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
APPENDIX A: PRIMARY DATA COLLECTION METHODS 57
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
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.
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
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.
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.
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.
v What are we going to make?
v What is required to make it?
v What we have?
v 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:
v Sales & Operations Planning
v Financial Interface
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.
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
v Visibility level is lowered in SC in dynamic markets due to inefficiencies in SCM tracking and tracing functionalities.
v 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).
v 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.
v Critical issue in SC systems is its inability to respond quickly and effectively to the change occur uncertainly.
v 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
v 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.
v 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).
v 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:
v Supply Network Planning (SNP)
v 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:
v Advanced Planner and Optimiser (APO)
v Business-to-Business Procurement
v Logistics Execution Systems (LES)
The latest launch of SAP's SCMS was introduced under my SAP Supply Chain Management containing the following components:
v Business Information Warehouse (SAP BW)
v Materials Management (SAP MM)
v Production Planning (SAP PP), and
v 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.
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
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.
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.
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.
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
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.
SIGMA CHEMICAL COMPANIES EARLY HISTORY:
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 Sigma increased purity levels by offering additional ATP.
Aldrich chemical company's early history:
In 1949 a chemistry graduate student at Harvard University Alfred R. bader, who is an Austrian citizen, Harvard chemistry department store room supervisor suggested him to open a company to sell research chemicals as the chemists needs a great no of research chemicals and better services , in 1952 Attony and bader open Aldrich chemical company in Milwauki.
First product of Aldrich offered 1-methyl-3-nitro-1-nitrosofuanidine (MNNG) which was mostly used as a methylating reagent. Later on the Aldrichs best selling product which was 3- hydrxipyridine produced in early 50s.Europian and UK chemical producers get closer to Bader through his visits from 1952 to 1955.the 1950 is specially reminded for rapid growth in sales and in the number of products offered.
The late 50s and early 60s witnessed the growing importance of custom synthesis and bulk sales at Aldrich. Over the years, these functions evolved into Sigma-Aldrich Fine Chemicals (SAFC), currently one of four strategic business units within Sigma-Aldrich Corporation.
Professor H.C. Brown of Purdu University given opportunity to Aldrich chemical company in 1970 to developers further and commercialize the hydrogoration technology and organoborae chemistry which he had patented and created.
Which resulted into an foundation of Aldrich-Boranes, inc. a wholly owned Aldrich subsidiary created to manufacture hydroboration reagents and products.
AFTER THE MERGER:
In August 1975, Aldrich chemical company merged with sigma chemical company ltd, to form sigma- Aldrich corporation when changing trends in chemical research confirmed the synergy to be realized from their free product offerings. In 80s and 90s the growth wad doubled annually with purposely expansion in services, most acquisitions and ventures into new market sectors. Sigma Aldrich management launched a strategic plan targeting the company on “leadership in life science and high technology”. A strong internet presence have put more effect on the position of the Sigma-Aldrich's current position as a leading technology company, and other key area initiatives on facilities and process improvements,
Sigma and Aldrich are two different companies before. But both work out in the same area of chemicals manufacturing which led them to merge as a single company Sigma-Aldrich. Through close collaboration and information sharing, both companies started using IS as a tool to reduce cost and for better understand of customers, suppliers and their needs. As such both companies which later became a single entity started tasting the gains and they became more powerful in applying the same objectives in different areas of their businesses. They launched new strategic plan, other initiatives in services and process which strengthened S-A's position to powerful high technology leading company.
Due to large size of company's operational activities, there found to be an increasing IS need for managing them. Initially they were using internet for emails, fax and transferring documents from one location to another about product enquiry. Later on they realized that there should be a compatible system which supports their operational activities.
Sigma-Aldrich has a variety ofproduct lines, each offered under separatebranding.
§ Life science
§ Analytical /Chromatography
§ Research essentials (Solvents, Buffers, Acids/Bases, General Reagents)
§ Equipment,books& supplies
§ Large scale chemicals &contract manufacturing
Aldrichis a supplier in the research andfine chemicalsmarket. Aldrich providesorganicandinorganic chemicals, building blocks,reagents, advanced materials and stableisotopesforchemical synthesis, medicinalchemistryandmaterials science. Aldrich's chemicals catalogue, the "Aldrich Catalog and Handbook" is often used as ahandbookdue to the inclusion ofstructures,physical data, and literaturereferences. Manystudentsuse it as a reference book, especially undergraduates, as it is offered free by request.
