Supply Chain Integration; Benefits & Challenges; Business Process

Renovation; Simulations; Information Transfer System

1. Introduction

One of the major transformations in the rapidly evolving

digital economy occurs in the SCs of both traditio nal and

e-commerce companies. Information technology has en-

abled channel partners to trade goods, share information,

and integrate their processes, thereby reshaping the inter-

organizational dynamics and resulting in more efficient

channels. The power of inter-organizational information

systems (IOIS) is well known. It has proven to be effec-

tive for reducing transaction costs. Three progressive de-

grees of IOIS are transactional, operational, and strategic

(Seidmann and Sundararajan, 1998) [1]. This paper will

reveal how business process modeling (explicitly process

maps) can be used in order to develop such business

models that will lead to improve sharing of information.

Appropriate business processes are a prerequisite for the

strategic utilization of information. The mere implemen-

tation of new technology without changes in a com-

pany’s operation will realize only some of all the pos-

sible benefits. The rest therefore mainly deals with busi-

ness renovation and changes in business processes that

thus might improve the flow of information, as well as

their challenges. All the theoretical findings are illus-

trated in a company that deals with transport of their

product to their suppliers’ base.

2. Literature Review: SC Management as a

Whole

SCM is the management of interconnected businesses

network involved in the ultimate provision of product

and service packages required by end customers (Harland,

1996).

2.1. A Linked Set of Resources and Processes

This begins with the sourcing of raw materials and

widens to delivery of end items, to the customer (Bri-

dgefeld Grp ERP/SCGlossary, 2004).

2.2. The Integration of Key Business Process

SCM is “that key business processes from end user

through original suppliers that provide products, services,

and inform at i on…” (Cha n & Qi , 20 03).

2.3. SC Propagate & Enlarge Companies

Even though SC is often measured with the bullwhip

effect. Some companies have incomplete information

about the needs of others, however (Forrester, 1958-1961;

Holweg & Bicheno, 2002) have shown that production

peak can notably reduce by transmitting the information

directly to the manufactur er.

3. Current Situation: Overall Model of

Information Transfer in SC

Recent studies have emphasized the importance of in-

formation sharing within SC (e.g. Barrat, 2004; Lambert

and Cooper, 2000; Lau and Lee, 2000) [2], which shows

different changes as a result of using e-business.

3.1. Information Transfer in an SC

ICT has an important influence on dexterity between

R. A. N. FOUDA 299

companies, (Hengst and Sol, 2001). Internet by itself

demonstrates no benefits and has not decrease inventory

in any enterprise ( e.g. Slovenia’s) Paul Trkman , [3] 2000.

Gavirneri (2002) summarized findings that show reduc-

tions of costs between 0% and 35%.

3.2. E-Business Transfer as a Business

Renovator

Process renovation is a re-engineering strategy that criti-

cally examines current business policies, practices and

procedures, rethinks them, then redesigns the mission-

critical products, processes, and services (Prasad, 1999).

The Internet enables companies of all sizes pursue inten-

sive and interactive relationships with their suppliers,

collaborating in new product range issues. E-business

represents a shift in changing traditional organizational

models, business, relationships and operational models

that have been dominant for the past 20 years. (Phipps,

2000). However, IT alone is not a panacea for all SC

problems. It was shown that electronic data interchange

(EDI) could reduce swings in inventory and safety stock

levels.

3.3. Business Renovator Goals

They remain a buzzword that brings back memories of

headcount reductions, budget cuts, facility closures, costly

consulting engagements and endless reorganizations that

destroy and confuse partners/customers (Davenport,

1993; Miller, 1994). For more, see Leavitt’s diamond in

Burke and Peppard, 1995. IT serves as a facilitator

through time saving and efficient application e.g. busi-

ness modeling and computer aided design tools (Chang,

2000); also, analysis and simulation, including, Com-

puter-Aided System Engineering (CASE) tools. At first,

Customer satisfaction would grow if one managed to

reduce costs, shorten execution times and increase ser-

vice, excluding therefore 3 goals.

3.4. Business Process Modeling

Venkatraman and Henderson (1998-2000) [4] defined

this as a co-ordinate plan to design strategy along three

vectors: customer interaction, asset configuration and

knowledge. There are several reasons producing this

(Eriksson and Penker, 2000): *A business process model

helps us understand the business: it’s to increase under-

standing and facilitate communication. *A business pro-

cess model is a basis for creating suitable information

systems: used in identifying info rmation systems needed.

