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Improving Global Supply Chains by Information Systems

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Investigation on the improvement of Global Supply Chains by using Information Systems.


The process of globalisation continues to increase the competitive pressures on all firms. Those who wish to lead the market have to continue to raise the bar in terms of operating in the most efficient possible manner. One key area for companies today is how they manage particular or own SC activities via the increasing utilisation of Information Systems (IS).

The scope of think over on to research a role of Information System within global supply chain management (SCM) and understand advantages and profits it fetches. Results showed that in order make SCM to be effective, suppliers and customers must work in close collaboration together to truly integrate their business processes.

From the results of the analysis undertaken, it has been concluded that using IS throughout the Supply Chain increases efficiency by reducing inventories, which in turn reduces costs to the entire Supply Chain, but also adds significant value from the end customer's perspective. Furthermore, the use of IS throughout a Supply Chain enables better speed of response to unpredictable demand


List of Abbreviations

SC = Supply Chain

S-A = Sigma-Aldrich

SCM = Supply Chain Management

MNC = Multinational Company

SME = Small to Medium Enterprise

IS = Information System

E-commerce = Electronic Commerce

B2B = Business to Business

B2C = Business to Customer

EDI = Electronic Data Interchange

ERP = Enterprise Resource Planning

MRP = Material Requirement Planning

MRPII = Manufacturing Resource Planning

POS = Point of Sale

MPS = Master Production Schedule

CRP = Capacity Requirement Planning

RFID = Radio Frequency Identification

APS = Advanced Planning & Scheduling

APO = Advanced Planner and Optimiser

SCC = Supply Chain Cockpit

ATP = Available-to-promise

CPFR = Collaborative planning, forecasting & Replenishment

Chapter 1: Introduction

Over the past ten years, retailers and suppliers invested huge capital in reducing the occurrences, where customers cannot find right products in stores. This has created a serious problem in retail and other industries (Collins, 005). Gerry Jastremski (Gillette & Co) reported that this serious problem is causing a $69 billion loss for top retail companies. Recent studies revealed more than 70 percent companies face the same problem that their customers cannot find the products they want to buy in stores due to out of-stock mostly because of inappropriate supply and forecasting of products (Gruen, Corsten et al 2002). When more focused on markets during special offers and sales campaigns, the probability of finding desired product is always one in five times ratio when customers visit the store. As a result, customers change their mind and delay their purchase or look for alternative brand's products. Thus retailers will not achieve their targeted ROI (return of investment) and customer loyalty goes down. Though organizations and big companies wish to solve the above problem but disruptions are unavoidable.

The most efficient way to manage and maintain the stock in stores is through Supply Chain Management (SCM). Supply chain with globalisation created fresh/modern era in the market environment in recent days. Businesses in today's market are increasingly considering global atmosphere. Organizations need to be completely aware of external factors like economic trends, competitive and technological innovations at home and abroad markets, which affect their ability to grow and sustain. Globalisation means, a product can be developed in China, manufactured in UK and sold in USA. This process of globalisation shows the need and urgency for organizations to change the way in which their logistical and operational activities are managed, explainingthe the concept of Supply Chain Management (SCM).

Simple Supply chains were designed in the past using paper, pen and calculators. As business process and supply chain networks grew more complex in nature (Christopher, 2005) it became more difficult and impossible to manage SC activities without appropriate technological support. Its quite impossible to receive an effectuate and efficient SCM without IS/IT tools (Gunasekaran, Ngai. 2005).

1.1 Background/Supply Chain System

In 21st century for achieving the global organizational competitiveness, Supply Chain Management System has evolved. Organizations are trying to find ways of increasing their competitiveness, responsiveness and flexibility by changing their operational strategies, technologies and methods which include the implementation of SCM (Gunasekaran, Ngai, 2003). SCM is an approach for companies to integrate their activities in the changing market requirements which improve company's agility level and dynamic nature.

Through the view of Simchi Levi (2000) “SCM is bunch of addresses to effectuate gather suppliers, store & warehouses, manufacturers so that trade is created and dilivered at the right quantities, to the right locations and at the right time in order to minimize system wide cost while satisfying service level requirements'' (cited in Gunasekaran, Ngai, 2005). Supply chains created a viable way for satisfying customer's needs around the world. What is a Supply Chain? SC is a strategy introduced in organizations to enhance the ways of distributing the products from the firms to end consumers. It is all about purchasing raw materials, developing them into products and distributing those finished goods to customers with the help of intermediate sources. Janyashanker, Stephen (1996) defined supply chain as ‘'a network of autonomous or semi autonomous business entities collectively responsible for procurement, manufacturing and distribution activities associated with one or more families of products''. Due to greater demand of products and high global competition of firms resulted in implementing Supply Chain.

In another words supply chain is the movement of substances or products as they drive through their origin point to the end customer. SC includes manufacturing, purchasing , warehousing, customer service, transportation, supply planning, demand planning and supply chain management. It is the involvement of the people, information, activities involved in moving products from its supplier to customer. Affective management of the supply chain can be a real challenge though definition sounds very simple.

Example of a Supply Chain:

A very well SC flow of goods is shown above. In some cases, the product is shipped from the Manufacturer to the distribution centre as soon as it is manufactured. In other cases, such as spoke model and Hub the product is held at the manufacturer once produced and on only on the requirement it is sent to the distribution centre.

In reality, every step in Supply Chain activity has complex calculations during the globalisation process; however this increases business efficiency and brings benefits to the organization on greater scales. So the Supply Chain activities must be well planned, organized meticulously as efficiency plays major role and advantageous in competitive markets (Bartlett et al. 2007). Activities in Supply Chain entail purchasing raw materials, converting into bulk or finished products and sending those products to various warehouses / distribution centres. They are then directly or indirectly delivered to 1st tier customers who add further more value to the end customers. The activities like planning and delivery should be managed and coordinated well in terms of both time and place. IS or software tools which have been developed all these years to manage these activities - have evolved and became increasingly specialized. Hence organizations need to understand and carefully select the IS tools that are best suited to their needs.


