Block-3 - MS 55 - IGNOU

UNIT 8 INFORMATION TECHNOLOGY: A KEY
ENABLER OF SCM
Objectives
After reading this unit you would be able to:

• recognize the importance of Information in Integrated Supply Chain
Management;
• discuss the categories of information and their role in Inter organizational
setup;
• describe the methods of determining the information requirements for a
supply chain; and
• be familiar with the Information Technology and their applications in Supply
Chain Management for increasing efficiency.
Structure
8.1 Introduction
8.2 Information and Technology in the Integrated Supply Chain
8.3 Importance of Information in Integrated Business
8.4 Inter Organizational Information Systems (IOIS)
8.5 Information Requirements Determination for a Supply Chain
8.6 Information and Technology Applications for SCM
8.7 Summary
8.8 Self Assessment Questions
8.9 References and Suggested Further Readings
8.1 INTRODUCTION
To survive, thrive and beat the competition in today’s brutally competitive world,
one has to manage the future. Managing the future means managing information.
In order to deliver quality information to the decision-maker at the right time and
in order to automate the process of data collection, collation and refinement,
organizations have to make Information Technology an ally, harness its full
potential and use it in the best possible way.
Information technology is revolutionizing the way, in which we live and work. It

is changing all aspects of our life style. The digital revolution has given mankind
the ability to treat information with mathematical precision, to transmit it with high
accuracy and to manipulate it at will. These capabilities are bringing into being, a
whole world within and around the physical world. The amount of calculation
power that is available to mankind is increasing at an exceptional rate. Computers
and communication are becoming integral parts of our lives.
IT has a major role to play in any organization. All organizations have certain
objectives and goals to achieve. For any organization to succeed, all business
units should work towards this common goal. But each department or business
function in the organization will have its own goals and procedures. The success
of an organization rests in resolving the conflicts between the various business
functions and making them do what is good for the organization as a whole. For
this, information is critical. Everybody should know what is happening in other
parts of the organization. 1
Content Digitized by eGyanKosh, IGNOU

IT Enabled SCM IT has a major role to play both at the organizational level and at the
departmental level. At the organizational level, IT should assist in specifying the
objectives and strategies of the organization. IT should also aid in developing and
supporting, and procedures to achieve them. At the departmental level, IT must
ensure a smooth flow of information across departments, and should guide
organization to adopt the most viable business practices. At this level, IT ensures
seamless flow of information across the different departments and develops and
maintains an enterprise – wide database. This database will eliminate the need of
the isolated data islands that existed and in each department and make the
organization’s data accessible across the departmental boundaries. This
enterprise– wide sharing has many benefits likes automation of procedures,
availability of high quality information for better decision-making and faster
response times.
In this unit, we will learn the importance of the information required for effective
supply chain management and a number of information technologies and the
application of the information that organizations are using to make information
readily available across the supply chain.
8.2 INFORMATION AND TECHNOLOGY IN THE

INTEGRATED SUPPLY CHAIN
As discussed in the earlier Blocks, the supply chain management is concerned

with the flow of products and information between the supply chain members
that encompasses all of those organizations such as suppliers, producers, service
providers and customers (See Figure 8.1). These organizations linked together to
acquire, purchase, convert/manufacture, assemble, and distribute goods and
services, from suppliers to the ultimate and users.

By 1980, the information revolution was well accepted in the world’s advanced Information Technology :
economics. During this period, many standard business processes and functions A Key enabler of SCM
such as customer order processing, inventory management, and purchasing were
altered through the use of computer technology. These technologies and
capabilities began to grow exponentially since 1985, providing means for multiple
organizations to coordinate their activities in an effort to truly manage a supply
chain.
Today, information and technology must be conceived of broadly to encompass

the information that businesses create and use as well as a wide spectrum of
increasingly convergent and linked technologies that process the information with
the emergence of the personal computer, optical fiber networks, the explosion of
the Internet and the world wide web. The cost and availability of information
resources allow easy linkages and eliminate information-related time delays in any
supply chain network. This means that organizations are moving toward a
concept known as Electronic Commerce, where transactions are completed via a
variety of electronic media, including electronic data interchange (EDI), electronic
funds transfer (EFT), bar codes, fax, automated voice mail, CD-ROM catalogs,
and a variety of others. The old “paper” type transactions are becoming
increasingly obsolete. Leading-edge organizations no longer require paper
purchase requisitions; purchase orders, invoices, receiving forms, and manual
accounts payable “matching” process. All required information is recorded
electronically, and associated transactions are performed with the minimum
amount of human intervention. Recent developments in database structures
allowed part numbers to be accumulated, coded, and stored in databases, and
electronically ordered. With the application of the appropriate information systems,
the need to constantly monitor inventory levels, place orders, and expedite orders
will soon become a thing of the past.
8.3 IMPORTANCE OF INFORMATION IN

INTEGRATED BUSINESS
Information is the key to the decision making in Business. Prior to the 1980s, a
significant portion of the information used to flow between functional areas within
an organization, and between supply chain member organizations, were paper-
based. In many instances, these paper-based transactions and communications
were slow, unreliable, and error prone. Conducting business in this manner was
costly because it decreased firms’ effectiveness in being able to design, develop,
procure, manufacture, and distribute their products. During this period, information
was often overlooked as a critical competitive resource because its value to
supply chain members was not clearly understood. However, firms that are
embarking upon supply chain management initiatives now recognize the vital
importance of information and the technologies that make this information
available.
In a sense, the information systems and the technologies utilized in the supply
chain represent one of the fundamental elements that link the organizations into a
unified and coordinated system. In the current competitive climate, little doubt
remains about the importance of information and information technology to the
ultimate success, and perhaps even the survival, of any supply chain management
initiative. Cycle time reduction, implementing redesigned cross-functional
processes, utilizing cross-selling opportunities and capturing the channel to the
customer underpin the competitive positioning of business.
Timely and accurate information is more critical now than at anytime. Three
factors have strongly impacted this change in the importance of information.
3

IT Enabled SCM 1) Satisfying, in fact pleasing, customers have become something of a corporate
obsession. Serving the customer in the best, most efficient, and effective
manner has become critical, and information about issues such as order
status, product availability, delivery schedules, and invoices has become a
necessary part of the total customer service experience.
2) Information is a crucial factor in the managers’ abilities to reduce inventory
and human resources requirements to a competitive level.
3) Information flows play an essential role in the strategic planning for and
deployment of resources.
The need for virtually seamless bonds within and between organizations is a key
notion in the essential nature of information systems in the development and
maintenance of successful supply chain. That is, creating inter-organizational
processes and link to facilitate delivery of seamless information between
marketing, sales, purchasing, finance, manufacturing, distribution and transportation
internally, as well as inter organizationally, to customers, suppliers, carriers, and
retailers across the supply chain will improve fill rates of the customers service,
increase forecast accuracy, reduction in the total inventory and savings in the
company’s’ transportation costs - goals which need to be achieved.
Clearly, the need to share information across the supply chain is of paramount
importance. In fact, inaccurate or distorted information from one end of a supply
chain to the other can lead to tremendous inefficiencies such as excessive
inventory investment, poor customer service, lost revenues, misguided capacity
plans, ineffective transportation, and missed production schedules. This is termed
to be bullwhip effect, which is commonly being experienced by the consumer
goods industries. Suitable technologies such as bar codes and scanners have been
developed and applied in the portions of supply chain and remove inaccurate or
distorted information.
Activity 1
Develop procedures to elicit and define information needs for making a decision
for an organization of your choice. How would you implement your plan? What
are the problems?
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
8.4 INTER ORGANIZATIONAL INFORMATION

SYSTEM
In supply chain management, the suppliers, producers, retailers, customers, and

service providers are the members and are linked through the ultimate level of
integration. These members are continuously supplied with information in real
time. The foundation of the ability to share information is the effective use of
Information Technology within the supply chain. Appropriate application of these
technologies provides decision makers with timely access to all required
information from any location within the supply chain. Recognizing the critical
importance of information in an integrated supply chain environment, many
4 organizations are implementing some form of an inter-organizational information

system (IOIS). IOISs are the systems based on information technologies that Information Technology :
cross organization boundaries. A Key enabler of SCM
An IOIS is an integrated data-processing/data-communication system utilized by

two or more separate organizations. These organizations may (buyer-supplier) or
may not (credit clearing house) have a preexisting business relationship. What
must exist is a computer-based electronic link between the two organizations that
automates some element of work, such as order processing, order-status
checking, inventory-level review, shipment tracking information or, minimally,
transaction transfer, which would previously have been performed manually or
through other media, such as the mail.
Among the earliest forms of IOISs were those developed by time-sharing

services and on-line database vendors. The potential impact of such systems on
the way business is conducted was recognized as early as the 1960s. Since that
time, new technologies have been integrated to produce systems of increasing
capability. Examples of such implementations include electronic funds transfer
(EFT) systems, the Treasury Department’s decision support system, a variety of
buyer-supplier order-processing systems, and on-line professional tool support
systems. Existing implementations serve the grocery industry, the drug wholesaling
industry, the insurance industry, and the transportation industry, with more systems
coming into existence each year.
The development of an IOIS for the supply chain has three distinct advantages:
cost reductions, productivity improvements, and product/market strategy. Five
basic levels of participation for individual firms within inter organizational system
are:
1) Remote I/O node, in which the member participates from a remote location
within the application system supported by one or more higher-level
participants;
2) Application processing node, in which the member develops and shares a
single application such as an inventory-query or order-processing systems;
3) Multi participant exchange node, in which the member develops and shares a
network inter-linking itself and any number of lower-level participants with
whom it has an established business relationship;
4) Network control node, in which the member develops and shares a network
with diverse applications that may be used by many different types of lower-
level participants; and finally
5) Integrating network node, in which the member literally becomes a data-
communications/data-processing utility that integrates any number of lower-
level participants and applications in real time.
The participant shares a network of diverse applications with any number of
participants with whom it has an established business relationship. IOIS
participants may therefore be at a level lower, higher, or equal to the IOIS
sharing organizations. As organizations explore development of IOISs to support
their supply chain management efforts, they will be faced with several challenges.
Developing a common language in terms of planning, format, and priority across
several vastly different constituencies. Information sharing requirements are well
beyond those of a manufacturer, and its distributor’s need to process orders in a
consistent way. All relevant information ultimately must circulate to and among all
organizations between the supply chain’s point of origin and its point of
consumption, such as ordering (i.e., orders for component parts, services, and
finished products), inbound transportation, manufacturing, warehousing, inventory
management, outbound transportation, sales, marketing, forecasts, and customer-
service information. Although organizations recognize the importance of an IOIS 5

IT Enabled SCM for effective supply chain management, no one standard approach is being utilized
in terms of technology or information.
Activity 2
Consider your organization or an organization with which you can freely access
for information. What are the most frequent indicators for evaluating the
performance of lower, middle, and top managers in the considered organization?
Compare these indicators with that of another organization.
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
8.5 INFORMATION REQUIREMENTS

DETERMINATION FOR A SUPPLY CHAIN
It is important to ensure that the right information are captured and used to
manage the supply chains effectively (doing right things) and efficiently (doing
these things well). Four fundamental mistakes are commonly made when
determining information requirements and these are:
1) Viewing systems as functional instead of cross-functional
2) Interviewing managers individually instead of jointly
3) Not allowing for trial and error in the detail design process
4) Asking the wrong questions during the interview.
Viewing systems as functional instead of cross functional is a very narrow and
inappropriate perspective to take in the information requirements determination
process. Much of the information needed to make decisions within a given
function will come from sources outside the function. Therefore, it is necessary
to include all of the functions involved in an information system in order to
facilitate the development of the system that allows information to flow cross-
functionally. When developing information systems to support an integrated supply
chain, this cross-functional perspective needs to be extended to be cross-
functional and inter-organizational, because the information required to make
decisions within one organization may come from another supply chain member.
To properly determine information requirements across organizations, it is

important to use appropriate method that ensure all information requirements are
identified. Therefore, a cross-organizational session using several structural-
interviewing techniques, including business systems planning, critical success
factors, and ends/means analysis are suggested for this purpose.
1) Business Systems Planning (BSP) is a structured interview technique

developed by IBM. It focusses on the identification of problems and
decisions associated with an organizational process and determine what
information is needed to address them. For a supply chain management,
analysts must identify supply chain management problems and decisions for
the member organizations. The result of this process is a set of tables listing
the problems that must be addressed, the decisions that must be made across
6

the supply chain, and the information required to address them. Tables 8.1 Information Technology :
and 8.2 present Business Systems Planning examples. A Key enabler of SCM
Table 8.1: BSP–Problems/Solutions/Information
Problems Solutions Information

• Reduce order fulfillment • Need to understand current • Order fulfillment performance
cycle times between supply order fulfillment performance for each organization
chain member organizations between supply chain • Total supply chain
while maintaining or reducing members and logistics logistics cost
total supply chain logistics cost/performance trade-offs • Order history between
cost. across the supply chain. supply chain members
• Inventory carrying cost per
item for each organization
• Transportation cost and
lead times by different
modes and carriers.
Table 8.2 : BSP–Decisions/Information
Decisions Information
• How to transport product X • Carrier and mode used by competition

• Transportation cost and performance by mode
and carriers.
2) Critical Success Factors (CSF) focus on key performance areas that must
function effectively for the organization to be successful and associated
information requirements. For the supply chain, CSFs have to be identified
for each of the member organizations. As one might imagine, most of the
organizations have common CSFs. Once the CSFs are determined, the
information needed to address the CSFs is then identified. Table 8.3 presents
critical success factors (CSF) example.
Table 8.3 : CSF–CSF/Information
Critical Success Factors Information
• Integrated supply chain performance • Performance measures for integrated supply

measurement system chain.
• Performance measures for individual member
organization.
• Actual performance for supply chain and
organizational measures.
• Targets/goals for measures.
• Historical performance for measures.
3) Ends/Means (E/M) analysis focuses on what it takes for an organization to

be both effective (doing the ‘right’ things) and efficient (doing these things
well) and on the information needed to manage it. This interview technique
consists of two phases. First, the analyst identifies the ends that the supply
chain members consider important, the effectiveness issues associated with
the ends, and the information needed to address them. The second phase
deals with means, their associated efficiency issues, and the information
needed to address them. Table 8.4 and 8.5 present Ends and Means analysis
examples, respectively.

