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Integrating the Processes: Supply Chain Management

15 January, 2016 - 09:50


We have looked at inventory management, production planning processes, computer integrated manufacturing, and a host of related supporting processes and information systems in our journey through the integrated production process. While first generation ERP systems have been a great enabler for successful production integration, the complexity of fully integrated production planning processes demands continued improvements in software systems support. One component that clearly will be an integral part of these future enterprise systems is supply chain management and related e-business technologies. The major enterprise systems vendors are already furiously working at integrating these capabilities.


Supply chain management software provides support for the planning and/or execution of the complete IPP. The planning aspect of the software facilitates longterm predictions about future demand and production capacity based on both past performance and current trends. The execution aspect of the software deals with short-term (weeks, days, or even hours ahead) production details, including orders,inventory, and distribution. Of particular interest is the enhanced capability such software provides for available to promise and capable to promise planning. Available to promise is accumulation of the data on current inventories, sales commitments, and planned production to determine whether the production of finished goods is sufficient to commit to additional sales orders. Capable to promiseis the accumulation of data on current inventories, sales commitments, planned production and excess production capacity, or other planned production capacity that could be quickly converted to production of the desired finished goods necessary to fulfill a sales order request. The former addresses the planned production capacity that can be used to fulfill additional customer orders. The latter addresses the capacity to divert production capacity from other production facilities that have not been previously planned for use to produce the product needed for an incoming customer order.


To support supply chain management successfully, these systems must be capable of both assessing the availability of raw materials from suppliers and the likely and potential demand of customers. Thus, supply chain management software must accumulate and process data from the supplier through the organization’s own processes (including inventory control, human resources, and production capacity), to the customer’s purchasing process. This sophistication is the key to the complexity of these systems. Increasingly, suppliers have access to an organization’s production planning schedules in order to set their own production schedules and to ensure the ability to fulfill orders. Similarly, the organizations are opening systems to allow the customer to view inventory and production levels before placing orders. To accomplish this goal in a cost-effective manner, Internet technologies are linking to organizations’ ERP and supply chain management software to provide portals to external organizations for safe and secure access. In short, the Internet is enabling the continual growth in complexity of business processes and the underlying organizational information systems. Technology Application 13.2 gives examples of successful supply chain management integration.

Review Question

How does supply chain management help organizations cut costs of production?