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The Roles of Information Technology in Scm - Essay Example

Based on empirical data from 16 Finnish industrial and service companies this paper presents a classification f the ways in which companies use IT in SCM, and examines the drivers for these different utilization types. According to the findings of this research, the use of IT for SCM purposes can be divided into 1) transaction processing, 2) supply chain planning and collaboration, and 3) order tracking and delivery coordination. The findings further suggest that the drivers between these three uses of IT In SCM differ.

Key Words: Supply chain management, Information technology, Inter-organizational systems, Supply chain collaboration, Information sharing, Case study. Introduction Today companies are often not considered independent entities, but parts of multi- company, multi-echelon networks, I. E. Supply chains, delivering goods and services to the final customer (Christopher, 1992; Lambert and Cooper, 2000). Supply chain management (SCM) literature proposes that Integrated control of these multi- company networks can provide significant benefits (e. . Cooper et al. , 1997; Burgess, 1998; De Lieu et al. , 1999; Moonstones and Twill, 1999: Nortek and Pollen, 2001). The utilization of information technology (IT), in turn, is considered an imperative acquirement for managing these networks, and has been associated with significant supply chain efficiency improvements (e. G. Lee and Billionth, 1992; White and Pearson, 2001). Although the importance of IT for efficient SCM Is widely purposes of SCM is narrow.

More specifically, majority of the prior research has focused either on modeling the benefits of interdenominational information technologies and information sharing, or on assessing the impact of specific technologies on supply chain efficiency. Consequently, the actual uses of IT in supply chain management as well as the reasons for using IT in a specific way still remain unclear. Due to these identified limitations in the previous literature we address the following research problem: “How and for what purposes do companies use information technology in supply chain management? The paper is structured as follows. First, the previous literature discussing the use of IT in SCM is reviewed. Second, the research design is presented, followed by the presentation of the findings of the study. Finally, in the last two sections, the main findings are summarized and discussed and the concluding remarks are drawn. 2. Literature review Our literature review on SCM as well as on the IT solutions developed for SCM wowed that the definitions for these two concepts are ambiguous.

Therefore, we will first give our definitions for these terms and then proceed to discussing the relevant previous research. 2. 1 . Definitions In this article, SCM refers to the practices and processes aiming for effective and efficient flow of materials and information between a company and its immediate suppliers and customers. This definition has a twofold Justification. First, recent empirical studies have shown that management and integration of supply chains only rarely extends beyond the first tier suppliers and customers (e. G.

Frolic and Westbrook, 2001). Second, this definition corresponds to the perception our case companies have on SCM. As for IT systems, when discussing the use of IT in SCM, we refer to the use of interdenominational systems that are used for information sharing and/or processing across organizational boundaries. Thus, besides internal IT systems such as Enterprise Resource Planning systems, we also exclude identification technologies such as RIFF from the scope of this study. 2 2. 2. Prior research An abundance of literature deals with the use of IT in SCM.

Sexagenarians and Angina (2004), for example, have included over a hundred Journal articles in their recent iterate survey addressing the use of information systems in supply chain integration and management. In this literature review, the aim is to discuss the main empirical studies, and classification frameworks – in relation to the topic of this paper. 2. 2. 1 . Analytical and modeling research This stream of research aims to measure the impacts of information sharing between supply chain partners.

This research addresses the operations of small-scale supply chains. For example, Governing et al. (1999), Lee et al. (2000) and Regulation (2001) have studied decathlon supply chains with one product, while the model of Evans et al. 1993) consists of four echelons. These studies have found that typically the sharing of demand information in supply chains increases the performance of the supply chain by increasing availability and reducing inventory related costs (Evans et al. , 1993; Governing et al. , 1999; Cocoon and Fisher, 2000; Lee et al. 2000). The benefits of information sharing have been proposed to depend on the predictability of demand. For example, Cocoon and Fisher (2000) anticipate that information sharing can have a significantly greater value in situations with unknown demand, for example, early sales of new products or promotion situations. Also Regulation (2001) has proposed information sharing to be less beneficial in situations where demand is predictable, and where past demand can be used to form a reasonably accurate demand forecasts.