IT Enabled SCM Table 8.4 : Ends/Means Analysis – Ends/Effectiveness/Information
Ends Effectiveness Information

• Reduce order-fulfillment • Minimize total supply • Customer preferences
cycle times across the chain logistics cost (features, cost, time)
supply chain in a way • Activity-based cost • Profit by supply chain
that improves customer accounting information member organization
satisfaction. • Maximize profit • Supply chain performance
(order fulfillment cycle time,
inventory levels, capacity,
customer satisfaction).
Table 8.5 : Ends/Means Analysis – Means/Efficiency/Information

Means Efficiency Information
• Monitor inventory • Minimize cost required • Actual cost for measuring
performance: to measure inventory each factor
- Total supply chain performance
inventory levels (days,
Rs.)
- Organization inventory
levels (days, Rs.)
- Turns
- Service levels
- Costs.
The result of each of the structured interview techniques is a set of tables that
identifies areas of concerns across the organizations and the associated
information needed to address these concerns. There will be some redundancy in
the information requirements identified when using multiple structured interview
techniques. This helps to ensure that the analyst has a comprehensive and
accurate set of information requirements.
Traditional systems development also does not allow for trial and error when
designing information systems. The outcome of this approach to systems
development has resulted in systems that need to be changed the day they are
implemented and, in a worst-case serve as systems that are totally unusable.
Prototyping was introduced as a way to overcome these problems by validating
systems requirements through experimenting, refining, and testing the system until
the development team and users are satisfied that they have identified all of the
information requirements for the system being developed. The specific information
identified for the supply chain consists of ten primary categories. These categories
and examples of information contained within them are shown in Table 8.6.
Table 8.6 : Supply Chain Information Categories
Information Categories Examples of Information contained in Categories
1. Production information Product specifications, price/cost, product sales history
2. Customer information Customer forecasts, customer sales history, management team
3. Supplier information Product line, product lead times, sales term & conditions.
4. Production Process information Capacities, Commitments, production plans.
5. Transportation information Carriers, lead times, cost
6. Inventory information Inventory levels, inventory-carrying costs, inventory
locations.
7. Supply chain alliance information Key contacts for each organization, partner roles and
responsibilities, meeting schedules.
8. Competitive information Benchmarking information, competitive product offering,
market share information.
9. Sales and marketing information Point of-sale information, promotional plans.
10.Supply chain process and Process descriptions, performance measures, cost, quality,
performance information delivery, time, customers’ satisfaction, etc.
8

Activity 3 Information Technology :
A Key enabler of SCM
Select a typical manufacturing organization and describe the dependencies that
exist among the departments. Prepare a dependency chart showing information
and material flows.
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
8.6 INFORMATION AND TECHNOLOGY

APPLICATIONS FOR SCM
Many innovations on technology-based approaches are well suited to the

enhancement of supply chain management, including Just-in-Time, Quick
Response, Efficient Consumer Response, and Continuous Replenishment – all rely
heavily on the information made available through the latest technological
advances. In the development and maintenance of the supply chain’s information
systems, both hardware and software must be addressed. Hardware includes
computers, input/output devices, and storage media. Software includes all of the
system and application programs used for processing transactions, management
control, decision-making, and strategic planning. A few examples of software
titles that address some aspect of supply chain management are presented below:
1) Base Rate, Carrier Select, and Match Pay (Version 2.0) developed by
Distribution Sciences, Inc., with which users can compute freight costs,
compare transportation mode rates, analyze cost and service effectiveness of
carriers, and audit and pay freight bills;
2) A new software program developed by Ross Systems, Inc., called Supply

Chain Planning is an integrated suite of constraint-based planning tools that
provide demand, replenishment, and manufacturing tools for accurate
planning and scheduling of those activities. This software provides an end-to-
end enterprise-resource planning solution incorporating the most advanced
supply chain planning capabilities available.
3) A technology partnership between Procter & Gamble Distributing Co. and

Sabre Decision Technologies resulted in a software system called
Transportation Network optimization, which allows shippers to give bidding,
in twin streamlining the bidding and award process.
4) Logistility Planning Solutions was recently introduced to provide a program

capable of managing the entire supply chain from demand to supply by
synchronizing customer demand and supply constraints through the provision
of Internet enabled communications about forecasts, inventory, and
replenishments for all members of the chain.
Several technologies have gained popularity recently, due to their ability to

facilitate the flow of information across the supply chain. Electronic commerce,
Electronic Data Interchange, Bar coding and Scanning, Data Warehouse, Internet,
Intranet/Extranet, World wide Web, Decision Support systems are a relatively 9

IT Enabled SCM recent phenomenon for supply chain management applications. These are
discussed in the following sections.
Electronic Commerce
Electronic Commerce is the term used to describe the wide range of tools and
techniques utilized to conduct business in a paperless environment. Electronic
commerce therefore includes electronic data interchange (EDI), e-mail, electronic
founds transfers, electronic publishing, image processing, electronic bulletin boards,
shared databases, and magnetic/optical data capture (such as bar coding), the
Internet, and Web sites. Electronic commerce is having a significant effect on
how organizations conduct business. Companies are able to automate the process
of moving documents electronically between suppliers and customers in such a
manner that the entire process is handled electronically; no paperwork is involved.
With the rise of the Internet and the ability to transfer information cheaply and
effectively over the whole world, electronic commerce is becoming a major focus
for many organizations and represents a significant opportunity for integrated
supply chain management efforts.
Electronic Data Interchange
Electronic data interchange, commonly referred to “EDI”, is the computer to
computer interchange of business documents and/or information between trading
partners in standard data format. Where, trading partners means, cooperation
between companies is required to get the EDI systems running properly.
Computer-to-computer and standard data format mean information must be
precisely formated so that a computer can process the information without human
assistance. EDI replaces the traditional forms of mail, courier, or fax. It is being
utilized to link supply chain members together in terms of order processing,
production, inventory, accounting, and transportation. It allows members of the
supply chain to reduce paperworks and share information on invoices, orders,
payments, inquiries, and scheduling among all channel members. The benefits of
EDI are numerous: quick access to information, better customer service, reduced
paperwork, better communications, increased productivity, improved tracing and
expediting, cost efficiency, competitive advantage, and improved billing.
EDI improves productivity through faster information transmission as well as

reduced information entry redundancy. Accuracy is improved by reducing the
number of times an individual is involved in data entry. The use of EDI results in
reduced costs on several levels, including:
1) Reduced labour and material cost associated with printing, mailing, and
handling paper-based transactions;
2) Reduced telephone and fax transmissions; and
3) Reduced clerical costs.
EDI is also tremendously beneficial in counteracting the bull whip effect
described earlier in this unit. Through the use of EDI, supply chain partners can
overcome the distortions and exaggerations in supply and demand information by
using technology to facilitate real-time sharing of actual demand and supply
information. Although about 20 percent of all retailer orders for consumer
products were placed via EDI in 1990, that percentage had grown to well over
60 percent by the end of 1995. Clearly, firms are realizing that the use of EDI to
facilitate information sharing throughout the supply chain is beneficial.
In general, EDI is used for communication of business information such as

purchase orders, invoices, bills of lading, shipping instructions, production
sequences, inventory or order status, fund remittances, and point-of-sale
10 information (in the case of retailers).

EDI cuts down time delays, labor costs, errors, inventory and uncertainty. Information Technology :
Business with EDI reduces the paper work, which is about 4 to 7% of the value A Key enabler of SCM
of the goods traded. The EDI activities are the following:
1) Sales return could be analyzed and fed into the ordering process;
2) Orders could be raised to reflect both demand and known stock availability;
3) Instruction could be sent to distributors in parallel with the orders to ensure
fast delivery;
4) Carriage by road, rail, sea, or air could be booked simultaneously;
5) Customs clearance documents could be available in advance of goods
arriving, avoiding hold ups;
6) Payment instructions could be issued to banks to ensure prompt payment.
Bar Coding and Scanning
At its most basic level, bar coding refers to the placement of computer readable
codes on items, cartons, containers, and even railcars. This particular technology
application drastically influenced the flows of product and information within the
supply chain. As noted throughout this unit, information exchange is critical to the
success of supply chain management. In the past, this exchange was conducted
manually, with error-prone and time-consuming paper-based procedures. Bar
coding and electronic scanning are identification technologies that facilitate
information collection and exchange, allowing supply chain members to track and
communicate movement details quickly with a greatly reduced probability of error.
The critical point-of-sale data that organizations such as Wal-Mart provide to their
supply chain partners is made possible through the use of bar coding and
scanning technology. This same technology is critical to transportation companies,
such as FedEx, by enabling them to provide their customers with detailed tracking
information in a matter of seconds.
Bar code scanners are most visible in the checkout counters of the supermarket.
They scan the black-and-white bars of the Universal Product Code (UPC). This
code specifies the name of the product and its manufacturer. Bar codes are used
in hundreds of situations, ranging from airline stickers on luggage to blood
samples in laboratories. They are especially useful in high-volume tracking where
keyboard entry is too slow and/or inaccurate. Other applications are the tracking
of moving items, such as components in PC assembly operations, railroad cars at
various locations, and automobile in assembly plants. The general benefits of Bar
Code technology in the supply chain environment are: Speeds data entry,
Enhances data accuracy, Reduces material-handling labour, Minimizes on-hand
inventory, Monitors labour efficiency, Improves customer service, Reduces product
recall, Verifies orders at receiving and shipping, Reduces work-in-process idle
time, Monitors and controls shop floor activity, Improves shop floor scheduling,
Optimizes floor space, and Improves product yield/reduces scrap.
Data Warehouse
Generally, a data warehouse is a decision support tool for collecting information
from multiple sources and making these information available to end users in a
consolidated, consistent manner. The concept originated in the 1970s, when
corporations realized they had many isolated information systems “islands” that
could neither share information nor provide an enterprise-wide picture of
corporate activities. Recently, there has been a renewed interest in this concept,
as organizations adopt distributed computing architectures while they leverage
their isolated legacy systems. Rather than trying to develop one unified system or
linking all systems in terms of processing, a data warehouse provides a means to
combine the data in one place and make it available to all of the systems.
11

IT Enabled SCM In most cases, a data warehouse is a consolidated database maintained separately
from an organization’s production system databases. It is significantly different
from a design standpoint. Production databases are organized around business
functions or processes such as payroll and order processing. Many organizations
have multiple databases, often containing duplicate data. A data warehouse, in
contrast, is organized around informational subjects rather than specific business
processes. The data warehouse, then, is used to store data fed to it from multiple
production databases in a format that is readily accessible by end users. Data
held in data warehouses are time-dependent, historical data and may also be
aggregated.
For example, separate production systems may track sales and coupon mailings.
Combining data from these different systems may yield insights into the
effectiveness of coupon sales promotions that would not be immediately evident
from the output data of either system alone. Integrated within a data warehouse,
however, such information could be easily extracted.
One immediate benefit of data warehousing is the one previously described in the
example about sales and marketing data. Providing a consolidated view of
corporate data is better than many smaller (and differently formatted) views.
Another benefit, however, is that data warehousing allows information processing
to be off-loaded from individual (legacy) systems onto lower-cost servers. Once
done, a significant number of end-user information requests can be handled by
the end users themselves, using graphical interfaces and easy-to-use query and
analysis tools. Accessing data from an updated information warehouse should be
much easier than doing the same thing with older, separate systems. Furthermore,
some production system reporting requirements can be moved to decision support
systems – thus freeing up production processing.
Internet
In terms of advancement in technology and communications capabilities, perhaps
the most influential development over the past decade has been the adaptation of
the Internet from strictly government and research applications into the areas of
commerce and mass communications. At the most basic level, a network of
networks, the Internet provides instant and global access to an amazing number
of organizations, individuals, and information sources. Through systems like the
popular World Wide Web (the web), Internet users are able to conduct organized
searches on specific topics as well as browse various web sites to discover the
vast resources available to them through their computer.
The Internet offers tremendous potential for supply chain members to share
information in a timely and cost-effective manner, with relative case. Many
organizations are now exploring the numerous opportunities provided by the
Internet. For example, the Internet provides opportunities for the development of
EDI systems. It also provides an incredible source of information about
potential suppliers of products and services. A few examples of the type of
information available on the Internet are provided under the World Wide Web
heading.
Although the potential benefits of supply chain applications on the Internet are
substantial, as with any emergent technology, certain issues must be resolved. A
key Internet concern is the issue of privacy, the level of security for information.
Privacy of information transmitted on the Internet is an issue for all users,
particularly in the use of credit-card members and other sensitive information. For
supply chain members already struggling with the challenge of freely sharing
information, these issues only add to their concerns.
12

These issues may soon be resolved. Currently, web software called ‘merchant’ Information Technology :
server is in advanced stages of development. Although present applications are A Key enabler of SCM
being developed to assist with consumer transactions, such as providing secure
conduits for payment information and transactions, other applications are not far
behind. One approach for such security problems is the development of the
supply chain’s own Internet.
Intranet/Extranet
Intranets are networks internal to an organization that use the same technology
that is the foundation of the global Internet. Many industry analysts expect such
corporate networks to provide most of the revenue for computer hardware and
software vendors over the next few years as an increasing number of business
expand their internal networks to improve efficiency.
By using Web browsers and server software with their own internal systems,
organizations can improve internal information systems and link otherwise
incompatible groups of computers. Internal networks often start out as ways to
link employees to company information, such as lists, product prices, or benefits.
Because internal networks use the same language and seamlessly connect to
the public Internet, they can easily be extended to include customers and
suppliers, forming a supply chain “Extranet” at far less cost than a proprietary
network.
World wide Web
The World Wide Web is the Internet system for hypertext linking of multimedia
documents, allowing users to move from one Internet site to another and to
inspect the information available without having to use complicated commands
and protocols.
The implications of the Web for business applications are obvious and far-
reaching. Web-based technology and tools have been developed in virtually every
industry and forms of commerce. Supply chain functions are no exception. For
instance, Enterprise Transportation management was recently launched by
Metasys Inc. through the Oracle Web Applications Server; this system deploys a
variety of critical information about transportation and distribution applications
throughout the supply chain. Further, the system can be accessed with any Java-
enabled browser. Access may be controlled through a corporate network, via the
Internet or an Intranet Web site.
The number of Web sites relevant to supply chain management is growing at a

rapid pace. From specific sites providing information about the capabilities and
fees of potential supply chain partners to educational sites developed primarily on
reference tools, the number of sites and variety of information available on the
Web is impressive. Examples of the Web sites available include the following:
1) www.con-waynow.com provides information about the expedited motor-

carrier arm of Con-Way Transportation Services, providing information about
the company’s services, market coverage, and truck fleets, as well as direct
e-mail links to Con-Way NOW’s sales, operations, and human resources
departments.
2) www.gebn.bus.msu.edu provides access to Global Procurement and Supply

Chain Benchmarking Initiative home page. The Global Procurement and
Supply Chain Benchmarking Initiative is a third-party procurement and supply
chain benchmarking effort housed in The Eli Board Graduate School of
Management at Michigan State University. The primary mission of this group
13

IT Enabled SCM is to collect and disseminate information concerning the best procurement and
supply chain strategies, practices, and processes being employed by
companies across a wide range of industries worldwide.
3) www.supply-chain.com developed by the Supply Chain Council provides a

valuable reference source introducing shippers to the Council’s mission and
supply-chain reference model, a leading edge benchmarking tool being
developed for specific supply chain applications.
Most of the supply chain related professional societies have highly informative
home pages. These Web sites typically provide information about the
organization’s objectives, educational and training opportunities, educational
products, reference libraries, job placement services, discussion forums,
conferences, and membership requirements.
Decision Support Systems
By the early 1970’s the demand for all types of Industrial Software started to
accelerate. The increased capabilities and reduced costs justified computerized
support for an increased number of non-routine applications. At that time, the
discipline of decision support systems (DSS) was initiated. The basic objective of
a DSS is to provide computerized support to complex non-routine and partially
structured decisions.
At first, the cost of building a DSS prohibited its widespread use. However, the
availability of low-cost personal computer around 1980 changed this situation.
Desktop PCs, which are easily programmable, made it possible for a person with
limited programming ability to build useful DSS applications (e.g., spreadsheets
with built-in-macros). This was the beginning of the era of end-user computing.
Analysts, Managers, many other professionals, and Secretaries began building
their own systems.
Given the complexity of supply chains, development of DSS to assist decision-

makers in terms of both the design and operation of integrated supply chains is
likely to increase. These DSS will help decision-makers identify opportunities for
improvements across the supply chain, far beyond what even the most
experienced manager could provide through intuitive insight. Supply chain-wide
DSS will allows management to look at the relationships across the supply chain,
including suppliers, manufacturing plants, distribution centers, transportation options,
product demand, relationships among product families, and a host of other factors
to optimize supply chain performance at a strategic level.
Supply chain DSS requires large amounts of both static and dynamic information
from the member organizations. The static information includes production rates
and capabilities for all supply chain entities, bills of material, routings, and facility
preference. The dynamic information includes forecasts, orders, and current
deliveries. Using all of this information to solve, for example, a quick-response
scheduling problem across the supply chain is virtually impossible with a single
technology. However, all the data can be readily obtained from existing
information systems through Structured Query Language (SQL) using various
relational databases or the “supply chain data warehouse” if one exists.
Specific technologies that may be utilized for an effective supply chain

management DSS include: SQL interface, Expert system rules, Scheduling
algorithms, optimization (Linear programming capabilities), Blocked scheduling,
Multisite/multistage scheduling, Graphical user interface, User definable database,
Available-to-promise, and Demand management.
14

Activity 4 Information Technology :
A Key enabler of SCM
Examine the suitability of e-commerce, Electronic Data Interchange and Bar
Code System practices of Indian Organizations. For this, refer National/
International Journals or select an organization known to you.
..............................................................................................................................
..............................................................................................................................
..............................................................................................................................
..............................................................................................................................
..............................................................................................................................
8.7 SUMMARY
The sharing of information among supply chain members is a fundamental

requirement for effective supply chain management. At the ultimate level of
integration, decision makers at all levels within the supply chain members
organizations are provided with the information they need, in the desired format,
when they need it, regardless of where within the supply chain this information
originates. Providing the decision-makers within the supply chain with the ‘right’
information, in the necessary format, and in a timely manner is a major challenge.
The information requirements determination approaches presented in this unit have
been effective in ensuring that these information requirements are met.
The information systems and the technologies utilized in these systems represent
one of the fundamental elements that “link” the organizations of a supply chain.
The range of technologies available to support supply chain management efforts
is vast and ever changing. Unfortunately, there is not a single “right” IT solution
to supply chain management. Organizations need to explore various options to
arrive at a solution that provides the functionality required for their specific supply
chain management initiative. Towards this end, benchmarking integrated supply
chain efforts to identify “best practices” is essential.
Supply Chain Management initiatives are unlikely to succeed without the

appropriate information systems and the technology required to support them.
These important decisions should be made by a cross-functional, inter
organizational management group that can afford to manage the constraints
related to the time and resources required to develop a supply chain information
systems strategy. The team should implement the strategy, and ever see its
ongoing performance.
8.8 SELF-ASSESSMENT QUESTIONS

