________________________________________________________________________
AN APPROACH TO A STREAMLINED SCMIS FOR BETTER INVENTORY MANAGEMENT, LOGISTICS PLANNING AND
SALES FORECASTING
1
Stany J. Macwan,
2Ishita M. Thanki,
3Jimil M. Shah,
4Lalit Kathpalia
1Symbiosis Institute of Computer Studies and Research, Pune, Maharashtra
2Gujarat Technological University, Ahmedabad, Gujarat
3Symbiosis Institute of Computer Studies and Research, Pune, Maharashtra
Email : 1[email protected], 2[email protected], 3[email protected], 4[email protected]
Abstract— Supply Chain Management is essentially the management of the flow of inventory. It comprises of an interconnected network of suppliers, manufacturing units, warehouses, distribution centers, product outlets and node business which are involved in the provisioning of the product to the end users. Recent years have witnessed an unprecedented growth in SCM, as increasing number of businesses are turning towards it. The integration of business process with information technology opens a wide range of opportunities to SCM thus leveraging its growth at even a faster pace. Organizations are now investing heavily in such systems in order to better compete in the global market space. Depending on the size, scope and requirement of the business firm, various SCMIS or their subset streamlined system are being implemented by the enterprise. An SCMIS is a user interface system designed to provide information as well as information processing capability to assist the strategic operations and decision making functions of an organization’s supply chain. The objective of this paper is to demonstrate, how implementation of a distribution centric streamlined SCMIS in a small scale to medium scale company can help them in better inventory management and sales forecasting.
This paper proceeds by stating some theoretical foundations of SCM, its integrations with Information Technology along with its benefits, Current Business Trends and various Business Sector Investments in SCM systems and finally an implemented real world streamlined SCMIS along with its various aspects like, scope, conceptual design methodology, core modules and primary benefits.
Index Terms: SCM, SCMIS, logistics planning, sales forecasting, inventory management, Streamlined SCMS, ES, SSBE
I. INTRODUCTION
Supply Chain Management is the streamlining of a business' supply-side activities to maximize customer value and to gain a competitive advantage in the marketplace. It comprises of a network of suppliers, factories, warehouses, distribution centers and retailers through which raw materials are acquired, transferred, produced and delivered to the customers [1]. It encompasses all the activities associated with the flow and transformation of goods from the raw material stage till its provision to the end customers. A supply chain exists in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm [2].
Enterprise systems (ES) represent an important technology investment option for operations managers, and have been acclaimed in the practitioner and academic literature for their potential to improve business performance [3] [4] [5]. According to a survey conducted on the impact of enterprise systems (ES) on corporate performance, it was inferred that organizations investing in SCM experienced positive stock returns as well as improvements in profitability [3]. In recent decades, globalizing, outsourcing and information
technology have enabled many organizations to successfully operate collaborative supply networks in which each specialized business partner focuses on only a few key strategic activities [6] (Scott, 1993). However this collaboration also leads to complicated interactions within the firms, wherein each individual firm focuses on the inputs and outputs process with no focus on the internal-management or intra-managements of the other individual firms. The performance of these distributed firms in the network can have a vital impact on one of the local firm‟s performance [6]. With the integration of an SCMIS system these key factors playing role in company‟s productivity, can be addressed.
Considering a different scenario, wherein a firm is a small scale business company, whose supply chain network consists of only a few business partners, has a simple business process as well as a simplistic supply chain. These businesses have basic requirements and hence demand a lean version of SCMIS to be integrated with their business process. Hence it can be seen that the diversity of Supply Chain Networks as well its correlated SCMIS system does directly vary on multiple business parameters.
Organizations are investing heavily in SCM systems and its related infrastructure, and hence presumably expecting more positive benefits to their enterprise [7].
These system implemented are diverse in nature and scope as they are employed in organization ranging in different business scopes. Depending on the size and scope of the business firm, various SCMIS or their subsets streamlined systems are implemented. This paper documents a real world implemented streamlined SCMIS developed for a SSBE (Small Scale Business Enterprise).
It proceeds in a manner highlighted below,
In Section 1, an introductory look at supply chain management is provided.