4.4 Implementation of IS in Sigma-Aldrich
S-A currently uses SAP as their main ERP tool along with some other stand alone applications to support various functions of their business i.e., Procurement, Planning, Production, Sales & Distribution, Finance and Statutory and Corporate Reporting. SAP is an ERP tool which is used for all business processes within company like order to cash, procure to pay, order to manufacture and order to deliver. As part of their Global SC strategy during initial phases they implemented the globalized business processes and incremental functionality at their locations that are currently using SAP. During later phases they rolled out the SAP functionality in the additional countries (non SAP locations) that are currently using various stand alone systems (www.sigma-alrdich.com)
4.4.1 Use of IS in SC
SAP is used as an ERP tool in supporting SC activities in S-A. SCM is another tool which is used to manage SC operations. Reporting is brilliant in SAP. There are many modules in SAP which support SC. They are
v Sales & Distribution
v Warehouse Management
v Material Management
v Production Planning
v Business Warehouse
v Finance and Controlling
v Supply Chain Management
v MRP (Materials resource planning)
v Capacity Planning
v Grasp (Forecasting tool)
The above tools have different functionalities and manage flow of data and information between different and related departments. For example capacity planning tool plans how much capacity of goods has to be shipped or manufactured or delivered to customers. Likewise each tool has its own functionalities to be performed.
4.4.2 Integration of systems
Without SAP implementation in S-A, integration of systems is highly impossible. Integration of systems with different departments is shown below.
Local Warehouse (e.g. Singapore)
Central Warehouse (e.g. Germany)
Mother Warehouse (e.g. USA)
Tab: 4.1 Flow of Demand & Goods
A lean SC has been followed by the S-A. Christopher (2005, P. 115) defined Lean SC as ‘'containing little fat''. Lean SC objective is to reduce waste or excess by making SC as efficient as possible without using unnecessary resources like labour, time and money.
For the SC integration and collaboration the first initiative taken is to combine information available in relevant department's systems. This helped much in understanding customers needs which led to ‘information data highway' in which company gained huge profits. Collaboration between suppliers and manufactures increased lot which paved way in leveraging IS to make a move towards the ultimate goal of SC- ‘reducing SC cost, increasing value and services in fulfilling customer requirements (Waters, 2003 & Taylor, 2004 & Christopher, 2005). Inventory is greatly reduced from sharing of information between different departments within and outside the company. SC can achieve better due to reduced inventory (Waters, 2003). It is observed S-A follows Continuous Replenishment Process (CRP) which enables manufacturers and suppliers to ship goods more efficiently (Taylor, 2004).
This chapter summaries case back ground study and what type of technology is being used in supporting SC operations were given. And also different modules have been dealt with integration process. Result shows how company used IS in managing its operations are elaborated.
Chapter 5: Case study Interview Findings/Analysis
This chapter shows the analysis of information which is picked up in primary examination (Interviews).
A set of questions were asked, based on SC, IS, how IS improved SC activities in the company. Also activities that affect the organisational system as well as advantages/disadvantages that the system has. Areas covered include:
1) Types of IS/IT tools used in supporting SCM activities
2) How company managed without SC in the past
3) What modules have been used from the current system to support SC
4) What factors have been considered while implementing SC
5) Does SC integration is practised
6) How complex chains are solved now-a-days
7) Advantages and Disadvantages of IS and SC
5.2 Profile of the Interviewee's
Mr. T S
Worldwide Inventory Manager
Responsible for Inventory Levels & Management across all Plants and Distribution Centres Worldwide
Mr. T B
Supply Chain Specialist
Material and Warehouse Management
Responsible for Supply Chain activities (Material Planning and Inventory Management etc.) for all UK Plants and Distribution Centres
Mr. N C
Senior Functional Analyst (SAP)
Responsible for Support and Enhancement of SAP across Europe
Mrs. R W
Responsible for Procurement activities for UK & Ireland
Ms. M V
Sales & Distribution
Responsible for Sales and Inter Company Transfer Pricing
Mr. F O
Responsible for Support and Enhancement of SAP across Europe
Mr. A R
Responsible for all financial transactions in SC across Europe
Ms. A N
Junior functional Manager
Responsible for Sales and Functional operations in SC across UK
Mr. V S
Responsible for capacity of Warehouses Management across UK
Supply Chain Analyst
Responsible for SC activities (Inventory, Material Planning) for UK plants and Distribution centres
Table 5.1 Number of people interviewed=10, and their roles in the company.