1) Define Information Technology. What are the advantages and disadvantages
of adoption of IT in Indian Manufacturing Organizations?
2) What is the value of information? How would you try to assess the value of
information to a decision-maker?
3) Explain briefly the Inter Organizational Information system. How is IOIS
important for effective supply chain management?
4) What are the fundamental mistakes commonly made while capturing
information? How would these mistakes be eliminated in SCM? 15

IT Enabled SCM 5) Give various supply chain information categories. Give examples of
information contained in these categories.
6) What are the major advantages and disadvantages of inquiry systems in
which data are captured on-line but files are updated later – say at night?
7) How would you measure the extent of unemployment created by the
implementation of IT? What factors tend to mitigate the problem of increased
unemployment if it actually occurs?
8) Does IT have an impact beyond the organization, for example, on
stockholders or customers? What kinds of effect occur and what problems
are created for these groups?
9) What is the IT enabled organization design variables? How do they
supplement or replace conventional design variables?
10) What are the risks for a small company connecting itself electronically with
major customers?
11) What kinds of employees are most likely to be replaced by Information
Technology? Does your answer depend on the type of system? Are the
decision levels affected?
12) Write a brief note on the following:
i) Electronic commerce
ii) Electronic Data Interchange
iii) Bar Coding and Scanning
iv) Data Warehouse
v) Internet
vi) Intranet/Extranet
vii) World Wide Web
viii) Decision Support System
13) What are the advantages and disadvantages of using Bar Code and Scanning
System in the Manufacturing Organizations?
14) Give a list of potential benefits of using Electronic Data Interchange (EDI).
Who are the service providers of EDI in India and their terms and
conditions?
15) Compare and contrast EDI, Internet, and Intranet/Extranet. How are they
applied in SCM?
8.9 REFERENCES AND SUGGESTED FURTHER

READINGS
1) CAPS Logistics, Inc., Atlanta, Georgia, USA, or http://www.Caps.com, 1999.
2) Copacino, W.C., : Supply Chain Management: The basics and beyond,
St. Lucie Press, 1997.
3) Handfield, R.B. and Nichols, E.L. Jr., : Introduction to Supply Chain
Management, Prentice Hall, 1999.
4) Jonathan Blain, et. al., : Using SAP R/3, Prentice-Hall of India Pvt. Ltd.,
1998.
5) Lambert, D.M., Stock, J.R., and Ellram L.M., : ‘Fundamentals of Logistics
Management’ Mc-Graw Hill- Irwin, 1998.
16

6) Lucas, H.C., Jr., : ‘Information Technology for Management’, The Information Technology :
McGraw-Hill Companies, Inc. 1997. A Key enabler of SCM
7) Martinich J.S., : ‘Production and Operations Management: An Applied

Modern Approach’, John Wiley & Sons, Inc., 1999.
8) Oden, H.W., Langen Walter, G.A., and Lucier, R.A., Hand Book of
Material and Capacity Requirement Planning, McGraw Hill, Inc., 1993.
9) Pressman, R.S., : ‘Software Engineering: A Practitioner’s Approach’,
Mc-Graw Hill, Inc., 1992.
10) Rosen, K.T. and Howard A.L., : E-Retail: Gold Rush or Fool’s Gold?,
E-Commerce, California Management Review, Vol.42, No.3, Spring, 2000.
11) Senn, J.A., : ‘Information Systems in Management’, Wadsworth Publishing
Co., 1990.
12) Stevens, G.C., : Integrating the Supply Chain, International Journal of
Physical Distribution and Materials Management, Vol.19, No.8, 1989.
17

UNIT 9 INTELLIGENCE INFORMATION SYSTEM
Objectives
The objectives of this unit are to enable you:
• to learn about the recent developments in the information system, particularly
in the supply chain context;
• to learn about Materials Requirement Planning (MRP), Enterprise Resource
Planning (ERP), and Distribution Resource Planning (DRP/DRP-II); and
• to compare the ERP and Supply Chain Planning (SCP).
Structure
9.1 Introduction
9.2 Changing Paradigm of Manufacturing
9.3 Materials Requirement Planning (MRP)
9.4 Manufacturing Resource Planning (MRP-II)
9.5 Enterprise Resource Planning (ERP)
9.6 Distribution Requirement Planning (DRP)
9.7 Distribution Resource Planning (DRP-II)
9.8 ERP vs. SCP (Supply Chain Planning)
9.9 Summary
9.10 Self Assessment Questions
9.1 INTRODUCTION
Decision-making is a key activity for management. Unfortunately, the early

information systems developed during the 1960s and 1970s often had few
implications for decision-making. Today, firms routinely monitor a variety of
activities, for examples, sales and production. A company is very likely to store
information on its competitors’ sales as well. Given the wealth of information
kept in corporate databases, there are many opportunities today to use intelligence
information system to aid decision-making.
Information is tangible and intangible entity that reduces uncertainty about some
state or event. As an example, consider a weather forecast predicting clear and
sunny skies tomorrow. This information reduces our uncertainty about whether an
event such as a cricket match will be held. Information that a bank has just
approved a loan to our firm reduces our uncertainty about whether we shall be in
a state of solvency or bankruptcy next month. Information derived from
processing transactions reduces uncertainty about a firm’s order backlog or
financial position. Information used primarily for control in the organization
reduces uncertainty about whether the firm is performing according to plan and
budget.
In this unit, the paradigm shifts in manufacturing, the materials requirement

planning, the enterprise resource planning, the distribution requirement planning
and the supply chain planning are presented. All these planning capsules focus
and make use of the intelligence information system for an effective and efficient
business. Through these the organizations achieve the competitive advantage for
global competitiveness.
1

Intelligence Information
9.2 CHANGING PARADIGM OF MANUFACTURING System
Since, 1950, global trade is growing at a faster pace than the overall growth
Gross Domestic Product (GDP) of the world. Indian Government, with its new
open policies towards foreign investments; overhauling of customs and duties;
fewer stringent rules toward repatriation of profits; and open market policies
through privatization are positioning it to harness the benefits in the new surge in
globalization of economics.
Increased global competition, informed customers, technology adaptation, and

global trade will put pressure on Indian companies to become more efficient. This
means, the Indian companies have to strive for manufacturing excellence by
improving product quality, making their price competitive, promoting product
delivery and enhancing flexibility to absorb markets varied needs.
The manufacturing function is undergoing through a period of extra-ordinary

revitalization. This requires attention on customer oriented products, excellent
processes, the best tools and equipment, efficient production goods flow, clear and
transparent controls, carefully engineered job, renewed emphasis on productivity,
vastly upgraded quality standards empowered with total quality programs and
innovation experiments in the management of people in the organization. This
revitalization is also seen new manufacturing technologies. These technologies are
being accompanied by innovation in management of manufacturing systems.
These innovations place greater emphasis on manufacturing excellence – an
important consequence of global competition in the global economy. These
innovations are in effect answers to the challenges placed on the prominent
manufacturing capability, by manufacturing enterprises who were caught up
between high technology spurred by heavy investment, intelligent customers, new
political and economic environments, demanding workforce and increasing
competition. Every segment of manufacturing enterprise has gone through close
scrutiny and as a result excellent and efficient new technologies emerged and
earned their due place in the organization.
Table 9.1: Changing Paradigm of Manufacturing
Old Rules of Manufacturing New Rules of Manufacturing
Produced to forecast Produced to order
Uniform/standardized Highly variable/customized
Low on information content High information content
Characterized by a specific market niche. Characterized by multiple market niche
Expected to have a larger market life. Expected to have a shorter market life
Self-contained Open ended platform for upgrades/information/services
Line personnel shouldn’t challenge The person closet to the problem is the world’s best
current practices. expert
Layout the factory by function Cellular layout
Always keep people busy and Make only as such as you need only when you need
equipment humming.
Inventory is an asset. Inventory is liability
Traditional performance measures Measurements focus on improvement rates in cost,

such as labor and machine efficiencies, quality, flexibility and value-added activities and
purchase price variance and overhead customers satisfaction.
absorption rates.
Quality is inspected at the end of line. Building quality in throughout entire process.
Large lot sizes are better because we Constantly try to economically reduce lot size and
amortize setup and change – over setup times.
times over more units.
2

IT Enabled SCM The new rules of manufacturing that cause the changing paradigm of
manufacturing are compared against the old rules of manufacturing – shown in
Table 9.1. The intelligence information systems consisting of MRP. ERP, DRP
and SCP are a few solutions that gained significance to meet the current
business challenges.
9.3 MATERIALS REQUIREMENT PLANNING (MRP)
The materials requirement planning system is a major element in a manufacturing

company and is also the heart of MRPII (Manufacturing Resource Planning).
MRP is a computer-based information system designed to order and schedule
‘dependent’ demand inventories (raw materials, component parts, and
subassemblies) in a coordinated manner. MRP is as much a philosophy as it is a
technique, and as much as an approach to scheduling as it is an approach to
inventory control. It views inventory from the vantage point of the stock-room,
trying to insure that there will always be “just enough” on hand to meet projected
demand.
Until the 1970s, the materials planning process in manufacturing environment

suffered from two problems. The first was the enormous task of setting up
schedules, keeping track of large numbers of parts and components, and coping
with schedule and order changes. The second was the perception that a company
had to choose between investing in high quantities of inventory or having
excessive stock-outs. Practitioners used inventory-planning techniques that were
designed for independent demand items, resulting in high inventories and frequent
stock outs. Starting in the late 1960s and early 1970s, manufacturers recognized
that planning dependent items differently from independent items (using MRP)
could produce lower inventories and lower stock-out rates. Additionally, they
enlisted the power of the computer to handle much of the burden of keeping
records and determining material requirements.
The main purposes of an MRP system are to control inventory levels and assign
operating priorities for ordered items. These may be briefly expanded as follows:
1) Inventory
- Order the right part
- Order in the right quantity
- Order at the right time (start data)
2) Priorities
- Order with the right due date
- Keep the due date valid
The motto of MRP is getting the right materials to the right place at the right
time. The operating philosophy of MRP is that materials should be expedited
when their unavailability would delay the overall production schedule, and de-
expedited when a schedule change postpones their need. To this end, MRP logic
will always plan inventory to the lowest possible amount, unless instructed
otherwise by order modifiers. Order modifiers, including safety stock and lot sizes
are discussed later in this unit.
Material Requirements Planning Inputs
Figure 9.1 illustrates the five major sources of information required for MRP to
operate:
3

Bill of Materials System
Master Production
Action Report
Schedule
MATERIAL Primary (oreders)

Item Master REQUIREMENT Report
PLANNING
Orders Pegging Report
Requirements
Figure 9.1: MRP Inputs and Outputs
Production Plan
Demand Data
Rough Cut
MPS Capacity Planning
Inventory Status
Planning Data
Figure 9.2: Inputs to Master Production Schedule
Master Production schedule states which end items (items that are sold to
customers) are needed, in what quantities, on which specific dates, and when
these items will be produced. The MPS has five major inputs, as shown in
Figure 9.2.
The production plan provides a set of constraints on the MPS. The MPS must
take into account all types of demand data for the items being scheduled
including: sales forecasts, customer orders, distribution warehouse requirements,
interplant requirements, service demand forecasts, and safety stocks. The MPS
must know how much is available to accurately determine how much to orders.
This requires the inventory status information on hand inventory, allocated stock,
released production and purchase orders, and firm planned orders. The item
master file provides planning data on each item to guide the MPS planning
process, such as: lot-sizing rule to be used, shrinkage factor, safety stock, and
lead-time. Rough cut capacity planning determines the capacity requirements to
implement the Master Production Schedule, verifying the schedule’s feasibility or
causing the master schedules to revise the schedule.
1) The Bill of Materials (BoM), also called a product structure or parts list, is a
list of all the materials, and the quantity of each, required to produce one unit
4

IT Enabled SCM of a manufactured product, or parent. MRP uses the bill of materials, as the
basis for calculating the amount of each raw material required for each time
period. The engineering Bill of materials (often called the parts list) for a
simple product (ball-point pen) is as shown in Table 9.2.
Table 9.2: Engineering Bill of Materials (Parts List) for ball-point pen
Item No. Description Quantity Make or Buy Drawing File No.
1 Barrel 1 Make 26079

2 Tip 1 Buy 26080
3 Spring 1 Buy 20091
4 Refill 1 Buy 20026
5 Cap 1 Make 26048
6 Plunger 1 Buy 26032
7 Clip 1 Buy 26054
In an MRP system, a Bill of Materials (BOMs) file is an up-to-date

computerized file that contains a single record for each individual parent-
component relationship. The BOMs represent the actual sequence of fabrication
and assembly.
2) Item Master in an MRP system is a computerized file with a complete
record for each item, or part. Because MRP systems are part-oriented, the
Item Master File is the heart of the system. Each item, no matter at how
many levels it is used in a product, or in how many products, and no matter
whether it is currently stock-on-hand or not, has one and only one record.
The item master record for a part contains many types of information,
including: static data, such as part description, unit of measure, and MRP
planning factors (lot sizes, lead times, safety stock, and scrap rates); plus
dynamic data, such as various costs, current quantities on hand and on
order.
3) Requirement is a computerized record of a future stockroom issue that will
diminish stock-on-hand. There are two types of requirements: Internal (which
will be used within the plant to make other products), and External (which
will be sent outside the plant, such as customer orders and service parts.
A typical requirements record contains the item number of the part required,
the quantity required, the date on which it is needed, and the quantity already
issued from the stock room. Customer orders also contain such additional
information as the customer name and ship to address, the date on which
the customer wants delivery, and the date we promised to ship.
4) Orders are computerized record of a future stockroom issue receipt that will
increase stock-on-hand. Just as there are two types of requirements, there
are two types of orders:
a) Shop orders (or work orders or manufacturing orders), which will be
manufactured within our own plant. These are similar to our internal
requirements, because they will be procured internally.
b) Purchase orders, which will be procured from outside our plant. These
are similar to our external requirements, because they will come into our
plant from external sources.
We can also categorize the incoming orders (both shop orders and purchase
orders) in a different manner, which tells whether the order has been
released, or whether it is still planned. The categories are: 5

a) Scheduled receipts (or open order, or released order), which is an order Intelligence Information
that has been officially released, either in the shop or to a supplier. A System
scheduled receipt commits our company to take action and spend money.
b) Planned order, which exists only in the computer, and perhaps some
printouts at this point. Our company has not yet been authorized to
spend money; no supplier or shop has been authorized to start work on
this order.
Planned order can become scheduled receipts only when a human expressly
takes action, this is one of the primary responsibilities of a materials planner. An
MRP order record contains considerable data, including item number being
ordered, order quantity, original due date, actual received quantity, revised due
date, quantities in MRB (Material Review Board) and scrap, supplier (if purchase
order), and other information.
Activity 1
Identify and discuss the different Bill of Material Database in an organization.
Does the Bill of Material Database vary from department to department? Why?
Draw a Bill of Material “tree” for one of a typical product that you know.
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
Material Requirement Planning Logic and Mechanics
The logic underlying MRP is to use the product structure (BOM) and lead time
information to determine when purchase and production orders should be released
so that materials are obtained just when they are needed.
1) Exploding the Product
The first step is to use the BOM to ‘explode’ the product into a production (or
assembly) time chart. Figure 9.3 is a production time chart for the spider climber
(It is the playing implement that kid uses in the children’s park).
The explosion begins with the time the end product is needed and then works
backward through each production or purchasing activity that must be done to
make each succeeding item. For example, consolidating and packing a spider
climber requires one day of lead time, so if a supply of climbers is required at
time T, shells, leg supports, ladders, and bolts and nuts must be available one
day earlier, at time T-1. Welding and coating a shell requires three days of lead-
time, so an order to begin welding shell quads must be released three days
earlier, or at time T-4. Casting and demolding shell quads also has a three-day
lead-time, so an order to cast shell quads must be issued and aluminum ingots
must be available at time T-7. Figure 9.3 shows that the cumulative lead time
for producing a spider climber is eight days, so the company would have to
initiate production or purchase activities at least eight days before climbers are
required.