  1. Integrated Behaviour
  2. Mutually Sharing Information
  3. Mutually Sharing Risk And Rewards
  4. Cooperation
  5. The Same Goal and The Same Focus on Serving Customers
  6. Integration of Processes
  7. Partners to Build and Maintain Long-Term Relationship

1.2 Identified Problem

SCM allows the organizations to manage numerous relations in SC for ongoing business process, for which IS plays a major role. Sanders (2005) says that ‘'IS/IT which permits for the transmission and processing of information useful for synchronous decision making between organisations can be viewed as backbone of SC business structure.'' As a result organizations started using IS especially SCM systems in order to have closer contacts with suppliers and vendors and to reduce problems in SC activities.

Though technology is growing and investigating new methods to solve SC problems, Maguire (2000) states: The IS community faces a paradox: despite impressive advances in technology, problems are more abundant than solutions; organizations experience rising cost instead of cost reduction. IS misuse and rejection are more frequent than acceptance and use''. Major factor that leads IS to a failure is alignment between IS and the organization that is applied in. However there is a paucity of research in IS when efficiency is considered.

Even though there is a SCM system for reducing problems in SC, but still it is not efficient. And due to lack of collaboration between different departments in the organizations, information is not shared exactly for targeted tasks. Though sophisticated technologies have been introduced to reduce problems, due to employee's misuse and resistance, efficiency is being reduced. In this project we will discuss how technology (SAP) is being used in an organization and what problems have been identified. More over in this report enhancement has been investigated on SC. The reason for choosing SCM with SAP is due to the complexity of system that operates as a chain between suppliers and vendors. And also nature of the case is too complex as the organization has businesses with numerous suppliers and vendors internationally. One more reason for selecting this case and topic is the researches founded an opportunity to investigate how the SC activities are managed in the organization and problems existing in the usage of the SAP. The reason SAP is selected: It is a powerful tool for integration purposes and also researcher's personal interest in acquiring more knowledge about SAP technology.

1.3 Aims and Objectives

This examination sets out to carry the investigation and the factual goal of the dissertation is- To understand the ways in which the information technology or Information systems (IT/IS) are able to find the management of global Supply Chains (SC). In order to achieve these aims the following objectives have been set:

  1. To broaden knowledge by researching in two main areas i.e., Supply Chain Management (SCM) and Information Systems or Technologies that are specifically designed to be used in SC.
  2. To do research and understand how Supply Chains have been created with globalisation.
  3. To conduct a thorough research on the literature of SCM
  4. Identifying advantages and challenges faced while implementing the IS/IT tools in SCM by doing the comprehensive review on the literature gathered on SCM.
  5. Identifying the factors that are driving and affecting the technologies / information systems used in SCM.
  6. A real case study will be carried out using a research methodology. Information will be collected through semi-structured interviews from employees of the case study organisation: Sigma Aldrich.
  7. An evaluation of the outcome, based on literature and data collected during interviews is used to find the gaps between literatures (theoretical) and practise (practically) in real world.
  8. Recommendations (if any) about SC in company.

1.4 Research Approach

The Interpretive Method is applied to understand the complex nature of IT in Supply Chain system. This will identify the sociological features like behaviour of employees, benefits of technologies employed and issues arising in business with the use of IS/IT in SCM. The interpretive method involve gathering literature on SCM, IS/IT tools used, and semi structured interviews. The research aim will be fulfilled by studying the current literature, analysing what are the factors which indicate SCM and identifying existing gaps with reference to the literature studied. Further, the research continues on existing technologies used in supporting the SCM system in the present business market. Benefits associated with implementation of IT in SCM, adoption factors and any kind of implementation issues will be determined.

For gathering the literature review core textbooks, journals, online papers, conference proceedings and information from internet have been used. After the literature study, we find out the gaps which exist in the literature read and provided. After identifying the gaps, an empirical study will be applied to give an alternative to the gaps which already been discovered in literature gathered. A qualitative research methodology has been applied. Both primary and secondary research methods are adopted. Primary method of research deals with conducting semi structured interviews and collecting data, where as secondary method of research is in the form of literature review.

1.5 Dissertation Outline

This dissertation include of seven chapters, spanning the development of research from aims and objectives to the conclusions. Dissertation has been structured in the following way:

  • Chapter one deals with the introduction of the topic with adequate theoretical background on Supply Chain and provides overall aims and objectives of the topic. Furthermore it provides types of research methodologies employed in this dissertation to achieve the aims and objectives.
  • Chapter two provides literature review with the topics covering Globalisation, Supply Chain system, IS/IT tools used in SCM and it goes on with functionalities and issues arising in SCM system and also the use of IT in SCM.
  • Chapter three deals with the research methodologies adopted and their advantages and limitations
  • In chapter four, case study about a Life Science and Bio-chemical manufacturing company and its heavy utilisation of IT in SCM have been discussed. Technical characteristics of Supply Chain in that company have also been discussed.
  • In chapter five, case study interview findings are analysed.
  • Future recommendations are discussed in chapter six.
  • In chapter seven conclusions of the whole research are provided.

1.6 Summary

This chapter gives an introduction of the research area, highlights aims, objectives and outlines of examination. Next chapter is going to present crucial points through literature.

Chapter 2: Literature Review/Background study

2.1 Introduction

In this chapter adequate background is developed to demonstrate that this study will adjust the current knowledge in SC. Part one provides information about globalisation and how it has been achieved in recent years, Which is followed by implications in global SC. Part two emphasis on definitions, concepts of SC and IS in SC, which is followed by defining various technologies in SC. part three explains integration and IS applications in SC. Part four identifies issues and challenges in SC today's market and next part talks about identifying a technology which address those challenges. Part six summarizes the chapter.