In Section 2, the theoretical foundations and concepts of SCM are discussed. It further discusses the functions and activities of SCM, Business Requirement & need for SCM and the various comprising elements of SCM.
In Section 3, the current business trend and the data of the companies investing in SCM is laid.
In Section 4, a conceptual view of the Streamlined SCM systems and their guiding philosophies are discussed.
In Section 5, the implemented streamlined SCMIS system is explained; various modules, design methodology, system architecture and its benefits are covered in this section.
II. THEORETICAL FOUNDATIONS OF SUPPLY CHAIN MANAGEMENT
The concept of supply chain management is based on two core ideas. The first is that practically every product that
reaches an end user represents the cumulative effort of multiple organizations. These organizations are referred collectively as the supply chain. The second idea is that while supply chains have existed for a long time, most organizations have only paid attention to what was happening within their “four walls” [8] .
Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organizations along the supply chain operated independently. These organizations have their own objectives and these are often conflicting. Marketing objective of high customer service and satisfaction conflicts with manufacturing and distribution goals. This less-managed, entire chain of activities affects the ultimate delivered product to the final customer. Clearly, there is a need for a mechanism through which these different functions can be integrated together. Supply chain management is a strategy through which such coordination can be achieved [2]. It represents a conscious effort by the supply chain firms to develop and run supply chains in the most effective &
efficient ways possible [8]. Cooper and Ellram [1993]
compare supply chain management to a well balanced and well practiced relay team. Such a team is more competitive when each player knows when to be positioned for the hand off and ultimately the coordinated effects of the team helps in winning the race [2] [9].
Functions and Activities
SCM plays a vital role in following business activities:
Forecasting
Purchasing
Inventory Management and Information Management
Quality Assurance
Scheduling
Production and delivery
Customer Service
Business Requirement and Need for SCM
Business requirements are what must be delivered to provide value. Various products, systems, software, and process give the way of meeting those requirements.
Some of the major business concerns fulfilled by SCM are,
Improve Operations
Competitive Pressures
Increasing Importance of E-commerce
Manage Inventories
Distributed Network Configuration
Distribution Strategy
Cash Flows
Reasons for SCM in business
Some of the main reasons for SCM‟s success in business are,
Lower Inventories
Higher Productivity
Shorter Lead Times
Higher Profits
Greater Customer Loyalty Elements of SCM
A simple supply chain is made up of several elements linked through the information and physical flows. These elements are as under,
Customer
Forecasting
Design
Processing
Inventory
Purchasing
Suppliers
Location
Logistics
The pressures of the global competition and the need for the extensive inter-organizational, collaboration is forcing industries to streamline their supply chains to make them agile, flexible and responsive [1]. In today‟s time, where business competitions are at parity, delivering product to the customer with a high celerity alone forms a single most factor to successfully strive in business world. Managers these days recognize that getting products to customers faster than the competition will improve the company's competitive position. Why is it so important for companies to get products to their customers quickly? Faster product availability is a key to increasing sales, says R. Michael Donovan of Natick, Mass., a management consultant specializing in manufacturing and information systems [10].
III. BUSINESS TRENDS
Supply Chain Management is a major concern in many industries as Companies realize the importance of creating an integrated relationship with their suppliers and customers. In recent time, increasing number of organizations are implementing Customer Relationship Management (CRM) and Supply Chain Management (SCM) software solutions, to achieve a range of business benefits [11][12]. According to Gartner Research Group, the worldwide SCM market grew 17.6% in 2007, leading to US$5.9 billion in license and maintenance revenue [13] [7]. This steady growth of SCM systems in the market is evident in the spending for 2008 in Europe, the Middle East and Africa where it is estimated at 11.1 billion Euros [14].
Investments in SCM systems:
SCMIS provides high quality, relevant and timely information flow that effectively supports decision-making for inventory replenishment, capacity activation, and for synchronizing material flows at all
tiers within the supply chain [15]. Individual studies have explored the various benefits and capabilities of SCMIS in various segments like Electronic Data Interchange (EDI), Electronic Marketplace or Enterprise Resource Planning.