5.3 Findings and Analysis
S-A as a manufacturing company started its business from $ Millions to $ 2Billions today. Initially there was no global SC implemented in the company, they followed a central distribution strategy for inventory management. Net requirement have been taken into consideration. Central distribution centre located in Germany and regional manufacturing units in Europe. Hence whatever stock is manufactured, it is shipped to central distribution centre. But they were not able to afford stock in each and every location.
Technically they had their own businesses not much with other countries before they implemented SC. S-A is a company with individual sites, not necessarily with integrated sites. As 30% of their products are duplicates, 70% of its products contribute less than 6% of their sales. Their cycle times are slow and exact product delivery dates are rare. And also another factor which affects is inventory, which is not in the right places. Forecast accuracy between supply solutions and research is always poor. And finally customized sales processes are growing due to high customer demand which is difficult to manage and execute. Due to above reasons S-A did not find the necessity of about having a SC system of their own.
When a profound research is conducted, there are few main reasons analyzed for which the S-A must have to implement their SC strategy. The company is growing larger and more complex and customers are becoming more global harmonized. The tastes and demands of customers are ever increasing so the cost and pressure of doing business is rapidly growing. And process improvements in operations are getting tougher. So S-A immediately decided to implement SC strategy for addressing the above issues.
S-A implemented SC system with an IS known as ‘CRS'. With the help of CRS, information started flowing freely in the organization. CRS has been used from more than ten years for maintaining their SC activities. Though CRS having many features and is used from long time it has many limitations. Due to globalization, company's requirements are increasing which became complex to handle, and CRS cannot integrate information flow between various departments which is the main drawback for SC efficiency and speed. Due to globalisation, to handle growing company's requirements, and for better integrated information flow between various departments S-A started researching for other IS which could integrate well and increases the SC efficiency and performance.
After lot of researching S-A could identify SAP as the best suited IS for addressing the above issues. Sooner S-A migrated to SAP platform for its SC management. Millions of dollars were spent for implementing Supply Chain Management with the help of internal SMEs (Subject Matter Experts) and external consultants who are very specialized in implementing SCM module from SAP. One of the interviewee when questioned if huge capital invested in implementing SAP admitted that:
‘'I guess Manufacturing is not a huge part of cost, it is all about quality systems and technology which reduces inventories and increases efficiency, is all along the cost is coming from''
Even though it sounds very expensive, but for the size of such company they were saving multiple times of this investment/expense in terms increased sales and profit margins. This has also enhanced the visibility on various locations in terms of profitability, growth, inventory vs. sales etc. to the top level management at a single click within no time.
The company uses SAP as their main ERP tool along with some other stand alone applications to support various functions of their business i.e., Procurement, Planning, Production, Sales & Distribution, Finance and Statutory and Corporate Reporting. As part of their Global SC strategy during initial phases they implemented globalized business processes and incremental functionality at their locations that are currently using SAP. SAP has many modules which support individual operations in departments.
When demand and flow of goods is considered, company uses a superb tool ‘GRASP' for forecasting inventories. GRASP (Global Recorder and Stock Planning) is a perfect forecasting tool especially for production of goods which has been used since 1999.
‘'GRASP acts as an interface between distribution and planning which is responsible for whole production, without which S-A might face severe problem''
Likewise as covered in literature, SAP with its various functionalities could reduce SC cost of doing business and increases efficiency and performance. Below are some modules which are used by S-A. They are discussed in next part.
5.3.3 SC Processes
There are many modules in SAP when studied in literature, but the modules which are practised for improving the performance and efficiency in the company are discussed. S&D is a SAP SC activity/process which : provides top management with larger degree of control over operational aspects due to its capabilities in balancing supply and demand at the volume level. Another process which provides information about how much volume of materials required for the customer's demands, manages material flow in S-A is Material Management. Likewise Warehouse Management assists the smooth flow of inventory through the warehousing areas.
Other process Finance & Controlling which is helpful in controlling finance from customers and vendors. And finite planning can be done through Production Planning. Finally procurement helps in procurement operations in the organization. Each process or module has its own specific functions which reduces lot of manual work which saves time and energy of employees. Therefore productive work can be done and due to elimination of errors and proper management, efficiency and performance of SC can be greatly increased.