2.2 Overview/Globalisation

Over the last two centuries globalisation process underwent remarkable changes and established closer contacts between human societies over the globe. In modern days, rapid and significant Changes in terms of technologies, communications, and transportation led to new impetus for global processes and more interdependent world than before. Business started moving rapidly than ever to new perspectives in many perceptions like coordinating closely, cooperating more in networks, competing with other networks (Schary, Skjott-Larsen, 2001). According to Mehmet (1996, P31) chartered companies in the past and multinational companies in the present are the driving factors behind the remarkable process of globalisation, Further saying, the main goal and motivation of these companies is for global profits and honestly, the inner logic of globalisation is ‘capitalisation on a world scale'. Globalisation created new markets, wealth, and the march led to have major impact on manufacturing companies.

National and international economies merged under trade, technology and capitalization. Multinational companies started manufacturing goods and sell to customers in different countries, this process initiated the movement of products, raw materials, money and technology swiftly circulate all around the world freely. Schary, Skjott-Larsen (2003, p. 450) states that ‘Globalisation involves markets, production and global infrastructure'. Companies started racing toward global competitive efficiency which caused organizations to produce and sell their products all over the world. This process made supply chain, its management and activities became more complex in nature.

Hill (2007, P.5) states that ‘'globalisation refers to the shift towards a more integrated and interdependent world economy. Globalisation has several facets, including and globalisation of markets and globalisation of production''.

2.1.1 Implications of Globalisation

The motivations were completely different from those of todays, which drove firms into foreign markets. For example tire industries extended their growth to abroad for rubber plantations whilst oil companies grew to Middle East countries to open new oil fields. According to Bartlett et al. (2008, P. 8) ‘'though they moved initially often opportunistic many organisations eventually realized that extra sales enabled them to exploit sales economies of scope & scale, thereby providing a source of competitive advantage over their domestic rivals''. It can be easily seen that over a period of time, those firms realized that benefits could be gained not only by suppliers sourcing but also by selling in those new markets.

Companies like Reebok manufacture their goods in lesser developed nations like Vietnam where manufacturing cost are comparatively low. By using modern transportation facilities like airways and containerization, these products can be easily moved to destinations quickly, reliable and efficiently at low cost.

2.2 Supply Chains

In todays globalise market; SC has become a centre of focus to all business organizations especially larger firms with multiple branches globally. Supply Chain Management (SCM) has become basic competitive requirement in order to satisfy and compete for the attentions of modern customers who is more empowered and have greater demand on total value package (Harrison, 2001). Significant supply chain decisions and supply chain performance is the key for success of any firm. Any supply chain combination of all parties which have involvement either indirectly or directly, in satisfying a consumer's request.

In another words supply chain is the movement of substances or products as they drive through their origin point to the end customer. SC includes manufacturing, purchasing, warehousing, customer service, transportation, supply planning, demand planning and supply chain management. It is the involvement of the people, information, activities involved in moving products from its supplier to customer. Affective management of the supply chain can be a real challenge though definition sounds very simple.

Supply chain flow encompasses whole bunch of activities including organization and flow of materials, other resources to produce finished product to final customer Mannheim (1994), Treacy & Wiersma (1993) cited in (Schary & Skjott 2001). A sequel of process that add value to firm is product development, customer relationship and SCM (Schary & Skjott , 2001).

No process is considered as individually important, all three work together to make supply chains successful and profitable. It is a difficult task to manage SC and failures in SC can be devastating to firms, example Nike and Cisco found in 2001 loosing $100 million and $2.2 billion respectively due to improper management and problems in their SC. But on the other end organizations like Wall-Mart demonstrated huge success on daily basis on its SCM which provided a great deal of successful competitive advantage (Taylor, 2004).

A Supply chain is a network of distributors, retailers, transporters, storage facilities and mostly active member in this process is suppliers that take part in production, selling of the product to the customer and delivery. A supply chain is specially those who co-ordinate activities to set themselves apart from the competition by the multiple companies. It has three main key parts:

Supply: targets on the raw materials supplied to manufacturing, including when how and from what location.

Manufacturing: mainly active in converting raw materials into finished goods.

Distribution: targeting on ensuring these products reach the customers through an organized network of distributors, warehouses and retailers.

While implemented to customer products and manufacturing a supply chain can determine to show how different processes supply to one another.

SC can be also considered as network of suppliers, manufacturing, assembling and distributing facilities responsible for materials procuring, and converting into final products and distributed to end customers (Barbuceaunu, Teigen 1998, Fox, Barbuceaunu et al 2001, Agnetisa, Hallb et al 2005, Stadtler, 2005). SC consists of numerous networked organizations aiming to produce goods and services to customers.

A Supply chain is a network of distributors, retailers, transporters, storage facilities and mostly active member in this process is suppliers that take part in production, selling of the product to the customer and delivery. A supply chain is specially those who co-ordinate activities to set themselves apart from the competition by the multiple companies. It has three main key parts:

Supply: targets on the raw materials supplied to manufacturing, including when how and from what location.

Manufacturing: mainly active in converting raw materials into finished goods.

Distribution: targeting on ensuring these products reach the customers through an organized network of distributors, warehouses and retailers.

While implemented to customer products and manufacturing a supply chain can determine to show how different processes supply to one another. In this sense the definition of S C can apply to finance Internet technology and many other industries. A SC strategy restricts how SC supposed to behave in order to compete in their business relatively. And this strategy describes the cost relating to the operation and the benefits. SC strategy mainly targets the actual operation of the company and SC which will be used to meet a specific goal.

Another term SCM (supply chain management), which is focusing on oversight of materials, information and finances as they are distributed from supplier to consumer. The SC also contains all the required stops between the supplier and the consumer.

Above figure clearly indicates SC always needs the collaboration between various organizations. Functions ranging from ordering materials to delivery of finished products to customers need to operate in integrated manner (Angerhofer & Angelides, 2005). Supply Chain Management (SCM) was introduced for ‘'Gathering organizational units along a SC coordinating information, material and financial flows in order to provide customer demands with the aim of improving competitiveness of the SC as a whole'' (Verwijmeren, 2004). SCM plays a major role for a good planning, organizing and coordinating of SC activities.

