Supply chain management typically involves supervising the transfer of products and goods, such as from a supplier, then to a manufacturer, a wholesaler, a retailer and finally to the consumer. Information technology (IT) refers to the use of computer-based programs to store and manipulate information. IT advances directly can correlate to supply chain management improvements, such as through the rise of effective virtual supply chains.
One significant impact of IT relates to the quality of information available within the supply chain. Companies can develop Web-based programs or intranets to distribute information, such as about new products, delays or changes. IT allows everyone in the supply chain to be integrated and thus, stay informed, which when used appropriately can translate into management efficiency and reduced risks.
Technology creates many financial impacts for supply chains. Management teams can leverage technology to develop cost-effective supply chains. For instance, suppliers, manufacturers and wholesalers can receive orders and payments electronically through secure connections. Costs, such as shipping, also can be reduced by establishing optimal networks, perhaps using suppliers located within 50 instead of 100 miles of a manufacturer.
Another impact involves troubleshooting. Technology allows parties within the supply chain to identify challenges, such as delays in manufacturing or shipment. For example, if a supplier is unable to meet a scheduled delivery of materials to a regional manufacturer, then there is a risk of creating a bottleneck (constriction in the supply chain). Bottlenecks can lead to lost sales revenues and devalued materials or supplies.
Market changes readily can be addressed when IT successfully is woven into supply chain management. If economic conditions change and inventory levels are growing (because of little or no sales), then adjustments can be made to decrease manufacturing.
Consider a sports store that sells 1,000 fewer basketballs than it purchased during the first quarter of the year. If the manufacturer produces and ships to the sports store 1,000 more basketballs during the second quarter, the store's inventory will grow to 2,000 basketballs. By not stopping or slowing production levels, the sport store's financial health will be negatively impacted because it must carry excess inventory. IT can help establish a just-in-time inventory system, which maintains low inventory levels and costs by monitoring retail sales and understanding production timeframes. Thus, the basketball manufacturer could adjust its production schedule in response to slow sales.
IT impacts can be ineffective without necessary internal support. One challenge is the high cost of initial development and implementation. Systems quickly can become outdated (for example, compare Windows 95 and Windows 2008). Another issue regards information sharing, as supply chain parties might be hesitant or unwilling to provide data.