5.3.4 Areas to be improved
When it come about integration, SAP is perfect in integration process. If SAP is utilised in appropriate way, then there is less chances for the system failure. Most of the companies face this problem of having complete knowledge about SAP utilisation. Even S-A analysed certain areas which have to be improved for future gains and responsiveness. Areas like How they purchase (procurement), What they sell (Decoupling and Brand Consolidation). How they Execute (Planning, Scheduling and Forecasting, Standard Customized Processes, Centralized Freight Management, Facilities, Distribution Strategy)
5.3.5 Technical Challenges
The key challenges faced by the organization while implementing new system were
Master data harmonization and management:
Master data was in a very poor state before the new system was implemented. “Garbage in Garbage Out” is common phrase known about IT systems, which means most of the time user's blames information systems because of the incorrect results. In fact the core reason behind is whenever you input incorrect data to an automated system the results would also be incorrect. Hence, it is very crucial to maintain correct master data to get correct results in the transactional data. Sigma realized about this key point and invested lot of money, time and effort to get their data correct while implementing SCM. They have also implemented new business processes to make sure the master data is up to date at any time and making relevant people accountable for their own data.
Identifying and allocating right resources:
A very big challenge faced by Sigma is, in identifying right people for the project who have global experience & knowledge in the industry and company, so that the right decisions can be taken while defining business rules during the design/blue print phase. Hurdle here was to pull out such experienced resources without affecting the business continuity by filling their positions with other people.
Effective Change Management and Proper Communication system:
SCM project has been implemented in different phases at various locations over a period of 2 years. Due to this phased release approach, bringing the new changes in to the production systems without disrupting the current functionality has become really a big deal. Sigma initially faced some instances where the changes were brought into live system which has affected various business functionalities with different severities, but those changes were reversed and corrections were brought into live system quickly with less disruption. However, project team stepped in and took immediate actions and enhanced their change management strategies with better timings and schedules, and also by more rigorous testing, better communication with relevant people in IS department and Business before releasing changes.
Resistance from users:
Initially company faced a bit of resistance from users who have been using the old system (CRS) from a long time as they were quite used to what they have been doing and were bit conservative in terms of accepting the changes. As the company's senior management was keener on implementing the new system, realizing the potential benefits that will contribute to company's growth and profitability, the lower level staff started using the system with confidence and once they got used they realized the benefits that made their life easier while adding value to their job profile with the new system.
Two different servers (SAP boxes) covering different geographies:
Sigma-Aldrich has two different SAP Systems (servers) covering different geographies. One system is used to cover the whole Europe, Asia, Africa, South Korea, Israel and Latin American countries where as the other system covers USA, Mexico, Canada and Australia. Data flow between the two systems and implementing the new changes in both systems had also been a bit of challenge to the external consultants due to non synchronization and complexity. Due to the budget and feasibility issues company continued to use both systems rather than merging them at this point of time. Idocs have been used for (EDI) electronic data interchange (communication method) between these two servers.
Idoc is another form of EDI, which used to transfer documents electronically over internet. Sigma after implementing SAP with EDI started using Idocs, which are much quicker and saves lot of time in transferring data to various locations
Advantages of SC & SAP
Sigma-Aldrich implemented global SC recently in 2006. But they witnessed drastic change with SC. A lot of paper work, faxes, emails, phone calls for the availability of products all around the world has greatly reduced. Due to different time zones in world, to get any information about product in different branch is almost impossible within the time limit. Due to this customer responsiveness and efficiency of serving is reduced. With SC these problems are solved to most extent.
The company now planning to develop APO (Advanced planning & optimiser). Lot of their investment is spent in to integrate their planning processes for forward visibility. Now they started working to convert two servers into single SAP instance. Grasp will be replaced by APO which is more powerful forecasting tool in demand, planning and distribution. Within SAP, MRP tool with ERP is used for materials resource planning. Lead times are associated for procuring materials. These features are available in SAP which acts exactly to user requirement in company.
SAP has been introduced in 1992 is the most used ERP system in the world.
This tool SAP is made to allow businesses to efficiently and correctly or effectively operations of different business processes within a common or single integrated system. It is mainly suited for different types lengths of organizations and runs on six different platforms.
It has multiple fascinating features like three tier client server system, which is very helpful and fulfil the specific needs of large companies and fast growing companies.