The primary benefit of SCM systems is better operational and business planning. SCM systems use finite-capacity planning algorithms that do not require iterative adjustments to the master schedule [16], and real-time planning capabilities allow firms to react quickly to supply and demand changes.
According to a study conducted on, The Impact of Enterprise Systems on Corporate Performance: A Study of ERP, SCM and CRM System Implementations [3], wherein the survey sample consisted of a total of 406 business investment in enterprise systems, within which 140 investments were made in SCM systems itself. The statistical data gathered by the researchers signified that the firms who invested in SCM systems show significant improvements in ROA and ROS. More than 60% of the sample firms experience positive abnormal changes in ROA and ROS during the combined implementation and post-implementation periods. In overall terms, the study indicated that investments in SCM systems improved profitability. Other studies also supported with the results and the parity of all those studies was almost consistent.
Dehning et al. (2004) provide evidence on the financial benefits of SCM systems by analyzing a set of 123 manufacturing firms (SIC Codes 2011-3999) who have chosen to implement or have implemented an SCM application [3][17]. Their results too indicated that that these systems generally are associated with improved financial performance.
Current SCMS Market Growth
The worldwide market for supply chain management (SCM) software applications, maintenance and services came in at $7.74 billion in 2011, including applications for procurement software. Without procurement, the market was nearly $5.2 billion, according to Chad Eschinger, vice president for supply chain with Gartner.
This makes a 12.1% jump over 2010 revenues for the group of applications excluding procurement. Gartner is predicting a compound annual growth rate (CAGR) for SCM software excluding procurement of 8.7%. At that rate, the market will double in less than 10 years [18].
Notable Trends
According to Chad Eschinger and Gartner (2011) several trends are noticed in supply chain software markets, with 6 key trends found ranked top [18]. These trends are,
1. Improve Customer Service
2. Target supply chain contributions to drive business growth
3. Innovation
4. Improve efficiency or productivity
5. Reduce costs
6. Improve business processes
Top 10 Supply Chain Management Software Suppliers
According to Modern Special Report (2012) [18], here is a list of top 10 supply chain management software vendors.
SCP: Supply Chain Planning
WMS: Warehouse Management Software MES/MRP: Manufacturing Execution Software TMS: Transportation Management Software
No. Supplier SCP WMS MES TMS
1 SAP X x x X
2 Oracle X x x X
3 JDA Software X X
4 Manhattan Associates
X x X
5 RedPrairie x x X
6 Epicor X x X
7 Descartes Systems Group
X
8 Servigitics X x X
9 Kewill Systems x
10 IBS x x x x
Table 1: Top 10 SCM Vendors
IV. STREAMLINED SCMIS: A CONCEPTUAL VIEW
A Streamlined Supply Chain Management Information System is a newer way of thinking about supplier networks. In antithesis to the traditional concept of SCM as introduced in above sections, a streamlined system is essentially a lean system. A Streamlined SCM improves the efficiency of a process, business or organization by simplifying or eliminating unnecessary steps. Here the unnecessary steps are classified as non-value added activities. Companies have a number of areas in their supply chain where waste can be identified as time, costs or inventory [19]. To understand the influences of these parameters, let us consider a case study of a product-oriented company.
Case study 1:
Company XYZ is low on its working capital. It is classified as a medium scale product company. It has excessive amount of inventory and trade capital owed to its suppliers. In other words, it is not managing its inventory and supplier relationship as effectively as possible. In this scenario, either it can have an excessive
amount of inventory as well as cash flow towards supplier OR it can have too little inventory in its stock and hence too little cash flow towards its supplier. In either scenario its business growth curves down the graph and it can miss a lucrative deal too.
Managing inventory is tricky, especially for a product oriented company. Either it can have too much and tie up all its cash or it can have too little and miss a wonderful business opportunity [20]. Depending on the size, scope and requirement of the business not all companies may want to consider implementing a complete package SCMIS from leading vendors. Also considering the cost of implementation, this can outweigh the return on investment (ROI) in certain scenarios. Hence the solution lies in the streamlined SCM.