SCM (supply chain management) can be divided into three important flows:

  • The product flow contains moving materials or goods from supplier to consumer, as well as fulfilling the customer requests.
  • The information flow contains delivery status and order information.
  • The Financial flow contains credit terms, payment schedules and additional arrangements.

2.3 Information systems in SC

Due to increasing customer demand value and global competition supply chain concept has become a bigger concern thus to run a smooth operation the important information must be accessible in real time across the supply chain and this cannot be achieved without an integrated software system for SCM( supply chain management) . To improve customer's satisfaction SCM members have to share information and collaborate with each other. In real time to trade with suppliers and customers over the internet, web technologies have played a major role to become effective. For this, company have to integrate their applications and IS with their customers and suppliers. The implementation of this will result in as an increase in company's profits and competitiveness.

IS in SC making business to grow rapidly and is bringing both opportunities and challenges at the same time and pace. SC design and management has been intensified with IS tools which span organizations to integrate, manage and automate SC functions. Various IS tools like Electronic Data Interchange (EDI), World Wide Web (WWW), E-commerce, Radio Frequency Identification (RFID), Enterprise Resource Planning (ERP), Systems Application & products in Data (SAP). These tools help to overcome the complexities of systems which initiates vendor-customer-supplier relationships. Aim of SC activities with the use of IS is: reducing paper work, controlling cost, lowering inventories and shorten product cycles Chou et al., (2004). Below table shows different stages how IS has been used from recent years.

Stages Year Milestone Firms IS Developments

Introduction 1960-1970's MRP Firms are closely linked with MRP

Only Internal integration was practised for customer services.

Growing 1970-1980's EDI In-time delivery was practised for efficient communication between


Pre-Mature 1990-2000's E-Commerce Organizations and vendors in SC

B2B & B2C started using internet for effectiveway to communicate.

Mature 2000- present C-commerce Business organizations started

ERP Collaborating for improving the Efficiency of SC System.

Table 2.1 Stages of IS Evolution in SC. Chou et al., (2004)

The above mentioned IS have advantages and disadvantages as well. EDI and E-commerce can be used for external operations in SCM.

2.3.1 Electronic Data Interchange (EDI)

EDI is defined as being ‘'specifically the electronic exchange of structured business documents between different computer applications across enterprise boundaries'' (The Edi zone, 2008). Ruppel defined EDI as electronic data communication of invoices, purchase orders and other applications which use standard EDI format between supplier and customer. For purchasing orders and sending requisitions EDI has been used by trading partners for information exchange. EDI has been adopted for many reasons- faster and easier communication of data in trading, improved accuracy in information, reduced clerical errors, and reduced inventory cost, labour, and automation of tasks. These all together improves firm relationship with customers and suppliers (Ruppel, 2004 & Leonard, et al., 2006). Disadvantages associated with EDI is its adoption and implementation cost (Williams et al., 2002, & Chou et al., 2004) and it does not operate in real time. EDI's standard format of structure makes it more difficult to follow (Chou et al., 2004).

The swap of business data from one company or organisations system application to the computer application of a trading partner.

Why EDI?

For accuracy, push up the no of accuracy by eliminating r-keying of data. The standard quality of data is found by agreeing product cost.

By reducing supply chain cost co related with manual processing EDI helps to build up the partnership between supplier or customer.

Those suppliers who are enabled with EDI are very simpler and having very low cost to deal with.

Because of EDI electronic documents can be transferred from system to another computer system means one trading company to another trading company. EDI conveys a row of messages between two organisation or companies or parties in which one can be a recipient or originator. The sequel of the data shows the documents might be passed from originator to recipient via telecomm or delivered physically on electronic storage media. To carry out smoothly supply chain operation EDI plays a very important role. EDI is able to explain a very strict standardized format of electronic document. Companies that send and receive papers between both of them are known as “trading partners” in EEDI methodology.

2.3.2 Internet, World Wide Web

When compared to EDI which requires technological expenditure, internet and World Wide Web have been widely accepted as the scope of connectivity between individuals and businesses is broadened (Chou et al., 2004 & William et al., 2002).

‘'This is the vision of the digital future: If there is an increased demand for woollen pullovers in Benton shops, a farmer in New Zealand receives an order via the web to shear his sheep'' (Rohrict, Teufel et al 2002).

Internet became a ubiquitous and cheaper means to communicate between firms and partners and which initiated global SC's. Cost involved in exchanging information has been greatly reduced with the usage of internet in e-SCM. It has been observed that web based networks provides professional services which are quick, accurate and synchronized in global SC (Folinas et al., 2004). A new trend evolved in supporting SC applications is use of ‘third party software's. Firms recognized the value of developing partnerships with vendors and consultants. That software's must be compatible, capable of integrating with SC allowing partners to include any other modules which helps to include programming interfaces to current systems for future use (Green, 2001). Now-a-days SC business processes are scattered over multiple members, so SC system should be actively flexible to handle and respond effectively to the dynamic changes in the global market (Chandrashekar, 1999).

2.3.3 Evolution of ERP

From business perspective ERP has broaden from co- ordination of manufacturing processes to the integration of enterprise - wide backend processes.

Recent studies show that organizations all around the world are investing billions of money on ERP (Enterprise Resource Planning), when consulting expenditure is calculated then the figure may be doubled (Themistocleous, Irani et al., 2001). Before integrating business process of a firm with customers and suppliers, initially their internal processes have to be operated more efficiently. For this purpose, software/technology ‘ERP' is used commonly. According to Hamilton (2003, p. 12) “An ERP system provides transaction processing and a common database to model operations within a manufacturing firm, and supports several levels of decision making”.

MRP (Material Requirement Planning) is earliest form of ERP, which was used in ordering materials and components (Wallace & kremzar, 2001). Master production schedule (MPS) is considered as heart of MRP. MPS calculates production requirements according to meet distribution schedules (Taylor, 2004). The information generated from MPS is used by MRP in ensuring that necessary components are produced in time. MRP operates on below universal manufacturing equation objectives.