Moreover, Cocoon and Fisher (2000) have proposed that the benefits of IT use are more due to the positive effects of IT on transaction processing efficiency potentially leading to shorter lead times and smaller batch sizes than to sharing of inventory and demand information. Evans et al. (1993), in turn, maintain that the feeding of actual demand information forward in the supply chain provides rater benefits than lead time reductions. To conclude, while focusing on the effects of the information sharing between supply chain partners, the analytical and modeling stream of research does not discuss the actual means of information sharing.

Thus, these studies do not directly discuss the use of IT for information sharing between supply chain partners. Nonetheless, these studies are relevant for our study as the sharing of planning information clearly is one the purposes for which IT can be utilized in SCM. 2. 2. 2. Empirical studies Two streams of empirical studies on the use of IT in SCM can be identified. The first stream focuses on a specific technology or application area, and the second stream studies the application and benefits of IT in general.

In the research focusing on specific technologies or application areas, there exists a distinct body of research on the adoption factors and impact of Electronic Data Interchange (DEED’) (see e. G. Alcohol et al. , 1995; Mahogany’s et al. , 1995; Edutainment, 1998). Here, for example cost reduction objectives (Mahogany’s et al. , 1995) and volume of transactions between supply chain partners (Edutainment, 1998) have been associated with the adoption of EDI links. Further, for example, the use of Extended Markup Language (XML) for supply chain integration has been studied (Neuralgia’s et al. 2002). As for research focusing on specific application areas, for example, the tracking systems and their importance for the 3 efficient coordination of logistics flows have been widely studied (Harris, 1999; Stonemason and Atlantis, 2001; Ala-Risks et al. , 2003; Kiering et al. , 2003). According to this body of literature, tracking is needed especially in situations with however, are not empirically founded and thus, do not reveal how tracking systems ND tracking information is actually utilized by companies.

As compared to the research focusing on specific technologies or application areas, research on the use and benefits of IT in SCM without the focus on specific technology is fewer in number. The research on the benefits of the use of IT in SCM includes a number of surveys investigating the impact of IT on supply chain integration, customer integration and service (Closes and Cavities, 2003), supply chain time performance Armory et al. , 2000), financial performance, or a combination of these (Vickers et al. , 2003). Meanwhile, Roam et al. 005) performed an exploratory multiple case study on the benefits of IT in SCM, and McAllen et al. (2004) conducted a multiple case study on how different SCM IS capabilities support different operations environments. However, common to these studies is that while helping to assess and understand the value of IT use and integration for SCM, they do not help in determining how companies actually use IT in SCM. 2. 2. 3. Conceptual classifications There are some few classification frameworks that describe how IT is used for SCM in the previous literature.

Beaching and Skeet-Larsen (2002) examine the role of IT and organizational integration in supply chain integration and propose an IT integration path from low, through medium, to high integration. Tonsillectomies et al. (2004), in turn, use the scale of low, medium, to high to describe the inattentiveness of different IT alternatives. The focus of these studies being on assessing the levels of supply chain integration, they do not describe how IT is actually used for SCM purposes.

Meanwhile, in their research, Kerugma et al. (2004) have focused on the ways companies use IT in SCM and choose to classify the use of IT in SCM to transaction execution and information sharing. Based on the rarity of using IT for information sharing among their sample of companies studied, they hypothesize that the drivers and prerequisites of using IT in transaction execution and in information sharing differ, and that the benefits of IT in transaction execution are easier to quantify.

Furthermore, they suppose that companies use IT for transaction execution in situations with high transaction volumes and stable business relationships, while IT is used for information sharing especially in environments with demand uncertainty and frequent product introductions. The most severe limitation of this study is that the drivers of using IT for transaction execution and information sharing are hypothesized, and can not be validated by their research data. To conclude, based on our literature review, there is a lack of research on how companies actually utilize IT in the management of their supply chains.

