IT in scm by gauravjindal


									Overview of Supply Chain Management

Supply chain management (SCM) refers to the management of activities that procure raw
materials, transform those materials into intermediate goods and final products, and deliver
the products through a distribution system to the end-user.

There are numerous key factors that play an important role in the successful management of
supply chains in today's dynamic environment. Among those are: paying utmost attention to
the needs and desires of the end customer, designing flexibility into the supply chain for rapid
response to changing conditions, utilizing the latest communication and logistics
technologies, employing a sound measurement system for making the right decisions, and
always communicating through the total supply chain.

Several key issues should be addressed in the design and management of supply chains. The
most critical among those are distribution network configurations, inventory control system,
product design, information technology, supply chain integration and strategic partnering.

Recent advances in SCM

As we move on in the 21st century, like all other functions supply chain management is in a
state of metamorphic flux. Several new technologies are creeping into SCM which are
reshaping this crucial business function. Some of these forces and technologies have been
described in brief.

1. Information Technology

The Internet as well as the intranet (connecting the workstations within an organization) and
extranet (electronic network among business partners, e.g., EDI) have revolutionized the
management of supply chains. The power and flexibility of these networks offer businesses
more control over the flow of products, services and funds than ever before. Dramatic results
have been obtained from using information to improve supply chain performance.

The Web has created a rare opportunity for organizations to access global markets. It allows
for mass customization, stronger business relationships, a greater degree of channel
coordination, and enhanced communications with customers and business partners.

      E-commerce
       Electronic commerce has revolutionized how business is conducted in today's world.
       It is now a reality in both business-to-customer and business-to-business transactions
       and is rapidly accelerating in both areas.
      Internet based procurement
       Business-to-business sales on the Web are starting to gain popularity. Companies
       around the world are getting serious about Internet-based procurement (IBP) because
       the return on a relatively modest investment is high and the risk is very low, at least
       for many items, companies buy routinely. There are two distinct parts of the IBP
            o Direct-Material Procurement, which involves the acquisition of products
               directly required for production. These include the components and materials
               from key upstream supply chain partners.
           o   Indirect-Material Procurement, which is the purchase of products that are
               indirectly used in the production process. They include office supplies;
               maintenance, repair and operating supplies (MRO).

2. Outsourcing Logistics to third party logistics providers

'Outsourcing' refers to the purchase of goods or services that were previously provided
internally. 'Logistics' is defined by the Council of Logistics Management as "that part of the
supply chain process that plans, implements, and controls the efficient, effective flow and
storage of goods, services, and related information from the point of origin to the point of
consumption in order to meet customers' requirements.

Traditionally, logistics activities were handled internally, particularly in medium to large size
corporations. In the United States, third party logistics services have gained momentum over
the past decade.

3. Business Process Reengineering

Business process reengineering (BPR) efforts call for 'radical' restructuring of processes to
eliminate waste, improve quality, increase service level and enhance customer satisfaction.
Most BPR efforts are confined to one company; however, BPR across multiple members of
the supply chain should become increasingly common. By thinking in terms of supply chains
instead of individual operations or functions, companies can improve their competitive
strategies. Advances in information and communication technologies have made it possible to
have real-time connectivity among supply chain partners.

4. Automatic Identification Techniques

Automatic identification, or auto ID for short, is the broad term given to a host of
technologies that are used to help machines identify objects. Auto identification is often
coupled with automatic data capture. That is, companies want to identify items, capture
information about them and somehow get the data into a computer without having employees
type it in. The aim of most auto-ID systems is to increase efficiency, reduce data entry errors,
and free up staff to perform more value-added functions, such as providing customer service.
There are a host of technologies that fall under the auto-ID umbrella. These include bar
codes, smart cards, voice recognition, some biometric technologies (retinal scans, for
instance), optical character recognition, and radio frequency identification (RFID).

Introduction to RFID

In general terms, Radio Frequency IDentification (RFID) is a means of identifying a person
or object using a radio frequency transmission, typically 125 kHz, 13.56 MHz or 800-
900MHz. There are several methods of identification, but the most common is to store a
serial number that identifies a person or object, and perhaps other information, on a
microchip that is attached to an antenna (the chip and the antenna together are called an RFID
transponder or an RFID tag). The antenna enables the chip to transmit the identification
information to a reader. The reader converts the radio waves reflected back from the RFID
tag into digital information that can then be passed on to computers that can make use of it.
                               Figure 1: A simple RFID system

Key components of RFID

   An RFID tag consists of a microchip attached to an antenna. RFID tags are developed
using a frequency according to the needs of the system including read range and the
environment in which the tag will be read. Tags are either active (integrating a battery) or
passive (having no battery). Passive tags derive the power to operate from the field generated
by the reader.