  • What are we going to make?
  • What is required to make it?
  • What we have?
  • What we need to get?

(Wallace, T. F, & Kremzar, M. H., 2001 P.6)

MRP's key functions are Inventory Control (IC), Priority Planning (PP) and Capacity requirements planning (CRP). As technology advanced, MRP turned to MRPII (Manufacturing resource planning). MRPII has additional features:

  • Sales & Operations Planning
  • Financial Interface
  • Simulation

All functional operations and transactions in SC are integrated using ERP in organizations. Example in a manufacturing firm, ERP can integrate different units like production, planning, procurement and distribution. Even though ERP can integrate well among different units it has its own weakness'. When it comes to handling transactions in different departments across organization, ERP could not function effectively (Hawking, Stein et al. 2004). Other weaknesses like time consuming planning and capability of simulation is inefficient and limited in use.

For the above reasons APS is introduced, and its solutions have been recognized as the core competencies for SC complexities. But as SAP does not use APS, it is given less importance in the literature.

2.3.4 Vendors

Vendor is SCM term meaning anyone who supplies services or goods to company.

Oracle and SAP are currently acting as largest proprietors of ERP software. SAP is studied for the purpose of this dissertation. SAP (Systems Application and Products in Data) was founded in 1972 by five former IBM employees. ‘‘To develop Standard application software for real time business processing'' was their main vision (SAP.com, 2008). Vendors can be find in a finance or a ware house management system. To buy services or products a purchase order are often used with vendors as agreement of contract. Vendors are might or might not work as goods distributor. vendors are might or might not work as goods manufacturer. Especially vendors are build to stock than build to order if they are manufacturer.

2.4. Integration and Application of IS in SCM

SCM deals with integration and management of processes which is key for any business. The only aim of SCM is to increase coordination in both inter and intra organizational information, material and financial flows. Below figure details direction of flows

Both supply and demand belongs to SCM. Tier ‘1 to n' suppliers can be identified in a SC. This makes more evident that ‘Chain' is the underlying principle in SCM. It is also known as ‘supply network' or ‘supply web' or ‘value net' or a ‘logistic network' (Harland, 1996). Tompkins (2000, P. 2) defined ‘'any SC should function with no boundaries: the result is called ‘supply chain Synthesis' and defined as holistic, continuous improvement process of ensuring customer satisfaction from the raw material provider to the final, finished product customer''. Houlian (1985) viewed this SCM as not only interface but also integration of activities. For managing complex SC, IS has to be used in supporting business processes. Below figure shows the complex SC.

Above figure clearly indicates how complex supply chains will be. Therefore the need and creation of IS in supporting each component in value chain is crucial. For successful coordination and cooperation between different departments in SC, IS plays a major role.

The SC of manufacturing enterprise is a globalise network of distribution centres, warehouses, factories, suppliers and retailers through which the raw materials are available, finished and delivered to consumer. To get grip on performance SC functions must operate in in coordinated manner.

2.5 Issues and Challenges

  • Visibility level is lowered in SC in dynamic markets due to inefficiencies in SCM tracking and tracing functionalities.
  • Business engineering works which involved in the implementation process of SC is quite complex, time taking and expensive. These works may have many dimensions: strategic, financial, operational and technical (Rohrict, Teufel, 2002).
  • In this global business world, current SC solutions are not performing to desired levels. These solutions are not capable to support the organizations and therefore firms experiencing low ROI.
  • Critical issue in SC systems is its inability to respond quickly and effectively to the change occur uncertainly.
  • Activities like performance of supplier, manufacturing process and demand from customer are the most unpredictable and which requires a faster decision making in SC (Rzevski, 2004)

Due to inefficiencies in SC, solutions provided were inefficient in handling the above issues, which results in the top management for resolution and creating problems to the complete chain of supply. Coordination of decision making between different stages in SC should be well implemented but individual ideals and goals are being implemented giving rise to new problems. Adaptability of SC is another issue which is responsible for on-time deliveries, recent studies says the adaptable and efficient networks are very achieved due to designing issues (Vorst, Dongen et al., 2002).

2.5.1 Bullwhip effect

SC is a complicated group of organisations that moves products or goods from raw materials providers (suppliers) to finished product retailers. Those organisations work

Closely when targeting consumer demand for a product. SC permits company to target on their particular processes to maintain maximum probability. Unluckily because of consumer demand shifts and when market conditions change SC might get distracted.

The BULLWHIP effect can be defined as the effect on the SC it occurs when changes in customers demand causes the companies in a SC to order more products to meet the new demand. This effect usually flows up the SC originate from retailer, wholesaler, distributor, manufacturer, and then the raw materials providers or suppliers. The bullwhip effect can be find through most SC across variable organisations or industries. It happens because demand predictions from companies are directly affecting the demand of goods, than actual customer demand.


When organisation produces a new product to the market, they pretend the demand of the product depend one current market situation. Most organisations order more than they can sell, for what to prevent shortages and to loose sales of goods. During normal market situation ups and down, those extra inventory starts to decrease or increase of demand and supply. When consumer demand goes higher to meet their requirement organisation will increase the inventory and when consumer demand falls the SC of the organisation will stop inventory or decrease the inventory according to the consumers requirement.

When products are produced in non-collaborative SC then three major issues have been identified by Knolmayer et al., (2002). They are

  • Issue 1- is founded with the usage of insufficient and incompatible planning programs in ERP system which results in ineffective and inefficient outputs and bottleneck failures.
  • Issue 2- is due to lack of information sharing between SC partners, which raised problems in improper enabling in CPFR (collaboration, planning, forecasting and replenishment).
  • Issue 3- is even though information is shared, but still it is blurred, although it is available in SC, which inevitable leads to a phenomenon known as ‘Bullwhip effect'.

