Electronic Data Interchange Capabilities

Published Date: 02 Nov 2017

1.0Introduction 2

2.0 Supply Chain Management 3

3.0 Information Technology / Systems 4

4.0 Information Technology and Supply Chain Management 8

References 14

Introduction

The emergence of new technologies especially over the last decade had an unprecedented impact in the way people communicate, interact with the environment, and do business together. In the financial sector it has created what it became known as the ‘new economy’; this term describes the range of business activities and transactions based on the new model of economy, which is a result of the convergence of technology. The phenomenon of ‘Silicon valley’ and the corporations dealing with new media are on the front of this new economy. The most important tool of this development became the Internet and state of the art Information Systems and Technologies, which put this new economy into a globalized context. In the business sector a few years ago the Internet was simply a new option used mainly by companies which wanted to be ahead of their time. Today it is a necessity for businesses that want to be viable and not fall behind.

The globalization of the market environment could never become a reality without the Internet and new technologies and Information Systems. Their expansion and integration in all forms of businesses, contributes to the enlargement of markets. It has become a primary tool for businessmen and marketers. Those technologies serve large companies and corporations in their expansion plans in global markets and their increase in market share. New technologies can help towards this direction and introduce new ways of trade and commerce and of course to re-define the way that firms are organising and using their supply chain.

This assignment deals with the usage of Information Technology and Systems and how they affect Supply Chain Management.

The assignment will make an analysis to Supply Chain Management (SCM), then to Information Technology (I.T.) and it will evaluate how I.T affects SCM.

In post-industrial societies, authority increasingly relies on knowledge and competence and not on mere formal position. Hence, the shape of organisations should "flatten" since professional workers tend to be self-managing; and decision making should become more decentralised as knowledge and information become more widespread throughout (Westland and Clark, 2000). Through information technologies highly networked organizations in the form of "task forces" may be developed, allowing professional groups to meet, in person or through the internet, and undertake specific tasks. After the accomplishment of the task, members are able to participate in other task forces. Thus, this method may be deployed for SCM as analysed further down in the present essay.

2.0 Supply Chain Management

Supply Chain Management, or wide known as SCM, has attracted the interest of many researches and practices. It is understood that SCM is about how to manage the supply chain.

There are many terms on how Supply Chain can be managed. Talluri (2000) says that the individuals are the ones responsible for the successful management of the supply chain and not the processes and flows. Talluri (2000) claims that supply chain is a network of people who can be either the suppliers, the manufacturers, distributors and the customers. A similar definition is by Webfinance (2002) that says that the supply chain is a network of retailers, distributors, transporters, storage facilities and suppliers. Those are taking part in the sale, delivery and production of a product or service. Hence, using the above definition, supply chain is a number of activities, information, stages and actors involved from the production stage up to the final consumption of the product / service from the end customer.

Vorst et al. (1998) describes the supply chain by saying that it includes materials suppliers, production facilities, distribution services for the wholesalers and the retailers, and of course the customers. Of course it is important to say that most of the authors are busy analysing the supply chain for tangible products and they do not emphasize so much on the intangible services. In addition, there are some differences from one industry to another. It is different to distribute a bank service and different to distribute a cargo of raw materials such as steel and iron.

It is understood the management of the supply chain is not an easy job and there are many intermediaries that vary from one industry to another. This means that the supply chain manager has the difficult job coordinate, integrate and manage all the activities and processes involved with the supply chain.

The effective SCM needs a good organisational information and knowledge to share on all the individuals and groups involved in the SCM; the managers, manufacturers, suppliers, logistics providers, customers and others. Often SCM will also need the involvement of strategic allies and partners. Often the suppliers, the partners or the customers can be even some of the competitors. SCM practices mean the organisation is not acting individually and it shall take in consideration all of the key associates and anyone involved in this process (Patterson et al, 2003)

Someone may have to consider why SCM is so important? The driving forces behind this have to do with pressures deriving from the competitive and complex business environment and of course from the benefits and advantages that SCM offers to the organisations. Organisations that manage effectively the SCM improve the effectiveness of their supply chain; they are producing high quality products and services; improve lead times, drastic cost reductions; they are increasing their customers’ satisfaction; create economies of scale and of course to increase the firm’s profitability. (Narasimham and Kim, 2001)

Nowadays SCM has become an important source of competitive advantage and often some practioners and academics such as Gossman (1997) say that competition is not longer between firms on overall but between the firms’ supply chains. This means that the firm that will manage to create the most effective collaborations and supply chain process within the supply chain will become the market’s key player and will gain an important competitive advantage.