   An RFID reader, usually connected to a Personal Computer, serves the same purpose as
a barcode scanner. It can also be battery-powered to allow mobile transactions with RFID
tags. The RFID reader handles the communication between the Information System and the
RFID tag.

   An RFID antenna connected to the RFID reader can be of various sizes and structures,
depending on the communication distance required for a given system's performance. The
antenna activates the RFID tag and transfers data by emitting wireless pulses.

               Frequency Band                   Description               Range
                125 - 134 KHz                 Low Frequency            To 18 inches
            13.553 - 13.567 MHz *            High Frequency             3 - 10 Feet
               400 - 1000 MHz              Ultra-high Frequency        10 - 30 Feet
                  2.45 GHz                      Microwave                10+ Feet

    An RFID station, made up of an RFID reader and an antenna. It can read information
stored into the RFID tag and also update this RFID tag with new information. It generally
holds application software specifically designed for the required task. RFID stations may be
mounted in arrays around transfer points in industrial processes to automatically track assets
as they are moving through the process.
                       Figure 2: Key Components of RFID Architecture

RFID over the years

It was first developed by the British during World War II to determine whether an
approaching aircraft was a friend or foe. During the 1960s and 1970s, RFID technology
became widely used to help ensure the security of nuclear material. In the 1990s, the
automotive industry employed the technology in its remote keyless entry systems.

RFID in its present form has been in existence for more than 20 years and has been
extensively used in applications such as toll collection, access control, ticketing, and car
immobilization devices (also called immobilizers). In recent years, the technology has
received increased attention due to a confluence of actions including technology
advancement, heightened security concerns, supply chain automation, and a continuing
emphasis on cost control within industrial systems.

RFID Vs. Barcodes

There is often a comparison between the advantages of RFID and bar codes. RFID is not
necessarily "better" than bar codes. The two are different technologies and have different
applications, which sometimes overlap. The big difference between the two is bar codes are
line-of-sight technology. That is, a scanner has to "see" the bar code to read it, which means
people usually have to orient the bar code towards a scanner for it to be read. Radio
frequency identification, by contrast, doesn't require line of sight. RFID tags can be read as
long as they are within range of a reader.
     Figure 3: The components of a 96-bit electronic product code, each represented as

Bar codes have other shortcomings as well. If a label is ripped, soiled or falls off, there is no
way to scan the item. And standard bar codes identify only the manufacturer and product, not
the unique item. The bar code on one milk carton is the same as every other, making it
impossible to identify which one might pass its expiration date first.

Advantages of using RFID

RFID technology, combined with the recent AutoID initiatives led by the Massachusetts
Institute of Technology, is gaining momentum. These advances offer a standardized and
scalable approach that can be deployed across the extended enterprise to suppliers,
manufacturers, distributors and logistics partners to provide very reliable and cost-effective
visibility at the item, case or pallet level.

                                   Figure 4: RFID in context

Supply-chain visibility is a key contributor to increasing supply-chain performance, from
both a financial and a service-level perspective. Greater visibility, as well as more accurate
and timely information about supply-chain execution, allows for reduced safety stocks (thus
optimizing cash-to-cash cycles and reducing inventory carrying cost) and increased on-time
performance to customer commitments (thus driving additional revenue opportunities).
Operating cost improves, as RFID (Radio Frequency Identification) significantly reduces the
cost of cycle counting, receiving, picking and shipping. The technology also plays a critical
role in addressing shrinkage and grey-market control concerns.

Applications of RFID

      Asset management

       RFID tags can be permanently attached to capital equipment and fixed assets. Fixed
       position readers placed at strategic points within the facility can automatically track
       the movement and location of tagged assets with 100 percent accuracy. This
       information can be used to quickly locate expensive tools or equipment when workers
       need them, eliminating labor-wasting manual searches. Readers can be set to alert
       supervisors or sound alarms if there is an attempt to remove tagged items from an
       authorized area.

       By tracking pallets, totes and other containers with RFID, and building a record of
       what is stored in the container as items are loaded, users can have full visibility into
       inventory levels and locations. With visibility and control, manufacturers can easily
       locate items necessary to fill orders and fulfill rush orders without incurring undue
       managerial or labor time.

      Production Tracking

       Manufacturers can reduce their working capital needs by taking advantage of RFID to
       provide greater visibility into work-in-process tracking and materials inventory. By
       applying RFID tags to subassemblies in the production process, rather than to finished
       goods, manufacturers can gain accurate, real-time visibility into work-in-process in
       environments where bar codes are unusable. Industrial control and material handling
       systems can integrate with RFID readers to identify materials moving down a
       production line and automatically route the items to the appropriate assembly or
       testing station.