Bullwhip effect is due to presence of minute fluctuations in customer demands which are not considered in initial stages, will be magnified through SC and creates amplifications which lead to negative impression on production planning and logistics systems. Below table indicates the fluctuations.

Table 2.2: Bullwhip effect (Lee at al., 1997)

Fine (1998, p. 91) describes bullwhip as “A ripple at one end of the supply chain can trigger a tidal wave at the other”. Lee et al. (1997) analysed Bullwhip effect issues and discovered four major causes:

1. Demand forecast update

2. Order batching

  • No visibility of end demand
  • High order costs
  • Multiple forecasts
  • Full truckload economics
  • Long lead-time
  • Random or correlated ordering

3. Price fluctuation

4. Rationing and shortage game

  • High-low pricing
  • Proportional rationing scheme
  • Delivery and purchase not


  • Ignorance of supply conditions
  • Unrestricted orders and free return policy

Table 2.3: Four major causes of the bullwhip effect (retrieved from Lee et al., 1997)
2.6 Recommended System

In this section, a technology is identified which can address the above mentioned problems in chapter 1 and also which provides solutions to the above issues and challenges in literature. Though there are many technologies in the market, but for the purpose of this dissertation and due to researcher's interest for SAP, the focus will be on SAP.

SAP is a powerful tool which can integrate different modules both internally and externally for a business firm. ERP could integrate a company's internal functions but ERP reaches its limitations- when both upstream and downstream partners adopt different ERP systems where incompatibility arises in integration processes, also due to its in-flexibility in handling external integration process. Though ERP used APS for flexibility purposes but still it has their own weaknesses. Limited capabilities in managing uncertainty made ERP an inappropriate system for managing a SC. Therefore for a company which is trying to achieve SC synergies, and then ERP is not a suitable system to be solely depend on (Taylor, 2004; Hamilton, 2004; Wallace and Kremzar, 2001).

Hence professional decided there is an urgent need to design such a system which is compatible, flexible, and adaptive to changed environment and finally which can integrate a company's internal-external SC activities. SAP uses APO instead of APS for its product offering; APS are provided in SAP's APO (Advanced Planner and Optimizer) as:

  • Supply Network Planning (SNP)
  • Deployment
  • Production Planning/Detailed Scheduling (PP/DS)

SAP's SCMS provide advanced systems which enable to achieve an integrated GSCM. The first introduced on the market is known as SAP SCM initiative consisting of the following components:

  • Advanced Planner and Optimiser (APO)
  • Business-to-Business Procurement
  • Logistics Execution Systems (LES)

The latest launch of SAP's SCMS was introduced under my SAP Supply Chain Management containing the following components:

  • Business Information Warehouse (SAP BW)
  • Materials Management (SAP MM)
  • Production Planning (SAP PP), and
  • Sales and Distribution (SAP SD)

(Sap.com & Saphelp.com)

2.6.1 Advanced Planner and Optimiser

‘'APO provides functions for intra- and inter-company planning of SC and for scheduling and monitoring the associated processes” (Knolmayer et al. 2002 p. 16). Many components were developed by SAP, which use shared databases. These components address most of the problems identified in literature. E.g. for future predictions demand planning (DP) component can be used to avoid uncertainties and Supply Network Planning (SNP) is responsible for perfect for planning the entire SC network. Likewise there are many other components in SAP which are appropriate and could fix issues in managing SC activities. They are:

  1. Supply Chain Cockpit (SCC): A graphical “instrument panel” form SCM.
  2. Demand Planning (DP): responsible for statistical forecasting technique for demand planning.
  3. Supply Network Planning (SNP): entire supply network planning methods are provided.
  4. Production planning (PP): finite planning is provided.
  5. Detailed Scheduling (DS): resource assigning methods are provided.
  6. Transaction planning/Vehicle scheduling (TP/VS): methods supporting shipping plans, scheduling vehicles and determining routes are done through this component.
  7. Available-to-Promise (Global ATP): to check availability of inventories, production at multi level is possible by this component.

2.7 Summary

This chapter gives a summary about global markets, SC and various technologies used for improving SC efficiency. And also how IS evolved in SC and its impact. Issues and challenges are discussed, and finally a technology (SAP) which could address the problems in SC has been covered.

Chapter 3: Research Approach
3.1 Introduction

This chapter reflects on the key methods which have been used in achieving aims and objectives of this research. This first part of the chapter explains different phases, each phase emphasizes on the accomplishment of dissertation objectives. And the second part of chapter provides information about various research methods, methodology followed and key concepts of the report. And also explains the reasons for the chosen methods and procedures of the research

3.2 Research Method

Researching in business and day-to-day life makes more interesting and easier. Decisions cannot be taken unless all the factors are investigated in depth for gathering relevant information. Not only in MNC's bout also SME's follow any kind of research method in taking a decision. In Small and medium firms it has been observed more, that they follow a research based Decision making process (Ghauri & Gronhaug, 2002). Research is defined as a systematic process of enquiry and investigation, which ultimately increases knowledge. A research project provides an opportunity to identify the problem, and thoroughly investigate it independently under supervisor's guidance. If data is collected on qualitative method, then the prominence is on the meanings obtained and experience which is related to the phenomenon (Collis & Hussey, 1993).

In this report, the research work has been broken down into four phases to accomplish the objectives. The main phases are as follows:

Phase One: Gathering Background Knowledge

Information and data is gathered through literature by direct and reliable sources such as core text books, journals, research papers regarding globalisation, supply chains, information systems and their implications.

This phase is devoted in developing a suitable background in order to demonstrate the study which goes with description on the evolution of globalisation and supply chains. The first part of the phase deals with markets and production in context of globalisation, followed by role of technological change and implications associated with globalisation. . Data on bio chemical and pharmaceutical industry has also been discussed.

Next part of phase goes on with evolution, development, structure and types of supply chains and also different technologies used in Supply chains according to current global market demands and trends. Next part is used in identifying the functions, challenges and issues arising in supply chains. The final part of phase one analyse a solution, which solves the current issues in SCM and delivers solution. Information and data which has been collected is used in supporting secondary data which is literature. Objectives 1, 2 and 3 are covered in this phase.

