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Engelstatter stated that ERP and SCM systems might positively foster innovational activity as they reduce idle times and save data mining or identify bottlenecks and shortages, thus providing information for process enhancements. With the firm-wide database updated in real time, which both systems provide, the effects of process innovations can be directly pictured, compared and controlled.
Supply Chain Management (SCM) systems is about the control of product flows from the suppliers to manufacturers to distributor to end customer, it aims at integrating the information flows within the supply chain to achieve an efficient supply chain (SearchManufacturingERP.com 2000).
SCM systems Features
SCM systems enable:
SAP SCM delivers a complete set of features and functions for building adaptive supply chain networks. The application enables:
Supply chain planning and collaborationÂ - With SAP SCM, you can model your existing supply chain; set goals; and forecast, optimize, and schedule time, materials, and other resources. Supply chain planning functionality enables you to maximize return on assets and ensure a profitable match of supply and demand.
Supply chain executionÂ - SAP SCM enables you to carry out supply chain planning and generate high efficiency at the lowest possible cost. You can sense and respond to demand through an adaptive supply chain network in which distribution, transportation, and logistics are integrated into real-time planning processes.
Supply chain visibility design and analyticsÂ - SAP SCM gives you networkwide visibility across your extended supply chain to perform strategic as well as day-to-day planning. The application also enables collaboration and analytics, so you can monitor and analyze the performance of your extended supply chain using predefined key performance indicators (KPIs).
Functionality and Benefit of SCM systems that support Business Network Transformation
According to Engelstatter (2010), Caruso (2011) and SAP (2011), the following are the functionalities and benefit that SCM systems provide:
SCM systems provide the functionality to integrate and coordinate the product and information flows which allows better operational and business planning. SCM systems also provide real-time planning capabilities that allow supply chain business partners to react to supply chain changes which help to serve customer better. To achieve this, information sharing between business partners must be fully integrated to and in real-time, which SCM systems can provide.
SCM systems help to improve inventory management by reducing inventory levels, carrying costs, and lead time, which lead to increment of revenue through cost reduction, avoiding lost sales and customer satisfaction improvement. To achieve this, manufacturers will need to able to track the inventory throughout the supply chain, which SCM systems can provide. The ability of knowing when and where inventory is needed will certainly help manufacturer in production planning.
SCM systems help to improve decision making and demand forecast by having a better visibility over the supply chain. To achieve this, company must have visibility of the supply chain which involves getting supply chain data from suppliers and customers which allows better analysis of the supply chain, which leads to improvement of decision making, demand forecast, production planning as well as stock control.
SCM systems help to develop better customer insight and interaction by having a broad view of those customers. To have a broad view of customers, an integrated view of supply chain systems, customer service, sales and marketing, internal database information, knowledge gather from unstructured interaction with customer, etc is needed which an ERP systems can provide. Such view can help manufacturer to improve order fulfilment activates and to understand customers better such as customers' buying pattern, etc, which is helpful for company to achieve product differentiation and to increase profits.
SCM systems help to manage for higher performance by providing performance information such as key performance indicators (KPIs), which SCM systems can provide. These information will help companies to determine if there is a problem in the supply chain, and it also helps to act as an alert to the executive. To gain such information, an integrated SCM systems that has an overview of the whole supply chain is essential. Many companies that are still using disparate legacy systems find it difficult to generate such information, which makes it difficult for executive to measure the performance of the supply chain, which lead to difficulty in decision making.
How SCM systems helps in Business Network transformation
According to Wikipedia (2010), Business Network Transformation (BNT) involves foster of business relationship between business partners as their competitive advantages which emphasize on collaboration. Through BNT, "companies can drive top line growth through superior customer value and fasterÂ product innovationÂ while providing bottom line savings throughÂ operational excellenceÂ and responsiveÂ supply chains", Wikepedia (2010).