Furthermore, there is a limited knowledge on the factors that drive the companies to use IT in a specific way in their SCM efforts. These identified shortcomings of prior research create a need for research that this study aims to address. 4 3. 3. 1. A priori constructs For the purposes of examining the use of IT in SCM, two a priori constructs were developed: 1) the types of IT use in SCM, and 2) the drivers for using IT in SCM. The a priori constructs are described in more detail below (Figure 3. 1).

TYPES OF IT USE IN SCM DRIVERS FOR USING IT IN SCM Reduction of costs Transaction processing Volume of transactions Speeding up information transfer Elimination of human errors Supply chain planning and collaboration Unpredictable and logistically demanding environment Project-orientation of the business In-transit delivery consolidation Order tracking and delivery coordination Figure 3. 1 The a priori constructs and their presumed relationships 3. 1. 1 . Types of IT use in SCM The first construct, types of IT use in SCM, refers to the ways in which companies employ IT for the purposes of SCM.

Based on prior research discussed above, three different types of IT use in SCM – transaction processing, supply chain planning and collaboration, and order tracking and delivery coordination – were identified and chosen to represent the first construct. The first type of IT use, transaction processing stands for the use of IT for increasing the efficiency of appetitive information exchanges between supply chain partners. In this type of IT use the exchanged information is typically related to such tasks as order processing, billing, delivery verification, generating and sending dispatch advices, and producing order quotes.

The second type of IT use, supply chain planning and collaboration, represents the use of IT for sharing planning-related information such as demand forecasts and other demand information, inventory information, and production capacity information, with the intention of increasing the effectiveness of the supply chain. Finally, the third type of IT use in SCM, order tracking and delivery coordination, refers to the monitoring of individual orders or shipments, which may consist of components or final products, with the aim of coordinating their delivery or conveying timely information of their location. Refers here to the reasons why IT is used in a certain manner in SCM. Based on our literature review, we expected that following drivers for the use IT in transaction processing can be found in the case companies: reduction of the costs of operational processes (manual work), improvement of information quality by eliminating human errors, and speeding up the transfer of information between organizations. We further hypothesized that the volume of transactions acts as a driver for using IT for transaction processing.

It was also assumed that supply chain coordination information is shared especially in volatile, unpredictable, and logistically demanding business environments. Finally, we expected that tracking and coordination activities are performed in project oriented businesses and in cases with in-transit delivery consolidation. The presumed relationships between these drivers and the a priori constructs are presented in Figure 3. 1 . 3. 2. Data collection A multiple case study approach was chosen for the purposes of this study.

We collected data from 16 Finnish industrial and service companies in autumn 2004. The companies were selected using the approach of purposive sampling (Lincoln and Cuba, 1985). Our objective was to include companies employing a variety of inter- organizational IT integration mechanisms and representing different business environments in the sample. The characteristics of companies in the research sample are exhibited in Appendix A. Both qualitative and quantitative data were gathered using personal interviews as well as questionnaire.

The questions for the interviews and the questionnaire were designed concurrently so that together they cover both the IT solutions employed by the companies in their SCM practices and the essential characteristics of the companies and their business environments. The questionnaire and interview questions were sent to the companies prior to the interviews. This made it possible for the company representatives to prepare themselves for the interviews by acquiring answers to the questions, and by inviting additional representatives possessing the relevant information to the interviews.

The questionnaire contained closed end questions including multiple choice, rank order, and Liker -scale questions. The interviews were semi-structured in nature, lasting 2 hours in average. The typical composition of participants in the interviews included two to three interviewers and one to three company representatives. As a result, a total of 33 company representatives participated to the 16 interviews conducted. The interviews were recorded in case of memory lapses, and to support the correctness of interpretation.