Phase Two: Case Study Findings

This phase emphasizes on a case study of an organization along with its background and little history of the company. The development and implementation of its information systems are investigated. More over how information systems assisted the company in the development of global SC activities have been discussed. Finally the integration of system with different departments has also been presented. Questionnaire has been prepared regarding Supply chains, currently used modules in supporting SC activities, technologies used and their advantages/disadvantages. These were presented to the company which is outside the University. To meet the university guidelines, questionnaire had to be ethically approved by the university, section 3.2 covers about ethical considerations. Questionnaire was based on Qualitative method which is followed in next section 3.3. This phase covers the objective 6.

Phase Three: Analysis of Case Study

In this phase the case study will be thoroughly analysed. Questionnaire was presented to some employees in different departments and levels. Answers for the questionnaires were analyzed in order to understand the past and current status of the SC. Summary of analysis is presented in the chapter 5. Future recommendations for the case study will be discussed in chapter 6.

A detailed description of analysis is provided in section 3.9. Objectives 4, 5, 7 and 8 are enclosed in this phase.

Phase Four: Conclusions

Phase four discuss the conclusions drawn from the whole research undertaken. Summary of the report is provided in chapter 7, which also focus on all the objectives.

3.3 Ethics

For any researcher or any group of researchers, Ethics are the main principles and values (Churchill cited in Ghauri & Gronhaug, 2002). For this Masters dissertation, ethics has been considered while conducting the research. The work which has been carried is purely on academic basis. Participants and a Manufacturing Company have been involved for this research. The objectives and aims were achieved by the participant's involvement. The data collected which is free of cost with no in connivance to the employees in the company.

3.4 Qualitative Method

Qualitative business research is crucial and gives an opportunity to focus on the complexities of business related phenomena. It gives new information about how things can be developed and worked in routine life, and also understands as why those things work in a specific way. Social and construction of its own variables can be dealt with this research method (Eriksson and Kovalainen, 2008). Qualitative research is all about perception of things, events through the people's eye that who are studied. People who work on this method emphasizes and gives description on the context of social behaviour and view social life as processes.

The main research method used for this research is qualitative interviewing. And the reason for adopting this method is as it is used more frequently in a participant's observation study. But Silverman (1993) criticised that the use of qualitative research method does not accept the variety of forms assumed by research approach (Bryman and Bell, 2007). For researching in the field of management and business related subjects, qualitative method and case study provides many tools. However, a criticism about researching for a case study is that this method is inferior to the methods based on random statistical observations which consist of huge figures (Gummesson, 2000).

Another criticism according to Silverman (2003) is accounts of qualitative research method could not acknowledge different forms of research strategies. Also internal-external reliability and validity adaption is quite challenging (Bryman and Bell, 2007). For this masters piece of work qualitative method has been adopted as it deals with case study research too.

3.5 Secondary Data

As per Atkinson and Coffey without texts, written laws and regulated rules both social life and society would not function. Likewise, education systems cannot carry their functions without textbooks. Basically there are two types of data, primary and secondary. First type is known as primary data and later known as secondary data. Excellent background study for qualitative method of research like case study researching can be provided by secondary data.

Post structuralism assumes and treats human action as a text. These texts are open to other interpretations and are related to various texts through other inter- textual ties (Eriksson and Kovalainen, 2008).

In recent years though qualitative data analysis is collected through analysis of data, due to discussion and interest the usefulness of secondary data in the data analysis has increased. From under explored data, good opportunities could be obtained from secondary analysis for qualitative researchers. For most of the secondary sources of data, the quality is very high and sampling procedures are accurate and well recognized. Sometimes Secondary data is gathered by highly experienced researches for a qualitative research (Bryman and Bell, 2007).

For this study, the other documents that supplement the primary data information include the reliable Journal articles accessed from the library link of the Brunel University. As the topic is related to Global Supply chains and their enhancement with Information systems, data is collected from premier websites, SAP.com and saphelp.com, other websites and core text books on SAP which provides reliable information on SAP, globalisation and Supply chain management.

3.6 Primary Data

Data which is collected by some source is known as primary data. For example by posing questions and making some observations, survey data is collected (Collis and Hussey, 1993). Likewise data collected through questionnaire and interviews by the researcher's is known as primary data (Eriksson and Kovalainen, 2008). Researcher's benefited more by knowing the structure and contours of data through primary data. Primary data helps to find theoretical approaches, and it is quite easy to generate conclusions from data analysis.

Most commonly used method of conducting primary research is collection of data through questionnaires, pilot studies, interview's (structured/unstructured/semi-structured/group). Questionnaires are usually done through surveys and interviews are done face-to-face. However collection of primary data is time consuming, difficult due to unavailability of ‘right people' and expensive (Bryman & Bell, 2007). Interview is one of the types of primary information & is useful for identifying a personality. Data available in this method is more up-to-date when compared to secondary sources. The adopted primary data method for this research is semi-structured face-to-face interviews.

3.7 Data Collection Methods

For real data analysis and interpretation, qualitative data collection is more suitable though it is time-taking. Reducing data and retrieving appropriate information from the interviews in a systematic way is the challenging task in qualitative method. Sometimes data which is collected may not fit for analysis, so we can say there is no pre-existing structure for data collection. Reduction of data for fixing in constructed framework is another problem for the researcher. Finally the data which is collected needs to be converted into analysed data for presentation, which is usually not suitable for a qualitative data collection method (Collis and Hussey, 1993).

Interview is another form of collecting data through asking questions to the participants. In this research interview was conducted for data collection. Complex questions can be asked in interviews which is not possible in questionnaire for a researcher. In qualitative method two types of interviews are involved. By asking close ended questions which is also called as positivistic approach, whereas other way is by asking open ended questions. This is also known as semi-structured/unstructured interviews.

