Chapter 7 SCM Flashcards
Electronic data interchange (EDI)
Electronic interchange of formatted data between computer applications, using agreed message standards.
Immediate benefits of EDI compared to conventional mail, fax or telephone calls
- improved communication speed, uniformity, accuracy
- cost-savings: no re-keying; less paper
General benefits of EDI
-facilitated global supply chain management
-reduced uncertainty
-improved customer service
-in many cases, improved trading relationships, acting as a vehicle for collaboration between trading partners
Problems of using EDI in the past
-it took a long time to agree to international company message standards
-organizations had to restructure many of their basic business processes, as well as linking the EDI system to their internal systems. some organizations failed to do this and suffered from increased costs.
-the inequitable sharing of costs and benefits damaged trading relationships.
Reasons for popularity
In the UK, large number of standard transactions between a limited number of firms, the requirement for careful reporting and the availability of standard product codes.
Enterprise resource planning (ERP)
These are large, complex suites of software that serve to integrate the various common
functions (e.g. accounting, production, human resources) and data of an organization.
-the ERP systems of the companies along
the supply chain can be connected together and hence can ‘talk to each other’ in order to provide seamless communication between the various departments of different companies.
Radio frequency identification (RFID)
‘automatic identification technology’ that permits the identification of items without direct human interaction.
In contrast to its predecessor, bar coding technology, where human interaction is required, RFID can automate the product identification process and thus promises many benefits to SCM.
Potential advantages of RFID over previous supply chain technologies
- By automating the process, it can reduce labor costs.
- The RFID tags themselves allow significantly large amounts of data to be stored on the products (serial number, color, size, prize) leading to better intelligence along the supply chain.
- Additionally, the tags increase the inventory visibility for partners and improve response times to customer demands and market trends.
- RFID also permits asset tracking, which can help reduce shrinkage and, in the case of a product being recalled, allows partners to locate and remove faulty goods quickly.
- RFID can help facilitate ‘item-level tracking’, whereby tags are stored in each individual product. Item-level tracking opens up many opportunities for increased intelligence along the supply chain, for eg. in terms of theft detection, stock monitoring and product customization.
Drawbacks
- However, a decision to implement RFID at the item-level must be carefully considered. RFID tags can be expensive, although prices have decreased as the technology has matured.
- The reliability of RFID is also a concern as certain metals interfere with the radio frequencies used by the RFID.
General (direct and indirect) benefits of RFID
- The automatic identification provides speed, accuracy, cost-saving, efficiency and improved control.
- At the information level, it improves data capture and tracking and it can directly lead to transformation the re-engineering of business processes.
- If it is implemented at the item-level,
it can benefit inventory management and marketing through improving the shopping experience and supporting sales promotions through the ease of electronic price changes. - In terms of merchandise management, it can feed into display management, as well as reducing shrinkage.
Problems of implementing RFID
- The cost is not trivial and, depending
on the particular context, there may be performance issues in terms of accuracy and speed.
For example, if the implementation produces high levels of inaccurate reporting, then it may cause more trouble than it is worth. Much also depends on the existence of relevant standards within the industry; RFID is by nature an inter-organizational technology that requires the adoption of (the same) standards by all trading partners.
Decisions need to be taken whether to implement RFID at the item level
or at the pallet level, which may not be a trivial decision. If the RFID
readers are fixed (not mobile), then this may restrict the freedom with
which processes can be carried out;
s. If hackers or thieves can break into the RFID system, this raises security issues;
there is the potential to
identify the consumer in the future, which raises privacy issues.
Vendor managed inventory
This close collaboration, facilitated by SCM technology (usually EDI), involves the
buyer (typically a retailer) handing over the responsibilities of managing
its inventory (including when to order and how much to order) to the supplier. The supplier is able to manage this through information-sharing between the two.
The key ideas of VMI
- The supplier manages inventory/orders, not the retailer, and this produces an integrated and optimized supplier/retailer value network.
- There are benefits (for the retailer), which include reduced inventory and faster replenishment, and improved collaboration in areas such as joint promotions (special offers).
- Potential drawbacks (for the retailer) include loss of autonomy and increased dependence upon the supplier.
Continuous replenishment program (CRP) and efficient consumer response (ECR)
The implementation of VMI is usually driven by large organizations. In this industry, VMI forms part of industry initiatives known as continuous replenishment program (CRP) and efficient consumer response (ECR), where the underlying facilitator is the electronic exchange of inventory information and orders using EDI networks. The retailer provides the supplier with its inventory information, and the supplier calculates a
proposed order (based on past trends and current marketing promotions) and sends it to the retailer for approval before supplying the goods.
Just-in-time manufacturing (JIT)
The basis of JIT assumes that every
stage in manufacturing occurs precisely when needed, not before and never later – ‘if you don’t need it now, don’t make/buy it now’.