      Inventory Control

       The main benefits to using RFID in the supply chain come from improved inventory
       tracking. Manufacturers, distributors, logistics providers and retailers can all use
       RFID for inventory applications, and in carefully planned systems, may share the
       same tags to reduce implementation costs. By using the highly accurate, real-time and
       unattended monitoring capability of RFID to track raw materials, work-in-process and
       finished goods inventory manufacturers can improve visibility and confidence into
       their inventory to enable overall inventory levels, labor costs and safety stocks to be
       reduced. To secure inventory from theft and diversion, readers could be set to sound
       alarms or send notification if items are placed in unauthorized areas of the facility or
       removed from storage without prior approval.

      Pricing and Promotion
    Demand and Revenue Management solutions track point-of-sale, on-shelf, and
    inbound inventory information to support real-time, store-level pricing and promotion
    optimization. These solutions provide vendors running programs in stores with the
    ability to optimally price and promote their products according to inventory position
    and sell-through rates. Through RFID, manufacturers and retailers have real-time
    visibility to what items are selling versus those that are not. Also, product-specific
    attributes can be monitored in real time, including: -

       o   Product spoilage
       o   Product expiration
       o   Product obsolescence

    By receiving real-time updates to what products are selling, price lists can be
    monitored and updated. Additionally, you can develop and run markdown and
    promotional strategies based on market information telling you exactly what is
    happening at the point of sale.

   Shipping & Receiving

    The same tags used to identify work-in-process or finished goods inventory could also
    trigger automated shipment-tracking applications. Items, cases or pallets with RFID
    tags could be read as they are assembled into a complete customer order or shipment.
    The individual readings could be used to automatically produce a shipment manifest,
    which could be printed in a document, recorded automatically in the shipping system,
    encoded in an RFID tag, printed in a 2D bar code on the shipping label, or any
    combination. Having complete shipment data available in an RFID tag that can be
    read instantly without manual intervention is very valuable for cross-dock and high-
    volume distribution environments. Incoming shipments can be automatically queried
    for specific containers. If a sought-after item was present, it could be quickly located
    and selected.

   Regulatory Compliance

    Companies that transport or process hazardous materials, food, pharmaceuticals and
    other regulated materials could record the time they received and transferred the
    material on an RFID tag that travels with the material. Updating the tag with real-time
    handling data creates a chain of- custody record that could be used to satisfy
    regulatory reporting requirements.

   Returns & Recall Management

    Companies could supplement the basic shipment identification information by writing
    the specific customer and time of shipment to the tag immediately prior to
    distribution. Producing and recording this information would provide several benefits.
    In the event of a recall, companies could trace specific shipments to specific
    customers, which would enable a highly targeted notification and return operation and
    avoid a costly general recall. For general returns, companies could verify that the
    customer returning merchandise is actually the customer who received it, which
    would deter diversion, counterfeiting and other forms of return fraud.
      Service and Warranty Authorizations

       Authenticating the product and customer with proprietary information could also be
       used to authorize warranty and service work. Upon completion of repairs or service, a
       record of the activity performed could be encoded on the tag to provide a complete
       maintenance history that travels with the item. If future repairs or service are required,
       a technician could access the item's complete maintenance and configuration
       information without accessing a database simply by reading the tag. This application
       ensures workers have necessary information if no database access is available, and
       eliminates the need and expense of making phone calls or wireless data inquiries to
       access records.

      Transportation

       As with order management, RFID updates can drive substantial visibility and optimal
       adaptability to your transportation plan. Proactively detecting when an order is over,
       short, damaged, or incorrect enables you to take control of your transportation plan,
       which directly affects your financial and service level goals.

Concerns Surrounding RFID

      Privacy concerns

       Arguably the biggest concern about the RFID technology is the worry that it will
       infringe on the privacy of buyers. The RFID tags would be able to scan buyer
       behavior at the point of purchase and even after that. Many people consider it a breach
       of privacy. This is leading to a major public outcry against the use of RFID

      High investment

       The initial investment by companies for adopting RFID is fairly large. So many
       organizations are shirking away from the idea of investing in RFID technology. There
       are others who are conducting an in depth cost benefit analysis before taking the

      Limited range

       So far the RFID technology has a limited range in terms of frequency. Therefore
       many are skeptical about the efficacy of the technology and are questioning the claims
       made by the developers.

      Health concerns

       Since RFID technology operates on the principle of radio frequency wave emission,
       health concerns are propping up. A long tem exposure to radio waves causes many
       diseases like cancer, ulcers and skin deformities.

RFID technology and the underlying standards are readily available and mature enough to
support production-level pilots. RFID will have a substantial and positive impact on supply-
chain performance. RFID will improve operating margins, speed the flow of inventory and
improve supply-chain service levels. RFID-enabled supply chains will outperform their
competitors with regard to operating cost and excellence of execution.

To top