3.0 Information Technology / Systems

Information Systems is a strategic issue for organisations. The necessity of applying new technologies results from the radical way that business run nowadays. The globalisation of business and world competition lead to the implementation of new methods of cutting operational costs and achieving growth. Faster pace of business and shorter product life cycles demand a more flexible way to run business. On the other hand technology nowadays is available to anyone providing cheap computing power, rapid ways of Telecommunications and high level of automation.

The progress in business information systems started in 60’s when Data Processing Systems were used to automate data handling and improve efficiency, as Somendra Pant and Cheng Hsu (1995) describe in their review. In 70’s Management Information Systems were developed in order to increase management effectiveness through information provision. During the last two decades Strategic Information Systems have been implemented in order to improve competitiveness by changing nature and conduct of business.

Information Systems Strategies must comply with the business strategy of an organization. IS strategic analysis is a significant process. In this process the objectives of the organisation are specified in order to decide which IS objectives can lead to success for the business goals. Technology allows companies to automate their processes. The following table summarises a variety of Business and IS strategic objectives found in the business guide of www.1000ventures.com.

Objectives for operational efficiency and reduction of operational costs

Objectives

Performance

Development of an adequate Intranet connecting all branches with headquarters. The network will provide:

Communication facilities such as video conference and

Electronic Data Interchange capabilities.

Reduction of operational costs by minimising the need for travelling around the world for the senior staff and enabling the document exchange.

Development of a Distributed Database System containing information about the whole organisation including both headquarters and local stores. All data about employees, customers, suppliers and products should be uploaded to this DB.

Increase and improve information and data availability through out the organisation, thereby assisting the Department's staff in decision-making and in providing services to the public.

Online data update

Replacement of the old payroll and staff salary system. The new system will offer Personnel Management capabilities based on the information kept in a central database.

Save of many man-hours in the Personnel department.

More efficient management in Personnel Department

Objectives for better management and more efficient internal processes

Objectives

Performance

Install an Enterprise Resource Planning system (ERP), a business management system that integrates all facets of the business, including planning, manufacturing, sales, and marketing.

Cost reduction is achieved through elimination and improvement of business processes.

A system of Electronic Data Interchange enables routing, e-mail-based task direction and tracking, replacement of paper documents, and forms based major applications employing workflow features.

Reduction of paper work and improvement of internal processes

Use of suitable Marketing development tools in order to contact market and sale research for the marketing and targeting process. These techniques use tools such as

Data Warehousing

Reporting Tools

Data Mining Tools.

Efficient Marketing

Target sharing

Development of a Scorecard system through company’s intranet, which distributes Company’s Targets throughout the Organisation both horizontally and hierarchically

Target Sharing to the whole organization.

Add value to the decision-making process of federal departments and agencies by providing the directors perspective on company’s targets.

Improves employee productivity and morale.

Enables the performance measurement in all the Departments and Branches.

Objectives for company’s expansion

Objectives

Performance

Development of web site that support E-commerce functionality. The site should provide:

Online orders and purchase

Online auction

Contact page for customers

Market research capabilities

E-commerce results in market share growth.

Business becomes more competitive.

Minimum human resources required for such an expansion.

Expansion to areas without local branches.

Objectives for Customer Satisfaction

Objectives

Performance

The web site will provide Customer Service-Satisfaction Measurement tools in order to determine customer satisfaction with business services.

Measurement of customer’s satisfaction.

Customer Relationship Management (CRM). An enterprise-wide service for managing customer relationships can be implemented through the web site. CRM software will allow an agency to track all details regarding a customer.

Optimisation of Customer satisfaction and improvement of services.

It is understood the importance of I.T. for firms and how they have changed the nature of competition during the past fifteen years. It is time now to see relation between I.T and SCM.

4.0 Information Technology and Supply Chain Management

Information technology and Information Systems (IT/IS) are not something new in the supply chain management. From the 70’s some companies have introduced IT/IS systems on their supply chains. Some companies have started realizing the true benefits and advantages that derived from the use of IT/IS systems.

This was the era of Material Requirement Planning (MRP) that was based on IT/IS systems. The aim of MRP was to integrate the internal procedures and jobs in the supply chain of the manufacturing companies. It was based in a computer software that it was controlling the manufacturing procedure.

During the the 80’s MRP had been upgraded and vendors released various MRP II software packages for manufacturing firms.

By the time MRP has become quite advanced but the need of the companies for more sophisticated and advanced software for such operations lead to the launch of Enteprise Resource Planning (ERP). ERP was based on the MRP systems and it is still used from most of the companies to support their supply chains and to integrate their supply chain activities with the rest of the organisation (Gupta, 2000).