IT Packages in SCM
IT Enabled SCM
Obtain
bolts and
nuts*
Order
ladder
steps
Weld
ladder
Bend
pipe
into
legs
Pack
Products
Order
Aluminum Cut leg
Pipe support
Weld
Obtain Cast and
Aluminum shell coat
ingots* quads shell
8 7 6 5 4 3 2 1 0
Days before End
shipping of Product
End-product Available
Figure 9.3: Production Time Chart for the Spider Climber.
2) Developing the Material Requirements Plan

The next step is to construct a material requirements plan for each item in the
BOM, as illustrated in Figure 9.4.
Master Production Schedule
Day 1 2 3 4 5 6 7 8 9 10 11
Quantity 0 0 0 0 0 0 0 0 20 0 30
Spider Climber
Gross requirements 20 30
Projected on hand 0 0
Scheduled receipts 0 0
Net requirements 20 30
Planned order release 20 30

Shells Intelligence Information
System
Shells Quads (× 4)
Leg supports (× 4)
Pipe (× ¼)
Ladders (× 4)
Ladder Legs (× 2)
8

IT Enabled SCM Figure 9.4: (Contd..)
Pipe (× 4)
Ladder Steps (× 7)
Figure 9.4: Material Requirements Plans for Spider Climber
A material requirements plan is a production or purchase schedule for an item

that makes up the end product. The procedure begins by converting the gross
product requirements in the MPS into net product requirements. The gross
requirements are the number of units actually required (desired) at the beginning
of each time period. The requirements are the gross requirements less any
available inventories and any scheduled receipts, where the available inventories
are total inventories for the item at the beginning of the period less any desired
safety stock (in the MRP, available inventories are normally labeled as projected
on hand). The scheduled receipts are replenishment orders that have already
been placed, either in our plant (shop orders) or at a supplier (purchase orders).
These will increase the inventory on hand. Hence,
(net requirements)t = (gross requirements)t – (projected on hand + scheduled receipts)t
(projected on hand)t = (total expected inventory)t – (safety stock)t
Gross product requirements are transferred from the MPS to the material
requirements plan for the end product, and the net requirements are computed,
as shown in figure 9.4. The next line in the material requirements plan is the
amount of product or material planned to be received through production or from
a vendor at the beginning of the time period. Under lot-for-lot ordering
(production) we order or produce exactly what is needed in a time period so that
the planned order receipts will equal the net requirements. (It may be noticed
that in Figure 9.4, the planned order receipts is combined with the net
requirements).
The final lines in the material requirements plan for an item is the planned order
releases. This is the amount that must be ordered (internally through production
or externally from a vendor) at the beginning of a time period so that the planned
order receipts occur when needed. Therefore, the planned order releases equal
the net requirement (or planned order receipts), except that they are offset by
the lead-time. For example, in figure 9.4 the net requirements for the spider
climber are 20 units on day 9 and 30 units on day 11. The lead-time for final
consolidation and packing is one day, so the planned order releases for the
climber must be 20 on day 8 and 30 on day 10.

9.4 MANUFACTURING RESOURCE PLANNING System
(MRP-II)
As we have noted, MRP is a production planning system that converts an MPS

into planned order releases. Manufacturing resource planning (MRP-II) is a
philosophy that attempts to incorporate the other relevant activities of the firm
into the production planning process. In particular, the financial, accounting, and
marketing functions of the firm are tied to the operations function. As an
example of the difference between the perspectives offered by MRP and MRP
II, consider the role of the master production schedule. In MRP, the MPS is
treated as input information. In MRP II, the MPS would be considered a part of
the system and, as such, would be considered a decision variable as well. Hence,
the production control manager would work with the marketing manager to
determine when the production schedule should be altered to incorporate revisions
in the forecast and new order commitments. Ultimately, all divisions of the
company would work together to find a production schedule consistent with the
overall business plan and long-term financial strategy of the firm.
Another important aspect of MRP II is the incorporation of CRP (capacity

resource planning). Capacity considerations are not explicitly accounted for in
MRP. MRP-II is a closed-loop cycle in which lot sizing and the associated shop
floor schedules are compared to capacities and recalculated to meet capacity
restrictions. An MRP-II system may convert information from the material
requirements plans into specific work schedules for departments and machines,
evaluate department workloads and capacity conditions, generate shipping
documents and customer invoices, and produce management reports on production
and financial performance. Typically, these systems have feedback mechanism
(and therefore called closed-loop MRP systems) so that if department, machine,
or personnel capacity limits are exceeded, the material requirements plans and
corresponding production schedules are revised to stay within capacity limits.
9.5 ENTERPRISE RESOURCE PLANNING (ERP)
In the past, most of the planning covered only limited routine operational
requirements, with focus on historical record keeping and accounting. The
business functions in the enterprise were using information technology to
automate the departmental activities, to fulfill only individual and departmental
needs and objectives, not realizing the effect on other functions.
However, the enterprise is the group of people with a common goal, which has
certain resources at its disposal to achieve this. The group has some key
functions to perform inline with the goals. Resources are anything, which cost
money. Resources include raw materials, purchased parts, and produced parts,
personnel, processing machine capacity, material handling capacity, tools, fixtures,
NC programs and such others as needed to produce the end items. Planning is to
ensure that nothing goes wrong and also putting necessary functions in place.
ERP is the method of effective planning of all resources in an organization.
Every organization committed to making and selling goods and services has three
major objectives:
• To provide maximum customer service
• To minimize inventory carrying cost
• To optimize plant operation
10

IT Enabled SCM Unfortunately, these objectives are basically conflicting in nature and represent
certain trade-offs. Sales department requires all the inventory necessary to
service their customers and at the same time production flexibility to meet
changing demands. Factory desires a constant production schedule with long runs
and less overtime. Finance insists on keeping the capital investments to a
minimum. More often they end up with the managers nightmare:
• More was bought than required
• More was used than essential
• More was produced than sold
ERP is an attempt to bridge the gap. It is defined to be a company wide
planning system which works around core activities of business and has all logical
interfaces to achieve seamless flow of information within the supply chain and
value stream. Such systems can optimally plan and manage all the resources of
enterprise to run the business with high level of customer service at lower cost
and improved productivity.
The evolution of ERP took over three decades, during which the continuous
improvement for integration and planning with creative thinking by innovators
developed this comprehensive planning and control framework. Three ancestors
of ERP serve as milestones:
• 1960’s Material Requirement Planning (MRP)
• 1970’s Closed Loop MRP
• 1980’s Manufacturing Resource Planning.
During this it also absorbed the new techniques proven to produce business
benefits from Just-in-Time (JIT) and Business Process Reengineering (BPR).
In 1960’s the computerized production and inventory control systems began to

provide better methods of ordering materials and control inventory. It uses master
production schedules (What are we going to make?), bills of material (What does
it take to make it?), and inventory records (What do we have?) to determine
future requirements (What do we have to get?), which is called as Material
Requirement Planning (MRP). In the changing conditions of manufacturing
environment, the priority planning and capacity planning were tied in with MRP to
accommodate the variations in demand and supply using feedback from tactical
plans and execution levels. This closed structure is called as closed loop MRP.
The next generation, Manufacturing Resource Planning (MRP-II), plans to
forecast sales, to set production rates and resources levels integrated with
investments decisions before translating the business plans to Master Production
Plans (MPS).
In the new generation ERP, the whole supply chain management concept is
incorporated extending the planning concept to trading partners where the
complete visibility throughout the enterprise is possible and the concept of virtual
enterprise is supported using electronic commerce.
This incorporates the techniques, Just-in-Time (JIT) and Business Process
Reengineering (BPR), particularly in the areas of work empowerment, human
engineering and waste reduction. The benefits of JIT are never fully realized
unless it is being applied within the rational framework without which one could
easily make wrong part at wrong time with utmost efficiency. The drawback of
MRP II was the planning based on lead times, which never asked for
improvement and taken as it is. The BPR is becoming an essential tool before
and while ERP implementation concentrating on reduction in non value adding
activities and work simplification causing reduction in cycle time. 11

ERP consists of different modules integrated into one system. The modules are: Intelligence Information
System
1) Distribution and transportation which serves day-to-day logistics using
forecasting tools, extensive planning, comprehensive sales, purchasing,
warehousing, packaging, inventory management and electronic commerce.
2) Order management integrates customer order processing into master
production schedule, supports multiple sites and currencies, electronic
commerce for real time information.
3) Manufacturing module supports master production schedule, material
requirement planning, capacity planning, supplier scheduling and shop floor
control.
4) Finance module delivers high level of visibility of financial transactions,
supports accounts payable, accounts receivable, different costing
methodologies, general ledger and electronic commerce.
5) Human resource module integrated with pay-roll track skills, capabilities,
experience and training needs of an organization, prepares and maintains
organization structure.
6) Quality management lets user tap collect, distribute and analyze critical
quality information and uses powerful statistical tools to monitor and control
products and processes.
7) Maintenance management calls for optimal schedules for personnel,
availability of spares, and effective maintenance tasks. It handles all types of
maintenance, keeps details of equipments, generates spare parts and
maintenance requirements automatically.
8) Project module supports cost management of projects includes estimates, bids,
scheduling, planning, budgeting, purchasing, tracking, billing, and integration
with finance, manufacturing and distribution operations.
Why a Company Pursues a New ERP Solution
a) The company wants to achieve performance improvements, such as reducing
operational costs, gaining competitive advantage, improving customer service,
and improving or reengineering business processes.
b) The existing system in the company is not able to support its needs and
requires significant information system resources for maintenance and
support.
c) The system uses multiple points of input, often with duplication of effort.
d) Staff members are unable to answer questions easily or respond to
information requests by key customers or suppliers.
e) The enterprise has grown through mergers and acquisitions and contains a
variety of incompatible systems
f) Key information is updated on a batch basis instead of in real time.
A few ERP software modules and their features are presented in Unit 10.
9.6 DISTRIBUTION REQUIREMENT PLANNING

(DRP)
Distribution Requirement Planning (DRP) is a management process that
determines the need of inventory stocking locations (store, distribution center,
regional distribution center, central DC, manufacturing DC, or warehouse that
carries product for sale) and ensures that supply sources (third party supplier, a
regional distribution point, or a factory) will be able to meet the demand. This is
12
accomplished in three distinct phases.

IT Enabled SCM First, DRP receives input from the following:
a) Sales forecasts by stock keeping unit by stocking location.
b) Customer orders for current and future delivery.
c) Available inventory for sale by stock keeping unit (SKU) by stocking
locations.
d) Outstanding purchase orders and/or manufacturing orders by product
purchased and/or manufactured.
e) Logistics, manufacturing, and purchasing lead times.
f) Modes of transport used as well as deployment frequencies.
g) Safety stock policies by SKU by stocking locations.
h) Normal minimum quantity of product to be purchased, manufactured, and
distributed.
Second, once all inputs are received, DRP generates a time-phased model of
resource requirements to support the logistics strategy. These include:
a) Which product is needed, how much, and where and when it is needed.
b) Transportation capacity needed by mode of transport by stocking locations.
c) Needed space, manpower, and equipment capacity by stocking locations.
d) Required inventory investment by stocking locations and in total.
e) Required level of production and/or purchases by product and by supply
source.
Third, DRP compares the required resources to what is currently available at
supply sources, and what will be available in the future. It then recommends
what actions must be taken to expedite or delay purchases and/or production,
thereby synchronizing supply and demand. This third phase forces integration and
feedback into the system, thus closing the loop among manufacturing, purchasing,
logistics, and the customers.
DRP Logic
Consider a company manufactures distributes and sells pharmaceuticals and
supports a network of six retail stores. Specifically, we will track the planning for
vitamin C tablets packaged in bottles of 100. The store at Mumbai has 500 of
this product on hand, 200 as a safety stock, and a forecast that varies between
80 and 120 per week (see Figure 9.5).
On-hand Balance : 500 Mumbai Store

Safety Stock: 200 Vitamin C Tablet 100/Bottle
Lead Time: 2 weeks Past Week
Order Quantity: 300
Due 1 2 3 4 5 6 7 8
Forecast 100 120 90 110 120 100 80 120
In Transit
Projected on hand 500 400 280 190 80 -40
Planned Shipments.–
Receipt. Date
Planned Shipments.–
Ship Date
Figure 9.5: DRP Logic for a Mumbai Store 13

In Figure 9.5, the projected on-hand balance is determined by means of the Intelligence Information
simple computations. This logic reduces the on-hand balance by the quantities System
forecast for each week. In the beginning of the first week, for example, 500 are
on hand. Forecast sales for the week are 100; they are subtracted from the 500
on hand, leaving a projected balance of 400 at the beginning of the next week.
The same mechanism ripples through the schedule. The projected on-hand
balance dips below the safety stock of 200 in week 3 (projected on-hand balance
of 190), at which point the store will probably run out of stock and go on back
order in week 5. In the example in Figure 9.5, no product is in transit. If that
were the cases, the product in transit would be added to the projected on-hand
balance in the week that it is due to arrive.
The situation shown in Figure 9.5 will occur if nothing is shipped from the supply
source. The store manager needs more of the product delivered in week 3 to
keep the balance from dropping below safety stock, which means that more
product must arrive by week 5 to keep the product from going on back order.
On-hand Balance : 500

Mumbai Store
Safety Stock: 200
Vitamin C Tablet 100/Bottle
Order Quantity: 300
Due 1 2 3 4 5 6 7 8
Forecast 100 120 90 110 120 100 80 120
In Transit
Projected on hand 500 400 280 490 380 260 460 380 260
Planned Shipments.– 300 300
Receipt. Date
Planned Shipments.– 300 300
Ship Date
Figure 9.6: DRP Logic for a Mumbai Store with Planned Shipment
The replenishment lead-time for vitamin C at the Mumbai store is two weeks,
and normally 300 bottles, or four full cases, are shipped at a time. Therefore, a
shipment of 300 units must arrive in week 3 to prevent the inventory from
dropping below the desired safety-stock level. Since the replenishment lead-time
is two weeks, the shipment should be ordered from the supply source in week 1.
Figure 9.6 includes this planned shipment (i.e., future order) from the supply
source in the two lines labeled planned shipments. One shows the planned
shipments on the date they are due to arrive at the store (planned shipments –
receipt date). The other shows the planned shipments on the day they are due to
be shipped from the supply source (planned shipment – ship date).
The planned shipments provide enough stock to last until week 8, although the
store will drop below safety stock in week 6. Therefore, another order must
arrive in week 6. This order should be sent from the supply source in week 4.
Figure 9.6 shows the complete picture of the Vitamin C product at the Mumbai
store.
Now that we have seen how DRP functions in one store, let’s expand it to all
the stores for the Vitamin C product. The following examples (Figure 9.7) show
DRP displays for the other stores and are similar to the DRP display shown for
the Mumbai store.
In the case of the Indore store in Figure 9.7, an order of 150 is in transit. The
order was shipped because the lead-time is two weeks; and it is due to arrive in
14

IT Enabled SCM week 2. The in-transit quantity is added to the projected on-hand balance in the
week the order is due to arrive. The store manager can now see what material
is in route and when it should be expected.
In the case of Calcutta store (Figure 9.7), a planned order is overdue for
shipment. This is the planned shipment for 300, which appears in the past-due
time period. There could be several reasons for the past-due order. Perhaps sales
were greater than forecasted, so the product was needed in Calcutta earlier than
anticipated. Or, the shipment might not have been sent from the supply source on
time. In that case, because of the visibility that DRP affords, the manager of the
store could determine whether the supply source is shipping on time. Moreover,
the manager could determine the problem well before a stock out occurs.
The situations at the New Delhi, Chennai and Bangalore stores, as shown in
Figure 9.7, are similar to the Mumbai store. Nothing is in transit, but there are
several planned shipment from the supply source to the stores. The Bangalore
store is in the same city as the supply source, so its lead-time for product is only
one day.
The lead-time (LT), order quantities (OQ), and safety stock (SS) are different for
each store, so each store can be scheduled independently if desired. In addition,
the lead times, order quantities, and safety stocks can be different for different
products at the store. (This is not apparent in the figures 9.6 and 9.7 because
only one of many products is shown. Each product at each store, however, is
scheduled independently). DRP gives the people operating the system complete
flexibility in scheduling any item at any stocking locations.
Indore, Calcutta, New Delhi, Chennai & Bangalore Store Vitamin C

