Take a scenario where the alarm clocks reminder you that you should be preparing for work. You quickly switch the coffee maker on and a moment later the aroma of your favorite coffee fills the house. Have you taken time to reflect how the coffee left the factory to your house and other households in the world? It takes a great deal for any product to move from the factory to every household. Supply chain, which comprises of demanding forecasting, planning, logistics, and procurement, plays a bigger role in moving the coffee globally to our kitchens.
Supply Chain Management (SCM)
Supply Chain Management (SCM) refers to an oversight of information, material, and finances as they move in a sequential process from the supplier (raw materials) to the consumers via the manufacturer and wholesaler. SCM involves integrating and coordinating the flow of items which the company and the industry as well as among firms (Ballou, 2013). The main goal of SCM is to ensure that products are available when needed by the consumers while the supply cost is reduced (Madenas, Tiwari, Turnera, & Woodward, 2014).
The flows of SCM is divided into the product flow, the information flow, and the finances flow. The product flow involves the movement of products suppliers to the customers and returns from the customers to the manufacturers. In the other hand, information flow entails transmitting orders and delivery status. Likewise, financial flow involves credit terms, title and consignment ownership and payment schedules. This study focuses on analyzing the information flow aspect of SCM (Sweeney, 2006).
The information flow aspect of SCM
The flows of information in the supply chain are always bidirectional between all the parties involved: They have to share information to and fro. Experts hold that information flows play an integral part in the success of the SCM activities such as the flow of material and finances. The movement of finances and materials cannot take place effectively without an effective plan for movement of information. In other words, without effective information flows, the entire SCM chain would fail (Christopher, 2005).
Recent studies have found out that poor management of information prompts companies to hold the excessive level of inventories leading to increased operating costs. In the context of information management, when the flow is smooth, the relationship with the wholesaler, retailers, and consumers would be enhanced. In return, the demand would increase (all other factors remaining constant) hence a reduced inventory level. Likewise, when the demand is high, effective flows of information ensures that there is a smooth flow of raw materials from the suppliers. Therefore, good information flow is an effective substitute for inventory and finance flow management (Habib, 2011).
Information Flow: A Case of Walmart Stores, Inc.
The corporation’s information flow system is based on the point-of-sale barcode reader which are used to feed data. The same system also links stores, vendors and distribution centers. Likewise, Walmart has also developed a vendor managed inventory (VMI) system, a retailer-supplier partnership, which have enhanced its connection with major suppliers. The success of the system has been enabled by the sharing of the point of sale information collected from the retailers with the suppliers.
By sharing the information, the suppliers have the responsibility to manage the marketing and sales of their products in the Walmart stores (Habib, 2011).
The arrangement allows Walmart to save resources and managerial efforts: The managerial expertise and resources can be used for general running of the corporation. In the part of the suppliers, VMI has improved the delivery time as well as increased inventory turnovers. The case of Walmart clearly shows that sharing information under the SCM leads to a mutual advantage for the involved parties (McDonnell, Sweeney, & Kenny, 2004).
The case of Procter & Gamble (P&G)
The case of Procter & Gamble (P&G) shows that the information flows system should be reliable and accurate at the same time. After investing in an information system, the company faced a phenomenon knowns as the bullwhip effect where it experienced numerous errors in the ordering of the disposable diapers. Bullwhip effect led to a distorted flow of information between the different entities in the supply chain. For example, there was a huge variability between the distributors’ order the customer demand (sales) (Shah, 2009). Likewise, the orders between the company and its suppliers were highly variable as well. Manager at different entity points would magnify demand variabilities and uncertainties. Furthermore, entities would make orders and inventory management based on their self-interests. Such a scenario would lead to poor service delivery, lost revenue and excessive inventories. The problem is not only experienced in the consumer goods industry but in the pharmaceutical and computer industries as well (Christopher, 2005).
To improve reliability, accuracy and minimize such challenges that faced P&G, an SCM software has been invented. The software comprises of two components i.e. the planning application and the execution application. The planning applications apply advanced algorithms to establish the best method for filling in the orders. While the execution application is used in managing materials, financial information and tracking the physical status of the material along the supply chain (Stadtler & Christoph, 2005).
The SCM application, that is mostly used by enterprises, is built used an open data model allowing sharing of data both within and outside a company. The shared information is stored in either data warehouse or a diversified database system where it can be retrieved by different players. The data can be shared either upstream or downstream hence giving a company with the ability to reduce costs, improve product delivery, and allow parties in the supply chain to manage their current resources better and plan for the anticipated future needs in advance (Coyle, Langley, Novack, & Gibson, 2012).
With the current trends and the increasing importance of SCM applications, many companies have turned their attention to Web-based applications and Web sites to solve their SCM needs. The two dimensions of SCM, i.e. inter-functional and inter-organizational, have contributed to the advanced development of information system technology (Madenas, Tiwari, Turnera, & Woodward, 2014). The SCM information flow system is classified into five categories:
- The Point Solution which allowsthe execution of a single point within the supply chain. An example of Point solution would be warehouse management systems.
- The ‘Best of breed’ solutions which support two or more integrated points within the system.
- The Enterprise Resource Planning (ERP) which offer a solution which integratesall the supply chain activities within an enterprise. Enterprise resources solution coordinates the activities from different departments (Habib, 2011).
- The Extended enterprise solution (XES) which collaborate and coordinate information sharing between different players in a supply chain. The technological system support =s sharing of information both internally (ERP) and externally(Madenas, Tiwari, Turnera, & Woodward, 2014).
- The Electronic Data Interchange (EDI) solution is a computer to computer information sharing between two companies. Some of the activities supported by the system are sharing invoices and purchase orders. EDI has assisted in improving inter-organizational coordination of SCM activities(Ballou, 2013).
Information flows as a component of SCM plays an integral part in the coordination and execution of other flow of material and finance. Advancement of technology has played an integral part in the success of information flows. However, the success of information flows has not been without challenges. For example, the P&G experienced a bullwhip effect which interfered with sharing of information between different players. To improve reliability, accuracy and minimize such challenges, an SCM software has been invented. SCM software and Web-based such as point solution, The ‘Best of breed’ solutions, ERP, XES, and EDI are well in place to ensure effective flow of information between players in the supply chain.
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Christopher, M. (2005). Logistics and Supply Chain Management: Creating Value-Adding Networks . London: FT Prentice Hall.
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Habib, M. (2011). Supply Chain Management (SCM): Theory and Evolution. American International University - Bangladesh (AIUB).
Madenas, N., Tiwari, A., Turnera, C. J., & Woodward, J. (2014). Information flow in supply chain management: A review across the product lifecycle. CIRP Journal of Manufacturing Science and Technology, Volume 7, Issue 4, 2014, Pages 335-346.
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