For each interview, a memo was written based on the recordings ND sent to the interviewees to be checked for possible inconsistencies or errors. The data gathered through the interviews and questionnaire was further supplemented by information acquired from secondary information sources, such as annual reports and company web-pages. All the data collected concerning the case companies was compiled into a case study database which then was used as the basis for the analysis.

Furthermore, additional information needs that rose up during the analysis phase were filled by reconnecting the informants by telephone. In order to increase he validity of the research, investigator, source, and method triangulation were used (Lincoln and Cuba, 1985). Multiple researchers participated in the interviews and respondents were typically present in the interviews in each company (source triangulation). Finally, the data 6 collected via the semi-structured interviews were complemented with the use of questionnaires to gather structured quantitative data (method triangulation).

The data regarding the a priori constructs was gathered as follows. As for the types of IT use in the case companies, the respondents where asked to describe each of their IT yester used for SCM purposes as well as discuss the activities performed with them. This data was gathered through the interviews, and it covers issues such as the type of technology used, and the types of data shared via the system. The data describing the drivers for the different types of IT use was also gathered in the interviews.

The drivers are largely determined based on the answers to the questions inquiring the reasons for the implementation of each system and the characteristics of the partners whom the system is used with. In addition, the volatility of the Meany’s business environment was inquired by asking the respondents to describe the level of demand uncertainty, and the characteristics of their product offering such as the length of product lifestyles and the frequency of new product introductions.

Finally, to describe the business environment of the case companies, data on order penetration points, roles in the supply chain, the number and concentration of supply chain partners (suppliers and customers), the amount of product customization, number of products, and the level of internal IT integration was gathered both via the interviews and the pre-interview questionnaire. . 3. Data analysis The data was analyzed in two successive phases.

First within case analyses were performed to assess how and with what kind of partners each of the case companies utilizes IT in its SCM processes, and to understand why they use the technology in that specific way. Hence, for each company, the types of IT use as well as the drivers for the identified ways of IT use were identified based on the interview and survey data. After analyzing each of the cases separately, the cases were compared with each other in order to identify potential patterns within and between companies utilizing IT in a specific manner.

In this cross-case analysis the companies using IT in a specific way with up- or downstream partners (for example companies utilizing IT for transaction processing with their customers) were first compared with each other to identify commonalities between them regarding the drivers for using IT and the business environment. After this, these cases were compared with the companies not using IT in that specific manner to chart the potential differences in the business environments between the users and non-users.

This kind of grouping and cross- ease analysis were performed for the different uses of IT that are transaction processing with customers / suppliers, supply chain planning and collaboration with customers / suppliers, and order tracking and delivery coordination with customers / and suppliers. 4. In the within-case analyses, the relationship between the two constructs, the types of IT use in SCM and the drivers for the use of IT in SCM, was examined (see Appendix B for a summary of the results). After looking at each of the cases separately, the cases were compared with each other in order to identify potential patterns between them.

This cross-case analysis revealed commonalities between the companies utilizing IT in a specific way regarding the drivers of IT use. As for the business environment characteristics, the number and 7 concentration of supply chain partners as well as the role of the company in the supply chain seemed, in some occasions, to segregate companies utilizing IT in a specific way from the non-users. However, order penetration point, the level of did not, to our surprise, distinctly differ between the users and the non-users in any type of IT use.

Next, the findings of the cross-case analysis are presented in more detail. . 1 . Transaction processing Most of the case companies, 10 out of 16 (A, C, D, G, H, l, J, K, L, N), used IT to process transactions with their suppliers. Eight of the case companies (B, C, E, F, l, K, M, P), in turn, used IT to transaction processing with their customers. Consequently, only three of the companies (C, l, K) used IT for transaction processing towards both up- and downstream of the supply chain. DEED’, XML, or Extranet solutions were typically used for the processing of orders and invoices in the companies.