*A business process model is a basis for improving the

current business structure and operation: used to identify

changes required to improve business. *A business pro-

cess model provides a polygon for experiments: used to

study the implications of business structure. *A business

process model acts as a basis for id entifying outsourcing

opportunities.

4. SC Integration: The Benefits That

Emanate

Integrated SCs can benefit its major participants i.e. sup-

pliers, manufacturers, distributors and customers. Bene-

fits include increasing loyalty among partners, reduce in-

ventory, improved on-time delivery and increased flexi-

bility.

4.1. Initial Benefit

Here, integration grows deeper over time. The 1st benefit

is forming partnerships, thus trust among SC partners

solidifies, leading to cons istent predictable sourcing.

4.2. Forecasting

In addition to real-time tracking, companies begin to ex-

change planning data, thus Inventory management, ship-

ping and production schedules with goal of increasing

efficiency.

4.3. On time Delivery and Inventory

The SC center for advanced purchasing studies, said

companies that moved to an integrated SC reported 50%

increase in sales with 35% lower inventory.

4.4. Resilience

In chaotic times, true partnership, companies can quickly

adapt to changes without prolonged production or deli-

very gaps.

5. SC Integration: The Challenges That

Emerge

The developed business model helps to understand the

current problems and also makes them more visible to all

decision-makers in both compan ies. Problems on tactical

level are: 1) the stock level cannot be measured accu-

rately since the tank always contains some water; 2)

communication between various departments and com-

panies is costly; and 3) the transport company’s trucks

are not fully utilized. However, strategic level has bigger

problems: 1) The flow of information in the process is

slow and costly; 2) Human limitations prevent the deci-

sion-maker from using all available information (e.g.

stock levels); 3) Each member in the chain is trying to

attain its local optimum instead of the global chain’s op-

timization; 4) Companies in the SC may not be primed to

share their production data, lead times; (Terzi and Cava-

lieri, 2004) [5] indeed, lack of trust between partners is

R. A. N. FOUDA

300

one of the main barriers to collaboration (Barrat, 2004;

[6,7] Ireland and Bruce, 2000); 5) Asymmetric distribu-

tion of costs and benefits: since substantial investments

are needed from both sides, but the transporter realizes

less benefits, while taking on new responsibilities, risks

and a more strategic role in the process. Thus, the finan-

cial compensation plan for its services also has to be

changed from previous system that was based on number

and punctuality of deliveries to the final customer and

average inventory costs; 6) Different organizational cul-

tures and leadership styles; and 7) A new way of thinking:

since employees will have to seek solutions on the SC

global instead of local optima and learn to cooperate

closer with its supplier/buyer. Business modeling plays

the role of a facilitator of changes (Bay, Tang and Bennet,

2004; [8] Burgess, 1998; Kidd, Richter and Li, 2003).

6. Case Study & Results of a Specific Field

Based on the mentioned problems, several improvements

were proposed. The main change is that the processes at

both companies are now integrated and the supplier takes

responsibility for the whole procurement process. There-

fore, a renewed business model is perceived.

6.1. Case Study

This case study can be found with explicit details in

(Aleš Groznik and Mujkic, 2005) [9]. This case deals

with the fulfillment/procurement process in SC that con-

tains a Petrol Company (with multiple fuel stations at

different locations) and the supplier that transports the

fuel to the stations from a few larger warehouses. The

main goals are similar to the usual SC goals: to offer

good service to the final customer, while keeping costs

and lead-times low. The main cost of drivers is thus:

number of stock-outs, stock level at the fuel station and

process execution costs. The description of the current

process is as follows: the stock level is measured manu-

ally once a day. Results are faxed to the purchasing de-

partment that collects information from all fuel stations.

It predicts future demand, while taking seasonal and cy-

clical actions into account. Additional consultation with

the fuel station manager is possible, if needed. The needs

of several fuel stations are merged into one order. Tacit

employee knowledge is used to make and optimize or-

ders and transport routes. The analytical department con-

trols possible changes in demand and supply patterns and

transport routes. If required, it can adjust or cancel orders.

After that, the order is sent to the tran spor t comp an y. Th e

order has to be fulfilled with the available fleet, but can-

not be modified. Financial compensation is paid to the

transporter on the number of miles driven, fuel delivered

and punctuality of deliveries. While the description fo-

cuses on one typical fuel station, the inputs from other

stations are also taken into account at various points in

the model. Most importantly, the capacity of each truck

is considerably higher than the needs of one station so

orders from different stations are usually merged into one.