There are certainly a lot of factors business cannot control when it comes to managing/anticipating purchases. It is very hard to predict what customers will want to buy, where prices will go and whether the supply would be available. What these businesses can control are the economics of their own production, storage and distribution. Smart companies organize their business processes and policies to streamline how they order, store, produce and distribute raw materials and finished goods. They look at the bigger picture by looking up and down their supply chain for shortages, bottlenecks, idle assets and excess, that may tie up the capital [20].
V. DERIVED SYSTEM
Overview
The derived system is essentially a distribution centric streamlined SCMIS. A distribution centric streamlined SCMIS is a SCMIS whose main priority is concerned with effective product distribution from supplier to end user. The derived system essentially contains three stakeholder modules, i.e. Admin, Distributor and Retailer.
Figure 1: Product Flow from Admin to Retailer
The figure shows the hierarchy of inventory flow. The admin can be a person, a department or either a supplier.
The distributor can be a sub department, whereas retailers are mainly outlets where customers would be purchasing the product. The admin contains the overall stock which he supplies to his distributors. The distributors on receiving the stock will distribute the stock to the retailers underneath them. The retailers will now sell these end products to the customers. Considering this approach, various scenarios are possible. The scenario which is modeled in this derived system is,
The admin manages the inventory at country level. He has a set of distributors underneath him who manages the inventory at state level. The distributors have a set of retailers underneath them who manages the inventory at city level. However these levels of inventory management can be planned accordingly by the firm implementing the system. The admin, distributors and retailers are essentially a part of the firm itself.
Implementation Benefits Benefits in Inventory Management
Admin will dispatch a certain amount of stock quantity to distributors. These distributors will supply these stocks to their respective retailers. Based on many parameters the stock quantity to be supplied to retailer is determined by the distributor. These parameters can be the location area of the retailer, customer demand, etc. In case of two retailers situated nearby geographically, wherein one is experiencing a stock shortage and other has an excess of stock, a transfer of stock can be made within this retailers.
This apart from saving time helps in efficient inventory management.
Benefits in Sales Forecasting
The multitude of reports generated by the system helps in making important decisions to the company. Statistical analysis of those reports can help determine the success ratio of various outlets and this can help in forecasting sales. Other important conclusion can also be drawn from these reports.
Benefits in Logistical Planning and Decision Making Logistical planning is generally done to aid a business in its efficient management of material, service, information and capital. Based on the stock replenishment, customer demand can be estimated. Accordingly, analysis of the reports can help determine various things like, sales made, retailer to retailer success ratio, geographical parameters affecting the business, etc. This all information helps in a better logistical planning.
Benefits involving Customer Satisfaction
As Explained above, when a certain retailer is facing abundance of product demand and other nearby retailer has an excess of stock in his inventory, a dispatch of stock
can be made within these retailers and hence can help in timely delivery of product to customer.
As Sales forecasting, Inventory Management and Customer Satisfaction are some of the important factors determining the success of business, addressing these concerns in effective ways will result in leveraging the business growth.
System Architecture
The architecture design incorporated in this system was the 3-tier architectural pattern [21]. In this design pattern multiple layers are used wherein the code is separated across these layers. The three layers are forms a logical stack across which the request gets dispatched from its consecutive layer to fulfill the client requested operation.
The three layers are,
1. Data Access Layer (DAL) 2. Business Access Layer (BAL) 3. Presentation Layer (PL)
The Data Access Layer defines the databases interaction logic. In this layer, blocks of code are encapsulated within functions. Various functions are defined which perform certain task like, calling the object from connection pool, calling an associated stored procedure, execute function logic and return a numeric value to indicate the result of execution to the calling method.
These functions are now ready to be used in the next layer i.e. Business Access Layer.
The Business Access Layer acts as a middleware layer between the data access layer and the presentation layer.
The Business Access Layer does the task of request redirection from presentation layer to data access layer and vice versa. It does this by taking the parameters of the calling object‟s function and creating another object of the called layer and passing those parameters to this newer object‟s function. Code validation is also done in this layer.
The Presentation Layer is the code behind layer of the associated view. In client server technologies, a view is generally a web page or anything that displays some result to the user. Every page has its associated code behind file, which is invoked whenever the user performs some interaction with the page. For e.g. if the user presses some button on the page then its associated button click event gets called, which now redirects this request along with its parameters to a business access layer object.
