Supply Chain Management

Suppliers – Manufacturers – Distributors – Retailers – Customers

A supply chain is chain of manufacturers, suppliers, wholesalers, distributors, retailers through which the product is delivered from the manufacturer to the customer

Supply chain management is the practice of managing the flow of products, services and information along the supply chain

The goal of SCM is to optimize the supply chain, which can not only reduce inventories, but may also achieve greater customer satisfaction by giving them exactly what they want.

The aim of SCM is to link each and everyone involved in converting the raw material into product and delivering those products to the customer at the right time and at right place in the most efficient manner.

(to deliver right thing at right place in right time)

Why it has gained so much importance…

A dynamic and hyper competitive environment

Short product life cycles

Uptill the last century, supply chain of any organisation was the most inflexible & involved a lot of paper work

But with the advent of new technology (specially information technology) it is fast changing

An Internet-enabled supply chain may have just-in-time delivery, precise inventory visibility and distribution-tracking capabilities.

What can SCM do?

A good SCM initiative gives visibility to all the players in the supply chain so that they are able to react to the order.

The moment a retailer receives an order, the retailer’s supplier also sees it.

The supplier checks inventory. If inventory is low, a manufacturer also with access to the system produces more product and ships it to the supplier via a distributor that is also connected to the system.

Meanwhile the supplier has sent the product to the retail for shipment to the customer. The customer, in turn, can track the shipment of the order and perhaps even check inventory to make sure an item is in stock before ordering.

With Web technology, all the players in the chain simultaneously manage inventory, control manufacturing schedules and deliver an order on time to a customer.

Logistics – It is a term which was generally associated with material management in the military. Concerned with transportation and distribution. SCM the new mantra.

RFID (Radio Frequency Identification)

RFID is a new Automatic Identification technology which makes use of radio waves to automatically identify objects.

The concept is similar to Bar Coding.

A RFID system essentially consists of a tag and a reader. The tags consist of a microchip and an antenna. The microchip has specific product information stored in it. The antenna transmits this information to the reader in the form of radio waves. The reader receives the signals and converts it into digital data which can be passed to computers for required purpose.

The most potential application of RFID lies in tracking goods in the supply chain.

It allows seamless flow of ‘real-time’ information across the entire supply chain from suppliers to end users and provides visibility to all the members.

Other applications include automatic payment systems; security access control.

Advantages over barcode-

Bar code makes use of Optical Signals to transfer information from the coded label to the reader.

The biggest difference between the two is that bar-codes have to come in line of sight of the reader whereas RFID tags does not require a line of sight and can be read as long as they are within the range of the reader.

Secondly a barcode can generally identify only the manufacturer and the product and not the unique item. RFID tags on the other hand can contain much more product information and can even identify individual unique items.

Thirdly, barcode cannot be read if the label is soiled or damaged. While RFID can operate under harsh conditions also.

Also it provides a high level of security as the technology as difficult to counterfeit

The technology has been around since World War II and was used for military purposes but could not be used commercially because of 2 reasons-

1) Expensive

2) Lack of standards

Two types of tags

Active tags – which have a battery to send signal to the reader

Passive tags – which do not have battery but draws power from the electromagnetic waves send by the reader

Active tags are more expensive and should be used to track high value items. Passive tags are relatively cheap and should be used for lesser value items.

Tags can also be dived as –

1) Read-only tags – you can only read the information contained in it

2) Read-write tags – to which you can add information or over write existing information

ERP for Dummies

                       ERP aims at integrating all the departments and functions across a company onto a single computer system which is capable of serving all those different department’s particular needs.

In this every department use a single integrated software which runs off a common database so that it provides a seamless flow of ‘real-time’ information across the entire organization.

ERP is revolutionizing the way business is done.

Traditionally when a customer places an order, it follows a ‘paper-based’ journey from in-basket of one department to another, often being keyed and rekeyed into different department’s computer systems. All this leads to delay, lost order and erroneous output.

Also no one in the company can tell the status of the order.

ERP on the other hand, takes the customer order and provides a ‘software road map’ for automating the different steps along the path to fulfilling it. When one department finishes with the order it is automatically routed via the ERP system to the next department. The order status can be easily be tracked at any point. The customers get their orders faster with less error. Also the

Similar advantages can also be extended to other business process such as employee benefits, financial reporting etc.

Major advantages….

Flow of information in real time

Avoids duplication of data

Reduction in documentation

Better co-ordination among financial areas

Increase in productivity and overall efficiency of the organization

How is ERP different from computerization?

           ERP doesn’t mean simply placing a computer in each and every department of the organization. Generally organizations have many of their functions computerized but they work as independent islands with minimum exchange of data across various departments.

ERP replace the old standalone computer systems in finance, HR and warehouse with a single unified software program divided into software modules that roughly approximate the old standalone systems. Different departments still get their own software, except that the software is now linked together so that they can work in unison.

What is EAI?

           Many other applications require information from ERP systems like e-commerce, supply chain and CRM softwares. The difficulty of getting these applications work together has led to the emergence of middlewares called Enterprise Application Intigration softwares. EAI act as translators that take information from ERP and convert it into a format which other applications can understand.

However it has been seen that EAI only adds to integration woes because along with the tremendous cost involved in developing and deploying an EAI application, it sometimes introduces serious bugs into your system.

The increased need for integration has led to emergence of a new kind of ERP system having a WEB based architecture. It not only allows linking of your ERP system to other application but you can now also share information with external parties such as vendors, suppliers, distributors and customers.