In some cases, IT was also used to process delivery verifications and dispatch advices. As expected, reduction of manual work and costs, improvement of information quality, speeding up of information transfer, and volume of transactions were found to drive the use of IT for transaction processing. Furthermore, the reasons for using IT for transaction processing were rather homogeneous between the companies. The companies aimed to reduce manual work associated with sales transactions to reduce the related costs, and to increase the reliability and speed of information transfer between companies.

In most cases, the partners for the IT applications were selected based on the volume of transactions. However, several of the companies stressed that especially with lean IT solutions, such as Extranets, a high volume of transactions is not needed for receiving a positive payback of the integration effort. Instead, the continuous nature of the business relationship was considered important in these cases. Interestingly, when comparing the drivers for transaction processing towards customers to those towards suppliers, no significant differences were found.

Some conclusions can be made regarding the business environment of the companies that utilize IT for transaction processing with their customers. Based on our sample, these companies re located in the upstream part of the supply chain (I. E. They are either equipment or component manufacturers). Further, compared to the non-users, these companies have fewer customers and more concentrated customer base, which is well in line with the identified drivers of transaction volume and business continuity.

The only the suppliers and the non-user companies is that all companies in the latter category have a high or at least moderate number of suppliers. This relationship between the number of suppliers and the use of IT for transaction processing is in line with the identified drivers. 4. 2. Supply chain planning and collaboration The use of IT for supply chain planning and collaboration was more limited in our sample than the use of IT for transaction processing.

This result supports the earlier findings on the sharing of planning information (Companies and Epsilon, 2003; Kerugma et al. , 2004). Less than half of the companies (A, C, D, l, J, K) used IT for supply chain planning and collaboration with their suppliers, and three of these companies (A, C, l) applied IT for this purpose also with their customers. Furthermore, unlike assumed, unpredictable and logistically demanding environment did not tan out as a driver for this type of IT use among the case companies.

Instead, an important commonality among most of the companies using IT for supply chain planning and collaboration was that they used the information shared 8 through the IT system for running a specific cross-organizational process. For example, the sharing of inventory level information was invariably associated with VIM replenishment. In fact, VIM (or in Case D a pro-active replenishment) has been implemented in seven of the nine instances where IT is used for supply chain planning and collaboration.

Furthermore, in Cases I and K demand forecast information was shared to suppliers so that they could verify their capability to meet the forecasted demand, and then the differences in the expected demand and potential supply were managed. Actually the only instances where information is shared without a strong link to a specific cross-organizational process are the following: Case company I receives demand forecasts, Case company A distributes demand forecasts also to the suppliers not involved in the VIM replenishment scheme, and Case company J shares information on capacity utilization to the suppliers.

This apparent reluctance in information sharing via IT simply for the repose of improving the planning processes of supply chain partners is rather surprising. As for the characteristics of business environments, all the companies using IT for planning and collaboration with their customers have concentrated or highly concentrated customer base, which is well in line with the nature of IT use – building customer-specific processes with the aid of IT solutions and supply chain visibility.

Other clear correlations between the use of IT in supply chain planning and collaboration and the characteristics of business environment of the companies were not identified. 4. 3. Order tracking and delivery coordination Five companies (H, I, K, M, P) in our sample utilize IT systems in order tracking and coordinating the progress of orders or deliveries or in providing this information. Of these, in Case I order-specific status reports were updated manually into an Extranet page if customers specifically requested it.

In Case M, the company provided delivery status information to its customers as a high end logistics service provider. In Cases H, K, and P, delivery status information is actively collected, disseminated and project orders, enabling the customers to synchronize the project activities with the availability of the material. The Case company P, in turn utilizes the delivery status information of the main telecoms components to ensure material availability before scheduling installation tasks.

The tracking information is most comprehensively utilized in Case H, where the company uses delivery status information to control in- transit consolidation of the components of the end product. The delivery status information is also used to ensure that the final customer shipment includes all the necessary sub-deliveries. As to business environment characteristics, the use of IT for order tracking and delivery coordination seemed to be associated with a customized nature of the offered products.