According to Wikipedia (2006) Enterprise resource planning is a term derived from manufacturing resource planning (MRP II) that followed material requirements planning (MRP). ERP systems typically handle the manufacturing, logistics, distribution, inventory, accounting, invoicing, and shipping on behalf of companies. The ERP software, i.e. Enterprise Resource Planning software, may assist in the management of several business activities, such as, billing, delivery, sales, inventory and quality management, human resource management, and production. These systems are also known as back office systems meaning that clients and the public do not have a direct involvement in the system, as opposed to front office systems, e.g. customer relationship management (CRM) where there is direct contact with customers, or in the case of eBusiness systems like eGovernment, eCommerce, eFinance and eTelecom, or even in supplier relationship management (SRM) systems. The nature of ERPs is cross-functional and covers the entire spectrum of the enterprise. There is a unique system integrating all operational departments that undertake operations within the company. Other than the manufacturing, logistics, IT and warehousing these systems also include marketing, strategic management, human resources and accounting.

Companies have invested billions of dollars to acquire and maintain MRP and ERP systems for their operations and SCM is based on automaticity of some procedures and functions. This helps the companies to increase their internal efficiency and productivity, collaborate in an efficient way with their suppliers and clients and in general to create efficiency to their supply chain.

There are numerous examples of companies who have used IT/ARE systems to improve the efficiency of their supply chain systems. An example is given from CSC research services (1997) with the case of American Airlines that uses the SABRE system that is a centralised and computerised reservations system. This system helps the firm to gain information on its operation and reservations. In this way the firm has helped its customers to re-arrange schedules and to reserve multi-leg flights with a phone call. A similar system is used in Europe with the Galileo network.

Sousa et al (2001) says that IT/IS systems are helping SCM by gathering information for the firm’s products and service, components, process and anything else that is on the supply chain, they are giving information to the shareholders and they can analyse the information that derives from this process in order to help the firm to organise its planning.

Ovalle and Marquez (2002) say that companies share three types of information:

Product / service information

Customer demand and transaction information

and inventory information

On the case of American Airlines, in the beginning the firm did not manage to succeed in installing and using with success this system since the business partners did not want to share valuable for them information. They believed that would lose their autonomy as business units and business partners and that this information could flow to the market and to end up to the hands of competitors that would take advantage from this information. The firm managed to resolve those problems by developing computer-to-computer structured –transmission standards so as to rule the inter-companies information and data exchange. The most popular technology for such use is the Electronic Data Interchange (EDI).

Wikipedia (2006) mentions that the EDI may be defined as a system for the exchange of structural information between computers, by means of commonly accepted message standards carried out electronically almost without the intervention of humans. Generally speaking, EDI systems are considered to be specific tools for information exchange, governed by the rules of international and national standards regulating the exchange of business data. The most common application of these tools is automated purchase with regard to services or products. EDI still constitutes the data format used in most e-commercial transactions throughout the globe. However, this role is being overlooked within the era of XML services.

EDI helps the companies to send and receive standardise business communications in a flexible, cheap and secure way. This ensures not only the quality of the information but also it is secured on the right hands. (Hill & Scudder, 2002)

EDI is been used from most of the companies for their MSC activities and functions such as sales, distribution, logistics and manufacturing and it has affected SCM practices; companies have to fit their functions to this new environment that is technological focused.

For example, salespersons have stopped taking orders from the retailer or / and the customers. Orders occur automatically through an EDI system that monitors store-by-store the promotion and behaviour of the products sold, how the customer react to the products’ offer and other information regarding the marketing of the product. (Lago and Fischman, 1999)

An important thing is how technologies like EDI have affected the way that firms define their SCM practices and functions, while at the same time companies are pushing EDI and other software developers to produce and market improved software packages for companies. This brings a number of several new practices that are linked with information technology.

For example, there have been practices such as:

Statistical Inventory Control

Point of Sale

Efficient Consumer Response

Base Stock Control

Quick Response

Line Requirement Planning.

Collaborative Forecasting Replenishment and many other practices.

Of course there were not only the firms that were aware of those technologies but also the vendors and software houses. Vendors have realised the dynamic of the SCM market and that it could benefit them. The have started creating new products and services and a number of specialised IT/IS products went to the market. Some of them were are about to support a certain process or a number of processes while other IT/IS systems were supporting the whole process and practice of SCM, while some others were made for certain types of organisations, i.e. tourist operators.

Furthermore, there have been companies like SAP and Microsoft that have released products that aimed on such operations and practices such as SAP’s ERP programs and Microsoft’s CRM and Business Solution Platform that helped firms to improve not only their SCM functions but their competences in general adding customer relationship management functions. On the other hand there are many companies who are producing tailor-made solutions. Hence we have products that are made for mass markets while some other vendors are creating products / solutions that are addressed for certain companies and they are tailor-made.

