With transaction-oriented IT systems — such as ERP, WMS and TMS systems — now a basic requirement for doing business and communication-oriented IT systems — such as supply chain event management, RFID and collaborative planning, forecasting and replenishment systems — becoming more and more the norm, the battle for the real competitive advantage has shifted to the area of relationship systems.

By David J. Closs

Employing information technology as a means to enhance supply chain competitiveness is an ongoing challenge for both supply chain and information technology (IT) executives. There are the perennial questions about which applications to invest in, which suppliers to use and when a version update is appropriate. To answer these questions, it is important to understand the individual roles and relative contributions of supply chain IT applications. While supply chain IT applications can be described in a number of ways, one approach categorizes them as transactional, communication or relationship management. Table 1 lists each category and the typical applications. The transaction category includes the IT systems to complete the business processes related to order management, warehouse management, transportation management, and accounting.

The typical supply chain related applications include enterprise resource planning (ERP), warehouse management systems (WMS) and transportation management systems (TMS). These applications represent standardized processes that should focus on accuracy, consistency, economies of scale and efficiency. These systems typically involve a wide range of users within a firm, as customer orders are transformed into cash and supplier orders are initiated and paid for. While there are some unique characteristics, the process flows generally share a basic structure and display substantial commonality across firms. The communication category includes the IT systems to exchange information between firm locations, global sites and supply chain partners. As Table 1 indicates, this includes systems such as supply chain event management (SCEM), radio frequency identification (RFID) and collaborative planning, forecasting and replenishment (CPFR). The primary objective of these systems is to facilitate the accurate exchange of supply chain information between locations and supply chain partners.

Supply chain event management is the generic name for “track and trace” ability embedded with the capability to determine and communicate to the shipper or consignee when a shipment may not arrive on the specified delivery date. While track and trace will let you know where the shipment is, SCEM can proactively determine when shipments are not going to be where they are supposed to be and make suggestions for alternative plans regardless of the global location or carrier.

While there have been independent IT firms offering such applications, the major providers today are the integrated transportation firms such as DHL, FedEx and United Parcel Service. However, even the global integrators experience difficulty in tracking shipments when multiple modes or carriers are involved. The effectiveness of such systems will continue to improve as the major providers offer more integrated capabilities as a means to enhance their competitive advantage. As noted in Table 1, these systems focus on accuracy, coordination, speed and visibility of product and product information as it moves throughout the supply chain. While the information content is fairly standardized, the structure and interpretation often differs by firm or country. The result is a major challenge for firms offering supply chain event management to provide information that allows for a common understanding.

The relationship category includes the IT systems to manage the strategic and tactical relationships between firms and their customers. Customer relationship management (CRM) systems can provide the information regarding specific account requirements, history, transactions and unique characteristics. The information contained in or extracted from a CRM allows firms to provide a more value added offering for critical customers. Advanced planning and scheduling (APS) systems facilitate balancing the supply and demand resources at a time when firms are trying to reduce inventory and capacity resources. In general, such systems attempt to minimize the total cost of material acquisition, production, inventory carrying cost and storage in an environment where customers have ever more precise product and timing requirements.

They desire unique product offerings with very specific delivery requirements. Ability to deliver critical customers with more customized products and solutions within more precise time specification requires more precise management of resource capacities. Relationship systems require extensive data bases that track demand and sales characteristics, related marketing tactics, supply chain resource constraints and comparative resource costs. An effective relationship system must be capable of comparing the total cost of customer and APS alternatives and searching for the most effective solution. While relationship systems require extensive expertise to implement and maintain, they allow the firm (and often supply chain partners) to make their offering more relevant for critical customers with better asset utilization. Firms will continue to be challenged by decisions regarding where to make their information technology investments to enhance their global competitiveness.

While there are still some firms (particularly small to medium-sized — that is, less than us$1 billion in revenue) that have not made the move toward some form of ERP, most major firms have made the investment, so the use of an integrated ERP will not likely be a competitive advantage of the future. The SCM technology battleground today is focusing on communications and track and trace capability. However, since these capabilities often interface with and require the involvement of third party providers, it is likely that these applications will become more generic and less of a differentiator. I believe that the battle for the real competitive advantage has just begun as firms (and often supply chain partners) begin to orchestrate the resources to implement and sustain these relationship systems.

While the challenges to implement transaction and communication systems have been significant, they will be even greater for implementing relationship systems as this requires a balanced combination of people, processes and technology in environments that have historically been relatively independent and unstructured.