Use of Information to Support

Three types of decisions are made by management or other employees in most organizations and are described as follows:

• Strategic decisions: These are long-term decisions usually having sig- nificant economic impact and high importance to the organization. These decisions are made infrequently. Examples of strategic deci- sions are: the decision to develop a new product or a new service, the decision to build a new plant or add a production line in an existing plant, and the decision to enter a new market. Implementation takes a long time and the cost involved is high. These decisions are typi- cally made by the senior management levels of the organization. • Tactical decisions: These are medium-term decisions; for example,

the decision to change the supplier of a certain raw material, or

Data importance Data urgency Important and urgent Urgent Important Last priority FIGURE 4.4

Data classification by importance and urgency.

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the decision to stock finished units of certain product during low- demand periods, to avoid the shutdown of a production line; and to sell these products during high-demand periods when production capacity may not be sufficient to supply all the demand.

• Operational decisions: These are short-term decisions. Most decisions in the organization belong in this category; for example, a decision when to process a certain product unit on a specific machine, or how much raw material to order next week. These decisions are made very frequently and usually at lower levels of the organization. This classification is described in Table 4.1.

When designing an information system, it is important to distinguish between two types of decisions:

• Routine decisions: These are usually lower level (operational or tacti- cal) decisions. Because these decisions are made routinely, it is pos- sible to use past data and to develop a decision process that can be supported by the data or even automated (automated means that it is performed by the information system without human interven- tion). Decisions relating to payments to suppliers are an example of such decisions. If there is a long-term contract with a supplier and an agreed-on cost for the products supplied, and the quantity supplied and the cost per unit are all known, the decision of how much to pay and when to pay is routine and the computer can do it automatically. The money can be transferred electronically or a check may be sent by the information system.

In many supply chains, there are routine operational decisions that can be automated. For example, when the inventory level drops below a certain level, predefined by the user, the system can order a predefined quantity, directly from a supplier with whom a long- term supply contract was signed. The decision in this example is an operational decision. In general, operational decisions are easier to automate.

• Nonroutine or ad hoc decisions: Such decisions are difficult or impossi- ble to automate. Often the decision-making process also relies on the TABLE 4.1

Characteristics of Decision Types

Type of Decision Level of Decision Makers of Decisions from TotalPercentage of this Type Cost of Mistake

Strategic Top management Very small Very high

Tactical Medium level Small Medium to high

Operational Low level Very large Low to medium

intuition and experience of the decision maker. Examples of nonrou- tine decisions are decisions to stop production of a specific product, to start development of a new product, to change the list price of a product or to offer a special discount to a one-time customer. Strategic decisions and some tactical decisions belong in this category.

It is very difficult or impossible to automate strategic decisions. Strategic decisions are based on many different considerations and on partial infor- mation, and therefore, involve risk. The strategic decision process can be supported by computerized information systems such as simulation and forecasts, as well as data and information regarding the organization and its environment. It is not, however, usually automated.

However, there are many tactical and operational routine decisions that could and should be automated. A poor supply chain design does not employ automated decision making in its day to day operations. In some extreme cases, every decision requires a separate discussion, and senior manage- ment’s attention. As a result, senior management devotes a lot of time to an endless stream of routine decisions. Since senior management’s time is limited, decisions are delayed, causing long lead times in the supply chain.

In a good supply chain design, routine decisions are automated as much as possible. If automation is not possible for some reason, an effort to instruct those who participate in the process regarding how to make routine deci- sions is needed, along with an information system that provides the right information to the right employee at the right time.

In a well-planned process, most of the time senior management deals with strategic and nonroutine decisions. Senior managers can devote their time and energy to monitoring the environment, the competition, the customers, and the performance of the supply chain, to identify as early as possible the need for changes and to decide what to change and how to do it. To support this monitoring and control activity, it is important to track the performance of every process and every organizational unit, so that management can be alerted when their attention is required. This is especially true in a competitive, rapidly changing environment, where a high degree of uncertainty is present.

An important step in process planning is to decide which decisions to auto- mate, how to do it, and how to monitor and control the process. The purpose of monitoring and controlling is to identify problems or poor performance as early as possible. Once the necessary data is collected and processed, the information is used to support decision making. To ensure success in the implementation of decisions, workers participating in the process should get the information when it is needed, and in a form they understand and know how to use. Training is an important part of the operating and use of information systems.

Information sharing within the organization and between organizations is the basis of supply chain management and a key success factor in the success of supply chains. In the past, the typical functional organization had legacy information systems for each function (e.g., shop-floor control software was

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unrelated to financial auditing software and made by a different developer using different hardware and software tools and techniques). Each function had its “own” data and its “own” information.

In modern integrated information systems, such as those used in supply chains, data and information are shared among all those engaged in the process. The supply chain management approach is based on sharing infor- mation among the chain’s organizations or links, which together provide hardware, software, information, and services. Organizations in the sup- ply chain collaborate and share information in order to maximize quality, minimize cost, shorten response time, and maximize flexibility of the whole supply chain. The benefits are shared among the organizations forming the supply chain and their customers, so everyone benefits.

The planning of a supply chain is a strategic undertaking, given that the selection of the supply chain’s organizational members and the decision about the contribution that is expected of each member are long-term deci- sions that will have significant impact on the organization. Some tactical issues should also be addressed when designing a supply chain; for example, whether to hold stock of a particular component and how many employees to hire before the holiday season, when demand is expected to rise. Finally, there are a large number of operational decisions such as how much inven- tory to order next week and where to hold this stock or when to schedule the preventive maintenance during the coming week which have to be resolved during the planning process.

The basis of supply chain management is the availability of advanced information systems that can share information among supply chain part- ners. Each partner must install and operate such an information system, and share the information with the other partners.