Tablet 100/Bottle
Safety Stock: 75 Indore Store
Order Quantity: 150
Due 1 2 3 4 5 6 7 8
Forecast 40 50 45 50 40 45 40 50
In Transit 150
Planned Shipments. 150
– Receipt. Date
– Ship Date

Safety Stock: 75 Calcutta Store
Order Quantity: 150
Due 1 2 3 4 5 6 7 8
Forecast 120 130 115 125 140 110 125 105
In Transit
Planned Shipments. 300 300 300
– Receipt. Date
Planned Shipments. 300 300 300
– Ship Date
Figure 9.7: Indore, Calcutta, New Delhi, Chennai & Bangalore Store 15

New Delhi Store System
Safety Stock: 50
Order Quantity: 150
Due 1 2 3 4 5 6 7 8
Forecast 20 25 15 20 30 25 15 30
In Transit
– Receipt. Date
– Ship Date

Safety Stock: 50 Chennai Store
Order Quantity: 150
Due 1 2 3 4 5 6 7 8
Forecast 25 15 20 25 20 20 25 15
In Transit
– Receipt. Date
– Ship Date

Safety Stock: 150 Bangalore Store
Lead Time: 1 day Past Week
Order Quantity: 300
Due 1 2 3 4 5 6 7 8
Forecast 105 115 95 90 100 110 95 120
In Transit
Planned Shipments. 300 300
– Receipt. Date
Planned Shipments. 300 300
– Ship Date
Past Week
Due 1 2 3 4 5 6 7 8
Mumbai 300 300
Indore 150
Calcutta 300 300 300
New Delhi 150
Chennai 150
Bangalore 300 300
Total 300 300 150 750 450 300 300 0 0
16
Figure 9.8: Summary of Planned Shipments to the Stores

IT Enabled SCM In figure 9.7, forecasts for New Delhi and Chennai stores are nearly the same
from week to week. Based on this, you might expect that the demand on the
supply source would be smooth as well, with demand in any one-week nearly the
same as demands in other weeks. Yet, the opposite is true. The demand on the
supply source is lumpy. Figure 9.8 illustrates this point very well. For example, in
week 2 the demand is only 150, but in week 3 it jumps to 750.
Lumpy demand is one of the reasons why it is so important to have visibility in
the supply chain system. Because the demand on the supply source can vary so
much from one week to another, a planner or buyer needs to be able to see
what product is needed and when it must be shipped to meet the needs of the
stores in the systems without DRP, buyers must use averages – hence, the
inevitability of lumpy demand. With DRP, however, buyers see the true needs of
the supply chain system. This gives tremendous visibility into the distribution
network, and enables buyers to realistically plan for the needs of the stores. The
better buyers see what the stores need in the future, the better they are able to
meet those needs and resolve problems before they occur.
9.7 DISTRIBUTION RESOURCE PLANNING (DRP-II)
Distribution Requirements Planning (DRP) has been defined as the application of

MRP principles to the distribution environment, integrating the special needs of
distribution networks of retailers, etc. It is a dynamic model that looks at a time-
phased plan of events that affect inventory.
Order Entry Forecasting Invetory

Control
Bill of
Distribution Open PO's / MO's
Transportation Resources
Planning Requirements
& Planning
Scheduling &
Scheduling
Yes
Sales Purchase
& & / or
Operations Inventory
Make Buy
Planning Planning
(MPS)
= DRP plans/cchedules
& Key Output Interface
= Key Input Interface
PO = Purchase Order
MO = Manufacturing Order
17
Figure 9.9: Distribution Resource Planning Process

Distribution Resource Planning (DRP-II) is an extension of distribution Intelligence Information
requirements planning. DRP applies the time-phased logic to replenish inventories System
in multiechelon warehousing systems. DRP-II extends DRP to include the
planning of key resources in a distribution system – warehouse spaces,
manpower levels, transport capacity (e.g., trucks, railcars), and financial flows.
Figure 9.9 depicts the DRP-II system schematically. It is to be noticed that the
accurate forecasts are essential ingredients for successful DRP-II systems. A
DRP-II system translates the forecast of demand for each stock keeping unit
(SKU) at each warehouse and distribution center into a time-phased
replenishment plan, transportation plan, financial plan and budgeting, predicting
warehouse space requirements and predicting labour requirements and equipment
needs, and more importantly manufacturing plan such as master production
schedule. More details may be found in reference on MRP-II.
Activity 2
Prepare a feasibility report for the recommendation of MRP, MRP-II, DRP,
DRP-II, ERP, and SCM that suits your organization or an organization of your
choice.
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
9.8 ERP VS. SCP (SUPPLY CHAIN PLANNING)
ERP: Enterprise Resource Planning is company wide planning systems, which

works around core activities of business and has all logical interfaces to achieve
seamless flow of information within the supply chain context. Such systems can
optimally plan and manage all the resources of enterprise to run the business with
high level of customer services at lower costs and improved productivity.
SCM: Supply Chain Management is the logistics of managing the pipe line of
goods from contracts with suppliers and receipt of incoming material, control of
work-in-process, and finished goods inventories in the plant, to contracting the
movement of finished goods through the channels of distribution.
From the above definitions of ERP and SCM one may understand that there is a
great deal of commonality. However, the software designers consider the key
process shown in Table 9.
Table 9. : Comparison of key processes of ERP & SCM
ERP Key Processes SCM Key Processes
1. Sales and Distribution 1. Customer relationship management
• Order entry 2. Customer service management
• Delivery scheduling
2. Business planning 3. Demand management
• Demand forecasting 4. Order fulfillment
• Planning of product production & capacity 5. Manufacturing flow management
• Detailed routing 6. Procurement
3. Production planning 7. Product development and
• Master production schedule commercialization
18 • Material requirement planning 8. Returns channel (reverse logistics)

IT Enabled SCM
ERP Key Processes SCM Key Processes
4. Shop Floor Control
• Production orders
• Scheduling, dispatching & job costing.
5. Logistics
• Inventory management
• Warehouse management
• Delivery management
• Purchasing management
Supply Chain Management Pitfalls

Supply chain management faces the following 14 key pitfalls:
1) No supply chain strategy
2) Inadequate definition of customer service
3) Inaccurate delivery status data
4) Inefficient information systems
5) Ignoring the impact of uncertainties
6) Simplistic inventory stocking policies
7) Discrimination against internal customers
8) Poor coordination
9) Incomplete analysis of shipment methods
10) Incorrect assessment of inventory costs
11) Organizational barriers
12) Product-process design without supply chain consideration
13) Separation of supply chain design from operational decisions
14) Incomplete supply chain strategy.
There are however excellent ways to overcome these problems. The suggested
approaches deal with design and measurement. First, the design of the product or
service should give consideration to the cost and service implications for the
existing or proposed supply chain. Second, database should be integrated
throughout the supply chain to ensure operational control. Appropriate data
include past performance, current inventory levels, positions and schedules, as
well as forecast data. This system would support the opportunity for improved
supply chain performance: the integration of control and planning support systems.
This in turn would reduce independent decision making, which ignores the
systems approach. Thus, the fourth point-to expand the view of the supply chain
is critical. Supply chain members should embrace the systems approach with the
realization that each member’s activities have an impact on the others.
The last two issues concern internal and external measurement. The organization
must redesign its incentives, so that individuals, divisions, and sites are rewarded
for taking a system-wide, supply chain approach. In addition, the organization
should institute supply chain performance measurement. For example,
inventory measurement should be viewed across the supply chain instead of local
assessments.
19

Supply Chain Planning (SCP) Intelligence Information
System
Managers responsible for supply chain process improvement planning,
implementation, and measurement received a much-needed framework to guide
their efforts in November 1996 when the 69 members Supply Chain Council
introduced its Supply Chain Operations Reference Model (SCOR). The major
benefit of SCOR is that it gives inter-organizational supply chain partners a basis
for integration by providing them, often for the first time, with something tangible
to talk about and work with. It turns out that the various departments are now
talking in the same language, which is a notable achievement. The framework
helped to break down functional silos and allowed people to look at real issues
and practices supply chain management improvements. It gave people the chance
to look at the supply chain with company-wide needs in mind.
The development of software applications pertinent to supply chain management

is currently a hotbed of activity, promising continued growth into the future. A
new software program developed by Ross Systems, Inc. called Supply Chain
Planning (SCP) is an integrated suite of constraint-based planning tools that
provide demand replenishment, and manufacturing tools for accurate planning and
scheduling of various activities. This software provides an end-to-end enterprise-
resource planning solution incorporating the most advanced supply chain planning
capabilities available. SCP is just an example of hundreds of software titles that
address some aspect of supply chain management.
ERP Vs. SCP
A supply chain is a network of facilities and distribution options that performs the
function of procurement of materials, transformation of these materials into
intermediate and finished products, and the distribution of these products to the
customers. Supply chain exist in both service and manufacturing organizations,
although the complexity of the chain may vary greatly form industry to industry.
The most distinguishing characteristic of ERP systems is their comprehensiveness.

We take SAP’s R/3 package (refer unit 10 for details) and try to differentiate
between ERP and SCP by taking this as a model. R/3 broadly covers Sales and
Distribution, Business Planning, Production Planning, Shop Floor Control, and
Logistics. On the surface, this would seem to cover anything that SCP claims to
provide. Therefore, it helps to review the relevant functions of R/3 in detail, to be
able to contrast to SCP software. First, Sales and Distribution covers order entry
and delivery scheduling. This module also naturally checks on product availability
to ensure timely delivery, and checks the customer’s credit line. Business
Planning consists of demand forecasting, planning of product production and
capacity, and the detailed routing information that describes where (in which work
cells) and in what sequence the product is actually made.
The capacity and production planning gets very complex, therefore simulation
tools are provided as part of R/3 that can help managers to decide how to
overcome shortages in materials, labour, or time. Once the Master Production
Schedule is complete, that data is fed into the MRP (Materials Requirements
Planning) module. The MRP has three principle pieces of output: an exception
report, an MRP list, and order proposals. The exception report brings to attention
situations that need attention, such as late delivery of materials, and rescheduling
proposals. The MRP list shows the details of shipments and receipts for each
product and component. Order proposals are used to order materials and issue
production orders.
This naturally leads to Shop Floor Control. The planned orders from the MRP
are converted to production orders. This leads to production scheduling,
20

IT Enabled SCM dispatching, and job costing. Finally, the Logistics system takes care of rest,
assuring timely delivery to the customer. Logistics in this case consists of
inventory and warehouse management, and delivery. The purchasing function is
also usually grouped under logistics. The overall process summary looks like:
Sales & Forecasting Data, Production & Capacity Planning, Production Execution,
and Logistics.
This functionality is representative of all the major ERP vendors, including SAP,
Oracle, Baan, and PeopleSoft. However, it also seems to be very close in
functionality to SCP products such as those from i2 and Manugistics. So what’s
the difference?
The Manugistics web site (http://www.manugistics.com) has the following

description of supply chain management: “Effective supply chain management
enables you to make informed decisions along the entire supply chain, from
acquiring raw materials to manufacturing products to distributing finished goods to
the consumer.”
This sounds a lot like what R/3 does. R/3 has detailed functionality to order
needed materials, schedule and track the manufacture of products, and to
schedule and track distribution. So really, what’s the difference? The description
of i2’s Rhythm product line (found at http://www.i2.com) is slightly different:
“RHYTHM’s Supply Chain Planner provides advanced planning capabilities to
leading companies in many industries. RHYTHM plans and optimizes the supply
chain as a continuous and seamless activity that integrates all planning functions
across the supply chain. RHYTHM goes beyond traditional planning solutions like
MRP (Manufacturing Resource Planning) and DRP (Distribution Resource
Planning) by simultaneously considering demand, capacity and material
constraints”. This provides a better idea of the chief differences between ERP
and SCP systems.
Enterprises with multi-echelon distribution networks that have aggregation, dis-

aggregation, balancing or echelon-skipping requirements within the distribution
network will need to augment their existing ERP applications with advanced SCP
functionality or risk incurring distributions costs that are at least 10 percent higher
due to expediting, low order fill rates and inventory imbalances. This is caused by
the static sourcing tables used in ERP systems. While ERP systems provide a
great deal of planning capabilities, the various material, capacity, and demand
constraints are all considered separately, in relative isolation of each other. The
more leading edge SCP products are able to consider all the relevant constraints
simultaneously, and to perform real-time simulations of adjustments in the
constraints. ERP systems have a harder time adding this more dynamic
functionally because they are chiefly concerned with transaction processing, and
also have many more jobs to do than just SCP. Getting answers from an
overloaded ERP systems may take hours, whereas getting them from a separate
SCP system may take minutes or seconds.
The leading SCP products generally have many other enhancements as compared
to the ERP packages. Many employ visible maps of the entire supply chain,
showing where problems are. Here is a description of Manugistics latest version:
“Navigating your way through mountains of supply chain information is made
easier with Supply Chain Navigator’s state-of-the-art graphical user interface.
This intuitive GUI gives you complete visibility into the inner-workings of the
supply chain – through demand, supply, manufacturing scheduling, and
transportation – all at your fingertips.” Just recently, SAP has added similar
functionality. But that functionality is actually a SAP version of the SCP product
made by i2, which SAP is selling as a separate module. This is a relatively
21

simplistic explanation of the key differences between the ERP vendors’ SCP Intelligence Information
modules and the leading SCP only products, but it hits the main points. System
Now, since these products have many naturally overlapping features, how is data
kept consistent between them? i2 uses SAP’s ALE (Application Link Enabling) to
exchange data between R/3 and Rhythm (i2’s SCP product suite). Oracle and
the other ERP vendors also have APIs that i2 and other vendors can use as
common denominator middle-ware to interface to. However, this means that each
vendor has to change their middle ware interface software quite often, which is
often a trial and error process, doesn’t usually perform well, and often turns into
a nightmare. A newer, and possibly better solution to this problem is SIS
(Specialized Integration Software). This software is designed specifically to allow
ERP and other systems to share processes and data. This removes the core of
developing an interface to every other vendors software. The major company in
this area is Cross Worlds Software Inc., although more are appearing. This
software, which runs on Windows NT, claims to work by simply pointing and
clicking on a sending application (such as SAP) and a receiving application (such
as Manugistics) and then selecting the processes to link together. No
programming is required.
One other key development that should be noted is the rapid convergence that is
happening between ERP and SCP software. The ERP vendors have awaken,
and are rushing to add more sophisticated supply chain functionality to their ERP
products. And the SCP vendors are also expanding their functionality, further
encroaching on the area inhabited by the ERP vendors. Although it seems that all
the leading SCP vendors are partnered with the all the leading ERP vendors, this
is only a temporary relationship if SAP, Oracle, etc. have their way. Following
SAP’s example, Oracle has also added a SCP module, and Baan and People
Soft both have recently acquired smaller SCP vendors to integrate into future
releases of their ERP products. As the ERP vendors move heavily into the mid-
size market with their new supply-chain bolstered products, they should push a lot
of the smaller SCP and ERP vendors out of business. With the industry shakeout,
implementations should become somewhat simpler and thus shorter and less
expensive, since there will be less products to integrate, and more experienced
implementers in job market.
Activity 3
Select a case study from a National/International Journal, which discusses the
selection and implementation of either ERP or SCM. Discuss the suitability of the
selected case study in Indian context.
..............................................................................................................................
..............................................................................................................................
..............................................................................................................................
..............................................................................................................................
9.9 SUMMARY
How to best extract value from information technology resources is a major

challenge facing both business and IT managers, particularly as they turn their
focus on searching for competitive benefits of strategic information systems and
striving for benefits beyond process reengineering. This search becomes
increasingly complex for those organizations attempting to operate in supply
chains with multiple participants.
22

IT Enabled SCM In this unit, the recent development in the information system, particularly in
supply chain context, has been reviewed. The changing paradigm of
manufacturing from old rules to new rules of manufacturing required an
intelligence information system. The sets that include MRP, ERP and DRP are a
few business intelligence that automate the enterprise activities. This application
makes use of recent developments in information technology. However, the supply
chain planning (SCP) emerged as a new tool for an integrated business. The
benefits of this tool includes, reduction of lead-time, inventory cost reduction,
reduction in operating costs, cycle time reduction, and improved productivity. A
comparison of ERP and SCP reveals that there exists a great deal of similarity
between these two approaches. However, the key processes vary and hence the
differences are reflected in the software. Additional features are being handled in
the SCM. Supplier reliability, supplier lead time, process reliability, change
overtime, schedule attainment, perfect order completion, replenishment lead time,
delivery days on hand, total supply chain and total cycle time are the key
performance indicators that need to be continuously measured and monitored for
competitive advantage. SCM software product developers keep these indicators
for benchmarking their products.
9.10 SELF-ASSESSMENT QUESTIONS
1) “Making changes in a manufacturing company is probably the hardest thing

that civilized man has ever set out to achieve” – give your comment on this
statement in context with the organization switching to supply chain
management.
2) Distinguish between independent and dependent demand inventory system.

