• Install IT system in an incremental fashion rather than in a big bang approach.
This allow the firm to limit the damage and easy to pinpoint problem areas during installation.
• Firm can implement duplicate system to ensure new system work well. The firm can keep its old system running at the same timer the new one is running. If new system creates problems than old system can be utilized as it still exists.
• Implement only the level of complexity that one needs.beacure complexities increase the risks.
One the operational side mitigation strategies include data backup systems, systems running in parallel in case when one should suffer a problem and range of security software products. Picking systems that can flexibility of change if need b can be important.
5.21 The role of IT in Sourcing
Sourcing related IT has had the most ups and down of any supply chain software sector.
The sourcing software world created many electronic marketplaces in the late 1990s that were expected to transform the purchase of goods and services. There are a wide variety of areas in which IT can and is used in sourcing today. In fact there is a greater diversity if IT sourcing products than in most supply chain areas.
5.22 Some of the Major IT Product Areas Within Sourcing
5.22.1 Design Collaboration
This software improves the design of product trough collaboration between manufacturer and the suppliers. The software facilitates the joint selection of components that have positive supply chain characteristics such as ease of manufacturability activities include the sharing of engineering change order between a manufacturer and its suppliers. This this eliminates the costly delays that occur when several suppliers are designing components for the manufacturers’ product concurrently.
5.22.2 Source
Sourcing software assists in the qualification of suppliers and helps in supplier selection. Contract management and supplier evaluation. An important objective is to analyze the amount that an firm spend with each supplier. Supplier are evaluated along
several criteria include lead time, reliability, quality and price. This thing improves supplier performance and help in selection of suppliers. Contact management is also an important part of sourcing.
5.22.3 Negotiate
Negotiation with supplier contains many steps, starting with request for quote. The negotiation process may also include the design and execution of auctions. The goal of this process is to negotiate an effective contract that specifies price and delivery parameters for a supplier in a way that best match the enterprise needs. Successful software automates the RFO process and the execution of auctions.
5.22.4 Buy
Buy software executes the actual procurement of material from suppliers. This includes the creation, management and approval of purchase order. Successful software in this area automates the procurement process and helps decrease processing cost and time.
5.22.5 Supply Collaboration
Once an agreement for supply is established between the enterprise and a supplier supply chain performance can be improved by collaborating on forecasts, production plans, and inventory levels. The goal of collaboration is to ensure a common plan across the supply chain. Good software in this area should be able to facilitate collaborative forecasting and planning in a supply chain.
The most significant problem to success of sourcing software is that employees often just do not want to use the software. As sourcing software often limits what can be purchased, many people bristle at the loss of freedom to purchase what they feel are the best item for their company. In many cases people just go around the system and buy the products they want. Another difficulty arises when successful use of the IT systems requires collaboration among different enterprises. Difficult to convince firms of the benefits of using the system and often each firm is suspicious of the others.
5.23 Risk Management in Sourcing
Sourcing risks in an inability to meet demand on time, an increase in procurement costs or the loss of intellectual property. It is important to develop mitigation strategy. An inability to meet demand on time arises because of disruption or delay from the supply
source. The risk of supply disruption may be serious, especially with far sources.
Disruption risk can be minimized by developing multiple sources. Developing multiple sources is very expensive for products with low demand. Delay from supply source can be mitigated by charring inventory or developing a backup source that is more responsive. Caring inventory is best for low values products that do not become obsolete quickly.
The risk of higher procurement costs can be significant when industry wide demand for the product exceeds available supply, exchange rates are unfavorable or there is a single supply source. Exchange rate risk can be minimized by developing a global supply network that is flexible enough to be reconfigured based in exchange rate fluctuations.
The risk of holdup because of a single source can be countered by developing alternative sources or bringing part of the supply capability in house.
Intellectual property risk can be mitigated by keeping products in house. Even when product is outsourced, firm can maintain ownership of part of the equipment if it is viewed as having significant intellectual property value.
5.24 Making Sourcing decision in practice:
5.24.1 Use Multifunctional Teams
Effective strategies for sourcing result from multifunctional collaboration with in firms.
A sourcing strategy from the purchasing group is likely o be relatively narrow and focus on purchase price. A strategy develops with the collaboration of purchasing, manufacturing, engineering and planning is much more likely to identify the correct drivers of total cost. The collaboration must be continued beyond strategy formulated to the procurement phase, because that is where manufacturing and engineering are most likely to realize the full benefits of good sourcing strategy.
5.24.2 Ensure Appropriate Coordination Across Regions and Business Units
Coordination of purchasing across all regions and business until allows a firm to maximize economies of scale in purchasing and also to reduce transaction costs. Other
opportunities from improved sourcing such as better supply chain coordination and design collaboration however may require strong involvement at the business unit level to be really effective. Mandating global coordination across all business units may complicate these efforts, Most of the value is extracted from better design collaboration and coordinated supply chain forecasting and fulfillment are better served with somewhat more decentralized sourcing.