Obviously this is a specific case study with a standar-

dized product and only one supplier so the results cannot

be generalized to other industries without caution. The

main findings are however relevant to most SCs regard-

less of the industry. Based on the process described in

this study, an AS-IS model was developed. Process maps

(standard method for modeling and analyzing in business

renovation) were used for visualization of the model.

Here, employees can be quickly taught how to develop/

validate these models (Chen, 1999). They enable analy-

ses of the costs and time needed for the process (Indihar

Stemberger, Jaklic and Popovic, 2004). The Igrafx Pro-

cess 2003 with a graphical user interface was used—such

interface enables an easy understanding of everything

involved in the project (Bosilj-Vuksic, Indihar Stember-

ger, Jaklic and Kovacic, 2002) [10].

6.2. Results of the Business Process Modeling

Although all phases are supported by IT, deep structural

changes were needed to fully realize the potential bene-

fits. Some of the proposed changes can be described with

the popular buzz-word “vendor-managed inventory”

(VMI), others with material requirements planning, data

mining, operations research and generally SCM. How-

ever, it’s the interconnection of those changes that bring

the desired benefits. The chief idea is that the transport

company takes a strategic role in providing a sufficient

inventory to fulfill the demand of the end customer. It

takes all important decisions regarding orders in order to

realize this goal. The main proposed changes ar e: 1) The

measurement of the product is now fully automatic; 2)

The stock levels from all fuel stations are instantly

available to the transport company; 3) Future demand is

predicted using the model based on neural networks; 4)

The system at the transport company automatically iden-

tifies the current levels of stock, predicted future needs

and suggests possible orders and delivery among differ-

ent petrol stations; 5) The final decision is made and ap-

proved daily by an employee in the transport company; 6)

Operation research methods (e.g. the vehicle routing

problem) are used to optimize transportation paths and

times (see Gayialis and Tatsiopoulos 2004); and 7) In a

long-term, the locations of the warehouses can also be

optimized to bring further reduction in costs and trans-

portation times. Further advantages not directly visible

include: 1) Due to the use of optimization methods with

full information available the transport is more efficient;

2) the predictions of future demand are considerably im-

proved tacitly. The role of IT in all these suggestions is

R. A. N. FOUDA

301

crucial. An automatic system for the measurement and

communication of current levels of stocks at all stations,

neural networks, computer-assisted operation research

methods etc. enable the changes. While it becomes pos-

sible to develop an information system to support the

AS-IS model, it would be much more beneficial to do so

for a renewed model.

7. Recommendation & Conclusion

After all the adequate benefits & challenges, integrated

SCs are not ubiquitous at this time, thus cases of failures

and breakdowns. During this research, some main keys

were established for a brighter network process in SC

integration.

7.1. Recommendation

The 1st is to set up how financial & non-financial results

will improve SC integration. The 2nd is developing peo-

ple, culture & an organization that support the SC v ision.

The 3rd is establishing the correct positioning of work on

a global basis. The 4th is to incorporate SC consideration

into product & service design decisions. The 5th is main-

taining sourcing as a first-level p riority. The 6th is to stay

focused & consistent in relationships with customers &

suppliers. The 7th is to create an effective Sales & Opera-

tion process. The 8th is to develop valid & reliable data-

bases & information. The 9th is to develop the capabili-

ties & analytic tools to make effective decisions in an

increasingly complex & risky environment. The 10th is to

build trust within & across organizations in the supply

chain. The 11th is to find ways to share risk equitably

among SC partners. The 12th is to truly share rewards

equitably among SC partners.

7.2. Conclusion

In this paper, one analyzed the main aspects needed for

the successful renovation, integration and operation of

SC (This research does not grant all of the answers to

overcome these challenges to integrating SCs or even a

comprehensive approach for doing so. Nevertheless, one

can find strategies & good practices developed by spot-

light companies to meet these challenges & to push

ahead in integrating SC). The core idea is that the suc-

cessful implementation of SC integration projects is not

as much a technological problem and that a thorough

study of the current and desired states of business pro-

cesses in all companies involved is required. The case

study showed a two-phased approach to estimate the dif-

ferent challenges & benefits of business process renova-

tion with the use of simulations. The tran sfer of informa-

tion transports important advantages in process costs and

lead-times, while the resulting possibility of smaller and

more frequent orders means reduced inventory costs.

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List of Acronyms

SC: Supply Chain

SCs: Supply Chains

IOIS: Inter-Organizational Information Systems