It is mainly created by the functional areas of Human resource, finance, Supply chain management, and marketing, it works closely with all other applications while data is entered on a specific term these modules or term are fully gathered and provide perfect time applications. It means the wherever data has been entered in one module is very fastly and automatically in all other functional areas will be updated and reflected.
Disadvantages of SC & SAP
SC is easy to operate only when there is good collaboration and communication between all departments in organization. A company use Global SC, suppliers and distribution channels across the world in providing high quality of products to customers globally at low possibly prices. Although many advantages accompany in this managerial technique in providing goods, there are some disadvantages if the SC is not properly implemented and managed by organization.
Biggest disadvantage of global SC is its heavy investment of time, finance and resources which are important in implementing and overlooking the SC. Decision to outsource may help in doing business with less cost but this cannot lead to customer backlash.
Another disadvantage is- selecting right supplier and SC integration is much more difficult that anyone can imagine. Not only pricing and quality, but companies need to cooperate for the benefits. Managerial styles, procedures and operations, goals must have strategic fit. And power and access permissions should be equally distributed in different stages in SC or the benefits of advantages of global SC cannot be enjoyed by organizations.
The biggest disadvantage of sap is it is quite expensive this might contain implementation, software, hardware, training, consultant, etc.
The another big disadvantage of SAP is its not very flexible.
Especially when coming to SAP, the major disadvantage is it is highly expensive to adopt. Even though it provides superb tools in solving many complex situations but still most of the companies cannot afford in buying. And APO is very difficult to implement due to its hard nature of functionalities. Even after implementation a proper guidance and training should be provided in understanding the APO functionalities. There should be appropriate collaboration within the organization before implementing SAP.
SCM as a Management Philosophy:
As a philosophy, SCM targets a systematic approach to understand the SC as a single organisation or property rather than as a bunch of differentiated / integrated parts, where every function performs their own function respectively (Ellram and cooper 1990; houlihan 1988; Tyndall et al.1998). By a simple definition SCM philosophy derive the concept of mutual agreements between a multifirm effort to handle the complete flow of products from supplier to the end consumer or customer. Thus SCM is a bunch of beliefs that each department in the SC indirectly or directly affects the outcome or performance of all of the members of Supply Chain members as well as ultimate the whole performance of supply chain.
As a management philosophy of Supply Chain Management looks for synchronization and convergence of interim and intrafirm operational strategic capabilities onto the compelling marketplace force. SCM philosophy mainly targets to a member of all supply chain firm to focus on creating very good solutions or innovations to create or give a better sources of customer value. Though it suggest the limitations of supply chain management include not only all functions held within the SC organisation but also in Logistic to create a better customer value and satisfaction. After all to better understanding of customers need and satisfaction is very important in this text, also drives to have a focus on a customer orientation.
Based upon the management review, it is concludes that Supply Chain Management philosophy has the following characteristics:
1. An organisation approach to looking the supply chain as it all together (whole) and to track or manage the total flow of products or raw materials inventory from the supplier to the end customer or consumer.
2. A strategic collaboration toward mutual efforts to gather and converge interfere and interfirm operational activities.
3. A standard customer focus to get standard or legend sources of customer value which leads to customer's satisfaction.
In this chapter interview findings were presented along with the comments made during interview by interviewees. In detail it was found that the SC system which has been used is replaced with new technology to improve the performance of SC system and increase the business process. Though there are disadvantages with SAP still it could provide better solutions compared to previous one used in the company
Chapter 6: Recommendations
This chapter focus on 8th objective of dissertation.
After thoroughly analysing various aspects involved in SC, clear ideas were drawn on the issues identified on case study and how factors relate to each other. Below are my recommendations to enhance the efficiency of IS for utmost utilization of the potential of complex SCM.
Recommendation 1: For managing SC activities in Sigma, SAP and GRASP are the key IS used. GRASP take care of planning activities where as SAP on Procurement, Inventory and Production Planning. The main disadvantage is: these two are separate systems with no connectivity. By replacing GRASP with SAP's APO enables free flow of information in both directions with no manual intervention. Hence planning and procurement will be enhanced more efficiently which further increases material availability for production. Thus customer waiting time for order delivery will be greatly reduced. APO enables long and short term planning activities with more visibility. It develops high level planning to senior management and detailed planning to lower level management which helps to manage their operations more efficiently.