Workflow Modules
The workflow modules give an illustration of the working of our derived system. There are three main modules, i.e. Admin module, Distributor Module and the Retailer Module, which corresponds to the three main stakeholders. Each Module consists of a set of
functionalities for that particular stakeholder, to carry out the supply chain tasks. These are discussed below,
Admin Module
The Admin is the top most entity in the derived SCMIS hierarchy. He manages the inventory stock at country level. He is the primary initiator of the supply chain process. The admin can be either a department of the company, a single person or a supplier. He dispatches the inventory stock to its corresponding distributors.
The derived system contains an entire module dedicated to certain admin related activities. Once the admin logs in he will be able to do these following supply chain related activities,
Add Product Category
Add Product Sub Category
View Registered Users
View Inventory
Enter Product Details
Enter Chain Details
Update Inventory
Low Stock Details
View Reports
Add/Remove Distributor
Add Product Category
A product is classified in categories as well as sub categories. For e.g. if the admin inventory contains a television, it needs to be classified because the television can be of varying sizes along its varying technology like plasma or LCD. Hence, the admin adds the product category (as „Television‟) and sub category (as „Plasma 15 inch‟) to avoid ambiguity.
Add Product Sub Category
In this section, the admin adds a product sub category. He selects a product category (e.g. Television) across which he wants to add a sub category. He enters the sub category name (e.g. Plasma 15 inch) and updates the data.
Enter Product Details
After inserting the relevant category and sub category, the admin can enter an appropriate product falling in this category and sub category. In this section, the admin enters the details associated with the product. Details encompass certain attributes like product price, category and sub category, total quantity, product picture, etc.
View Inventory
This link will display the current product inventory available with admin. Admin can filter the inventory based on category and sub-category. Once the filtration is applied the filtered products are shown in a tabular view along with its attributes (i.e. price, quantity, etc).
View Registered Users
This link displays all the current registered users of the system to the admin. The admin can filter the user by the user type (i.e. Distributor/Retailer). Also the admin can filter the user based on a geographical area.
Enter Chain Details
After the stock has been dispatch to the distributor, the admin makes its entry in the system using this section. In
„Enter Chain Details‟ section, the admin selects the distributor to whom the stock was dispatched and fills the associated fields like, product category and sub category, product name, quantity dispatched, etc.
Update Inventory
As the admin distributes the inventory to its distributors, his inventory stock gets reduced accordingly. Hence, a time will come when his stock gets completely depleted and a new stock is supplied to him by his supplier. After the new stock enters into his warehouse, the admin updates the stock using this „update inventory‟ section.
Low Stock Details
As the distributors supply their stock to their underlying retailers, their stock gets reduced accordingly. Once their stock for any product reaches to a certain threshold value, a notification is made to admin. This notification is made by highlighting the „low stock details‟ link. Admin can know the shortage faced by distributor, based on this section. The low stock threshold value is global constant which defines the numeric value across which product quantities are implicitly checked by system. When the products get depleted below this value, the notification is made to admin. There is also an optional filter drop down provided in this section to filter the low stock of distributors using that value. Admin can set the filter value and the page displays the results accordingly.
View Reports
The Admin can view various reports in this section.
Multiple report links are displayed within this section.
These reports serve as the basis for logistics planning and sale forecasting to the admin.
Distributor Module
The Distributors are essentially the distribution centers of the company set at various geographical locations for easy dispatching of products to its nearby outlets. These distributors are a part of the company itself. They manage the inventory at state level. The admin passes the inventory stock to various distributors set across the country. Depending on the geographical area of the state, multiple distributors can be set for that specific state.
These distributors have various retailers underneath them. The Distributors passes the inventory stock to their underneath associated retailers.
The system contains a module dedicated with certain distributor functionalities. When a distributor logs in into the system, he will be able to,
View Inventory
View Current Retailers
Add/Remove Retailer
Enter Chain Details
Low Stock Details
View Reports
View Inventory
This section will display the current product inventory available to Distributor. Distributor can filter the inventory based on category and sub-category. The distributor inventory gets updated automatically after the admin dispatches the products towards distributors and makes an entry accordingly in system.