Why inventory control system is not practiced for dependent item material
planning?
3) Give major inputs of MRP. Identify the sources through which these inputs
are obtained. Give your answer for both Make to Stock (Make to Forecast)
and Make to Order situations.
4) Prepare a flow chart for Material Requirement Planning logic. Illustrate the
basic mechanics of the logic for a simple product like a ballpoint pen.
Assume all the necessary data for your selected product.
5) Each year Sputter Sports, Inc., receives orders for footballs from the
Paramutuel Foot ball League (PFL). Because of the destructive left foot of
Transylvanian superstar Vladimir ‘Toze’ Kickofski, the PFL orders a single
quantity of balls, so Sputter Sports wants to determine when the materials
necessary to produce the order should be obtained. Sputter Sports plans to
ship 300 footballs in week 8, 200 in week 10, and 200 in week 12. Sputter
has no other customer for footballs.
A football is composed of a leather cover, a rubber bladder, and a string to
lace the leather cover after the bladder has been inserted. Sputter purchases
bladders already molded with the inflation valve as an integral part of it. The
lead-time to obtain bladders is five weeks and they cannot be purchased in
orders of less than 250. Sputter purchases pigskin in sheets large enough to
make four footballs. Records of past purchases indicate that it takes two
weeks from the time of order until the skins are delivered. It takes one
week to cut and stitch 100 footballs with the current work force, and
Sputter does not plan to enlarge its facilities or work force for this order.
One hundred strings for the footballs are cut from on cowhide, which takes
only one week to purchase. It takes one week to assemble an order of
footballs up to 500 units. 23

Show (a) the master production schedule, (b) a product structure tree, and (c) Intelligence Information
plan Sputters’ material requirements for this product. System
6) What is MRP-II? How is it different from MRP?

7) Define ERP. Give its tangible and intangible benefits.
8) Why a company pursues a new ERP solution?
9) What are the three distinct phases of Distribution Requirement Planning?
10) Explain the DRP logic for a medium size soft-drink manufacturing company.
How is the safety stock decided in such distribution system?
11) Compare and contrast DRP and DRP-II.
12) Give the key processes considered in both ERP and SCM. How are these
processes different from one another?
13) What are the supply chain management pitfalls? How are these pitfalls being
eliminated?
14) Briefly explain the supply chain planning and a few software for SCP.
15) “The leading SCP products generally have many features as compared to
ERP software packages” – Give your elaborate remarks on this statement.

READINGS
2) Copacino, W.C., : Supply Chain Management: The basics and beyond,
St. Lucie Press, 1997.
3) Dave Garwood, : Bills of Material: Structured for Excellence, Dogwood
Publishing Company, Inc., 1997.
5) Jonathan Blain, et. al., : Using SAP R/3, Prentice-Hall of India Pvt. Ltd., 1998.
6) Lambert, D.M., Stock, J.R., and Ellram L.M., : ‘Fundamentals of Logistics
7) Lucas, H.C., Jr., : ‘Information Technology for Management’, The
McGraw-Hill Companies, Inc. 1997.
8) Martin, A.J., : ‘Distribution Resource Planning: The Gateway to true Quick
response and continual replenishment’, John Wiley and Sons, Inc., 1995.
10) Oden, H.W., Langen Walter, G.A., and Lucier, R.A., Hand Book of Material
and Capacity Requirement Planning, McGraw Hill, Inc., 1993.
Co., 1990.
24 Physical Distribution and Materials Management, Vol.19, No.8, 1989.

UNIT 10 IT PACKAGES IN SCM
Objectives
The objectives of this unit are to enable you:
• to know the importance of software packages in Business;
• to know the advantages and limitations of software packages of SCM;
• to know a few software packages such as BaaN, SAP, i2/RHYTHM; and
• to know a few success stories of software packages to the SCM.
Structure
10.1 Introduction
10.2 Role, Advantages and Limitations of Software Packages
10.3 Architecture of ‘SAP R/3 ERP’ Solution
10.4 Architecture of BaaN ERP Solution
10.4.1 BaaN IV
10.4.2 BaaN ERP
10.5 Selecting the Right ERP Package
10.6 i2 Technology
10.7 Contribution of the Software Packages to the SCM
10.8 Summary
10.9 Self –Assessment Questions
10.1 INTRODUCTION
Organizations have the opportunity to become more efficient and competitive.

Skilled and creative managers are required to accomplish these goals. Today’s
MBAs need the knowledge and confidence to deal with issues related to
technology. They must apply technology aggressively if they are to compete
successfully in our global economy. They must take advantage of the ability that
Manufacturing and Information Technology give them to change the way work is
done.
During the past five years computers and communications technologies have
proliferated in offices and homes. Organization distributes the responsibility for
technology to all levels of management and to different geographic locations. As
a result, managers from supervisor to CEO encounter information technology on
a daily basis. Managers have to take advantages of the technology; they must
make decisions about how to use the technology.
One of the most important parts of using the technology is the design of
information systems. Much of the distribution of technology to end-users results
from the rapid diffusion of personal computers or workstations. Users now would
like to access a number of different applications on different computers through a
LAN and probably the Internet as well.
Users may design systems for themselves alone, or they may be one of many
users of a system designed by others. The design of multi-user applications is
much more complex than the design of a personal computer system for an
individual user. Many more people are involved in the process, each with unique
1

and often conflicting needs and expectations. Package programs are software IT Packages in SCM
written by a vendor to be sold to multiple customers. Packages have been
available since the first days of computers, but there has been an explosion in
their sale and use. One of the reasons for this proliferation is that the technology
has matured. There are packages around today in their respective forth or fifth
(or more) version, each new version improving with earlier version. The other
reason why the packages are going in popularity is the standards set by personal
computer packages.
10.2 ROLE, ADVANTAGES AND LIMITATIONS OF

SOFTWARE PACKAGES
The context in which software has been developed is closely coupled to almost
five decades of computer system evolution. Better hardware performance, smaller
size, and lower cost have precipitated more sophisticated computer-based
systems. We have moved from vacuum tube processors to micro-electronic
devices that are capable of processing 200 million instructions per second.
Computer users as well as computer specialists often refer to software packages
when they discuss how a system will be used. Software is the general term
describing programs of instructions, languages, and routines or procedures that
make it possible for an individual to use the computer. In a general sense,
software is any prepared set of instructions that controls the operation of
computer system for computation and processing. The term is often applied only
to commercially prepared packages, as opposed to user-prepared instructions.
Commercially prepared programs are developed by manufacturers or companies
that specialize in software. Their primary purpose is to control all processing
activities and to make sure that the resources and power of the computer are
used in the most efficient manner.
Computer programs are sets of coded instructions that cause the computer to
perform a series of operations that accomplishes a specific purpose. The
programs are written in programming languages specially developed languages or
commands that make it possible to specify calculations and other processing in
terminology that can be converted to particular operations by the computer
system. Fourth-generation languages are in wide spread use to supplement
procedure oriented programming languages. Such language allows users to
develop sophisticated programs for retrieval of data with only a fraction of the
instructions needed when programs are written in procedure-oriented languages.
Because they are much easier to use them traditional programming languages,
fourth-generation languages are frequently utilized by non-programmers (such as
managers).
As we approach the year 2000 plus, we can no longer look to the past as a
guide to the future. In the face of strong market forces created by electronic
commerce and mounting competition, corporations can no longer plod along
historical tracks or seek the preservation of the status-quos. Companies are
discovering that old solutions do not work with new problems. The business
parameters have changed, and so have the risks and payoffs. A new computing
paradigm is quickly emerging. It is called network-centric computing, Intranets, or
distributed objects. The aim of it is to provide highly configurable, more fault-
tolerant, more scalable, and more easily used solutions for enterprises than
traditional client/server systems that have been able to deliver.
Despite its promise, supply-chain application software implementation is

accompanied by the confusion and misconception that is inherent in any software
and
2 business method.

IT Enabled SCM The questions range from:
• What software is best suited for supply chain management?
• How can the costs involved and return on investment of a sofrware be
estimated?
• What are the key design issues in developing information architecture?
• How can software and management issues be aligned to gain the maximum
value?
Of these, the most pressing question-facing companies is: what is the right
technology that protects investment in a changing environment? The answer
appears to lie in network-centric computing discussed in the following sections.
Activity 1
Get access to the following Web sites in the Internet and update your Knowledge
on IT software packages in Supply Chain Management:
• www.manufacturingsystems.com
• www.mrp3.com
• www.sap.com/solutions
• www.i2.com
• www.lean-e-business.com
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
.............................................................................................................................
10.3 ARCHITECTURE OF ‘SAP R/3 ERP’ SOLUTION
A SAP product is a suite of standard software made up of individual programs

that have been written to carry out computing tasks in the most efficient manner
possible. SAP R/2 is a system for mainframes. The SAP R/3 has open system
architecture and applies the client/server concept across multiple levels.
The SAP R/3 Basis (R/3 Standard System)
All R/3 installations include a set of components that form the core of the system
and are referred to as R/3 Basis. It provides the users with a set of tools to
build a suite of integrated programs that can be fitted exactly to the requirements
of the company and modified as the company develops. Every implementation
will need a SAP R/3 Basis module that provides the elements of the SAP R/3
runtime system. It includes the fundamental tools and functions of the R/3 Data
Dictionary, the SAP R/3 Reference Model. The ABAP/4 Development
Workbench and R/3 Customizing Component. When designing an implementation,
the R/3 Reference Model is used to select which module components will be
needed in the target system.
The SAP R/3 Applications
A SAP R/3 application is a set of programs that has been designed for a
specific types of business data processing. Each application addresses a main
sector of business activity, ranging from financial accounting to human resources.
Under each application are grouped the modules most likely to be associated with
the title of the application. However, the fully integrated design of all SAP 3

standard business programs allows great flexibility in the assembly of modules to IT Packages in SCM
form a specific implementation.
MM SD FI CO
Materials Sales and Financial Controlling
Management Distribution Accounting
PP AM
Production Fixed Assets
Planning Management
R/3 BASIS
CLIENT/SERVER
ABAP/4
QM PS
Quality Project
Management System
PM HR IS WF
Plant Human Industry Workflow
Maintenance Resources Solutions
Figure 10.1 : Major SAP Application
Each application is fully integrated with the R/3 Basis. This allows each
application to communicate with any other application. Some application modules
depend on other applications. For example, the Controlling (CO) module depends
on the Financial Accounting (FI) module. Some of the components of a module
may be optional. Some of the functions within a component may be optional. This
flexibility allows each R/3 installation to be built to fit exactly the unique
requirements of the Client Company.
MAJOR R/3 APPLICATIONS AND THEIR MODULES

1) Financial Accounting (FI)
• General Ledger (FI-GL) • Legal Consolidation (FI-LC)
• Accounts Receivable (FI-AR) • Special Purpose Ledger (FI-SL)
• Accounts Payable (FI-AP)
2) Controlling (CO)
• Overall Cost Control (CO-OM) • Sales & Profitability Analysis (CO-PA)
• Product Cost Controlling (CO-PC) • Project Control (CO-PRO)
• Activity-Based Costing (CO-ABC)
4

IT Enabled SCM 3) Fixed Asset Management (AM)
4) Project System (PS)
• Basic Data (PS-BD) • Approval (PS-APP)
• Operational Structure (PS-OS) • Project Execution/Integration (PS-EXE)
• Project Planning (PS-PLN • Information System (PS-IS)
5) Workflow
Workflow refers to the movement of work items through a series of operations

that add value to these items. It also refers to the flows of information that must
take place if this added value is to be optimized. A workflow management
system is intended to manage business processes automatically or semi-
automatically by controlling the sequence of activities. It should ensure that the
appropriate steps are carried out at the right moment by specific people or
groups, or by particular data processing programs and the machinery they control.
SAP Business Workflow is devoted to developing and managing the flows of
work and information that will make a business as effective and efficient as
possible.
6) Industry Solutions (IS)

An Industry Solution is an enhancement of the standard R/3 system that may
include some or all of the components of any R/3 applications, according to the
sector of industry for which it has been designed. Some of the industry solutions
offered by SAP are for the following sectors:
• Public Sector (IS-PS) • Hospital (IS-H) • Banks (IS-B)
• Oil (IS-OIL) • Telecom (IS-T) • Real Estate Management (IS-IS)
7) Human Resources (HR)
This application provide an integrated human resource management system

through the use of the components of the Personnel Planning and Development
(PD) module and Personnel Administration (PA) module.
Personnel Planning and Development (HR-PD) Personnel Administration (HR-PA)
• Organizational Management (PD-OM) • Employee Management (PA-EMP)
• Seminar and Convention Management (PD-SCM) • Benefits (PA-BEN)
• Personnel Development (PD-PD) • Compensation Administration (PA-COM)
• Workforce Planning (PD-WFP) • Applicant Manager (PA-APP)
Personnel Planning and Development (HR-PD) Personnel Administration (HR-PA)
• Room Reservation Planning (PD-RPL) • Time Management (PA-TIM)
• Incentive Wages (PA-INW)
• Travel Expenses (PA-TRV)
• Payroll (PA-PAY)
8) Plant Maintenance (PM)
• Equipment and Technical Objects • Maintenance Projects (PM-PRO)
(PM-PRM)
• Preventive Maintenance (PM-PRM) • Service Management (PM-SMA)
• Maintenance Order Management • Plant Maintenance Information
(PM-WOC) System (PM-IS)
9) Quality Management (QM)
• Planning Tools (QM-PT) • Quality Certificates (QM-CA)
• Inspection Processing (QM-QC) • Quality Notifications (QM-QN) 5

10) Production Planning (PP) IT Packages in SCM
• Basic Data (PP-BD) • Kanban/JIT Production (PP-KAB)

• Sales & Operations Planning • Repetitive Manufacturing
(PP-SOP) (PP-REM)
• Master Planning (PP-MP) • Assembly Orders (PP-ATO)
• Capacity Requirements Planning • Production Planning for Process
(PP-CRP) Industries (PP-PI)
• Material Requirements Planning • Plant Data Collection (PP-PDC)
(PP-MRP)
• Production Orders (PP-SFC) • Information System (PP-IS)
• Product Costing (PP-PC)
11) Materials Management (MM)
• Materials Requirements Planning • Invoice Verification (MM-IV)

(MM-MRP)
• Purchasing (MM-PUR) • Information System (MM-IS)
• Inventory Management (MM-IM) • Electronic Data Interchange
(MM-EDI)
• Warehouse Management (MM-WM)
12) Sales and Distribution (SD)
• Master Data (SD-MD) • Billing (SD-BIL)

• Basic Functions (SD-GF) • Sales Support (SD-CAS)
• Sales (SD-SLS) • Information System (SD-IS)
• Shipping (SD-SHP) • Electronic Data Interchange
(SD-EDI)
SAP Configuration and Customization by Applications Programmes

By itself the SAP program will not be very friendly to an individual user. It will
not know what sort of business is to be conducted or exactly how the User
Company wants to invoice and conduct other interactions with its customers. If
the SAP implementation is to look and behave as if it really understands the
company it is working for, it will have to be configured and customized. Naturally
the SAP software expects to be told how to behave in a specific company and
has standard routines, which help the company experts to set out what has to be
done in a format that SAP can accept. The experts who do this are referred to
as Applications Programmers or Applications Developers.
Development of SAP Product Range in Three Directions
1) A function within a SAP component may be elaborated so as to become a
complex module. For example, the requirements of enterprise controlling can
be met by the components of the Controlling (CO) module, but in addition,
the Enterprise Controlling (EC) product is available as a separate module and
includes functions not available in the Controlling (CO) module.
2) Extra integrating functions can be provided to interact with a group of SAP
application modules. For example, the Logistics General (LO) module is
designed to provide integrating functions for the following modules:
• Sales and Distribution (SD) • Production Planning (PP)
• Materials Management (MM) • Plant Maintenance (PM)
• Quality Management (QM)
3) Where there are many companies in a particular sector of business that
share a specialized requirement, a SAP partner may develop a specialized
enhancement of the R/3 system that can be marketed as an “Industry
Solution”.
6

