Role of IT in Supply Chain | Vskills Certifications

Role of IT in Supply Chain

Role of IT in Supply Chain

One of the major role of IT in SCM used behind improved information flow was the emergence of electronic data interchange (EDI). EDI offers greatly improved information flows and is considered as an extremely important element within leading organizations in the fight to decrease lead-times. The key enrichment mechanism is an electronic point of sales link (EPOS). Therefore rather than each player traditionally making an order decision based purely on the internal chain order data, we can now make an informed judgement based on actual market demand as well.

Value of Information

The key importance of measuring the value of information to use it to its best strategic advantage has been strongly advocated by Glazer (1993). He states that although through the implementation of IT many companies are swimming with information, very less have gained a competitive advantage via their improved data flow.

Role of IT in SCM

The availability of information is very crucial for the performance of a supply chain since all decisions made by supply chain managers depends on the information they receive. Here information technology is used to gain access to this information and also provides the tools to gain awareness, analyse the received information, and then act upon it to improve the overall performance of the supply chain.

Characteristics useful for making supply chain decisions

  • Accuracy: Good decisions can be made only if correct information is available. But this does not mean that the information required must be 100% correct.
  • Easy access: It is required to have up-to date information of all tasks at all times for effective decision making.
  • Correctness: Organization must put stress on gathering valuable information and not waste time and money on collecting irrelevant data.

It is suggested to use various software and hardware to enable managers to get the latest information at the right time.

With the help of the information the following decisions can be made by the management

  • Inventory related decisions – demand patterns, cost of holding inventory, stock-outs, ordering costs
  • Transportation related decisions -decisions on transportation networks, routing, decisions on the mode of transport, tracking shipment
  • Facility related decisions – determining appropriate locations, determining capacity allocation, scheduling, decisions on whether the facility should be efficient or flexible, taxes

Information technology not only gathers the data required to perform these functions to create supply chain visibility, but it also analyses the data so that supply chain managers can take decisions effectively and maximize supply chain profits.

Benefits of IT in Supply Chain

Important benefits that information technology provides for effective supply chain are –

  1. Increased accuracy
  2. Greater economy
  3. Quick Transmission of Information
  4. Visibility
  5. Immediate accessibility
  6. Customer focus
  7. Higher level of productivity

The main reasons for IT applications in the field of SCM are, the wide spread of manufacturing and service Activities and the time element in planning, both of which require data intensive decision making.

Segmentation of IT

IT segments can be identified along three dimensions such as :

Scope of Application

  • Transaction Processing System (TPS)
  • Management Information System (MIS)
  • Decision Support System (DSS)
  • Knowledge Based System (KBS)


  • Data capture, display and organisation
  • Communication of data
  • Processing data

Stage of Technological Development

  • Stand alone applications such as despatch advice, stock control, order processing
  • Firm level / inter-firm
  • integrated systems such as MRP-1, MRP-II, ERP Integrated System such as EDI & Interactive Web sites along
  • with ERP


EDI can be defined as the transfer of structured data, by agreed message standards, from one computer system to another, by electronic means. EDI provides a standard for data interchange that is –

  • Ready formulated w Comprehensive
  • Independent of hardware and software
  • Independent of special interest
  • EDI standards provide a common language for the interchange of standard transactions.

EDI Implementation

The scope of supply chain management has been ever increasing, from departments to firms and now the entire supply chain. This has also broadened the scope, including all the supply chain processes while making any decisions, with a view to optimise the supply chain performance.

Customer relationship management (CRM)

Customer relationship management (CRM) is defined as a customer focused business strategy designed in order to optimize the revenue, overall profitability, and most importantly customer response. Customer relationship management performs various functions on the basis of which it has been divided into three major types –

  • Operational customer relationship management
  • Analytical customer relationship management
  • Collaborative customer relationship management

Internal supply chain management (ISCM)

The internal supply chain management involves managing the internal operations of a firm that includes all those processes ranging from planning to fulfilling a customer’s order. It consists of various processes like –

  • Strategic planning
  • Planning demand
  • Buying
  • Supply collaboration

It is very crucial that the supplier relationship management processes are integrated with both internal supply chain management and customer relationship management in order that the supply chain performance increases.

Radio Frequency Identification (RFID) in SCM

Radio Frequency Identification (RFID) tag is defined as a transponder incorporating a coiled antenna and a silicon chip containing information such as a serial number. It transmits via wireless, encoded information when placed in the transmission field of a reader. Types of tags used in radio frequency identification are,

  • Passive and active
  • Read only and read-write

Radio frequency identification reader is a small radio transmitter that sends out a continuous electromagnetic pulse. When a radio frequency identification tag moves into the range of a reader, an inductive coupling is formed, stimulating the chip and returning the serial number to the reader.

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