5.24.3 Always Evaluate the Total Cost of Ownership
An effective sourcing strategy should not make price reduction its sole objective. All factors that influence the total cost of ownership should be identified and used in selecting suppliers. Supplier’s performance along all relevant dimensions should be measured, and its impact on total cost should be quantified. Focusing on the total cost of ownership also allows a buyer to better identify opportunities for better collaboration in design planning and fulfillment.
5.24.4 Build Long Term Relationships with Key Suppliers
A basic thing of good sourcing is that a buyer and a supplier working together can generate more opportunities for saving than the two parties working separately. Solid relationship is likely to result only when two parties have long term relationship and degree of trust. A long term relation encourage suppliers to expand greater effort on issues that are important to a particular buyers this include investment in buyer specific technology and design collaboration. These capabilities are very important when sourcing direct materials.
5.25 The Role of IT in Pricing and Revenue Management
The area of impact for IT within PRM is he pricing of retail goods in the consumer package good category. The grocery store have utilized this technology t price their products at the retail level. The pricing problem tackle involves both the regular as well as promotional pricing of products.
PRM systems have also impact on fashion goods. Here the challenge revolves around how to optimally mark down the price of goods as the styles and seasons change. The goal is to mark down the price enough to sell most of the product but without marking it down so much that profit is thrown away.
The major pitfall in the pricing and revenue management area of IT revolve around linking PRM decisions with other areas and systems of the company. Pricing is generally determined within a relatively well defined area of a company, making it easy to setup pricing software. This ease of installation can cause problems if there is no integration with inventory, distribution, and production system. A common problem is a software recommendation of a price reduction, which in turn brings on a surge in demand. This lead o dissatisfied customers if there is insufficient inventory because the pricing systems did not communicate with the inventory management system. This lack of coordination can be quite harmful and greatly dilute the benefits of PRM.
5.26 Using Pricing and Revenue Management in Practice
5.26.1 Evaluate Your Market Carefully
The first step in revenue management is to identify the customer segments being served and their needs. The goal is to understand what the customer is buying. Identified market needs. It is important to gather accurate and complete data relating to product offered, prices, competition and most important, customer behavior. Information about customer behavior is a valuable asset. A proper understanding of customer preferences and a qualification of the impact of various tactics on consumer behavior are at the core of successful revenue management.
5.26.2 Quantify the Benefits of Revenue Management
Historical data and a good model of customer preferences should be used to estimate the benefits through a simulation. The outcome of this step should be explicit revenue targets that are to be achieved as a result of revenue management. The revenue target should be such that all people involved believe in them. The revenue management effort should then be compared to be expected benefit.
5.26.3 Implement a Forecasting Process
The foundation of revenue management system is the forecasting function. Forecasting involves estimated demand and also attributing an expected error to the forecast itself.
Both the estimated value and the expected error are important input into any revenue management model. It is very difficult to forecast at a micro level, where all behavior is
essentially idiosyncratic. So it is ensure that revenue management tactics are planned over an aggregate enough level that effective forecasting is possible.
Finally as new information becomes available reforecasting to see if the revenue management tactics currently in place are still appropriate. The frequency of forecasting will depend on the amount of market activity. Ideally the forecast and the revenue management decision should be evaluated after every transaction.
5. 26.4 Apply Optimization to Obtain the Revenue Management Decision
The goal of optimization is to use forecasts of customer behavior to identify a revenue management tactic that will be most effective.
5.26.5 Involve Both Sales and Operations
The sales people must understand the revenue management tactic in place so that they can align their sales pitch accordingly. The sales force must differentiate between those customers who truly need the supply chain asset during the peak period and those that will benefit from moving their order to the off peak period. This approach will increase profit for the firm while also satisfying customers. Operations must understand the potential outcomes taking place.
5.26.6 Understand and Inform the Customer
Customers may have negative perception about revenue management tactics if they are simply presented as a mechanism for extracting maximum revenue. Thus it is important for firms to structure their revenue management program in a way that revenue increases while improving services along some dimensions that is important to customer that pay the highest price.
5.26.7 Integrate Supply Planning with Revenue Management
Integrate supply panning and revenue management can create significant value.
Combine revenue management with decisions on the supply side. After applying revenue management a manufacturer finds that the production of a short lead time facility provides the majority of its profit, it should look into adding more short lead time capacity. Understanding and acting on the interactions among supply, demand, and pricing can bring about powerful results.
5.27 The Final Word
SCM software has been designed to meet the needs of firms with global distribution, logistics, and manufacturing needs. Lean manufacturing and visibility in the supply chain are crucial elements for both distributors and manufacturing executives. Moving products among multiple locations and countries can be a daunting task, and SCM software offers the flexibility to track all inventory at any point in the supply chain.
Additionally, the issues of compliance, scheduling, flexibility, coordination, and visibility can be greatly improved because of the combination of business processes integrated into SCM software, no matter how complex the supply chain is.