This research is based on a case study of a company In this study the information is collected in a form of face to face with semi structured questions. As said earlier this research is based on IS and how it enhanced global SC. In this study the data is gathered in the form of a head to head semi structured interview with company employees. Such type of interview offers a comprehensive data collection and is useful to understand sensitive questions as well (Collis & Hussey, 1993).

3.8 Semi Structured Interviews

Interviewee must be introduced with the purpose of study (Ghauri2002). Most of the qualitative interviews follow semi-structured method which always start with ‘what' and ‘how' type of questions. Some might be unstructured and narrative as well. Semi-structured questions outlining the topic and issues were asked to the participants from realization stage to business set up stage (Eriksson and Kovalainen, 2008). To minimize the hierarchical situation, semi-structured interviews have been conducted and subject is being made more comfortable by talking to employee.

Lists of questions on Supply chain management were prepared which often knew as interview guide. When preparing questionnaire for this research, questions such as ‘what type of technologies have been used in supporting SCM activities'. And ‘how SC has been solved in these days' has been asked. The participant was given flexibility in how to reply to the questions. Questions were asked face to face during the interview, in the same way as they were structured.

3.9 Interview Questions

In-depth open ended questions were asked to the participant's to get more detailed responses for accurate information. Interviewee's opinions were understood and considered, and also assistance was provided to know participant's beliefs (Easterby-Smith, et al., 2008). It was ensured that interview questions were kept simple to provide connivance to the participant in answering questions (see Appendix). To avoid pre-assumptions and pre-given typologies, interviewee was given support to express his/her opinions and interview conversation was recorded by a recorder and by writing quick notes (see Appendix) (Eriksson and Kovalainen, 2008).

Ten different kinds of questions were asked in interview. As per Kvale (1996) for this research a mixture of introductory, follow up and specifying questions were asked. Also, pauses were taken when the interviewee was elaborating on a specific topic so that more appropriate details are obtained. Different topics on Supply chains and SAP technology were studied; a looser format of interviewing was followed.

3.10 Analysis

Many problems occur when qualitative data has to be analyzed. It is quite hard to distinguish between methods of information collection and data analysis. The most challenging job in qualitative research method is structuring and summarising data according to desired conclusions (Collis and Hussey, 1993). Finally the data was analyzed with good presentation, structure and with proper understanding, which reflects to the overall meaning of the whole data collected in the collection process (Ghauri and Gronhaug, 2002). Data is collected through recording and making notes during the interview conversation for each individual research question.

Data which was obtained is re contextualised without changing the meaning of the topic, and then the topics were returned to the theories which already existed in context. To establish further developments in the research, small bits of information was considered as new linkages (Collis and Hussey, 1993). In this research the data gathered with SAP and Sigma-Aldrich Company's website were cross checked with the primary data.

3.11 Summary

In this chapter a detailed research is done on the state of art of research methodologies in order to find the best suited approach for this Masters work. And reasons have been analysed to make the methods suitable for this study. Various phases and methods have been discussed, and adopted research approach for this report has been presented.

Chapter 4: Case study
4.1 Introduction

This chapter deals with case study of the organization and the industry is given along with its background and little history of the company. The development and implementation of IS is investigated. More over how IS assisted the company in the development of global SC activities is discussed. Finally the integration of system with different departments is presented.

4.2 Case Study

For the case study a manufacturing company has been selected. Sigma Aldrich (S-A) is a $2B company who has operations in 35 countries. Its main clients are from life science companies, universities and hospitals and government institutions. They have over 8000 employees worldwide to support their business functions. S-A has over 139,000 products and is always the globe on time and as promised at competitive price. Specifically study on IS which supported the company especially in SC is carried out. Interconnection and dependant ability between different departments within company with SCM and SAP technology is studied.

4.3 Case Study Background

S-A is a high technology and top life science company. Their, organic chemical, biochemical products and kits are used in genomic research, scientific research, biotechnology, pharmaceutical goods development manufacturing. S-A's current main strategy is to rapidly grow their business in bio chemical and clinical products production. In this process they conducted a study on their Global SC, to verify whether their business processes can support their growth. One of their major learning was SC capabilities, which were seen as a critical part of growth strategy and also need to be properly supported by company systems. As an outcome of the study, they generated a SC strategy to develop more common business processes in purchasing, planning, production, quality and distribution.

The two chemical company sigma chemical company and Aldrich chemical company merged in 1975,currently producing more than 100,000 chemical products on corporate level.


In 1934, two brothers, Aaron Fischer and Bernard Fischlowitz, launched a small consulting firm was responsible for the company's roots in St.Louis, MO. Midwest consultant was named by two chemical engineers to their partnership which is the parent company of sigma chemical company, and started helping them in their businesses which produces a variety of speciality products which includes shoe dressing and adhesives, cosmetics and inks for cardboard packaging. The firm incorporated in 1935 and hired Dan Broida, another chemical engineer out ofWashington University in St. Louis, to manage the company's growing consulting and production businesses.

At the time of World War 2 for signal flares Midwest manufactured ammunition components and made them felt and paper parts. On top of that ther was a huge demand and very short supply of saccharin, to fulfil the need Roida employed new chemical engineers and new chemists, integrate equipment (including bathtub for acid tanks) and as a division of Midwest consultants formed Sigma chemical company. Afterwards sigma could produce it major distributing companies bought saccharin very fastly before them, when the war ended, many raw materials suppliers came in action again with very effectively and plentiful which took sigma out of the market.

To form of a new direction Sigma move towards research biochemical's which came in the form of Pou Berger who is a friend of Roida very well qualified had a MS degree in Biochemistry at Washington University. And as a graduate student Berger asked him that he could use Sigma's laboratory occasionally. Who was successfully carried out ATP which is a major source of energy in living organism and was used longly in the Coris research, which was the extract from the rabbit muscle.

The biomedical researchers and the Coris both were involving in study which requires ATP in quantity where Berger suggested that Sigma create the compound on a very big scale and taught his process his Sigma personnel. So within two years Sigm

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