Recommendation 2: Another key improvement has been noticed in company's procurement activities. They follow lengthy manual process for running inventory reports. They identify relevant vendor for materials which has to be purchased, and make a purchase request on paper and sent for approval to the related cost centre manager. Finally PO is faxed to vendor. An average of 2 to 5 days would be taken to raise a purchase order. Based on analysis and research studies on SAP capabilities, MRP functionality can be switched on, which automatically looks at inventories, prepare list of materials that needs to be purchased. Vendors can be identified from pre-defined source list, raise purchase requisitions automatically. Thus process time, human errors and head count is reduced greatly. Availability of materials is increased
Recommendation 3: Purchase Requests (PR) and Purchase Order (PO) approvals are another bottle neck point in Sigma during the procurement. The reason is due to unavailability of managers at desks because of their business travel at times to sign the documents for purchase approvals. For this and other advantages, SAP's Workflow functionality is recommended. Once PR is created by MRP functionality, based on pre-defined conditions it is automatically sent to the responsible manager's inbox for approval. Then the manager can approve electronically from any location instead waiting until he comes back to desk unlike in manual process. This will be automatically converted into a PO and faxed to Vendor. This enables to process more PO's with less people and turnaround time for approvals. MRP will also help to have better control on budgets and analysis is more efficient.
Recommendation 4: Sigma has no automated communication with partnering companies (vendors/subcontractors). Two aspects of communication to be automated is recommended with partners. One is to share companies purchasing forecast materials. Second is to send their PO electronically (EDI methodology) so that vendor's IS can create sales orders automatically for sigma's PO. This reduces the delays in placing orders during the procurement activities. Sharing forecasts with vendors will give a heads up of our requirements so that they can plan their production activities accordingly and deliver goods with less turnaround time. This leads to reduced inventory levels which greatly reduces working capital which in turn increases the profitability.
Recommendation 5: Though Sigma implemented SC system, they are not really planning at a Global level which is affecting their product costs. By implementing additional functionality called “Global Availability of the Product” which provides key information on a product such as ‘manufacturing costs' of the same product at various locations and freight costs from those locations. This will enable sourcing departments to choose the right location depending on time lines and order quantities. Also, competitive quotes can be given to customers based on their requirements & and urgency. Profitability margins will be greatly increased by using this tool.
Chapter 7: Evaluation & Conclusions
In this chapter evaluation of the research study will be done. Evaluation will be based on literature what was found and findings after interviews have been conducted.
Having gone through the literature, there has been many similarities in the data collected. IS and its implementations always benefits organizations. Many technical methods can be used for company's growth and success, but appropriate and compatible method has to be chosen. Considering the example of Sigma-Aldrich analyzed in study. It can be related and linked to business background (technically).
Globalisation lowered barriers between countries around world. As products, goods and capital became freer to move globally, traditional taste and preferences of customers started to converge. This proved true especially in case of industrial goods and little lesser to consumer goods. Rapid growth in transportation and advancements in technology had positive impact on globalisation especially on supply chains. Organizations benefited more when they started operating globally. Access to new markets, cheaper resources and better themselves with loads of newer sources of information is possible for firms to make a strong foundation in today's business environment. However these benefits and opportunities can be realized and implemented only if managers and high end developers can negotiate the challenges which come with them. But at the same time Globalization made SC and its activities innately more complex, diverse and uncertain. From literature and back ground study of globalisation, it is proved that how SC have been created with globalisation satisfying dissertation 1st & 2nd objective.
Globalisation has forced companies to shift their activities and operations to such locations where production can be done with more efficiency, less cost and time. Throughout this report it has been studied that SC of firms cannot be possible with isolation. To compete with new other Company's in market, firms should view their upstream and downstream channel partners. As such firms should also integrate their internal operations and links in a value chain to provide customer with optimum value. To achieve this, collaboration between companies and channel partners is must. For channel collaboration IS played a major role. Without IS, SC would be a mere failure for their growth and function. Maximizing the benefits of Information systems is achieved through information sharing. By sharing intimate levels of information, inventory is greatly reduced, even in case study same principle applied, satisfying 5th & 6th objectives.