Some other vendors have developed IT/IS using EDIs to create interring organisational capabilities, to communicate with the shareholders and of course to use the Internet and Web-base interferences.

It is of utmost importance to focus on the great advantages of the internet. The Internet is a business means that becomes more and more advanced and influential with an immense number of users who are also potential customers. Leebaert (1999) mentions that the internet market is, on the one hand, a novel means of broadcasting and, on the other hand, it entails huge opportunities for finding new customers that belong to specialized target groups. However, some experts believe that despite the fact that the Internet has evolved a lot in the past decade, businesses do not seem eager to adopt it as would have been expected. According to Rowan (2002): "At the beginning, many researchers said that the internet was "yet another means of communication". But the parallel evolution of distinct digital networks helped it grow as more than just a means for communication. We are now at the end of the first stage of the "Revolution of the Internet". The Web was initially used by a minority of people. Now, a huge number of companies in the West are using this tool, either through the use of e-mails or through an internet presence. On the other hand, there is limited eagerness as to ‘being online’". It is clear that opportunities and potential for the future are immense. With the connection of more and more people to the Internet companies are actually forced to adopt this new marketing model.

Predictions and estimations about the next stage of Internet evolution try to show the way to businesses for gaining the competitive advantage in a changing environment by acting ahead of others. Rowan (2002) tries to give the characteristics of things to come, by suggesting that n the next stage of the Internet’s development, people and companies will find that their current habits and practices will change as they make more use of online services. Companies, in particular, will discover that internal practices will be affected by their connection to digital networks and they will see the demise of long-established marketing practices. New opportunities for profitable communication will present themselves to the people and organizations that buy products and services. New approaches and practice standards will be required to make digital marketing profitable.

The truth is that Rowan’s prediction is right. Lankford (2004) writes that the sudden increase in electronic commerce and the Internet have resulted in new opportunities to improve the performance of the supply chain. The advantages are the following:

Speed

Cost decrease

Flexibility and

Shortening the Supply Chain

As for disadvantages, Lankford (2004) mentions that some of the negative aspects of Internet supply chains include the increase of interdependence and implementation costs and the creation of a change in expectations that companies need to keep up with.

Lankford believes that the Internet is a means that promotes the undertaking of supply chain activities in an instantaneous and synchronized way, thus increasing the overall effectiveness of the supply chain. The benefits related to opting for Internet use for the management of supply chains are more as compared to drawbacks and costs. Companies that utilize these methods have a clear competitive advantage over the ones that do not. The use of the Internet should not be regarded as a means to an end of itself, but as a means for managing supply chains, reducing costs, increasing customer satisfaction and improving production flow and cycle times (Lankford, 2004)

Of course vendors have focused in the opportunities created from the Internet. Trommer (2002) writes a review on the Vendors that have invested in the area of SCM and he gives the top 10 IT/IS vendors who have benefited from the expansion of the IT/IS and the Internet to SCM. Those are:

i2Technologies,

SAP

Manugistics,

IBS

Manhattan Associates

J.D.Edwards

EXE Technology

Aspen Technology

Swisslog and,

Retek

The above firms are the biggest players in market that has seen its figures increasing by far during the past few years.

I2Technologies has the 20% of the market share, while other companies like SAP have increased their market share during the past years, while Microsoft has started entering this market with its Business Solution package.

Of course there are many smaller firms who are doing niche marketing; they are focusing on some narrow segments of the market. For example EXE Technologies focuses on Warehouse Management Systems, while Oracle has entered this market with a solution for back office supply chain processes, practices and activities. (Trommer, 2002)

Of course there is a number of smaller vendors who are creating SCM solutions for smaller firms or they are operating on local markets satisfying the needs of the small companies in a certain market. Those vendors, on most of the times, are giving less sophisticated solutions but their offers are on very low prices, in order to meet the small and medium firms’ needs that can not afford to purchase the expensive solutions of the larger companies.

However, applying in a small and not very reliable firm means that the firm may have to face some risks and the potential of having a IT/IS system that will not add value to the supply chain of the firm.

5.0 Conclusions

This assignment examined how Information Technology and Systems affect today’s Supply Chain Management.

IT/IS solutions can help a company not only to integrate and control all of its supply chain activities but it can help the company to transform SCM to a core competence that will give a sustainable competitive advantage to the firm.

IT/IS can be used also to retrieve information on every variable that affects the supply chain’s efficiency but also to help the firm to plan with success its future plans.

It is important to know that the quality of the IT/IS solution is affected from the quality of the vendor. Here applies ‘what you pay is what you get’.