View Current Retailers
This section displays a list of all current retailers managed by this distributor.
Enter Chain Details
This section has the same functionality as the „enter chain details‟ of admin module. After the stock has been dispatch to the Retailer, the distributor makes its entry in the system using this section.
Low Stock Details
This section also has the same functionality as the „low stock details‟ of admin module. However, this section displays the list of retailers facing stock shortages.
View Reports
The Distributor can view various reports in this section.
Multiple report links are displayed within this section.
Using these reports, important decision regarding stock dispatching can be made by distributors. For e.g. certain set of retailers in a cosmopolitan city can have more stock requirement compared to a set of retailers set in a rustic place. Also the location of retailers in the cosmopolitan area also makes a difference in the quantity of sales.
These data can be viewed in the reports generated in this section.
Retailer Module
The retailers are essentially a point of sale terminal or a product outlet. They manage the product at city level.
There are various retailers set across the city. The inventory from a distributor is passed to these associated retailers, from where they are finally consumed by the end customer.
Based on the retailer functionality a separate module is dedicated to them in the derived system. When the
retailer gets logged-in into the system, the system presents a following list of functionality to him,
View Inventory
Enter Customer Details
Enter Customer Sales Details
View Reports
View Inventory
This section will display the current product inventory available to Retailer. Retailer can filter the inventory based on category and sub-category. The Retailer inventory gets updated automatically after the Distributor dispatches the products towards Retailer and makes an entry accordingly in system.
Enter Customer Details
The retailer after will fill in the customer related details after making the sale in this section.
Enter Customer Sales Details
Transactional details about the product sold and to which customer are updated in this section
View Reports
The Retailer can view various reports in this section.
Various reports like sales made, customer details, etc are generated and displayed to the retailer.
Business profits reported
The following were the business profits reported by the firm implementing our system. The benefits are listed according to their respective sectors,
Organizational Benefits Operational Benefits Streamlined supply chain
process Cost Reduction Increased Sales
Improved financial efficiency
Improved speed of delivery and customer satisfaction
Increased gross margin and market share
Improved responsiveness of supply chain
Speeded up delivery lead time
Speeded up
material/information flow Elimination of manual task
Managerial Benefits External Benefits Effective Inventory
Management
Better Decision making
Improved sales
anticipation
Monitoring performance of supply chain elements
Better Service
Better Customer
Satisfaction
Focus on customers need and demand
Improved customer loyalty
Apart from these data the firm reported an increase in sales by an approximation of 8%.
Merits over the Conventional Manual System
The derived system outweighs the conventional manual system in numerous ways. Through digitalizing the supply chain process, a better inference at results generated is possible. As of any digitalized system, providing the advantage of task automation, attention can be directed towards other latent factors affecting the supply chain process, instead of worrying about the core procedures.
Merits over Giant SCM business packages
Major SCM systems distributed by top vendors are bulky by size and volume. This is due to the fact that these systems encompass all the areas related to the supply chain. Also the price and implementation period of these systems are a major concern to companies. Not all companies may be interested in implementing these systems, because of their requirements and price budgets.
Some companies desire a streamlined SCM IS which addresses the major SCM processes without adding other non value added activities.
VI. CONCLUSION
Workflow Capabilities of the derived system takes care of the core Supply Chain process. It merges the Supply Chain as a discipline with the field of Information technology to assist the companies leverage its business growth. The prominence of supply chains have recently increased in the global market place. Supply chains are now being increasingly looked at as a market differentiator and as an engine for business growth.
The approach presented by this paper works best for small to medium scale product oriented companies. As many business parameters are at play when it comes to deciding an enterprise system, companies should consider the cost effectiveness in conjunction with its business requirements. By streamlining the system with its major focus on distribution of inventory, a better management of inventory is possible. This also helps in better logistics planning and sales forecasting.
VII. FUTURE SCOPE
Implementing Business Intelligence (BI) in the system will be an important milestone in advancing the system in the near future. Using BI algorithms a much better inference on the generated reports is possible.
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