ASIA FOCUS

Linking supply chains with the right IT

What companies need is technology tailored to their needs, rather than simply more technology, to optimise their supply-chain systems

Access to information, like supply-chain structure, has an impact on supply-chain performance. Information plays a crucial role in enabling transactions in supply chains. Information is said to be the glue that holds supply chains together.

In fact, the key challenges in supply-chain co-ordination are, on the one hand, delayed and distorted information and, on the other, transaction costs in promoting local optimisation. Thus, IT has the greatest impact on supply-chain co-ordination through the elimination of information delays and distortions, and through the reduction of transaction costs.

The advances in communications and computation technologies over the past few years have made it possible to collect, analyse, transmit and deploy the huge amounts of data necessary to run operations on a global scale. Information and communication technologies facilitating closer collaboration and promoting supply-chain transparency are crucial for effective co-ordination.

The objective of supply-chain co-ordination is to enhance transparency through information sharing (e.g. sharing point-of-sales data with the manufacturer) and information deployment (e.g. vendor-managed inventories, efficient consumer response movement and collaborative planning, forecasting and replenishment initiatives), as well as operational flexibility (e.g., assemble-to-order and make-to-order systems).

However, creating an adequate information infrastructure to link the members of a supply network has always been challenging. In the Asian context in particular, such infrastructure needs to simultaneously achieve the following:

- Accommodate members with varying degrees of IT sophistication:

Creating an adequate information infrastructure to interface the members of a supply chain has always been challenging precisely because such an infrastructure must be able to accommodate members with varying degrees of IT sophistication.

When it comes to managing supply chains, Asian markets, as well as different segments within those markets, have been described as suspended in varying stages of SCM development.

One of the reasons for the massive disruptions to worldwide supply chains in 2000-01 was that many Asian manufacturers did not have in place IT solutions that could match the demands of a dynamic market environment. Their IT systems could not integrate effectively with the more sophisticated SCM processes of their overseas customers. (At the time, a commonly heard comment by IT solution providers and systems integrators working with clients in Asia was: "Our biggest competitor is Microsoft Excel.")

- Provide a wide range of functionality, ranging from simple data transmission to access to remote applications:

- or many decades, information was thought to flow exclusively from the market upstream to all the tiers in a supply chain. Innovative organisations such as UPS and Dell have shown the value of providing the customer with real-time information about the status of their package and orders, respectively.

Greater and faster-changing demands from customers must lead to faster and more comprehensive information exchanges among all the players in the chain. In terms of technology, INSEAD research predicts that this will mean not only better Enterprise Resource Planning (ERP) systems but also, in general, enhanced IT tools to integrate the different parties in the supply chain.

- Allow for a constantly changing pool of suppliers and customers within varying stages of relationships:

- urther integration of activities between suppliers and customers across the entire chain has been identified as one of the biggest trends in supply-chain management. Therefore, the ability to engage in but also to disengage from collaborative relationships will be critical.

Asian high-growth companies customers increasingly require mass customisation, while enjoying access to growing transparency in the global marketplace. As such, their requirements not only tolerate very little inventory in the supply chain, but also require drastic modifications in the supply-chain structure. It will be a great challenge for existing ERP systems to maintain sufficient flexibility while the supply chain keeps changing.

Within the context of IT spending on supply chain design and co-ordination, one of the key attributes that set apart high-growth, entrepreneurial companies in Asia from established enterprises is the former are much more likely to be in the early stages of a buyer-supplier relation.

Since the Y2K wave, traditional enterprises have been investing in sophisticated IT solutions such as ERP, Electronic Data Interchange (EDI), supply chain planning, e-procurement and Customer Relation Management (CRM), and increasingly in planning software tools and more advanced web-based technologies.

- or high-growth companies, the pattern of IT investment in SCM has been different. For instance, SCM tools such as EDI have been widely used in the manufacturing supply chain and require only basic computer skills. Given the dedicated communications infrastructure and proprietary standards, however, EDI necessitates significant up-front investment and considerable expense for maintenance. Such investment is difficult to justify for high-growth firms, whose customers are still in the process of assessing the supplier capability and are therefore unable to make long-term commitments.

Entrepreneurs in Asia should be mindful that more technology doesn't automatically equal higher business performance. Not all companies, especially in the high-growth stage, that invest heavily in IT show better business performance and vice versa: A less-than-ideal fit between IT and strategy in this segment doesn't necessarily lead to poorer performance.

Therefore, adequate technology, rather than simply more technology, is what is required of entrepreneurial companies seeking to optimise their supply-chain systems.

Entrepreneurs can also look to the learning experience of seasoned supply-chain managers from bigger enterprises. Findings of worldwide surveys targeting this group of managers clearly show that increasingly, their mandate in deploying and maintaining IT solutions in managing supply chains is to do more than pre-empt disruptions to the chain and minimise cost.

These managers have also been given strategic business responsibilities, such as reducing product complexity, managing the company's supply base, actively building capabilities in agile manufacturing and production planning, designing distribution networks, undertaking cost analyses, managing change and defining IT systems spanning their own company as well as partner organisations.

Going forward, entrepreneurial companies in Asia will witness, and gradually take part in, the following IT trends shaping the regional and worldwide supply chains:

- Movement toward open, modular, Internet-like system architectures. Systems such as ERP were originally intended to replace a multitude of local legacy systems; a great deal of emphasis was therefore placed on the integrated architecture. In the new, networked economy, this former strength has rapidly become a weakness. The lack of open architecture is seen as one of the main stumbling blocks that worldwide supply chains need to overcome.

- Web-based technologies. The Web provides a nearly free platform for enhancing transparency, eliminating information delays and distortions and significantly reducing transaction costs. Web-enabled supply chains are poised to help managers extend the decision horizon for planning within the company; they broaden the physical scope beyond the enterprise to customers and suppliers, and bring together design, marketing and CRM.

- E-markets. Whereas most manufacturers spent the past two decades establishing close relationships with their suppliers under such different initiatives as strategic sourcing and supply base rationalisation, e-markets focus solely on cost reduction, in return for a promised reduction in transaction costs.

Bangkok Post

Last Updated : Saturday April 21, 2007