IT Enabled SCM
10.4 ARCHITECTURE OF ‘BAAN’ ERP SOLUTION
Baan company’s ERP solutions are available as BaaN IV (the older version) and
BaanERP (the latest version). The architecture of both versions is described
here.
10.4.1 BaaN IV
The BaaN IV software can run on many platforms, for example, it can run on
various UNIX platforms supplied by HP, IBM, Sun, Digital, etc. It is also
available on Windows NT. The software can use database provided by the
software manufacturer, or, third-party databases such as Oracle or Ingress can
also be used. Figure 10.2 shows the menu browser displayed to the user having
access to all the packages of BaaN IV.
Menu Browser [User:]
• BAAN IV Common
• BAAN IV Finance
• BAAN IV Project
• BAAN IV Manufacturing
• BAAN IV Distribution
• BAAN IV Process
• BAAN IV Transportation
• BAAN IV Service
• BAAN IV Enterprise Performance Manager
• BAAN IV Enterprise Modeler
• BAAN IV Constraint Planning
• BAAN IV Tools
• BAAN IV Utilities
• Distributed Data Collection
Figure 10.2 BaaN IV Menu Browser
BaaN IV Common
The BaaN IV common package allows you to maintain the common master data.
This data is used by all the BaaN IV packages. All the files that are used in
more than one module are stored in this package. The BaaN IV common
contains the following tables:
1. Logistic Tables 4. Customer Master
2. Financial Tables 5. Supplier Master
3. Employee Master
BaaN IV Finance
The finance package allows users to extract financial transactions from the sales
and manufacturing areas and post them to the general ledger without having to
key any transaction. It also has a budget system, and an activity base module.
Following modules are included in the finance package: 7

1. General Ledger 6. Financial Statement IT Packages in SCM
2. Accounts Receivable 7. Financial Budget System

3. Accounts Payable 8. Cost Allocation
4. Cash Management 9. Electronic Data Interchange (EDI)
5. Fixed Assets
BaaN IV Project
BaaN IV project is designed to support the management of projects through all
stages, from estimating tenders to delivery and throughout the guarantee period. It
is especially suited to project-driven companies for the coordination of multiple
projects. The goal is cost-effective management of each project according to the
time schedule, within the specified budget and to the required quality.
Furthermore, allocation of personnel and equipment to projects is critical in cost-
effective operation, which will maximize company profits. The project package
provides all the tools necessary to control project accounting and planning. A
planning requirement process accurately tracks costs for the project-related
industries. This package is linked with all the software’s other functions to
provide the information necessary to successfully manage the project within the
enterprise environment. It includes following modules:
1. Project Estimating 6. Hours Accounting
2. Project Definition 7. Project Progress
3. Project Budget 8. Project Monitoring
4. Project Planning 9. Project Invoicing
5. Project Requirements
BaaN IV Manufacturing
The manufacturing package provides all the manufacturing planning functions

such as, MPS, MRP-I, and CRP. It can also provide control for all operations
related to product’s fabrication, labour management, and capacity required. The
following modules are included:
1. Engineering Data Management 9. Repetitive Manufacturing
2. Item Control 10. Shop Floor Control
3. Bill of Material Control 11. Hours Accounting
4. Routing 12. Project Budget
5. Cost Accounting 13. Product Configuration
6. Master Production Schedule (MPS) 14. Product Classification
7. Material Requirements Planning (MRP) 15. Project Control
8. Capacity Requirements Planning (CRP) 16. Quality Management System
BaaN IV Distribution
The Distribution package is designed to take care of day-to-day logistical
management in production and trade companies. The package is fully integrated
with all other packages of BaaN IV. This package contains all the programs to
create and manage the sales orders. It is a reliable source of information on
market trends and developments. It also includes all the inventory related
functions such as inventory control, location control, distribution requirements
planning (DRP I), and replenishment control.
8

IT Enabled SCM BaaN IV Distribution Package Contains the following Modules:
1. Item Control 8. Inventory Control
2. Cost Accounting 9. Lot Control
3. Purchase Control 10. Location Control
4. Sales Control 11. Distribution Requirements Planning
5. Sales and Marketing Information 12. Tables
6. Electronic Data Interchange (EDI) 13. Common Data
7. Replenishment Order Control 14. Distribution Parameters
Characteristics of BaaN IV Distribution

1. Simple and fast data input and control
2. Extensive purchase and sales statistics
3. Comprehensive forecasts and planning techniques
4. Interface with the graphical module enterprise performance manager
5. Interface with EDI
6. Use of multiple currencies
7. Use of multiple warehouses
8. Multi-company solution including supply chain management.
BaaN IV Process
The Process package is designed to help manage the entire supply chain of any
company operating in a process environment, such as the chemical industry. It
helps manufacturers of identical product in different containers. It also helps to
keep track of the various batches processed. It is able to account for the
potency, the acidity, and the grade of items. Following are the modules provided
in the process package:
1. Item Control 5. Capacity Requirements Planning
2. Formula Management 6. Production Management
3. Routing 7. Hours Accounting
4. Cost Accounting 8. Quality Management System
BaaN IV Transportation
The Transportation package helps in managing transportation orders and to

maximize equipment use. It can handle all types of transportation modes. It has
powerful modules for managing warehousing and packaging. It keeps track of
transportation costs and determines cost trends. It includes the following modules:
1. Employee Control 7. Transport Control
2. Address Control 8. Invoicing Control
3. Transport Fleet Management 9. Packing Control
4. Transport Fuel Control 10. Electronic Data Interchange
5. Hours and Expense Control 11. Warehouse Control
6. Central Data Entry 12. Distribution Requirements Planning9

BaaN IV Service IT Packages in SCM
The Service package can be used to manage all the repair and warranty
information for supporting installations in the field. With this package:
1) You can register at which customers and locations specific installations are
situated.
2) An installation bill of material that lists the components requiring servicing
including their serial numbers and service history can be linked to each
installation.
3) This data helps in analyzing the causes of malfunction in the fastest possible
way.
4) You can create maintenance contracts and record warranties together with
associated warranty terms for each customer.
5) Calls reporting malfunctions can be recorded even as you are on the phone.
6) Based on periodic maintenance obligations and calls a service plan is drawn
and service job sheets are printed.
7) Finally, the service activities can be invoiced and a detailed service history is
built up.
The modules included in this package are:
1. Service Tables 5. Service Analysis Control
2. Installation Control 6. Item Control
3. Contract Control 7. Cost Accounting
4. Service Order Control 8. Inventory Control
BaaN IV Enterprise Performance Manager
The enterprise performance manager (EIS) incorporates tools that are designed to
given various levels of management access to the data in the BaaN IV tables.
The data of the distribution, finance, and manufacturing modules are available in
this module and they can be displayed using various formats.
• The tool can be used interactively to get an overview of the overall business
performance by using Ishikawa fishbone diagrams.
• Via a flexible user interface the enterprise performance manager can drill
down to the basic figures. These figures can be fetched from the integrated
BaaN IV repository and can be linked to the persons responsible in the
organization. A set of predefined performance indicators is available and
new indicators can be defined very easily. The EIS module is fully
integrated with the manufacturing, finance, and distribution modules.
• The enterprise performance manager is especially meant for middle and top
management. It can be used as a business-benchmarking tool during BaaN
IV implementation and optimization cycles (business process reengineering)
and as a management and reporting tool at tactical and strategic level.
BaaN IV Enterprise Modeler (formerly known as Orgware)
Enterprise modeling is a process in which customers can map all the processes
used and then develop an accurate and complete implementation plan.
BaaN IV Constraint Planning
The constraint-planning package provides planning functionality that takes into
account capacity and materials constraints. This package currently provides MPS
functionality
10 with both finite and infinite planning methods.

IT Enabled SCM BaaN IV Tool
The Tools package consists of all the programs designed to maintain and
customize the application. The form manager, report writer, and sessions manager
are the options that allow the developers to tailor BaaN IV to user’s needs. It
also includes programs to manage the database, devices, and user profiles.
Following modules are included in the Tools package:
1. Software Installation 11. Business Objects
2. Application Configuration 12. Application Customization
3. User Management 13. Application Development
4. Device Management 14. Terms and Definitions
5. Job Management 15. Translation
6. Database Management 16. Documentation
7. Audit Management 17. Conversion
8. Text Management 18. Software Distribution
9. Menu Management 19. Desktop Management
10. SQL Queries
BaaN IV Utilities
The existing utilities allow users to easily import or export information between
BaaN IV and any other system. This package facilitates the implementation of
the software by helping in creation of master files imported from other software.
This package has tools to facilitate the communication between BaaN IV and
other databases, spreadsheets, etc. This module can also be used to convert data
of older versions of the application to new versions. The exchange module can
be very useful for multi-site applications as it facilitates the communication
between two sites. In short this package provides the needed bridge between all
other sources and BaaN IV and includes following modules:
1. Import Module 2. Export Module 3. Generate Exchange Scheme
Distributed Data Collection
This package allows the users to interface between BaaN IV and third party
data collection such as vendor’s data collection systems. This allows for the
collection of data through the use of devices such as laser scanners etc. with the
real time update of the interfacing BaaN IV module. The data collection vendor
must supply an interface to BaaN IV to create a functional solution.
10.4.2 BaaN ERP
Baan ERP, the successor to BaaN IV has the following enhancements, as

claimed by Baan Co., over the older version:
1) Order to Cash foundation for all Baan business solutions.
2) Open Component Architecture
3) Fully integrated allowing for consistency and visibility across the enterprise
4) Comprehensive international capabilities, supporting multiple languages, tax
structures and currencies including the Euro.
5) Modular components that allow for incremental implementation and migration.
11

BaaN ERP Includes the Following five Components: IT Packages in SCM
(a) Manufacturing (b) Finance (c) Project

(d) Distribution, and (e) Tools.
A. BaaN Manufacturing
BaaN ERP Manufacturing Module Includes:
1. Bills of Material 10. Project Budgeting
2. Cost Price Calculation 11. Project Control
3. Engineering Change Control 12. Repetitive Manufacturing
4. Engineering Data Management 13. Routings
5. Hours Accounting 14. Shop Floor Control
6. Product Classification 15. Tool Requirements, Planning
and Control
7. Product Configuration 16. Capacity Requirements Planning*
8. Production Control 17. Master Production Scheduling*
9. Production Planning 18. Material Requirements Planning*
* These modules come with extensive enterprise planning capabilities
Benefits
1) Open architecture design allows for a seamless and simplified integration with
popular CAD packages via “BaanEngineering” elements.
2) Graphical simulations help analyze a ‘what if’ impact on financial
requirements, capacity and inventory.
3) The system’s object orientated configurator supports different production
strategies.
4) Planning is integrated at every level and across multiple sites allowing smooth
and consistent operational activity.
5) Within a dynamic environment, enterprise planning simulates alternative plans
and reactive planning.
6) Planning and tracking capabilities are extended to improve production resource
management issues such as inventory.
7) The integrated quality management tool enables a wide range of statistics
(from raw material to finished goods) to be monitored resulting in continuous
improvement in manufacturing quality.
8) Multiple valuation methods help the company identify cost drivers and reduce
product costs.
B. BaaN Finance
BaaNERP Finance module is designed to meet dynamic financial management

and reporting requirements around the world. It includes:
1. Accounts Payable 6. Fixed Assets
2. Accounts Receivable 7. General Ledger
3. Financial Budgets System 8. Cost Accounting
4. Cash Management 9. Sales Invoicing
12
5. Financial Reporting System

IT Enabled SCM Benefits
1) This independent system allows for easy solution configuration to meet
changing business strategies.
2) Integration with Hyperion financial software provides advanced budgeting,
consolidation, reporting and analysis.
3) BaaN Accounts Payable streamlines vendor payments. It supports checks,
electronic banking and payment on consumption.
4) Accounting operations are simplified and duplicate data entry is eliminated
with parameter-driven posting and updating tools.
5) Superior visibility enables the company to immediately focus and act on
financial information to help increase margins, revenue and cash flows.
6) International business requirements are met with the use of multi-dimensional
ledger and dual sets of books.
7) Provides cost analysis and cost allocation functionality on both at detailed
and summarized levels.
8) Costs can be proactively tracked via budget links.
9) Multi-currency functionality allows the company to hold up to 3.home
currencies therefore complementing and complying with the Euro regulations.
10) Central point invoicing.
C. BaaN Project
The project module provides the control and visibility the company needs for
profitable operations from estimates and bids through site installation and
maintenance. In addition the system supports project invoicing for all the different
contractual agreements found in project environments. Baan Project Module
includes:
1. Project Budget 5. Project Monitoring
2. Project Definition 6. Project Planning
3. Project Estimation 7. Project Progress
4. Project Invoicing 8. Project Requirements Planning
Benefits
1) Real time control of all aspects of project management
2) Integration of project management and manufacturing resource enhancing
visibility and timely consolidated reporting.
3) The link with Baan Manufacturing allows all the relevant, cross functional
information about each project to be easily accessible for effective enterprise
resource management.
4) An integrated planning and scheduling system environment results in activity
networks to be defined, resources to be allocated, and ‘what if’ analysis to
be conducted.
5) Organizational, logistical and contractual structures can be modeled and the
resulting project activities report, which results in effective cross-functional
management.
D. BaaN Distribution
To help develop the best solution for meeting customer requirements and
balancing business constraints, this component manages the entire spectrum of 13

distribution, sales, and logistics for manufacturers and distributors. BaaNERP IT Packages in SCM
Distribution modules includes:
1. Sales Management 2. Purchase Management 3. Warehouse Management
Benefits
1) Extensive simulation capabilities optimize purchasing and internal inventory
decision making.
2) Top-down planning supports any distribution strategy.
3) With integrated workflow management and order templates, order processing
is speeded up.
4) Shipping constraints, order blocking algorithms and multi-level ATP component
checks are supported by the system.
5) Integration with the Aurum Front-Office suite enhances the capabilities of
Baan Sales solution.
6) Purchasing is simplified with online requisitioning.
7) Sophisticated supplier contract and release management enable your company
to take advantage of economies of scale.
8) EDI is key in enhancing the speeds of communication with trading partners
as well as providing a solid link between distribution operations and
manufacturing planning.
E. BaaN ERP Tools
All Baan applications are built using flexible BaaNERP Tools to handle business
needs that require software or configuration changes. BaaNERP Tools includes:
1. Open System Tools 2. Client/Server Tools
3. End User Tools 4. Developer Tools
5. Documentation Tools 6. Translation Tools
7. Software Distribution 8. Implementation Tools
Benefits
1) BaaNERP enables quick reaction to new trends in the marketplace that
require software or software configuration changes.
2) Helps in developing the Baan applications in such a way that they are kept
independent of third party products.
3) Helps create tailored applications to meet special requirements.
4) Facilitates integration of Baan applications with third-party products.
10.5 SELECTING THE RIGHT ERP PACKAGE

1. The selection and implementation of ERP is primarily an operations
management initiative and decision, not an IT or MIS project, hence it is
critical that the chief executive officer (CEO), the vice president of
manufacturing, and other key players be involved and support the chief
information officer (CIO) in the ERP selection and implementation process.
The selection team must have top-level representation from all major
functional areas including production, distribution, finance and accounting,
human resources, sales, marketing, customer service, and information
systems.
14