Future of ERP

ERP Evolution

           The focus of manufacturing systems in the 1960’s was on inventory control. Most of the software packages then were designed to handle inventory based on traditional inventory concepts (most popularly amongst them is eoq)

In the 1970s the focus shifted to MRP (Material Requirement Planning) systems which translated the Master Production Schedule for end products into time-phased net requirements for the dependent demand inventories ie sub-assemblies, components and raw materials which make up the product.

In the 1980’s the concept of MRP-II (Manufacturing Resource Planning) evolved which was an extension of MRP to shop floor and Distribution management activities (like loading, scheduling etc).

In the early 1990’s MRP-II was further extend to cover areas like Engineering, Finance, Human Resources, Projects Management etc to cover the range of activities within any enterprise and hence ERP was born.

Today these capabilities are further being extended beyond the boundaries of the organization – into partners, suppliers and customers by incorporating modules like SCM (Supply Chain Management), CRM (Customer Relationship Management), e-commerce

And this is being made possible by leveraging on the potential of the internet

ERP systems are becoming ‘web-enabled’. Internet allows linking of the websites to back-end systems like ERP and providing connections to host of external parties. The benefits of such a system are that customers have direct access to the supplier’s ERP system and the vendors in turn can provide real time information about inventory, pricing, order and shipping status. Internet thus provides an interface between ERP systems and the supply chain members allowing real-time flow of reliable and consistent information.

Just In Time manufacturing & Vendor Managed Inventory are just 2 examples of increasingly demanding business requirements

It uses thin client

ie client does not require any additional software and all the applications run on any standard browser like internet explorer

It is very user friendly because of Graphic User Interface with hyperlinks, drop-down menus etc. and does not require any special training.

XML is the standard for exchanging documents between systems

XML has done for Electronic Data Interchange what standardization did for manufacturing

XML is a code for formatting online documents so that applications can understand whether “1995” is a date, a price or a number.

The underlying idea is that if we separate the format of data from data itself it would enable exchanging of information between applications more easily.

Web Services are small software applications

Web Services is the breaking down of enterprise application into reusable service components which are linked together to perform discreet tasks

A service can be called by any other service and unlike traditional application we don’t have to move in a pre-defined linear manner

Also you can incorporate wireless capabilities and connect your ERP system with wireless devices, making information available anywhere, anytime.

System can be accessed by any web enabled device: desktop PCs, laptops, web enabled mobile phone or PDAs

Change in Architecture – to Web-based architecture

ERP II software is becoming component based, allowing users to roll out new modules quickly, inexpensively, and with little disruption to an existing business.

It also lets users bite off only what they can chew when implementing ERP II, a far cry from traditional ERP systems that took years to implement.

The essential idea underlying this architecture is simple: create layers which separate interaction logic from business logic and data so that data is not married to a particular application. Rather, it can be called by different application as and when needed.

Since the two are separate, any integration or modification effort is simpler.

Web based => software that operates across the intranet as well as internet

(While ERP give intra-organizational advantage, SCM gives inter-organizational advantage. Integration of both can help in deriving substantial leverage and potential of such integration is quire huge.)

  Old ERP systems were monolithic and closed. ERP II systems are web based, open to integrate and interoperate with other systems and built around modules or components that allow users to choose just the functionality they need.

The Whole being greater than the sum of its parts….


                       The traditional ERP was very enterprise centric and the flow of information between various members of the supply chain was slow. Soon it was realized that efficiency across the supply chain is as important as internal efficiency of the organization. A seamless flow of real-time information across the supply chain is the key to success

ERP systems offer tremendous benefit by integrating functions across the organization. They help in automating the business processes and enable reliable information capture and retrieval.

SCM systems offer capabilities to integrate various entities making up the supply chain and facilitate seamless flow of information between all the supply chain partners.

Given the intra-organizational and inter-organizational advantages offered by ERP and SCM respectively, integration of both can help in deriving substantial leverage.

ERP + CRM & e-commerce

                       Eg customer can go online and configure their own product and get price information and immediately gets to know whether it is in stock or not and in what time it can be delivered. This is made possible as the customer’s request is directly accesses the ERP system of the supplier.

Front end functions like managing, acquiring and retaining customers are effectively managed by CRM. They effectively capture the customer requirements at the front end which in turn is converted into work order which goes into production system.


No single technology has had a bigger impact on corporate functioning than ERP. It enabled collecting real time information about the status of various activities within the organization. Companies had complete visibility into what was going inside the various departments – the inventories that are in stock, the orders sales staff has booked, the outstandings to be collected.

ERP II extends this capability beyond the boundaries of the organization – into partners, suppliers and customers (making organizations truly adaptive business systems).

   Traditional ERP was concerned with optimizing an enterprise. ERP II systems are about optimizing the supply chain through collaboration with trading partners.

In ERP systems the processes were focused on the four walls of enterprise. ERP II systems will connect with trading partners, wherever they might be, to take those processes beyond the boundaries of the enterprise.

Information in ERP systems is generated and consumed within the enterprise. In ERP II system, that same information will be available across the supply chain.

Now ERP II systems have extended to SCM, CRM, WHM (warehouse management), e-commerce, and several other business processes.

As e-business becomes business as usual, sharing accurate real-time information about orders and inventory is critical to success. And not just across an enterprise. Now, business needs to move information across a supply chain.

 The traditional ERP was very enterprise centric with very little awareness of anything going around it. Today we are moving towards collaborative commerce or c-commerce where sharing information outside the enterprise has become indispensable.

Just how different is the ERP II system from the traditional ERP system..

The most significant change is that in focus

While ERP systems managed transactions within the four walls of the enterprise, ERP II opens up those systems to share information and manage transactions across the supply chain.

The old ERP was about making back-office efficient; the new ERP is about making everyone in the enterprise efficient.























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