Chapter 10  Logistics Information Technology

10.3 Information Technology in a Supply Chain

10.3.1. The importance of information in a supply chain

    Information is the key to the success of a supply chain since it enables managers to make optimal decisions in a broad scope that crosses both functions and companies. Successful supply chain strategy is obtained by viewing the supply chain as a whole rather than looking only at the specific stagesa. By taking a global scope across the whole supply chain, a manager is able to draft strategies that take into consideration all factors that affect the supply chain rather than just those factors affecting a specific stage or function within the supply chain. Under such circumstance, the profit of the total supply chain can be maximized and each individual company within the supply chain can obtain higher profits.

    To obtain a global scope of the supply chain, a manager needs accurate and timely information on all functions and companies in the supply chain. For example, it was not enough for the work-station manufacturer to know how much inventory was on hand within the company when attempting to determine the optimal inventory level. The company also needed to know the downstream demand and even the lead time and variability of the upstream supplier. With this broader scope, the company was able to set inventory levels that maximized profitability.

    The information necessary to achieve a global scope may be classified into four types, which correspond to different stages of the supply chain.

    • Supplier information. What products can be purchased, at what price with what lead time, and when they can be delivered. The information such as order status, modification, and payment arran-gements is also needed.

    • Manufacturing information. What products can be manufactured, how many, by what plants, with what lead time, with what trade-offs, at what cost, and in what batch size.

    • Distribution and retailing information. What is to be transported, in what quantity, by what mode, at what price, how much is stocked at each location, and with what lead time.

    • Demand information. Demand information includes forecasting and demand distribution information. Who is buying, at what price, where, and in what quantity?

    Supply chain managers use information to make many important decisions. Setting inventory levels requires downstream information from customers on demand, upstream information from suppliers on availability, and information on current inventory levels, costs, and margins. Deter-mining transportation policies requires information on clients, suppliers, delivery routes, costs, times, and quantities to be shipped. Plant decisions require information on demand and suppliers, as well as information on plant capacities, revenues, and costs within the company.

    Information with the following characteristics is useful when making supply chain decisions.

   • Information must be accurate. Without accurate information, it is very difficult to make good decisions.

    • Information must be accessible in a timely manner. Often accurate information exists, but by the time it is available, either it is out of date or if it is current, it is not in an accessible form. To make good decisions, a manager needs to collect up-to-date information that is easily accessible.

    • Information must be of the right kind. Often companies will have a lot of data that is not helpful in decision making. They must think about what information should be recorded so that limited resources are not wasted in collecting meaningless data while important data is unrecorded.

10.3.2. Use of information in a supply chain

    Information is used when making decisions about inventory, transportation, and facilities within a supply chain, as discussed here.

    • Inventory. Information such as demand patterns, cost of carrying inventory, costs of stocking out, and costs of ordering will be used in setting optimal inventory policies.

    • Transportation. Information such as costs, client locations, and shipment sizes will be used in determining transportation networks, modes, routes, etc.

    • Facility. Information on the trade-offs between efficiency and flexibility, demand, exchange rates, taxes will be used in determining the location, capacity, and schedules of a facility.