Lot of concepts have been discussed in the literature part which gives information about SC and various technologies supporting SC activities fulfilling 3rd & 4th objectives. To provide end customer with optimum value the integral links in the value chain has to be extended. Collaboration both internal and external between company and its partners is essential for the concept of ‘extended' to come into reality. Information technology turned as a tool in linking different channels in a fast paced competitive market where the response speed and value of money are the market winners. Without IS SC would fail to function. For maximizing the usage of IS in SC, it is mandatory to increase collaboration in chain and share information among different departments. Only then, SC can be benefited and complex chains can be resolved. Information sharing among departments and integrating processes in a firm can drive out substantial cost in SC which in turn reduces inventory. In doing so, value for end customer is enhanced greatly and cost is reduced.
From the literature review on the usefulness of technology enabled Supply Chains and what has been gathered in analysis has some controversies. There are some gaps in what have been studied in literature and what is going on in the company. SAP seems easy to be implemented but cost factor when considered is a huge hassle for companies. Development of systems, integration of SC, collaboration among departments within company and outside is much difficult to achieve. For all these activities a perfect method, planning has to be done to achieve larger profits and to extend the company's growth into different areas, which satisfies 7th objective. Objective 8 has been achieved in the recommendations chapter.
7.3 Challenges Encountered
Conducting the primary research was very challenging, as it was very difficult to get in touch with the employee's of company. They were all so busy with their schedules and meetings with clients. At the time of interview, all ten employees have been interviewed is pretty good in providing information on SC and tools which they have been using in Sigma-Aldrich. They focused on future projects what they are going to lever with different suppliers World Wide. This proved to be useful in getting more knowledge about SC and tools used in Company.
7.4 Research Contribution
The aim of this dissertation is to understand the ways in which Information technology or Information systems (IT/IS) can enhance the management of global Supply Chains.
For achieving aim, immense knowledge on globalisation, SC has been gathered and understood. Knowledge on IS tools like ERP, SAP have been well studied. When coming to case study report, lot of analysis has been carried out on how SAP assisted in the company's global Supply chains.
This research highlighted advantages and disadvantages involved in SAP and SC in general and also about case. Semi-structured interviews which were carried out in obtaining the data about different modules used in supporting SC activities and how collaboration has been achieved. Also challenges faced by company and areas which have to been improved for greater benefits of organisation have been studied in detail. Information about company's requirements and future insights has been gathered. Finally interviews were successfully conducted in all areas as supply chain information is shared among all levels and departments in company. Conclusions and future recommendations were drawn.
7.5 Future Research and Developments
Whole chain of business processes in SC could not be covered because of time and less number of contacts in UK. And also all the suppliers which are associated with main business processes in SC cannot be covered. Other new technologies like RFID, APS, and APO cannot be researched in full length, as Sigma-Aldrich is still in the plan of implementing the APO, and they do not use RFID and other technologies for invoices and ordering of products. And also due to time and resource constraints, these technologies, issues and their developments could not be studied deeply. For future research on SC and their improvements, above mentioned technologies and benefits can be researched and used for further developments.
To conclude the research method what have been used brought the results which are needed. This work presented the literature which is SC and IS, and also the way SC system was developed and the issues are showed in case. More over findings showed how technology helped the company in improving SC efficiency and reducing the cost of doing business. On the other hand there are certain disadvantages associated with the IS implementations. But how can it be improved is also discussed. Most of the interviewee's agreed that technology has both advantages and disadvantages, but it depends on how it is being implemented and perceived.
This chapter discussed the critical evaluations of this study and conclusions have been drawn. And also showed how aims and objectives have been achieved. Research contributions and future research is also discussed. key challenges faced by the researcher are also presented.
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APPENDIX A: PRIMARY DATA COLLECTION METHODS
This research uses semi-structured face-to-face interviews as primary data collection method with ten questions.
A1. Semi-Structured Interviews
Firstly questions were asked to the senior executives in order to find more basic issues about the SC system. The questions were posed to Managers and Employee's. The questions were as follows:
What types of IS/IT tools are used in supporting the SCM in your organisation?
What modules are you using from the current system to support your Supply Chain activities?
Are you using the same system from years or has it been switched to new system/ technology for managing the SCM activities?
What factors have been considered while implementing SCM in your company? Please specify
Do channel collaboration & Supply chain integration is practised in your organisation? If yes, then to which level?
Is there any areas or departments which have to be improved for more integration and future benefits?
What are the challenges faced when implementing new system in the company?
How did the company managed before having Global Supply chains?
What are the advantages/disadvantages your company has experienced with the current system? (SAP)
How complex chains are solved in these days? What type of changes is being implemented in enhancement process in solving the problems in value chains?