Information investment in supply chain management

Sameer Prasad and Jasmine Tata

Logistics Information Management

2000, Vol. 13, No. 1, p. 33-38

 

1)      Introduction

  1. a) Supply chain control depends requires investment in information technology
  2. i) Types

(1)   Databases

(2)   Automated storage and retrieval systems

(3)   Materials Resource Planning MRP

(4)   MRP-II

(5)   Enterprise Resource Planning ERP

  1. ii) IT now more attractive to smaller businesses
  2. b) Model to determine level of investment necessary
  3. i) Dynamic model

(1)   Identify appropriate level of investment

(2)   Response to competitor actions

(3)   Cost of necessary investment

2)      Static Model

  1. a) Traditional quality cost model (Juran, 1951)
  2. i) Model altered to bring out relationships affecting cost
  3. ii) Voluntary costs

(1)   Prevention

(a)    Time/effort spent on design of IT, training, recruiting, organizational development and acquisition of IT

(2)   Appraisal

(a)    Running tests with suppliers and buyers

iii)     Involuntary Costs

(1)   Internal Failure

(a)    Use of expediters, inventory, possible quality levels

(2)   External Failure

(a)    Increased lead times, split orders, lost market share

  1. b) Difficulties
  2. i) Narrow definition of involuntary costs
  3. ii) Indirect failure is concealed in other categories

iii)     Intangible and indirect failure costs far exceed out-of-pocket involuntary costs

3)      Dynamic Model

  1. a) Show voluntary and involuntary cost curves over time
  2. i) Voluntary costs can be reduced over time through

(1)   Learning process

(a)    Reduction in systems variability

(b)   Allows operation on JIT basis

(c)    Reduces paperwork in the system

  1. ii) Involuntary Costs can change over time due to

(1)   Adversely affected by competitors supply chain

(2)   Failure to maintain the same level of improvement

  1. b) Influence of learning
  2. i) Learning allows firms to become more automated among supply chain players at lower overall cost
  3. c) Influence of competitors improvements
  4. i) As rivals upgrade firms face reduced sales and/or margins
  5. d) Interaction of learning and competitor improvements
  6. i) Cost savings due to learning are more than he loss to competitor improvements
  7. ii) Competitor actions have an effect on optimum voluntary cost expenditures

4)      Implications for logistics managers

  1. a) Static model
  2. i) Suggests decisions to be made base on firms position on cost curve
  3. ii) Fails to consider:

(1)   Learning curve effect

(2)   Competitor effects

iii)     Suggests optimum level of IT expenditures should always lead to greater automation of management of materials

(1)   Expenditure will depend on

(a)    Competitor

(b)   Learning

  1. b) Dynamic model
  2. i) Shows how an organization can gain a competitive advantage through learning and investing
  3. ii) Influence of competitors varies by industry

iii)     Managers should depend on learning curve effect to achieve higher levels of automation at a lower cost within the supply chain .