IT Enabled SCM 2. A project leader must be selected from among the team members.
3. The team must develop consensus on several critical issues that will shape
the entire project budget, time frames, goals, and deliverables.
4. A tentative schedule should be prepared for the selection process and
implementation.
5. The team should determine what critical business needs/problems the
company is trying to address and what benefits are to be gained from ERP,
some possible needs, problems, and benefits are:
• Reducing inventory investment • New product planning and introduction
• Increasing fulfillment rate • Customer service programs
• Lowering transportation costs • Company downsizing
• Simplifying the manufacturing process • Company expansions into new areas
or markets
• Gaining market share • Potential acquisitions
6) The team should then develop a document containing:
• Total number of customers • Company goals
• Company’s most significant •
A narrative on how the company
business process – areas conducts its business
that set it apart
7) By putting these business processes in the form of key (transaction)
scenarios, potential vendors can prepare scripted demonstrations. This
document helps in focusing the internal team’s efforts and also becomes a
valuable tool for potential ERP provides to understand the business and its
needs.
8) The project team must determine its differentiating points to ensure that a
vendor’s product plays to those strengths.
9) The team should also find out which ERP packages the competitors are
using or implementing.
10) After narrowing down the choices, the top two or three vendors should be
invited to demonstrate how their products could be tailored to the specific
work environment. The vendor should be asked to build and demonstrate
business processes and transaction scenarios based upon the company needs.
11) Once the scripted demos narrow down the alternatives, team members must
conduct site visits of the top ERP candidates’ solutions to see the vendors
working environments, gauge the vendors’ commitment to training and
customer services, and get a sense of their overall business philosophies.
12) Finally the project team must visit the sites of other companies that are using
the particular ERP product to see how the software system functions in
actual applications and assess vendor support, both during and after initial
implementation.
10.6 i2 TECHNOLOGY
i2 Technology is the recognized leader in supply chain planning and optimization

with more than ten years of experience in optimizing business process.
i2 emerged in 1988 as a supply chain management leader with innovative new

products that streamlined the entire supply chain management process. Through
consistant innovation and dedication to providing value, i2 has created the latest
15

business to business e-commerce applications that have changed the way IT Packages in SCM
companies are doing business. i2 is the established leader in SCM and intelligent
eBusiness. For the second consecutive year, i2 has been named one of Forbes
ASAP’s Dynamic 100 software companies. i2 is the only company in the
Leader’s Quadrant in Gartner Group’s “Supply Chain Planning Magic Quadrant.
i2’s forward-thinking solutions consider the real conditions of companies to

optimize every key business process-from product design to customer
relationships. With industry leading customers and partners; i2 recently launched
TradeMatrix, a collection of electronic market places dedicated to delivering
advanced Business to Business solutions. TradeMatrix offers a full breadth of
services that range from procurement, commerce, fulfillment, customer care,
retail, product development and planning. i2’s mission is to create $50 billion in
audited value and serving for its customers by the year 2005. The organization is
well on its way to meeting its goal of $50 billion in value, with an audited $7
billion of value already documented as of October 1999. With i2 solutions,
customers are able to attract and retain new clients, bringing the right products to
market quickly and efficiently, and streamlining their entire supply chain.
Rhythm Solutions
i2 RHYTHM solutions offer the intelligent answer for decision-making across the
enterprises. RHYTHM software optimizes and integrates Key business processes,
while delivering intelligent e-Business through collaboration with trading partners.
RHYTHM offers a complete solution for Business Process Optimization (BPO)
by offering the optimization, integration, and forward visibility required for high-
velocity business. The RHYTHM solution has delivered billions of dollars in
measurable value for major companies in a wide range of industries. Historically,
leading companies have achieved success by mastering one of the three core
business disciplines:
i) Product Leadership: Developing and launching innovative products at the
right time, while managing the product life cycle from concept to phase-out.
ii) Operational Excellence: Manufacturing and delivering the right products at
the right time, while collaborating with trading partners at maximum
efficiency.
iii) Customer Intimacy: Engaging the right customers, managing their
relationships and providing superior customer service.
In the past, a company could succeed by pursuing excellence in just one of these
areas. Most e-Business solutions today focus on making promises with little or no
consideration of integration across business process.
Rhythm Software Solutions
i2 consistently creates the standards that others adopt. Their thought leadership is
evident in the innovations they have established over last decade. RHYTHM’s
holistic end-to-end solution provides the ability to segment the market on a
product level, help buyers make sound decisions based on real-time availability of
information, as well as personalize the entire shopping experience. These aspects,
combined with i2’s proven supply chain planning and optimization solutions, can
transform any organization into a high-velocity eBusiness enterprise.
However, the terms of engagement have changed. Globalization, increasing

competition and the Internet have added incredible velocity and complexity to
today’s business landscape. Velocity, or the ability to make intelligent decisions at
high speed, is necessary in this real-time economy. What type of decision
intelligence will give your company the velocity to achieve excellence in all areas
16

IT Enabled SCM of your business. Representing a natural extension of i2’s recognized leadership
in optimizing business processes RHYTHM provides advanced planning and
optimization of the following key processes:
i) Product Life Cycle Management: Rhythm product life-cycle management

solution ensures product innovation for maximum market share and
profitability. Companies that use their product lifecycle management solution
will increase market share, increase profit margins and will reduce research
and development costs.
ii) Supply Chain Management: Rhythm’s supply planning optimizes the match
of supply to demand. Their SCM customers are able to reduce unnecessary
expenses, improve revenue and meet fulfillment commitments.
iii) Customer Management: Rhythm’s customer management enables
personalized, full-service eBusiness by managing all customer issues through
one solution. Customer management offers companies the opportunity to
maximize revenue, increase market share, reduce cost-of-sale and increase
customer satisfaction.
iv) Inter Process Planning: to integrate the above three processes, maximizing
resource utilization and profitability.
v) Strategic Planning: for accurate long-term decision-making and scenario-
based analysis of competitors.
Tradematrix Solutions
Success in connecting the participants in a supply chain has been the driving
force behind i2’s most exciting solutions. TradeMatrix participants are able to
harness the power of the Internet, create a competitive advantage and deliver on
their promises to the customer.
With innovative solutions and core competencies, i2 is uniquely qualified to deliver

the most robust eMarket places to the industry. TradeMatrix offers the following
solutions.
1) TradeMatrix Procurement Solutions
TradeMatrix Procurement services is a hosted procurement service that reduces
the cost of purchasing and procurement effort, while lowering inventory and
decreasing the time-to-market for new products.
2) TradeMatrix Commerce Solutions
TradeMatrix commerce service enables personalized service. eBusiness by
managing all customer issues through one solution. The commerce service allows
participants to maximize revenue, increase market share, reduce cost-of-sale and
ensure customer satisfaction.
3) TradeMatrix Fulfillment Solutions
TradeMatrix Fulfillment solution optimally responds to customer requests and
intelligently manages customer orders. Its fulfillment solution allows participants to
improve customer service and increase margins and profitability.
4) TradeMatrix Customer Care Solutions
The TradeMatrix Customer Care solution allows participants’ customer to assess
information quickly, resolve problems and receive support instantly.
17

5) TradeMatrix Retail Solutions IT Packages in SCM
The TradeMatrix retail solution gives companies an opportunity to capture more

demand, minimize product obsolescence and maximize storage effectiveness.
6) TradeMatrix Planning Solutions
TradeMatrix Planning solution is a service that enables companies to make better
decisions across the entire value chain, increase revenues, decrease costs and
improve ROA.
7) TradeMatrix Product Development Solutions
TradeMatrix Product Development solution allows companies to accelerate
product innovation for maximum market share and profitability. Companies gain
product margins, increase market share and show a reduction in R&D costs.
Activity 2
Fix an appointment with marketing personnel of either SAP, BaaN, or TCS
software companies. Discuss in detail about ERP, i2, and SCM software
products. This discussion may enlighten your knowledge on the price,
implementation strategies, training, features and limitations of the software
packages, and hardware requirements to run the applications for a company.
Now, prepare a report on how to select software for a company’s applications?
..............................................................................................................................
..............................................................................................................................
..............................................................................................................................
..............................................................................................................................
..............................................................................................................................
10.7 CONTRIBUTION OF THE SOFTWARE

PACKAGES TO THE SCM
On the front lines between manufacturers and their customers, competition for
market share has never been fiercer. In the past, strategies for improving corporate
profitability and competitiveness have shifted from marketing-focused (1960’s) to
finance-focused (1970’s) to operations-focused (1980’s) methods. But in each case,
as these methods were adopted and gained widespread acceptance, companies
gradually reached parity, and these methods generated diminishing returns.
Today, corporations are looking beyond their “internal enterprise” to the extended
“virtual enterprise” – the collection of trading partners who cooperate to provide
products to customers – as the new frontier for improving responsiveness to
customers and increasing market share. Pioneering efforts adopted in the early
1990’s in the apparel industry (Quick Response) and grocery industry (Efficient
Consumer Response) are now being applied in other industry segments, such as
industrial machinery, metals, paper, automotive, and consumer electronics.
Competitive initiatives are being formed between the members of extended supply
channels to protect their position against alternative competing channels.
In order to enhance the competitiveness of its customers, the software developing

companies intend to establish a leadership position as the premier provider of
supply chain management software. Among many, i2, BaaN, SAP, etc. are the
18

IT Enabled SCM few companies committed for the contribution of the software packages to the
SCM. For example, BaaN’s vision of supply chain management extends for
beyond traditional enterprise requirements planning (ERP) or advanced planning
and scheduling (APS) capabilities, and includes customer interaction, sales force
automation, demand management, vendor managed inventory (VMI),
transportation planning, and web enablement applications.
It may therefore, be expected that the supply chain solutions provides the ability
to optimize supply chain activities, monitor events based on actual execution,
proactively visualize potential problems, and determine corrective action using
advanced simulation and evaluation capabilities. The results of this analysis are
then propogated upstream and downstream throughout the supply chain to keep
material, production and transportation resources synchronized.
Activity 3
Visit any Manufacturing Organization, which proposes to go for ERP or

equivalent software package. Discuss with the systems Manager to find out what
preparations are required before implementation of software package. Prepare a
report of your discussion.
..............................................................................................................................
..............................................................................................................................
..............................................................................................................................
..............................................................................................................................
..............................................................................................................................
10.8 SUMMARY
For a company experiencing accelerated growth, increasing the efficiency and

visibility of the supply chain is the key to increasing productivity. Company
pressures are creating significant impact on today’s manufacturer. There are
concerns for providing the customer with quality service, competitive prices, and
timely product. More than ever, the company’s competition is driving to find
alternative ways to achieve these goals without sacrificing the quality of product.
The supply chain solutions discussed in this unit will completely integrate multi-
plant planning and scheduling, and provide the ability for both centralized and
collaborative planning and scheduling. This will enable supply-chain planning to
exceed beyond the boundaries of a single corporation, and will feature “total
scalability and configurability” which will address in a single solution the
requirements of large manufacturers as well as those of mid-tier and small
manufacturers. Technologies such as publish-and-subscribe over the Internet, as
well as message passing are utilized.
Finally, the anticipated benefits of IT packages in SCM include:

1. Enterprise Benefits:
• Better management of complexity across the entire supply chain.
• Improved visibility and decision support for long-term capacity planning
and capital investment.
19

2. Financial Benefits: IT Packages in SCM
• Reduced inventory costs.
• Reduced operating costs through better utilization of resources.
• Less waste, with better alignment of production with demand.
3. Shop floor Benefits:
• Improved inventory management and control
• More efficient production through optimized scheduling, enabling longer
runs and fewer changeovers.
10.9 SELF ASSESSMENT QUESTIONS
1) What are the deciding factors for a manufacturing organization to switch

from the current work practice to that of IT based?
2) What is the right technology that protects investment in a changing

environment? Give your answer specific to an Indian Manufacturing
Organization.
3) Identify suitable IT packages to suit small, medium, and large manufacturing

organizations. Give your choices with justifications – both technical and
economical.
4) What are the various modules of SAP R/3? Briefly discuss the content of
each module.
5) Explain briefly each module of BaaN IV.
6) Compare and contrast ERP software products of at least two established

brands.
7) Give important benefits of Manufacturing, Finance, and Distribution modules

of BaaN IV.
8) How is the Project module of SAP R/3 comparable to that of BaaN IV?
9) How is the right ERP Package selected for a medium sized manufacturing
organization?
10) Can ERP software package be applied in (i) Process Industry (ii) Service
Industry? Why and why not?
11) Discuss i2 Technology software products for manufacturing applications.

What salient features are found in i2 products?
12) Compare and contrast ERP software package of either SAP or BaaN with
i2 package.
13) BaaN and SAP have ventured to enhance their software products for supply
chain management environment. Is this a right approach? Why and why not?
14) What steps are to be followed while implementing IT software packages for
supply chain management? Do these steps vary from package to package?
How are they standardized?
15) In the IT based supply chain management, what criteria can be

recommended to measure the performance of manufacturing organization?
Explain the merits and demerits of your recommendations.
20

IT Enabled SCM
READINGS
2) Copacino, W.C.: Supply Chain Management: The basics and beyond, St.
Lucie Press, 1997.
3) Dave Garwood: Bills of Material: Structured for Excellence, Dogwood

Publishing Company, Inc., 1997.

5) Jonathan Blain, et. al., : Using SAP R/3, Prentice-Hall of India Pvt. Ltd.,
1998.
6) Lambert, D.M., Stock, J.R., and Ellram L.M.: ‘Fundamentals of Logistics

7) Lucas, H.C., Jr.: ‘Information Technology for Management’, The

McGraw-Hill Companies, Inc. 1997.
8) Martin, A.J.: ‘Distribution Resource Planning: The Gateway to true

Quick response and continual replenishment’, John Wiley and Sons, Inc.,
1995.

10) Oden, H.W., Langen Walter, G.A., and Lucier, R.A., Hand Book of Material
and Capacity Requirement Planning, McGraw Hill, Inc., 1993.


Co., 1990.

Physical Distribution and Materials Management, Vol.19, No.8, 1989.
21

Block-3 - MS 55 - IGNOU

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Block-3 - MS 55 - IGNOU

Uploaded by

Copyright:

Available Formats

UNIT 8 INFORMATION TECHNOLOGY: A KEY

After reading this unit you would be able to:

Information technology is revolutionizing the way, in which we live and work. It

Content Digitized by eGyanKosh, IGNOU

8.2 INFORMATION AND TECHNOLOGY IN THE

As discussed in the earlier Blocks, the supply chain management is concerned

Content Digitized by eGyanKosh, IGNOU

Today, information and technology must be conceived of broadly to encompass

8.3 IMPORTANCE OF INFORMATION IN

Content Digitized by eGyanKosh, IGNOU

8.4 INTER ORGANIZATIONAL INFORMATION

In supply chain management, the suppliers, producers, retailers, customers, and

Content Digitized by eGyanKosh, IGNOU

An IOIS is an integrated data-processing/data-communication system utilized by

Among the earliest forms of IOISs were those developed by time-sharing

Content Digitized by eGyanKosh, IGNOU

8.5 INFORMATION REQUIREMENTS

To properly determine information requirements across organizations, it is

1) Business Systems Planning (BSP) is a structured interview technique

Content Digitized by eGyanKosh, IGNOU

Table 8.1: BSP–Problems/Solutions/Information

Problems Solutions Information

Table 8.2 : BSP–Decisions/Information

• How to transport product X • Carrier and mode used by competition

Table 8.3 : CSF–CSF/Information

Critical Success Factors Information

• Integrated supply chain performance • Performance measures for integrated supply

3) Ends/Means (E/M) analysis focuses on what it takes for an organization to

Content Digitized by eGyanKosh, IGNOU

Ends Effectiveness Information

Table 8.5 : Ends/Means Analysis – Means/Efficiency/Information

Content Digitized by eGyanKosh, IGNOU

8.6 INFORMATION AND TECHNOLOGY

Many innovations on technology-based approaches are well suited to the

2) A new software program developed by Ross Systems, Inc., called Supply

3) A technology partnership between Procter & Gamble Distributing Co. and

4) Logistility Planning Solutions was recently introduced to provide a program

Several technologies have gained popularity recently, due to their ability to

Content Digitized by eGyanKosh, IGNOU

EDI improves productivity through faster information transmission as well as

In general, EDI is used for communication of business information such as

Content Digitized by eGyanKosh, IGNOU

Content Digitized by eGyanKosh, IGNOU

Content Digitized by eGyanKosh, IGNOU

World wide Web

The number of Web sites relevant to supply chain management is growing at a

1) www.con-waynow.com provides information about the expedited motor-

2) www.gebn.bus.msu.edu provides access to Global Procurement and Supply

Content Digitized by eGyanKosh, IGNOU

3) www.supply-chain.com developed by the Supply Chain Council provides a

Given the complexity of supply chains, development of DSS to assist decision-

Specific technologies that may be utilized for an effective supply chain

Content Digitized by eGyanKosh, IGNOU

The sharing of information among supply chain members is a fundamental

Supply Chain Management initiatives are unlikely to succeed without the

8.8 SELF-ASSESSMENT QUESTIONS

Content Digitized by eGyanKosh, IGNOU

8.9 REFERENCES AND SUGGESTED FURTHER

Content Digitized by eGyanKosh, IGNOU

7) Martinich J.S., : ‘Production and Operations Management: An Applied

Content Digitized by eGyanKosh, IGNOU

Decision-making is a key activity for management. Unfortunately, the early