Also, according to Word (2009), "BNT helps companies achieve competitive advantage by developing and automating business processes that extend across their network of partners, suppliers, and customers". SCM systems can definitely help to support BNT by allowing collaboration between business partners, a responsive supply chain will also need a good SCM systems to help integrate the supply chain in order to achieve a seamless supply chain. By integrating with business partners, companies will have a better visibility of product and information flows in the supply.
For example, a manufacturer can access customer's supply chain information which includes Point-Of-Sales(POS) data, an accurate demand forecast can be generated which allows better production planning, as the information is available throughout the supply chain, suppliers will have access such information too.
In addition, a manufacturer can authorize a supplier to have access to the SCM system, supplier can monitor the inventory level in manufacturer and be informed of a new order requirement triggered by a low stock alert. By having real time information about inventory stock levels, suppliers can manage the vendor-managed inventory more effectively too. Supplier will be informed to restock when the inventory level is low (Heinricher n.d.).
Purchase order and invoices could be sent through SCM system which helps to speed up the business processes, it also helps to improve cash management decision and accuracy of data which will help the manufacturer and business partners to manage the supply chain more efficiently (Heinricher n.d.).
As the SCM system is fully integrated, a more accurate Key Performance Indicator (KPIs) can be generated which provides an overview of the suppliers' performance in terms of price, delivery, and quality. Suppliers will be able to see their own KPIs and try to improve their ratings (Heinricher n.d.).
Effects of SCM and ERP system on Firms' innovational Performance
According to Engelstatter (2010), SCM systems allow all departments to get real-time information which helps to reduce the bottlenecks and waiting time. He further explained that "both systems together generate a suitable and more flexible working environment and, with product lifecycles and resource usage shown in real-time, room for process improvements and innovations should be easy to identify. In addition, with the firm wide database updated in real time, the results of the innovations can be directly pictured, controlled and compared, providing even more room for improvements".
Case Study: How SCM systems and ERP systems help to support innovation in ZaraFile:Zarasg.JPG
Zara is a Spanish clothing retailer, which is under the Inditex group. According to 123HelpMe.com (2011), "Zara's fundamental concept is to maintain design, production, and distribution processes that will enable Zara to respond quickly to shifts in consumer demands".
Zara's innovation is about learning from the competitors in the fashion industry and come up with their own business model which is different from the competitors. Their innovation includes using a pull system in their supply chain instead of the normal push system which is the ordinary practice in the fashion industry. Pull system means when there is a request from customer, then only an order will be created; in contrast, a push system is where the products are pushed through the channels to the end customer judging from the sales record from the past.
According to Barletta and Hartman (2006), the key objective of Zara is to get the shortest time to the market. Currently, the lead time for new garment are approximately 4-5 weeks, and 2 weeks for restock, compared to the industry average which is 6 months. As Zara is trying to reduce the lead time at its best, SCM systems can certainly help them to reduce the lead time by providing a better visibility of the whole supply chain as a result of having real time integration between HQ and the stores as well as the manufacturers and channels.
SCM systems can help Zara to improve the whole supply chain in terms of production planning, forecast demand, etc. As mentioned, Zara is using the pull system for their supply chain. In current situation, Zara provides PDAs to its store managers in all of the stores. The store manager will observed the sales record and the buying pattern of customer, and analysed these data and send it to the HQ by the end of the day.
SCM systems can help Zara to improve the communication by providing real-time synchronization between the stores and HQ. If Zara is using SCM systems, store manager will not need to send to sales information to the HQ manually, which reduces the risk of miscalculation between sales and order as a result of manual calculation. The point-of-sales (POS) data from the checkout point will integrate with the system in HQ automatically; HQ will be able to observe the sales data in real time, which allow Zara to closely monitor the demand from customer and helps to generate a better forecast demand.
By sharing such information in the whole supply chain, manufacturer will benefit most from it as there will be no waiting time when it comes to information sharing. A more accurate production planning could also be generated based on the real time POS data provided by the integration capability of SCM systems, which lead to more optimal production and reduce the risk of having excessive inventory.